EDGAR 10-K Filing

Company CIK: 1504008
Filing Year: 2023
Filename: 1504008_10-K_2023_0001504008-23-000007.json

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ITEM 1. BUSINESS
Item 1. Business
Overview
BankUnited, Inc., with total consolidated assets of $37.0 billion at December 31, 2022, is a bank holding company with one direct wholly-owned subsidiary, BankUnited, collectively, the Company. BankUnited, a national banking association headquartered in Miami Lakes, Florida, provides a full range of commercial lending and both commercial and consumer deposit services through banking centers located in Florida, the New York metropolitan area and Dallas, Texas. The Bank provides commercial lending and deposit services in the Southeast U.S through our wholesale banking office in Atlanta, Georgia, and provides certain commercial lending and deposit products through national platforms and certain consumer deposit products through an online channel. Our core business strategy is to build a leading regional commercial and small business bank, with a distinctive value proposition based on strong service-oriented relationships, robust digital enabled customer experiences and operational excellence, with an entrepreneurial work environment that empowers employees to deliver their best. To date, we have executed our strategy primarily through organic growth and anticipate that we will continue to do so.
Our Products and Services
Lending and Leasing
General-Our primary lending focus is to serve small, middle-market and larger corporate businesses with a variety of financial products and services, while maintaining a disciplined credit culture. We offer a full array of lending products that cater to our customers' needs and have attracted and invested in experienced relationship management teams in our primary lending markets.
Commercial loans-Our commercial loans, which are generally made to growing small business, middle-market and larger corporate entities and non-profit organizations, include secured and unsecured lines of credit, formula-based lines of credit, equipment loans, owner-occupied commercial real estate term loans and lines of credit, mortgage warehouse lines, capital call lines, letters of credit, commercial credit cards, SBA and USDA product offerings, Export-Import Bank financing products, trade finance and business acquisition finance credit facilities.
Through the Bank's two commercial lending subsidiaries, Pinnacle and Bridge, we provide municipal, equipment and franchise financing on a national basis. Pinnacle, headquartered in Scottsdale, Arizona, provides financing to state and local governmental entities directly and through vendor programs and alliances. Pinnacle offers a full array of financing structures including essential use equipment lease purchase and loan agreements and direct (private placement) bond refundings. Bridge, headquartered in Baltimore, Maryland, offers large corporate and middle-market businesses equipment loans and leases including finance lease and operating lease structures through its equipment finance division. Bridge offers franchise equipment, acquisition and expansion financing through its franchise finance division.
Commercial real estate loans-We offer term financing for the acquisition or refinancing of properties, primarily rental apartments, mixed-use commercial properties, industrial properties, warehouses, retail shopping centers, free-standing single-tenant buildings, office buildings and hotels. Other products that we provide include real estate secured lines of credit, lending to REITs and institutional asset owners, subscription lines of credit to real estate funds, and, to a more limited extent, acquisition, development and construction loan facilities and construction financing.
Residential mortgages-We do not originate residential mortgages, but do invest in residential loans originated through correspondent channels and community partners. Our residential loan portfolio is primarily comprised of loans purchased on a national basis through select correspondent channels. This national purchase program allows us to diversify our loan portfolio, both by product type and geography. Residential loans purchased are primarily closed-end, first lien jumbo mortgages for the purchase or re-finance of owner-occupied property. A limited portion of the portfolio is secured by investor-owned properties. We do not originate or purchase negatively amortizing or sub-prime residential loans. We also acquire non-performing FHA and VA insured mortgages from third party servicers who have exercised their right to purchase these loans out of GNMA securitizations. Such loans that re-perform, either through modification or self-cure, may be eligible for re-securitization. The Company and the servicer share in the economics of the sale of these loans into new securitizations.
Other consumer loans- We do not originate, or currently intend to originate a significant amount of consumer loans. Home equity loans and lines of credit and other consumer loans are not significant components of our loan portfolio or of our lending strategy.
Credit risk management - Credit is managed through our three lines of defense framework as prescribed in our credit policies and procedures.
•First Line of Defense - Credit opportunities are sourced, analyzed, recommended and managed by our lines of business in accordance with established credit procedures.
•Second Line of Defense - Our credit administration division, reporting to the Chief Risk Officer, is responsible for the evaluation and approval of recommended credit opportunities. Approval of credit and confirmation of risk ratings is performed within a risk-based delegated credit approval framework. The credit administration division also provides governance and oversight of our credit policies and procedures.
•Third Line of Defense - Credit Review, reporting directly to the Risk Committee of the Board of Directors, provides an independent assessment of credit risk and the effectiveness of credit risk management processes across the organization. Credit Review performs risk-based testing through both examinations and ongoing monitoring.
Asset oversight committees meet at least quarterly and provide oversight of key credit governance, transactional, and credit management functions. These committees include:
•Credit Risk Management Committee with responsibilities including credit governance policies and procedures and changes thereto and establishing and maintaining the delegated credit approval framework;
•Executive Credit Committee with responsibilities including transactional credit approval for large and/or complex credit exposures as well as the approval of periodic asset monitoring reports for large and/or complex credit exposures;
•Criticized Asset Committee with responsibilities including the evaluation and oversight of higher risk assets and oversight of workout and recovery functions; and
•Residential Credit Risk Management Committee with responsibilities including residential portfolio performance monitoring and certain bulk purchase transactional authorities.
Our In-house Lending Limits ranging from $125 million to $150 million, are based upon loan type and are further limited by risk-based Hold Limits that incorporate our assessment of the borrower’s financial condition and industry exposure. These limits are significantly below our legal lending limit. These limits are reviewed periodically by the Credit Risk Management Committee and approved annually by the Board of Directors.
Deposit and Treasury Solutions Products
We offer traditional deposit products including commercial and consumer checking accounts, money market deposit accounts, savings accounts and certificates of deposit with a variety of terms and rates as well as a robust suite of treasury, commercial payments and cash management services. We offer commercial and retail deposit products across our primary geographic footprint and certain commercial deposit, payments and treasury management products and services nationally. For our consumers, we also offer competitive money market and time deposit products through our online channel. Demand deposit balances are concentrated in commercial and small business accounts and our deposit growth strategy is focused on small business and middle market companies generally, as well as select industry verticals. Our service fee schedule and rates are competitive with other financial institutions in our markets.
Our Markets
Our primary banking markets are Florida and the Tri-State market of New York, New Jersey and Connecticut, concentrated in the New York Metropolitan area. We believe both represent long-term attractive banking markets. In Florida, our focus is on urban markets including the Miami-Dade, Broward, Palm Beach, Tampa, Orlando and Jacksonville markets. In 2022, we launched a wholesale banking office in Atlanta serving the Southeastern United States and opened a full service branch in Dallas, Texas. While the Atlanta and Dallas markets are not currently material to our business operations, they represent future growth opportunities. We expect to launch a wholesale banking office in Dallas in 2023.
Pinnacle and Bridge offer lending products and the Bank provides mortgage warehouse financing on a national basis. We also offer a suite of commercial deposit, treasury solutions and cash management products nationally, primarily focused on select industry verticals.
Competition
Our markets are highly competitive, containing not only a large number of community and regional banks, but also a significant presence of the country's largest commercial banks. We compete with other state, national and international banks as well as savings associations, savings banks and credit unions with physical presence in our market areas or targeting our market areas digitally for deposits and loans. In addition, we compete with financial intermediaries such as FinTech companies, consumer finance companies, mortgage banking companies, insurance companies, securities firms, mutual funds and several government agencies as well as major retailers, all actively engaged in providing various types of loans and other financial services. Our largest banking competitors in the Florida market include Truist, JPMorgan Chase, PNC, Regions Bank, TD Bank, Wells Fargo, Bank of America, First Horizon, Synovus and a number of community banks. In the Tri-State market, we also compete with, in addition to the national and international financial institutions listed, Capital One, Signature Bank, New York Community Bank, Valley National Bank, M&T Bank and numerous community banks.
Interest rates on both loans and deposits and prices of fee-based services are significant competitive factors among financial institutions generally. Other important competitive factors include convenience, quality of customer service, availability and quality of digital offerings, community reputation, continuity of personnel and services, and, in the case of larger commercial customers, relative lending limits and ability to offer sophisticated cash management and other commercial banking services. While we continue to provide competitive interest rates on both depository and lending products, we believe that we can compete most successfully by focusing on the financial needs of growing companies and small and middle-market businesses, offering them a broad range of personalized services, digital platforms and sophisticated cash management tools tailored to their businesses.
Regulation and Supervision
The U.S. banking industry is highly regulated under federal and state law. These regulations have a material effect on the operations of BankUnited, Inc. and its direct and indirect subsidiaries.
Statutes, regulations and policies limit the activities in which we may engage and the conduct of our permitted activities and establish capital requirements with which we must comply. The regulatory framework is intended primarily for the protection of depositors, borrowers, customers and clients, the FDIC deposit insurance fund and the banking system as a whole, and not for the protection of our stockholders or creditors. In many cases, the applicable regulatory authorities have broad enforcement power over BHCs, banks and their subsidiaries, including the power to impose substantial fines and other penalties for violations of laws and regulations. Further, the regulatory system imposes reporting and information collection obligations. We incur significant costs related to compliance with these laws and regulations.
The material statutory and regulatory requirements that are applicable to us are summarized below. The description below is not intended to summarize all laws and regulations applicable to us and is qualified in its entirety by reference to the full text of the statutes, regulations, policies and other written guidance that are described.
Bank and Bank Holding Company Regulation
BankUnited is a national bank. As a national bank organized under the National Bank Act, BankUnited is subject to ongoing and comprehensive supervision, regulation, examination and enforcement by the OCC.
Any entity that directly or indirectly controls a bank must be approved by the Federal Reserve Board under the BHC Act to become a BHC. BHCs are subject to regulation, inspection, supervision and enforcement by the Federal Reserve Board under the BHC Act. The Federal Reserve Board's jurisdiction also extends to any company that is directly or indirectly controlled by a BHC.
BankUnited, Inc., which controls BankUnited, is a BHC and, as such, is subject to ongoing and comprehensive supervision, regulation, inspection and enforcement by the Federal Reserve Board.
Broad Supervision, Examination and Enforcement Powers
A principal objective of the U.S. bank regulatory system is to protect depositors by ensuring the financial safety and soundness of banking organizations. To that end, the banking regulators have broad regulatory, examination and enforcement authority. The regulators regularly examine the operations of banking organizations. In addition, banking organizations are subject to periodic reporting requirements.
The regulators have various remedies available if they determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, compliance or other aspects of a banking organization's operations are less than satisfactory, or that the banking organization is operating in an unsafe or unsound manner. The regulators may also take
action if they determine that the banking organization or its management is violating or has violated any law or regulation. The regulators have the power to, among other things:
•enjoin "unsafe or unsound" practices;
•require affirmative actions to correct any violation or practice;
•issue administrative orders that can be judicially enforced;
•direct increases in capital;
•direct the sale of subsidiaries or other assets;
•limit dividends and distributions;
•restrict growth;
•assess civil monetary penalties;
•remove officers and directors;
•terminate deposit insurance; and
•appoint a conservator or receiver.
Engaging in unsafe or unsound practices or failing to comply with applicable laws, regulations and supervisory agreements could subject BankUnited, Inc., the Bank and their subsidiaries or their officers, directors and institution-affiliated parties to the remedies described above and other sanctions. In addition, the FDIC may terminate a depository institution's deposit insurance upon a finding that the institution's financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution's regulatory agency.
Notice and Approval Requirements Related to Control
BankUnited, Inc. must generally receive bank regulatory approval before it can acquire a financial institution. Specifically, as a BHC, BankUnited, Inc. must obtain prior approval of the Federal Reserve in connection with any acquisition that would result in BankUnited, Inc. acquiring substantially all the assets, or owning or controlling 5% or more of any class of voting securities, of a bank or another BHC. The statutory factors that the Federal Reserve is required to consider in considering an application include the financial and managerial resources of the parties and the future prospects of the combined organization, the effects of the transaction on competition, the convenience and needs of the community, including the record of performance of the parties under the Community Reinvestment Act, the effectiveness of the acquiring company in combating money-laundering activities and the impact of the transaction on the financial stability of the U.S. banking or financial system.
In addition, federal and state banking laws impose notice, approval, and ongoing regulatory requirements on any stockholder or other party that seeks to acquire direct or indirect "control" of an FDIC-insured depository institution or BHC. These laws include the BHC Act and the Change in Bank Control Act. Among other things, these laws require regulatory filings by individuals or companies that seek to acquire direct or indirect "control" of an FDIC-insured depository institution. The determination of whether an investor "controls" a depository institution is based on all of the facts and circumstances surrounding the investment. As a general matter, a party is deemed to control a depository institution or other company if the party owns or controls 25% or more of any class of voting stock. Subject to rebuttal, a party may be presumed to control a depository institution or other company if the investor owns or controls 10% or more of any class of voting stock.
Subject to rebuttal, a party may be presumed to control a depository institution or other company for purposes of the BHC Act and the Change in Bank Control Act if the investor owns or controls 10% or more of any class of voting stock.
The BHC Act prohibits any entity from acquiring 25% (as noted above, the BHC Act has a lower limit for acquirers that are existing BHCs) or more of a BHC’s or bank’s voting securities, or otherwise obtaining control or a controlling influence over a BHC or bank without the approval of the Federal Reserve. The Federal Reserve has rule-based standards for determining whether one company has control over another. These rules established four categories of tiered presumptions of noncontrol that are based on the percentage of voting shares held by the investor (less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control. As the percentage of ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol. These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationships and restrictive contractual covenants. Investors can hold up to 24.9% of the voting securities and 33% of the total equity of a company without necessarily having a controlling influence.
Permissible Activities and Investments
Banking laws generally restrict the ability of BankUnited, Inc. to engage in activities other than those determined by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The GLB Act expanded the scope of permissible activities for a BHC that qualifies as a financial holding company. Under the regulations implementing the GLB Act, a financial holding company may engage in additional activities that are financial in nature or incidental or complementary to a financial activity. BankUnited, Inc. is not a financial holding company.
In addition, as a general matter, the establishment or acquisition by BankUnited, Inc. of a non-bank entity, or the initiation of a non-banking activity, requires prior regulatory approval. In approving acquisitions or the addition of activities, the Federal Reserve Board considers, among other things, whether the acquisition or the additional activities can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition or gains in efficiency, that outweigh such possible adverse effects as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices.
Regulatory Capital Requirements and Capital Adequacy
The federal bank regulators view capital levels as important indicators of an institution's financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. The final supervisory determination on an institution's capital adequacy is based on the regulator's assessment of numerous factors. Both BankUnited, Inc. and BankUnited are subject to regulatory capital requirements.
The Federal Reserve Board has established risk-based and leverage capital guidelines for BHCs, including BankUnited, Inc. The OCC has established substantially similar risk-based and leverage capital guidelines applicable to national banks, including BankUnited. BankUnited, Inc. and BankUnited are subject to capital rules implemented under the framework promulgated by the International Basel Committee on Banking Supervision (the "Basel III Capital Rules"). While some provisions of the rules are tailored to larger institutions, the Basel III Capital Rules generally apply to all U.S. banking organizations, including BankUnited, Inc. and BankUnited.
The Basel III Capital Rules provide for the following minimum capital to risk-weighted assets ratios to be considered adequately capitalized:
(i)4.5% based upon CET1;
(ii)6.0% based upon tier 1 capital; and
(iii)8.0% based upon total regulatory capital.
The Basel III Capital Rules require institutions to retain a capital conservation buffer of 2.5% above these required minimum capital ratio levels. A minimum leverage ratio (tier 1 capital as a percentage of average total assets) of 4.0% is also required under the Basel III Capital Rules.
Banking organizations that fail to maintain the minimum required capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers, with distributions and discretionary bonus payments being completely prohibited if no capital conservation buffer exists, or in the event of the following: (i) the banking organization's capital conservation buffer was below 2.5% at the beginning of a quarter; and (ii) its cumulative net income for the most recent quarterly period plus the preceding four calendar quarters is less than its cumulative capital distributions (as well as associated tax effects not already reflected in net income) during the same measurement period. Further, the federal bank regulatory agencies may set higher capital requirements for an individual BHC or bank when circumstances warrant it.
Prompt Corrective Action
Under the FDIA, the federal bank regulatory agencies must take "prompt corrective action" against undercapitalized U.S. depository institutions. U.S. depository institutions are assigned one of five capital categories: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized," and are subjected to differential regulation corresponding to the capital category within which the institution falls. As of December 31, 2022, a depository institution was deemed to be "well capitalized" if the banking institution had a total risk-based capital ratio of 10.0% or greater, a tier 1 risk-based capital ratio of 8.0% or greater, a CET1 risk-based capital ratio of 6.5% and a leverage ratio of 5.0% or greater, and the institution was not subject to an order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific level for any capital measure. Under certain circumstances, a well-capitalized, adequately capitalized or undercapitalized institution may be treated as if the institution were in the next lower capital category. A banking institution that is undercapitalized is required to submit a capital restoration plan. Failure to meet capital guidelines could subject the institution to a variety of enforcement remedies by federal bank regulatory agencies, including: termination of deposit insurance by the FDIC, restrictions on certain business activities, and appointment of the FDIC as conservator or receiver. As of December 31, 2022, BankUnited, Inc. and BankUnited were well-capitalized.
Source of strength
All companies, including BHCs, that directly or indirectly control an insured depository institution, are required to serve as a source of financial and managerial strength for the depository institution. Under this requirement, BankUnited, Inc. in the future could be required to provide financial assistance to BankUnited should it experience financial distress. Such support may be required at times when, absent this statutory and Federal Reserve requirement, a BHC may not be inclined to provide it.
Under the prompt corrective action provisions, if a controlled bank is undercapitalized, then the regulators could require its BHC to guarantee a capital restoration plan. In addition, if the Federal Reserve believes that a BHC’s activities, assets or affiliates represent a significant risk to the financial safety, soundness or stability of a controlled bank, then the Federal Reserve could require the BHC to terminate the activities, liquidate the assets or divest the affiliates.
Regulatory Limits on Dividends and Distributions
Federal law currently imposes limitations upon certain capital distributions by national banks, such as certain cash dividends, payments to repurchase or otherwise acquire its shares, payments to stockholders of another institution in a cash-out merger and other distributions charged against capital. The Federal Reserve Board and OCC regulate all capital distributions by BankUnited directly or indirectly to BankUnited, Inc., including dividend payments.
BankUnited may not pay dividends to BankUnited, Inc. if, after paying those dividends, it would fail to meet the required minimum levels under risk-based capital guidelines and the minimum leverage capital ratio requirements, or in the event the OCC notified BankUnited that it was in need of more than normal supervision. Under the FDIA, an insured depository institution such as BankUnited is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become "undercapitalized." Payment of dividends by BankUnited also may be restricted at any time at the discretion of the appropriate regulator if it deems the payment to constitute an unsafe and unsound banking practice.
BankUnited is subject to supervisory limits on its ability to declare or pay a dividend or reduce its capital unless certain conditions are satisfied.
In addition, it is the policy of the Federal Reserve Board that BHCs should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that BHCs should not maintain a level of cash dividends that undermines the BHC’s ability to serve as a source of strength to its banking subsidiaries. As a Delaware corporation, BankUnited, Inc. is also subject to certain limitations and restrictions under Delaware corporate law with respect to payment of dividends and other distributions.
Limits on Transactions with Affiliates and Insiders
Insured depository institutions are subject to restrictions on their ability to conduct transactions with affiliates and other related parties. Section 23A of the Federal Reserve Act imposes quantitative limits, qualitative requirements, and collateral requirements on certain transactions by an insured depository institution with, or for the benefit of, its affiliates. Transactions covered by Section 23A include loans, extensions of credit, investment in securities issued by an affiliate, and acquisitions of assets from an affiliate. Section 23B of the Federal Reserve Act requires that most types of transactions by an insured depository institution with, or for the benefit of, an affiliate be on terms at least as favorable to the insured depository institution
as if the transaction were conducted with an unaffiliated third party. The Dodd-Frank Act generally enhances the restrictions on transactions with affiliates, including an expansion of what types of transactions are covered to include credit exposures related to derivatives, repurchase agreements and securities lending arrangements.
The Federal Reserve Board's Regulation O and OCC regulations impose restrictions and procedural requirements in connection with the extension of credit by an insured depository institution to directors, executive officers, principal stockholders and their related interests.
Examination Fees
The OCC currently charges fees to recover the costs of examining national banks, processing applications and other filings, and covering direct and indirect expenses in regulating national banks. Various regulatory agencies have the authority to assess additional supervision fees.
FDIC Deposit Insurance
The FDIC is an independent federal agency that insures the deposits of federally insured depository institutions up to applicable limits. The FDIC also has certain regulatory, examination and enforcement powers with respect to FDIC-insured institutions. The deposits of BankUnited are insured by the FDIC up to applicable limits. As a general matter, the maximum deposit insurance amount is $250,000 per depositor.
Additionally, FDIC-insured depository institutions are required to pay deposit insurance assessments to the FDIC. The amount of a particular institution's deposit insurance assessment is based on that institution's risk classification under an FDIC risk-based assessment system. An institution's risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to the regulators.
The FDIC has authority to raise or lower assessment rates on insured deposits in order to achieve statutorily required reserve ratios in the DIF and to impose special additional assessments. In October 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rate schedules for all FDIC-insured institutions by two basis points, beginning the first quarterly assessment period of 2023. There is a risk that BankUnited’s deposit insurance premiums will further increase if failures of insured depository institutions deplete the DIF or if the FDIC changes its view of the risk BankUnited poses to the DIF or otherwise increases the assessment rate adjustment applicable to BankUnited’s deposits.
Depositor Preference
The FDIA provides that, in the event of the "liquidation or other resolution" of an insured depository institution, the claims of depositors of the institution (including the claims of the FDIC as subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver will have priority over other general unsecured claims against the institution. Insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including BankUnited, Inc., with respect to any extensions of credit they have made to such insured depository institution.
Federal Reserve System and Federal Home Loan Bank System
As a national bank, BankUnited is required to hold shares of capital stock in a Federal Reserve Bank. BankUnited holds capital stock in the Federal Reserve Bank of Atlanta. As a member of the Federal Reserve System, BankUnited has access to the Federal Reserve discount window lending and payment clearing systems. Pursuant to the regulations of the Federal Reserve, all banks, including Bank United, are required to maintain average daily reserves at mandated ratios against their transaction accounts. In addition, reserves must be maintained on certain non-personal time deposits. This reserve requirement may be met by holding cash in banking offices or on deposit at a Federal Reserve Bank.
BankUnited is a member of the Federal Home Loan Bank of Atlanta. Each FHLB provides a central credit facility primarily for its member institutions as well as other entities involved in home mortgage lending. Any advances from an FHLB must be secured by specified types of collateral. As a member of the FHLB, BankUnited is required to acquire and hold shares of capital stock in the FHLB of Atlanta. BankUnited is in compliance with this requirement.
Anti-Money Laundering and OFAC
Under federal law, financial institutions must maintain anti-money laundering programs that include established internal policies, procedures, and controls; a designated compliance officer; an ongoing employee training program; a risk-based customer due diligence program; and testing of the program by an independent audit function. Financial institutions are also prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for
due diligence, customer identification, and recordkeeping, including in their dealings with non-U.S. financial institutions and non-U.S. customers. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions, and law enforcement authorities have been granted increased access to financial information maintained by financial institutions. Bank regulators routinely examine institutions for compliance with these obligations and they must consider an institution's compliance in connection with the regulatory review of applications, including applications for banking mergers and acquisitions. The regulatory authorities have imposed "cease and desist" orders and civil money penalty sanctions against institutions found to be violating these obligations.
The U.S. Department of the Treasury's OFAC is responsible for helping to ensure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of Congress. OFAC publishes lists of persons, organizations, and countries suspected of money laundering or aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons. If BankUnited, Inc. or BankUnited finds a name on any transaction, account or wire transfer that is on an OFAC list, BankUnited, Inc. or BankUnited must freeze or block such account or transaction, file a suspicious activity report and notify the appropriate authorities.
Consumer Laws and Regulations
Banking organizations are subject to numerous laws and regulations intended to protect consumers. These laws include, among others:
•Truth in Lending Act;
•Truth in Savings Act;
•Electronic Funds Transfer Act;
•Expedited Funds Availability Act;
•Equal Credit Opportunity Act;
•Fair and Accurate Credit Transactions Act;
•Fair Housing Act;
•Fair Credit Reporting Act;
•Gramm-Leach-Bliley Act;
•Home Mortgage Disclosure Act;
•Right to Financial Privacy Act;
•Real Estate Settlement Procedures Act;
•laws regarding unfair and deceptive acts and practices; and
•usury laws.
Many states and local jurisdictions have consumer protection laws analogous to, and in addition to, those listed above. These federal, state and local laws regulate the manner in which financial institutions deal with customers when taking deposits, making loans, or conducting other types of transactions. Failure to comply with these laws and regulations could give rise to regulatory sanctions, customer rescission rights, action by state and local attorneys general, and civil or criminal liability.
Privacy and Information Security
Banking organizations are subject to many federal and state laws and regulations governing the collection, use and protection of customer information. For example, the Gramm-Leach-Bliley Act requires BankUnited to disclose its privacy policies and practices relating to sharing nonpublic customer information and enables retail customers to opt out of our ability to share information with unaffiliated third parties under certain circumstances. Other federal and state laws and regulations impact our ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. The Gramm-Leach-Bliley Act also requires BankUnited to implement a comprehensive information security program that includes administrative, technical and physical safeguards to ensure the security and confidentiality of customer records and information.
CFPB
The CFPB is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services. The CFPB has rulemaking authority over many of the statutes governing products and services offered to bank and thrift consumers. For banking organizations with assets of $10 billion or more, such as BankUnited, Inc. and the Bank, the CFPB has exclusive rule making and examination, and primary enforcement authority under certain federal consumer protection financial laws. In addition, states are permitted to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB.
The Community Reinvestment Act
The CRA is intended to encourage banks to help meet the credit needs of their service areas, including low and moderate-income neighborhoods, consistent with safe and sound operations. The federal bank regulators examine and assign each bank a public CRA rating.
The CRA requires federal bank regulators to take into account the bank's record in meeting the needs of its service area when considering an application by a bank to establish or relocate a branch or to conduct certain mergers or acquisitions. The Federal Reserve Board is required to consider the CRA performance of a BHC's controlled banks when considering an application by the BHC to acquire a banking organization or to merge with another BHC. If BankUnited, Inc. or BankUnited applies for regulatory approval to make certain investments, the regulators will consider the CRA record of target institutions and BankUnited, Inc.'s depository institution subsidiaries. A less than satisfactory CRA rating could substantially delay approval or result in denial of an application. The regulatory agency's assessment of the institution's CRA performance is made available to the public. Following its most recent CRA performance evaluation in October 2021, BankUnited received an overall rating of "Satisfactory."
Human Capital Resources
At December 31, 2022, we had 1,598 full-time employees and 38 part-time employees. None of our employees are parties to a collective bargaining agreement. We believe that our employees are our greatest asset and vital to our success. As such, we seek to hire and retain the best candidate for each position, without regard to age, gender, ethnicity, or other protected trait, but with an appreciation for a diversity of perspectives and experience. We have designed a compensation structure including an array of benefit plans and programs that we believe is attractive to our current and prospective employees. We have a Company sponsored 401(k) Retirement Savings Program, a tuition reimbursement program, flexible spending accounts and health savings accounts with Company contributions. BankUnited offers paid time off, paid parental leave for male and female employees, paid holidays, flexible work schedules and hybrid and remote job opportunities, where possible.
Diversity, Equity and Inclusion
Our goal is to create a safe, diverse and inclusive workplace where individuals are valued, feel free to express themselves, are empowered to succeed and are able to grow both personally and professionally. At December 31, 2022, 33% of the members of our Board of Directors were female and 44% were of diverse nationality or ethnicity. Approximately 57% of our workforce was female.
The following chart further illustrates the diversity of our workforce at December 31, 2022:
We offer diversity and inclusion training to all of our employees.
iCARE™
Through our iCARE™ ("Inclusive Community of Advocacy, Respect and Equality") initiative, we have launched a number of programs intended to foster a culture that promotes social justice, equal access, community development and opportunity. Our iCARE™ Council, consisting of 14 employees with diverse backgrounds and perspectives across different divisions in our organization, oversees the continued evolution of iCARE™ and 16 employees serving as iCARE™ ambassadors promote engagement in iCARE™ programs across the organization. Employees are encouraged to participate in interactive events, cultural celebrations, an enterprise-wide mentorship program and volunteer opportunities. In 2022, our employees reported a total of 2,650 volunteer hours serving 110 community organizations. Our employees are given paid time to participate in community volunteer opportunities.
BankUnited has partnered with five universities in our local markets to provide scholarships and internship programs, with a primary focus on minority high school and college students. Since the inception of this initiative in 2020, 63 college and high school students have participated; 23 of them have been hired for full time roles at the Bank. We launched the ATOM Pink Tank program in partnership with Florida International University - a six-month leadership, mentorship, and research development program to empower female students pursuing STEM careers. Pink Tank participants receive weekly guidance and mentorship by BankUnited employees throughout the ten-week research and competition stage. The students connect with BankUnited professionals of all levels and disciplines. Since the inception of this initiative in 2020, 28 students have completed the program and 20 new students have been selected for the 2022-2023 cohort. To date, BankUnited has hired six female students and garnered participation of over 40 BankUnited employees representing 20 departments across the Bank.
Through iCARE™ we established and encouraged our employees to participate in the "Adopt A Neighborhood" program in Florida focused on an under-served predominantly minority community and the "Entrepreneurship Initiative" in New York in partnership with a local university and community organizations. Through the "Heir’s Program" we have brought together a consortium of expertise to provide legal services and education to predominantly minority families seeking to maintain property in family lineage.
Health, Wellness and Safety
The safety and wellness of our employees is fundamental to the success of our Company. Our Wellness Program incorporates initiatives that address the mental, physical, intellectual, occupational, social, emotional, financial and spiritual components of wellness. The BankUnited Corporate Center has an on-site fitness facility and we provide our employees with on-site health screenings, eye exams, dental exams, mammograms, and vaccine clinics. Employees can choose to participate in nutrition counseling, music and art therapy, live and streaming fitness classes, meditation sessions, live and virtual learning opportunities with area wellness experts. We offer safety programs including first aid and CPR courses. For participation in our Wellness Program, we offer our employees a reduced premium rate for medical insurance coverage.
In recognition of our employee wellness programs, BankUnited received the Healthiest Employer Award from the South Florida Business Journal in 2020, 2021 and 2022. In 2022, BankUnited was listed as number three among America's Top 100 Healthiest Employers by Springbuk HR Technology and was awarded the Worksite Wellness Award by the Florida Department of Health in 2021.
Career Growth and Development
Our Go for More™ Academy provides an extensive menu of training and resources that enable employees to develop their skills and that promote collaboration and career development. Our Rising Leaders, Situational Leadership and EXCELerate programs provide our employees with career development opportunities. In 2022, 373 employees enrolled in mentoring programs and a total of 3,066 mentoring hours were reported.
Communication & Engagement
Employee engagement is a key contributor to our success. In September 2022, 81% of our employees participated in an engagement survey conducted by an outside firm. Survey results reported an increase in overall engagement, defined as employees who responded favorably, from 73% in 2020 to 81% in 2022. The 81% overall engagement score in 2022 favorably compared to an industry benchmark of 76%. Our Kudos Employee Recognition platform encourages employees to recognize one another's contributions and accomplishments. The Company schedules regular CEO update video calls, town hall meetings and other engagement programs.
Available Information
Our website address is www.bankunited.com. Our electronic filings with the SEC (including all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports) are available free of charge on the website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information posted on our website is not incorporated into this Annual Report. In addition, the SEC maintains a website that contains reports and other information filed with the SEC. The website can be accessed at http://www.sec.gov.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
An investment in our common stock is subject to risks inherent in our business. The material risks and uncertainties that management believes affect us are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference herein. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations.
If any of the events described in the risk factors should actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our securities could decline significantly, and you could lose all or part of your investment.
Strategic Risk
We may not be successful in executing our fundamental business strategy.
Optimizing risk adjusted returns, continued organic, diversified growth of our loan and deposit customer base, and improving the deposit mix are essential components of our business strategy. Commercial and consumer banking, for both loan and deposit products, in our primary markets is highly competitive. Our ability to achieve profitable organic growth is also dependent on economic conditions, on the interest rate environment, which is in turn dependent to a large degree on fiscal and monetary policy, and on depositor behavior and preferences. There is no guarantee that we will be able to successfully or profitably execute our fundamental business strategy.
While acquisitions have not historically been a primary component of our business strategy, we may opportunistically consider potential acquisitions of financial institutions and complementary non-bank businesses. There are risks that may inhibit our ability to successfully execute such acquisitions, such as competition with other potential acquirers, the ability to obtain the required regulatory approvals in a timely matter or at all, and the successful integration of a consummated acquisition and realization of the expected benefits.
Growth, whether organic or through acquisition, is dependent on the availability of capital and funding. Our ability to raise capital through the sale of stock or debt securities and our ability to secure funding to support earning asset growth may be affected by market conditions, economic conditions or regulatory changes. There is no assurance that sufficient capital or funding to enable growth will be available in the future, upon acceptable terms or at all.
We face significant competition from other financial institutions and financial services providers, which may adversely impact our growth or profitability.
The primary markets we currently serve are Florida and the New York metropolitan area. Commercial and consumer banking in these markets is highly competitive. Our markets contain not only a large number of community and regional banks, but also a significant presence of the country's largest commercial banks. We compete with other state and national banks as well as savings and loan associations, savings banks and credit unions located in Florida, New York and adjoining states as well as those targeting our markets digitally for deposits and loans. In addition, we compete with financial intermediaries, such as FinTech companies, consumer finance companies, marketplace lenders, mortgage banking companies, insurance companies, securities firms, mutual funds and several government agencies as well as major retailers, all actively engaged in providing various types of loans and other financial services. The variety of entities providing financial services to businesses and consumers, as well as the technologies and delivery channels through which those services are provided are rapidly evolving.
The financial services industry is likely to become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Increased competition among financial services companies may adversely affect our ability to market our products and services. Technology has lowered barriers to entry and made it possible for banks to compete in our markets without a retail footprint by offering competitive rates, as well as non-banks, including online providers and a growing number of FinTech companies, to offer products and services traditionally provided by banks. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size or particular technology capabilities, many competitors may offer a broader range of products and services or may be able to offer better pricing for certain products and services than we can.
Our ability to compete successfully depends on a number of factors, including:
•the ability to develop, maintain and build upon long-term customer relationships based on quality service, high ethical standards and safe and sound banking practices;
•our ability to pro-actively and quickly respond to technological change;
•the ability to attract and retain qualified employees to operate our business effectively;
•the ability to expand our market position;
•the scope, relevance and pricing of products and services offered to meet customer needs and demands;
•the rate at which we introduce new products and services relative to our competitors;
•customer satisfaction with our level of service; and
•industry and general economic trends.
Failure to perform well in any of these areas or in general to successfully respond to the competitive pressures we face could make it harder for us to attract and retain customers and significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could harm our business, financial condition and results of operations.
Crypto-currencies and blockchain technology continue to be explored as vehicles to enhance transactional security throughout the financial services industry and could eventually reduce or alter the need for banks as financial deposit-keepers and intermediaries.
Hurricanes and other weather-related events, social or health-care crises such as pandemics or political unrest, terrorist activity, or other natural or man-made disasters could cause a disruption in our operations or otherwise have an adverse impact on our business and results of operations.
Our geographic markets in Florida and other coastal areas are susceptible to severe weather, including hurricanes, flooding and damaging winds. The occurrence of a hurricane or other natural disaster to which our markets are susceptible, a man-made catastrophe such as terrorist activity, pandemic outbreaks and other global health emergencies, political unrest or other man-made or natural disasters could disrupt our operations or our work-force, result in damage to our facilities, jeopardize our ability to continue to provide essential services to our customers and negatively affect our customers and the local economies in which we operate. These events may lead to a decline in loan originations, an increase in deposit outflows, strain our liquidity position, reduce or destroy the value of collateral for our loans, particularly real estate, negatively impact the business
operations of our customers, and cause an increase in delinquencies, foreclosures and loan losses. Our business, financial condition and results of operations may be materially, adversely impacted by these and other negative effects of such events.
Climate change or societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers.
Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts to mitigate those impacts. Consumers and businesses may change their behavior as a result of these concerns. We and our customers may need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. We and our customers may face cost increases, asset value reductions and operating process changes. The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts to us could be a drop in demand for our products and services, particularly in certain sectors. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans. Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior. One of our primary market areas is the state of Florida, particularly in coastal areas; as such, we may have an increased vulnerability to the ultimate impacts of climate change as compared to some of our competitors.
We depend on our executive officers and key personnel to execute our long-term business strategy and could be harmed by the loss of their services.
We believe that our continued growth and future success will depend in large part on the skills of our senior management team and other key personnel. We believe our senior management team possesses valuable knowledge about and experience in the banking industry and that their knowledge and relationships could be difficult to replicate. The composition of our senior management team and our other key personnel may change over time. While we are currently finalizing and expect to successfully enter into a new contract with our Chairman, President and Chief Executive Officer, the term of the existing employment contract expired on December 31, 2022 and a result is currently an at-will employment relationship. Other members of our senior management team are not subject to employment agreements. Our success also depends on the experience of other key personnel and on their relationships with the customers and communities they serve. The loss of service of one or more of our executive officers or key personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition or operating results.
Increasing scrutiny and changing expectations from investors and customers with respect to our ESG practices and those of our customers may impose additional costs on us or expose us to new or additional risks.
There is increased focus, including from governmental organizations, investors, customers and employees on ESG issues such as environmental stewardship, climate change, diversity and inclusion, racial justice and workplace culture and conduct. We have expended and may further expend resources to monitor, report and adopt policies and practices that we believe will improve compliance with our evolving ESG goals and plans, as well as third party imposed ESG-related standards and expectations. If our ESG practices do not meet evolving rules and regulations or investor or other stakeholder expectations and standards, then our reputation, our ability to attract or retain leading experts, employees and other professionals, and our ability to attract new customers and investors could be negatively impacted. Similarly, our failure or perceived failure to pursue or fulfill our current or future goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative impacts.
In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters, and unfavorable ratings of the Company may lead to negative investor sentiment, stock price fluctuations and the diversion of investment to other companies.
The COVID-19 pandemic
The COVID-19 pandemic caused substantial disruption to the global and domestic economies and impacted the Company’s business, financial condition and results of operations. Vaccines and treatments have evolved, the impact of the pandemic on public health has lessened and the U.S. and global economies have in many respects recovered from the COVID-19 pandemic. However, certain adverse consequences of the pandemic, such as labor market and supply chain disruptions, continue to have an impact on the macroeconomic environment and uncertainty remains around the future impact.
Credit Risk
As a lender, our business is highly susceptible to credit risk.
As a lender, we are exposed to the risk that our customers will be unable to repay their loans according to their terms and that the collateral securing the payment of their loans, if any, may be insufficient to ensure repayment. Credit losses are inherent in the business of making loans. We are also subject to credit risk that is embedded in our securities portfolio. Our credit risk management framework inclusive of our underwriting standards, procedures and policies may not prevent us from incurring substantial credit losses, particularly if economic or market conditions deteriorate. It is difficult to determine the many ways in which a decline in economic or market conditions may impact the credit quality of our assets.
