UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

~~For the quarterly period endedJune 30, 2019~~



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

For the ~~transition~~quarterly period ~~from to~~ended June 30, 2020

Commission File Number: 001-35039

BankUnited, Inc.

(Exact name of registrant as specified in its charter)



Delaware	27-0162450
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



14817 Oak Lane	Miami Lakes	FL	33016
(Address of principal executive offices)			(Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

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



Large accelerated filer	☒	Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		~~Emerging growth company~~	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

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

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



Class	Trading Symbol	Name of Exchange on Which Registered
Common Stock, $0.01 Par Value	BKU	New York Stock Exchange

The number of outstanding shares of the registrant common stock, $0.01 par value, ~~was 95,067,938~~ as of August ~~2, 2019.~~5, 2020 was 92,401,950.

BANKUNITED, INC.

Form 10-Q

For the Quarter Ended June 30, ~~2019~~2020

TABLE OF CONTENTS

GLOSSARY OF DEFINED TERMS

The following acronyms and terms may be used throughout this Form 10-Q, including the consolidated financial statements and related notes.



ACI		Loans acquired with evidence of deterioration in credit quality since origination (Acquired Credit Impaired)
ACL		Allowance for credit losses
AFS		Available for sale
ALCO		Asset/Liability Committee
ALLL		Allowance for loan and lease losses
AOCI		Accumulated other comprehensive income
APY		Annual Percentage Yield
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
BKU		BankUnited, Inc.
BankUnited		BankUnited, National Association
The Bank		BankUnited, National Association
Bridge		Bridge Funding Group, Inc.
Buyout loans		FHA and VA insured mortgages from third party servicers who have exercised their right to purchase these loans out of GNMA securitizations
CARES Act		Coronavirus Aid, Relief, and Economic Security Act
CDO		Collateralized debt obligation
CECL		Current expected credit losses
CET1		Common Equity Tier 1 capital
~~CECL~~CFPB		~~Current expected credit loss~~Consumer Financial Protection Bureau
CLO		Collateralized loan obligations
CMBS		Commercial mortgage-backed securities
CME		Chicago Mercantile Exchange
~~CLOs~~		~~Collateralized loan obligations~~
CMOs		Collateralized mortgage obligations
~~Covered assets~~COVID-19		~~Assets covered under the Loss Sharing Agreements~~Coronavirus disease of 2019
~~Covered loans~~CPR		~~Loans covered under the Loss Sharing Agreements~~Constant prepayment rate
CUSIP		Committee on Uniform Securities Identification Procedures
DIF		Deposit insurance fund
DSCR		Debt Service Coverage Ratio
EPS		Earnings per common share
EVE		Economic value of equity
FASB		Financial Accounting Standards Board
FDIA		Federal Deposit Insurance Act
FDIC		Federal Deposit Insurance Corporation
~~FHLB~~		~~Federal Home Loan Bank~~
FHA loan		Loan guaranteed by the Federal Housing Administration
FHLB		Federal Home Loan Bank
FICO		Fair Isaac Corporation (credit score)
FRB		Federal Reserve Bank
~~FSB Acquisition~~		~~Acquisition of substantially all of the assets and assumption of all of the non-brokered deposits and substantially all of the other liabilities of BankUnited, FSB from the FDIC on May 21, 2009~~
~~FSB Loans~~		~~1-4 single family residential loans acquired in the FSB Acquisition that were formally covered by the Single Family Shared-Loss Agreement~~
GAAP		U.S. generally accepted accounting principles
GDP		Gross Domestic Product
GNMA		Government National Mortgage Association
HTM		Held to maturity
~~IPO~~		~~Initial public offering~~
~~ISDA~~		~~International Swaps and Derivatives Association~~
~~LIBOR~~		~~London InterBank Offered Rate~~
~~Loss Sharing Agreements~~		~~Two loss sharing agreements entered into with the FDIC in connection with the FSB Acquisition~~



IPO		Initial public offering
IRS		Internal Revenue Service
ISDA		International Swaps and Derivatives Association
LGD		Loss Given Default
LIBOR		London InterBank Offered Rate
LIHTC		Low Income Housing Tax Credits
LTV		Loan-to-value
MBS		Mortgage-backed securities
~~Non-Covered Loans~~MSA		~~Loans other than those covered under the Loss Sharing Agreements~~Metropolitan Statistical Area
~~OCI~~NRSRO		~~Other comprehensive income~~Nationally recognized statistical rating organization
NYSE		New York Stock Exchange
OCC		Office of the Comptroller of the Currency
OCI		Other comprehensive income
OREO		Other real estate owned
~~OTTI~~PCD		~~Other-than-temporary impairment~~Purchased credit-deteriorated
PD		Probability of default
Pinnacle		Pinnacle Public Finance, Inc.
PPNR		Pre-tax, pre-provision net revenue
PPP		Small Business Administration’s Paycheck Protection Program
PPPLF		FRB Paycheck Protection Program Liquidity Facility
Proxy Statement		Definitive proxy statement for the Company's 2019 annual meeting of stockholders
PSU		Performance Share Unit
~~Pinnacle~~QRMs		~~Pinnacle Public Finance, Inc.~~Qualified residential mortgages
REIT		Real Estate Investment Trust
ROU Asset		Right-of-use Asset
RSU		Restricted Share Unit
SBA		U.S. Small Business Administration
SBF		Small Business Finance Unit
SEC		Securities and Exchange Commission
~~Single Family Shared-Loss Agreement~~		~~A single-family loan shared-loss agreement entered into with the FDIC in connection with the FSB Acquisition~~
SOFR		Secured Overnight Financing Rate
TDR		Troubled-debt restructuring
Tri-State		New York, New Jersey and Connecticut
UPB		Unpaid principal balance
USDA		U.S. Department of Agriculture
VA loan		Loan guaranteed by the U.S. Department of Veterans Affairs
WARM		Weighted-average remaining maturity

iii

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements and Supplementary Data

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - UNAUDITED

(In thousands, except share and per share data)


	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
ASSETS
Cash and due from banks:
Non-interest bearing	$	10,152		$	9,392		$	10,599		$	7,704
Interest bearing	432,681			372,681			391,632			206,969
Cash and cash equivalents	442,833			382,073			402,231			214,673
Investment securities (including securities recorded at fair value of $8,128,708 and $8,156,878)	8,138,708			8,166,878
Investment securities (including securities recorded at fair value of $8,683,628 and $7,759,237)							8,693,628			7,769,237
Non-marketable equity securities	289,789			267,052			233,051			253,664
Loans held for sale	224,759			36,992			2,623			37,926
Loans (including covered loans of $201,376 at December 31, 2018)	22,591,849			21,977,008
Allowance for loan and lease losses	(112,141		)	(109,931		)
Loans							23,834,889			23,154,988
Allowance for credit losses							(266,123		)	(108,671		)
Loans, net	22,479,708			21,867,077			23,568,766			23,046,317
Bank owned life insurance	274,603			263,340			292,012			282,151
Equipment under operating lease, net	707,680			702,354
Operating lease equipment, net							689,965			698,153
Goodwill and other intangible assets	77,696			77,718			77,652			77,674
Other assets	456,489			400,842			785,971			491,498
Total assets	$	33,092,265		$	32,164,326		$	34,745,899		$	32,871,293

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Demand deposits:
Non-interest bearing	$	4,099,636		$	3,621,254		$	5,883,362		$	4,294,824
Interest bearing	1,831,441			1,771,465			2,865,944			2,130,976
Savings and money market	10,910,607			11,261,746			10,590,315			10,621,544
Time	7,080,716			6,819,758			6,730,803			7,347,247
Total deposits	23,922,400			23,474,223			26,070,424			24,394,591
Federal funds purchased	99,000			175,000			100,000			100,000
Federal Home Loan Bank advances	5,331,000			4,796,000
FHLB and PPPLF borrowings							4,650,599			4,480,501
Notes and other borrowings	403,661			402,749			722,332			429,338
Other liabilities	468,294			392,521			447,491			486,084
Total liabilities	30,224,355			29,240,493			31,990,846			29,890,514

Commitments and contingencies

Stockholders' equity:
Common stock, par value $0.01 per share, 400,000,000 shares authorized; 95,315,633 and 99,141,374 shares issued and outstanding	953			991
Common stock, par value $0.01 per share, 400,000,000 shares authorized; 92,420,278 and 95,128,231 shares issued and outstanding							924			951
Paid-in capital	1,080,966			1,220,147			991,509			1,083,920
Retained earnings	1,803,360			1,697,822			1,905,639			1,927,735
Accumulated other comprehensive income (loss)	(17,369		)	4,873
Accumulated other comprehensive loss							(143,019		)	(31,827		)
Total stockholders' equity	2,867,910			2,923,833			2,755,053			2,980,779
Total liabilities and stockholders' equity	$	33,092,265		$	32,164,326		$	34,745,899		$	32,871,293

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

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED

(In thousands, except per share data)


	Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018			2019		2018			2020		2019			2020		2019
Interest income:
Loans	$	249,364		$	288,264		$	489,996	$	562,264		$	213,938	$	249,364		$	448,297	$	489,996
Investment securities	72,796			56,092			149,141		106,077			50,932		72,796			106,992		149,141
Other	5,069			4,499			9,921		8,290			2,908		5,069			6,628		9,921
Total interest income	327,229			348,855			649,058		676,631			267,778		327,229			561,917		649,058
Interest expense:
Deposits	99,987			65,298			197,408		121,659			50,187		99,987			133,009		197,408
Borrowings	36,359			28,294			69,866		51,900			27,254		36,359			57,995		69,866
Total interest expense	136,346			93,592			267,274		173,559			77,441		136,346			191,004		267,274
Net interest income before provision for loan losses	190,883			255,263			381,784		503,072
Provision for (recovery of) loan losses (including $294 and $567 for covered loans for the three and six months ended June 30, 2018)	(2,747		)	8,995			7,534		12,142
Net interest income after provision for loan losses	193,630			246,268			374,250		490,930
Net interest income before provision for credit losses												190,337		190,883			370,913		381,784
Provision for (recovery of) credit losses												25,414		(2,747		)	150,842		7,534
Net interest income after provision for credit losses												164,923		193,630			220,071		374,250
Non-interest income:
Income from resolution of covered assets, net	—			4,238			—		7,555
Net loss on FDIC indemnification	—			(1,400		)	—		(5,015		)
Deposit service charges and fees	4,290			3,510			8,120		6,997			3,701		4,290			7,887		8,120
Gain (loss) on sale of loans, net (including $(2,002) and $(298) related to covered loans for the three and six months ended June 30, 2018)	2,121			768			5,057		4,269
Gain on sale of loans, net												4,326		2,121			7,792		5,057
Gain on investment securities, net	4,116			2,142			9,901		2,506			6,836		4,116			3,383		9,901
Lease financing	17,005			17,492			34,191		31,594			16,150		17,005			31,631		34,191
Other non-interest income	7,805			5,223			14,323		12,053			7,338		7,805			10,956		14,323
Total non-interest income	35,337			31,973			71,592		59,959			38,351		35,337			61,649		71,592
Non-interest expense:
Employee compensation and benefits	57,251			65,537			122,484		132,573			48,877		57,251			107,764		122,484
Occupancy and equipment	13,991			14,241			27,157		28,544			11,901		13,991			24,270		27,157
Amortization of FDIC indemnification asset	—			44,250			—		84,597
Deposit insurance expense	5,027			4,623			9,068		9,435			4,806		5,027			9,209		9,068
Professional fees	6,937			2,657			14,808		5,532			3,131		6,937			6,335		14,808
Technology and telecommunications	12,013			8,644			23,181		16,858			14,025		12,013			26,621		23,181
Depreciation of equipment under operating lease	11,489			9,476			23,301		18,792
Depreciation of operating lease equipment												12,219		11,489			24,822		23,301
Other non-interest expense	13,377			11,819			26,776		26,733			11,411		13,377			26,217		26,776
Total non-interest expense	120,085			161,247			246,775		323,064			106,370		120,085			225,238		246,775
Income before income taxes	108,882			116,994			199,067		227,825			96,904		108,882			56,482		199,067
Provision for income taxes	27,431			27,094			51,644		52,690			20,396		27,431			10,925		51,644
Net income	$	81,451		$	89,900		$	147,423	$	175,135		$	76,508	$	81,451		$	45,557	$	147,423
Earnings per common share, basic	$	0.81		$	0.82		$	1.46	$	1.60		$	0.80	$	0.81		$	0.47	$	1.46
Earnings per common share, diluted	$	0.81		$	0.82		$	1.45	$	1.59		$	0.80	$	0.81		$	0.47	$	1.45