Our ACL may not be adequate to cover actual credit losses.
We maintain an ACL that represents management's estimate of current expected credit losses, or the amount of amortized cost basis not expected to be collected, on our loan portfolio and the amount of credit loss impairment on our available for sale securities portfolio. Determining the amount of the ACL is complex and requires extensive judgment by management about matters that are inherently subjective and uncertain. The measurement of expected credit losses encompasses information about historical events, current conditions and reasonable and supportable economic forecasts. Factors that may be considered in determining the amount of the ACL include but are not necessarily limited to, product or collateral type, industry, geography, internal risk rating, credit characteristics such as credit scores or collateral values, delinquency rates, historical or expected credit loss patterns and other quantitative and qualitative factors considered by management to have an impact on the adequacy of the ACL and the ability of borrowers to repay their loans. The adequacy of the ACL is also dependent on the effectiveness of the underlying models used in determining the estimate.
If management's assumptions and judgments prove to be incorrect, our credit loss models prove to be inaccurate or our processes and controls governing the determination of the amount of the ACL prove ineffective, our ACL may be insufficient and we may be required to increase our ACL. In addition, regulatory authorities periodically review our ACL and may require us to increase our provision for credit losses or recognize further loan charge-offs, based on judgments different from those of our management. Adverse economic conditions could make management's estimate even more complex and difficult to determine. Any increase in our ACL will result in a decrease in net income and capital and could have a material adverse effect on our financial condition and results of operations. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations-Analysis of the Allowance for Credit Losses" and "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates-Allowance for Credit Losses."
We depend on the accuracy and completeness of information about clients and counterparties in making credit decisions.
In deciding whether to extend credit or enter into other transactions with clients and counterparties, we may rely on information furnished by or on behalf of clients and counterparties, including financial statements and other financial information. We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors.
The credit quality of our loan portfolio and results of operations are affected by residential and commercial real estate values and the level of residential and commercial real estate sales and rental activity.
A material portion of our loans are secured by residential or commercial real estate. The ability of our borrowers to repay their obligations and our financial results may therefore be adversely affected by changes in real estate values. Commercial real estate valuations in particular are highly subjective, as they are based on many assumptions. Such valuations can be significantly affected over relatively short periods of time by changes in business climate, economic conditions, demographic and market trends such as the potential impact of the ongoing shift to online shopping on retail properties or the trend toward remote and hybrid work on office properties, occupancy rates, the level of rents, regulatory changes such as recent changes to New York rent regulation, interest rates and, in many cases, the results of operations of businesses and other occupants of the real property. The properties securing income-producing investor real estate loans may not be fully leased at the origination of the loan. A borrower's ability to repay these loans is dependent upon stabilization of the properties and additional leasing through the life of the loan or the borrower's successful operation of a business. Weak economic conditions may impair a borrower's business operations, lead to elevated vacancy rates or lease turnover, slow the execution of new leases or result in falling rents. These factors could result in further deterioration in the fundamentals underlying the commercial real estate market and the deterioration in value of some of our loans. Similarly, residential real estate valuations can be impacted by housing trends, demographic trends, the availability of financing at reasonable interest rates, the level of supply of available housing, governmental policy regarding housing and housing finance and general economic conditions affecting consumers.
Real estate values may also be impacted by weather-related events and other man-made or natural disasters, or ultimately, by the impact of climate change.
We make credit and reserve decisions based on current real estate values, the current conditions of borrowers, properties or projects and our expectations for the future. If real estate values or fundamentals underlying the commercial and residential real estate markets decline, we could experience higher delinquencies and charge-offs beyond that provided for in the ACL.
Since we engage in lending secured by real estate and may be forced to foreclose on the collateral property, we may be subject to risks associated with the ownership of commercial or residential real property, which could have an adverse effect on our business, financial condition or results of operations.
A significant portion of our loan portfolio is secured by residential or commercial real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans, in which case, we are exposed to the risks and costs inherent in the ownership of real estate. The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including:
•general or local economic conditions;
•environmental cleanup liability;
•neighborhood values;
•interest rates;
•commercial real estate rental and vacancy rates;
•real estate tax rates;
•operating expenses of the mortgaged properties;
•supply of and demand for properties;
•ability to obtain and maintain adequate occupancy of the properties;
•zoning laws;
•governmental rules, regulations and fiscal policies;
•hurricanes or other natural or man-made disasters; and
•the impact of social or healthcare crises or political unrest.
These same factors may impact the ability of borrowers to repay their obligations that are secured by real property.
The geographic concentration of our markets in Florida and the New York Tri-State area makes our business highly susceptible to local economic conditions.
Unlike some larger financial institutions that are more geographically diversified, our operations are concentrated in Florida and the New York Tri-State area. Additionally, a significant portion of our loans secured by real estate are secured by commercial and residential properties in these geographic regions. Accordingly, the ability of our borrowers to repay their loans, and the value of the collateral securing such loans, may be significantly affected by economic conditions in these regions or by changes in the local real estate markets. Disruption or deterioration in economic conditions in the markets we serve could result in one or more of the following:
•an increase in loan delinquencies;
•an increase in problem assets and foreclosures;
•a decrease in the demand for our products and services; or
•a decrease in the value of collateral for loans, especially real estate, in turn reducing customers' borrowing power, the value of assets associated with problem loans and collateral coverage.
Our portfolio of operating lease equipment is exposed to fluctuations in the demand for and valuation of the underlying assets.
Our equipment leasing business is exposed to asset risk resulting from ownership of the equipment on operating lease. Asset risk arises from fluctuations in supply and demand for the underlying leased equipment. We are exposed to the risk that, at the end of the lease term or in the event of early termination, the value of the asset will be lower than expected, resulting in reduced future lease income over the remaining life of the asset or a lower sale value. Demand for and the valuation of the leased equipment is sensitive to shifts in general and industry-specific economic and market trends, governmental regulations and changes in trade flows from specific events such as natural or man-made disasters. A significant portion of our equipment under operating lease consists of railcars and other equipment used directly or indirectly in oil and gas drilling activities; future lease rates, the demand for this equipment and its valuation are heavily influenced by conditions in the energy industry. Although we regularly monitor the value of the underlying assets and the potential impact of declines in oil and natural gas prices on the value of equipment on operating lease, there is no assurance that the value of these assets will not be adversely impacted by conditions in the energy industry. The value of these assets may also be more susceptible to adverse effects caused by climate change or measures, including regulatory actions, taken to mitigate it, or by ESG considerations.
Interest Rate Risk
Our business is inherently highly susceptible to interest rate risk.
Our business and financial performance are impacted by market interest rates and movements in those rates. Since a high percentage of our assets and liabilities are interest bearing or otherwise sensitive in value to changes in interest rates, changes in rates, in the shape of the yield curve or in spreads between different types of rates can have a material impact on our financial condition and results of operations and the values of our assets and liabilities. Changes in the value of investment securities available for sale and certain derivatives directly impact equity through adjustments of accumulated other comprehensive income and changes in the values of certain other assets and liabilities may directly or indirectly impact earnings. Interest rates are highly sensitive to many factors over which we have no control and which we may not be able to anticipate adequately, including general economic conditions and the monetary and fiscal policies of various governmental bodies, particularly the Federal Reserve Board.
Our earnings and cash flows depend to a great extent upon the level of our net interest income. Net interest income is the difference between the interest income we earn on loans, investments and other interest earning assets, and the interest we pay on interest bearing liabilities, such as deposits and borrowings. A flat or inverted yield curve or tightening credit spreads may limit our ability to add higher yielding assets to the balance sheet and place downward pressure on our net interest margin, negatively impacting our net interest income in the future. Our deposit costs tend to be correlated with short-term rates; increases in short-term interest rates may exert upward pressure on our cost of deposits. Changes in interest rates can increase or decrease our net interest income, because different types of assets and liabilities may react differently, and at different times, to market interest rate changes. When interest bearing liabilities mature or reprice more quickly than interest earning assets in a period of rising rates, an increase in interest rates could reduce net interest income. When interest earning assets mature or reprice more quickly than interest bearing liabilities, falling interest rates could reduce net interest income. An increase in interest rates may, among other things, reduce the demand for loans and lower-priced deposit products, decrease loan repayment rates and negatively affect borrowers' ability to meet their obligations. A decrease in the general level of interest rates may affect us through, among other things, increased prepayments on our loan and mortgage-backed securities portfolios. Competitive conditions may also impact the interest rates we are able to earn on new loans or are required to pay on deposits, negatively impacting both our ability to grow deposits and interest earning assets and our net interest income.
We attempt to manage interest rate risk by adjusting the rates, maturity, repricing, mix and balances of the different types of interest-earning assets and interest bearing liabilities and through the use of hedging instruments; however, interest rate risk management techniques are not precise, and we may not be able to successfully manage our interest rate risk. Our ability to manage interest rate risk could be negatively impacted by longer fixed rate terms on loans being added to our portfolio or by unpredictable behavior of depositors in various interest rate environments. A rapid or unanticipated increase or decrease in interest rates, changes in the shape of the yield curve or in spreads between rates could have an adverse effect on our net interest margin and results of operations.
The recent and rapid rise in interest rates by the Federal Reserve, volatility in rate markets and/or changes in our customers' behavior in response to those dynamics could have an adverse impact on BankUnited's interest rate risk profile or make interest rate risk more challenging to manage.
The discontinuance of the LIBOR benchmark interest rate may have an impact on our business, financial condition and results of operations.
The FCA, which regulates LIBOR, discontinued the one-week and two-month LIBOR tenors effective December 31, 2021. The remaining tenors will be discontinued effective June 30, 2023. The Company has implemented SOFR as its preferred alternative to LIBOR and has ceased originating LIBOR based loans, although financial instruments indexed to LIBOR remain in the loan, securities and derivatives portfolios. While we have performed an extensive evaluation of the fallback provisions of all LIBOR indexed instruments and continue to execute a comprehensive reference rate reform roadmap, execution risk related to the transition remains. Reference rate transition may have an adverse impact on the value of, return on and trading markets more globally for a broad array of financial products, including any LIBOR-based securities, loans, borrowings and derivatives that are included in our financial assets and liabilities. The discontinuation of LIBOR may create uncertainty or differences in the calculation of the applicable interest rate or payment amount depending on the terms of the governing instruments, which may also impact our net interest income. In addition, LIBOR may perform differently during the phase-out period than in the past which could result in lower interest earned on certain assets and a reduction in the value of certain assets. As we are required to implement substitute indices for the calculation of interest rates under our loan agreements with our borrowers, we may incur additional expenses in effecting the transition, and may be subject to disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse effect on our financial condition and results of operations.
Liquidity Risk
A failure to maintain adequate liquidity could adversely affect our financial condition and results of operations.
Effective liquidity management is essential for the operation of our business. We require sufficient liquidity to meet customer loan requests, customer deposit maturities and withdrawals and other cash commitments under both normal operating conditions and under extraordinary or unpredictable circumstances causing industry or general financial market stress. Our access to funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally. Factors that could detrimentally impact our access to liquidity sources at an acceptable price, or at all include, but are not limited to: a downturn in economic conditions in the geographic markets in which our operations are concentrated or in the financial or credit markets in general; increases in interest rates; the availability of sufficient collateral that is acceptable to the FHLB and the Federal Reserve Bank, both of whom provide us with contingent sources of liquidity; fiscal and monetary policy including the current quantitative tightening posture of the Federal Reserve which is negatively impacting systemic liquidity; and regulatory changes. Our access to liquidity in the form of deposits may also be affected by the liquidity needs of our depositors and by competition for deposits in our primary markets. A substantial portion of our liabilities consist of deposit accounts that are payable on demand or upon several days' notice, while by comparison, the majority of our assets are loans, which cannot be called or sold in the same time frame. Although we have historically been able to replace maturing deposits and borrowings as necessary, we might not be able to replace such funds in the future. A failure to maintain adequate liquidity could materially and adversely affect our business, financial condition or results of operations.
Loss of deposits or a change in deposit mix could increase our funding costs.
Deposits are typically a relatively low cost and stable source of funding. We compete with banks and other financial institutions for deposits. The current quantitative tightening posture of the Federal Reserve has had the effect of reducing the amount of deposits in the banking system overall and BankUnited experienced net deposit outflows in 2022. A portion of our deposit base consists of companies serving the residential real estate eco-system and is exposed to the overall health and level of activity in that eco-system; in the current interest rate environment, the level of mortgage origination activity has declined considerably. As a result of these factors, we could lose deposits in the future or see an increase in costs associated with maintaining deposits. Clients may shift their deposits into higher cost products, or we may need to raise interest rates to avoid deposit attrition. Funding costs may also increase if deposits are replaced with wholesale funding. Higher funding costs reduce our net interest margin, net interest income, and net income.
The inability of BankUnited, Inc. to receive dividends from its subsidiary bank could have a material adverse effect on the ability of BankUnited, Inc. to make payments on its debt, pay cash dividends to its shareholders or execute share repurchases.
BankUnited, Inc. is a separate and distinct legal entity from the Bank, and the substantial majority of its revenue consists of dividends from the Bank. These dividends are the primary funding source for the dividends paid by BankUnited, Inc. on its common stock, the interest and principal payments on its debt and any repurchases of outstanding common stock. Various
federal and state laws and regulations limit the amount of dividends that a bank may pay to its parent company. In addition, our right to participate in a distribution of assets upon the liquidation or reorganization of a subsidiary may be subject to the prior claims of the subsidiary’s depositors and other creditors. If the Bank is unable to pay dividends, BankUnited, Inc. might not be able to service its debt, pay its obligations, pay dividends on its common stock or make share repurchases.
Operational Risk
We rely on analytical and forecasting models and tools that may prove to be inadequate or inaccurate, which could adversely impact the effectiveness of our strategic planning, the quality of certain accounting estimates including the ACL, the effectiveness of our risk management framework including but not limited to credit, interest rate and liquidity risk monitoring and management and thereby our results of operations.
The processes we use to forecast future performance and estimate expected credit losses, the effects of changing interest rates, sources and uses of liquidity, real estate values, and economic trends and indicators on our financial condition and results of operations depend upon the use of analytical and forecasting tools and models. These tools and models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Furthermore, even if our assumptions are accurate predictors of future performance, the tools and models that utilize them may prove to be inadequate or inaccurate because of other flaws in their design or implementation. If these tools prove to be inadequate or inaccurate, our strategic planning processes, risk management and monitoring framework, earnings and capital may be adversely impacted.
New lines of business, new products and services or strategic project initiatives may subject us to additional operational risks, and the failure to successfully implement these initiatives could affect our results of operations.
From time to time, we may launch new lines of business, expand into new geographies or offer new banking products and services, which offerings may significantly increase operational, credit or reputational risks. Significant effort and resources may be required to manage and oversee the successful development, implementation, launch or scaling of new initiatives, which effort and resources may be diverted from other of our products or services. While we invest significant time and resources in developing, marketing and managing new products and services, there are material uncertainties that could adversely impact estimated implementation and operational costs or projected adoption, sales, revenues or profits, and no assurance can be given that any new offerings will be successfully developed, implemented, launched or scaled. New products and services may require startup costs and operational changes, as well as continued marketing campaigns to bring in new customers and retain existing ones. These new products and services take time to develop and grow and if not successfully implemented may result in unmet profitability targets, increased costs or other adverse impacts on our results of operations.
We are subject to the risk of fraud, theft or errors by employees or outsiders, which may adversely affect our business, financial condition and results of operations.
We are exposed to many types of operational risks, including the risk of fraud or theft by employees or outsiders and operational errors, including clerical or record-keeping errors or those resulting from ineffective processes and controls or faulty or disabled technology. The occurrence of any of these events could cause us to suffer financial loss, face regulatory action and suffer damage to our reputation.
Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. Our necessary dependence upon automated systems to record and process transactions and our large transaction volume may further increase the risk that technical flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect. The occurrence of any of these events could result in a diminished ability to operate our business as well as potential liability to customers and counterparties, reputational damage and regulatory intervention, which could adversely affect our business, financial condition or results of operations.
We are dependent on our information technology and telecommunications systems. System failures or interruptions could have an adverse effect on our financial condition and results of operations.
Our business is highly dependent on the successful and uninterrupted functioning of our information technology, internet and network connectivity and telecommunications systems. We rely on these systems and connectivity to process new and renewed loans, gather deposits, process customer and other transactions, provide customer service, facilitate collections, facilitate remote work and share data across our organization. The failure of these systems and technologies could interrupt our operations. We may be subject to disruptions of our information technology and telecommunications systems arising from events that are wholly or partially beyond our control which may give rise to disruption of service to customers and of our employees' ability to perform their jobs. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such
third-party systems fail or experience interruptions. If sustained or repeated, a system failure or service denial could result in a deterioration of our ability to process new and renewed loans, gather deposits, process customer transactions, provide customer service, compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.
We are dependent on third-party service providers for significant aspects of our business infrastructure, information technology, and telecommunications systems.
We rely on third parties to provide key components of our business infrastructure and major systems including, but not limited to, core banking systems such as loan servicing and deposit transaction processing systems, cloud-based data storage, our electronic funds transfer transaction processing, cash management, online banking services, and computer and networking infrastructure. We have migrated a significant portion of our core information technology systems, data storage and customer-facing applications to private and public cloud infrastructure platforms. If we fail to administer these new environments in a well-managed, secure and effective manner, or if these platforms become unavailable or do not meet their service level agreements for any reason, we may experience unplanned service disruption or unforeseen costs which could result in material harm to our business, financial condition and results of operations. We must successfully develop and maintain information, financial reporting, disclosure, data-protection and other controls adapted to our reliance on outside platforms and providers. In addition, service providers could experience system breakdowns or failures, outages, downtime, cyber-attacks, adverse changes to financial condition, bankruptcy, or other adverse conditions, which could have a material adverse effect on our business and reputation. While we have an established third-party risk management framework and select and monitor the performance of third-party vendors carefully, we do not control their actions. Any problems caused by these third parties, including those resulting from disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, failure of a vendor to provide services for any reason or poor performance of services, or the termination of a third-party software license or service agreement on which any of these systems is based, could adversely affect our ability to deliver products and services to our customers and otherwise conduct our business. In many cases, our operations rely heavily on the secure processing, storage and transmission of information and the monitoring of a large number of transactions on a minute-by-minute basis, and even a short interruption in service could have significant consequences. Financial or operational difficulties of a third-party vendor could also adversely affect our operations if those difficulties interfere with the vendor's ability to serve us effectively or at all. Replacing these third-party vendors could also create significant delays and expense. Accordingly, use of such third parties creates an unavoidable inherent risk to our business operations.
Failure by us or third parties to detect or prevent a breach in information security or to protect customer information and privacy could have an adverse effect on our business.
In the normal course of our business, we collect, process, and retain sensitive and confidential client and customer information. Despite the security measures we have in place, our facilities and systems may be vulnerable to cyber-attacks, security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events, especially because, in the case of any intentional breaches, the techniques used change frequently or are not recognized until launched, and cyber-attacks can originate from a wide variety of sources, including third parties.
We provide our customers the ability to bank remotely, including online, via mobile devices and over the telephone. The secure transmission of confidential information over the internet and other remote channels is a critical element of remote banking. Our network could be vulnerable to unauthorized access, computer viruses, phishing schemes and other security breaches. In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers have engaged in attacks against financial institutions, particularly denial of service attacks, designed to disrupt key business services such as customer-facing websites. We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses. Any cyber-attack or other security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer information could severely damage our reputation, erode confidence in the security of our systems, products and services, expose us to the risk of litigation and liability, disrupt our operations and have a material adverse effect on our business.
In addition, we interact with and rely on financial counterparties for whom we process transactions and who process transactions for us and rely on other third parties, as discussed above. Each of these third parties may be targets of the same types of fraudulent activity, computer break-ins, and other cybersecurity breaches described above. The cybersecurity measures that they maintain to mitigate the risk of such activity may be different from our own and, in many cases, we do not have any control over the types of security measures they may choose to implement. We may also incur costs as a result of data or security breaches of third parties with whom we do not have a significant direct relationship. As a result of financial entities and technology systems becoming more interdependent and complex, a cyber-incident, information breach or loss, or technology
failure that compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including us.
Concerns regarding the effectiveness of our measures to safeguard personal information, or even the perception that such measures are inadequate, could cause us to lose customers or potential customers for our products and services and thereby reduce our revenues.
We have taken measures to implement safeguards to support our operations, but our ability to conduct business may be adversely affected by any significant disruptions to us or to third parties with whom we interact. We have a comprehensive set of information security policies and protocols and a dedicated information security division that reports to the Chief Information Officer, with a direct reporting line to and oversight by the Risk Committee of the Board of Directors. The Risk Committee receives regular reporting related to information security risks and the monitoring and management of those risks.
Failure to keep pace with technological changes could have a material adverse impact on our ability to compete for loans and deposits, and therefore on our financial condition and results of operations.
Financial products and services have become increasingly technology driven. Our ability to meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on our ability to keep pace with and pro-actively and quickly respond to technological advances and to invest in new technology as it becomes available. Many of our larger competitors have greater resources to invest in technology than we do and may be better equipped to market new technology-driven products and services. The widespread adoption of new technologies, including, but not limited to, digitally enabled products and delivery channels and payment systems, could require us to incur substantial expenditures to modify or adapt our existing products and services. Our failure to respond to the impact of technological change could have a material adverse impact on our business, financial condition and results of operations.
The soundness of other financial institutions, particularly our financial institution counterparties, could adversely affect us.
Our ability to engage in routine funding and other transactions could be adversely affected by the stability and actions of other financial services institutions. Financial services institutions are interrelated as a result of trading, clearing, servicing, counterparty, and other relationships. We have exposure to an increasing number of financial institutions and counterparties. These counterparties include institutions that may be exposed to various risks over which we have little or no control.
Adverse developments affecting the overall strength and soundness of the financial services industry as a whole and third parties with whom we have important relationships could have a negative impact on our business even if we are not subject to the same adverse developments.
Regulatory, Legal and Compliance Risk
As a BHC, we and BankUnited operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and other matters, or changes in them, or our failure to comply with them, may adversely affect us.
We operate in a highly regulated environment, and are subject to comprehensive statutory, legal and regulatory regimes, see Item 1 "Business-Regulation and Supervision." Intended to protect customers, depositors, the DIF, and the overall financial stability of the United States, these laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, limit the dividend or distributions that BankUnited can pay to BankUnited, Inc., restrict the ability of institutions to guarantee our debt, and impose specific accounting requirements on us. Banking regulators may also from time to time focus on issues that may impact the pace of growth of our business, our ability to execute our business strategy and our operations. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs. In addition, federal banking agencies, including the OCC, Federal Reserve Board and CFPB, periodically conduct examinations of our business, including compliance with laws and regulations. Our failure to comply with these laws and regulations, even if the failure follows good faith effort or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines, remedial actions, administrative orders and other penalties, any of which could adversely affect our reputation, results of operations and capital base.
Further, federal, state and local legislators and regulators regularly introduce measures or take actions that would modify the regulatory requirements applicable to banks, their holding companies and other financial institutions. Changes in laws, regulations or regulatory policies could adversely affect the operating environment for the Company in substantial and unpredictable ways, increase our cost of doing business, impose new restrictions on the way in which we conduct our
operations or add significant operational constraints that might impair our profitability. We cannot predict whether new legislation will be enacted and, if enacted, the effect that it, or any implementing regulations, would have on our business, financial condition or results of operations.
Changes in political administrations are likely to introduce new or modified regulations and related regulatory guidance and supervisory oversight. Newly enacted laws may significantly impact the regulatory framework in which we operate and may require material changes to our business processes in short timeframes. Inability to meet new statutory requirements within the prescribed periods could adversely affect our business, financial condition and results of operations, as well as impact our reputation.
The Inflation Reduction Act of 2022 generally imposes a 1% excise tax on share repurchases executed by the Company. While we do not currently expect the excise tax to materially impact the level of share repurchase activity we would otherwise contemplate, it will add an element to our analysis of whether and to what extent to engage in share repurchases, and may lead to an increase in operating expenses.
Our ability to expand through acquisition or de novo branching requires regulatory approvals, and failure to obtain them may restrict our growth.
We may identify opportunities to complement and expand our business by pursuing strategic acquisitions of financial institutions and other complementary businesses. We must generally receive federal regulatory approval before we can acquire an institution or business. In determining whether to approve a proposed acquisition, federal banking regulators will consider, among other factors, the effect of the acquisition on competition, our financial condition, our future prospects, and the impact of the proposal on U.S. financial stability. The regulators also review current and projected capital ratios and levels, the competence, experience, and integrity of management and its record of compliance with laws and regulations, the convenience and needs of the communities to be served (including the acquiring institution's record of compliance under the CRA) and the effectiveness of the acquiring institution in combating money laundering activities. Such regulatory approvals may not be granted on terms that are acceptable to us, or at all. We may also be required to sell or close branches, or precluded from doing so, as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition.
In addition to the acquisition of existing financial institutions, as opportunities arise, we may continue de novo branching as a part of our organic growth strategy and possibly enter into new markets through de novo branching. De novo branching and any acquisition carries with it numerous risks, including the inability to obtain all required regulatory approvals. The failure to obtain these regulatory approvals for potential future strategic acquisitions and de novo branches may impact our business plans and restrict our growth.
Financial institutions, such as BankUnited, face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
The Bank Secrecy Act, the USA PATRIOT Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. The Financial Crimes Enforcement Network, established by the U.S. Treasury Department to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements, and has engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service. There is also increased scrutiny of compliance with the sanctions programs and rules administered and enforced by the U.S. Treasury Department's Office of Foreign Assets Control.
In order to comply with regulations, guidelines and examination procedures in this area, we dedicate significant resources to the ongoing execution of our anti-money laundering program, continuously monitor and enhance as necessary our policies and procedures and maintain a robust automated anti-money laundering software solution. If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of financial institutions that we may acquire in the future are deemed deficient, we could be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our expansion plans.
We are subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful challenge to an institution's performance under the CRA or
fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity, and restrictions on expansion activity. Private parties may also have the ability to challenge an institution's performance under fair lending laws in private class action litigation.
The FDIC's restoration plan and any future related increased assessments could adversely affect our earnings.
Insured depository institutions such as BankUnited are required to pay deposit insurance premiums to the FDIC, which maintains a DIF. If the current level of deposit premiums is insufficient for the DIF to meet its funding requirements in the future, special assessments or increases in deposit insurance premiums may be required. A change in BankUnited's risk classification within the FDIC's risk-based assessment framework could also result in increased deposit insurance premiums. We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional bank or financial institution failures in the future, we may be required to pay FDIC premiums higher than current levels. Any future additional assessments or increases in FDIC insurance premiums may adversely affect our financial condition or results of operations.
We are subject to laws regarding the privacy, information security and protection of personal information and any violation of these laws or another incident involving personal, confidential or proprietary information of individuals could damage our reputation and otherwise adversely affect our operations and financial condition.
Our business requires the collection and retention of large volumes of customer data, including personally identifiable information in various information systems that we maintain and in those maintained by third parties with whom we contract to provide data services. We are subject to complex and evolving laws and regulations governing the privacy and protection of personal information of individuals (including customers, employees, suppliers and other third parties). For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things: (i) imposes certain limitations on our ability to share nonpublic personal information about our customers with non-affiliated third parties; (ii) requires that we provide certain disclosures to customers about our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us with non-affiliated third parties (with certain exceptions); and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing appropriate safeguards based on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we process, as well as plans for responding to data security breaches. Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach. Ensuring that our collection, use, transfer and storage of personal information complies with all applicable laws and regulations increases our costs. Furthermore, we may not be able to ensure that all of our customers, suppliers, counterparties and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means. If personal, confidential or proprietary information of customers or others were to be mishandled or misused, we could be exposed to litigation or regulatory sanctions under personal information laws and regulations. Any failure or perceived failure to comply with applicable privacy or data protection laws and regulations may subject us to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties, and could damage our reputation and otherwise adversely affect our operations and financial condition.
General Risk Factors
Damage to our reputation could adversely affect our operating results.
Our ability to originate new business and maintain existing customer relationships is highly dependent upon customer and other external perceptions of our business practices. Adverse perceptions regarding our business practices could damage our reputation in the customer, funding and capital markets, leading to difficulties in generating and maintaining business as well as obtaining financing. Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending practices, employee relations, corporate governance and acquisitions and from actions taken by government regulators and community organizations in response to those activities. Adverse developments with respect to external perceptions regarding the practices of our competitors, or our industry as a whole, or the general economic climate may also adversely impact our reputation. These perceptions about us could cause our business to be negatively affected and exacerbate the other risks that we face. In addition, adverse reputational impacts on third parties with whom we have important relationships may adversely impact our reputation. Adverse reputational impacts or events may also increase our litigation risk.
Our enterprise risk management framework may not be effective in mitigating the risks to which we are subject, or in reducing the potential for losses in connection with such risks.
Our enterprise risk management framework is designed to identify and minimize or mitigate the risks to which we are subject, as well as any losses stemming from such risks. Although we seek to identify, measure, monitor, report, and control our exposure to such risks, and employ a broad and diversified set of risk monitoring and mitigation techniques in the process, those techniques are inherently limited in their ability to anticipate the existence or development of risks that are currently unknown and unanticipated. The ineffectiveness of our enterprise risk management framework in mitigating the impact of known risks or the emergence of previously unknown or unanticipated risks may result in our incurring losses in the future that could adversely impact our financial condition and results of operations.
Our business may be adversely affected by conditions in the financial markets and economic conditions generally.
Deterioration in business or economic conditions generally, or more specifically in the principal markets in which we do business, could have one or more of the following adverse effects on our business, financial condition and results of operations:
•A decrease in demand for our loan and deposit products;
•An increase in delinquencies and defaults by borrowers or counterparties;
•A decrease in the value of our assets;
•A decrease in our earnings;
•A decrease in liquidity; and
•A decrease in our ability to access the capital markets.
Current inflationary trends may lead to an increase in our operating expenses, or those of our clients which may in turn impact their operating results and ability to repay their obligations to us.
Our reported financial results depend on management's selection and application of accounting policies and methods and related assumptions and estimates.
Our accounting policies and estimates are fundamental to our reported financial condition and results of operations. Management is required to make difficult, complex or subjective judgments in selecting and applying many of these accounting policies. In some cases, management must select an accounting policy or method from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in us reporting materially different results than would have been reported under a different alternative.
From time to time, the FASB and SEC may change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be difficult to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retrospectively, resulting in a restatement of prior period financial statements. See Note 1 to the consolidated financial statements for more information about recent accounting pronouncements that may have a material impact on our reported financial results.
Changes in taxes and other assessments may adversely affect us.
The legislatures and taxing authorities in the tax jurisdictions in which we operate regularly enact reforms to the tax and other assessment regimes to which we and our customers are subject. The effects of these changes and any other changes that result from interpreting and implementing regulations or enactment of additional tax reforms cannot be quantified and there can be no assurance that any such reforms would not have an adverse effect upon our business.
Tax laws are complex and subject to different interpretations by the taxpayer and relevant governmental taxing authorities, which are sometimes subject to prolonged evaluation periods until a final resolution is reached. In establishing a provision for income tax expense, filing returns and establishing the value of deferred tax assets and liabilities for purposes of its financial statements, the Company must make judgments and interpretations about the application of these inherently complex tax laws. If the judgments, estimates and assumptions the Company uses in establishing provisions, preparing its tax returns or establishing the value of deferred tax assets and liabilities for purposes of its financial statements are subsequently found to be incorrect, there could be a material effect on our financial condition and results of operations.
Our internal controls may be ineffective.
Management regularly monitors, evaluates and updates our internal controls over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, can provide only reasonable, not absolute, assurances that the objectives of the controls are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our financial condition and results of operations.
Share Price Volatility
The price of our common stock may be volatile or may decline. The price of our common stock may fluctuate as a result of a number of factors, many of which are outside of management's control. In addition, the stock market is subject to fluctuations in share prices and trading volumes that affect the market prices of the shares of many companies, including BankUnited, Inc. Factors that could affect our stock price include but are not limited to:
•actual or anticipated changes in the Company's operating results and financial condition;
•changes in interest rates;
•failure to meet analysts' revenue or earnings estimates;
•changes in expectations as to our future financial performance, including financial estimates or recommendations by securities analysts and investors;
•actual or forecasted deterioration in economic conditions in our market areas or more generally;
•changes in the competitive or regulatory environment;
•actions by institutional shareholders; and
•stock market volatility caused by other external events.
We may not be able to attract and retain skilled employees
Our success depends, in large part, on our ability to attract and retain key people. Due to competition, general labor market dynamics, the ongoing transition to more remote and hybrid work and other factors, we may have difficulty recruiting qualified personnel, including uniquely qualified personnel to ensure the continued growth and successful operation of our business. The unexpected loss of the services of one or more of our key personnel could have an adverse impact on our business.
Geopolitical factors such as the conflict between Russia and Ukraine or similar events could negatively impact our business and results of operations.
We are monitoring the impact of the conflict between Russia and Ukraine on our business. While we do not currently expect that the conflict will have a direct material impact on our business, financial condition or results of operations, collateral effects of the geopolitical instability, such as the imposition of sanctions against Russia and Russia’s response to such sanctions, including retaliatory acts like cyber-attacks and sanctions against other countries, or escalation or further spread of the conflict could adversely affect the global economy or domestic markets, including ours.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
BankUnited's corporate headquarters is located in leased office space in Miami Lakes, Florida. We also lease office space in New York and Atlanta. Our subsidiaries lease office space in Baltimore, Maryland and Scottsdale, Arizona. At December 31, 2022, we provided banking services at 59 banking centers located in Florida, New York and Texas. We believe that our facilities are in good condition and are adequate to meet our operating needs for the foreseeable future.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
The Company is involved as plaintiff or defendant in various legal actions arising in the normal course of business. In the opinion of management, based upon advice of legal counsel, the likelihood is remote that the impact of these proceedings,
either individually or in the aggregate, would be material to the Company’s consolidated financial position, results of operations or cash flows.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
None.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Holders of Record
Shares of our common stock trade on the NYSE under the symbol "BKU". The last sale price of our common stock on the NYSE on February 17, 2023 was $36.79 per share. As of February 17, 2023, there were 566 stockholders of record of our common stock.
Equity Compensation Plan Information
The information set forth under the caption "Equity Compensation Plan Information" in our definitive proxy statement for the Company's 2023 annual meeting of stockholders (the "Proxy Statement") is incorporated herein by reference.
Dividend Policy
The Company declared a quarterly dividend of $0.25 and $0.23 per share on its common stock for each of the four quarters in the years ended December 31, 2022 and 2021, respectively, resulting in total dividends for the years ended December 31, 2022 and 2021 of $78.9 million and $83.4 million, or $1.00 and $0.92 per common share, respectively. Dividends from the Bank are the principal source of funds for the payment of dividends on our common stock. The Bank is subject to certain restrictions that may limit its ability to pay dividends to us. See "Business-Regulation and Supervision-Regulatory Limits on Dividends and Distributions". The quarterly dividends on our common stock are subject to the discretion of our board of directors and dependent on, among other things, our financial condition, results of operations, capital requirements and other factors that our board of directors may deem relevant. The Company expects to continue its policy of paying regular cash dividends on a quarterly basis.
Stock Performance Graph
The graph set forth below compares the cumulative total stockholder return on an initial investment of $100 in our common stock between December 31, 2017 and December 31, 2022, with the comparative cumulative total return of such amount on the S&P 500 Index and the KBW Nasdaq Regional Bank Index over the same period. Reinvestment of all dividends is assumed to have been made in our common stock.
The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock.
Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022
BankUnited, Inc. 100.00 75.15 94.11 93.26 116.01 95.49
S&P 500 Index 100.00 95.62 125.72 148.85 191.58 156.88
KBW Nasdaq Regional Banking Index 100.00 80.63 97.07 85.33 113.65 102.90
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Issuer Purchases of Equity Securities
Period Total number of shares purchased(1)
Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
October 1 - October 31, 2022 328,368 $ 34.75 328,368 $ 128,555,763
November 1 - November 30, 2022 187,103 $ 34.74 187,103 $ 122,055,558
December 1 - December 31, 2022 1,393,708 $ 33.61 1,393,708 $ 75,211,558
Total 1,909,179 $ 33.92 1,909,179
(1) The total number of shares purchased during the periods indicated includes shares purchased as part of a publicly announced program.
(2) On September 13, 2022, the Company's Board of Directors authorized the repurchase of up to an additional $150 million in shares of its outstanding common stock. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued without prior notice at any time. The authorization does not require the Company to acquire any specified number of common shares.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Reserved

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to assist readers in understanding the consolidated financial condition and results of operations of BankUnited, Inc. and its subsidiary (the "Company", "we", "us" and "our") and should be read in conjunction with the consolidated financial statements, accompanying footnotes and supplemental financial data included herein. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management's expectations. Factors that could cause such differences are discussed in the sections entitled "Forward-looking Statements" and "Risk Factors." We assume no obligation to update any of these forward-looking statements.
Overview
The following discussion and analysis presents the more significant factors that affected our financial condition as of December 31, 2022 and 2021 and results of operations for each of the years then ended. Refer to Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K filed with the SEC on February 24, 2022 for a discussion and analysis of the more significant factors that affected periods prior to 2021.
Performance Highlights
In evaluating our financial performance, we consider the level of and trends in net interest income, the net interest margin, the cost of deposits, levels and composition of non-interest income and non-interest expense, performance ratios such as the return on average equity and return on average assets and asset quality ratios, including the ratio of non-performing loans to total loans, non-performing assets to total assets, trends in criticized and classified assets and portfolio delinquency and charge-off trends. We consider growth in and the composition of earning assets and deposits, trends in funding mix and cost of funds. We analyze these ratios and trends against our own historical performance, our budgeted performance and the financial condition and performance of comparable financial institutions.
Performance highlights include:
•Net income for year ended December 31, 2022 was $285.0 million, or $3.54 per diluted share, compared to $415.0 million, or $4.52 per diluted share, for the year ended December 31, 2021. For the year ended December 31, 2022, the return on average stockholders' equity was 10.6% and the return on average assets was 0.79%.
•Pre-tax, pre-provision net revenue ("PPNR") was $450.3 million for the year ended December 31, 2022, compared to $382.3 million for the year ended December 31, 2021. PPNR for the year ended December 31, 2021 was impacted by certain notable items, further discussed below in the sections titled "Results of Operations - Non-Interest Income" and "Results of Operations - Non-Interest Expense".
•Loans, excluding the runoff of PPP loans, grew by $1.4 billion for the year ended December 31, 2022. The core C&I and commercial real estate portfolio segments grew by a total of $1.6 billion, offset by declines in other commercial segments. Given the market-wide decline in mortgage origination activity, mortgage warehouse loans declined by $567 million. The residential segment grew by $532 million for the year ended December 31, 2022.
•The net interest margin, calculated on a tax-equivalent basis, expanded to 2.68% for the year ended December 31, 2022, from 2.38% for the year ended December 31, 2021. Net interest income increased by $117.3 million compared to the year ended December 31, 2021. The following chart provides a comparison of net interest margin, the interest rate spread, the average yield on interest earning assets and the average rate paid on interest bearing liabilities for the years ended December 31, 2022 and 2021 (on a tax equivalent basis):
•In response to the rising interest rate environment and tightening liquidity, particularly over the latter half of the year, the average cost of total deposits rose to 0.65% for the year ended December 31, 2022, from 0.24% for the year ended December 31, 2021. The yield on average interest earning assets increased to 3.59% for the year ended December 31, 2022, from 2.86% for the year ended December 31, 2021.
•For the year ended December 31, 2022, the Company recorded a provision for credit losses of $75.2 million, compared to a recovery of the provision for credit losses of $(67.1) million for the year ended December 31, 2021. The recovery recorded for the year ended December 31, 2021 was reflective of emergence of the economy from the COVID-19 pandemic while the provision for the year ended December 31, 2022 reflected a heightened level of uncertainty around the future trajectory of the economy. The ratio of the ACL to total loans increased to 0.59% at December 31, 2022, from 0.53% at December 31, 2021.
•Total deposits declined by $1.9 billion and non-interest bearing demand deposits declined by $938 million during the year ended December 31, 2022, consistent with the broader outflow of deposits from the banking system as the Federal Reserve increased its benchmark interest rate and adopted a policy stance of quantitative tightening. Time deposits grew by $884 million during the year ended December 31, 2022, reflecting a strategy to extend the term of deposits. The following charts illustrate the composition of deposits at the dates indicated:
•The positive trend in levels of criticized and classified loans continued during the year ended December 31, 2022, declining by $722 million; the annualized net charge-off ratio was 0.22% compared to 0.29% for the year ended December 31, 2021. The ratio of non-performing loans to total loans was 0.42% at December 31, 2022, compared to 0.87% at December 31, 2021. The guaranteed portion of SBA loans on non-accrual status represented 0.16% of total loans and 38% of non-performing loans at December 31, 2022.
•Results for the year ended December 31, 2022 were impacted by declines in the fair value of investment securities. Accumulated Other Comprehensive Loss increased by $422 million for the year, primarily due to an increase in unrealized losses on investment securities available for sale. Unrealized losses were generally attributable to rising interest rates and widening spreads related to the Federal Reserve's quantitative tightening and benchmark interest rate increases. None of the unrealized losses were attributable to credit loss impairments. Non-interest income was impacted by a $19.7 million decline in the fair value of certain preferred stock investments.
•Book value per common share and tangible book value per common share was $32.19 and $31.16, respectively, at December 31, 2022, compared to $35.47 and $34.56, respectively at December 31, 2021.
•During the year ended December 31, 2022, the Company repurchased approximately 10.3 million shares of its common stock for an aggregate purchase price of $401.3 million, at a weighted average price of $39.13 per share.
•In the first quarter of 2022, the Company increased its quarterly cash dividend by $0.02, to $0.25 per share, reflecting a 9% increase from the previous quarterly cash dividend of $0.23 per share and maintained that quarterly dividend level through 2022.
•During the year ended December 31, 2022, we opened a new wholesale banking office in Atlanta and a new banking center in Dallas.
•The Company's and the Bank's capital ratios exceeded all regulatory "well capitalized" guidelines. The charts below present the Company's and the Bank's regulatory capital ratios compared to regulatory guidelines at the dates indicated:
BankUnited, Inc.
BankUnited, N.A
Strategic Priorities
Our vision is to build a leading regional commercial and small business bank, with a distinctive value proposition based on strong service-oriented relationships, robust digital enabled customer experiences, and operational excellence with an entrepreneurial work environment that empowers employees to deliver their best. Management has identified the following strategic priorities for our Company:
•Building a scalable middle market and small business franchise by growing core customer relationships on both sides of the balance sheet;
•Maximizing risk adjusted returns through a combination of sustainable, diversified and prudently managed organic growth and capital optimization;
•Transitioning the left side of the balance sheet to a mix of assets with higher risk-adjusted returns;
•Growth of depository relationship with an emphasis on new non-interest bearing deposit relationships;
•Playing where we can win - focusing on niche business segments where our delivery model is a differentiator;
•Investing in people, processes and technology to support organic growth;
•Using technology to enable success by investing in digital capabilities and nimble architecture;
•Retaining the ability to pivot nimbly when opportunities arise;
•Maintaining an efficient, effective and scalable support model through operational excellence;
•While our primary growth strategy is organic, we will continue to monitor the M&A landscape.
Some of the challenges confronting our Company, certain of which may impact the banking industry more broadly, include:
•The ultimate impact of monetary policy on liquidity remains uncertain and competition for deposits is intense. This may impact our ability to grow deposits and/or lead to increases in the cost of deposits.
•Economic conditions may not turn out to be as favorable as current consensus forecasts indicate. A more severe economic downturn could limit the demand for our products and services or lead to an increase in credit losses.
•Achieving planned commercial loan growth may be challenging in an uncertain and competitive environment.
•Talent attraction and retention are a focus given current labor market dynamics and trends.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP and follow general practices within the banking industry. Application of these principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates. The most significant estimate impacting the Company's financial statements is the ACL.
Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position. We believe that the critical accounting policies and estimates discussed below involve a heightened level of management judgment due to the complexity, subjectivity and sensitivity involved in their application.
Note 1 to the consolidated financial statements contains a further discussion of our significant accounting policies.
ACL
The ACL represents management's estimate of current expected credit losses, or the amount of amortized cost basis not expected to be collected, on our loan portfolio and the amount of credit loss impairment on our AFS securities portfolio. Determining the amount of the ACL is considered a critical accounting estimate because of its complexity and because it requires extensive judgment and estimation. Estimates that are particularly susceptible to change that may have a material impact on the amount of the ACL include:
•our evaluation of current conditions;
•our determination of a reasonable and supportable economic forecast and selection of the reasonable and supportable forecast period;
•our evaluation of historical loss experience;
•our evaluation of changes in composition and characteristics of the loan portfolio, including internal risk ratings;
•our estimate of expected prepayments;
•the value of underlying collateral, which may impact loss severity and certain cash flow assumptions for collateral-dependent, criticized and classified loans;
•our selection and evaluation of qualitative factors; and
•our estimate of expected cash flows on AFS debt securities in unrealized loss positions.
Our selection of models and modeling techniques may also have a material impact on the estimate.
Note 1 to the consolidated financial statements describes the methodology used to determine the ACL.
Recent Accounting Pronouncements
See Note 1 to the consolidated financial statements for a discussion of recent accounting pronouncements.
Results of Operations
Net Interest Income
Net interest income is the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities and is the primary driver of core earnings. Net interest income is impacted by the mix of interest earning assets and interest bearing liabilities, the ratio of interest earning assets to total assets and of interest bearing liabilities to total funding sources, movements in market interest rates, the shape of the yield curve, levels of non-performing assets and pricing pressure from competitors.
The mix of interest earning assets is influenced by loan demand, market and competitive conditions in our primary lending markets, by management's continual assessment of the rate of return and relative risk associated with various classes of earning assets and liquidity considerations. The mix of interest bearing liabilities is influenced by the Company's liquidity profile, management's assessment of the desire for lower cost funding sources weighed against relationships with customers and growth expectations, our ability to attract and retain core deposit relationships, competition for deposits in the Company's markets and the availability and pricing of other sources of funds.
The following table presents, for the periods indicated, information about (i) average balances, the total dollar amount of taxable equivalent interest income from earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Non-accrual loans are included in the average balances presented in this table; however, interest income foregone on non-accrual loans is not included. Interest income, yields, spread and margin have been calculated on a tax-equivalent basis for loans and investment securities that are exempt from federal income taxes, at a federal tax rate of 21% (dollars in thousands):
Years Ended December 31,
2022 2021 2020
Average
Balance Interest (1)
Yield/
Rate (1)
Average
Balance Interest (1)
Yield/
Rate (1)
Average
Balance Interest (1)
Yield/
Rate (1)
Assets:
Interest earning assets:
Loans $ 23,937,857 $ 947,386 3.96 % $ 23,083,973 $ 814,101 3.53 % $ 23,385,832 $ 879,082 3.76 %
Investment securities (2)
10,081,701 283,081 2.81 % 9,873,178 155,353 1.57 % 8,739,023 196,954 2.25 %
Other interest earning assets 675,068 15,709 2.33 % 1,093,869 6,010 0.55 % 672,634 9,578 1.42 %
Total interest earning assets 34,694,626 1,246,176 3.59 % 34,051,020 975,464 2.86 % 32,797,489 1,085,614 3.31 %
Allowance for credit losses (132,033) (197,212) (236,704)
Non-interest earning assets 1,721,570 1,770,685 1,860,322
Total assets $ 36,284,163 $ 35,624,493 $ 34,421,107
Liabilities and Stockholders' Equity:
Interest bearing liabilities:
Interest bearing demand deposits $ 2,538,906 13,919 0.55 % $ 3,027,649 8,550 0.28 % $ 2,582,951 19,445 0.75 %
Savings and money market deposits 12,874,240 130,705 1.02 % 13,339,651 43,082 0.32 % 10,843,894 85,572 0.79 %
Time deposits 3,338,671 35,348 1.06 % 3,490,082 15,964 0.46 % 6,617,939 94,963 1.43 %
Total interest bearing deposits 18,751,817 179,972 0.96 % 19,857,382 67,596 0.34 % 20,044,784 199,980 1.00 %
Federal funds purchased 157,979 2,723 1.72 % 33,945 30 0.09 % 71,858 418 0.58 %
FHLB advances 4,383,507 97,763 2.23 % 2,622,723 59,116 2.25 % 4,295,882 85,491 1.99 %
Notes and other borrowings 721,223 37,033 5.13 % 721,803 37,018 5.13 % 592,521 29,962 5.06 %
Total interest bearing liabilities 24,014,526 317,491 1.32 % 23,235,853 163,760 0.70 % 25,005,045 315,851 1.26 %
Non-interest bearing demand deposits 8,861,111 8,480,964 5,760,309
Other non-interest bearing liabilities 708,473 784,031 786,337
Total liabilities 33,584,110 32,500,848 31,551,691
Stockholders' equity 2,700,053 3,123,645 2,869,416
Total liabilities and stockholders' equity $ 36,284,163 $ 35,624,493 $ 34,421,107
Net interest income $ 928,685 $ 811,704 $ 769,763
Interest rate spread 2.27 % 2.16 % 2.05 %
Net interest margin 2.68 % 2.38 % 2.35 %
(1)On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was $12.7 million, $13.3 million and $14.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. The tax-equivalent adjustment for tax-exempt investment securities was $3.0 million, $2.7 million and $3.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.
(2) At fair value except for securities held to maturity.
Increases and decreases in interest income, calculated on a tax-equivalent basis, and interest expense result from changes in average balances (volume) of interest earning assets and liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest earning assets and the interest incurred on our interest bearing liabilities for the years indicated. The effect of changes in volume is determined by multiplying the change in volume by the previous year's average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous year's volume. Changes applicable to both volume and rate have been allocated to volume (in thousands):
2022 Compared to 2021 2021 Compared to 2020
Change Due to Volume Change Due to Rate Increase Change Due to Volume Change Due to Rate Increase (Decrease)
Interest Income Attributable to:
Loans $ 34,024 $ 99,261 $ 133,285 $ (11,194) $ (53,787) $ (64,981)
Investment securities 5,301 122,427 127,728 17,824 (59,425) (41,601)
Other interest earning assets (9,772) 19,471 9,699 2,284 (5,852) (3,568)
Total interest earning assets 29,553 241,159 270,712 8,914 (119,064) (110,150)
Interest Expense Attributable to:
Interest bearing demand deposits (2,806) 8,175 5,369 1,245 (12,140) (10,895)
Savings and money market deposits (5,755) 93,378 87,623 8,476 (50,966) (42,490)
Time deposits (1,556) 20,940 19,384 (14,805) (64,194) (78,999)
Total interest bearing deposits (10,117) 122,493 112,376 (5,084) (127,300) (132,384)
Federal funds purchased 2,140 553 2,693 (36) (352) (388)
FHLB advances 39,172 (525) 38,647 (37,544) 11,169 (26,375)
Notes and other borrowings 15 - 15 6,641 415 7,056
Total interest expense 31,210 122,521 153,731 (36,023) (116,068) (152,091)
Increase (decrease) in net interest income $ (1,657) $ 118,638 $ 116,981 $ 44,937 $ (2,996) $ 41,941
Net interest income, calculated on a tax-equivalent basis, was $928.7 million for the year ended December 31, 2022, compared to $811.7 million for the year ended December 31, 2021, an increase of $117.0 million. The increase in net interest income was comprised of increases in tax-equivalent interest income and interest expense of $270.7 million and $153.7 million, respectively, for the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase in tax equivalent interest income was driven primarily by increases in interest income from loans and investment securities of $133.3 million and $127.7 million, respectively, for the year ended December 31, 2022 compared to the year ended December 31, 2021. These increases reflected increases in both the average balance of and yields on loans and investment securities in a rising interest rate environment. The increase in interest expense for the year ended December 31, 2022, compared to the year ended December 31, 2021, reflected the increased cost of interest bearing deposits related to the rising rate environment, partially offset by declines in the related average balances. Interest expense on FHLB advances also increased mainly due to an increase in the average balance.
The net interest margin, calculated on a tax-equivalent basis, was 2.68% for the year ended December 31, 2022, compared to 2.38% for the year ended December 31, 2021. Offsetting factors impacting the net interest margin for the year ended December 31, 2022 compared to the year ended December 31, 2021 included:
•The tax-equivalent yield on loans expanded to 3.96% for the year ended December 31, 2022, from 3.53% for the year ended December 31, 2021. Factors contributing to this increase were the resetting of variable rate loans at higher coupon rates and originations of new loans at higher rates.
•The tax-equivalent yield on investment securities increased to 2.81% for the year ended December 31, 2022, from 1.57% for the year ended December 31, 2021. The reset of coupon rates on variable rate securities, purchases of higher-yielding securities and slowing prepayment speeds on securities purchased at a premium contributed to the increases in yield.
•The average rate paid on interest bearing deposits increased to 0.96% for the year ended December 31, 2022, from 0.34% for the year ended December 31, 2021, primarily in response to the rising interest rate environment.
•The average rate paid on FHLB advances decreased to 2.23% for the year ended December 31, 2022, from 2.25% for the year ended December 31, 2021. The average rate paid decreased as a result of the impact of cash flow hedging on these borrowings and the impact of higher-cost cash flow hedges discontinued in the fourth quarter of 2021.
Provision for Credit Losses
The provision for credit losses is a charge or credit to earnings required to maintain the ACL at a level consistent with management’s estimate of expected credit losses on financial assets carried at amortized cost at the balance sheet date. The amount of the provision is impacted by changes in current economic conditions as well as in management's reasonable and supportable economic forecast, loan originations and runoff, changes in portfolio mix, risk rating migration and portfolio seasoning, changes in specific reserves, changes in expected prepayment speeds and other assumptions. The provision for credit losses also includes amounts related to off-balance sheet credit exposures and may include amounts related to accrued interest receivable and AFS debt securities.
The following table presents the components of the provision for (recovery of) credit losses for the periods indicated (in thousands):
Years Ended December 31,
2022 2021 2020
Amount related to funded portion of loans $ 73,814 $ (64,456) $ 182,339
Amount related to off-balance sheet credit exposures 1,467 (1,235) (5,572)
Amount related to accrued interest receivable (127) (1,064) 1,300
Amount related to AFS debt securities - (364) 364
Total provision for (recovery of) credit losses $ 75,154 $ (67,119) $ 178,431
The most significant factors impacting the provision for credit losses for the year ended December 31, 2022 included actual and forecasted economic conditions, including uncertainty about the trajectory of the economy and increases in certain specific reserves. Volatility in the provision for credit losses over the periods presented was in part related to the COVID-19 pandemic and its actual and forecasted impact on economic conditions as reserves were increased in 2020 upon onset of the pandemic, and then partially released in 2021 as the economy began to recover.
The provision for credit losses may continue to be volatile and the level of the ACL may change materially from current levels. Future levels of the ACL could be significantly impacted, in either direction, by changes in factors such as economic conditions or the economic outlook, in composition of the loan portfolio, in the financial condition of our borrowers and collateral values.
The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. See “Analysis of the Allowance for Credit Losses” below for more information about how we determine the appropriate level of the ACL and about factors that impacted the ACL and provision for credit losses.
Non-Interest Income
The following table presents a comparison of the categories of non-interest income for the periods indicated (in thousands):
Years Ended December 31,
2022 2021 2020
Deposit service charges and fees $ 23,402 $ 21,685 $ 16,496
Gain on sale of loans:
GNMA early buyout loans (2,573) 5,636 11,274
Other 3 18,758 1,896
Gain (loss) on sale of loans, net (2,570) 24,394 13,170
Gain (loss) on investment securities:
Net realized gain on sale of securities AFS 3,927 9,010 14,001
Net unrealized gain (loss) on marketable equity securities (19,732) (2,564) 3,766
Gain (loss) on investment securities, net (15,805) 6,446 17,767
Lease financing 54,111 53,263 59,112
Other non-interest income 18,498 28,365 26,676
$ 77,636 $ 134,153 $ 133,221
Gain on sale of loans for the year ended December 31, 2021 included a gain of $18.2 million on the sale of a portfolio of single-family residential loans in the fourth quarter of 2021.
The unrealized losses on marketable equity securities reflected in the table above were attributable to the decline in the fair value of certain preferred stock investments resulting from rising market interest rates and widening spreads.
The most significant factor leading to the decrease in other non-interest income for the year ended December 31, 2022, compared to the year ended December 31, 2021, was a decline in BOLI revenue related to the rising interest rate environment.
Non-Interest Expense
The following table presents the components of non-interest expense for the periods indicated (in thousands):
Years Ended December 31,
2022 2021 2020
Employee compensation and benefits $ 265,548 $ 243,532 $ 217,156
Occupancy and equipment 45,400 47,944 48,237
Deposit insurance expense 17,999 18,695 21,854
Professional fees 11,730 14,386 11,708
Technology 77,103 67,500 58,108
Discontinuance of cash flow hedges - 44,833 -
Depreciation and impairment of operating lease equipment 50,388 53,764 49,407
Other non-interest expense 72,142 56,921 50,719
Total non-interest expense $ 540,310 $ 547,575 457,189
Employee compensation and benefits
Employee compensation and benefits increased by $22.0 million for the year ended December 31, 2022, compared to the year ended December 31, 2021. The most significant factor leading to this increase was a combination of higher headcount and salary increases. Higher variable compensation and medical benefits also contributed to the increase.
Professional fees
Professional fees for the year ended December 31, 2021 included $4.2 million related to a tax settlement with the state of Florida.
Technology
The increase in technology expense is reflective of our investment in a variety of technology initiatives in support of future growth of the franchise, such as cloud migration and digital capabilities.
Discontinuance of cash flow hedges
During the fourth quarter of 2021, we recognized a loss of $44.8 million on discontinuance of derivative positions designated as cash flow hedges with a notional amount totaling $401 million following the Company's determination that the hedged forecasted transactions were no longer probable of occurring.
Other non-interest expense
Other non-interest expense increased by $15.2 million for the year ended December 31, 2022, compared to the year ended December 31, 2021. Contributing to the increase were increases in advertising and public relations, travel, entertainment and business development corresponding to a return to pre-COVID levels of activity, and the cost of certain customer deposit rebate programs.
Income Taxes
The provision for income taxes for the years ended December 31, 2022 and 2021 was $90.2 million and $34.4 million, respectively. The Company's effective income tax rate was 24.03% and 7.66% for the years ended December 31, 2022 and 2021, respectively. The effective income tax rate for the year ended December 31, 2021 was impacted by a settlement with the Florida Department of Revenue related to certain tax matters for the 2009-2019 tax years and a reduction in the liability for unrecognized tax benefits arising primarily from expiration of statues of limitations in federal and certain state jurisdictions.
See Note 9 to the consolidated financial statements for information about income taxes.
Analysis of Financial Condition
Total loans, excluding the runoff of PPP loans, grew by $1.4 billion for 2022, with the highest growth in the core C&I and commercial real estate portfolios. Total deposits declined by $1.9 billion in 2022, while FHLB advances grew by $3.5 billion. Non-interest bearing demand deposits decreased by $938 million; growth in non-interest bearing demand deposits has been pressured by the rising interest rate environment and quantitative tightening by the Federal Reserve. Contributing to the decline in both total deposits and non-interest bearing demand deposits in 2022 was a reduction in deposits held by customers serving the residential real estate sector, as the level of mortgage loan origination activity declined significantly in light of rapidly rising interest rates.
Average interest-earning assets increased by $644 million to $34.7 billion for the year ended December 31, 2022, from $34.1 billion for the year ended December 31, 2021, reflecting increases in average balances of both loans and investment securities. During the year ended December 31, 2022, average interest bearing liabilities increased by $779 million and average non-interest bearing demand deposits increased by $380 million.
Investment Securities
The following table shows the amortized cost and carrying value, which, with the exception of investment securities held to maturity, is fair value, of investment securities at the dates indicated (in thousands):
December 31, 2022 December 31, 2021
Amortized
Cost Carrying Value Amortized
Cost Carrying Value
U.S. Treasury securities $ 148,956 $ 135,841 $ 114,385 $ 111,660
U.S. Government agency and sponsored enterprise residential MBS 2,036,693 1,983,168 2,093,283 2,097,796
U.S. Government agency and sponsored enterprise commercial MBS 600,517 525,094 861,925 856,899
Private label residential MBS and CMOs
2,864,589 2,530,663 2,160,136 2,149,420
Private label commercial MBS
2,645,168 2,524,354 2,604,690 2,604,010
Single family real estate-backed securities 502,194 470,441 474,845 476,968
Collateralized loan obligations 1,166,838 1,136,463 1,079,217 1,078,286
Non-mortgage asset-backed securities 102,194 95,976 151,091 152,510
State and municipal obligations 122,181 116,661 205,718 222,277
SBA securities 139,320 135,782 184,296 183,595
Investment securities held to maturity 10,000 10,000 10,000 10,000
$ 10,338,650 9,664,443 $ 9,939,586 9,943,421
Marketable equity securities 90,884 120,777
$ 9,755,327 $ 10,064,198
Our investment strategy has focused on insuring adequate liquidity, maintaining a suitable balance of high credit quality, diverse assets, managing interest rate risk, and generating acceptable returns given our established risk parameters. We have sought to maintain liquidity by investing a significant portion of the portfolio in high quality liquid securities including U.S. Treasury and U.S. Government Agency and sponsored enterprise securities. Investment grade municipal securities provide liquidity and attractive tax-equivalent yields. We have also invested in highly rated structured products, including private-label commercial and residential MBS, collateralized loan obligations, single family real estate-backed securities and non-mortgage asset-backed securities that, while somewhat less liquid, provide us with attractive yields. Relatively short effective portfolio duration helps mitigate interest rate risk. Based on the Company’s assumptions, the estimated weighted average life of the investment portfolio as of December 31, 2022 was 4.9 years and the effective duration of the portfolio was 2.0 years.
The investment securities available for sale portfolio was in a net unrealized loss position of $674.2 million at December 31, 2022, compared to a net unrealized gain position of $3.8 million at December 31, 2021. Net unrealized losses at December 31, 2022 included $2.9 million of gross unrealized gains and $677.1 million of gross unrealized losses. Investment securities available for sale in unrealized loss positions at December 31, 2022 had an aggregate fair value of $9.3 billion. The unrealized losses resulted primarily from rising interest rates and widening spreads related to the Federal Reserve's quantitative tightening and benchmark interest rate increases. Continuing uncertainty with respect to the trajectory of the economy and geopolitical events have also led to market uncertainty, producing some yield curve dislocations. None of the unrealized losses were attributable to credit loss impairments.
The ratings distribution of our AFS securities portfolio at December 31, 2022 is depicted in the chart below:
We evaluate the credit quality of individual securities in the portfolio quarterly to determine whether we expect to recover the amortized cost basis of the investments in unrealized loss positions. This evaluation considers, but is not necessarily limited to, the following factors, the relative significance of which varies depending on the circumstances pertinent to each individual security:
•Whether we intend to sell the security prior to recovery of its amortized cost basis;
•Whether it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis;
•The extent to which fair value is less than amortized cost;
•Adverse conditions specifically related to the security, an industry or geographic area;
•Changes in the financial condition of the issuer or underlying loan obligors;
•The payment structure and remaining payment terms of the security, including levels of subordination or over-collateralization;
•Failure of the issuer to make scheduled payments;
•Changes in credit ratings;
•Relevant market data;
•Estimated prepayments, defaults, and the value and performance of underlying collateral at the individual security level.
We do not intend to sell securities in significant unrealized loss positions at December 31, 2022. Based on an assessment of our liquidity position and internal and regulatory guidelines for permissible investments and concentrations, it is not more likely than not that we will be required to sell securities in significant unrealized loss positions prior to recovery of amortized cost basis, which may be at maturity.
We regularly engage with bond managers to monitor trends in underlying collateral, including potential downgrades and subsequent cash flow diversions, liquidity, ratings migration, and any other relevant developments.
The following table presents subordination levels and average internal stress scenario losses for select non-agency portfolio segments at December 31, 2022:
Subordination Weighted Average Stress Scenario Loss
Rating Percent of Total Minimum Maximum Average
Private label CMBS AAA 84.9 % 30.0 98.1 44.3 6.8
AA 11.0 % 29.3 95.8 41.7 7.5
A 4.1 % 25.1 69.5 38.7 8.8
Weighted average 100.0 % 29.7 96.7 43.8 7.0
CLOs AAA 79.5 % 41.4 59.4 45.8 9.9
AA 17.0 % 31.0 40.8 34.7 8.7
A 3.5 % 25.6 29.4 27.1 10.3
Weighted average 100.0 % 39.1 55.2 43.2 9.7
Private label residential MBS and CMO AAA 94.1 % 3.0 98.2 17.5 2.3
AA 0.9 % 18.9 33.2 24.0 5.3
A 5.0 % 22.1 25.5 23.0 5.4
Weighted average 100.0 % 4.1 94.0 17.9 2.5
Single family real estate-backed securities AAA 67.3 % 34.6 72.6 53.2 5.8
AA 12.8 % 51.6 55.4 53.6 9.4
NR 19.9 % 39.8 39.8 39.8 10.6
Weighted average 100.0 % 37.8 63.9 50.6 7.2
For further discussion of our analysis of impaired investment securities AFS for credit loss impairment see Note 3 to the consolidated financial statements.
We use third-party pricing services to assist us in estimating the fair value of investment securities. We perform a variety of procedures to ensure that we have a thorough understanding of the methodologies and assumptions used by the pricing services including obtaining and reviewing written documentation of the methods and assumptions employed, conducting interviews with valuation desk personnel and reviewing model results and detailed assumptions used to value selected securities as considered necessary. Our classification of prices within the fair value hierarchy is based on an evaluation of the nature of the significant assumptions impacting the valuation of each type of security in the portfolio. We have established a robust price challenge process that includes a review by our treasury front office of all prices provided on a monthly basis. Any price evidencing unexpected month over month fluctuations or deviations from our expectations based on recent observed trading activity and other information available in the marketplace that would impact the value of the security is challenged. Responses to the price challenges, which generally include specific information about inputs and assumptions incorporated in the valuation and their sources, are reviewed in detail. If considered necessary to resolve any discrepancies, a price will be obtained from additional independent valuation sources. We do not typically adjust the prices provided, other than through this established challenge process. Our primary pricing services utilize observable inputs when available, and employ unobservable inputs and proprietary models only when observable inputs are not available. As a matter of course, the services validate prices by comparison to recent trading activity whenever such activity exists. Quotes obtained from the pricing services are typically non-binding.
The majority of our investment securities are classified within level 2 of the fair value hierarchy. U.S. Treasury securities and marketable equity securities are classified within level 1 of the hierarchy.
For additional discussion of the fair values of investment securities, see Note 14 to the consolidated financial statements.
The following table shows the weighted average prospective yields, categorized by scheduled maturity, for AFS investment securities as of December 31, 2022. Scheduled maturities have been adjusted for anticipated prepayments when applicable. Yields on tax-exempt securities have been calculated on a tax-equivalent basis, based on a federal income tax rate of 21%:
Within One Year After One Year
Through Five Years After Five Years
Through Ten Years After Ten Years Total
U.S. Treasury securities 0.59 % - % - % - % 0.59 %
U.S. Government agency and sponsored enterprise residential MBS 4.61 % 4.67 % 4.72 % 4.29 % 4.65 %
U.S. Government agency and sponsored enterprise commercial MBS 3.22 % 4.70 % 2.99 % 2.53 % 3.23 %
Private label residential MBS and CMOs 3.65 % 3.67 % 3.67 % 4.09 % 3.79 %
Private label commercial MBS 5.54 % 5.95 % 1.93 % 3.30 % 5.66 %
Single family real estate-backed securities 1.36 % 4.07 % 1.36 % - % 4.07 %
Collateralized loan obligations 6.25 % 6.57 % 6.77 % - % 6.54 %
Non-mortgage asset-backed securities 3.36 % 3.58 % 5.30 % - % 4.49 %
State and municipal obligations 3.17 % 4.12 % 4.49 % 3.99 % 4.18 %
SBA securities 4.23 % 4.14 % 4.02 % 3.86 % 4.13 %
4.45 % 5.14 % 3.94 % 3.88 % 4.70 %
Loans
The loan portfolio comprises the Company’s primary interest-earning asset. The following table shows the composition of the loan portfolio at the dates indicated (dollars in thousands):
December 31, 2022 December 31, 2021
Total Percent of Total Total Percent of Total
Residential and other consumer loans $ 8,900,714 35.7 % $ 8,368,380 35.2 %
Non-owner occupied commercial real estate 5,405,597 21.7 % 5,536,348 23.3 %
Construction and land 294,360 1.2 % 165,390 0.7 %
Owner occupied commercial real estate 1,890,813 7.6 % 1,944,658 8.2 %
Commercial and industrial 6,414,351 25.9 % 4,790,275 20.2 %
PPP 3,370 - % 248,505 1.0 %
Pinnacle 912,122 3.7 % 919,641 3.9 %
Bridge - franchise finance 253,774 1.0 % 342,124 1.4 %
Bridge - equipment finance 286,147 1.1 % 357,599 1.5 %
Mortgage warehouse lending 524,740 2.1 % 1,092,133 4.6 %
Total loans 24,885,988 100.0 % 23,765,053 100.0 %
Allowance for credit losses (147,946) (126,457)
Loans, net $ 24,738,042 $ 23,638,596
For the year ended December 31, 2022, total loans grew by $1.1 billion, while total loans, excluding PPP loans, grew by $1.4 billion.
Growth in residential and other consumer loans for the year ended December 31, 2022 totaled $532 million. Commercial and industrial loans, including owner-occupied commercial real estate, grew by $1.6 billion for the year ended December 31, 2022. Most of the remaining commercial portfolio segments showed declines during the year ended December 31, 2022. MWL declined by $567 million for this period, as rising rates have led to lower refinancing and mortgage origination activity. PPP loans declined by $245 million during the year ended December 31, 2022, resulting primarily from full or partial forgiveness from the SBA.
Residential mortgages and other consumer loans
The following table shows the composition of residential and other consumer loans at the dates indicated (in thousands):
December 31, 2022 December 31, 2021
1-4 single family residential $ 7,122,837 $ 6,338,225
Government insured residential 1,771,880 2,023,221
Other consumer loans 5,997 6,934
$ 8,900,714 $ 8,368,380
The 1-4 single family residential loan portfolio, excluding government insured residential loans, is primarily comprised of loans purchased through established correspondent channels. 1-4 single family residential mortgage loans are primarily closed-end, first lien jumbo mortgages for the purchase or re-finance of owner occupied property. The loans have terms ranging from 10 to 30 years, with either fixed or adjustable interest rates. At December 31, 2022, $1.1 billion or 16% were secured by investor-owned properties.
The Company acquires non-performing FHA and VA insured mortgages from third party servicers who have exercised their right to purchase these loans out of GNMA securitizations (collectively, "government insured pool buyout loans" or "buyout loans"). Buyout loans that re-perform, either through modification or self-cure, may be eligible for re-securitization. The Company and the servicer share in the economics of the sale of these loans into new securitizations. During the years ended December 31, 2022 and 2021, the Company purchased $480 million and $1.6 billion, respectively, of government insured residential loans. The balance of buyout loans totaled $1.7 billion at December 31, 2022. The Company is not the servicer of these loans.
The following charts present the distribution of the 1-4 single family residential mortgage portfolio at the dates indicated:
See Note 4 to the consolidated financial statements for information about geographic concentrations in the 1-4 single family residential portfolio.
The following table presents a breakdown of the 1-4 single family residential mortgage portfolio, excluding government insured residential loans, categorized between fixed rate loans and ARMs at the dates indicated below (dollars in thousands):
December 31, 2022 December 31, 2021
Total Percent of Total Total Percent of Total
Fixed rate loans $ 3,990,599 56.0 % $ 3,298,689 52.0 %
ARM loans 3,132,238 44.0 % 3,039,536 48.0 %
$ 7,122,837 100.0 % $ 6,338,225 100.0 %
Commercial loans and leases
Commercial loans include a diverse portfolio of commercial and industrial loans and lines of credit, loans secured by owner-occupied commercial real-estate, multi-family properties and other income-producing non-owner occupied commercial real estate, a limited amount of construction and land loans, SBA loans, mortgage warehouse lines of credit, PPP loans, municipal loans and leases originated by Pinnacle and franchise and equipment finance loans and leases originated by Bridge.
The following charts present the distribution of the commercial loan portfolio at the dates indicated (dollars in millions):
(1) Included in C&I are $3 million and $249 million of PPP loans at December 31, 2022 and 2021, respectively.
Commercial real estate loans include term loans secured by non-owner occupied income producing properties including rental apartments, mixed-use properties, industrial properties, retail shopping centers, free-standing single-tenant buildings, office buildings, warehouse facilities, hotels and real estate secured lines of credit.
The following table presents the distribution of commercial real estate loans by property type, along with weighted average DSCRs and LTVs at December 31, 2022 (dollars in thousands):
Amortized Cost Percent of Total FL New York Tri State Other Weighted Average DSCR Weighted Average LTV
Office $ 1,874,614 33 % 59 % 22 % 19 % 1.75 64.3 %
Warehouse/Industrial 1,216,506 21 % 62 % 18 % 20 % 2.05 52.6 %
Multifamily 945,404 17 % 48 % 52 % - % 2.13 45.9 %
Retail 869,922 15 % 64 % 27 % 9 % 1.88 61.7 %
Hotel 407,462 7 % 86 % 6 % 8 % 2.13 55.1 %
Construction and Land 294,360 5 % 49 % 49 % 2 % N/A N/A
Other 91,689 2 % 75 % 9 % 16 % 2.45 47.7 %
$ 5,699,957 100 % 61 % 26 % 13 % 1.95 57.0 %
Geographic distribution in the table above is based on location of the underlying collateral property. LTVs and DSCRs are based on the most recent available information; if current information is not available, values may be adjusted by our models based on current sub-market conditions. DSCRs are calculated based on current contractually required payments, which may in some cases may be interest only.
The Company’s commercial real estate underwriting standards most often provide for loan terms of five to seven years, with amortization schedules of no more than thirty years. The multi-family portfolio includes $419 million of New York loans collateralized by properties with some or all of the units subject to rent regulation at December 31, 2022.
Commercial and industrial loans are typically made to small, middle market and larger corporate businesses and not-for-profit entities and include equipment loans, secured and unsecured working capital facilities, formula-based loans, subscription finance lines of credit, trade finance, SBA product offerings, business acquisition finance credit facilities, credit facilities to
institutional real estate entities such as REITs and commercial real estate investment funds, and commercial credit cards. These loans may be structured as term loans, typically with maturities of five to seven years, or revolving lines of credit which may have multi-year maturities. In addition to financing provided by Pinnacle, the Bank provides financing to state and local governmental entities generally within our geographic markets. Commercial loans included loans meeting the regulatory definition of shared national credits totaling $4.7 billion at December 31, 2022, the majority of which were relationship based loans to borrowers in our primary geographic footprint. The Bank makes loans secured by owner-occupied commercial real estate that typically have risk profiles more closely aligned with that of commercial and industrial loans than with other types of commercial real estate loans.
The following table presents the exposure in the C&I portfolio, excluding PPP loans, by industry, at December 31, 2022 (dollars in thousands):
Amortized Cost Percent of Total
Finance and Insurance $ 1,792,128 21.6 %
Educational Services 751,264 9.0 %
Manufacturing 647,016 7.8 %
Wholesale Trade 644,539 7.8 %
Information 582,590 7.0 %
Utilities 538,290 6.5 %
Real Estate and Rental and Leasing 509,498 6.1 %
Health Care and Social Assistance 483,709 5.8 %
Transportation and Warehousing 401,854 4.8 %
Construction 337,363 4.1 %
Retail Trade 329,949 4.0 %
Professional, Scientific, and Technical Services 299,245 3.6 %
Other Services (except Public Administration) 234,786 2.8 %
Public Administration 221,387 2.7 %
Administrative and Support and Waste Management 172,872 2.1 %
Accommodation and Food Services 154,863 1.9 %
Arts, Entertainment, and Recreation 152,267 1.8 %
Other 51,544 0.6 %
$ 8,305,164 100.0 %
Through its commercial lending subsidiaries, Pinnacle and Bridge, the Bank provides equipment and franchise financing on a national basis using both loan and lease structures. Pinnacle provides essential-use equipment financing to state and local governmental entities directly and through vendor programs and alliances. Pinnacle offers a full array of financing structures including equipment lease purchase agreements and direct (private placement) bond re-fundings and loan agreements. Bridge has two operating divisions. The franchise finance division offers franchise acquisition, expansion and equipment financing, typically to experienced operators in well-established concepts. The franchise finance portfolio is made up primarily of quick service restaurant and fitness concepts comprising 43% and 52% of the portfolio, respectively. The equipment finance division provides primarily transportation equipment financing through a variety of loan and lease structures.
The following table presents the franchise portfolio by concept at December 31, 2022 (dollars in thousands):
Amortized Cost Percent of Bridge -Franchise Finance
Restaurant concepts:
Burger King $ 34,034 13.4 %
Ram Restaurant and Brewery 12,643 5.0 %
Dunkin Donuts 12,453 4.9 %
Other 51,049 20.1 %
$ 110,179 43.4 %
Non-restaurant concepts:
Planet Fitness $ 89,782 35.4 %
Other Fitness Concepts 43,161 17.0 %
Other 10,652 4.2 %
143,595 56.6 %
$ 253,774 100.0 %
See Note 4 to the consolidated financial statements for information about the geographic distribution of the loan portfolio.