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

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED

(In thousands)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019

Net income	$	81,451		$	89,900		$	147,423		$	175,135		$	76,508		$	81,451		$	45,557		$	147,423
Other comprehensive loss, net of tax:
Unrealized gains on investment securities available for sale:
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	23,326			(13,106		)	44,943			(40,430		)	188,405			23,326			(24,755		)	44,943
Reclassification adjustment for net securities gains realized in income	(2,877		)	(1,875		)	(6,050		)	(2,592		)	(4,264		)	(2,877		)	(5,404		)	(6,050		)
Net change in unrealized gain on securities available for sale	20,449			(14,981		)	38,893			(43,022		)
Net change in unrealized gain (loss) on securities available for sale													184,141			20,449			(30,159		)	38,893
Unrealized losses on derivative instruments:
Net unrealized holding gain (loss) arising during the period	(37,218		)	9,846			(57,893		)	29,639
Net unrealized holding loss arising during the period													(11,070		)	(37,218		)	(91,884		)	(57,893		)
Reclassification adjustment for net (gains) losses realized in income	(1,241		)	(535		)	(3,242		)	155			7,502			(1,241		)	10,851			(3,242		)
Net change in unrealized loss on derivative instruments	(38,459		)	9,311			(61,135		)	29,794
Other comprehensive loss	(18,010		)	(5,670		)	(22,242		)	(13,228		)
Comprehensive income	$	63,441		$	84,230		$	125,181		$	161,907
Net change in unrealized losses on derivative instruments													(3,568		)	(38,459		)	(81,033		)	(61,135		)
Other comprehensive income (loss)													180,573			(18,010		)	(111,192		)	(22,242		)
Comprehensive income (loss)													$	257,081		$	63,441		$	(65,635	)	$	125,181

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

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(In thousands)


	Six Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2020			2019
Cash flows from operating activities:
Net income	$	147,423		$	175,135		$	45,557		$	147,423
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and accretion, net	(22,452		)	(69,157		)	(11,590		)	(22,452		)
Provision for loan losses	7,534			12,142
Income from resolution of covered assets, net	—			(7,555		)
Net loss on FDIC indemnification	—			5,015
Provision for credit losses							150,842			7,534
Gain on sale of loans, net	(5,057		)	(4,269		)	(7,792		)	(5,057		)
Gain on investment securities, net	(9,901		)	(2,506		)	(3,383		)	(9,901		)
Equity based compensation	11,251			12,272			7,351			11,251
Depreciation and amortization	35,555			31,391			35,691			35,555
Deferred income taxes	10,813			24,074			(769		)	10,813
Proceeds from sale of loans held for sale	209,854			86,118			369,807			209,854
Loans originated for sale, net of repayments	(51,024		)	(73,633		)	(17,681		)	(51,024		)
Other:
Decrease in other assets	31,897			15,625
Increase (decrease) in other liabilities	(128,097		)	25,242
(Increase) decrease in other assets							(23,101		)	31,897
Decrease in other liabilities							(224,093		)	(128,097		)
Net cash provided by operating activities	237,796			229,894			320,839			237,796

Cash flows from investing activities:
Purchase of investment securities	(2,160,715		)	(1,730,173		)	(2,263,847		)	(2,160,715		)
Proceeds from repayments and calls of investment securities	647,214			691,220			587,139			647,214
Proceeds from sale of investment securities	1,626,250			836,317			547,337			1,626,250
Purchase of non-marketable equity securities	(196,137		)	(166,813		)	(128,562		)	(196,137		)
Proceeds from redemption of non-marketable equity securities	173,400			154,063			149,175			173,400
Purchases of loans	(894,235		)	(604,278		)	(1,085,437		)	(894,235		)
Loan originations, repayments and resolutions, net	(51,014		)	152,848			68,012			(51,014		)
Proceeds from sale of loans, net	9,560			115,560			11,604			9,560
Proceeds from sale of equipment under operating lease	8,986			49,892
Acquisition of equipment under operating lease	(37,122		)	(56,132		)
Proceeds from sale of operating lease equipment							—			8,986
Acquisition of operating lease equipment							(19,118		)	(37,122		)
Other investing activities	(24,950		)	(16,404		)	(10,663		)	(24,950		)
Net cash used in investing activities	(898,763		)	(573,900		)	(2,144,360		)	(898,763		)
				(Continued)						(Continued)

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

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS ~~- UNAUDITED~~ (Continued)

(In thousands)


	Six Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2020			2019
Cash flows from financing activities:
Net increase in deposits	448,177			299,471			1,675,833			448,177
Net decrease in federal funds purchased	(76,000		)	—			—			(76,000		)
Additions to Federal Home Loan Bank advances	2,456,000			2,201,000
Repayments of Federal Home Loan Bank advances	(1,921,000		)	(1,901,000		)
Additions to FHLB and PPPLF borrowings							3,762,336			2,456,000
Repayments of FHLB and PPPLF borrowings							(3,596,310		)	(1,921,000		)
Proceeds from issuance of notes, net							293,858			—
Dividends paid	(42,937		)	(45,996		)	(42,702		)	(42,937		)
Repurchase of common stock	(142,065		)	(54,399		)	(100,972		)	(142,065		)
Other financing activities	(448		)	29,604			19,036			(448		)
Net cash provided by financing activities	721,727			528,680			2,011,079			721,727
Net increase in cash and cash equivalents	60,760			184,674			187,558			60,760
Cash and cash equivalents, beginning of period	382,073			194,582			214,673			382,073
Cash and cash equivalents, end of period	$	442,833		$	379,256		$	402,231		$	442,833

Supplemental disclosure of cash flow information:
Interest paid	$	258,561		$	171,379		$	209,233		$	258,561
Income taxes (refunded) paid, net	$	(4,350	)	$	18,677
Income taxes refunded (paid), net							$	4,883		$	(4,350	)

Supplemental schedule of non-cash investing and financing activities:
Unsettled sale of loans							$	11,058		$	—
Transfers from loans to other real estate owned and other repossessed assets	$	2,817		$	7,574		$	4,161		$	2,817
Transfers from loans to loans held for sale	$	342,310		$	22,094		$	329,308		$	342,310
Transfers from loans held for sale to loans							$	9,055		$	—
Dividends declared, not paid	$	20,621		$	22,916		$	21,909		$	20,621
Unsettled sales of investment securities							$	177,546		$	—
Unsettled purchases of investment securities	$	21,396		$	272,500		$	2,758		$	21,396

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

BANKUNITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED

(In thousands, except share data)

Common
Shares
Outstanding

Common
Stock

Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders’
Equity
Balance at March 31, 2019 98,404,303
$ 984
$ 1,179,235
$ 1,742,530
$ 641
$ 2,923,390
Comprehensive income —
—
—
81,451
(18,010 ) 63,441
Dividends ($0.21 per common share) —
—
—
(20,621 ) —
(20,621 )
Equity based compensation 18,383
—
3,967
—
—
3,967
Forfeiture of unvested shares (95,061 ) (1 ) (175 ) —
—
(176 )
Repurchase of common stock (3,011,992 ) (30 ) (102,061 ) —
—
(102,091 )
Balance at June 30, 2019 95,315,633
$ 953
$ 1,080,966
$ 1,803,360
$ (17,369 ) $ 2,867,910

Balance at March 31, 2018 106,160,751
$ 1,061
$ 1,450,107
$ 1,525,174
$ 56,330
$ 3,032,672
Comprehensive income —
—
—
89,900
(5,670 ) 84,230
Dividends ($0.21 per common share) —
—
—
(22,917 ) —
(22,917 )
Equity based compensation 14,380
—
4,958
—
—
4,958
Forfeiture of unvested shares and shares surrendered for tax withholding obligations (40,186 ) —
(378 ) —
—
(378 )
Exercise of stock options 251,189
2
6,633
—
—
6,635
Repurchase of common stock (145,018 ) (1 ) (5,766 ) —
—
(5,767 )
Balance at June 30, 2018 106,241,116
$ 1,062
$ 1,455,554
$ 1,592,157
$ 50,660
$ 3,099,433


	Common Shares Outstanding		Common Stock			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Common Shares Outstanding		Common Stock			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance at December 31, 2018	99,141,374		$	991		$	1,220,147		$	1,697,822		$	4,873		$	2,923,833
Balance at March 31, 2020																		92,406,294		$	924		$	987,757		$	1,851,040		$	(323,592	)	$	2,516,129
Comprehensive income	—		—			—			147,423			(22,242		)	125,181			—		—			—			76,508			180,573			257,081
Dividends ($0.42 per common share)	—		—			—			(41,885		)	—			(41,885		)
Dividends ($0.23 per common share)																		—		—			—			(21,909		)	—			(21,909		)
Equity based compensation	582,353		6			9,050			—			—			9,056			56,688		1			3,762			—			—			3,763
Forfeiture of unvested shares and shares surrendered for tax withholding obligations	(286,927	)	(3		)	(6,251		)	—			—			(6,254		)	(42,704	)	(1		)	(10		)	—			—			(11		)
Exercise of stock options	3,910		—			44			—			—			44
Balance at June 30, 2020																		92,420,278		$	924		$	991,509		$	1,905,639		$	(143,019	)	$	2,755,053

Balance at March 31, 2019																		98,404,303		$	984		$	1,179,235		$	1,742,530		$	641		$	2,923,390
Comprehensive income																		—		—			—			81,451			(18,010		)	63,441
Dividends ($0.21 per common share)																		—		—			—			(20,621		)	—			(20,621		)
Equity based compensation																		18,383		—			3,967			—			—			3,967
Forfeiture of unvested shares and shares surrendered for tax withholding obligations																		(95,061	)	(1		)	(175		)	—			—			(176		)
Repurchase of common stock	(4,125,077	)	(41		)	(142,024		)	—			—			(142,065		)	(3,011,992	)	(30		)	(102,061		)	—			—			(102,091		)
Balance at June 30, 2019	95,315,633		$	953		$	1,080,966		$	1,803,360		$	(17,369	)	$	2,867,910		95,315,633		$	953		$	1,080,966		$	1,803,360		$	(17,369	)	$	2,867,910

Balance at December 31, 2017	106,848,185		$	1,068		$	1,498,227		$	1,471,781		$	54,986		$	3,026,062
Cumulative effect of adoption of new accounting standards	—		—			—			(8,902		)	8,902			—
Comprehensive income	—		—			—			175,135			(13,228		)	161,907
Dividends ($0.42 per common share)	—		—			—			(45,857		)	—			(45,857		)
Equity based compensation	654,420		6			10,336			—			—			10,342
Forfeiture of unvested shares and shares surrendered for tax withholding obligations	(207,720	)	(2		)	(6,347		)	—			—			(6,349		)
Exercise of stock options	291,689		3			7,724			—			—			7,727
Repurchase of common stock	(1,345,458	)	(13		)	(54,386		)	—			—			(54,399		)
Balance at June 30, 2018	106,241,116		$	1,062		$	1,455,554		$	1,592,157		$	50,660		$	3,099,433



	Common Shares Outstanding		Common Stock			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (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		)
Comprehensive loss	—		—			—			45,557			(111,192		)	(65,635		)
Dividends ($0.46 per common share)	—		—			—			(43,836		)	—			(43,836		)
Equity based compensation	743,696		8			11,428			—			—			11,436
Forfeiture of unvested shares and shares surrendered for tax withholding obligations	(186,072	)	(3		)	(4,428		)	—			—			(4,431		)
Exercise of stock options	60,000		1			1,528			—			—			1,529
Repurchase of common stock	(3,325,577	)	(33		)	(100,939		)	—			—			(100,972		)
Balance at June 30, 2020	92,420,278		$	924		$	991,509		$	1,905,639		$	(143,019	)	$	2,755,053

Balance at December 31, 2018	99,141,374		$	991		$	1,220,147		$	1,697,822		$	4,873		$	2,923,833
Comprehensive income	—		—			—			147,423			(22,242		)	125,181
Dividends ($0.42 per common share)	—		—			—			(41,885		)	—			(41,885		)
Equity based compensation	582,353		6			9,050			—			—			9,056
Forfeiture of unvested shares and shares surrendered for tax withholding obligations	(286,927	)	(3		)	(6,251		)	—			—			(6,254		)
Exercise of stock options	3,910		—			44			—			—			44
Repurchase of common stock	(4,125,077	)	(41		)	(142,024		)	—			—			(142,065		)
Balance at June 30, 2019	95,315,633		$	953		$	1,080,966		$	1,803,360		$	(17,369	)	$	2,867,910

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

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020

Note 1 Basis of Presentation and Summary of Significant Accounting Policies

BankUnited, Inc. is a national bank holding company with one wholly-owned subsidiary, BankUnited, collectively, the Company. BankUnited, a national banking association headquartered in Miami Lakes, Florida, provides a full range of banking and related services to individual and corporate customers through 8074 banking centers located in 14 Florida counties and 5 banking centers located in the New York metropolitan area at June 30, ~~2019.~~2020. The Bank also offers certain commercial lending and deposit products through national platforms.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, these do not include all of the information and footnotes required for a fair presentation of financial position, results of operations and cash flows in conformity with GAAP and should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing in BKU’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected in future periods.

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

Accounting Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and disclosures of contingent assets and liabilities. Actual results could differ significantly from these estimates.

Significant estimates include the ~~ALLL~~allowance for credit losses and the fair values of investment securities and other financial instruments.

New Accounting Pronouncements Adopted During the Six Months Ended June 30, ~~2019~~2020

ASU No. ~~2016-02,~~ 2016-13, F~~Leases (Topic 842).~~ The amendments in this ASU, along with subsequent ASUs issued to clarify certain provisions of Topic 842, require a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for leases with terms longer than one year. Accounting applied by lessors was largely unchanged by this ASU. The ASU also requires both qualitative and quantitative disclosures that provide additional information about the amounts recorded in the consolidated financial statements. The amendments in this ASU were effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2018. The most significant impact of adoption was the recognition, as lessee, of new right-of-use assets and lease liabilities on the Consolidated Balance Sheet for real estate leases classified as operating leases. Under a package of practical expedients that the Company elected, as lessee and lessor, the Company did not have to (i) re-assess whether expired or existing contracts contain leases, (ii) re-assess the classification of expired or existing leases, (iii) re-evaluate initial direct costs for existing leases or (iv) separate lease components of certain contracts from non-lease components. The Company also elected the transition method that allows entities the option of applying the provisions of the ASU at the effective date without adjusting the comparative periods presented. The Company adopted this ASU in the first quarter of 2019 using the modified retrospective transition method. The Company recognized a lease liability and related right of use asset of approximately $104 million and $95 million, respectively, upon adoption on January 1, 2019.

~~ASU No. 2018-16,~~ ~~Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes~~. The ASU added the OIS rate based on SOFR as a benchmark interest rate for hedge accounting purposes. The ASU was effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2018. The Company adopted this ASU in the first quarter of 2019 with no impact at adoption to its consolidated financial position, results of operations, or cash flows.

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial~~inancial Instruments - Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments. ~~This~~The ASU, along with subsequent ASUs issued to clarify certain of its provisions, ~~introduces~~introduced new guidance which ~~makes~~made substantive changes to the accounting for credit losses. The ASU ~~introduces~~introduced the CECL

~~BANKUNITED, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~

~~June 30, 2019~~

model which applies to financial assets subject to credit losses and measured at amortized cost, as well as certain off-balance sheet credit exposures. This includes loans, loan commitments, standby letters of credit, net investments in leases recognized by a lessor and HTM debt securities. The CECL model requires an entity to estimate credit losses expected over the life of an exposure, considering information about historical events, current conditions and reasonable and supportable forecasts, and is generally expected to result in earlier recognition of credit losses. The ASU also ~~modifies~~modified certain provisions of the ~~current~~previous OTTI model for AFS debt securities. Credit losses on AFS debt securities ~~will be~~are now limited to the difference between the security's amortized cost basis and its fair value, and ~~will~~should be recognized through an allowance for credit losses rather than as a direct reduction in amortized cost basis. The Company adopted this ASU ~~also~~in the first quarter of 2020 using the modified retrospective transition method for the CECL model and a prospective approach for the AFS debt security model. The Company recorded a cumulative-effect adjustment to retained earnings of $23.8 million, which included $4.8 million related to off -balance sheet credit exposures, on January 1, 2020. No cumulative-effect adjustment was recorded related to AFS debt securities upon adoption. The Company has elected to phase-in the initial impact of the adoption of ASC 326 for regulatory capital purposes, allowing the impact of adoption on regulatory capital to be delayed for two years, followed by a three-year transition period.

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020

ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional relief for a ~~simplified~~limited period of time to ease the potential accounting ~~model~~burden associated with transitioning away from reference rates that are expected to be discontinued. Under this ASU, companies are provided with optional expedients and exceptions for ~~purchased financial assets with more than insignificant credit deterioration since~~applying generally accepted accounting principles (GAAP) to contract modifications and hedging relationships that currently utilize LIBOR as their ~~origination. The ASU requires expanded disclosures including, but not limited~~benchmark rate, subject to (i) information about the methods and assumptions used to estimate expected credit losses, including changes in the factors that influenced management's estimate and the reasons for those changes, (ii) for financing receivables and net investment in leases measured at amortized cost, further disaggregation of information about the credit quality of those assets and (iii) a rollforward of the allowance for credit losses for AFS and HTM securities.certain criteria being met. The amendments in the ASU also apply to contemporaneous modifications of other contract terms related to the replacement of LIBOR. The amendments in the ASU are effective for all entities as of March 12, 2020 and will only be in effect through December 31, 2022. To date, the impact of adoption of this ASU ~~are~~on the Company's consolidated financial position, results of operations, and cash flows has not been material.

Accounting Pronouncements Not Yet Adopted

ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies the accounting for income taxes by removing certain exceptions stipulated in ASC 740 and making some other targeted changes to the accounting for income taxes. This ASU is effective for the Company for interim and annual periods in fiscal years beginning after December 15, ~~2019. Early adoption is permitted; however, the~~2020. The Company ~~does~~has not ~~intend to early adopt this ASU. Management is in the process~~finalized its evaluation of ~~evaluating the impact of adoption of this ASU on its consolidated financial statements, processes and controls and is not currently able to reasonably estimate~~ the impact of adoption on ~~the Company's~~its consolidated financial position, results of operations, orand cash ~~flows; however, adoption will lead to significant changes in accounting policies related to, and the methods employed in estimating, the ALLL. It is possible that~~flows, but the impact ~~will~~is not currently expected to be ~~material~~material.

Updates to the Company's ~~consolidated financial position~~Significant Accounting Policies

Loans

The Company's loan portfolio contains 1-4 single family residential first mortgages, government insured residential mortgages, an insignificant amount of home equity loans and ~~results~~lines of ~~operations. To date,~~credit and other consumer loans; multi-family, non-owner occupied commercial real estate, construction and land, owner-occupied commercial real estate and commercial and industrial loans, PPP loans, mortgage warehouse lines of credit and sales-type and direct financing leases. Loans are reported at amortized cost basis, net of the ~~Company~~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 discounts, are deferred and recognized as adjustments to yield over the contractual lives of the related loans using the level yield method.

Non-accrual loans

Commercial loans are placed on non-accrual status when (i) management has ~~completed a gap analysis, adopted~~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 ~~executing~~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 ~~detailed implementation plan, established~~loan is placed on non-accrual status, uncollected interest accrued is reversed and charged to interest income. Payments received on nonaccrual commercial loans are applied as a ~~formal governance structure, selected~~reduction of principal. Interest payments are recognized as income on a cash basis on nonaccrual residential loans. Commercial loans are returned to accrual status only after all past due principal and ~~implemented credit loss models for key portfolio segments, chosen loss estimation methodologies for key portfolio segments, implemented a software solution~~interest has been collected and full repayment of remaining contractual principal and interest is reasonably assured. Residential and consumer loans are generally returned to ~~serve as its CECL platform, and initiated a "parallel run"~~accrual status when less than 90 days past due. Past due status of ~~the CECL estimation process.~~

~~Leases~~

~~The Company determines whether a contract~~loans 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 recordeddetermined based on the ~~present value~~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 ~~future lease payments over~~ the ~~lease term. ROU assets~~guarantee. Contractually delinquent PCD loans are ~~initially recorded~~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 ~~amount~~time of the ~~associated lease liabilities plus prepaid lease payments and initial direct costs, less any lease incentives received. The cost~~modification unless the borrower was performing prior to the restructuring.