Loan Maturities
The following table sets forth, as of December 31, 2022, the maturity distribution of our loan portfolio by category, excluding government insured residential loans. Commercial and other consumer loans are presented by contractual maturity, including scheduled payments for amortizing loans. Contractual maturities of residential loans have been adjusted for an estimated rate of voluntary prepayments, based on historical trends, current interest rates, types of loans and refinance patterns (in thousands):
One Year or Less After One Through Five Years After Five Years Through Fifteen Years After Fifteen Years Total
Residential and other consumer $ 798,187 $ 2,867,688 $ 2,720,638 $ 742,321 $ 7,128,834
Commercial:
Non-owner occupied commercial real estate 725,317 3,425,401 1,224,827 30,052 5,405,597
Construction and land 2,968 231,928 41,326 18,138 294,360
Owner occupied commercial real estate 66,705 647,659 1,042,902 133,547 1,890,813
Commercial and industrial (1)
1,115,125 4,397,116 836,904 68,576 6,417,721
Pinnacle 39,241 299,720 523,582 49,579 912,122
Bridge - franchise finance 35,165 182,762 35,847 - 253,774
Bridge - equipment finance 14,644 164,738 106,765 - 286,147
Mortgage warehouse lending 511,348 13,392 - - 524,740
2,510,513 9,362,716 3,812,153 299,892 15,985,274
$ 3,308,700 $ 12,230,404 $ 6,532,791 $ 1,042,213 $ 23,114,108
(1)Includes PPP loans.
The following table shows the distribution of those loans that mature in more than one year between fixed and adjustable interest rate loans as of December 31, 2022 (in thousands):
Interest Rate Type
Fixed Adjustable Total
Residential and other consumer $ 3,711,961 $ 2,618,686 $ 6,330,647
Commercial:
Non-owner occupied commercial real estate 2,262,373 2,417,907 4,680,280
Construction and land 17,439 273,953 291,392
Owner occupied commercial real estate 1,281,783 542,325 1,824,108
Commercial and industrial (1)
761,245 4,541,351 5,302,596
Pinnacle 872,881 - 872,881
Bridge - franchise finance 123,093 95,516 218,609
Bridge - equipment finance 240,241 31,262 271,503
Mortgage warehouse lending - 13,392 13,392
5,559,055 7,915,706 13,474,761
$ 9,271,016 $ 10,534,392 $ 19,805,408
(1)Includes PPP loans
Excluded from the tables above are government insured residential loans. Resolution of these loans is generally accomplished through the re-securitization and sale of the loans after they re-perform, either through modification or self-cure, or through pursuit of the applicable guarantee.
Operating lease equipment, net
Operating lease equipment, net of accumulated depreciation, totaled $540 million at December 31, 2022, including off-lease equipment, net of accumulated depreciation of $63 million.
The chart below presents operating lease equipment by type at the dates indicated:
At December 31, 2022, the breakdown of carrying values of operating lease equipment, excluding equipment off-lease, by the year leases are scheduled to expire was as follows (in thousands):
Years Ending December 31:
2023 $ 107,475
2024 45,053
2025 59,262
2026 70,400
2027 25,746
Thereafter through 2034 168,428
$ 476,364
Asset Quality
Commercial Loans
We have a robust credit risk management framework, an experienced team to lead the workout and recovery process for the commercial and commercial real estate portfolios and a dedicated internal credit review function. Loan performance is monitored by our credit administration, portfolio management and workout and recovery departments. Generally, commercial relationships with balances in excess of defined thresholds are re-evaluated at least annually and more frequently if circumstances indicate that a change in risk rating may be warranted. The defined thresholds range from $1 million to $3 million. Homogenous groups of smaller balance commercial loans may be monitored collectively. The credit quality and risk rating of commercial loans as well as our underwriting and portfolio management practices are regularly reviewed by our internal independent credit review department.
We believe internal risk rating is the best indicator of the credit quality of commercial loans. The Company utilizes a 16-grade internal asset risk classification system as part of its efforts to monitor and maintain commercial asset quality. The special mention rating is considered a transitional rating for loans exhibiting potential credit weaknesses that could result in deterioration of repayment prospects at some future date if not checked or corrected and that deserve management’s close attention. These borrowers may exhibit declining cash flows or revenues or increasing leverage. Loans with well-defined credit weaknesses that may result in a loss if the deficiencies are not corrected are assigned a risk rating of substandard. These borrowers may exhibit payment defaults, inadequate cash flows from current operations, operating losses, increasing balance sheet leverage, project cost overruns, unreasonable construction delays, exhausted interest reserves, declining collateral values, frequent overdrafts or past due real estate taxes. Loans with weaknesses so severe that collection in full is highly questionable or improbable, but because of certain reasonably specific pending factors have not been charged off, are assigned an internal risk rating of doubtful.
The following table summarizes the Company's commercial credit exposure, based on internal risk rating, at the dates indicated (dollars in thousands):
December 31, 2022 December 31, 2021 December 31, 2020
Amortized Cost Percent of Commercial Loans Amortized Cost Percent of Commercial Loans Amortized Cost Percent of Commercial Loans
Pass $ 15,244,761 95.4 % $ 13,934,369 90.5 % $ 14,832,025 84.6 %
Special mention 51,433 0.3 % 148,593 1.0 % 711,516 4.1 %
Substandard accruing 605,965 3.8 % 1,136,378 7.4 % 1,758,654 10.0 %
Substandard non-accruing 75,125 0.5 % 129,579 0.8 % 203,758 1.2 %
Doubtful 7,990 - % 47,754 0.3 % 11,867 0.1 %
$ 15,985,274 100.0 % $ 15,396,673 100.0 % $ 17,517,820 100.0 %
The table above clearly reflects the ongoing trend of improvement in the risk rating profile of the portfolio as the impact of the COVID-19 pandemic has waned; however, our internal risk ratings at December 31, 2022 continued to be influenced by the impact of the pandemic as sustained operating cash flows of some borrowers have yet to fully recover. Management took what it believed to be a proactive and objective approach to risk rating the commercial loan portfolio at the onset of the pandemic. Levels of criticized and classified loans therefore increased over the course of 2020 and have declined throughout 2021 and 2022.
The following table provides additional information about special mention and substandard accruing loans, at the dates indicated (dollars in thousands). Non-performing loans are discussed further in the section entitled "Non-performing Assets" below.
December 31, 2022 December 31, 2021
Amortized Cost % of Loan Segment Amortized Cost % of Loan Segment
Special mention:
CRE
Hotel $ 709 0.2 % $ 760 0.1 %
Office 18,006 1.0 % 27,001 1.5 %
Other - - % 4,501 3.7 %
18,715 32,262
Owner occupied commercial real estate 24,101 1.3 % 14,010 0.7 %
Commercial and industrial 1,017 - % 102,321 2.1 %
Bridge - franchise finance 7,600 3.0 % - - %
$ 51,433 $ 148,593
Substandard accruing:
CRE
Hotel $ 14,538 3.6 % $ 200,486 36.7 %
Retail 72,421 8.4 % 140,081 13.0 %
Multi-family 146,235 15.5 % 173,536 15.0 %
Office 73,042 3.9 % 83,121 4.6 %
Industrial 976 0.1 % 1,009 0.1 %
Other 7,989 2.6 % 5,803 2.2 %
315,201 604,036
Owner occupied commercial real estate 73,501 3.9 % 160,159 8.2 %
Commercial and industrial 171,613 2.7 % 250,644 5.2 %
Bridge - franchise finance 44,295 17.5 % 80,864 23.6 %
Bridge - equipment finance 1,355 0.5 % 40,675 11.4 %
$ 605,965 $ 1,136,378
Operating Lease Equipment, net
Operating leases with a carrying value of assets under lease totaling $19 million, were internally risk rated substandard at December 31, 2022. On a quarterly basis, management performs an impairment analysis on assets with indicators of potential impairment. Potential impairment indicators include evidence of changes in residual value, macro-economic conditions, an extended period of time off-lease, criticized or classified status, or management's intention to sell the asset at an amount potentially below its carrying value. During the year ended December 31, 2021, impairment charges recognized related to operating lease equipment totaled $2.8 million. There were no impairment charges recognized during the year ended December 31, 2022.
Bridge had exposure to the energy industry of $250 million at December 31, 2022. The majority of the energy exposure was in the operating lease equipment portfolio where energy exposure totaled $219 million.
Residential Loans
Our residential mortgage portfolio, excluding GNMA buyout loans, consists primarily of loans purchased through established correspondent channels. Most of our purchases are of performing jumbo mortgage loans which have FICO scores above 700, primarily are owner-occupied and full documentation, and have a current LTV of 80% or less although loans with LTVs higher than 80% may be extended to selected credit-worthy borrowers. We perform due diligence on the purchased loans for credit, compliance, counterparty, payment history and property valuation.
We have a dedicated residential credit risk management function, and the residential portfolio is monitored by our internal credit review function. Residential mortgage loans are not individually risk rated. Delinquency status is the primary measure we use to monitor the credit quality of these loans. We also consider original LTV and most recently available FICO score to be
significant indicators of credit quality for the 1-4 single family residential portfolio, excluding government insured residential loans.
The following charts present information about the 1-4 single family residential portfolio, excluding government insured loans, by FICO distribution, LTV distribution and vintage at December 31, 2022:
FICO scores are generally updated semi-annually and were most recently updated in the third quarter of 2022. LTVs are typically based on valuation at origination since we do not routinely update residential appraisals.
At December 31, 2022, the majority of the 1-4 single family residential loan portfolio, excluding government insured residential loans, was owner-occupied, with 79% primary residence, 5% second homes and 16% investment properties.
1-4 single family residential loans excluding government insured residential loans past due more than 30 days totaled $62 million and $76 million at December 31, 2022 and 2021, respectively. The amount of these loans 90 days or more past due was $15 million and $17 million at December 31, 2022 and 2021, respectively.
Note 4 to the consolidated financial statements presents additional information about key credit quality indicators and delinquency status of the loan portfolio.
Non-Performing Assets
Non-performing assets generally consist of (i) non-accrual loans, including loans that have been modified in TDRs and placed on non-accrual status, (ii) accruing loans that are more than 90 days contractually past due as to interest or principal, excluding PCD loans for which management has a reasonable basis for an expectation about future cash flows and government insured residential loans, and (iii) OREO and other non-performing assets.
The following table and charts summarize the Company's non-performing loans and non-performing assets at the dates indicated (dollars in thousands):
December 31, 2022 December 31, 2021
Non-accrual loans:
Residential and other consumer 21,311 28,553
Commercial:
Non-owner occupied commercial real estate
16,657 50,116
Construction and land 5,695 5,164
Owner occupied commercial real estate 17,751 20,453
Commercial and industrial 29,722 68,720
Bridge - franchise finance 13,290 32,879
Total commercial loans 83,115 177,332
Total non-accrual loans 104,426 205,885
Loans past due 90 days and still accruing
593 24
Total non-performing loans 105,019 205,909
OREO and other non-performing assets 1,932 2,275
Total non-performing assets $ 106,951 $ 208,184
Non-performing loans to total loans (1)
0.42 % 0.87 %
Non-performing assets to total assets (1)
0.29 % 0.58 %
ACL to total loans 0.59 % 0.53 %
ACL to non-performing loans 140.88 % 61.41 %
Net charge-offs to average loans 0.22 % 0.29 %
(1) Non-performing loans and assets include the guaranteed portion of non-accrual SBA loans totaling $40.3 million or 0.16% of total loans and 0.11% of total assets, at December 31, 2022, and $46.1 million or 0.19% of total loans and 0.13% of total assets, at December 31, 2021.
Contractually delinquent government insured residential loans are typically GNMA early buyout loans and are excluded from non-performing loans as defined in the table above due to their government guarantee. The carrying value of such loans contractually delinquent by 90 days or more was $493 million and $730 million at December 31, 2022 and 2021, respectively.
See "Results of Operations - Provision for Credit Losses" above and “Analysis of the Allowance for Credit Losses” below for further discussion of trends in the Provision for Credit Losses and the ACL.
The following chart presents trends in non-performing loans and non-performing assets. Levels of non-performing loans and non-performing assets have returned to below pre-pandemic levels.
The following chart presents trends in non-performing loans by portfolio sub-segment (in millions):
Commercial loans are placed on non-accrual status when (i) management has determined that full repayment of all contractual principal and interest is in doubt, or (ii) the loan is past due 90 days or more as to principal or interest unless the loan is well secured and in the process of collection. Residential and consumer loans, other than government insured pool buyout loans, are generally placed on non-accrual status when they are 90 days past due. When a loan is placed on non-accrual status, uncollected interest accrued is reversed and charged to interest income. Commercial loans are returned to accrual status only after all past due principal and interest has been collected and full repayment of remaining contractual principal and
interest is reasonably assured. Residential loans are generally returned to accrual status when less than 90 days past due. Past due status of loans is determined based on the contractual next payment due date. Loans less than 30 days past due are reported as current.
TDRs
A loan modification is considered a TDR if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise grant. These concessions may take the form of temporarily or permanently reduced interest rates, payment abatement periods, restructuring of payment terms or extensions of maturity at below market terms. Included in TDRs are residential loans to borrowers who have not reaffirmed their debt discharged in Chapter 7 bankruptcy.
Under inter-agency and authoritative guidance and consistent with the CARES Act, short-term deferrals or modifications related to COVID-19 were typically not categorized as TDRs. Additionally, section 4013 of the CARES Act, as amended by the Consolidated Appropriations Act, effectively suspended the guidance related to TDRs codified in ASC 310-40 until January 1, 2022, the date the CARES Act expired.
The following table summarizes loans that had been modified in TDRs at the dates indicated (dollars in thousands):
December 31, 2022 December 31, 2021
Number of TDRs Amortized Cost Related Specific Allowance Number of TDRs Amortized Cost Related Specific Allowance
Residential and other consumer (1)
2,907 $ 464,118 $ 137 449 $ 79,524 $ 87
Commercial 38 57,832 11,743 16 29,309 1,377
2,945 $ 521,950 $ 11,880 465 $ 108,833 $ 1,464
(1) Includes 2,883 government insured residential loans modified in TDRs totaling $456 million at December 31, 2022, and 435 government insured residential loans modified in TDRs totaling $76 million at December 31, 2021.
See Note 4 to the consolidated financial statements for additional information about TDRs.
Loss Mitigation Strategies
Criticized or classified commercial loans in excess of certain thresholds are reviewed quarterly by the Criticized Asset Committee, which evaluates the appropriate strategy for collection to mitigate the amount of credit losses and considers the appropriate risk rating for these loans. Criticized asset reports for each relationship are presented by the assigned relationship manager and credit officer to the Criticized Asset Committee until such time as the relationships are returned to a satisfactory credit risk rating or otherwise resolved. The Criticized Asset Committee may require the transfer of a loan to our workout and recovery department, which is tasked to effectively manage the loan with the goal of minimizing losses and expenses associated with restructure, collection and/or liquidation of collateral. Commercial loans with a risk rating of substandard, loans on non-accrual status, loans modified as TDRs and assets classified as OREO or repossessed assets are usually transferred to workout and recovery. Oversight of the workout and recovery department is provided by the Criticized Asset Committee.
Our servicers evaluate each residential loan in default to determine the most effective loss mitigation strategy, which may be modification, short sale, or foreclosure, and pursue the alternative most suitable to the consumer and to mitigate losses to the bank.
Analysis of the Allowance for Credit Losses
The ACL is management's estimate of the amount of expected credit losses over the life of the loan portfolio, or the amount of amortized cost basis not expected to be collected, at the balance sheet date. This estimate encompasses information about historical events, current conditions and reasonable and supportable economic forecasts. Determining the amount of the ACL is complex and requires extensive judgment by management about matters that are inherently uncertain. Given the current level of economic uncertainty, the complexity of the ACL estimate and level of management judgment required, we believe it is possible that the ACL estimate could change, potentially materially, in future periods. Changes in the ACL may result from changes in current economic conditions, our economic forecast, loan portfolio composition and circumstances not currently known to us that may impact the financial condition and operations of our borrowers, among other factors.
Expected credit losses are estimated on a collective basis for groups of loans that share similar risk characteristics. For loans that do not share similar risk characteristics with other loans such as collateral dependent loans and TDRs, expected credit
losses are estimated on an individual basis. Expected credit losses are estimated over the contractual terms of the loans, adjusted for expected prepayments, generally excluding expected extensions, renewals, and modifications.
For the substantial majority of portfolio segments and subsegments, including residential loans other than government insured loans, and most commercial and commercial real estate loans, expected losses are estimated using econometric models.
See Note 1 to the consolidated financial statements for more detailed information about our ACL methodology and related accounting policies.
At December 31, 2022 and 2021, we used a single externally provided baseline scenario in calculating the quantitative portion of the ACL. At December 31, 2022, we incorporated a downside scenario to inform the amount of qualitative reserves.
The following table provides an analysis of the ACL, provision for (recovery of) credit losses related to the funded portion of loans and net charge-offs by loan segment for the periods indicated (dollars in thousands):
Residential
and Other
Consumer
Loans Non-owner Occupied Commercial Real Estate Construction and Land Owner Occupied Commercial Real Estate Commercial and Industrial Pinnacle Bridge - Franchise Finance Bridge - Equipment Finance Total
Balance at December 31, 2019 $ 11,154 $ 28,264 $ 764 $ 8,066 $ 43,485 $ 720 $ 9,163 $ 7,055 $ 108,671
Impact of adoption of ASU 2016-13 8,098 (14,222) 1,854 23,240 8,841 (309) (133) (64) 27,305
Balance at January 1, 2020 19,252 14,042 2,618 31,306 52,326 411 9,030 6,991 135,976
Provision for (recovery of) credit losses (556) 97,424 666 (1,463) 35,390 (107) 44,976 6,009 182,339
Charge-offs (31) (10,324) - (1,178) (33,188) - (18,125) (6,756) (69,602)
Recoveries 54 192 - 132 7,669 - 450 113 8,610
Balance at December 31, 2020 18,719 101,334 3,284 28,797 62,197 304 36,331 6,357 257,323
Provision for (recovery of) credit losses (9,241) (65,543) (2,253) (6,844) 31,180 (134) (8,857) (2,764) (64,456)
Charge-offs (304) (9,167) - (471) (50,563) - (10,745) - (71,250)
Recoveries 13 1,156 - 156 3,498 - 17 - 4,840
Balance at December 31, 2021 9,187 27,780 1,031 21,638 46,312 170 16,746 3,593 126,457
Provision for (recovery of) credit losses 2,858 635 1,736 952 61,337 3 7,542 (1,249) 73,814
Charge-offs (412) (9,188) (343) (2,870) (36,051) - (13,191) - (62,055)
Recoveries 108 3,100 - 823 5,049 - 650 - 9,730
Balance at December 31, 2022 $ 11,741 $ 22,327 $ 2,424 $ 20,543 $ 76,647 $ 173 $ 11,747 $ 2,344 $ 147,946
Net Charge-offs to Average Loans
Year Ended
December 31, 2020
- % 0.15 % - % 0.05 % 0.42 % - % 2.86 % 1.13 % 0.26 %
Years Ended
December 31, 2021 - % 0.13 % - % 0.02 % 0.82 % - % 2.34 % - % 0.29 %
Years Ended
December 31, 2022 - % 0.11 % 0.16 % 0.11 % 0.50 % - % 4.49 % - % 0.22 %
The following table shows the distribution of the ACL at the dates indicated (dollars in thousands):
December 31, 2022 December 31, 2021 December 31, 2020
Total %(1)
Total %(1)
Total %(1)
Residential and other consumer $ 11,741 35.7 % $ 9,187 35.2 % $ 18,719 26.6 %
Non-owner occupied commercial real estate 22,327 21.7 % 27,780 23.3 % 101,334 27.7 %
Construction and land 2,424 1.2 % 1,031 0.7 % 3,284 1.2 %
CRE 24,751 28,811 104,618
Owner occupied commercial real estate 20,543 7.6 % 21,638 8.2 % 28,797 8.4 %
Commercial and industrial 76,647 28.0 % 46,312 25.8 % 62,197 27.2 %
Pinnacle 173 3.7 % 170 3.9 % 304 4.6 %
Bridge - franchise finance 11,747 1.0 % 16,746 1.4 % 36,331 2.3 %
Bridge - equipment finance 2,344 1.1 % 3,593 1.5 % 6,357 2.0 %
111,454 88,459 133,986
$ 147,946 100.0 % $ 126,457 100.0 % $ 257,323 100.0 %
(1)Represents percentage of loans receivable in each category to total loans receivable.
The following table presents the ACL as a percentage of loans at the dates indicated:
December 31, 2022 December 31, 2021 December 31, 2020
Residential and other consumer 0.13 % 0.11 % 0.29 %
Commercial:
CRE 0.43 % 0.51 % 1.52 %
Commercial and industrial 1.10 % 0.84 % 1.07 %
Pinnacle 0.02 % 0.02 % 0.03 %
Bridge - franchise finance 4.63 % 4.90 % 6.61 %
Bridge - equipment finance 0.82 % 1.00 % 1.34 %
Total commercial 0.85 % 0.76 % 1.36 %
0.59 % 0.53 % 1.08 %
Significant offsetting factors contributing to the change in the ACL during the year ended December 31, 2022 are depicted in the chart below (in millions):
Changes in the ACL during the year ended December 31, 2022
As depicted in the chart above, the primary reasons for the increase in the ACL from December 31, 2021 to December 31, 2022 were increases in specific reserves and qualitative overlay related primarily to economic uncertainty, partially offset by net charge-offs. The ACL as a percentage of loans was 0.59% at December 31, 2022, compared to 0.53% at December 31, 2021.
The ACL for residential and other consumer segment increased by $2.6 million during the year ended December 31, 2022, from 0.11% to 0.13% of loans. The increase in the ACL for this segment was primarily driven by the economic forecast, particularly a decline in the HPI and increases in forecasted mortgage and unemployment rates.
The ACL for the CRE portfolio sub-segment, including non-owner occupied CRE and construction and land, decreased by $4.1 million during the year ended December 31, 2022, from 0.51% to 0.43% of loans. The decrease in the ACL for CRE was driven mainly by net charge-offs and improvements in the credit quality of existing loans as reflected in the reduction in criticized and classified loans.
The ACL for the commercial and industrial sub-segment, including owner-occupied commercial real estate, increased by $29.2 million during the year ended December 31, 2022, from 0.84% to 1.10% of loans. The increase was mainly driven by (i) increases in specific reserves; (ii) an increase in qualitative loss factors mainly related to economic uncertainty and (iii) loan growth; partially offset by net charge-offs and the reduction in the levels of criticized and classified loans.
The ACL for the BFG franchise finance portfolio segment decreased by $5.0 million during the year ended December 31, 2022, from 4.90% to 4.63% of loans primarily due to (i) a decline in the amortized cost basis of the portfolio; (ii) net charge-offs; and to a lesser extent, (iii) a decrease in qualitative loss factors.
The estimate of the ACL at December 31, 2022 was informed by forecasted economic scenarios published in December 2022, a wide variety of additional economic data, information about borrower financial condition and collateral values and other relevant information. The economic forecast used in modeling the quantitative ACL as of December 31, 2022, was a
third-party provided baseline forecast. Some of the assumptions and data points informing the reasonable and supportable economic forecast used in estimating the quantitative ACL at December 31, 2022 included:
•Labor market assumptions, which reflected national unemployment at 3.8% for the first quarter of 2023, and 4.2% and 3.9% by the end of 2023 and 2024, respectively;
•Annualized growth in GDP at 0.1% for the first quarter of 2023, and averaging 0.9% and 2.0% for 2023 and 2024, respectively;
•S&P 500 declining by 14% in the first quarter of 2023 with gains of 7.9% and 0.3% by the end of 2023 and 2024, respectively;
•HPI decline of 1.1% in the first quarter of 2023, and declines of 3.8% and 3.3% by the end of 2023 and 2024, respectively.
Additional variables and assumptions not explicitly stated, including but not limited to residential and commercial property forecasts, also contributed to the overall impact economic conditions and the economic forecast had on the ACL estimate. Furthermore, while the variables presented above are at the national level, many of the variables are regionalized at the market and submarket level in the models.
For additional information about the ACL, see Note 4 to the consolidated financial statements.
Deposits
A further breakdown of deposits at the dates indicated is shown below:
The estimated amount of uninsured deposits at December 31, 2022 and 2021 was $19.2 billion and $20.2 billion, respectively. Time deposit accounts with balances of $250,000 or more totaled $730 million and $603 million at December 31, 2022 and 2021, respectively. The following table shows scheduled maturities of uninsured time deposits as of December 31, 2022 (in thousands):
Three months or less $ 97,887
Over three through six months 75,758
Over six through twelve months 469,681
Over twelve months 9,626
$ 652,952
Borrowings
In addition to deposits, we utilize FHLB advances as a funding source; the advances provide us with additional flexibility in managing both term and cost of funding and in managing interest rate risk. FHLB advances are secured by qualifying residential first mortgage and commercial real estate loans and MBS. The following table presents information about the contractual balance of outstanding FHLB advances, as of December 31, 2022 (dollars in thousands):
Amount Weighted Average Rate
Maturing in:
2023 - One month or less $ 4,320,000 4.19 %
2023 - Over one month 1,100,000 4.56 %
Total contractual balance outstanding $ 5,420,000
The table above reflects contractual maturities of outstanding advances and does not incorporate the impact that interest rate swaps designated as cash flow hedges have on the duration or cost of borrowings.
The table below presents information about outstanding interest rate swaps hedging the variability of interest cash flows on the FHLB advances included in the table above, as of December 31, 2022 (dollars in thousands):
Notional Amount Weighted Average Rate
Cash flow hedges maturing in:
2023 $ 255,000 2.35 %
2024 535,000 2.40 %
2025 425,000 2.28 %
2026 130,000 1.93 %
Thereafter 25,000 2.50 %
$ 1,370,000 2.31 %
During the year ended December 31, 2021, derivative positions designated as cash flow hedges with a notional amount totaling $401 million, at a weighted average pay rate of 3.24%, were discontinued following the Company's determination that the related forecasted transactions were not probable of occurring.
The Bank utilizes federal funds purchased to manage the daily cash position. See Note 7 to the consolidated financial statements for more information about the Company's FHLB advances and notes. Additionally, see Note 10 to the consolidated financial statements for more information about derivative instruments the Company uses to manage risk.
Liquidity and Capital Resources
Liquidity
Liquidity involves our ability to generate adequate funds to support planned interest earning asset growth, meet deposit withdrawal and credit line usage requests, maintain reserve requirements, conduct routine operations, pay dividends, service outstanding debt and meet other contractual obligations.
BankUnited's ongoing liquidity needs have historically been met primarily by cash flows from operations, deposit growth, the investment portfolio and FHLB advances. FRB discount window borrowings, reverse repurchase agreement capacity and a letter of credit with the FHLB provide additional sources of contingent liquidity. For the years ended December 31, 2022, 2021 and 2020, net cash provided by operating activities was $1.3 billion, $1.2 billion and $864 million, respectively.
Available liquidity includes cash, borrowing capacity at the Federal Home Loan Bank of Atlanta and the Federal Reserve Discount Window, Federal Funds lines of credit and unpledged agency securities. Additional sources of liquidity include cash flows from operations, wholesale deposits, cash flow from the Bank's amortizing securities and loan portfolios, and the sale of investment securities. Management also has the ability to exert substantial control over the rate and timing of loan production, and resultant requirements for liquidity to fund new loans.
The ALM policy establishes limits or operating thresholds and guidelines for a number of measures of liquidity which are monitored at least monthly by the ALCO and quarterly by the Board of Directors. The primary measures used to dimension liquidity risk are the ratio of available liquidity to volatile liabilities and a liquidity stress test coverage ratio. Other measures employed to monitor and manage liquidity include but are not limited to a 30-day total liquidity ratio, a one-year liquidity ratio,
a wholesale funding ratio, concentrations of large deposits, a measure of on-balance sheet available liquidity, the ratio of FHLB advances to total assets and the ratio of non-interest bearing deposits to total deposits, which is reflective of the quality and cost, rather than the quantity, of available liquidity. At December 31, 2022, BankUnited was in compliance with the limits prescribed by the ALM policy.
The ALM policy stipulates that BankUnited’s liquidity is within policy limits if the available liquidity/volatile liabilities ratio and liquidity stress test ratios exceed 100%. At December 31, 2022, BankUnited’s available liquidity/volatile liabilities ratio was 176% and the liquidity stress test ratio was 188%. The Company has a comprehensive contingency liquidity funding plan and conducts a quarterly liquidity stress test, the results of which are reported to the risk committee of the Board of Directors.
As a holding company, BankUnited, Inc. is a corporation separate and apart from its banking subsidiary, and therefore, provides for its own liquidity. BankUnited, Inc.’s main sources of funds include management fees and dividends from the Bank, access to capital markets and, to a lesser extent, its own securities portfolio. There are regulatory limitations that may affect the ability of the Bank to pay dividends to BankUnited, Inc. Management believes that such limitations will not impact our ability to meet our ongoing near-term cash obligations.
The following table presents the Company's material cash requirements for the following twelve months, as of December 31, 2022 (in thousands):
Interest on term deposits
$ 61,496
FHLB advances(1)
5,435,403
Notes and other borrowings(1)
38,318
Operating lease obligations
19,432
$ 5,554,649
(1)Includes interest to be paid on the outstanding contractual obligations.
At December 31, 2022, the Company had $4.0 billion in term deposits with a contractual maturity of twelve months or less. The majority of term deposits and FHLB advances are expected to roll over into new instruments; this amount therefore does not represent future anticipated cash requirements. Additionally, as discussed in Note 15 to the consolidated financial statements, the Bank had $271 million in outstanding commitments to fund loans and $5.7 billion in unfunded commitments under existing lines of credit at December 31, 2022. Many of these commitments are expected to expire without being fully funded and, therefore, also do not necessarily represent future cash requirements.
Macro factors, including the Fed's quantitative tightening policy stance, have led to reduced deposit levels across the banking system. BankUnited's total deposits declined by $1.9 billion during the year ended December 31, 2022, and there is uncertainty as to the future impact of monetary policy on deposit levels both system-wide and at BankUnited. We believe that we have sufficient on-balance sheet and contingent liquidity, through the sources described above, to satisfy our liquidity needs and cash requirements over the next twelve months.
Capital
Pursuant to the FDIA, the federal banking agencies have adopted regulations setting forth a five-tier system for measuring the capital adequacy of the financial institutions they supervise. At December 31, 2022 and 2021, the Company and the Bank had capital levels that exceeded both the regulatory well-capitalized guidelines and all internal capital ratio targets. Upon adoption of ASU 2016-13 on January 1, 2020, the Company elected the option to temporarily delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period. See Note 13 to the consolidated financial statements for more information about the Company's and the Bank's regulatory capital ratios.
We believe we are well positioned, from a capital perspective, to withstand a severe downturn in the economy. We continue to evolve our stress testing framework and adapt it to evolving macro-economic conditions as necessary. The majority of our commercial portfolio is subject to quarterly stress test analysis. On an annual basis, we also run a rigorous stress test of our entire balance sheet incorporating the Fed's CCAR scenarios as well as additional idiosyncratic scenarios reflective of evolving macro-economic themes.
We have an active shelf registration statement on file with the SEC that allows the Company to periodically offer and sell in one or more offerings, individually or in any combination, our common stock, preferred stock and other non-equity securities. The shelf registration provides us with flexibility in issuing capital instruments and enables us to more readily access
the capital markets as needed to pursue future growth opportunities and to ensure continued compliance with regulatory capital requirements. Our ability to issue securities pursuant to the shelf registration is subject to market conditions.
Interest Rate Risk
A principal component of the Company’s risk of loss arising from adverse changes in the fair value of financial instruments, or market risk, is interest rate risk, including the risk that assets and liabilities with similar re-pricing characteristics may not reprice at the same time or to the same degree. A primary objective of the Company’s asset/liability management activities is to maximize net interest income, while maintaining acceptable levels of interest rate risk. The ALCO is responsible for establishing policies to manage exposure to interest rate risk, and to ensure procedures are established to monitor compliance with these policies. The policies established by the ALCO are approved at least annually by the Board of Directors or its Risk Committee.
Management believes that the simulation of net interest income in different interest rate environments provides the most meaningful measure of interest rate risk. Income simulation analysis is designed to capture not only the potential of all assets and liabilities to mature or reprice, but also the probability that they will do so. Income simulation also attends to the relative interest rate sensitivities of these items, and projects their behavior over an extended period of time. Finally, income simulation permits management to assess the probable effects on the balance sheet not only of changes in interest rates, but also of proposed strategies for responding to them.
The income simulation model analyzes interest rate sensitivity by projecting net interest income over twelve and twenty-four month periods in a most likely rate scenario based on consensus forward interest rate curves versus net interest income in alternative rate scenarios. Management continually reviews and refines its interest rate risk management process in response to changes in the interest rate environment, the economic climate and observed customer behavior. Currently, our interest rate risk policy framework is based on modeling instantaneous rate shocks of plus and minus 100, 200, 300 and 400 basis point shifts. We also model a variety of yield curve slope and dynamic balance sheet scenarios. We continually evaluate the scenarios being modeled with a view toward adapting them to changing economic conditions, expectations and trends.
The following table presents the impact on forecasted net interest income compared to a "most likely" scenario in parallel rate shock scenarios of plus 100, 200, 300 and 400 basis points at December 31, 2022 and 2021, as well as minus 100, 200 and 300 basis points scenarios at December 31, 2022. At December 31, 2022, the most likely rate scenario incorporated a bear flattening yield curve and floored all indices at 0%. We did not apply a falling rate scenario at December 31, 2021 due to the low prevailing interest rate environment at that time.
Down 300 Down 200 Down 100 Plus 100 Plus 200 Plus 300 Plus 400
Model Results at December 31, 2022 - increase (decrease)
In year 1 (10.0) % (5.1) % (1.7) % 0.1 % (0.6) % (1.4) % (2.6) %
In year 2 (18.3) % (8.4) % (3.5) % 1.8 % 2.3 % 1.8 % 0.7 %
Model Results at December 31, 2021 - increase
In year 1 N/A N/A N/A 2.5 % 3.9 % 4.3 % 4.2 %
In year 2 N/A N/A N/A 6.6 % 11.5 % 15.8 % 20.4 %
Management also simulates changes in EVE in various interest rate environments. The following table illustrates the modeled change in EVE in the indicated scenarios at December 31, 2022 and December 31, 2021:
Down 300 Down 200 Down 100 Plus 100 Plus 200 Plus 300 Plus 400
Model Results at December 31, 2022 - increase (decrease):
(0.9) % 4.5 % 3.8 % (5.5) % (11.3) % (17.3) % (22.8) %
Model Results at December 31, 2021 - increase (decrease):
N/A N/A N/A 0.4 % (1.0) % (3.2) % (5.0) %
All of the modeled results presented above fall within designated "low" or "moderate" risk zones as set forth in the Company's ALM policy. Many assumptions were used by the Company to calculate the impact of changes in interest rates, including the change in rates. Actual results may not be similar to the Company’s projections due to several factors including the timing and frequency of rate changes, market conditions, changes in depositor behavior and loan prepayment speeds and the shape of the yield curve. Actual results may also differ due to the Company’s actions, if any, in response to changing rates and conditions.
Derivative Financial Instruments
Interest rate derivatives designated as cash flow or fair value hedging instruments are one of the tools we use to manage interest rate risk. These derivative instruments are used to mitigate exposure to changes in interest cash flows on variable rate liabilities and to changes in the fair value of fixed rate financial instruments, in each case caused by fluctuations in benchmark interest rates, as well as to manage duration of liabilities. The fair value of derivative instruments designated as hedges is included in other assets and other liabilities in our consolidated balance sheets. Changes in fair value of derivative instruments designated as cash flow hedges are reported in accumulated other comprehensive income. Changes in the fair value of derivative instruments designated as fair value hedges are recognized in earnings, as is the offsetting gain or loss on the hedged item. At December 31, 2022, outstanding interest rate swaps, caps and collars designated as cash flow hedges had an aggregate notional amount of $2.3 billion and outstanding interest rate swaps designated as fair value hedges had an aggregate notional amount of $100 million.
Interest rate swaps and caps not designated as hedges had an aggregate notional amount of $3.9 billion at December 31, 2022. These interest rate swaps and caps were entered into as accommodations to certain of our commercial borrowers. To mitigate interest rate risk associated with these derivatives, the Company enters into offsetting derivative positions with primary dealers.
See Note 10 to the consolidated financial statements for additional information about derivative financial instruments.
LIBOR Transition
The FCA, which regulates LIBOR, discontinued the one-week and two-month LIBOR tenors effective December 31, 2021. The remaining tenors will be discontinued effective June 30, 2023. The Company has implemented and is in the process of executing a detailed plan to facilitate the transition from LIBOR to alternative reference rates, with SOFR being the preferred alternative to LIBOR. We established a cross-functional LIBOR transition working group that (i) continually assesses the Company's remaining exposure to LIBOR indexed instruments (ii) evaluated the systems, models and processes impacted by reference rate transition and implemented any necessary modifications to ensure compliance with the new reference rate framework; (iii) developed and continues to execute under a formal governance structure for the transition; and (iv) continues to monitor and report on execution under a detailed transition implementation plan. We have taken the following actions, among others, to facilitate the transition to alternative reference rates by the Bank and our customers:
• Evaluated the fallback language in all financial instruments referencing LIBOR, and effective January 2021, adopted the ARRC recommended hardwired approach fallback provisions incorporating SOFR pursuant to a waterfall for all bilateral commercial loans which provide for the determination of replacement rates for LIBOR-linked financial products;
• Adhered to the 2020 ISDA IBOR Fallbacks Protocol to amend fallback language in all of our existing derivative counterparty agreements;
• Adopted primarily SOFR based products and pricing for newly originated commercial loans and interest rate swaps for borrowers, purchases of residential mortgage loans and investment securities and derivative hedging instruments;
• Effective 12/31/2021, ceased originating LIBOR indexed loans and implemented SOFR as the preferred alternative to LIBOR;
•Completed testing and implementation of replacement indices in applicable systems and models;
•Established detailed operational protocols for the implementation of fallback language in existing LIBOR instruments maturing after June 30, 2023;
•Provided ongoing education to client-facing associates and customers; and
•Adopted and continue to execute a detailed remediation plan for bilateral and agent loans maturing after June 30, 2023, while actively monitoring LIBOR-based loans scheduled to mature prior to June 30, 2023.
The following table presents information about the Company's exposure to instruments that reference LIBOR, as of December 31, 2022 (in thousands):
Maturing
Prior to June 30, 2023 After June 30, 2023 Total
Investment securities $ - $ 3,686,709 $ 3,686,709
Loans 101,871 4,080,601 4,182,472
Interest rate derivative contracts (1)
262,578 2,700,534 2,963,112
$ 364,449 $ 10,467,844 $ 10,832,293
(1)Represents notional amount.
Impact of the COVID-19 Pandemic
A more detailed discussion of the effects the COVID-19 pandemic had during 2020 and 2021 on our Company appears in the "Impact of the COVID-19 Pandemic and Our Response" section in the MD&A of the Company's 2021 and 2020 Annual Reports on Form 10-K.
2021 and 2022 were characterized broadly by recovery of the U.S. economy from the impact of the COVID-19 pandemic. The actual and expected impact of the pandemic on our financial condition and results of operations continues to decline. Levels of criticized and classified assets remain elevated at December 31, 2022 when compared to pre-pandemic levels although they continue to trend downward; levels of non-performing assets have returned to below pre-pandemic levels. The composition of the balance sheet at December 31, 2022 and corresponding levels of net interest income reflect the opportunity cost of the decline in commercial loans and the increase in residential loans and securities that occurred over the course of the pandemic. Historically, commercial loans have generally tended to be higher yielding assets than residential loans and securities. During the first quarter of 2022, we welcomed our employees back to the office, adopting a hybrid work model for most non-branch employees. This model will likely continue to evolve over the near to medium term.