Table 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.Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020

Purchased Credit Deteriorated ("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.

Loans previously categorized as ACI loans were categorized as PCD loans on initial adoption of ASC 326. At adoption, an ACL was recognized and a corresponding adjustment was made to the assets' amortized cost basis. Prior to the adoption of ASC 326, ACI loans were accounted for on a pool basis. These pools were not maintained on adoption. The Company did not re-assess whether modifications to individual PCD loans previously accounted for in pools were TDRs at adoption.

Allowance for Credit Losses ("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 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.

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020

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.

Historically, the Company has not experienced credit losses related to AFS securities or uncollectible interest on its AFS securities. However, AFS securities would be charged off to the extent that there was no reasonable expectation of recovery of amortized cost basis. AFS securities would be placed on non-accrual status if the Company did not reasonably expect to receive interest payments in the future and interest accrued would be reversed against interest income. Securities would be returned to accrual status only when collection of interest was 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 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, 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.

The length of the reasonable and supportable forecast is evaluated at each reporting period and adjusted if deemed necessary. At June 30, 2020, the Company changed from a 5-year to a 2-year reasonable and supportable forecast period in estimating the ACL.

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020

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 and adjusted LTVs. PDs and LGDs are then conditioned on the reasonable and supportable economic forecast. Projected PDs and LGDs are applied to estimated exposure at default, considering the term and payment structure of the loan, to generate estimates of expected loss at the loan level. For criticized or classified loans, PDs may be adjusted to benchmark PDs appropriate to the current risk rating if the most current financial information available is deemed not to be reflective of the borrowers' current financial condition. These loan level estimates are aggregated to generate a collective estimate for groups of loans that share common risk characteristics.

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. 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 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 quantitative ACL is zero for these loans.

Qualitative factors

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 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.

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020

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, discounted at the loan’s original effective interest rate, to the amortized cost basis of the loan.

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 is applying the practical expedient provided in ASC 326 to exclude accrued interest receivable balances from tabular disclosures about financial assets carried at amortized cost. The Company has elected not to 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.

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020

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):


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
c	2019			2018			2019			2018			2020			2019			2020			2019
Basic earnings per common share:
Numerator:
Net income	$	81,451		$	89,900		$	147,423		$	175,135		$	76,508		$	81,451		$	45,557		$	147,423
Distributed and undistributed earnings allocated to participating securities	(3,382		)	(3,463		)	(6,074		)	(6,676		)	(3,353		)	(3,382		)	(1,939		)	(6,074		)
Income allocated to common stockholders for basic earnings per common share	$	78,069		$	86,437		$	141,349		$	168,459		$	73,155		$	78,069		$	43,618		$	141,349
Denominator:
Weighted average common shares outstanding	97,451,019			106,170,834			98,150,014			106,347,378			92,409,949			97,451,019			93,177,243			98,150,014
Less average unvested stock awards	(1,174,339		)	(1,222,436		)	(1,173,137		)	(1,165,750		)	(1,207,798		)	(1,174,339		)	(1,154,589		)	(1,173,137		)
Weighted average shares for basic earnings per common share	96,276,680			104,948,398			96,976,877			105,181,628			91,202,151			96,276,680			92,022,654			96,976,877
Basic earnings per common share	$	0.81		$	0.82		$	1.46		$	1.60		$	0.80		$	0.81		$	0.47		$	1.46
Diluted earnings per common share:
Numerator:
Income allocated to common stockholders for basic earnings per common share	$	78,069		$	86,437		$	141,349		$	168,459		$	73,155		$	78,069		$	43,618		$	141,349
Adjustment for earnings reallocated from participating securities	9			12			13			23			—			9			—			13
Income used in calculating diluted earnings per common share	$	78,078		$	86,449		$	141,362		$	168,482		$	73,155		$	78,078		$	43,618		$	141,362
Denominator:
Weighted average shares for basic earnings per common share	96,276,680			104,948,398			96,976,877			105,181,628			91,202,151			96,276,680			92,022,654			96,976,877
Dilutive effect of stock options and certain share-based awards	345,899			522,997			312,821			519,598
Dilutive effect of stock options and certain shared-based awards													705			345,899			126,858			312,821
Weighted average shares for diluted earnings per common share	96,622,579			105,471,395			97,289,698			105,701,226			91,202,856			96,622,579			92,149,512			97,289,698
Diluted earnings per common share	$	0.81		$	0.82		$	1.45		$	1.59		$	0.80		$	0.81		$	0.47		$	1.45

~~Included in participating~~Participating securities ~~above are~~include unvested shares and 3,023,314 dividend equivalent rights ~~outstanding at June 30, 2019~~ that were issued in conjunction with the IPO of the Company's common stock. These dividend equivalent rights expire in 2021 and participate in dividends on a one-for-one basis.

~~The following potentially~~Potentially dilutive ~~securities~~unvested shares and share units totaling 1,743,403 and 1,119,641 were outstanding at June 30, 2020 and 2019, ~~and 2018~~respectively, but excluded from the calculation of diluted earnings per common share ~~for the periods indicated~~ because their inclusion would have been ~~anti-dilutive:~~anti-dilutive.

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Unvested shares and share units 1,119,641
1,644,336
1,119,641
1,644,336
Stock options and warrants —
1,850,279
—
1,850,279
13

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020

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):


	June 30, 2019									June 30, 2020
	Amortized Cost		Gross Unrealized					Carrying Value ⁽¹⁾		Amortized Cost		Gross Unrealized					Carrying Value ⁽¹⁾
			Gains		Losses							Gains		Losses
Investment securities available for sale:
U.S. Treasury securities	$	49,992	$	221	$	—		$	50,213	$	75,217	$	1,963	$	—		$	77,180
U.S. Government agency and sponsored enterprise residential MBS	2,222,327		14,446		(8,978		)	2,227,795		2,371,729		13,309		(5,198		)	2,379,840
U.S. Government agency and sponsored enterprise commercial MBS	378,167		4,057		(1,120		)	381,104		455,344		9,859		(926		)	464,277
Private label residential MBS and CMOs	1,374,008		22,256		(1,082		)	1,395,182		1,101,390		16,670		(1,974		)	1,116,086
Private label commercial MBS	1,549,733		8,462		(242		)	1,557,953		2,075,683		16,735		(48,798		)	2,043,620
Single family rental real estate-backed securities	387,104		5,392		(190		)	392,306		608,019		11,381		(1,193		)	618,207
Collateralized loan obligations	1,205,295		766		(7,779		)	1,198,282		1,166,929		—		(38,176		)	1,128,753
Non-mortgage asset-backed securities	155,542		2,321		(46		)	157,817		255,854		6,251		(574		)	261,531
State and municipal obligations	265,856		13,471		—			279,327		239,502		19,993		—			259,495
SBA securities	418,494		5,631		(2,352		)	421,773		247,914		2,286		(4,258		)	245,942
Other debt securities	1,395		3,386		—			4,781
	8,007,913		$	80,409	$	(21,789	)	8,066,533		8,597,581		$	98,447	$	(101,097	)	8,594,931
Investment securities held to maturity	10,000							10,000		10,000							10,000
	$	8,017,913						8,076,533		$	8,607,581						8,604,931
Marketable equity securities								62,175									88,697
								$	8,138,708								$	8,693,628

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020


	December 31, 2018									December 31, 2019
	Amortized Cost		Gross Unrealized					Carrying Value ⁽¹⁾		Amortized Cost		Gross Unrealized					Carrying Value ⁽¹⁾
			Gains		Losses							Gains		Losses
Investment securities available for sale:
U.S. Treasury securities	$	39,885	$	2	$	(14	)	$	39,873	$	70,243	$	219	$	(137	)	$	70,325
U.S. Government agency and sponsored enterprise residential MBS	1,885,302		16,580		(4,408		)	1,897,474		2,018,853		9,835		(6,513		)	2,022,175
U.S. Government agency and sponsored enterprise commercial MBS	374,569		1,293		(1,075		)	374,787		366,787		4,920		(731		)	370,976
Private label residential MBS and CMOs	1,539,058		10,138		(14,998		)	1,534,198		1,001,337		11,851		(1,011		)	1,012,177
Private label commercial MBS	1,486,835		5,021		(6,140		)	1,485,716		1,719,228		6,650		(1,194		)	1,724,684
Single family rental real estate-backed securities	406,310		266		(4,118		)	402,458		467,459		4,016		(1,450		)	470,025
Collateralized loan obligations	1,239,355		1,060		(5,217		)	1,235,198		1,204,905		322		(7,861		)	1,197,366
Non-mortgage asset-backed securities	204,372		1,031		(1,336		)	204,067		194,171		1,780		(1,047		)	194,904
State and municipal obligations	398,810		3,684		(4,065		)	398,429		257,528		15,774		—			273,302
SBA securities	514,765		6,502		(1,954		)	519,313		359,808		4,587		(1,664		)	362,731
Other debt securities	1,393		3,453		—			4,846
	8,090,654		$	49,030	$	(43,325	)	8,096,359		7,660,319		$	59,954	$	(21,608	)	7,698,665
Investment securities held to maturity	10,000							10,000		10,000							10,000
	$	8,100,654						8,106,359		$	7,670,319						7,708,665
Marketable equity securities								60,519									60,572
								$	8,166,878								$	7,769,237


(1)	At fair value except for securities held to maturity.

Investment securities held to maturity at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 consisted of ~~one~~1 State of Israel bond maturing in 2024. At June 30, 2020 and December 31, 2019, accrued interest receivable on investments totaled $23 million and $28 million, respectively, and is included in other assets in the accompanying consolidated balance sheets.

At June 30, ~~2019,~~2020, contractual maturities of investment securities available for sale, adjusted for anticipated prepayments when applicable, were as follows (in thousands):


	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	767,598	$	775,378	$	908,180	$	914,970
Due after one year through five years	4,350,779		4,371,075		4,875,569		4,830,499
Due after five years through ten years	2,457,216		2,480,114		2,304,114		2,332,121
Due after ten years	432,320		439,966		509,718		517,341
	$	8,007,913	$	8,066,533	$	8,597,581	$	8,594,931

The carrying value of securities pledged as collateral for FHLB advances, public deposits, interest rate swaps and to secure borrowing capacity at the FRB totaled ~~$2.2~~$4.8 billion and ~~$2.1~~$2.4 billion at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020

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


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018			2019			2018			2020		2019			2020			2019
Proceeds from sale of investment securities available for sale	$	850,527		$	569,387		$	1,626,250		$	836,317		$	240,805	$	850,527		$	547,337		$	1,626,250

Gross realized gains:
Investment securities available for sale	$	4,631		$	2,554		$	8,956		$	6,041		$	5,723	$	4,631		$	7,255		$	8,956
Gross realized losses:
Investment securities available for sale	(716		)	(4		)	(724		)	(2,514		)	—		(716		)	(2		)	(724		)
Net realized gain	3,915			2,550			8,232			3,527			5,723		3,915			7,253			8,232

Net unrealized gains (losses) on marketable equity securities recognized in earnings	201			(408		)	1,669			(1,021		)	1,113		201			(3,870		)	1,669

Gain on investment securities, net	$	4,116		$	2,142		$	9,901		$	2,506		$	6,836	$	4,116		$	3,383		$	9,901

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):. No ACL was recorded for any investment securities available for sale in an unrealized loss position at June 30, 2020.


	June 30, 2019															June 30, 2020
	Less than 12 Months					12 Months or Greater					Total					Less than 12 Months					12 Months or Greater					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency and sponsored enterprise residential MBS	$	919,284	$	(6,994	)	$	140,310	$	(1,984	)	$	1,059,594	$	(8,978	)	$	604,143	$	(895	)	$	517,239	$	(4,303	)	$	1,121,382	$	(5,198	)
U.S. Government agency and sponsored enterprise commercial MBS	99,590		(1,083		)	6,477		(37		)	106,067		(1,120		)	39,892		(108		)	73,856		(818		)	113,748		(926		)
Private label residential MBS and CMOs	121,628		(180		)	204,205		(902		)	325,833		(1,082		)	205,524		(1,974		)	—		—			205,524		(1,974		)
Private label commercial MBS	100,262		(220		)	14,780		(22		)	115,042		(242		)	1,302,037		(45,341		)	56,875		(3,457		)	1,358,912		(48,798		)
Single family rental real estate-backed securities	142,824		(148		)	22,946		(42		)	165,770		(190		)	184,785		(1,193		)	—		—			184,785		(1,193		)
Collateralized loan obligations	623,797		(5,981		)	80,202		(1,798		)	703,999		(7,779		)	591,422		(15,873		)	537,331		(22,303		)	1,128,753		(38,176		)
Non-mortgage asset-backed securities	39,505		(46		)	—		—			39,505		(46		)	13,857		(45		)	13,472		(529		)	27,329		(574		)
SBA securities	62,857		(1,050		)	101,227		(1,302		)	164,084		(2,352		)	35,136		(326		)	109,837		(3,932		)	144,973		(4,258		)
	$	2,109,747	$	(15,702	)	$	570,147	$	(6,087	)	$	2,679,894	$	(21,789	)	$	2,976,796	$	(65,755	)	$	1,308,610	$	(35,342	)	$	4,285,406	$	(101,097	)

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020


	December 31, 2018															December 31, 2019
	Less than 12 Months					12 Months or Greater					Total					Less than 12 Months					12 Months or Greater					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities	$	14,921	$	(14	)	$	—	$	—		$	14,921	$	(14	)	$	20,056	$	(137	)	$	—	$	—		$	20,056	$	(137	)
U.S. Government agency and sponsored enterprise residential MBS	450,666		(1,828		)	87,311		(2,580		)	537,977		(4,408		)	579,076		(3,862		)	243,839		(2,651		)	822,915		(6,513		)
U.S. Government agency and sponsored enterprise commercial MBS	146,096		(352		)	25,815		(723		)	171,911		(1,075		)	99,610		(696		)	6,477		(35		)	106,087		(731		)
Private label residential MBS and CMOs	759,921		(7,073		)	278,108		(7,925		)	1,038,029		(14,998		)	180,398		(838		)	41,636		(173		)	222,034		(1,011		)
Private label commercial MBS	742,092		(5,371		)	39,531		(769		)	781,623		(6,140		)	648,761		(1,060		)	76,302		(134		)	725,063		(1,194		)
Single family rental real estate-backed securities	234,305		(1,973		)	85,282		(2,145		)	319,587		(4,118		)	241,915		(1,445		)	5,460		(5		)	247,375		(1,450		)
Collateralized loan obligations	749,047		(5,217		)	—		—			749,047		(5,217		)	63,310		(846		)	682,076		(7,015		)	745,386		(7,861		)
Non-mortgage asset-backed securities	136,100		(1,336		)	—		—			136,100		(1,336		)	78,964		(962		)	7,883		(85		)	86,847		(1,047		)
State and municipal obligations	208,971		(3,522		)	46,247		(543		)	255,218		(4,065		)
SBA securities	215,975		(1,391		)	31,481		(563		)	247,456		(1,954		)	10,236		(2		)	142,204		(1,662		)	152,440		(1,664		)
	$	3,658,094	$	(28,077	)	$	593,775	$	(15,248	)	$	4,251,869	$	(43,325	)	$	1,922,326	$	(9,848	)	$	1,205,877	$	(11,760	)	$	3,128,203	$	(21,608	)

The Company monitors its investment securities available for sale for ~~OTTI~~credit loss impairment on an individual security basis. No securities were determined to be ~~other-than-temporarily~~credit loss impaired during the three and six months ended June 30, ~~2019~~2020 or ~~2018.~~other than temporarily impaired during the three and six months ended June 30, 2019. The Company does not intend to sell securities that are in significant unrealized loss positions at June 30, ~~2019~~2020 and it is not more likely than not that the Company will be required to sell these securities before recovery of the amortized cost basis, which may be at maturity. 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 June 30, ~~2019, 126~~2020, 224 securities available for sale were in unrealized loss positions. The amount of impairment related to 4864 of these securities was considered insignificant both individually and in the aggregate, totaling approximately ~~$422~~$398 thousand and no further analysis with respect to these securities was considered necessary.

Unrealized losses at June 30, 2020, particularly in the private label CMBS and CLO asset classes, were primarily attributable to widening spreads, resulting in large part from market response to, and dislocation in the wake of, the COVID-19 pandemic.

The basis for concluding that ~~impairment of the remaining~~AFS securities were not credit loss impaired and no ACL was ~~not other-than-temporary~~considered necessary at June 30, 2020 is further ~~described~~discussed below.

U.S. Government ~~agency~~Agency and ~~sponsored enterprise residential and commercialMBS~~Government Sponsored Enterprise Securities

At June 30, ~~2019, thirty-six~~2020, NaN U.S. Government agency and sponsored enterprise residential MBS, ~~and four~~5 U.S. Government agency and sponsored enterprise commercial MBS and 11 SBA securities were in unrealized loss positions. ~~Impairment of these securities was primarily attributable to increases in market interest rates subsequent to the date of acquisition and for certain securities, widening spreads.~~ The timely payment of principal and interest on these securities is explicitly or implicitly guaranteed by the U.S. Government. ~~Given~~As such, there is an assumption of zero credit loss and the ~~expectation of timely payment of principal and interest~~Company expects to recover the ~~impairments were considered to be temporary.~~

~~Private label residentialMBSandCMOs~~

At June 30, 2019, eight private label residential MBS and CMOs were in unrealized loss positions, primarily as a result of an increase in medium and long-term market interest rates subsequent to acquisition. These securities were assessed for OTTI using credit and prepayment behavioral models that incorporate CUSIP level constant default rates, voluntary prepayment rates and loss severity and delinquency assumptions. The resultsentire amortized cost basis of these ~~assessments were not indicative~~securities.

Table of ~~credit losses related to any of these securities as of June 30, 2019. Given the expectation of timely recovery of outstanding principal the impairments were considered to be temporary.~~

~~Private label commercial~~Contents~~MBS~~

At June 30, 2019, three private label commercial MBS were in unrealized loss positions, primarily as a result of an increase in market interest rates since acquisition. These securities were assessed for OTTI using credit and prepayment behavioral

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020

~~models incorporating~~Private Label Securities:

None of the impaired securities had missed principal or interest payments or had been downgraded by a NRSRO at June 30, 2020. 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 severe than our reasonable and supportable economic forecast at June 30, 2020, and incorporated assumptions ~~consistent with~~about voluntary prepayment rates, collateral defaults, delinquencies, severity and other relevant factors as described further below. Our analysis also considered the ~~collateral~~structural characteristics of each ~~security. The~~security and the level of credit enhancement provided by that structure. Based on the results of this analysis, the Company expects to recover the entire amortized cost basis of its impaired AFS securities at June 30, 2020. No ACL was considered necessary at June 30, 2020.

Private label residential MBS and CMOs

At June 30, 2020,7 private label residential MBS and CMOs were ~~not indicative~~in unrealized loss positions. Our analysis of cash flows expected ~~credit losses. Given the expectation of timely recovery of outstanding principal the impairments were considered~~ to be ~~temporary.~~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 which would indicate further stress in the sector. Our June 30, 2020 analysis projected weighted average collateral losses for this category of 4% compared to weighted average credit support of 17%. As of June 30, 2020, 88% of the impaired securities in this category, based on carrying value, were externally rated AAA, and one security representing 12% of impaired securities in this category was not externally rated; this security was internally rated investment grade.

Private label commercial MBS

At June 30, 2020, 70 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 watchlists, bankruptcy data, special servicing trends, delinquency and other economic data which would indicate further stress in the sector. Our June 30, 2020 analysis projected weighted average collateral losses for this category of 13% compared to weighted average credit support of 42%. As of June 30, 2020, 83% of impaired securities in this category, based on carrying value were externally rated AAA, 12% were rated AA and 5% were rated A.

Single family rental real estate-backed securities

At June 30, ~~2019, two~~2020, 10 single family rental real estate-backed securities were in unrealized loss positions. ~~The unrealized~~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 which would indicate further stress in the sector. Our June 30, 2020 analysis projected weighted average collateral losses ~~were primarily due~~for this category of 13% compared to ~~increases in market interest rates since the purchase~~weighted average credit support of 49%. As of June 30, 2020, 87% of the ~~securities. Management's analysis of the credit characteristics, including loan-to-value~~impaired securities in this category, based on carrying value, were externally rated AAA and ~~debt service coverage ratios, and levels of subordination for each of the securities is not indicative of projected credit losses. Given the absence of projected credit losses the impairments~~13% were ~~considered to be temporary.~~rated AA.

Collateralized loan ~~obligations:~~obligations

At June 30, ~~2019, sixteen~~2020, NaN collateralized loan obligations were in unrealized loss ~~positions, primarily due~~positions. Leveraged loans underlying these securities have seen pricing pressure as the market looks to ~~widening credit spreads for this asset class. These securities were assessed for OTTI using credit~~evaluate ability of borrowers to maintain payments. Uncertainties surrounding the broad economy and ~~prepayment behavioral models incorporating assumptions consistent with~~how they may translate into rating downgrades and defaults as the ~~collateral characteristics~~COVID-19 crisis plays out have negatively impacted pricing in the leveraged loan market. Our analysis of ~~each security. The results of this analysis were not indicative of~~cash flows expected ~~credit losses. Given the expectation of timely recovery of outstanding principal, the impairments were considered~~ to be ~~temporary.~~

~~Non-mortgage asset-backed securities~~

At June 30, 2019, one non-mortgage asset-backed security was in an unrealized loss position, due primarily to increases in market interest rates subsequent to the date of acquisition. This security was assessed for OTTI using a credit and prepayment behavioral model incorporating assumptions consistent with the collateral characteristics of the security. The results of this analysis were not indicative of expected credit losses. Given the expectation of timely recovery of outstanding principal, the impairment was considered to be temporary.