Non-GAAP Financial Measures
PPNR is a non-GAAP financial measure. Management believes this measure is relevant to understanding the performance of the Company attributable to elements other than the provision for credit losses and the ability of the Company to generate earnings sufficient to cover estimated credit losses, particularly in view of the volatility of the provision for credit losses. This measure also provides a meaningful basis for comparison to other financial institutions since it is commonly employed and is a measure frequently cited by investors and analysts. The following table reconciles the non-GAAP financial measurement of PPNR to the comparable GAAP financial measurement of income before income taxes for the periods indicated (in thousands):
Years Ended December 31,
2022 2021
Income before income taxes (GAAP) $ 375,132 $ 449,385
Plus: Provision for (recovery of) credit losses 75,154 (67,119)
PPNR (non-GAAP) $ 450,286 $ 382,266
Tangible book value per common share is a non-GAAP financial measure. Management believes this measure is relevant to understanding the capital position and performance of the Company. Disclosure of this non-GAAP financial measure also provides a meaningful basis for comparison to other financial institutions as it is a metric commonly used in the banking industry. The following table reconciles the non-GAAP financial measurement of tangible book value per common share to the comparable GAAP financial measurement of book value per common share at the dates indicated (in thousands except share and per share data):
December 31, 2022 December 31, 2021
Total stockholders’ equity $ 2,435,981 $ 3,037,761
Less: goodwill and other intangible assets 77,637 77,637
Tangible stockholders’ equity $ 2,358,344 $ 2,960,124
Common shares issued and outstanding 75,674,587 85,647,986
Book value per common share $ 32.19 $ 35.47
Tangible book value per common share $ 31.16 $ 34.56

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See the section entitled “Interest Rate Risk” included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Management's Report on Internal Control Over Financial Reporting
BankUnited, Inc. Consolidated Financial Statements for the Years ended December 31, 2022, 2021 and 2020
Reports of Independent Registered Public Accounting Firm (Deloitte and Touche LLP, Miami, FL. Auditor Firm ID: 34)
Report of Independent Registered Public Accounting Firm (KPMG LLP, Charlotte, NC, Auditor Firm ID: 185)
Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021
Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Note 1 Basis of Presentation and Summary of Significant Accounting Policies
Note 2 Earnings Per Common Share
Note 3 Investment Securities
Note 4 Loans and Allowance for Credit Losses
Note 5 Leases
Note 6 Deposits
Note 7 Borrowings
Note 8 Premises, Equipment and Software
Note 9 Income Taxes
Note 10 Derivatives and Hedging Activities
Note 11 Stockholders’ Equity
Note 12 Equity Based and Other Compensation Plans
Note 13 Regulatory Requirements and Restrictions
Note 14 Fair Value Measurements
Note 15 Commitments and Contingencies
Note 16 Condensed Financial Statements of BankUnited, Inc.
Note 17 Quarterly Financial Information (Unaudited)
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13a-15(f). The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including the Company's principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of the Company's internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the Company's evaluation under the framework in Internal Control-Integrated Framework, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2022.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2022 has been audited by Deloitte and Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Report of Independent Registered Public Accounting Firm
To the stockholders and Board of Directors of BankUnited, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of BankUnited, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, cash flows, and stockholders' equity for the years ended December 31, 2022 and 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years ended December 31, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses - Refer to Notes 1 and 4 to the financial statements
Critical Audit Matter Description
The allowance for credit losses (“ACL”) is management's estimate of the current amount of expected credit losses over the life of the loan portfolio, or the amount of amortized cost basis not expected to be collected, at the balance sheet date. Determining the amount of the ACL is complex and requires extensive judgment by management about matters that are inherently uncertain. The measurement of expected credit losses encompasses information about historical events, current conditions, and reasonable and supportable economic forecasts. Factors that may be considered in determining the amount of the ACL include but are not limited to, product or collateral type, industry, geography, internal risk rating, credit characteristics such as credit scores or collateral values, delinquency rates, historical or expected credit loss patterns and other quantitative and qualitative factors considered to have an impact on the adequacy of the ACL and the ability of borrowers to repay their loans. The adequacy of the ACL is also dependent on the effectiveness of the underlying models used in determining the estimate.
Expected credit losses are estimated over the contractual terms of the loans using econometric models, adjusted for expected prepayments. The models employ a factor-based methodology, leveraging data sets containing extensive historical loss and recovery information by industry, geography, product type, collateral type, and obligor characteristics, to estimate probability of
default (“PD”) and loss given default (“LGD”). Projected PDs and LGDs, determined based on pool level characteristics, are applied to estimated exposure at default. Measures of PD incorporate current conditions through market cycle or credit cycle adjustments. PDs and LGDs are then conditioned on the reasonable and supportable economic forecast. For criticized or classified loans, PDs are adjusted to benchmark PDs established for each risk rating if the most current financial information available is deemed not to be reflective of the borrowers' current financial condition. For non-accrual or doubtful rated distressed loans above a certain threshold, an individual assessment is performed to determine expected credit losses.
Given the complex nature of estimating the ACL, performing audit procedures to evaluate whether the ACL was appropriately recorded as of December 31, 2022 required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to test the ACL for the loan portfolio included the following, among others:
•We tested the effectiveness of controls over the ACL including management’s controls over data transfers into and out of the models, final quantitative model results, and application of any qualitative adjustments.
•We tested the completeness and accuracy of the data used in the models.
•We evaluated the reasonableness of the qualitative adjustments within the ACL estimate.
We evaluated a sample of non-accrual and doubtful rated loans by assessing the factors utilized during the Bank's assessment of the reserves associated with the loans, assessed the appropriateness of risk ratings, and evaluated the financial performance of the borrowers as well as the associated collateral, and the timeliness of the associated reserve.
/s/ Deloitte and Touche LLP
Miami, Florida
February 22, 2023
We have served as the Company's auditor since 2021.
Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of BankUnited, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of BankUnited Inc. and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 22, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/Deloitte and Touche LLP
Miami, Florida
February 22, 2023
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
BankUnited, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows of BankUnited, Inc. and subsidiaries (the Company) for the year ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/KPMG LLP
We served as the Company’s auditor from 2009 to 2021.
Charlotte, North Carolina
February 26, 2021
BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 31,
2022 December 31,
ASSETS
Cash and due from banks:
Non-interest bearing $ 16,068 $ 19,143
Interest bearing 556,579 295,714
Cash and cash equivalents 572,647 314,857
Investment securities (including securities recorded at fair value of $9,745,327 and $10,054,198)
9,755,327 10,064,198
Non-marketable equity securities 294,172 135,859
Loans 24,885,988 23,765,053
Allowance for credit losses (147,946) (126,457)
Loans, net 24,738,042 23,638,596
Bank owned life insurance 308,212 309,477
Operating lease equipment, net 539,799 640,726
Goodwill 77,637 77,637
Other assets 740,876 634,046
Total assets $ 37,026,712 $ 35,815,396
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Demand deposits:
Non-interest bearing $ 8,037,848 $ 8,975,621
Interest bearing 2,142,067 3,709,493
Savings and money market 13,061,341 13,368,745
Time 4,268,078 3,384,243
Total deposits 27,509,334 29,438,102
Federal funds purchased 190,000 199,000
FHLB advances 5,420,000 1,905,000
Notes and other borrowings 720,923 721,416
Other liabilities 750,474 514,117
Total liabilities 34,590,731 32,777,635
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.01 per share, 400,000,000 shares authorized; 75,674,587 and 85,647,986 shares issued and outstanding
757 856
Paid-in capital 321,729 707,503
Retained earnings 2,551,400 2,345,342
Accumulated other comprehensive loss (437,905) (15,940)
Total stockholders' equity 2,435,981 3,037,761
Total liabilities and stockholders' equity $ 37,026,712 $ 35,815,396
The accompanying notes are an integral part of these consolidated financial statements
BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Years Ended December 31,
2022 2021 2020
Interest income:
Loans $ 934,642 $ 800,819 $ 864,175
Investment securities 280,100 152,619 193,856
Other 15,709 6,010 9,578
Total interest income 1,230,451 959,448 1,067,609
Interest expense:
Deposits 179,972 67,596 199,980
Borrowings 137,519 96,164 115,871
Total interest expense 317,491 163,760 315,851
Net interest income before provision for credit losses 912,960 795,688 751,758
Provision for (recovery of) credit losses
75,154 (67,119) 178,431
Net interest income after provision for credit losses 837,806 862,807 573,327
Non-interest income:
Deposit service charges and fees 23,402 21,685 16,496
Gain (loss) on sale of loans, net (2,570) 24,394 13,170
Gain (loss) on investment securities, net
(15,805) 6,446 17,767
Lease financing 54,111 53,263 59,112
Other non-interest income 18,498 28,365 26,676
Total non-interest income 77,636 134,153 133,221
Non-interest expense:
Employee compensation and benefits 265,548 243,532 217,156
Occupancy and equipment 45,400 47,944 48,237
Deposit insurance expense 17,999 18,695 21,854
Professional fees 11,730 14,386 11,708
Technology 77,103 67,500 58,108
Discontinuance of cash flow hedges - 44,833 -
Depreciation and impairment of operating lease equipment 50,388 53,764 49,407
Other non-interest expense 72,142 56,921 50,719
Total non-interest expense 540,310 547,575 457,189
Income before income taxes
375,132 449,385 249,359
Provision for income taxes 90,161 34,401 51,506
Net income
$ 284,971 $ 414,984 $ 197,853
Earnings per common share, basic $ 3.55 $ 4.52 $ 2.06
Earnings per common share, diluted $ 3.54 $ 4.52 $ 2.06
The accompanying notes are an integral part of these consolidated financial statements
BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
@ Years Ended December 31,
2022 2021 2020
Net income
$ 284,971 $ 414,984 $ 197,853
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities available for sale:
Net unrealized holding gain (loss) arising during the period (498,864) (54,228) 46,045
Reclassification adjustment for net securities gains realized in income
(2,906) (6,712) (10,431)
Net change in unrealized gains (losses) on securities available for sale (501,770) (60,940) 35,614
Unrealized gains (losses) on derivative instruments:
Net unrealized holding gain (loss) arising during the period 79,871 22,207 (87,402)
Reclassification adjustment for net (gains) losses realized in income (66) 38,545 34,463
Reclassification adjustment for discontinuance of cash flow hedges - 33,400 -
Net change in unrealized gains (losses) on derivative instruments 79,805 94,152 (52,939)
Other comprehensive income (loss) (421,965) 33,212 (17,325)
Comprehensive income (loss) $ (136,994) $ 448,196 $ 180,528
The accompanying notes are an integral part of these consolidated financial statements
BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
2022 2021 2020
Cash flows from operating activities:
Net income
$ 284,971 $ 414,984 $ 197,853
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and accretion, net (7,978) (21,205) (28,246)
Provision for (recovery of) credit losses
75,154 (67,119) 178,431
(Gain) loss on sale of loans, net
2,570 (24,394) (13,170)
(Gain) loss on investment securities, net
15,805 (6,446) (17,767)
Equity based compensation 25,179 23,832 20,367
Depreciation and amortization 77,623 78,500 72,508
Deferred income taxes 1,437 (9,015) (27,586)
Proceeds from sale of loans held for sale, net 423,893 807,097 584,427
Other:
(Increase) decrease in other assets
230,382 (148,806) (33,383)
(Decrease) increase in other liabilities 164,785 172,747 (69,266)
Net cash provided by operating activities
1,293,821 1,220,175 864,168
Cash flows from investing activities:
Purchases of investment securities (2,974,352) (5,835,143) (4,208,597)
Proceeds from repayments and calls of investment securities 1,784,484 2,586,385 1,352,788
Proceeds from sale of investment securities 798,205 2,286,600 1,503,498
Purchases of non-marketable equity securities (471,763) (62,137) (134,938)
Proceeds from redemption of non-marketable equity securities 313,450 122,143 192,737
Purchases of loans (2,283,134) (4,843,231) (3,157,659)
Loan originations and repayments, net 613,767 3,856,932 1,819,139
Proceeds from sale of loans, net 88,103 305,929 48,721
(Acquisition) disposition of operating lease equipment, net 52,240 (44,179) (19,597)
Other investing activities (41,400) (11,204) (16,807)
Net cash used in investing activities
(2,120,400) (1,637,905) (2,620,715)
(Continued)
The accompanying notes are an integral part of these consolidated financial statements
BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Years Ended December 31,
2022 2021 2020
Cash flows from financing activities:
Net increase (decrease) in deposits (1,928,768) 1,942,286 3,101,225
Net increase (decrease) in federal funds purchased (9,000) 19,000 80,000
Additions to FHLB borrowings 4,650,000 946,000 3,857,000
Repayments of FHLB borrowings (1,135,000) (2,162,000) (5,217,000)
Proceeds from issuance of notes, net - - 293,858
Dividends paid (79,443) (85,790) (86,522)
Exercise of stock options - 25 19,611
Repurchase of common stock (401,288) (318,499) (100,972)
Other financing activities (12,132) (6,151) (7,610)
Net cash provided by financing activities
1,084,369 334,871 1,939,590
Net increase (decrease) in cash and cash equivalents
257,790 (82,859) 183,043
Cash and cash equivalents, beginning of period 314,857 397,716 214,673
Cash and cash equivalents, end of period $ 572,647 $ 314,857 $ 397,716
Supplemental disclosure of cash flow information:
Interest paid $ 294,144 $ 169,291 $ 336,991
Income taxes (refunded) paid, net $ (109,069) $ 248,473 $ 8,637
Supplemental schedule of non-cash investing and financing activities:
Transfers from loans to loans held for sale $ 514,565 $ 1,064,090 $ 602,198
Dividends declared, not paid $ 19,346 $ 19,876 $ 22,309
Unsettled securities trades, net $ - $ 22,858 $ -
Obligations incurred in acquisition of affordable housing limited partnerships $ 65,000 $ - $ -
The accompanying notes are an integral part of these consolidated financial statements
BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
Common
Shares
Outstanding Common
Stock Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Stockholders’
Equity
Balance at December 31, 2019 95,128,231 $ 951 $ 1,083,920 $ 1,927,735 $ (31,827) $ 2,980,779
Impact of adoption of ASU 2016-13 - - - (23,817) - (23,817)
Balance at January 1, 2020 95,128,231 951 1,083,920 1,903,918 (31,827) 2,956,962
Comprehensive income - - - 197,853 (17,325) 180,528
Dividends ($0.92 per common share)
- - - (88,056) - (88,056)
Equity based compensation 759,983 8 19,550 - - 19,558
Forfeiture of unvested shares and shares surrendered for tax withholding obligations
(230,537) (2) (4,617) - - (4,619)
Exercise of stock options
735,400 7 19,604 - - 19,611
Repurchase of common stock (3,325,577) (33) (100,939) - - (100,972)
Balance at December 31, 2020 93,067,500 931 1,017,518 2,013,715 (49,152) 2,983,012
Comprehensive income - - - 414,984 33,212 448,196
Dividends ($0.92 per common share)
- - - (83,357) - (83,357)
Equity based compensation 571,936 6 14,334 - - 14,340
Forfeiture of unvested shares and shares surrendered for tax withholding obligations
(216,095) (2) (5,954) - - (5,956)
Exercise of stock options
1,569 - 25 - - 25
Repurchase of common stock (7,776,924) (79) (318,420) - - (318,499)
Balance at December 31, 2021 85,647,986 856 707,503 2,345,342 (15,940) 3,037,761
Comprehensive loss - - - 284,971 (421,965) (136,994)
Dividends ($1.00 per common share)
- - - (78,913) - (78,913)
Equity based compensation 496,361 6 20,705 - - 20,711
Forfeiture of unvested shares and shares surrendered for tax withholding obligations
(214,981) (2) (5,294) - - (5,296)
Repurchase of common stock (10,254,779) (103) (401,185) - - (401,288)
Balance at December 31, 2022 75,674,587 $ 757 $ 321,729 $ 2,551,400 $ (437,905) $ 2,435,981
The accompanying notes are an integral part of these consolidated financial statements
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
December 31, 2022
Note 1 Basis of Presentation and Summary of Significant Accounting Policies
BankUnited, Inc. is a bank holding company with one wholly-owned subsidiary, BankUnited, collectively, the Company. BankUnited, a national banking association headquartered in Miami Lakes, Florida, provides a full range of commercial lending and both commercial and consumer deposit services through 54 banking centers located in 12 Florida counties, four banking centers in the New York metropolitan area, and one banking center in Dallas, Texas. The Bank also offers certain commercial lending and deposit products through national platforms and regional wholesale banking offices.
The consolidated financial statements have been prepared in accordance with GAAP and prevailing practices in the banking industry.
The Company has a single operating segment and thus a single reportable segment. While management monitors the revenue streams of its various business units, the business units serve a similar base of primarily commercial clients, providing a similar range of products and services, managed through similar processes and platforms. The Company’s chief operating decision maker makes company-wide resource allocation decisions and assessments of performance based on a collective assessment of the Company’s operations.
Accounting Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and disclosures of contingent assets and liabilities. Actual results could differ significantly from these estimates.
The most significant estimate impacting the Company's consolidated financial statements is the ACL.
Principles of Consolidation
The consolidated financial statements include the accounts of BankUnited, Inc. and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. VIEs are consolidated if the Company is the primary beneficiary; i.e., has (i) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company has variable interests in affordable housing limited partnerships that are not required to be consolidated because the Company is not the primary beneficiary.
Fair Value Measurements
Certain of the Company's assets and liabilities are reflected in the consolidated financial statements at fair value on either a recurring or non-recurring basis. Investment securities available for sale, marketable equity securities and derivative instruments are measured at fair value on a recurring basis. Assets measured at fair value or fair value less cost to sell on a non-recurring basis may include collateral dependent loans, OREO and other repossessed assets, loans held for sale, goodwill and impaired long-lived assets. These non-recurring fair value measurements typically involve lower-of-cost-or-market accounting or the measurement of impairment of certain assets.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. GAAP establishes a hierarchy that prioritizes inputs used to determine fair value measurements into three levels based on the observability and transparency of the inputs:
•Level 1 inputs are unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
•Level 2 inputs are observable inputs other than level 1 inputs, including quoted prices for similar assets and liabilities, quoted prices for identical assets and liabilities in less active markets and other inputs that can be corroborated by observable market data.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
•Level 3 inputs are unobservable inputs supported by limited or no market activity or data and inputs requiring significant management judgment or estimation.
The fair value hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs in estimating fair value. Unobservable inputs are utilized in determining fair value measurements only to the extent that observable inputs are unavailable. The need to use unobservable inputs generally results from a lack of market liquidity and diminished observability of actual trades or assumptions that would otherwise be available to value a particular asset or liability.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, both interest bearing and non-interest bearing, including amounts on deposit at the Federal Reserve Bank. Cash equivalents have original maturities of three months or less. For purposes of reporting cash flows, cash receipts and payments pertaining to FHLB advances with original maturities of three months or less are reported net.
Investment Securities
Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost. Debt securities that the Company may not have the intent to hold to maturity are classified as available-for-sale at the time of acquisition and carried at fair value with unrealized gains and losses, net of tax, excluded from earnings and reported in AOCI, a separate component of stockholders' equity. Securities classified as available-for-sale may be used as part of the Company's asset/liability management strategy and may be sold in response to liquidity needs, regulatory changes, changes in interest rates, prepayment risk or other market factors. The Company does not maintain a trading portfolio. Purchase premiums and discounts on debt securities are amortized as adjustments to yield over the expected lives of the securities, using the interest method which results in a constant effective yield. Premiums are amortized to the call date for callable securities. Realized gains and losses from sales of securities are recorded on the trade date and are determined using the specific identification method. The Company's policy on the ACL related to debt securities is discussed below in the section entitled "ACL".
Marketable equity securities with readily determinable fair values are reported at fair value with unrealized gains and losses included in earnings.
Non-marketable Equity Securities
The Bank, as a member of the FRB system and the FHLB, is required to maintain investments in the stock of the FRB and FHLB. No market exists for this stock, and the investment can be liquidated only through redemption by the respective institutions, at the discretion of and subject to conditions imposed by those institutions. The stock has no readily determinable fair value and is carried at cost. Historically, stock redemptions have been at par value, which equals the Company's carrying value. The Company monitors its investment in FRB and FHLB stock for impairment through review of recent financial results of the FHLB, including capital adequacy and liquidity position, dividend payment history, redemption history and information from credit agencies. The Company has not identified any indicators of impairment of the FRB or FHLB stock.
Loans Held for Sale
Loans originated or purchased with the intent to sell in the secondary market are carried at the lower of cost or fair value, determined in the aggregate. A valuation allowance is established through a charge to earnings if the aggregate fair value of such loans is lower than their cost. Gains or losses recognized upon sale are determined on the specific identification basis.
Loans not originated or otherwise acquired with the intent to sell, or loans which have been originated by the Company and subsequently held for sale, are transferred into the held for sale classification at the lower of carrying amount or fair value when they are specifically identified for sale and a formal plan exists to sell them.
Loans
Loans are reported at amortized cost, net of the ACL. Interest income is accrued based on the principal amount outstanding. Non-refundable loan origination fees, net of direct costs of originating or acquiring loans, as well as purchase premiums and
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
discounts, are deferred and recognized as adjustments to yield over the contractual lives of the related loans using the interest method which results in a constant effective yield.
Non-accrual loans
Commercial loans are placed on non-accrual status when (i) management has determined that full repayment of all contractual principal and interest is in doubt, or (ii) the loan is past due 90 days or more as to principal or interest unless the loan is well secured and in the process of collection. Residential and other consumer loans, other than government insured residential loans, are generally placed on non-accrual status when they are 90 days past due. When a loan is placed on non-accrual status, uncollected interest accrued is reversed and charged to interest income. Payments received on non-accrual commercial loans are applied as a reduction of principal. Interest payments are recognized as income on a cash basis on non-accrual residential loans. Commercial loans are returned to accrual status only after all past due principal and interest has been collected and full repayment of remaining contractual principal and interest is reasonably assured. Residential and consumer loans are generally returned to accrual status when less than 90 days past due. Past due status of loans is determined based on the contractual next payment due date. Loans less than 30 days past due are reported as current.
Contractually delinquent government insured residential loans are not classified as non-accrual due to the nature of the guarantee. Contractually delinquent PCD loans are not classified as non-accrual, as long as the Company has a reasonable expectation about amounts expected to be collected.
Troubled Debt Restructurings
In certain situations, due to economic or legal reasons related to a borrower's financial difficulties, the Company may grant a concession to the borrower for other than an insignificant period of time that it would not otherwise consider. At that time, the related loan is classified as a TDR. The concessions granted may include rate reductions, principal forgiveness, payment forbearance, extensions of maturity at rates of interest below that commensurate with the risk profile of the loans, modification of payment terms and other actions intended to minimize economic loss. A TDR is generally placed on non-accrual status at the time of the modification unless the borrower was performing prior to the restructuring.
Section 4013 of the CARES Act, as amended by the Consolidated Appropriations Act on December 27, 2020, effectively suspended the guidance related to TDRs codified in ASC 310-40 through January 1, 2022. Pursuant to inter-agency and authoritative guidance and consistent with the CARES Act, short-term deferrals or modifications granted during the period this guidance was effective and related to COVID-19 typically were not categorized as TDRs.
PCD assets
PCD assets are acquired financial assets that, as of the date of acquisition, have experienced a more than insignificant deterioration in credit quality since origination. An assessment is conducted at acquisition to determine whether acquired financial assets meet the criteria to be classified as PCD assets. That assessment may be conducted at the individual asset level, or for a group of assets acquired together that have similar risk characteristics. At acquisition, the ACL related to PCD assets, representing the estimated amount of the UPB of the assets not expected to be collected, is added to the purchase price to determine the amortized cost basis and any non-credit related discount or premium is allocated to the individual assets acquired. The non-credit related discount or premium is accreted or amortized to interest income over the life of the related assets using the level yield method, as long as there is a reasonable expectation about amounts expected to be collected. Subsequent changes in the amount of expected credit losses are recognized immediately by adjusting the ACL and reflecting the periodic changes as credit loss expense or reversal of credit loss expense.
Sales-type and Direct Financing Leases
Sales-type and direct financing leases are carried at the aggregate of lease payments receivable and estimated residual value of the leased property, if applicable, less unearned income. Interest income is recognized over the term of the leases to achieve a constant periodic rate of return on the outstanding investment.
ACL
AFS Debt Securities
The Company reviews its AFS debt securities for credit loss impairment at the individual security level on at least a quarterly basis. A security is impaired if its fair value is less than its amortized cost basis. A decline in fair value below
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
amortized cost basis represents a credit loss impairment to the extent the Company does not expect to recover the amortized cost basis of the security. Impairment related to credit losses is recorded through the ACL to the extent fair value is less than the amortized cost basis. Declines in fair value that have not been recorded through the ACL are recorded through other comprehensive income, net of applicable taxes.
In assessing whether an impairment is credit loss related, the Company compares the present value of cash flows expected to be collected to the security's amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, a credit loss exists, and an ACL is recorded. The Company discounts expected cash flows at the effective interest rate implicit in the security at the purchase date, adjusted for expected prepayments. For floating rate securities, the Company uses the floating rate as it changes over the life of the security. In developing estimates about cash flows expected to be collected and determining whether a credit loss exists, the Company considers information about past events, current conditions and reasonable and supportable forecasts. Factors and information that the Company uses in making its assessments include, but are not necessarily limited to, the following:
•The extent to which fair value is less than amortized cost;
•Adverse conditions specifically related to the security, an industry or geographic area;
•Changes in the financial condition of the issuer or underlying loan obligors;
•The payment structure and remaining payment terms of the security, including levels of subordination or over-collateralization;
•Failure of the issuer to make scheduled payments;
•Changes in credit ratings;
•Relevant market data;
•Estimated prepayments, defaults, and the value and performance of underlying collateral at the individual security level.
The relative importance assigned to each of these factors varies depending on the facts and circumstances pertinent to the individual security being evaluated.
Timely payment of principal and interest on securities issued by the U.S. Government, U.S. government agencies and U.S. government sponsored entities is explicitly or implicitly guaranteed by the U. S. government. Therefore, the Company expects to recover the amortized cost basis of these securities.
If the Company intends to sell a security in an unrealized loss position, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, any allowance for credit losses will be written off and the amortized cost basis will be written down to the debt security’s fair value at the reporting date with any incremental impairment reported in earnings.
AFS securities will be charged off to the extent that there is no reasonable expectation of recovery of amortized cost basis. AFS securities will be placed on non-accrual status if the Company does not reasonably expect to receive interest payments in the future and interest accrued will be reversed against interest income. Securities will be returned to accrual status only when collection of interest is reasonably assured.
Loans
The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The ACL is adjusted through the provision for credit losses to the amount of amortized cost basis not expected to be collected, or in the case of PCD loans, the amount of UPB not expected to be collected, at the balance sheet date. Amortized cost basis includes UPB, unamortized premiums or discounts and deferred fees and costs, net of amounts previously charged off.
The measurement of expected credit losses encompasses information about historical events, current conditions and reasonable and supportable forecasts. Determining the amount of the ACL is complex and requires extensive judgment by management about matters that are inherently uncertain. Re-evaluation of the ACL estimate in future periods, in light of
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
changes in composition and characteristics of the loan portfolio, changes in the reasonable and supportable forecast and other factors then prevailing may result in material changes in the amount of the ACL and credit loss expense in those future periods.
Loans are charged off against the ACL in the period in which they are deemed uncollectible, and recoveries are credited to the ACL when received. Expected recoveries on loans previously charged off and expected to be charged-off, not to exceed the aggregate of amounts previously charged-off and expected to be charged-off, are included in the ACL estimate. For loans secured by residential real estate, an assessment of collateral value is made at no later than 120 days delinquency; any outstanding loan balance in excess of fair value less cost to sell is charged off at no later than 180 days delinquency. Additionally, any outstanding balance in excess of fair value of collateral less cost to sell is charged off (i) within 60 days of receipt of notification of filing from the bankruptcy court, (ii) within 60 days of determination of loss if all borrowers are deceased or (iii) within 90 days of discovery of fraudulent activity. Other consumer loans are typically charged off at 120 days delinquency. Commercial loans are charged off when, in management's judgment, they are considered to be uncollectible.
Expected credit losses are estimated on a collective basis for groups of loans that share similar risk characteristics. Factors that may be considered in aggregating loans for this purpose include but are not necessarily limited to, product or collateral type, industry, geography, internal risk rating, credit characteristics such as credit scores or collateral values, and historical or expected credit loss patterns. For loans that do not share similar risk characteristics with other loans such as collateral dependent loans and TDRs, expected credit losses are estimated on an individual basis.
Expected credit losses are estimated over the contractual terms of the loans, adjusted for expected prepayments. Expected prepayments for commercial loans are generally estimated based on the Company's historical experience. For residential loans, expected prepayments are estimated using a model that incorporates industry prepayment data, calibrated to reflect the Company's experience. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a TDR will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
For the substantial majority of portfolio segments and subsegments, including residential loans other than government insured loans, and most commercial and commercial real estate loans, expected losses are estimated using econometric models. The models employ a factor based methodology, leveraging data sets containing extensive historical loss and recovery information by industry, geography, product type, collateral type and obligor characteristics, to estimate PD and LGD. Measures of PD for commercial loans incorporate current conditions through market cycle or credit cycle adjustments. For residential loans, the models consider FICO, adjusted LTVs and delinquency rates. PDs and LGDs are then conditioned on the reasonable and supportable economic forecast. Projected PDs and LGDs, determined based on pool level characteristics, are applied to estimated exposure at default, considering the contractual term and payment structure of loans, adjusted for expected prepayments, to generate estimates of expected loss. For criticized or classified loans, PDs are adjusted to benchmark PDs established for each risk rating given that the most current financial information available is often not reflective of the borrowers' current financial condition. The ACL estimate incorporates a reasonable and supportable economic forecast through the use of externally developed macroeconomic scenarios applied in the models.
A single economic scenario or a probability weighted blend of economic scenarios may be used. The models ingest numerous national, regional and MSA level variables and data points.
Commercial Real Estate Model
Variables with the most significant impact on the commercial real estate model include unemployment at both national and regional levels, the CRE property forecast by property type and sub-market, 10 year treasury yield, Baa corporate yield and real GDP growth, at the national level. Increases in unemployment and yields within the commercial real estate model result in increases in the ACL. Increases in real GDP growth and improvements in the CRE property forecasts reduce the reserve.
Commercial Model
Variables with the most significant impact on the commercial model include a stock market volatility index, the S&P 500 index, unemployment at both national and regional levels, and a variety of interest rates and spreads. Increases in the unemployment rate, the stock market volatility index, and the Baa corporate yield increase the reserve, while increases in real GDP growth reduce the reserve.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Residential Model
Variables with the most significant impact on the residential model include HPI and unemployment at regional levels, real GDP growth, and a 30 year mortgage rate. Increases in the unemployment rate and the 30-year mortgage rate increase the reserve, while increases in real GDP growth and HPI reduce the reserve.
The length of the reasonable and supportable forecast period is evaluated at each reporting period and adjusted if deemed necessary. Currently, the Company uses a 2-year reasonable and supportable forecast period in estimating the ACL. After the reasonable and supportable forecast period, the models effectively revert to long-term mean losses on a straight-line basis over 12 months.
For certain less material portfolios including loans and leases to state and local government entities originated by Pinnacle, small balance commercial loans and consumer loans, the WARM method is used to estimate expected credit losses. Loss rates are applied to the exposure at default, after factoring in amortization and expected prepayments. For the Pinnacle portfolio, historical loss information is based on municipal historical default and recovery data, segmented by credit rating. For small balance commercial loans, historical loss information is based on the Company's historical loss experience over a five year period. For consumer loans, historical loss information is based on peer data; this portfolio subsegment is not significant. All loss estimates are conditioned as applicable on changes in current conditions and the reasonable and supportable economic forecast. Expected credit losses for the funded portion of mortgage warehouse lines of credit are estimated based primarily on the Company's historical loss experience, conditioned as applicable on changes in current conditions and the reasonable and supportable economic forecast. Generally, given the nature of these loans, losses would be expected to manifest within a very short time period after origination.
The Company expects to collect the amortized cost basis of government insured residential loans and PPP loans due to the nature of the government guarantee, so the ACL is zero for these loans.
Qualitative factors
Quantitative models have certain inherent limitations with respect to estimating expected losses. These limitations may be more prevalent in times of rapidly changing economic conditions and forecasts. Qualitative adjustments are made to the ACL when, based on management’s judgment, there are factors impacting expected credit losses not taken into account by the quantitative calculations. Potential qualitative adjustments are categorized as follows:
•Economic factors, including material uncertainties, trends and developments that, in management's judgment, may not have been considered in the reasonable and supportable economic forecast;
•Credit policy and staffing, including the nature and level of policy and procedural exceptions or changes in credit policy not reflected in quantitative results, changes in the quality of underwriting and portfolio management and staff and issues identified by credit review, internal audit or regulators that may not be reflected in quantitative results;
•Concentrations, considering whether the quantitative estimate adequately accounts for concentration risk in the portfolio;
•Model imprecision and model validation findings; and
•Other factors not adequately considered in the quantitative estimate or other qualitative categories identified by management that may materially impact the amount of expected credit losses.
Collateral dependent loans
Collateral dependent loans are those for which the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. These loans do not typically share similar risk characteristics with other loans and expected credit losses are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. Estimates of expected credit losses for collateral dependent loans, whether or not foreclosure is probable, are based on the fair value of the collateral, adjusted for selling costs when repayment depends on sale of the collateral. Due to immateriality, expected credit losses for collateral dependent commercial relationships with committed balances less than $1.0 million may be estimated collectively.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Troubled debt restructurings
For TDRs or loans for which there is a reasonable expectation that a TDR will be executed that are not collateral dependent, the credit loss estimate is determined by comparing the net present value of expected cash flows to the amortized cost of the loans. Expected cash flows are discounted at the loan’s original effective interest rate for fixed rate loans and at the rate as it changes over the life of the loan for variable rate loans.
Off-balance sheet credit exposures
Expected credit losses related to off-balance sheet credit exposures are estimated over the contractual period for which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. Expected credit losses are estimated using essentially the same methodologies employed to estimate expected credit losses on the amortized cost basis of loans, taking into consideration the likelihood and amount of additional amounts expected to be funded over the terms of the commitments. The liability for credit losses on off-balance sheet credit exposures is presented within other liabilities on the consolidated balance sheets, distinct from the ACL. Adjustments to the liability are included in the provision for credit losses.
Accrued Interest Receivable
The Company has elected to present accrued interest receivable separate from the amortized cost basis of financial assets carried at amortized cost. The Company excludes accrued interest receivable balances from tabular disclosures about financial assets carried at amortized cost. The Company generally does not estimate an ACL on accrued interest receivable balances since uncollectible accrued interest is timely written off in accordance with the Company's accounting policies for non-accrual loans. Under unusual circumstances, the Company evaluates whether its non-accrual policies continue to consistently provide for timely reversal of accrued interest receivable. If considered necessary, the Company records an allowance for uncollectible accrued interest receivable, determined using essentially the same methodologies used to estimate the ACL on the amortized cost basis of the related loans. The allowance is deducted from accrued interest receivable and presented within other assets on the consolidated balance sheets, distinct from the ACL. Changes in the ACL related to accrued interest receivable are included in the provision for credit losses.
Leases
The Company determines whether a contract is or contains a lease at inception. For leases with terms greater than twelve months under which the Company is lessee, ROU assets and lease liabilities are recorded at the commencement date. Lease liabilities are initially recorded based on the present value of future lease payments over the lease term. ROU assets are initially recorded at the amount of the associated lease liabilities plus prepaid lease payments and initial direct costs, less any lease incentives received. The cost of short term leases is recognized on a straight line basis over the lease term. The lease term includes options to extend if the exercise of those options is reasonably certain and includes termination options if there is reasonable certainty the options will not be exercised. Lease payments are discounted using the Company's FHLB borrowing rate for borrowings of a similar term unless an implicit rate is defined in the contract or is determinable, which is generally not the case. Leases are classified as financing or operating leases at commencement; generally, leases are classified as finance leases when effective control of the underlying asset is transferred. The substantial majority of leases under which the Company is lessee are classified as operating leases. For operating leases, lease cost is recognized in the consolidated statements of income on a straight line basis over the lease terms. For finance leases, interest expense on lease liabilities is recognized on the effective interest method and amortization of ROU assets is recognized on a straight line basis over the lease terms. Variable lease costs are recognized in the period in which the obligation for those costs is incurred. The Company has elected not to separate lease from non-lease components of its lease contracts.
Bank Owned Life Insurance
Bank owned life insurance is carried at cash surrender value. Changes in cash surrender value are recorded in non-interest income.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Operating Lease Equipment
Operating lease equipment is carried at cost less accumulated depreciation and is depreciated to estimated residual value using the straight-line method over the lease term. Estimated residual values are re-evaluated at least annually, based primarily on current residual value appraisals. Rental revenue is recognized on a straight-line basis over the contractual term of the lease.
A review for impairment of equipment under operating lease is performed at least annually or when events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable. Impairment of assets is determined by comparing the carrying amount to future undiscounted net cash flows expected to be generated. If an asset is impaired, the measure of impairment is the amount by which the carrying amount exceeds the fair value of the asset.
Goodwill
Goodwill represents the excess of consideration transferred in business combinations over the fair value of net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but is tested for impairment annually or more frequently if events or circumstances indicate that impairment may have occurred. The Company performs its annual goodwill impairment test in the third fiscal quarter. The Company has a single reporting unit.
When assessing goodwill for impairment, the Company may elect to perform a qualitative assessment to determine if a quantitative impairment test is necessary. If a qualitative assessment is not performed, or if the qualitative assessment indicates it is likely that the fair value of a reporting unit is less than its carrying amount, a quantitative test is performed. The quantitative impairment test compares the estimated fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit exceeds its carrying amount, no impairment is indicated. If the fair value of the reporting unit is less than its carrying amount, impairment of goodwill is measured as the excess of the carrying amount over fair value.
OREO and Repossessed Assets
OREO and repossessed assets consists of real estate assets acquired through, or in lieu of, loan foreclosure and personal property acquired through repossession. Such assets are included in other assets in the accompanying consolidated balance sheets. These assets are held for sale and are initially recorded at estimated fair value less costs to sell, establishing a new cost basis. Subsequent to acquisition, periodic valuations are performed, and the assets are carried at the lower of the carrying amount at the date of acquisition or estimated fair value less cost to sell. Significant property improvements are capitalized to the extent that the resulting carrying value does not exceed fair value less cost to sell. Legal fees, maintenance, taxes, insurance and other direct costs of holding and maintaining these assets are expensed as incurred.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and amortization and are included in other assets in the accompanying consolidated balance sheets. The Company measures assets held for sale at the lower of carrying amount or estimated fair value. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The lives of improvements to existing buildings are based on the lesser of the estimated remaining lives of the buildings or the estimated useful lives of the improvements. Leasehold improvements are amortized over the shorter of the expected terms of the leases at inception, considering options to extend that are reasonably assured, or their useful lives. The estimated useful lives of premises and equipment are as follows:
•buildings and improvements - 10 to 30 years;
•leasehold improvements - 5 to 20 years;
•furniture, fixtures and equipment - 5 to 7 years; and
•computer equipment - 3 to 5 years.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Software and CCA
Software and CCA are carried at cost less accumulated depreciation and amortization and are included in other assets in the accompanying consolidated balance sheets. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets, which for CCA is based on the term of the associated hosting arrangements plus any reasonably certain renewals. Direct costs associated with developing or obtaining and implementing internal use software and hosting arrangements that are service contracts incurred during the application development stage are capitalized. The estimated useful lives of software, software licensing rights and CCA implementation costs range from 3 to 5 years.