~~SBA Securities~~

At June 30, 2019, eight SBA securities were in unrealized loss positions. These securities were purchased at a premium and the impairment was attributable primarily to increased prepayment speeds. The timely payment of principal and interestcollected on these securities ~~is guaranteed by~~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 June 30, 2020 analysis projected weighted average collateral losses for this ~~U.S. Government agency. Given the expectation~~category of ~~timely payment~~21% compared to weighted average credit support of ~~principal and interest, the impairments were considered to be temporary.~~41%. As of June 30, 2020, 84% of

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020

the impaired securities in this category, based on carrying value, were externally rated AAA, 13% were rated AA and 3% were rated A.

Non-mortgage asset-backed securities

At June 30, 2020, 3 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 those assumptions, we took into account collateral type, delineated by whether collateral consisted of loans to borrowers in school, refinancing, or a mixture. Our June 30, 2020 analysis projected weighted average collateral losses for this category of 14% compared to weighted average credit support of 25%. As of June 30, 2020, 50% of the impaired securities in this category, based on carrying value, were externally rated AAA and 50% were rated AA.

Note 4 Loans and Allowance for ~~Loan and Lease~~Credit Losses

Loans consisted of the following at the dates indicated (dollars in thousands):


	June 30, 2019					December 31, 2018					June 30, 2020					December 31, 2019
	Total			Percent of Total		Total			Percent of Total		Total			Percent of Total		Total			Percent of Total
Residential and other consumer:
1-4 single family residential	$	4,830,943		21.4	%	$	4,606,828		21.0	%	$	4,743,866		19.9	%	$	4,953,936		21.4	%
Government insured residential	354,731			1.6	%	265,701			1.2	%	826,238			3.5	%	698,644			3.0	%
Other	14,533			0.1	%	17,369			0.1	%
Other consumer loans											7,703			0.1	%	8,539			0.1	%
	5,200,207			23.1	%	4,889,898			22.3	%	5,577,807			23.5	%	5,661,119			24.5	%
Commercial:
Multi-family	2,381,346			10.6	%	2,583,331			11.8	%	1,893,753			7.9	%	2,217,705			9.6	%
Non-owner occupied commercial real estate	4,945,017			21.9	%	4,700,188			21.4	%	4,940,531			20.7	%	5,030,904			21.7	%
Construction and land	237,222			1.1	%	227,134			1.0	%	246,609			1.0	%	243,925			1.1	%
Owner occupied commercial real estate	2,080,578			9.2	%	2,122,381			9.7	%	2,041,346			8.6	%	2,062,808			8.9	%
Commercial and industrial	5,164,571			22.9	%	4,801,226			21.9	%	4,691,326			19.7	%	4,655,349			20.1	%
Commercial lending subsidiaries	2,531,767			11.2	%	2,608,834			11.9	%
PPP											827,359			3.5	%	—			—	%
Pinnacle											1,242,506			5.1	%	1,202,430			5.2	%
Bridge - franchise finance											623,139			2.6	%	627,482			2.6	%
Bridge - equipment finance											589,785			2.5	%	684,794			3.0	%
Mortgage warehouse lending											1,160,728			4.9	%	768,472			3.3	%
	17,340,501			76.9	%	17,043,094			77.7	%	18,257,082			76.5	%	17,493,869			75.5	%
Total loans	22,540,708			100.0	%	21,932,992			100.0	%	23,834,889			100.0	%	23,154,988			100.0	%
Premiums, discounts and deferred fees and costs, net	51,141					44,016
Loans including premiums, discounts and deferred fees and costs	22,591,849					21,977,008
Allowance for loan and lease losses	(112,141		)			(109,931		)
Allowance for credit losses											(266,123		)			(108,671		)
Loans, net	$	22,479,708				$	21,867,077				$	23,568,766				$	23,046,317

~~During~~Premiums, discounts and deferred fees and costs, excluding the ~~three~~non-credit related discount on PCD loans, totaled $25 million and ~~six months ended~~$50 million at June 30, 2020 and December 31, 2019, respectively. The amortized cost basis of residential PCD loans was $134 million and ~~2018,~~ the ~~Company purchased 1-4 single family~~related amount of non-credit discount was $135 million at June 30, 2020. The ACL related to PCD residential loans ~~totaling $589 million, $894 million, $271~~was $1.1 million and ~~$604~~$1.7 million at June 30, 2020 and January 1, 2020, the date of initial adoption of ASU 2016-13, respectively.

Included in the table above are direct or sales type finance leases totaling $757 million and $733 million at June 30, 2020 and December 31, 2019, respectively. ~~Purchases~~The amount of income recognized from direct or sales type finance leases for the three and six months ended June 30, 2020 and 2019 ~~and 2018 included $151~~totaled $5.3 million, ~~$284~~$10.7 million, ~~$72~~$5.5 million and ~~$112~~$10.8 million, respectively and is recorded as interest income on loans in the consolidated statements of ~~government insured residential loans.~~income.

~~At June 30, 2019, the Company had pledged real estate loans with a carrying value~~

Table of ~~approximately $9.9 billion as security for FHLB advances.~~Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020

~~The following presents~~During the ~~Company's recorded investment in ACI~~three and six months ended June 30, 2020 and 2019, the Company purchased 1-4 single family residential loans totaling $582 million, $1.1 billion, $589 million and $894 million, respectively. Purchases for the three and six months ended June 30, 2020 and 2019 included ~~in the table above, as~~$243 million, $529 million, $151 million and $284 million, respectively, of ~~the dates indicated (in thousands):~~

June 30, 2019 December 31, 2018
Residential $ 174,029
$ 190,223
Commercial 17,544
17,925
$ 191,573
$ 208,148

government insured residential loans.

At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the ~~UPB~~Company had pledged loans with a carrying value of ~~ACI~~approximately $11.0 billion and $10.2 billion, respectively, as security for FHLB advances, Federal Reserve discount window capacity and PPPLF borrowings.

At June 30, 2020 and December 31, 2019, accrued interest receivable on loans totaled $108 million and $83 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 ~~$367 million~~not material for the three and ~~$408 million, respectively. The accretable yield on ACI loans represents the amount by which undiscounted expected future cash flows exceed recorded investment. Changes~~six months ended June 30, 2020.

Allowance for credit losses

Activity in the ~~accretable yield on ACI loans~~allowance for credit losses is summarized below. The balance at December 31, 2019 and amounts presented for the three and six months ended June 30, 2019 represent the allowance for loan and leases losses, estimated using an incurred loss methodology. The ACL at June 30, 2020 and activity for the ~~year~~three and six months then ended ~~December 31, 2018~~ were ~~as follows~~determined using the CECL methodology (in thousands):

Balance at December 31, 2017 $ 455,059
Reclassifications from non-accretable difference, net 128,499
Accretion (369,915 )
Other changes, net ⁽¹⁾
78,204
Balance at December 31, 2018 291,847
Reclassifications to non-accretable difference, net (429 )
Accretion (33,103 )
Other changes, net ⁽¹⁾
(6,929 )
Balance at June 30, 2019 $ 251,386


~~(1)~~	~~Represents changes in cash flows expected to be collected due to the impact of changes in prepayment assumptions or changes in benchmark interest rates.~~

~~BANKUNITED, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~

~~June 30, 2019~~

~~Allowance for loan and lease losses~~

~~Activity in the ALLL is summarized as follows for the periods indicated (thousands):~~



	Three Months Ended June 30,
	2020									2019
	Residential and Other Consumer			Commercial			Total			Residential and Other Consumer		Commercial			Total
Beginning balance	$	12,576		$	238,003		$	250,579		$	10,952	$	103,751		$	114,703
Provision (recovery)	(1,924		)	33,508			31,584			131		(2,878		)	(2,747		)
Charge-offs	—			(19,178		)	(19,178		)	—		(1,711		)	(1,711		)
Recoveries	43			3,095			3,138			153		1,743			1,896
Ending balance	$	10,695		$	255,428		$	266,123		$	11,236	$	100,905		$	112,141

Three Months Ended June 30,
2019 2018
Residential and Other Consumer Commercial Total Residential and Other Consumer Commercial Total
Beginning balance $ 10,952
$ 103,751
$ 114,703
$ 10,832
$ 126,644
$ 137,476
Provision (recovery) 131
(2,878 ) (2,747 ) (280 ) 9,275
8,995
Charge-offs —
(1,711 ) (1,711 ) (222 ) (12,046 ) (12,268 )
Recoveries 153
1,743
1,896
8
760
768
Ending balance $ 11,236
$ 100,905
$ 112,141
$ 10,338
$ 124,633
$ 134,971


	Six Months Ended June 30,																	Six Months Ended June 30,
	2019								2018									2020									2019
	Residential and Other Consumer		Commercial			Total			Residential and Other Consumer			Commercial			Total			Residential and Other Consumer			Commercial			Total			Residential and Other Consumer		Commercial			Total
Beginning balance	$	10,788	$	99,143		$	109,931		$	10,720		$	134,075		$	144,795		$	11,154		$	97,517		$	108,671		$	10,788	$	99,143		$	109,931
Provision	281		7,253			7,534			94			12,048			12,142
Impact of adoption of ASU 2016-13																		8,098			19,207			27,305			—		—			—
Provision (recovery)																		(8,572		)	162,021			153,449			281		7,253			7,534
Charge-offs	—		(7,844		)	(7,844		)	(504		)	(22,396		)	(22,900		)	(31		)	(26,953		)	(26,984		)	—		(7,844		)	(7,844		)
Recoveries	167		2,353			2,520			28			906			934			46			3,636			3,682			167		2,353			2,520
Ending balance	$	11,236	$	100,905		$	112,141		$	10,338		$	124,633		$	134,971		$	10,695		$	255,428		$	266,123		$	11,236	$	100,905		$	112,141

~~The following table presents information about the balance~~

Table of ~~the ALLL and related loans at the dates indicated (in thousands):~~

June 30, 2019 December 31, 2018
Residential and Other Consumer Commercial Total Residential and Other Consumer Commercial Total
Allowance for loan and lease losses:

Ending balance $ 11,236
$ 100,905
$ 112,141
$ 10,788
$ 99,143
$ 109,931
Ending balance: loans individually evaluated for impairment $ 15
$ 9,481
$ 9,496
$ 134
$ 12,143
$ 12,277
Ending balance: loans collectively evaluated for impairment $ 11,221
$ 91,424
$ 102,645
$ 10,654
$ 87,000
$ 97,654
Ending balance: ACI loans $ —
$ —
$ —
$ —
$ —
$ —
Loans: 0

Ending balance $ 5,267,788
$ 17,324,061
$ 22,591,849
$ 4,948,989
$ 17,028,019
$ 21,977,008
Ending balance: loans individually evaluated for impairment $ 14,572
$ 123,119
$ 137,691
$ 7,690
$ 108,841
$ 116,531
Ending balance: loans collectively evaluated for impairment $ 5,079,187
$ 17,183,398
$ 22,262,585
$ 4,751,076
$ 16,901,253
$ 21,652,329
Ending balance: ACI loans $ 174,029
$ 17,544
$ 191,573
$ 190,223
$ 17,925
$ 208,148

Contents

~~Credit quality information~~

Loans, other than ACI loans and government insured residential loans, are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due, according to the contractual terms of the loan agreements. Commercial relationships with committed balances

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~

greater than or equal to $1.0 million that have internal risk ratings of substandard or doubtful and are on non-accrual status, as well as loans that have been modified in TDRs, are individually evaluated for impairment. Other commercial relationships on non-accrual status with committed balances under $1.0 million may also be evaluated individually for impairment at management's discretion. The likelihood of loss related to loans assigned internal risk ratings of substandard or doubtful is considered elevated due to their identified credit weaknesses. Factors considered by management in evaluating impairment include payment status, financial condition of the borrower, collateral value, and other factors impacting the probability of collecting scheduled principal and interest payments when due.