Investments in Affordable Housing Limited Partnerships
The Company has acquired investments in limited partnerships that manage or invest in qualified affordable housing projects and provide the Company with low-income housing tax credits and other tax benefits. These investments are included in other assets in the accompanying consolidated balance sheets. The Company accounts for investments in qualified affordable housing projects using the proportional amortization method if certain criteria are met. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received and the amortization is recognized in the income statement as a component of income tax expense. The investments are evaluated for impairment when events or changes in circumstances indicate that it may be more likely than not that the carrying amount of the investment will not be realized.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for periods in which the differences are expected to reverse. The effect of changes in tax rates on deferred tax assets and liabilities are recognized in income in the period that includes the enactment date. A valuation allowance is established for deferred tax assets when management determines that it is more likely than not that some portion or all of a deferred tax asset will not be realized. In making such determinations, the Company considers all available positive and negative evidence that may impact the realization of deferred tax assets. These considerations include the amount of taxable income generated in statutory carryback periods, future reversals of existing taxable temporary differences, projected future taxable income and available tax planning strategies.
The Company recognizes tax benefits from uncertain tax positions when it is more likely than not that the related tax positions will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the tax positions. An uncertain tax position is a position taken in a previously filed tax return or a position expected to be taken in a future tax return that is not based on clear and unambiguous tax law. The Company measures tax benefits related to uncertain tax positions based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. If the initial assessment fails to result in recognition of a tax benefit, the Company subsequently recognizes a tax benefit if (i) there are changes in tax law or case law that raise the likelihood of prevailing on the technical merits of the position to more-likely-than-not, (ii) the statute of limitations expires, or (iii) there is a completion of an examination resulting in a settlement of that tax year or position with the appropriate agency. The Company recognizes interest and penalties related to uncertain tax positions, as well as interest income or expense related to tax settlements, in the provision for income taxes.
Equity Based Compensation
The Company periodically grants unvested or restricted shares of common stock and other share-based awards to key employees. For equity classified awards, compensation cost is measured based on the estimated fair value of the awards at the grant date and is recognized in earnings on a straight-line basis over the requisite service period for each award. Liability-classified awards are remeasured each reporting period at fair value until the award is settled, and compensation cost is recognized in earnings on a straight-line basis over the requisite service period for each award, adjusted for changes in fair value each reporting period. Compensation cost related to awards that embody performance conditions is recognized when it is probable that the performance conditions will be achieved. The number of awards expected to vest is estimated in determining the amount of compensation cost to be recognized related to share-based payment transactions.
The fair value of unvested shares is generally based on the closing market price of the Company's common stock at the date of grant. Market conditions embedded in awards are reflected in the grant-date fair value of the awards.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Derivative Financial Instruments and Hedging Activities
Interest rate derivative contracts
The Company uses interest rate derivative contracts, such as swaps, caps, floors and collars, in the normal course of business to meet the financial needs of its customers and to manage exposure to changes in interest rates. Interest rate contracts are recorded as assets or liabilities in the consolidated balance sheets at fair value. Interest rate derivatives that are used as a risk management tool to hedge the Company's exposure to changes in interest rates have been designated as cash flow or fair value hedging instruments. The gain or loss resulting from changes in the fair value of interest rate swaps designated and qualifying as cash flow hedging instruments is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same period in which the hedged transaction affects earnings. Changes in the fair value of interest rate swaps designated as fair value hedging instruments as well as the offsetting changes in the fair value of the hedged items caused by fluctuations in the designated benchmark interest rates are recognized in earnings.
The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the cash flows or fair value of the hedged item, the derivative expires or is sold, terminated, or exercised, management determines that the designation of the derivative as a hedging instrument is no longer appropriate or, for a cash flow hedge, the occurrence of the forecasted transaction is no longer probable. When hedge accounting on a cash flow hedge is discontinued, any subsequent changes in fair value of the derivative are recognized in earnings. The cumulative unrealized gain or loss related to a discontinued cash flow hedge continues to be reported in AOCI and is subsequently reclassified into earnings in the same period in which the hedged transaction affects earnings, unless it is probable that the forecasted transaction will not occur by the end of the originally specified time period, in which case the cumulative unrealized gain or loss reported in AOCI is reclassified into earnings immediately. When hedge accounting on a fair value hedge is discontinued, adjustments to the carrying amount of the hedged item due to changes in fair value are also discontinued.
Cash flows from derivative financial instruments that are accounted for as hedges, including daily settlements of centrally cleared derivatives with the CME, are classified as operating cash flows.
Changes in the fair value of interest rate contracts not designated as, or not qualifying as, hedging instruments are recognized currently in earnings.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. A gain or loss is recognized in earnings upon completion of the sale based on the difference between the sales proceeds and the carrying value of the assets. Control over the transferred assets is deemed to have been surrendered when: (i) the assets have been legally isolated from the Company, (ii) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
Earnings per Common Share
Basic earnings per common share is calculated by dividing income allocated to common stockholders for basic earnings per common share by the weighted average number of common shares outstanding for the period, reduced by average unvested stock awards. Unvested stock awards with non-forfeitable rights to dividends, whether paid or unpaid, and stand-alone dividend participation rights are considered participating securities and are included in the computation of basic earnings per common share using the two class method whereby net income is allocated between common stock and participating securities. In periods of a net loss, no allocation is made to participating securities as they are not contractually required to fund net losses. Diluted earnings per common share is computed by dividing income allocated to common stockholders for basic earnings per common share, adjusted for earnings reallocated from participating securities, by the weighted average number of common shares outstanding for the period increased for the dilutive effect of unexercised stock options and unvested stock awards using the treasury stock method. Contingently issuable shares are included in the calculation of earnings per common share beginning on the date the contingency was resolved.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Revenue From Contracts with Customers
Revenue from contracts with customers within the scope of Topic 606 "Revenue from Contracts with Customers", is recognized in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services as the related performance obligations are satisfied. The majority of our revenues, including revenues from loans, leases, investment securities, derivative instruments and letters of credit and from transfers and servicing of financial assets, are excluded from the scope of Topic 606. Deposit service charges and fees is the most significant category of revenue within the scope of the standard. These service charges and fees consist primarily of monthly maintenance fees and other transaction based fees. Revenue is recognized when our performance obligations are complete, generally monthly for account maintenance fees or when a transaction, such as a wire transfer, is completed. Payment is typically received at the time the performance obligation is satisfied. The aggregate amount of revenue that is within the scope of Topic 606 from sources other than deposit service charges and fees is not material.
Reclassifications
Certain amounts presented for prior periods have been reclassified to conform to the current period presented.
New Accounting Pronouncements Adopted in 2022
ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity(Subtopic 815-40) . This ASU simplifies the accounting for convertible debt and convertible preferred stock by reducing the number of accounting models for these instruments, resulting in fewer embedded conversion features being separately recognized from the host contract. Additionally, this ASU revises the criteria for determining whether contracts in an entity's own equity meet the scope exception from derivative accounting, which will change the population of contracts that are recognized as assets or liabilities. The amendments in this ASU also revise certain aspects of the guidance on calculating earnings per share with respect to convertible instruments and instruments that may be settled in the entity's own shares. The Company adopted this ASU on January 1, 2022,with no material impact on the Company's consolidated financial position, results of operations, and cash flows.
ASU No. 2022-01, Fair Value Hedging-Portfolio Layer Method (Topic 815) . This ASU expands the portfolio layer method of hedge accounting prescribed in ASU No. 2017-12 to allow multiple hedged layers of a single closed portfolio and to include portfolios of both prepayable and non-prepayable financial assets. This scope expansion is consistent with the FASB’s efforts to simplify hedge accounting and allows entities to apply the same accounting method to similar hedging strategies. The ASU also specifies eligible hedging instruments in a single-layer hedge, provides additional guidance on accounting and disclosure of hedge basis adjustments and specifies how hedge basis adjustments should be considered in determining credit losses for assets in the designated closed portfolio. This ASU is effective for public business entities for interim and annual periods in fiscal years beginning after December 15, 2022. The Company adopted this ASU upon its release in March 2022 with no material impact on the Company's consolidated financial position, results of operations, and cash flows.
Accounting Pronouncements Not Yet Adopted
ASU No. 2022-02, Financial Instruments-Credit Losses (Topic 326). This ASU eliminates the accounting guidance for TDRs by creditors in Subtopic310-40, Receivables - Troubled Debt Restructurings by Creditors. The ASU enhances disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty, updates certain requirements related to accounting for credit losses under ASC 326 and requires disclosure of current-period gross write offs of financing receivables by year of origination. The ASU is effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022.
The Company will adopt this ASU prospectively in the first quarter of 2023 except with respect to the recognition and measurement of TDRs, for which the modified retrospective transition method will apply. The impact of adoption of this ASU on the Company's consolidated financial position, results of operations, and cash flows is not expected to be material. Adoption will lead to additional and revised disclosures in the Company's financial statements starting in the first quarter of 2023.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Note 2 Earnings Per Common Share
The computation of basic and diluted earnings per common share is presented below for the periods indicated (in thousands, except share and per share data):
Years Ended December 31,
c 2022 2021 2020
Basic earnings per common share:
Numerator:
Net income
$ 284,971 $ 414,984 $ 197,853
Distributed and undistributed earnings allocated to participating securities
(5,075) (5,991) (8,882)
Income allocated to common stockholders for basic earnings per common share $ 279,896 $ 408,993 $ 188,971
Denominator:
Weighted average common shares outstanding 80,032,356 91,612,243 92,869,736
Less average unvested stock awards (1,224,568) (1,212,055) (1,163,480)
Weighted average shares for basic earnings per common share 78,807,788 90,400,188 91,706,256
Basic earnings per common share $ 3.55 $ 4.52 $ 2.06
Diluted earnings per common share:
Numerator:
Income allocated to common stockholders for basic earnings per common share $ 279,896 $ 408,993 $ 188,971
Adjustment for earnings reallocated from participating securities
(626) (585) (123)
Income used in calculating diluted earnings per common share $ 279,270 $ 408,408 $ 188,848
Denominator:
Weighted average shares for basic earnings per common share 78,807,788 90,400,188 91,706,256
Dilutive effect of certain share-based awards 94 134 24,608
Weighted average shares for diluted earnings per common share
78,807,882 90,400,322 91,730,864
Diluted earnings per common share $ 3.54 $ 4.52 $ 2.06
Potentially dilutive unvested shares totaling 2,034,960, 1,804,973 and 1,638,642 were outstanding at December 31, 2022, 2021 and 2020, respectively, but excluded from the calculation of diluted earnings per common share because their inclusion would have been anti-dilutive.
Participating securities for the year ended December 31, 2020, included 3,023,314 dividend equivalent rights that were issued in conjunction with the IPO of the Company's common stock. These dividend equivalent rights expired in February 2021 and, while outstanding, participated in dividends on a one-for-one basis.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Note 3 Investment Securities
Investment securities include investment securities available for sale, marketable equity securities, and investment securities held to maturity. The investment securities portfolio consisted of the following at the dates indicated (in thousands):
December 31, 2022
Amortized Cost Gross Unrealized Carrying Value (1)
Gains Losses
Investment securities available for sale:
U.S. Treasury securities $ 148,956 $ 63 $ (13,178) $ 135,841
U.S. Government agency and sponsored enterprise residential MBS
2,036,693 1,334 (54,859) 1,983,168
U.S. Government agency and sponsored enterprise commercial MBS
600,517 - (75,423) 525,094
Private label residential MBS and CMOs
2,864,589 54 (333,980) 2,530,663
Private label commercial MBS
2,645,168 176 (120,990) 2,524,354
Single family real estate-backed securities 502,194 - (31,753) 470,441
Collateralized loan obligations 1,166,838 151 (30,526) 1,136,463
Non-mortgage asset-backed securities 102,194 - (6,218) 95,976
State and municipal obligations 122,181 695 (6,215) 116,661
SBA securities 139,320 381 (3,919) 135,782
10,328,650 $ 2,854 $ (677,061) 9,654,443
Investment securities held to maturity 10,000 10,000
$ 10,338,650 9,664,443
Marketable equity securities 90,884
$ 9,755,327
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
December 31, 2021
Amortized Cost Gross Unrealized Carrying Value (1)
Gains Losses
Investment securities available for sale:
U.S. Treasury securities $ 114,385 $ 173 $ (2,898) $ 111,660
U.S. Government agency and sponsored enterprise residential MBS
2,093,283 12,934 (8,421) 2,097,796
U.S. Government agency and sponsored enterprise commercial MBS
861,925 5,287 (10,313) 856,899
Private label residential MBS and CMOs
2,160,136 3,575 (14,291) 2,149,420
Private label commercial MBS
2,604,690 7,843 (8,523) 2,604,010
Single family real estate-backed securities 474,845 5,031 (2,908) 476,968
Collateralized loan obligations 1,079,217 598 (1,529) 1,078,286
Non-mortgage asset-backed securities 151,091 1,419 - 152,510
State and municipal obligations 205,718 16,559 - 222,277
SBA securities 184,296 2,027 (2,728) 183,595
9,929,586 $ 55,446 $ (51,611) 9,933,421
Investment securities held to maturity 10,000 10,000
$ 9,939,586 9,943,421
Marketable equity securities 120,777
$ 10,064,198
(1)At fair value except for securities held to maturity.
Investment securities held to maturity at December 31, 2022 and 2021 consisted of one State of Israel bond maturing in 2024. Accrued interest receivable on investments totaled $34 million and $16 million at December 31, 2022 and 2021, respectively, and is included in other assets in the accompanying consolidated balance sheets.
At December 31, 2022, contractual maturities of investment securities available for sale, adjusted for anticipated prepayments when applicable, were as follows (in thousands):
Amortized Cost Fair Value
Due in one year or less $ 1,511,041 $ 1,437,407
Due after one year through five years 5,927,706 5,634,990
Due after five years through ten years 1,838,180 1,655,098
Due after ten years 1,051,723 926,948
$ 10,328,650 $ 9,654,443
The carrying value of securities pledged as collateral for FHLB advances, public deposits, interest rate swaps and to secure borrowing capacity at the FRB totaled $4.1 billion and $4.0 billion at December 31, 2022 and 2021, respectively.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
The following table provides information about gains and losses on investment securities for the periods indicated (in thousands):
Years Ended December 31,
2022 2021 2020
Proceeds from sale of investment securities AFS $ 798,205 $ 2,286,600 $ 1,503,498
Gross realized gains on investment securities AFS $ 4,058 $ 10,005 $ 14,441
Gross realized losses on investment securities AFS (131) (995) (440)
Net realized gain 3,927 9,010 14,001
Net unrealized gains (losses) on marketable equity securities recognized in earnings (19,732) (2,564) 3,766
Gain (loss) on investment securities, net $ (15,805) $ 6,446 $ 17,767
The following tables present the aggregate fair value and the aggregate amount by which amortized cost exceeded fair value for investment securities available for sale in unrealized loss positions aggregated by investment category and length of time that individual securities had been in continuous unrealized loss positions at the dates indicated (in thousands):
December 31, 2022
Less than 12 Months 12 Months or Greater Total
Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
U.S. Treasury securities
$ 29,198 $ (495) $ 86,744 $ (12,683) $ 115,942 $ (13,178)
U.S. Government agency and sponsored enterprise residential MBS
1,243,286 (26,789) 672,322 (28,070) 1,915,608 (54,859)
U.S. Government agency and sponsored enterprise commercial MBS
236,102 (5,736) 288,992 (69,687) 525,094 (75,423)
Private label residential MBS and CMOs
1,103,578 (93,480) 1,413,642 (240,500) 2,517,220 (333,980)
Private label commercial MBS
1,191,969 (39,729) 1,223,223 (81,261) 2,415,192 (120,990)
Single family real estate-backed securities 391,421 (22,293) 79,020 (9,460) 470,441 (31,753)
Collateralized loan obligations 596,803 (14,020) 494,945 (16,506) 1,091,748 (30,526)
Non-mortgage asset-backed securities
95,976 (6,218) - - 95,976 (6,218)
State and municipal obligations 67,444 (6,154) 1,114 (61) 68,558 (6,215)
SBA securities 42,900 (553) 74,291 (3,366) 117,191 (3,919)
$ 4,998,677 $ (215,467) $ 4,334,293 $ (461,594) $ 9,332,970 $ (677,061)
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
December 31, 2021
Less than 12 Months 12 Months or Greater Total
Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
U.S. Treasury securities
$ 49,328 $ (591) $ 47,102 $ (2,307) $ 96,430 $ (2,898)
U.S. Government agency and sponsored enterprise residential MBS
436,744 (4,549) 401,022 (3,872) 837,766 (8,421)
U.S. Government agency and sponsored enterprise commercial MBS
247,323 (4,084) 163,380 (6,229) 410,703 (10,313)
Private label residential MBS and CMOs
1,552,946 (13,933) 23,355 (358) 1,576,301 (14,291)
Private label commercial MBS
1,338,288 (6,085) 171,490 (2,438) 1,509,778 (8,523)
Single family real estate-backed securities 154,552 (2,908) - - 154,552 (2,908)
Collateralized loan obligations 318,555 (445) 319,192 (1,084) 637,747 (1,529)
SBA securities 496 - 99,599 (2,728) 100,095 (2,728)
$ 4,098,232 $ (32,595) $ 1,225,140 $ (19,016) $ 5,323,372 $ (51,611)
The Company monitors its investment securities available for sale for credit loss impairment on an individual security basis. No securities were determined to be credit loss impaired during the years ended December 31, 2022, and 2021. An ACL was recorded related to one private label commercial MBS security during the year ended December 31, 2020. At December 31, 2022, the Company did not have an intent to sell securities that were in unrealized loss positions and it was not more likely than not that the Company would be required to sell these securities before recovery of the amortized cost basis, which may be at maturity. In making this determination, the Company considered its current and projected liquidity position, its investment policy as to permissible holdings and concentration limits, regulatory requirements and other relevant factors.
At December 31, 2022, 595 securities available for sale were in unrealized loss positions. The amount of impairment related to 100 of these securities was considered insignificant both individually and in the aggregate, totaling approximately $1.0 million and no further analysis with respect to these securities was considered necessary.
The basis for concluding that AFS securities were not credit loss impaired and no ACL was considered necessary at December 31, 2022 is further discussed below.
Unrealized losses were generally attributable to rising interest rates and widening spreads related to the Federal Reserve's quantitative tightening and benchmark interest rate increases. Continuing uncertainty with respect to the trajectory of the economy and geopolitical events have also led to market uncertainty, producing some yield curve dislocations.
U.S. Government, U.S. Government Agency and Government Sponsored Enterprise Securities
At December 31, 2022, five U.S. treasury, 159 U.S. Government agency and sponsored enterprise residential MBS, 27 U.S. Government agency and sponsored enterprise commercial MBS, and 18 SBA securities were in unrealized loss positions. The timely payment of principal and interest on these securities is explicitly or implicitly guaranteed by the U.S. Government. As such, there is an assumption of zero credit loss and the Company expects to recover the amortized cost basis of these securities.
Private Label Securities:
None of the impaired private label securities had missed principal or interest payments or had been downgraded by a NRSRO at December 31, 2022. The Company performed an analysis comparing the present value of cash flows expected to be collected to the amortized cost basis of impaired securities. This analysis was based on a scenario that we believe to be generally more conservative than our reasonable and supportable economic forecast at December 31, 2022, and incorporated assumptions about voluntary prepayment rates, collateral defaults, delinquencies, severity and other relevant factors as described further below. Our analysis also considered the structural characteristics of each security and the level of credit enhancement provided by that structure.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Private label residential MBS and CMOs
At December 31, 2022, 120 private label residential MBS and CMOs were in unrealized loss positions. Our analysis of cash flows expected to be collected on these securities incorporated assumptions about collateral default rates, voluntary prepayment rates, loss severity, delinquencies and recovery lag. In developing those assumptions, we took into account collateral quality measures such as FICO, LTV, documentation, loan type, property type, agency availability criteria and performing status. We also regularly monitor sector data including home price appreciation, forbearance, delinquency and prepay trends as well as other economic data that could be indicative of stress in the sector. Our December 31, 2022 analysis projected weighted average collateral losses for impaired securities in this category of 3% compared to weighted average credit support of 18%. As of December 31, 2022, 94% of impaired securities in this category, based on carrying value, were externally rated AAA, 1% were rated AA and 5% were rated A.
Private label commercial MBS
At December 31, 2022, 109 private label commercial MBS were in unrealized loss positions. Our analysis of cash flows expected to be collected on these securities incorporated assumptions about collateral default rates, voluntary prepayment rates, loss severity, delinquencies and recovery lag. In developing those assumptions, we took into account collateral quality and type, loan size, loan purpose and other qualitative factors. We also regularly monitor collateral watch lists, bankruptcy data, defeasance data, special servicing trends, delinquency and other economic data that could be indicative of stress in the sector. Our December 31, 2022 analysis projected weighted average collateral losses for impaired securities in this category of 7% compared to weighted average credit support of 43%. As of December 31, 2022, 85% of impaired securities in this category, based on carrying value, were externally rated AAA, 11% were rated AA and 4% were rated A.
Single family real estate-backed securities
At December 31, 2022, 17 single family rental real estate-backed securities were in unrealized loss positions. Our analysis of cash flows expected to be collected on these securities incorporated assumptions about collateral default rates, loss severity, delinquencies and recovery lag. We regularly monitor sector data including home price appreciation, forbearance, delinquency and prepay trends as well as other economic data that could be indicative of stress in the sector. Our December 31, 2022 analysis projected weighted average collateral losses for this category of 7% compared to weighted average credit support of 51%. As of December 31, 2022, 67% of impaired securities in this category, based on carrying value, were externally rated AAA, 13% were rated AA and one security was not externally rated.
Collateralized loan obligations
At December 31, 2022, 26 collateralized loan obligations were in unrealized loss positions. Our analysis of cash flows expected to be collected on these securities incorporated assumptions about collateral default rates, loss severity, and delinquencies, calibrated to take into account idiosyncratic risks associated with the underlying collateral. In developing those assumptions, we took into account each sector’s performance pre-, during and post the 2008 financial crisis. We regularly engage with bond managers to monitor trends in underlying collateral including potential downgrades and subsequent cash flow diversions, liquidity, ratings migration, and any other relevant developments. Our December 31, 2022 analysis projected weighted average collateral losses for impaired securities in this category of 10% compared to weighted average credit support of 43%. As of December 31, 2022, 79% of the impaired securities in this category, based on carrying value, were externally rated AAA, 17% were rated AA and 4% were rated A.
Non-mortgage asset-backed securities
At December 31, 2022, seven non-mortgage asset-backed securities were in unrealized loss positions. These securities are backed by student loan collateral. Our analysis of cash flows expected to be collected on these securities incorporated assumptions about collateral default rates, loss severity, delinquencies, voluntary prepayment rates and recovery lag. In developing assumptions, we took into account collateral type, delineated by whether collateral consisted of loans to borrowers in school, refinancing, or a mixture. Our December 31, 2022 analysis projected weighted average collateral losses for impaired securities in this category of 4% compared to weighted average credit support of 24%. As of December 31, 2022, 49% of the impaired securities in this category, based on carrying value, were externally rated AAA, and 51% were rated AA.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
State and Municipal Obligations
At December 31, 2022, seven state and municipal obligations were in unrealized loss positions. Our analysis of potential credit loss impairment for these securities incorporates a quantitative measure of the underlying obligor's credit worthiness provided by a third-party vendor as well as other relevant qualitative considerations. As of December 31, 2022, 84% of the impaired securities in this category, based on carrying value, were externally rated AAA and 16% were rated AA.
Note 4 Loans and Allowance for Credit Losses
Loans consisted of the following at the dates indicated (dollars in thousands):
December 31, 2022 December 31, 2021
Total Percent of Total Total Percent of Total
Residential and other consumer:
1-4 single family residential $ 7,122,837 28.6 % $ 6,338,225 26.7 %
Government insured residential 1,771,880 7.1 % 2,023,221 8.5 %
Other consumer loans 5,997 - % 6,934 - %
8,900,714 35.7 % 8,368,380 35.2 %
Commercial:
Non-owner occupied commercial real estate 5,405,597 21.7 % 5,536,348 23.3 %
Construction and land 294,360 1.2 % 165,390 0.7 %
Owner occupied commercial real estate 1,890,813 7.6 % 1,944,658 8.2 %
Commercial and industrial 6,414,351 25.9 % 4,790,275 20.2 %
PPP 3,370 - % 248,505 1.0 %
Pinnacle 912,122 3.7 % 919,641 3.9 %
Bridge - franchise finance 253,774 1.0 % 342,124 1.4 %
Bridge - equipment finance 286,147 1.1 % 357,599 1.5 %
Mortgage warehouse lending 524,740 2.1 % 1,092,133 4.6 %
15,985,274 64.3 % 15,396,673 64.8 %
Total loans 24,885,988 100.0 % 23,765,053 100.0 %
Allowance for credit losses (147,946) (126,457)
Loans, net $ 24,738,042 $ 23,638,596
Premiums, discounts and deferred fees and costs, excluding the non-credit related discount on PCD loans, totaled $61 million and $67 million at December 31, 2022 and 2021, respectively.
The following table presents the amortized cost basis of residential PCD loans and the related amount of non-credit discount, net of the related ACL, at the dates indicated (in thousands):
December 31, 2022 December 31, 2021
UPB $ 96,437 $ 124,963
Non-credit discount (44,354) (59,759)
Total amortized cost of PCD loans 52,083 65,204
ACL related to PCD loans (409) (476)
PCD loans, net $ 51,674 $ 64,728
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
During the years ended December 31, 2022, 2021 and 2020, the Company purchased residential loans totaling $2.3 billion, $4.8 billion and $3.2 billion, respectively.
At December 31, 2022 and 2021, the Company had pledged loans with a carrying value of approximately $12.4 billion and $10.6 billion, respectively, as security for FHLB advances and Federal Reserve discount window capacity.
At December 31, 2022 and 2021, accrued interest receivable on loans totaled $129 million and $98 million, respectively, and is included in other assets in the accompanying consolidated balance sheets. The amount of interest income reversed on non-accrual loans was not material for the years ended December 31, 2022, 2021 and 2020.
Allowance for credit losses
The ACL was determined utilizing a 2-year reasonable and supportable forecast period. The quantitative portion of the ACL was determined using a single third-party provided economic scenario. The qualitative component was informed by alternate scenarios. Activity in the ACL is summarized below for the periods indicated (in thousands):
Years Ended December 31,
2022 2021 2020
Residential Commercial Total Residential Commercial Total Residential Commercial Total
Beginning balance $ 9,187 $ 117,270 $ 126,457 $ 18,719 $ 238,604 $ 257,323 $ 11,154 $ 97,517 $ 108,671
Impact of adoption of ASU 2016-13 N/A N/A N/A N/A N/A N/A 8,098 19,207 27,305
Balance after adoption of ASU 2016-13 9,187 117,270 126,457 18,719 238,604 257,323 19,252 116,724 135,976
Provision (recovery) 2,858 70,956 73,814 (9,241) (55,215) (64,456) (556) 182,895 182,339
Charge-offs (412) (61,643) (62,055) (304) (70,946) (71,250) (31) (69,571) (69,602)
Recoveries 108 9,622 9,730 13 4,827 4,840 54 8,556 8,610
Ending balance $ 11,741 $ 136,205 $ 147,946 $ 9,187 $ 117,270 $ 126,457 $ 18,719 $ 238,604 $ 257,323
The ACL increased by $21.5 million at December 31, 2022 compared to December 31, 2021, increasing from 0.53% to 0.59% of total loans. The provision for credit losses for the year ended December 31, 2022 was partially offset by net charge-offs. The more significant factors impacting the provision for credit losses for the year ended December 31, 2022 included increases in specific reserves and qualitative loss factors, primarily the qualitative overlay related to economic uncertainty.
The following table presents the components of the provision for (recovery of) credit losses for the periods indicated (in thousands):
Years Ended December 31,
2022 2021 2020
Amount related to funded portion of loans $ 73,814 $ (64,456) $ 182,339
Amount related to off-balance sheet credit exposures 1,467 (1,235) (5,572)
Amount related to accrued interest receivable (127) (1,064) 1,300
Amount related to AFS debt securities - (364) 364
Total provision for (recovery of) credit losses $ 75,154 $ (67,119) $ 178,431
Credit quality information
Credit quality of loans held for investment is continuously monitored by dedicated residential credit risk management and commercial portfolio management functions. The Company also has a workout and recovery department that monitors the credit quality of criticized and classified loans and an independent internal credit review function.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Credit quality indicators for residential loans
Management considers delinquency status to be the most meaningful indicator of the credit quality of residential loans, other than government insured residential loans. Delinquency statistics are updated at least monthly. LTV and FICO scores are also important indicators of credit quality for 1-4 single family residential loans other than government insured loans. FICO scores are generally updated semi-annually, and were most recently updated in the third quarter of 2022. LTVs are typically at origination since we do not routinely update residential appraisals. Substantially all of the government insured residential loans are government insured buyout loans, which the Company buys out of GNMA securitizations upon default. For these loans, traditional measures of credit quality are not particularly relevant considering the guaranteed nature of the loans and the underlying business model. Factors that impact risk inherent in the residential portfolio segment include national and regional economic conditions such as levels of unemployment, wages and interest rates, as well as residential property values.
1-4 Single Family Residential credit exposure, excluding government insured residential loans, based on delinquency status:
December 31, 2022
Amortized Cost By Origination Year
2022 2021 2020 2019 2018 Prior Total
Current $ 1,185,611 $ 3,149,299 $ 916,923 $ 316,023 $ 177,891 $ 1,315,063 $ 7,060,810
30 - 59 Days Past Due 12,752 16,432 3,266 2,953 1,854 5,739 42,996
60 - 89 Days Past Due 252 1,196 229 1,347 - 1,052 4,076
90 Days or More Past Due 2,589 2,158 2,173 360 3,069 4,606 14,955
$ 1,201,204 $ 3,169,085 $ 922,591 $ 320,683 $ 182,814 $ 1,326,460 $ 7,122,837
December 31, 2021
Amortized Cost By Origination Year
2021 2020 2019 2018 2017 Prior Total
Current $ 2,884,761 $ 1,062,348 $ 395,453 $ 224,175 $ 342,414 $ 1,352,844 $ 6,261,995
30 - 59 Days Past Due 32,307 2,705 5,482 1,942 5,831 4,825 53,092
60 - 89 Days Past Due 605 - 1,750 1,988 - 1,307 5,650
90 Days or More Past Due 1,407 - 609 5,100 1,064 9,308 17,488
$ 2,919,080 $ 1,065,053 $ 403,294 $ 233,205 $ 349,309 $ 1,368,284 $ 6,338,225
1-4 Single Family Residential credit exposure, excluding government insured residential loans, based on LTV:
December 31, 2022
Amortized Cost By Origination Year
LTV 2022 2021 2020 2019 2018 Prior Total
Less than 61% $ 282,940 $ 1,301,279 $ 354,720 $ 76,404 $ 42,864 $ 466,094 $ 2,524,301
61% - 70% 295,206 857,008 231,732 80,383 49,047 310,648 1,824,024
71% - 80% 620,049 975,542 336,066 158,406 86,463 510,633 2,687,159
More than 80% 3,009 35,256 73 5,490 4,440 39,085 87,353
$ 1,201,204 $ 3,169,085 $ 922,591 $ 320,683 $ 182,814 $ 1,326,460 $ 7,122,837
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
December 31, 2021
Amortized Cost By Origination Year
LTV 2021 2020 2019 2018 2017 Prior Total
Less than 61% $ 1,222,510 $ 399,512 $ 89,078 $ 54,301 $ 111,540 $ 476,170 $ 2,353,111
61% - 70% 791,935 269,739 92,282 59,425 66,641 343,654 1,623,676
71% - 80% 899,400 395,726 212,649 111,276 145,413 518,817 2,283,281
More than 80% 5,235 76 9,285 8,203 25,715 29,643 78,157
$ 2,919,080 $ 1,065,053 $ 403,294 $ 233,205 $ 349,309 $ 1,368,284 $ 6,338,225
1-4 Single Family Residential credit exposure, excluding government insured residential loans, based on FICO score:
December 31, 2022
Amortized Cost By Origination Year
FICO 2022 2021 2020 2019 2018 Prior Total
760 or greater $ 805,125 $ 2,513,045 $ 721,982 $ 212,574 $ 97,076 $ 944,783 $ 5,294,585
720 - 759 285,507 485,528 132,928 62,301 45,857 216,047 1,228,168
719 or less 110,572 170,512 67,681 45,808 39,881 165,630 600,084
$ 1,201,204 $ 3,169,085 $ 922,591 $ 320,683 $ 182,814 $ 1,326,460 $ 7,122,837
December 31, 2021
Amortized Cost By Origination Year
FICO 2021 2020 2019 2018 2017 Prior Total
760 or greater $ 2,230,259 $ 803,026 $ 245,942 $ 125,713 $ 254,750 $ 937,285 $ 4,596,975
720 - 759 562,763 194,068 91,276 53,576 54,080 219,561 1,175,324
719 or less 126,058 67,959 66,076 53,916 40,479 211,438 565,926
$ 2,919,080 $ 1,065,053 $ 403,294 $ 233,205 $ 349,309 $ 1,368,284 $ 6,338,225
Credit quality indicators for commercial loans
Factors that impact risk inherent in commercial portfolio segments include but are not limited to levels of economic activity, health of the national and regional economy, interest rates, industry trends, patterns of and trends in customer behavior that influence demand for our borrowers' products and services, and commercial real estate values. Internal risk ratings are considered the most meaningful indicator of credit quality for commercial loans. Internal risk ratings are generally indicative of the likelihood that a borrower will default, are a key factor influencing the level and nature of ongoing monitoring of loans and may impact the estimation of the ACL. Internal risk ratings are updated on a continuous basis. Generally, relationships with balances in excess of defined thresholds, ranging from $1 million to $3 million, are re-evaluated at least annually and more frequently if circumstances indicate that a change in risk rating may be warranted. Loans exhibiting potential credit weaknesses that deserve management’s close attention and that could result in deterioration of repayment prospects at some future date if not checked or corrected are categorized as special mention. Loans with well-defined credit weaknesses, including payment defaults, declining collateral values, frequent overdrafts, operating losses, increasing balance sheet leverage, inadequate cash flow from current operations, project cost overruns, unreasonable construction delays, past due real estate taxes or exhausted interest reserves are assigned an internal risk rating of substandard. A loan with a weakness so severe that collection in full is highly questionable or improbable, but because of certain reasonably specific pending factors has not been charged off, will be assigned an internal risk rating of doubtful.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Commercial credit exposure based on internal risk rating:
December 31, 2022
Amortized Cost By Origination Year Revolving Loans
2022 2021 2020 2019 2018 Prior Total
CRE
Pass $ 1,256,300 $ 758,025 $ 550,133 $ 1,138,113 $ 512,125 $ 932,030 $ 196,963 $ 5,343,689
Special mention - - - 18,006 - 709 - 18,715
Substandard 12,332 1,355 20,103 98,438 56,974 148,351 - 337,553
Total CRE $ 1,268,632 $ 759,380 $ 570,236 $ 1,254,557 $ 569,099 $ 1,081,090 $ 196,963 $ 5,699,957
C&I (1)
Pass $ 1,880,853 $ 825,410 $ 445,988 $ 689,003 $ 416,287 $ 832,952 $ 2,900,336 $ 7,990,829
Special mention 63 - 208 3,880 - 20,657 310 25,118
Substandard 25,898 13,916 3,319 103,625 19,715 104,190 21,277 291,940
Doubtful - - - - 647 - - 647
Total C&I $ 1,906,814 $ 839,326 $ 449,515 $ 796,508 $ 436,649 $ 957,799 $ 2,921,923 $ 8,308,534
Pinnacle
Pass $ 179,223 $ 110,510 $ 66,592 $ 66,514 $ 29,783 $ 459,500 $ - $ 912,122
Total Pinnacle $ 179,223 $ 110,510 $ 66,592 $ 66,514 $ 29,783 $ 459,500 $ - $ 912,122
Bridge - Equipment Finance
Pass $ 27,386 $ 55,015 $ 16,488 $ 90,286 $ 33,264 $ 62,353 $ - $ 284,792
Substandard - - - 1,355 - - - 1,355
Total Bridge - Equipment Finance $ 27,386 $ 55,015 $ 16,488 $ 91,641 $ 33,264 $ 62,353 $ - $ 286,147
Bridge - Franchise Finance
Pass $ 81,146 $ 19,251 $ 38,293 $ 34,483 $ 8,617 $ 6,799 $ - $ 188,589
Special mention - - - 5,432 2,168 - - 7,600
Substandard - 1,617 1,295 22,058 17,148 8,124 - 50,242
Doubtful - - 1,013 2,447 3,883 - - 7,343
Total Bridge - Franchise Finance $ 81,146 $ 20,868 $ 40,601 $ 64,420 $ 31,816 $ 14,923 $ - $ 253,774
Mortgage Warehouse Lending
Pass $ - $ - $ - $ - $ - $ - $ 524,740 $ 524,740
Total Mortgage Warehouse Lending $ - $ - $ - $ - $ - $ - $ 524,740 $ 524,740
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
December 31, 2021
Amortized Cost By Origination Year Revolving Loans
2021 2020 2019 2018 2017 Prior Total
CRE
Pass $ 869,852 $ 619,056 $ 1,283,401 $ 676,151 $ 455,965 $ 986,427 $ 119,308 $ 5,010,160
Special mention 985 - 29,573 - - 1,704 - 32,262
Substandard - 14,227 187,284 55,944 115,944 285,917 - 659,316
Total CRE $ 870,837 $ 633,283 $ 1,500,258 $ 732,095 $ 571,909 $ 1,274,048 $ 119,308 $ 5,701,738
C&I (1)
Pass $ 1,280,160 $ 666,437 $ 870,797 $ 406,145 $ 353,590 $ 669,308 $ 2,120,693 $ 6,367,130
Special mention 6,051 19,861 39,647 17,185 1,854 11,640 20,093 116,331
Substandard 365 22,106 167,496 59,349 51,117 122,663 49,119 472,215
Doubtful - - 900 - - - 26,862 27,762
Total C&I $ 1,286,576 $ 708,404 $ 1,078,840 $ 482,679 $ 406,561 $ 803,611 $ 2,216,767 $ 6,983,438
Pinnacle
Pass $ 143,063 $ 113,785 $ 88,206 $ 36,761 $ 177,258 $ 360,568 $ - $ 919,641
Total Pinnacle $ 143,063 $ 113,785 $ 88,206 $ 36,761 $ 177,258 $ 360,568 $ - $ 919,641
Bridge - Equipment Finance
Pass $ 73,190 $ 18,763 $ 108,990 $ 43,826 $ 23,684 $ 48,471 $ - $ 316,924
Substandard - - 12,875 4,775 23,025 - - 40,675
Total Bridge - Equipment Finance $ 73,190 $ 18,763 $ 121,865 $ 48,601 $ 46,709 $ 48,471 $ - $ 357,599
Bridge - Franchise Finance
Pass $ 49,949 $ 51,057 $ 104,299 $ 10,199 $ 7,039 $ 5,838 $ - $ 228,381
Substandard - 7,351 39,588 30,134 8,660 8,018 - 93,751
Doubtful - - 7,718 12,274 - - - 19,992
Total Bridge - Franchise Finance $ 49,949 $ 58,408 $ 151,605 $ 52,607 $ 15,699 $ 13,856 $ - $ 342,124
Mortgage Warehouse Lending
Pass $ - $ - $ - $ - $ - $ - $ 1,092,133 $ 1,092,133
Total Mortgage Warehouse Lending $ - $ - $ - $ - $ - $ - $ 1,092,133 $ 1,092,133
(1)Includes PPP loans
At December 31, 2022 and 2021, the balance of revolving loans converted to term loans was immaterial.