An ACI pool or loan is considered to be impaired when it is probable that the Company will be unable to collect all the cash flows expected at acquisition, plus additional cash flows expected to be collected arising from changes in estimates after acquisition. 1-4 single family residential and home equity ACI loans accounted for in pools are evaluated collectively for impairment on a pool by pool basis based on expected pool cash flows. Commercial ACI loans are individually evaluated for impairment based on expected cash flows from the individual loans. Discount continues to be accreted on ACI loans or pools as long as there are expected future cash flows in excess of the current carrying amount of the loans or pools.

~~The table below presents information about loans identified as impaired at the dates indicated (in thousands):~~

June 30, 2019 December 31, 2018

Recorded
Investment
UPB
Related
Specific
Allowance

Recorded
Investment
UPB
Related
Specific
Allowance
With no specific allowance recorded:

1-4 single family residential ⁽¹⁾
$ 10,005
$ 9,922
$ —
$ 5,724
$ 5,605
$ —
Multi-family 24,834
24,866
—
25,560
25,592
—
Non-owner occupied commercial real estate 26,101
26,134
—
12,293
12,209
—
Construction and land 9,418
9,421
—
9,923
9,925
—
Owner occupied commercial real estate 14,791
14,890
—
9,007
9,024
—
Commercial and industrial
8,432
8,436
—
13,514
13,519
—
Commercial lending subsidiaries 5,205
5,226
—
3,152
3,149
—
With a specific allowance recorded:
1-4 single family residential 4,567
4,496
15
1,966
1,941
134
Owner occupied commercial real estate —
—
—
3,316
3,322
844
Non-owner occupied commercial real estate —
—
—
1,666
1,667
731
Commercial and industrial 24,522
24,524
6,533
10,939
10,946
3,831
Commercial lending subsidiaries 9,816
9,736
2,948
19,471
19,385
6,737
Total:
Residential and other consumer $ 14,572
$ 14,418
$ 15
$ 7,690
$ 7,546
$ 134
Commercial 123,119
123,233
9,481
108,841
108,738
12,143
$ 137,691
$ 137,651
$ 9,496
$ 116,531
$ 116,284
$ 12,277


~~(1)~~	~~Includes government insured residential loans modified in TDRs totaling $9.9 million and $3.5 million at June 30, 2019 and December 31, 2018, respectively.~~

Included in the table above is the guaranteed portion of impaired SBA loans totaling $21.8 million and $13.1 million at June 30, 2019 and December 31, 2018, respectively, with no specific allowance recorded. Interest income recognized on impaired loans was immaterial for the three and six months ended June 30, 2019 and 2018.

~~BANKUNITED, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~

~~June 30, 2019~~2020

The following table presents the ~~average recorded investment in impaired loans~~components of the provision for credit losses for the periods indicated (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Residential and other consumer:

1-4 single family residential $ 12,732
$ 6,932
$ 11,011
$ 5,764

Commercial:
Multi-family 25,066
26,260
25,248
25,490
Non-owner occupied commercial real estate 24,599
14,123
21,563
13,499
Construction and land 9,604
5,244
9,730
4,196
Owner occupied commercial real estate 12,741
16,751
12,124
19,175
Commercial and industrial⁽¹⁾
32,690
109,186
30,564
109,749
Commercial lending subsidiaries 18,082
1,506
19,982
1,816
122,782
173,070
119,211
173,925
$ 135,514
$ 180,002
$ 130,222
$ 179,689



	Three Months Ended June 30, 2020			Six Months Ended June 30, 2020
Amount related to funded portion of loans	$	31,584		$	153,449
Amount related to off-balance sheet credit exposures	(6,170		)	(2,607		)
Provision for credit losses	$	25,414		$	150,842

Credit quality information


~~(1)~~	~~Includes average recorded investment in taxi medallion loans totaling $93 million and $97 million during the three and six months ended June 30, 2018, respectively.~~

The ~~following table presents~~increase in the ~~recorded investment~~ACL from January 1, 2020, the date of initial adoption of ASU 2016-13, to June 30, 2020 was reflective of the estimated impact of the emerging COVID-19 pandemic on the trajectory of the economy and on individual borrowers and portfolio sub-segments. The credit quality of the loan portfolio has been and is likely to continue to be impacted by the developing COVID-19 crisis, its impact on the economy broadly and more specifically on the Company's individual borrowers. Significant uncertainty currently exists about the extent of this impact, and the impact is likely not fully reflected in ~~loans on non-accrual status~~some of the credit quality indicators disclosed below as of ~~the dates indicated (in thousands):~~

June 30, 2019 December 31, 2018
Residential and other consumer:

1-4 single family residential $ 10,807
$ 6,316
Home equity loans and lines of credit 30
—
Other consumer loans 277
288
11,114
6,604
Commercial:
Multi-family 24,834
25,560
Non-owner occupied commercial real estate 27,623
16,050
Construction and land 9,418
9,923
Owner occupied commercial real estate 21,752
19,789
Commercial and industrial
27,176
28,584
Commercial lending subsidiaries 16,236
22,733
127,039
122,639
$ 138,153
$ 129,243

~~Included in the table above is the guaranteed portion of non-accrual SBA loans totaling $28.4 million and $17.8 million at~~ June 30, ~~2019~~2020, due to the ongoing impact of the pandemic.

Credit quality of loans held for investment is continuously monitored by dedicated residential credit risk management and ~~December 31, 2018, respectively. Loans contractually delinquent by 90 days or more~~commercial portfolio management functions. The Company also has a workout and ~~still accruing totaled $0.7 million at December 31, 2018. There were no~~recovery department that monitors the credit quality of criticized and classified loans ~~contractually delinquent by 90 days or more~~ and ~~still accruing at June 30, 2019. The amount of additional interest income that would have been recognized on non-accrual~~an independent internal credit review function.

Credit quality indicators for residential loans had they performed in accordance with their contractual terms was approximately $2.5 million and $4.3 million for the three and six months ended June 30, 2019, respectively, and $1.8 million and $3.0 million three and six months ended June 30, 2018, respectively.

Management considers delinquency status to be the most meaningful indicator of the credit quality of ~~1-4 single family~~ residential ~~home equity~~ and other consumer loans, other than government insured residential loans. Delinquency statistics are updated at least monthly. ~~See "Aging~~LTV and FICO scores are also important indicators of ~~loans" below~~credit quality for 1-4 single family residential loans other than government insured loans. FICO scores are generally updated at least annually, and were most recently updated in the fourth quarter of 2019. 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 and wages, as well as residential property values.

1-4 Single Family Residential credit exposure, excluding government insured residential loans, based on delinquency status:



	June 30, 2020
	Amortized Cost By Origination Year
	2020		2019		2018		2017		2016		Prior		Total
Current	$	249,912	$	807,365	$	488,280	$	753,109	$	776,895	$	1,604,423	$	4,679,984
30 - 59 Days Past Due	5,703		11,477		3,372		2,701		7,417		18,605		49,275
60 - 89 Days Past Due	—		720		75		53		103		1,882		2,833
90 Days or More Past Due	—		807		2,293		—		484		8,190		11,774
	$	255,615	$	820,369	$	494,020	$	755,863	$	784,899	$	1,633,100	$	4,743,866

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020

~~for more information on the delinquency status of loans. Original LTV and original FICO score are also important indicators of~~



	December 31, 2019
	Amortized Cost By Origination Year
	2019		2018		2017		2016		2015		Prior		Total
Current	$	804,913	$	609,814	$	830,710	$	783,318	$	633,833	$	1,225,030	$	4,887,618
30 - 59 Days Past Due	13,915		3,003		3,751		8,419		4,308		12,238		45,634
60 - 89 Days Past Due	1,785		442		137		486		1,766		4,962		9,578
90 Days or More Past Due	—		1,762		914		—		5,030		3,400		11,106
	$	820,613	$	615,021	$	835,512	$	792,223	$	644,937	$	1,245,630	$	4,953,936

1-4 Single Family Residential credit ~~quality for 1-4 single family~~exposure, excluding government insured residential loans, ~~other than the FSB loans and~~based on LTV:



	June 30, 2020
	Amortized Cost By Origination Year
LTV	2020		2019		2018		2017		2016		Prior		Total
Less than 61%	$	99,728	$	180,025	$	106,359	$	202,355	$	276,035	$	519,410	$	1,383,912
61% - 70%	62,031		192,880		110,546		136,212		184,600		394,279		1,080,548
71% - 80%	92,387		433,542		245,829		349,993		300,153		689,223		2,111,127
More than 80%	1,469		13,922		31,286		67,303		24,111		30,188		168,279
	$	255,615	$	820,369	$	494,020	$	755,863	$	784,899	$	1,633,100	$	4,743,866



	December 31, 2019
	Amortized Cost By Origination Year
LTV	2019		2018		2017		2016		2015		Prior		Total
Less than 61%	$	171,069	$	134,978	$	183,807	$	228,868	$	197,039	$	372,221	$	1,287,982
61% - 70 %	195,572		128,766		152,502		188,856		154,307		316,031		1,136,034
71% - 80%	442,311		313,779		404,743		338,000		283,202		531,377		2,313,412
More than 80%	11,661		37,498		94,460		36,499		10,389		26,001		216,508
	$	820,613	$	615,021	$	835,512	$	792,223	$	644,937	$	1,245,630	$	4,953,936

1-4 Single Family Residential credit exposure, excluding government insured ~~loans.~~ residential loans, based on FICO score:



	June 30, 2020
	Amortized Cost By Origination Year
FICO	2020		2019		2018		2017		2016		Prior		Total
760 or greater	$	168,920	$	482,818	$	298,650	$	521,199	$	573,011	$	1,093,732	$	3,138,330
720 - 759	70,279		224,961		112,407		138,897		131,205		304,460		982,209
719 or less	16,416		112,590		82,963		95,767		80,683		234,908		623,327
	$	255,615	$	820,369	$	494,020	$	755,863	$	784,899	$	1,633,100	$	4,743,866

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020



	December 31, 2019
	Amortized Cost By Origination Year
FICO	2019		2018		2017		2016		2015		Prior		Total
760 or greater	$	470,057	$	340,716	$	534,017	$	533,804	$	430,706	$	763,807	$	3,073,107
720 - 759	242,806		185,939		200,623		178,139		141,748		307,195		1,256,450
719 or less	107,750		88,366		100,872		80,280		72,483		174,628		624,379
	$	820,613	$	615,021	$	835,512	$	792,223	$	644,937	$	1,245,630	$	4,953,936

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, 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 ~~in identifying~~influencing the level and nature of ongoing monitoring of loans ~~that are individually evaluated for impairment~~ and may impact ~~management’s estimates of loss factors used in determining~~ the ~~amount~~estimation of the ~~ALLL.~~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. During the second quarter of 2020, risk ratings were re-evaluated for a substantial portion of the commercial portfolio, with a focus on portfolio segments we identified for enhanced monitoring and loans for which we granted temporary payment deferrals in light of the COVID-19 pandemic. Loans exhibiting potential credit weaknesses that deserve management’s close attention and that ~~if left uncorrected may~~could result in deterioration of ~~the~~ repayment ~~capacity of the borrower~~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, 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.