The following tables summarize the Company's commercial credit exposure based on internal risk rating, in aggregate, at the dates indicated (in thousands):
December 31, 2022
CRE C&I (1)
Pinnacle Bridge - Franchise Finance Bridge - Equipment Finance Mortgage Warehouse Lending Total
Pass $ 5,343,689 $ 7,990,829 $ 912,122 $ 188,589 $ 284,792 $ 524,740 $ 15,244,761
Special mention 18,715 25,118 - 7,600 - - 51,433
Substandard-accruing 315,201 245,114 - 44,295 1,355 - 605,965
Substandard non-accruing 22,352 46,826 - 5,947 - - 75,125
Doubtful - 647 - 7,343 - - 7,990
$ 5,699,957 $ 8,308,534 $ 912,122 $ 253,774 $ 286,147 $ 524,740 $ 15,985,274
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
December 31, 2021
CRE C&I (1)
Pinnacle Bridge - Franchise Finance Bridge - Equipment Finance Mortgage Warehouse Lending Total
Pass $ 5,010,160 $ 6,367,130 $ 919,641 $ 228,381 $ 316,924 $ 1,092,133 $ 13,934,369
Special mention 32,262 116,331 - - - - 148,593
Substandard-accruing 604,036 410,803 - 80,864 40,675 - 1,136,378
Substandard non-accruing 55,280 61,412 - 12,887 - - 129,579
Doubtful - 27,762 - 19,992 - - 47,754
$ 5,701,738 $ 6,983,438 $ 919,641 $ 342,124 $ 357,599 $ 1,092,133 $ 15,396,673
(1)Includes PPP loans
The COVID-19 pandemic led to an increase in the level of criticized and classified commercial loans compared to pre-pandemic levels; while criticized and classified assets are evidencing a declining trend, those levels remain elevated.
Past Due and Non-Accrual Loans:
The following table presents an aging of loans at the dates indicated (in thousands):
December 31, 2022 December 31, 2021
Current 30 - 59
Days Past
Due 60 - 89
Days Past
Due 90 Days or
More Past
Due Total Current 30 - 59
Days Past
Due 60 - 89
Days Past
Due 90 Days or
More Past
Due Total
1-4 single family residential
$ 7,060,810 $ 42,996 $ 4,076 $ 14,955 $ 7,122,837 $ 6,261,995 $ 53,092 $ 5,650 $ 17,488 $ 6,338,225
Government insured residential
1,025,523 159,461 94,294 492,602 1,771,880 1,034,686 143,672 115,028 729,835 2,023,221
Other consumer loans
5,948 20 - 29 5,997 6,919 15 - - 6,934
Non-owner occupied commercial real estate
5,391,746 332 4,773 8,746 5,405,597 5,495,034 8,744 11,249 21,321 5,536,348
Construction and land
289,083 3,996 - 1,281 294,360 160,183 492 4,369 346 165,390
Owner occupied commercial real estate
1,881,115 927 - 8,771 1,890,813 1,930,932 - 1,402 12,324 1,944,658
Commercial and industrial
6,396,429 1,581 1,028 15,313 6,414,351 4,763,976 2,114 11,016 13,169 4,790,275
PPP
2,777 - - 593 3,370 247,740 765 - - 248,505
Pinnacle
912,122 - - - 912,122 919,641 - - - 919,641
Bridge - franchise finance
243,574 1,321 - 8,879 253,774 331,397 - 6,735 3,992 342,124
Bridge - equipment finance
286,147 - - - 286,147 357,599 - - - 357,599
Mortgage warehouse lending
524,740 - - - 524,740 1,092,133 - - - 1,092,133
$ 24,020,014 $ 210,634 $ 104,171 $ 551,169 $ 24,885,988 $ 22,602,235 $ 208,894 $ 155,449 $ 798,475 $ 23,765,053
Included in the table above is the guaranteed portion of SBA loans past due by 90 days or more totaling $30.8 million and $31.3 million at December 31, 2022 and 2021, respectively.
Loans contractually delinquent by 90 days or more and still accruing totaled $494 million and $730 million at December 31, 2022 and 2021, respectively, substantially all of which were government insured residential loans. These loans are government insured pool buyout loans, which the Company buys out of GNMA securitizations upon default.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
The following table presents information about loans on non-accrual status at the dates indicated (in thousands):
December 31, 2022 December 31, 2021
Amortized Cost Amortized Cost With No Related Allowance Amortized Cost Amortized Cost With No Related Allowance
Residential and other consumer $ 21,311 $ - $ 28,553 $ 1,684
Commercial:
Non-owner occupied commercial real estate 16,657 2,915 50,116 31,794
Construction and land 5,695 3,996 5,164 4,369
Owner occupied commercial real estate 17,751 9,021 20,453 4,457
Commercial and industrial 29,722 6,621 68,720 10,083
Bridge - franchise finance 13,290 1,668 32,879 16,808
$ 104,426 $ 24,221 $ 205,885 $ 69,195
Included in the table above is the guaranteed portion of non-accrual SBA loans totaling $40.3 million and $46.1 million at December 31, 2022 and 2021, respectively. The amount of interest income recognized on non-accrual loans was insignificant for the years ended December 31, 2022, 2021 and 2020. The amount of additional interest income that would have been recognized on non-accrual loans had they performed in accordance with their contractual terms was approximately $5.9 million,$8.0 million and $10.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Collateral dependent loans:
The following table presents the amortized cost basis of collateral dependent loans at the dates indicated (in thousands):
December 31, 2022 December 31, 2021
Amortized Cost Extent to Which Secured by Collateral Amortized Cost Extent to Which Secured by Collateral
Residential and other consumer $ 730 $ 730 $ 2,317 $ 2,295
Commercial:
Non-owner occupied commercial real estate 15,144 14,011 39,866 39,351
Construction and land 4,342 4,342 4,715 4,715
Owner occupied commercial real estate 14,906 14,906 15,198 15,155
Commercial and industrial 11,498 10,438 45,015 37,020
Bridge - franchise finance 11,445 3,729 26,055 18,740
Total commercial 57,335 47,426 130,849 114,981
$ 58,065 $ 48,156 $ 133,166 $ 117,276
Collateral for the non-owner occupied commercial real estate and owner-occupied commercial real estate loan classes generally consists of commercial real estate. Collateral for construction and land loans is typically residential or commercial real estate. Collateral for commercial and industrial loans generally consists of equipment, accounts receivable, inventory and other business assets; owner-occupied commercial real estate loans may also be collateralized by these types of assets. Bridge franchise finance loans may be collateralized by franchise value or by equipment. Residential loans are collateralized by residential real estate. There were no significant changes to the extent to which collateral secures collateral dependent loans during the years ended December 31, 2022 and 2021.
Foreclosure of residential real estate
The recorded investment in residential loans in the process of foreclosure was $413 million, of which $400 million was government insured, at December 31, 2022 and $208 million, of which $202 million was government insured, at December 31, 2021. The carrying amount of foreclosed residential real estate included in other assets in the accompanying consolidated balance sheet was insignificant at December 31, 2022 and 2021.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Troubled debt restructurings
The following tables summarize loans that were modified in TDRs during the periods indicated, as well as loans modified during the twelve months preceding December 31, 2022, 2021 and 2020 that experienced payment defaults during those periods (dollars in thousands):
Year Ended December 31, 2022
Loans Modified in TDRs
During the Period TDRs Experiencing Payment
Defaults During the Period
Number of
TDRs Amortized Cost Number of
TDRs Amortized Cost
1-4 single family residential 10 $ 5,359 - $ -
Government insured residential 2,589 405,096 1,190 187,708
Owner occupied commercial real estate 2 2,122 1 1,705
Commercial and industrial 19 36,930 3 1,998
Bridge - franchise finance 4 6,329 4 6,329
2,624 $ 455,836 1,198 $ 197,740
Year Ended December 31, 2021
Loans Modified in TDRs
During the Period TDRs Experiencing Payment
Defaults During the Period
Number of
TDRs Amortized Cost Number of
TDRs Amortized Cost
Government insured residential 239 $ 45,143 84 $ 14,317
Non-owner occupied commercial real estate 1 2,767 - -
240 $ 47,910 84 $ 14,317
Year Ended December 31, 2020
Loans Modified in TDRs
During the Period TDRs Experiencing Payment
Defaults During the Period
Number of
TDRs Amortized Cost Number of
TDRs Amortized Cost
1-4 single family residential 1 $ 201 - $ -
Government insured residential 201 34,100 86 14,368
Non-owner occupied commercial real estate 1 4,122 1 4,122
Bridge - franchise finance 8 12,964 8 12,964
211 $ 51,387 95 $ 31,454
TDRs during the years ended December 31, 2022, 2021 and 2020 generally included interest rate reductions and extensions of maturity. Included in TDRs are residential loans to borrowers who have not reaffirmed their debt discharged in Chapter 7 bankruptcy. The total amount of such loans is not material.
For the years ended December 31, 2021 and 2020, certain loan modifications that otherwise may have been reported as TDRs and that were within the scope of the CARES Act and interagency regulatory guidance issued in response to the COVID-19 pandemic were not reported as TDRs.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Geographic Concentrations
The following table presents the five states with the largest geographic concentrations of 1-4 single family residential loans, excluding government insured residential loans, at the dates indicated (dollars in thousands):
December 31, 2022 December 31, 2021
Total Percent of Total Total Percent of Total
California $ 2,273,548 31.9 % $ 2,056,100 32.4 %
New York 1,416,909 19.9 % 1,293,825 20.4 %
Florida 518,297 7.3 % 494,043 7.8 %
Illinois 360,389 5.1 % 306,388 4.8 %
Virginia 314,408 4.4 % 280,898 4.4 %
Others 2,239,286 31.4 % 1,906,971 30.2 %
$ 7,122,837 100.0 % $ 6,338,225 100.0 %
The following table presents the largest geographic concentrations of commercial real estate loans and commercial and industrial loans, including owner occupied commercial real estate, at the dates indicated. Commercial real estate loans are categorized based on the location of the underlying collateral, while commercial and industrial loans are generally categorized based on the location of the borrowers' businesses (dollars in thousands):
December 31, 2022 December 31, 2021
Commercial Real Estate Percent of Total Commercial Percent of Total Commercial Real Estate Percent of Total Commercial Percent of Total
Florida $ 3,432,109 60.2 % $ 3,117,076 37.5 % $ 3,309,614 58.0 % $ 3,369,262 48.2 %
New York Tri-state 1,535,095 26.9 % 2,723,127 32.8 % 1,873,055 32.9 % 1,960,474 28.1 %
Other 732,753 12.9 % 2,468,331 29.7 % 519,069 9.1 % 1,653,702 23.7 %
$ 5,699,957 100.0 % $ 8,308,534 100.0 % $ 5,701,738 100.0 % $ 6,983,438 100.0 %
The following table presents the five states with the largest concentration of commercial loans and leases originated through Bridge and Pinnacle at the dates indicated (dollars in thousands):
December 31, 2022 December 31, 2021
Total Percent of Total Total Percent of Total
Florida $ 222,311 15.3 % $ 213,620 13.2 %
California 150,928 10.4 % 199,635 12.3 %
Texas 84,160 5.8 % 110,660 6.8 %
Georgia 64,137 4.4 % 69,415 4.3 %
Utah 60,156 4.1 % 68,954 4.3 %
All Others 870,351 60.0 % 957,080 59.1 %
$ 1,452,043 100.0 % $ 1,619,364 100.0 %
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
Note 5 Leases
Leases under which the Company is the lessee
The Company leases branches, office space and a small amount of equipment under either operating or finance leases with remaining terms ranging from one to 14 years, some of which include extension options.
The following table presents ROU assets and lease liabilities at the dates indicated (in thousands):
December 31, 2022 December 31, 2021
ROU assets:
Operating leases $ 72,211 $ 80,646
Finance leases 23,866 26,216
$ 96,077 $ 106,862
Lease liabilities:
Operating leases $ 80,909 $ 89,535
Finance leases 28,389 30,216
$ 109,298 $ 119,751
ROU assets and lease liabilities for operating leases are included in "other assets" and "other liabilities", respectively, in the accompanying consolidated balance sheets. ROU assets and lease liabilities for finance leases are included in "other assets" and "notes and other borrowings", respectively.
The weighted average remaining lease term and weighted average discount rate at the dates indicated were:
December 31, 2022 December 31, 2021
Weighted average remaining lease term:
Operating leases 6.6 years 6.9 years
Finance leases 11.0 years 11.9 years
Weighted average discount rate:
Operating leases 3.1 % 2.9 %
Finance leases 2.9 % 2.9 %
The following table presents the components of lease expense for the periods indicated (in thousands):
Years Ended December 31,
2022 2021 2020
Operating lease cost:
Fixed costs $ 18,364 $ 19,646 $ 20,112
Impairment of ROU assets 134 183 108
Total operating lease cost $ 18,498 $ 19,829 $ 20,220
Finance lease cost:
Amortization of ROU assets $ 2,350 $ 2,903 $ 2,841
Interest on lease liabilities 823 866 921
Total finance lease cost $ 3,173 $ 3,769 $ 3,762
Variable lease cost $ 3,589 $ 4,147 $ 4,761
Short-term lease costs were immaterial for the years ended December 31, 2022, 2021 and 2020.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
The following table presents additional information related to operating and finance leases for the dates and periods indicated (in thousands):
Years Ended December 31,
2022 2021 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases $ 823 $ 866 $ 921
Operating cash flows from operating leases 18,473 20,056 20,589
Financing cash flows from finance leases 2,652 3,215 2,980
$ 21,948 $ 24,137 $ 24,490
Lease liabilities recognized from obtaining ROU assets:
Operating leases $ 9,086 $ 13,325 $ 9,647
Finance leases - - 373
$ 9,086 $ 13,325 $ 10,020
Future lease payment obligations under leases with terms in excess of one year and a reconciliation to lease liabilities as of December 31, 2022 were as follows (in thousands):
Operating Leases Finance Leases Total
Years ending December 31:
2023 $ 17,292 $ 2,666 $ 19,958
2024 15,684 2,701 18,385
2025 13,162 2,774 15,936
2026 11,838 2,849 14,687
2027 9,573 2,926 12,499
Thereafter 21,969 19,447 41,416
Total future minimum lease payments 89,518 33,363 122,881
Less: interest component (8,609) (4,974) (13,583)
Lease liabilities $ 80,909 $ 28,389 $ 109,298
Leases under which the Company is the lessor
Through its commercial lending subsidiaries, Pinnacle and Bridge, the Bank provides equipment financing using a variety of loan and lease structures. Pinnacle provides essential use equipment financing to state and local governmental entities. Bridge provides primarily transportation equipment financing.
Direct or Sales Type Financing Leases
The following table presents the components of the investment in direct or sales type financing leases, included in loans in the consolidated balance sheets at the dates indicated (in thousands):
December 31, 2022 December 31, 2021
Total minimum lease payments to be received $ 684,847 $ 703,395
Estimated unguaranteed residual value of leased assets 4,024 5,109
Gross investment in direct or sales type financing leases 688,871 708,504
Unearned income (57,622) (59,511)
Initial direct costs 2,384 2,783
$ 633,633 $ 651,776
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
At December 31, 2022, future minimum lease payments to be received under direct or sales type financing leases were as follows (in thousands):
Years Ending December 31:
2023 $ 180,586
2024 144,304
2025 102,300
2026 63,407
2027 43,253
Thereafter 150,997
$ 684,847
Operating Lease Equipment
Operating lease equipment consists primarily of railcars, non-commercial aircraft and other transportation equipment leased to commercial end users. Original lease terms generally range from three to ten years. Asset risk is evaluated and managed by a dedicated internal staff of seasoned equipment finance professionals with a broad depth and breadth of experience in the leasing business. The Company has partnered with an industry leading, experienced service provider who provides fleet management and servicing relating to the railcar fleet. Residual risk is managed by setting appropriate residual values at inception and systematic reviews of residual values based on independent appraisals, performed at least annually.
The following table presents the components of operating lease equipment at the dates indicated (in thousands):
December 31, 2022 December 31, 2021
Operating lease equipment $ 772,267 $ 848,304
Less: accumulated depreciation (232,468) (207,578)
Operating lease equipment, net $ 539,799 $ 640,726
The Company did not recognize any impairment during the year ended December 31, 2022. Impairment was recognized in the amounts of $2.8 million and $0.7 million during the years ended December 31, 2021 and 2020, respectively. These impairment charges are included in "depreciation and impairment of operating lease equipment" in the accompanying consolidated statements of income.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
At December 31, 2022, scheduled minimum rental payments under operating leases were as follows (in thousands):
Years Ending December 31:
2023 $ 42,510
2024 37,490
2025 31,585
2026 20,523
2027 16,563
Thereafter 34,156
$ 182,827
The following table summarizes income recognized for operating and direct or sales type finance leases for the periods indicated (in thousands):
Years Ended December 31,
2022 2021 2020 Location of Lease Income on Consolidated Statements of Income
Operating leases $ 54,111 $ 53,263 $ 59,112 Non-interest income from lease financing
Direct or sales type finance leases 17,881 18,329 20,995 Interest income on loans
$ 71,992 $ 71,592 $ 80,107
Note 6 Deposits
The following table presents average balances and weighted average rates paid on deposits for the periods indicated (dollars in thousands):
Years Ended December 31,
2022 2021 2020
Average
Balance Average
Rate Paid Average
Balance Average
Rate Paid Average
Balance Average
Rate Paid
Demand deposits:
Non-interest bearing $ 8,861,111 - % $ 8,480,964 - % $ 5,760,309 - %
Interest bearing 2,538,906 0.55 % 3,027,649 0.28 % 2,582,951 0.75 %
Savings and money market 12,874,240 1.02 % 13,339,651 0.32 % 10,843,894 0.79 %
Time 3,338,671 1.06 % 3,490,082 0.46 % 6,617,939 1.43 %
$ 27,612,928 0.65 % $ 28,338,346 0.24 % $ 25,805,093 0.77 %
Time deposit accounts with balances greater than $250,000 totaled $730 million and $603 million at December 31, 2022 and 2021, respectively.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
The following table presents maturities of time deposits as of December 31, 2022 (in thousands):
Maturing in:
2023 $ 3,558,865
2024 304,953
2025 92,526
2026 310,637
2027 1,097
$ 4,268,078
Included in deposits at December 31, 2022 are public funds deposits of $3.5 billion and brokered deposits of $4.6 billion. Investment securities AFS with a carrying value of $947 million and a FHLB letter of credit in the amount of $600 million, were pledged as security for public funds deposits at December 31, 2022.
Interest expense on deposits for the periods indicated was as follows (in thousands):
Years Ended December 31,
2022 2021 2020
Interest bearing demand $ 13,919 $ 8,550 $ 19,445
Savings and money market 130,705 43,082 85,572
Time 35,348 15,964 94,963
$ 179,972 $ 67,596 $ 199,980
Certain of our non-interest bearing demand deposit accounts participate in various customer rebate programs. During the years ended December 31, 2022, 2021 and 2020, deposit costs related to these programs totaled $15.4 million, $8.1 million and $11.0 million, respectively. These expenses are included in "other non-interest expense" in the accompanying consolidated statements of income.
Note 7 Borrowings
The following table presents information about outstanding FHLB advances as of December 31, 2022 (dollars in thousands):
Range of Interest Rates
Amount Minimum Maximum Weighted Average Rate
Maturing in:
2023 - One month or less $ 4,320,000 3.79 % 4.48 % 4.19 %
2023 - Over one month 1,100,000 4.48 % 4.73 % 4.56 %
Total contractual balance outstanding $ 5,420,000
The table above reflects contractual maturities of outstanding advances and does not incorporate the impact that interest rate swaps designated as cash flow hedges have on the duration of borrowings.
The terms of the Company's security agreement with the FHLB require a specific assignment of collateral consisting of qualifying first mortgage loans, commercial real estate loans and mortgage-backed securities with unpaid principal amounts discounted at various stipulated percentages at least equal to 100% of outstanding FHLB advances. As of December 31, 2022, the Company had pledged investment securities and real estate loans with an aggregate carrying amount of approximately $13.8 billion as collateral for advances from the FHLB.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
Notes and other borrowings consisted of the following at the dates indicated (dollars in thousands):
December 31, 2022 December 31, 2021
Senior notes:
Principal amount of 4.875% senior notes maturing on November 17, 2025
$ 400,000 $ 400,000
Unamortized discount and debt issuance costs (2,586) (3,400)
397,414 396,600
Subordinated notes:
Principal amount of 5.125% subordinated notes maturing on June 11, 2030
300,000 300,000
Unamortized discount and debt issuance costs (4,880) (5,400)
295,120 294,600
Total notes 692,534 691,200
Finance leases 28,389 30,216
Notes and other borrowings $ 720,923 $ 721,416
The senior notes pay interest semiannually and have an effective interest rate of 5.12%, after consideration of issuance discount and costs. The notes may be redeemed by the Company, in whole or in part, at any time prior to August 17, 2025 at the greater of a) 100% of the principal balance or b) the sum of the present values of the remaining scheduled payments of principal and interest on the securities discounted to the redemption date at i) the rate on a United States Treasury security with a maturity comparable to the remaining maturity of the senior notes that would be used to price new issues of corporate debt securities with a maturity comparable to the remaining maturity of the senior notes plus ii) 40 basis points. The senior notes may be redeemed at any time after August 17, 2025 at 100% of principal plus accrued and unpaid interest.
The subordinated notes pay interest semiannually and have an effective interest rate of 5.39%, after consideration of issuance discount and costs. The notes may be redeemed by the Company, in whole or in part, on or after March 11, 2030 at a redemption price equal to 100% of the principal amount being redeemed plus accrued and unpaid interest, subject to the approval of the Federal Reserve. The notes qualify as Tier 2 capital for regulatory capital purposes, subject to applicable limitations.
At December 31, 2022, BankUnited had available borrowing capacity at the FHLB of approximately $4.0 billion, unused borrowing capacity at the FRB of approximately $1.4 billion, unused Federal funds lines of credit with other financial institutions totaling $50 million, and $600 million unused FHLB letter of credit.
Note 8 Premises, Equipment and Software
Premises and equipment and capitalized software costs are included in other assets in the accompanying consolidated balance sheets and are summarized as follows at the dates indicated (in thousands):
December 31, 2022 December 31, 2021
Buildings and improvements $ 1,019 $ 430
Leasehold improvements 74,607 70,228
Furniture, fixtures and equipment 34,835 34,688
Computer equipment 19,380 19,018
Software, software licensing rights and capitalized costs of CCA 95,491 84,386
Aircraft and automobiles 11,645 11,629
236,977 220,379
Less: accumulated depreciation (170,707) (163,645)
Premises, equipment and software, net $ 66,270 $ 56,734
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
Depreciation and amortization expense related to premises, equipment and software was $17.5 million, $16.7 million and $15.7 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Note 9 Income Taxes
The components of the provision for income taxes were as follows for the periods indicated (in thousands):
Years Ended December 31,
2022 2021 2020
Current:
Federal $ 76,431 $ 61,814 $ 63,083
State 12,293 (18,398) 16,009
88,724 43,416 79,092
Deferred:
Federal (7,191) 4,348 (22,387)
State 8,628 (13,363) (5,199)
1,437 (9,015) (27,586)
$ 90,161 $ 34,401 $ 51,506
A reconciliation of expected income tax expense at the statutory federal income tax rate of 21% to the Company's effective income tax rate for the periods indicated follows (dollars in thousands):
Years Ended December 31,
2022 2021 2020
Amount Percent Amount Percent Amount Percent
Tax expense calculated at the statutory federal income tax rate
$ 78,778 21.00 % $ 94,371 21.00 % $ 52,366 21.00 %
Increases (decreases) resulting from:
Income not subject to tax (10,577) (2.82) % (13,203) (2.94) % (15,722) (6.30) %
State income taxes, net of federal tax benefit 22,610 6.03 % 22,197 4.94 % 13,413 5.38 %
Uncertain tax positions - lapse of statute of limitations
(1,093) (0.29) % (25,633) (5.70) % (3,734) (1.50) %
Discrete income tax benefit - - % (43,949) (9.78) % - - %
Other, net 443 0.11 % 618 0.14 % 5,183 2.08 %
$ 90,161 24.03 % $ 34,401 7.66 % $ 51,506 20.66 %
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
During the year ended December 31, 2021, the Bank reached a settlement with the Florida Department of Revenue related to certain tax matters for the 2009-2019 tax years and recorded a tax benefit of $43.9 million, net of federal impact.
The components of deferred tax assets and liabilities were as follows at the dates indicated (in thousands):
December 31, 2022 December 31, 2021
Deferred tax assets:
Excess of tax basis over carrying value of acquired loans $ 6,243 $ 22,737
Allowance for credit losses 38,211 33,577
Net operating loss and tax credit carryforwards 9,692 19,466
Net unrealized loss on investment securities available for sale and cash flow hedges 153,858 5,456
Capitalized costs 18,380 26,854
Lease liability 20,655 23,137
Deferred compensation 9,873 8,688
Accrued expenses 11,464 11,185
Other 25,104 18,958
Gross deferred tax assets 293,480 170,058
Deferred tax liabilities:
Lease financing, due to differences in depreciation 131,018 151,978
ROU asset 31,253 33,136
Other 7,005 7,706
Gross deferred tax liabilities 169,276 192,820
Net deferred tax asset (liability) $ 124,204 $ (22,762)
Based on the evaluation of available evidence, the Company has concluded that it is more likely than not that the existing deferred tax assets will be realized. The primary factors supporting this conclusion are the Company's history of reported pre-tax income and the amount of future taxable income that will result from the scheduled reversal of existing deferred tax liabilities.
At December 31, 2022, remaining net operating loss and tax credit carryforwards included Florida net operating loss carryforwards in the amount of $111.5 million. Florida net operating loss carryforwards consisted of $95.2 million expiring from 2030 through 2037 and $16.3 million that can be carried forward indefinitely.
The Company has investments in affordable housing limited partnerships which generate federal Low Income Housing Tax Credits and other tax benefits. The balance of these investments, included in other assets in the accompanying consolidated balance sheet, was $100 million and $43 million at December 31, 2022 and 2021, respectively. Unfunded commitments for affordable housing investments, included in other liabilities in the accompanying consolidated balance sheet, were $62 million and $3 million at December 31, 2022 and 2021, respectively. The maximum exposure to loss as a result of the Company's involvement with these limited partnerships at December 31, 2022 was approximately $145 million. While the Company believes the likelihood of potential losses from these investments is remote, the maximum exposure was determined by assuming a scenario where the projects completely fail and do not meet certain government compliance requirements resulting in recapture of the related tax credits and full impairment of the remaining unamortized investment. These investments did not have a material impact on income tax expense for the years ended December 31, 2022, 2021 and 2020.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
The Company has a liability for unrecognized tax benefits relating to uncertain federal and state tax positions in several jurisdictions. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits at the dates indicated follows (in thousands):
December 31, 2022 December 31, 2021 December 31, 2020
Balance, beginning of period $ 347,809 $ 414,203 $ 407,126
Additions for tax positions related to the current year 3,086 2,175 2,117
Additions for tax positions related to prior periods 12,433 12,887 2,456
Reductions due to settlements with taxing authorities - (43,782) (3,080)
Reductions due to lapse of the statute of limitations (795) (30,394) (520)
362,533 355,089 408,099
Interest and penalties 7,347 (7,280) 6,104
Balance, end of period $ 369,880 $ 347,809 $ 414,203
As of December 31, 2022, 2021 and 2020, the Company had $342.6 million, $329.3 million and $369.1 million of unrecognized federal and state tax benefits, net of federal tax benefits, that if recognized would have impacted the effective tax rate. Unrecognized tax benefits related to federal and state income tax contingencies that may decrease during the 12 months subsequent to December 31, 2022 as a result of settlements with taxing authorities range from zero to $309.0 million.
Interest and penalties related to unrecognized tax benefits are included in the provision for income taxes in the consolidated statements of income. At December 31, 2022 and 2021, accrued interest and penalties included in the consolidated balance sheets, net of federal tax benefits, were $16.5 million and $10.6 million, respectively. The total amount of interest and penalties, net of federal tax benefits, recognized through income tax expense was $5.9 million, $(5.7) million and $4.9 million during the years ended December 31, 2022, 2021 and 2020, respectively.
The Company and its subsidiaries file a consolidated federal income tax return as well as combined state income tax returns where combined filings are required. The federal tax returns for years 2018 through 2021 remain subject to examination in the U.S. Federal jurisdiction. State tax returns for years 2016 through 2021 remain subject to examination by certain states.
Note 10 Derivatives and Hedging Activities
The Company has entered into interest rate swaps, caps and collars designated as cash flow hedges with the objective of limiting the variability of interest payment cash flows. The Company has also entered into interest rate swaps designated as fair value hedges designed to hedge changes in the fair value of outstanding fixed rate instruments caused by fluctuations in the benchmark interest rate.
The Company enters into interest rate derivative contracts with certain of its commercial borrowers to enable those borrowers to manage their exposure to interest rate fluctuations. To mitigate interest rate risk associated with these derivative contracts, the Company enters into offsetting derivative contract positions with primary dealers. These interest rate derivative contracts are not designated as hedging instruments; therefore, changes in the fair value of these derivatives are recognized immediately in earnings. For the years ended December 31, 2022, 2021 and 2020, the impact on earnings related to changes in fair value of these derivatives was not material.
The Company may be exposed to credit risk in the event of non-performance by the counterparties to its interest rate derivative agreements. The Company assesses the credit risk of its financial institution counterparties by monitoring publicly available credit rating and financial information. The Company manages dealer credit risk by entering into interest rate derivatives only with primary and highly rated counterparties, the use of ISDA master agreements, central clearing mechanisms and counterparty limits. The agreements contain bilateral collateral arrangements with the amount of collateral to be posted generally governed by the settlement value of outstanding swaps. The Company manages the risk of default by its commercial borrower counterparties through its normal loan underwriting and credit monitoring policies and procedures. The Company does not currently anticipate any significant losses from failure of interest rate derivative counterparties to honor their obligations.
The CME legally characterizes variation margin payments for centrally cleared derivatives as settlements of the derivatives' exposures rather than collateral. As a result, the variation margin payment and the related derivative instruments are considered
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
a single unit of account for accounting and financial reporting purposes. The Company's clearing agent for interest rate derivative contracts centrally cleared through the CME settles the variation margin daily with the CME; therefore, those interest rate derivative contracts the Company clears through the CME are reported at a fair value of zero at both December 31, 2022 and 2021.
The following tables set forth certain information concerning the Company’s interest rate contract derivative financial instruments and related hedged items at the dates indicated (dollars in thousands):
December 31, 2022
Weighted
Average Pay Rate / Strike Price Weighted
Average Receive Rate / Strike Price Weighted
Average
Remaining
Life in Years
Notional Amount Balance Sheet Location Fair Value
Hedged Item Asset Liability
Derivatives designated as cash flow hedges:
Pay-fixed interest rate swaps Variability of interest cash flows on variable rate borrowings 2.32% 3-Month LIBOR 2.2 $ 695,000 Other assets $ 941 $ -
Pay-fixed interest rate swaps Variability of interest cash flows on variable rate borrowings 2.31% Daily SOFR 1.7 675,000 - -
Pay-fixed interest rate swaps Variability of interest cash flows on variable rate liabilities 1.22% Fed Funds Effective Rate 1.7 400,000 - -
Pay-variable interest rate swaps Variability of interest cash flows on variable rate loans Term SOFR 3.72% 3.3 200,000 Other liabilities - (1,514)
Interest rate caps purchased, indexed to Fed Funds effective rate Variability of interest cash flows on variable rate liabilities 0.88% 2.5 200,000 Other assets 15,673 -
Interest rate collar, indexed to 1-month SOFR(1)
Variability of interest cash flows on variable rate loans 5.58% 1.50% 3.7 125,000 Other liabilities - (203)
Derivatives designated as fair value hedges:
Pay-fixed interest rate swaps Variability of fair value of fixed rate loans 1.94% Daily SOFR 1.6 100,000 - -
Derivatives not designated as hedges:
Pay-fixed interest rate swaps 3.55% 1-Month LIBOR 3.6 1,113,494 Other assets / Other liabilities 20,712 (339)
Pay-variable interest rate swaps 1-Month LIBOR 3.55% 3.6 1,113,494 Other assets / Other liabilities 339 (73,090)
Pay-fixed interest rate swaps 4.17% Term SOFR 5.9 803,225 Other assets / Other liabilities 47,230 (1,856)
Pay-variable interest rate swaps Term SOFR 4.17% 5.9 803,225 Other assets / Other liabilities 1,856 (47,230)
Interest rate caps purchased, indexed to 1-month LIBOR 2.25% 2.7 42,920 Other assets 1,988 -
Interest rate caps sold, indexed to 1-month LIBOR 2.25% 2.7 42,920 Other liabilities - (1,988)
$ 6,314,278 $ 88,739 $ (126,220)
(1)The interest rate collar consists of a combination of zero-premium interest rate options. The Company sold a pay-variable cap with a strike price of 5.58%; sold a 0% floor; and purchased a receive-variable floor with a strike price of 1.50%.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
December 31, 2021
Weighted
Average Pay Rate / Strike Price Weighted
Average Receive Rate / Strike Price Weighted
Average
Remaining
Life in Years
Notional Amount Balance Sheet Location Fair Value
Hedged Item Asset Liability
Derivatives designated as cash flow hedges:
Pay-fixed interest rate swaps
Variability of interest cash flows on variable rate borrowings 2.35% 3-Month LIBOR 2.6 $ 905,000 Other liabilities $ - $ (2,687)
Pay-fixed forward-starting interest rate swaps Variability of interest cash flows on variable rate liabilities 0.87% Fed Funds Effective Rate 2.5 200,000 Other liabilities - -
Interest rate caps purchased, indexed to Fed Funds effective rate Variability of interest cash flows on variable rate liabilities 1.00% 3.5 200,000 Other assets 3,260 -
Derivatives not designated as hedges:
Pay-fixed interest rate swaps
3.57% Indexed to 1-month LIBOR 5.0 1,668,517 Other assets / Other liabilities 3,369 (15,347)
Pay-variable interest rate swaps
Indexed to 1-month LIBOR 3.57% 5.0 1,668,517 Other assets / Other liabilities 51,947 (6,837)
Interest rate caps purchased, indexed to 1-month LIBOR
1.00% 4.0 25,000 Other assets 443 -
Interest rate caps sold, indexed to 1-month LIBOR
1.00% 4.0 25,000 Other liabilities - (443)
$ 4,692,034 $ 59,019 $ (25,314)
The following table provides information about the amount of loss related to derivatives designated as cash flow hedges reclassified from AOCI into interest expense for the periods indicated (in thousands):
Years Ended December 31,
2022 2021 2020
Location of gain (loss) reclassified from AOCI into income:
Interest expense on borrowings $ (4,224) $ (51,739) $ (46,259)
Interest expense on deposits 4,357 - -
Interest income on loans (43) - -
$ 90 $ (51,739) $ (46,259)
During the year ended December 31, 2021, derivative positions designated as cash flow hedges with a notional amount totaling $401 million were discontinued following the Company's determination that the hedged forecasted transactions were not probable of occurring. A loss of $33.4 million, net of tax, was reclassified from AOCI into earnings as a result of the discontinuance of the cash flow hedges. During the years ended December 31, 2022, and 2020, no derivative positions designated as cash flow hedges were discontinued and none of the gains and losses reported in AOCI were reclassified into earnings as a result of the discontinuance of cash flow hedges or because of the early extinguishment of debt. As of December 31, 2022, the amount of net gain expected to be reclassified from AOCI into earnings during the next twelve months was $41.2 million. See Note 11 to the consolidated financial statements for additional information about the reclassification adjustments from AOCI into earnings.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
The amount of gain (loss) related to derivatives designated as fair value hedges recognized in earnings was insignificant for the years ended December 31, 2022, 2021 and 2020. The following table provides information about the hedged items related to derivatives designated as fair value hedges at the date indicated (in thousands):
December 31, 2022 Location in Consolidated Balance Sheets
Contractual balance outstanding of hedged item (1)
$ 100,000 Loans
Cumulative fair value hedging adjustments $ (3,923) Loans
(1)This amount is included in the amortized cost basis of a closed portfolio of loans used to designate hedging relationships in a portfolio layer method hedge in which the hedged item is anticipated to be outstanding for the designated hedge period. At December 31, 2022, the amortized cost basis of the closed portfolio used in this hedging relationship was $1.0 billion.
Some of the Company’s ISDA master agreements with financial institution counterparties contain provisions that permit either counterparty to terminate the agreements and require settlement in the event that regulatory capital ratios fall below certain designated thresholds, upon the initiation of other defined regulatory actions or upon suspension or withdrawal of the Bank’s credit rating. Currently, there are no circumstances that would trigger these provisions of the agreements.
The Company does not offset assets and liabilities under master netting agreements for financial reporting purposes. Information on interest rate swaps and caps subject to these agreements is as follows at the dates indicated (in thousands):
December 31, 2022
Gross Amounts Offset in Balance
Sheet Net Amounts Presented in
Balance Sheet Gross Amounts Not Offset in
Balance Sheet
Gross Amounts
Recognized Derivative
Instruments Collateral
Pledged Net Amount
Derivative assets $ 86,544 $ - $ 86,544 $ (3,912) $ (79,447) $ 3,185
Derivative liabilities (3,912) - (3,912) 3,912 - -
$ 82,632 $ - $ 82,632 $ - $ (79,447) $ 3,185
December 31, 2021
Gross Amounts Offset in Balance
Sheet Net Amounts Presented in
Balance Sheet Gross Amounts Not Offset in
Balance Sheet
Gross Amounts
Recognized Derivative
Instruments Collateral
Pledged Net Amount
Derivative assets $ 7,072 $ - $ 7,072 $ (3,104) $ (3,915) $ 53
Derivative liabilities (18,034) - (18,034) 3,104 14,557 (373)
$ (10,962) $ - $ (10,962) $ - $ 10,642 $ (320)
The difference between the amounts reported for interest rate swaps subject to master netting agreements and the total fair value of interest rate contract derivative financial instruments reported in the consolidated balance sheets is related to interest rate derivative contracts not subject to master netting agreements.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Note 11 Stockholders’ Equity
Accumulated Other Comprehensive Income
Changes in other comprehensive income are summarized as follows for the periods indicated (in thousands):
Year Ended December 31, 2022
Before Tax Tax Effect Net of Tax
Unrealized losses on investment securities available for sale:
Net unrealized holding loss arising during the period $ (674,115) $ 175,251 $ (498,864)
Amounts reclassified to gain on investment securities available for sale, net
(3,927) 1,021 (2,906)
Net change in unrealized loss on investment securities available for sale (678,042) 176,272 (501,770)
Unrealized gains on derivative instruments:
Net unrealized holding gains arising during the period 107,764 (27,893) 79,871
Amounts reclassified to interest expense on deposits (4,357) 1,133 (3,224)
Amounts reclassified to interest expense on borrowings
4,224 (1,098) 3,126
Amounts reclassified to interest income on loans 43 (11) 32
Net change in unrealized gains on derivative instruments 107,674 (27,869) 79,805
Other comprehensive loss $ (570,368) $ 148,403 $ (421,965)
Year Ended December 31, 2021
Before Tax Tax Effect Net of Tax
Unrealized losses on investment securities available for sale:
Net unrealized holding losses arising during the period $ (72,789) $ 18,561 $ (54,228)
Amounts reclassified to gain on investment securities available for sale, net
(9,010) 2,298 (6,712)
Net change in unrealized losses on investment securities available for sale (81,799) 20,859 (60,940)
Unrealized losses on derivative instruments:
Net unrealized holding gains arising during the period 29,808 (7,601) 22,207
Amounts reclassified to interest expense on borrowings
51,739 (13,194) 38,545
Reclassification adjustment for discontinuance of cash flow hedges 44,833 (11,433) 33,400
Net change in unrealized gains on derivative instruments 126,380 (32,228) 94,152
Other comprehensive income $ 44,581 $ (11,369) $ 33,212
Year Ended December 31, 2020
Before Tax Tax Effect Net of Tax
Unrealized gains on investment securities available for sale:
Net unrealized holding gain arising during the period $ 61,291 $ (15,246) $ 46,045
Amounts reclassified to gain on investment securities available for sale, net
(14,001) 3,570 (10,431)
Net change in unrealized gains on investment securities available for sale 47,290 (11,676) 35,614
Unrealized losses on derivative instruments:
Net unrealized holding loss arising during the period (116,168) 28,766 (87,402)
Amounts reclassified to interest expense on borrowings
46,259 (11,796) 34,463
Net change in unrealized losses on derivative instruments
(69,909) 16,970 (52,939)
Other comprehensive loss $ (22,619) $ 5,294 $ (17,325)
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
The categories of AOCI and changes therein are presented below for the periods indicated (in thousands):
Unrealized Gain (Loss) on
Investment Securities
Available for Sale Unrealized Gain (Loss)
on Derivative
Instruments Total
Balance at December 31, 2019 $ 28,185 $ (60,012) $ (31,827)
Other comprehensive loss 35,614 (52,939) (17,325)
Balance at December 31, 2020 63,799 (112,951) (49,152)
Other comprehensive income (60,940) 94,152 33,212
Balance at December 31, 2021 2,859 (18,799) (15,940)
Other comprehensive loss (501,770) 79,805 (421,965)
Balance at December 31, 2022 $ (498,911) $ 61,006 $ (437,905)
Note 12 Equity Based and Other Compensation Plans
Description of Equity Based Compensation Plans
In connection with the IPO of the Company's common stock in 2011, the Company adopted the 2010 Plan. In 2014, the Board of Directors and the Company's stockholders approved the 2014 Plan. The 2010 and 2014 Plans are administered by the Board of Directors or a committee thereof and provide for the grant of non-qualified stock options, SARs, restricted shares, deferred shares, performance shares, unrestricted shares and other share-based awards to selected employees, directors or independent contractors of the Company and its affiliates. As of December 31, 2022, no further awards are available for issuance under the 2010 plan.The number of shares of common stock authorized for award under the 2014 Plan is 6,200,000, of which 1,531,813 shares remain available for issuance as of December 31, 2022. Shares of common stock delivered under the plans may consist of authorized but unissued shares or previously issued shares reacquired by the Company. Unvested awards become fully vested in the event of a change in control, subject to a double trigger, as defined.
Compensation Expense Related to Equity Based Awards
The following table summarizes compensation cost related to equity based awards for the periods indicated (in thousands):
Years Ended December 31,
2022 2021 2020
Compensation cost of equity based awards:
RSAs $ 16,203 $ 13,334 $ 15,236
Executive share-based awards 4,239 7,942 3,133
Non-executive RSUs 4,886 2,707 2,145
Total compensation cost of equity based awards 25,328 23,983 20,514
Related tax benefits (6,585) (6,116) (4,854)
Compensation cost of equity based awards, net of tax $ 18,743 $ 17,867 $ 15,660
Non-Executive Share-Based Awards
RSAs
RSAs are generally valued at the closing price of the Company's common stock on the date of grant. All awards vest in equal annual installments over a period of four years from the date of grant except awards granted to the Company's Board of Directors, which vest over a period of one year.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Non-executive RSUs
The Company issues RSUs based on results of the Company's annual incentive compensation arrangements for certain employees other than those eligible for the executive share-based awards discussed below. These incentive compensation plans provide for a combination of cash payments and RSUs following the end of each annual performance period. The dollar value of share awards to be granted is based on the achievement of performance criteria established in the incentive arrangements. The number of shares of common stock to be awarded is variable based on the closing price of the Company's stock on the date of grant; therefore, these awards are initially classified as liability instruments, with compensation cost recognized from the beginning of the performance period. Awards vest in equal installments over a period of four years from the date of grant.
Annual awards of RSUs represent a fixed number of shares and vest on December 31st in equal tranches over four years. Upon vesting, the non-executive RSUs will be converted to common stock on a one-for-one basis, or may be settled in cash at the Company's option. To date, all such awards have been settled in shares. The non-executive RSUs do not accumulate dividends prior to vesting.
A summary of activity related to non-executive share-based awards for the periods indicated follows:
RSA Non-Executive RSU
Number of Share Awards Weighted Average Grant Date Fair Value Number of Share Awards Weighted Average Grant Date Fair Value
Unvested share awards outstanding, December 31, 2019
1,050,455 $ 38.24 - $ -
Granted 660,587 29.72 - -
Vested (479,057) 38.94 - -
Canceled or forfeited (70,150) 34.78 - -
Unvested share awards outstanding, December 31, 2020
1,161,835 33.32 - -
Granted 571,936 42.17 - -
Vested (479,790) 34.01 - -
Canceled or forfeited (74,297) 35.91 - -
Unvested share awards outstanding, December 31, 2021
1,179,684 37.17 - -
Granted 496,361 41.75 294,331 41.87
Vested (391,693) 36.72 - -
Canceled or forfeited (90,037) 39.38 (36,355) 41.87
Unvested share awards outstanding, December 31, 2022
1,194,315 $ 39.05 257,976 $ 41.87
The following table summarizes the closing price of the Company's stock on the date of grant for shares granted and the aggregate grant date fair value of shares vesting for the periods indicated (in thousands, except per share data):
Years Ended December 31,
2022 2021 2020
Range of the closing price on date of grant $39.39 - $43.67
$42.01 - $47.52
$13.99 - $30.90
Aggregate grant date fair value of shares vesting $ 14,383 $ 16,319 $ 18,654
The total unrecognized compensation cost of $34.8 million for all RSAs and non-executive RSUs outstanding at December 31, 2022, will be recognized over a weighted average remaining period of 2.5 years.
Executive share-based awards
Certain of the Company's executives are eligible to receive annual awards of RSUs and PSUs (collectively, the "share units"). Annual awards of RSUs represent a fixed number of shares and vest on December 31st in equal tranches over four years. PSUs are initially granted based on a target value. The number of PSUs that ultimately vest at the end of the performance measurement period will be based on the achievement of performance criteria pre-established by the Compensation Committee of the Board of Directors. Upon vesting, the share units will be converted to common stock on a one-for-one basis, or may be
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
settled in cash at the Company's option. The share units will accumulate dividends declared on the Company's common stock from the date of grant to be paid subsequent to vesting.
As a result of the majority of previous settlements being in cash, all executive RSUs and PSUs have been determined to be liability instruments and are remeasured at fair value each reporting period until the awards are settled. The RSUs are valued based on the closing price of the Company's common stock at the reporting date. The PSUs are valued based on the closing price of the Company's common stock at the reporting date net of a discount related to any applicable market conditions, considering the probability of meeting the defined performance conditions. Compensation cost related to PSUs is recognized during the performance period based on the probable outcome of the respective performance conditions.
A summary of activity related to executive share-based awards for the periods indicated follows:
RSU PSU
Unvested executive share-based awards outstanding, December 31, 2019
112,116 125,088
Granted 106,731 106,731
Vested (62,292) (52,026)
Unvested executive share-based awards outstanding, December 31, 2020
156,555 179,793
Granted 63,814 63,814
Vested (100,881) -
Unvested executive share-based awards outstanding, December 31, 2021
119,488 243,607
Granted 66,990 66,990
Vested (77,648) (73,062)
Unvested executive share-based awards outstanding, December 31, 2022
108,830 237,535
The total liability for these executive share-based awards was $9.5 million at December 31, 2022. The total unrecognized compensation cost of $7.4 million for unvested executive share-based awards at December 31, 2022 will be recognized over a weighted average remaining period of 1.9 years.
Option Awards
A summary of activity related to stock option awards for the periods indicated follows:
Number of
Option
Awards Weighted
Average
Exercise Price
Option awards outstanding, December 31, 2019
737,753 $ 26.64
Exercised (735,400) 26.67
Canceled or forfeited (784) 22.18
Option awards outstanding, December 31, 2020
1,569 15.94
Exercised (1,569) 15.94
Canceled or forfeited - -
Option awards outstanding, December 31, 2021
- -
The intrinsic value and related tax benefit of the options exercised was immaterial for the years ended December 31, 2021 and 2020.
Deferred Compensation Plan
The Company has a non-qualified deferred compensation plan for a group of key management or highly compensated employees whereby a participant, upon election, may defer a portion of eligible compensation. The deferred compensation plan provides for discretionary Company contributions. Generally, the Company has elected not to make contributions. The Company credits each participant's account with income based on either an annual interest rate determined by the Company's Compensation Committee or returns of selected investment portfolios, as elected by the participant. A participant's elective
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
deferrals and interest thereon are at all times 100% vested. Company contributions and interest thereon will become 100% vested upon the earlier of a change in control, as defined, or the participant's death, disability, attainment of normal retirement age or the completion of two years of service. Participant deferrals and any associated earnings will be paid upon separation from service or based on a specified distribution schedule, as elected by the participant. Deferred compensation expense was $1.4 million, $2.2 million and $2.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. Deferred compensation liabilities of $37 million and $33 million were included in other liabilities in the accompanying consolidated balance sheets at December 31, 2022 and 2021, respectively.
BankUnited 401(k) Plan
Under the terms of the 401(k) Plan sponsored by the Company, eligible employees may contribute a portion of compensation not exceeding the limits set by law. Employees are eligible to participate in the plan after one month of service. The 401(k) Plan allows a matching employer contribution equal to 100% of elective deferrals that do not exceed 1% of compensation, plus 70% of elective deferrals that exceed 1% but are less than 6% of compensation. Matching contributions are fully vested after two years of service. For the years ended December 31, 2022, 2021 and 2020, BankUnited made matching contributions to the 401(k) Plan of approximately $6.2 million, $6.1 million and $5.7 million, respectively.
Note 13 Regulatory Requirements and Restrictions
The Company and the Bank are subject to various regulatory capital requirements administered by Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated pursuant to regulation. The capital amounts and classification also are subject to qualitative judgments by the regulators about components, risk weightings and other factors. Banking regulations identify five capital categories for insured depository institutions: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. As of December 31, 2022 and 2021, all capital ratios of the Company and the Bank exceeded the "well capitalized" levels under the regulatory framework for prompt corrective action. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total, common equity tier 1 and tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of tier 1 capital to average tangible assets (leverage ratio).
The following tables provide information regarding regulatory capital for the Company at the dates indicated (dollars in thousands):
December 31, 2022
Actual Required to be
Considered Well
Capitalized Required to be
Considered
Adequately
Capitalized Required to be Considered
Adequately
Capitalized Including Capital Conservation Buffer
Amount Ratio Amount Ratio Amount Ratio Amount Ratio
BankUnited, Inc.:
Tier 1 leverage $ 2,806,713 7.49 % N/A (1)
N/A (1)
$ 1,498,309 4.00 % N/A (1)
N/A (1)
CET1 risk-based capital $ 2,806,713 11.00 % $ 1,658,842 6.50 % $ 1,148,429 4.50 % $ 1,786,445 7.00 %
Tier 1 risk-based capital $ 2,806,713 11.00 % $ 2,041,652 8.00 % $ 1,531,239 6.00 % $ 2,169,255 8.50 %
Total risk-based capital $ 3,236,797 12.68 % $ 2,552,065 10.00 % $ 2,041,652 8.00 % $ 2,679,668 10.50 %
BankUnited:
Tier 1 leverage $ 3,148,656 8.43 % $ 1,866,432 5.00 % $ 1,493,145 4.00 % N/A N/A
CET1 risk-based capital $ 3,148,656 12.40 % $ 1,650,104 6.50 % $ 1,142,380 4.50 % $ 1,777,035 7.00 %
Tier 1 risk-based capital $ 3,148,656 12.40 % $ 2,030,897 8.00 % $ 1,523,173 6.00 % $ 2,157,828 8.50 %
Total risk-based capital $ 3,278,740 12.92 % $ 2,538,621 10.00 % $ 2,030,897 8.00 % $ 2,665,552 10.50 %
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
December 31, 2021
Actual Required to be
Considered Well
Capitalized Required to be
Considered
Adequately
Capitalized Required to be Considered
Adequately
Capitalized Including Capital Conservation Buffer
Amount Ratio Amount Ratio Amount Ratio Amount Ratio
BankUnited, Inc.:
Tier 1 leverage $ 2,991,085 8.37 % N/A (1)
N/A (1)
$ 1,429,955 4.00 % N/A (1)
N/A (1)
CET1 risk-based capital $ 2,991,085 12.60 % $ 1,542,833 6.50 % $ 1,068,115 4.50 % $ 1,661,512 7.00 %
Tier 1 risk-based capital $ 2,991,085 12.60 % $ 1,898,871 8.00 % $ 1,424,153 6.00 % $ 2,017,551 8.50 %
Total risk-based capital $ 3,391,066 14.29 % $ 2,373,589 10.00 % $ 1,898,871 8.00 % $ 2,492,268 10.50 %
BankUnited:
Tier 1 leverage $ 3,419,728 9.60 % $ 1,781,140 5.00 % $ 1,424,912 4.00 % N/A N/A
CET1 risk-based capital $ 3,419,728 14.49 % $ 1,534,040 6.50 % $ 1,062,028 4.50 % $ 1,652,043 7.00 %
Tier 1 risk-based capital $ 3,419,728 14.49 % $ 1,888,049 8.00 % $ 1,416,037 6.00 % $ 2,006,052 8.50 %
Total risk-based capital $ 3,519,709 14.91 % $ 2,360,062 10.00 % $ 1,888,049 8.00 % $ 2,478,065 10.50 %
(1) There is no Tier 1 leverage ratio component in the definition of a well-capitalized bank holding company.
Upon the adoption of ASU 2016-13 effective January 1, 2020, the Company elected the option to temporarily delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period.
BankUnited is subject to various regulatory restrictions relating to the payment of dividends, including requirements to maintain capital at or above certain minimums, and to remain "well-capitalized" under the prompt corrective action regulations. The Company does not expect that any of these laws, regulations or policies will materially affect the ability of BankUnited to pay dividends in the foreseeable future.
Note 14 Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis
The following is a description of the methodologies used to estimate the fair values of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which those measurements are typically classified.
Investment securities available for sale and marketable equity securities-Fair value measurements are based on quoted prices in active markets when available; these measurements are classified within level 1 of the fair value hierarchy. These securities typically include U.S. Treasury securities and certain preferred stocks. If quoted prices in active markets are not available, fair values are estimated using quoted prices of securities with similar characteristics, quoted prices of identical securities in less active markets, discounted cash flow techniques, or matrix pricing models. These securities are generally classified within level 2 of the fair value hierarchy and include U.S. Government agency securities, U.S. Government agency and sponsored enterprise MBS, preferred stock investments for which level 1 valuations are not available, non-mortgage asset-backed securities, single family real estate-backed securities, private label residential MBS and CMOs, private label commercial MBS, collateralized loan obligations and state and municipal obligations. Pricing of these securities is generally primarily spread driven. Observable inputs that may impact the valuation of these securities include benchmark yield curves, credit spreads, reported trades, dealer quotes, bids, issuer spreads, current rating, historical constant prepayment rates, historical voluntary prepayment rates, structural and waterfall features of individual securities, published collateral data, and for certain securities, historical constant default rates and default severities.
The Company uses third-party pricing services in determining fair value measurements for investment securities. To obtain an understanding of the methodologies and assumptions used, management reviews written documentation provided by the pricing services, conducts interviews with valuation desk personnel and reviews model results and detailed assumptions used to value selected securities as considered necessary. Management has established a robust price challenge process that includes a review by the treasury front office of all prices provided on a monthly basis. Any price evidencing unexpected month over month fluctuations or deviations from expectations is challenged. If considered necessary to resolve any discrepancies, a price
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
will be obtained from an additional independent valuation source. The Company does not typically adjust the prices provided, other than through this established challenge process. The results of price challenges are subject to review by executive management. Any price discrepancies are resolved based on careful consideration of the assumptions and inputs employed by each of the pricing sources.
Derivative financial instruments-Fair values of interest rate swaps, caps and collars are determined using widely accepted discounted cash flow modeling techniques. These discounted cash flow models use projections of future cash payments and receipts that are discounted at mid-market rates. Observable inputs that may impact the valuation of these instruments include benchmark swap rates and benchmark forward yield curves. These fair value measurements are generally classified within level 2 of the fair value hierarchy.
The following tables present assets and liabilities measured at fair value on a recurring basis at the dates indicated (in thousands):
December 31, 2022
Level 1 Level 2 Total
Investment securities available for sale:
U.S. Treasury securities $ 135,841 $ - $ 135,841
U.S. Government agency and sponsored enterprise residential MBS - 1,983,168 1,983,168
U.S. Government agency and sponsored enterprise commercial MBS - 525,094 525,094
Private label residential MBS and CMOs - 2,530,663 2,530,663
Private label commercial MBS - 2,524,354 2,524,354
Single family real estate-backed securities - 470,441 470,441
Collateralized loan obligations - 1,136,463 1,136,463
Non-mortgage asset-backed securities - 95,976 95,976
State and municipal obligations - 116,661 116,661
SBA securities - 135,782 135,782
Marketable equity securities 90,884 - 90,884
Derivative assets - 88,739 88,739
Total assets at fair value $ 226,725 $ 9,607,341 $ 9,834,066
Derivative liabilities $ - $ (126,220) $ (126,220)
Total liabilities at fair value $ - $ (126,220) $ (126,220)
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
December 31, 2021
Level 1 Level 2 Total
Investment securities available for sale:
U.S. Treasury securities
$ 111,660 $ - $ 111,660
U.S. Government agency and sponsored enterprise residential MBS - 2,097,796 2,097,796
U.S. Government agency and sponsored enterprise commercial MBS - 856,899 856,899
Private label residential MBS and CMOs - 2,149,420 2,149,420
Private label commercial MBS - 2,604,010 2,604,010
Single family real estate-backed securities - 476,968 476,968
Collateralized loan obligations - 1,078,286 1,078,286
Non-mortgage asset-backed securities - 152,510 152,510
State and municipal obligations - 222,277 222,277
SBA securities - 183,595 183,595
Marketable equity securities 120,777 - 120,777
Servicing rights - 5,152 5,152
Derivative assets - 59,019 59,019
Total assets at fair value $ 232,437 $ 9,885,932 $ 10,118,369
Derivative liabilities $ - $ (25,314) $ (25,314)
Total liabilities at fair value $ - $ (25,314) $ (25,314)
Assets and liabilities measured at fair value on a non-recurring basis
Following is a description of the methodologies used to estimate the fair values of assets and liabilities that may be measured at fair value on a non-recurring basis, and the level within the fair value hierarchy in which those measurements are typically classified.
Collateral dependent loans and OREO-The carrying amount of collateral dependent loans is typically based on the fair value of the underlying collateral, which may be real estate, enterprise value or other business assets, less estimated costs to sell when repayment is expected to come from the sale of the collateral. The carrying value of OREO is initially measured based on the fair value of the real estate acquired in foreclosure and subsequently adjusted to the lower of cost or estimated fair value, less estimated cost to sell. Fair values of real estate collateral and OREO are typically based on third-party real estate appraisals which utilize market and income approaches to valuation incorporating both observable and unobservable inputs.
Fair value measurements related to collateral dependent loans and OREO are generally classified within level 3 of the fair value hierarchy.
Operating lease equipment-Fair values of impaired operating lease equipment are typically based upon discounted cash flow analyses, considering expected lease rates and estimated end of life residual values, typically obtained from independent appraisals. These fair value measurements are classified within level 3 of the fair value hierarchy.
The following table presents the net carrying value of assets classified within level 3 of the fair value hierarchy at the dates indicated, for which non-recurring changes in fair value were recorded during the period then ended (in thousands):
December 31, 2022 December 31, 2021
Collateral dependent loans $ 31,789 $ 70,433
OREO 693 2,788
Operating lease equipment - 11,429
$ 32,482 $ 84,650
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
The following table presents the carrying value and fair value of financial instruments and the level within the fair value hierarchy in which those measurements are classified at the dates indicated (dollars in thousands):
December 31, 2022 December 31, 2021
Level Carrying Value Fair Value Carrying Value Fair Value
Assets:
Cash and cash equivalents 1 $ 572,647 $ 572,647 $ 314,857 $ 314,857
Investment securities 1/2 $ 9,755,327 $ 9,755,190 $ 10,064,198 $ 10,064,887
Non-marketable equity securities 2 $ 294,172 $ 294,172 $ 135,859 $ 135,859
Loans, net 3 $ 24,738,042 $ 23,342,950 $ 23,638,596 $ 24,088,190
Derivative assets 2 $ 88,739 $ 88,739 $ 59,019 $ 59,019
Liabilities:
Demand, savings and money market deposits 2 $ 23,241,256 $ 23,241,256 $ 26,053,859 $ 26,053,859
Time deposits 2 $ 4,268,078 $ 4,231,167 $ 3,384,243 $ 3,388,435
Federal funds purchased 2 $ 190,000 $ 190,000 $ 199,000 $ 199,000
FHLB advances 2 $ 5,420,000 $ 5,419,588 $ 1,905,000 $ 1,905,629
Notes and other borrowings 2 $ 720,923 $ 698,359 $ 721,416 $ 813,095
Derivative liabilities 2 $ 126,220 $ 126,220 $ 25,314 $ 25,314
Note 15 Commitments and Contingencies
The Company issues off-balance sheet financial instruments to meet the financing needs of its customers. These financial instruments include commitments to fund loans, unfunded commitments under existing lines of credit, and commercial and standby letters of credit. These commitments expose the Company to varying degrees of credit and market risk which are essentially the same as those involved in extending loans to customers, and are subject to the same credit policies used in underwriting loans. Collateral may be obtained based on the Company’s credit evaluation of the counterparty. The Company’s maximum exposure to credit loss is represented by the contractual amount of these commitments.
Commitments to fund loans
These are agreements to lend funds to customers as long as there is no violation of any condition established in the contract. Commitments to fund loans generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of these commitments are expected to expire without being funded and, therefore, the total commitment amounts do not necessarily represent future liquidity requirements.
Unfunded commitments under lines of credit
Unfunded commitments under lines of credit include commercial, commercial real estate and an insignificant amount of consumer lines of credit to existing customers, for many of which additional extensions of credit are subject to borrowing base requirements. Some of these commitments may mature without being fully funded, so may not necessarily represent future liquidity requirements.
Commercial and standby letters of credit
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These letters of credit are primarily issued to support trade transactions or guarantee arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Total lending related commitments outstanding at December 31, 2022 were as follows (in thousands):
Commitments to fund loans $ 271,274
Unfunded commitments under lines of credit 5,682,316
Commercial and standby letters of credit 130,247
$ 6,083,837
Legal Proceedings
The Company is involved as plaintiff or defendant in various legal actions arising in the normal course of business. In the opinion of management, based upon advice of legal counsel, the likelihood is remote that the impact of these proceedings, either individually or in the aggregate, would be material to the Company’s consolidated financial position, results of operations or cash flows.
Note 16 Condensed Financial Statements of BankUnited, Inc.
Condensed financial statements of BankUnited, Inc. are presented below (in thousands):
Condensed Balance Sheets
December 31, 2022 December 31, 2021
Assets:
Cash and cash equivalents $ 266,282 $ 164,212
Marketable equity securities, at fair value 90,884 120,777
Investment in BankUnited, N.A. 2,777,082 3,465,136
Other assets 39,682 6,673
Total assets $ 3,173,930 $ 3,756,798
Liabilities and Stockholders' Equity:
Notes payable $ 692,534 $ 691,200
Other liabilities 45,415 27,837
Stockholders' equity 2,435,981 3,037,761
Total liabilities and stockholders' equity $ 3,173,930 $ 3,756,798
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Condensed Statements of Income
Years Ended December 31,
2022 2021 2020
Income:
Interest and dividends on investment securities $ 5,047 $ 4,958 $ 4,214
Service fees from subsidiary 17,185 13,014 15,935
Equity in earnings of subsidiary 338,911 455,672 224,734
Gain (loss) on investment securities (19,732) (2,530) 3,822
Total 341,411 471,114 248,705
Expense:
Interest on borrowings 36,210 36,143 29,041
Employee compensation and benefits 29,189 26,730 24,867
Other 3,857 3,744 3,711
Total 69,256 66,617 57,619
Income before income taxes 272,155 404,497 191,086
Benefit for income taxes (12,816) (10,487) (6,767)
Net income $ 284,971 $ 414,984 $ 197,853
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Condensed Statements of Cash Flows
Years Ended December 31,
2022 2021 2020
Cash flows from operating activities:
Net income $ 284,971 $ 414,984 $ 197,853
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries 266,089 (143,672) (224,734)
Equity based compensation 25,179 23,832 20,367
Other 1,858 8,810 10,171
Net cash provided by operating activities 578,097 303,954 3,657
Cash flows from investing activities:
Purchase of marketable equity securities - (35,000) (53,266)
Proceeds from repayments, sale, maturities and calls of investment securities 10,000 15,728 13,426
Other - (11) -
Net cash provided by (used in) investing activities 10,000 (19,283) (39,840)
Cash flows from financing activities:
Proceeds from issuance of notes payable - - 293,858
Dividends paid (79,443) (85,790) (86,522)
Proceeds from exercise of stock options - 25 19,611
Repurchase of common stock (401,288) (318,499) (100,972)
Other (5,296) (5,956) (4,620)
Net cash provided by (used in) financing activities (486,027) (410,220) 121,355
Net increase (decrease) in cash and cash equivalents 102,070 (125,549) 85,172
Cash and cash equivalents, beginning of period 164,212 289,761 204,589
Cash and cash equivalents, end of period $ 266,282 $ 164,212 $ 289,761
Supplemental schedule of non-cash investing and financing activities:
Dividends declared, not paid $ 19,346 $ 19,876 $ 22,309
Dividends received by BankUnited, Inc. from the Bank totaled $605 million and $312 million for the years ended December 31, 2022, and 2021, respectively. No dividends were received by BankUnited, Inc. from the Bank during the year ended December 31, 2020.
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
Note 17 Quarterly Financial Information (Unaudited)
Financial information by quarter for the periods indicated follows (in thousands, except per share data):
Fourth Quarter Third Quarter Second Quarter First Quarter Total
Interest income $ 401,490 $ 326,024 $ 266,973 $ 235,964 $ 1,230,451
Interest expense 158,424 90,188 41,557 27,322 317,491
Net interest income before provision for credit losses 243,066 235,836 225,416 208,642 912,960
Provision for credit losses 39,608 3,720 23,996 7,830 75,154
Net interest income after provision for credit losses 203,458 232,116 201,420 200,812 837,806
Non-interest income 26,813 23,072 13,450 14,301 77,636
Non-interest expense 148,479 138,105 127,402 126,324 540,310
Income before income taxes 81,792 117,083 87,468 88,789 375,132
Provision for income taxes 17,585 29,233 21,704 21,639 90,161
Net income $ 64,207 $ 87,850 $ 65,764 $ 67,150 $ 284,971
Earnings per common share, basic $ 0.83 $ 1.13 $ 0.82 $ 0.79 $ 3.55
Earnings per common share, diluted $ 0.82 $ 1.12 $ 0.82 $ 0.79 $ 3.54
Fourth Quarter Third Quarter Second Quarter First Quarter Total
Interest income $ 237,873 $ 234,345 $ 241,801 $ 245,429 $ 959,448
Interest expense 31,858 39,223 43,490 49,189 163,760
Net interest income before provision for credit losses 206,015 195,122 198,311 196,240 795,688
Provision for (recovery of) credit losses 246 (11,842) (27,534) (27,989) (67,119)
Net interest income after provision for credit losses 205,769 206,964 225,845 224,229 862,807
Non-interest income 45,622 25,478 32,757 30,296 134,153
Non-interest expense 187,860 118,042 118,452 123,221 547,575
Income before income taxes 63,531 114,400 140,150 131,304 449,385
Provision (benefit) for income taxes (61,724) 27,459 36,176 32,490 34,401
Net income $ 125,255 $ 86,941 $ 103,974 $ 98,814 $ 414,984
Earnings per common share, basic $ 1.42 $ 0.94 $ 1.12 $ 1.06 $ 4.52
Earnings per common share, diluted $ 1.41 $ 0.94 $ 1.11 $ 1.06 $ 4.52
During the fourth quarter of 2021, the Bank reached a settlement with the Florida Department of Revenue related to certain tax matters for the 2009-2019 tax years and recorded a tax benefit of $43.9 million, net of federal impact. Unrelated to the Florida settlement, the Bank recorded an additional $25.2 million tax benefit related to a reduction in the liability for unrecognized tax benefits arising from expiration of statutes of limitation in the Federal and certain state jurisdictions. See Note 9 to the consolidated financial statements for information about income taxes.
During the fourth quarter of 2021, derivative positions designated as cash flow hedges were discontinued resulting in a $(44.8) million loss impacting pre-tax earnings. See Note 10 to the consolidated financial statements for more information about derivative instruments.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2022.
Changes in Internal Control over Financial Reporting
None.
Management's Report on Internal Control Over Financial Reporting
Management's report, which is included in Part II, Item 8 of this Form 10-K, is incorporated herein by reference.
Attestation Report of the Registered Public Accounting Firm
The effectiveness of the Company's internal control over financial reporting as of December 31, 2022 has been audited by Deloitte and Touche LLP, an independent registered public accounting firm, as stated in their report, which is included in Part II, Item 8 of this Form 10-K.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding the directors and executive officers of BankUnited, Inc. and information regarding Section 16(a) compliance, the Audit and Risk Committees, the Company's code of ethics, background of the directors and director nominations appearing under the captions "Section 16(a) Beneficial Ownership Reporting Compliance," "Committees of the Board of Directors," "Corporate Governance Guidelines, Code of Conduct and Code of Ethics," "Director Nominating Process and Diversity" and "Election of Directors" in the Company's Proxy Statement for the 2023 Annual Meeting of Stockholders (the "2023 Proxy Statement") is hereby incorporated by reference.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
Information appearing under the captions "Director Compensation" and "Executive Compensation" in the 2023 Proxy Statement (other than the "Compensation Committee Report," which is deemed furnished herein by reference) is hereby incorporated by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information setting forth the security ownership of certain beneficial owners and management appearing under the caption "Beneficial Ownership of the Company's Common Stock" and information in the "Equity Compensation Plans" table appearing under the caption "Equity Compensation Plan Information" in the 2023 Proxy Statement is hereby incorporated by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain related transactions appearing under the captions "Certain Related Party Relationships" and information regarding director independence appearing under the caption "Director Independence" in the 2023 Proxy Statement is hereby incorporated by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
Information appearing under the captions "Auditor Fees and Services" and "Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors" in the 2023 Proxy Statement is hereby incorporated by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules
(a)List of documents filed as part of this report:
1) Financial Statements:
Management's Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
2) Financial Statement Schedules:
Financial statement schedules are omitted as not required or not applicable or because the information is included in the Consolidated Financial Statements or notes thereto.
3) List of Exhibits:
The exhibit list in the Exhibit Index is incorporated herein by reference as the list of exhibits required as part of this report.
EXHIBIT INDEX
Exhibit
Number Description Location
3.1
Amended and Restated Certificate of Incorporation
Exhibit 3.1 to the Annual Report on Form 10-K of the Company filed February 28, 2018
3.2
Amended and Restated By-Laws
Exhibit 3.1 to the Current Report on Form 8-K of the Company filed August 15, 2016
4.1
Specimen common stock certificate
Exhibit 4.1 to the Registration Statement on Form S-1 of the Company filed January 18, 2011
4.2
Indenture dated as of November 17, 2015 between BankUnited, Inc. and U.S. Bank National Association, as trustee
Exhibit 4.1 to the Current Report on Form 8-K of the Company filed November 17, 2015
4.3
First Supplemental Indenture dated as of November 17, 2015 between BankUnited, Inc. and U.S. Bank National Association, as trustee
Exhibit 4.2 to the Current Report on Form 8-K of the Company filed November 17, 2015
4.4
Form of 4.875% Senior Note due 2025 (included as part of Exhibit 4.3 above)
Exhibit 4.3 to the Current Report on Form 8-K of the Company filed November 17, 2015
4.5
Indenture dated as of June 11, 2020 between BankUnited, Inc. and U.S. Bank National Association, as trustee
Exhibit 4.1 to the Current Report on Form 8-K of the Company filed June 11, 2020
4.6
First Supplemental Indenture dated as of June 11, 2020 between BankUnited, Inc. and U.S. Bank National Association, as trustee
Exhibit 4.2 to the Current Report on Form 8-K of the Company filed June 11, 2020
4.7
Form of 5.125% Subordinated Notes due 2030
Exhibit 4.3 to the Current Report on Form 8-K of the Company filed, June 11, 2020
4.8
Description of the registrant's securities registered pursuant to Section 12 of the Securities Exchange Act of 1934
Filed herewith
10.1
BankUnited, N.A. Non-Qualified Deferred Compensation Plan
Exhibit 10.1b to the Annual Report on Form 10-K of the Company filed February 26, 2015
10.1a
Amendment to the BankUnited, N.A. Non-Qualified Deferred Compensation Plan
Exhibit 10.1a to the Annual Report on Form 10-K of the Company filed February 26, 2016
10.2
BankUnited, Inc. (formerly known as BU Financial Corporation) 2009 Stock Option Plan
Exhibit 10.7 to the Registration Statement on Form S-1 of the Company filed October 29, 2010
10.3a
BankUnited, Inc. 2010 Omnibus Equity Incentive Plan
Exhibit 10.8 to the Registration Statement on Form S-1 of the Company filed January 18, 2011
Exhibit
Number Description Location
10.3b
BankUnited, Inc. 2014 Omnibus Equity Incentive Plan
Appendix A to the Proxy Statement on Schedule 14A of the Company filed April 11, 2014
10.3c
Amendment No. 1 to the BankUnited, Inc. 2014 Omnibus Equity Incentive Plan
Appendix A to the Proxy Statement on Schedule 14A of the Company filed April 10, 2020
10.4a
Registration Rights Agreement by and among BankUnited, Inc., John A. Kanas, Rajinder P. Singh, Douglas J. Pauls and John Bohlsen, and each of the other parties thereto
Exhibit 10.9 to Annual Report on Form 10-K of the Company filed March 31, 2011
10.4b
Amendment No. 1, dated February 29, 2012, to Registration Rights Agreement, dated February 2, 2011, by and among BankUnited, Inc., John A. Kanas, Rajinder P. Singh, Douglas J. Pauls and John Bohlsen, and each of the other parties thereto
Exhibit 10.3 to the Current Report on Form 8-K of the Company filed March 6, 2012
10.5
Form of indemnification agreement between BankUnited, Inc. and each of its directors and executive officers
Exhibit 10.1 to the Current Report on Form 8-K of the Company filed February 16, 2011
10.6
BankUnited, Inc. Policy on Incentive Compensation Arrangements
Exhibit 10.6 of the Company's Annual Report on Form 10-K filed February 26, 2015
10.7
Heritage Bank, N.A. 2008 Stock Incentive Plan
Exhibit 10.1 to the Registration Statement on Form S-8 of the Company filed February 29, 2012
10.8
Stock Warrant Agreement, dated as of November 24, 2008, by Heritage Bank, N.A. in favor of the parties listed on Exhibit A thereto
Exhibit 10.4 to the Current Report on Form 8-K of the Company filed March 6, 2012
10.9
Supplemental Warrant Agreement, dated as of February 29, 2012, by and between BankUnited, Inc. and Heritage Bank, N.A.
Exhibit 10.5 to the Current Report on Form 8-K of the Company filed March 6, 2012
10.11a
Amended and Restated Employment Agreement, dated February 2, 2016, by and between BankUnited, Inc. and Rajinder P. Singh
Exhibit 10.11 to the Annual Report on Form 10-K of the Company filed February 26, 2016
10.11b
Amendment, dated May 6, 2016, to Amended and Restated Employment Agreement, dated February 2, 2016, by and between BankUnited, Inc. and Rajinder P. Singh
Exhibit 10.2 to the Current Report on Form 8-K of the Company filed May 6, 2016
10.11c
Second Amendment, dated January 4, 2017, to Amended and Restated Employment Agreement, dated February 2, 2016, as amended on May 6, 2016, by and between BankUnited, Inc. and Rajinder P. Singh
Exhibit 10.2 to the Current Report on Form 8-K/A of the Company filed January 4, 2017
10.11d
Third Amendment, dated December 19, 2019, to Amended and Restated Employment Agreement, dated February 2, 2016, as amended on May 6, 2016 and January 4, 2017, by and between BankUnited, Inc. and Rajinder P. Singh
Exhibit 10.1 to the Current Report on Form 8-K of the Company filed December 19, 2019
10.13
Restricted Share Unit Agreement, dated December 29, 2016, by and between BankUnited, Inc. and Rajinder P. Singh
Exhibit 10.3 to the Current Report on Form 8-K of the Company filed January 3, 2017
Exhibit
Number Description Location
21.1
Subsidiaries of BankUnited, Inc.
Filed herewith
23.1
Consent of KPMG LLP
Filed herewith
23.2
Consent of Deloitte and Touche LLP
Filed herewith
31.1
Rule 13a-14(a) Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
31.2
Rule 13a-14(a) Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.1
Section 1350 Certification of Chief Executive Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.2
Section 1350 Certification of Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
101.INS XBRL Instance Document Filed herewith
101.SCH XBRL Taxonomy Extension Schema Filed herewith
101.CAL XBRL Taxonomy Extension Calculation Linkbase Filed herewith
101.DEF XBRL Taxonomy Extension Definition Linkbase Filed herewith
101.LAB XBRL Taxonomy Extension Label Linkbase Filed herewith
101.PRE XBRL Taxonomy Extension Presentation Linkbase Filed herewith
104 Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101) Filed herewith
____________________________________
† Schedules and similar attachments to the Purchase and Assumption Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish supplementally a copy of any omitted schedules or similar attachment to the SEC upon request.