~~The following tables summarize key indicators~~

Table of ~~credit quality for the Company's loans at the dates indicated. Amounts include premiums, discounts and deferred fees and costs (in thousands):~~

~~1-4 Single Family Residential credit exposure for loans, excluding FSB loans and government insured residential loans, based on original LTV and FICO score:~~

June 30, 2019
FICO
LTV 720 or less 721 - 740 741 - 760 761 or
greater Total
Less than 60% $ 110,475
$ 124,463
$ 190,874
$ 796,918
$ 1,222,730
60% - 70% 139,870
120,664
178,995
625,452
1,064,981
70% - 80% 183,277
221,490
400,406
1,375,700
2,180,873
More than 80% 21,467
35,938
39,863
147,703
244,971
$ 455,089
$ 502,555
$ 810,138
$ 2,945,773
$ 4,713,555

December 31, 2018
FICO
LTV 720 or less 721 - 740 741 - 760 761 or
greater Total
Less than 60% $ 105,812
$ 123,877
$ 197,492
$ 813,944
$ 1,241,125
60% - 70% 120,982
109,207
170,531
597,659
998,379
70% - 80% 156,519
203,121
374,311
1,264,491
1,998,442
More than 80% 17,352
35,036
36,723
136,487
225,598
$ 400,665
$ 471,241
$ 779,057
$ 2,812,581
$ 4,463,544
Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020

Commercial credit exposure based on internal risk rating:


	June 30, 2019																June 30, 2020
											Commercial Lending Subsidiaries						Amortized Cost By Origination Year												Revolving Loans
	Multi-Family		Non-Owner Occupied Commercial Real Estate		Construction and Land		Owner Occupied Commercial Real Estate		Commercial and Industrial		Pinnacle		Bridge		Total		2020		2019		2018		2017		2016		Prior				Total
Multi-Family																													Revolving Loans
Pass																	$	42,877	$	316,733	$	190,227	$	210,681	$	347,973	$	633,791	$	39,607		$	1,781,889
Special mention																	—		8,149		15,767		19,512		6,209		7,587		—			57,224
Substandard																	—		—		—		2,845		9,801		41,994		—			54,640
Total Multi-Family																	$	42,877	$	324,882	$	205,994	$	233,038	$	363,983	$	683,372	$	39,607		$	1,893,753

Non-owner occupied commercial real estate
Pass																	$	238,451	$	1,202,138	$	736,973	$	509,446	$	590,992	$	814,514	$	107,772		$	4,200,286
Special mention																	—		46,971		96,563		47,930		166,139		112,887		—			470,490
Substandard																	4,568		32,746		5,029		437		100,748		126,227		—			269,755
Total non-owner occupied commercial real estate																	$	243,019	$	1,281,855	$	838,565	$	557,813	$	857,879	$	1,053,628	$	107,772		$	4,940,531

Construction and Land
Pass																	$	7,208	$	125,429	$	13,619	$	50,020	$	27,336	$	917	$	243		$	224,772
Special mention																	—		1,393		2,965		8,604		4,284		—		—			17,246
Substandard																	—		—		888		—		3,357		346		—			4,591
Total Construction and Land																	$	7,208	$	126,822	$	17,472	$	58,624	$	34,977	$	1,263	$	243		$	246,609

Owner occupied commercial real estate
Pass																	$	128,795	$	303,522	$	276,367	$	267,267	$	311,485	$	466,194	$	39,586		$	1,793,216
Special mention																	2,635		26,410		15,528		57,102		41,321		34,201		2,108			179,305
Substandard																	—		8,691		17,520		12,203		2,863		18,327		9,221			68,825
Total owner occupied commercial real estate																	$	131,430	$	338,623	$	309,415	$	336,572	$	355,669	$	518,722	$	50,915		$	2,041,346

Commercial and industrial
Pass																	$	356,049	$	940,865	$	344,774	$	295,769	$	204,049	$	64,485	$	1,989,034		$	4,195,025
Special mention																	611		81,305		33,987		2,252		28,507		6,818		89,918			243,398
Substandard																	600		46,973		43,472		33,272		18,949		53,470		56,167			252,903
Total commercial and industrial																	$	357,260	$	1,069,143	$	422,233	$	331,293	$	251,505	$	124,773	$	2,135,119		$	4,691,326

PPP
Pass																	$	827,359	$	—	$	—	$	—	$	—	$	—	$	—		$	827,359
PPP																	$	827,359	$	—	$	—	$	—	$	—	$	—	$	—		$	827,359

Pinnacle
Pass																	$	125,882	$	134,838	$	92,537	$	232,269	$	227,317	$	429,663	$	—		$	1,242,506
Total Pinnacle																	$	125,882	$	134,838	$	92,537	$	232,269	$	227,317	$	429,663	$	—		$	1,242,506

Bridge - Franchise Finance
Pass	$	2,335,356	$	4,826,910	$	227,476	$	2,026,416	$	5,063,682	$	1,269,469	$	1,207,657	$	16,956,966	$	42,004	$	97,036	$	27,760	$	12,666	$	14,456	$	12,357	$	—		$	206,279
Special mention	—		6,744		—		20,212		24,014		—		8,817		59,787		42,611		154,808		73,602		37,731		11,255		7,368		—			327,375
Substandard	47,760		100,403		9,418		31,189		61,264		—		50,726		300,760		549		15,494		45,185		5,173		17,778		4,357		—			88,536
Doubtful	—		—		—		—		3,683		—		2,865		6,548		—		—		—		—		949		—		—			949
Total Bridge - Franchise Finance																	$	85,164	$	267,338	$	146,547	$	55,570	$	44,438	$	24,082	$	—		$	623,139
	$	2,383,116	$	4,934,057	$	236,894	$	2,077,817	$	5,152,643	$	1,269,469	$	1,270,065	$	17,324,061
Bridge - Equipment Finance
Pass																	$	24,349	$	193,227	$	103,434	$	94,667	$	54,544	$	67,486	$	—		$	537,707
Special mention																	—		6,634		9,510		27,050		—		—		—			43,194
Substandard																	—		3,608		4,128		—		1,005		143		—			8,884
Total Bridge - Equipment Finance																	$	24,349	$	203,469	$	117,072	$	121,717	$	55,549	$	67,629	$	—		$	589,785

Mortgage Warehouse Lending
Pass																	$	—	$	—	$	—	$	—	$	—	$	—	$	1,160,728		$	1,160,728
Total Mortgage Warehouse Lending																	$	—	$	—	$	—	$	—	$	—	$	—	$	1,160,728		$	1,160,728

December 31, 2018
Commercial Lending Subsidiaries
Multi-Family Non-Owner Occupied Commercial Real Estate Construction
and Land Owner Occupied Commercial Real Estate Commercial and Industrial Pinnacle Bridge Total
Pass $ 2,547,835
$ 4,611,029
$ 216,917
$ 2,077,611
$ 4,706,666
$ 1,462,655
$ 1,105,821
$ 16,728,534
Special mention 2,932
16,516
—
13,368
38,097
—
10,157
81,070
Substandard 34,654
61,335
9,923
28,901
43,691
—
31,522
210,026
Doubtful —
—
—
—
1,746
—
6,643
8,389
$ 2,585,421
$ 4,688,880

$ 226,840
$ 2,119,880

$ 4,790,200
$ 1,462,655
$ 1,154,143

$ 17,028,019

~~Aging~~Table of ~~loans:~~

~~The following table presents an aging of loans at the dates indicated. Amounts include premiums, discounts and deferred fees and costs (in thousands):~~

June 30, 2019 December 31, 2018
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 $ 4,835,228
$ 49,673
$ 2,522
$ 10,129
$ 4,897,552
$ 4,640,771
$ 15,070
$ 2,126
$ 6,953
$ 4,664,920
Government insured residential 37,086
16,530
14,878
287,225
355,719
31,348
8,342
8,871
218,168
266,729
Home equity loans and lines of credit 1,393
22
—
30
1,445
1,393
—
—
—
1,393
Other consumer loans 12,400
672
—
—
13,072
15,947
—
—
—
15,947
Multi-family 2,364,546
18,570
—
—
2,383,116
2,585,421
—
—
—
2,585,421
Non-owner occupied commercial real estate 4,927,847
714
559
4,937
4,934,057
4,682,443
3,621
1,374
1,442
4,688,880
Construction and land 236,012
—
—
882
236,894
224,828
916
—
1,096
226,840
Owner occupied commercial real estate 2,064,064
2,124
—
11,629
2,077,817
2,106,104
2,826
1,087
9,863
2,119,880
Commercial and industrial 5,136,585
5,498
367
10,193
5,152,643
4,772,978
6,732
926
9,564
4,790,200
Commercial lending subsidiaries
Pinnacle 1,269,469
—
—
—
1,269,469
1,462,655
—
—
—
1,462,655
Bridge 1,252,556
13,879
—
3,630
1,270,065
1,152,312
603
—
1,228
1,154,143
$ 22,137,186
$ 107,682
$ 18,326
$ 328,655
$ 22,591,849
$ 21,676,200
$ 38,110
$ 14,384
$ 248,314
$ 21,977,008

Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020

At June 30, 2020, 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):



	June 30, 2020
	Multi-Family		Non-Owner Occupied Commercial Real Estate		Construction and Land		Owner Occupied Commercial Real Estate		Commercial and Industrial		PPP		Pinnacle		Bridge - Franchise Finance		Bridge - Equipment Finance		Mortgage Warehouse Lending		Total
Pass	$	1,781,889	$	4,200,286	$	224,772	$	1,793,216	$	4,195,025	$	827,359	$	1,242,506	$	206,279	$	537,707	$	1,160,728	$	16,169,767
Special mention	57,224		470,490		17,246		179,305		243,398		—		—		327,375		43,194		—		1,338,232
Substandard⁽¹⁾	54,640		269,755		4,591		68,825		252,903		—		—		88,536		8,884		—		748,134
Doubtful	—		—		—		—		—		—		—		949		—		—		949
	$	1,893,753	$	4,940,531	$	246,609	$	2,041,346	$	4,691,326	$	827,359	$	1,242,506	$	623,139	$	589,785	$	1,160,728	$	18,257,082


(1)	Includes $561 million of substandard accruing loans at June 30, 2020.



	December 31, 2019
	Multi-Family		Non-Owner Occupied Commercial Real Estate		Construction and Land		Owner Occupied Commercial Real Estate		Commercial and Industrial		Pinnacle		Bridge - Franchise Finance		Bridge - Equipment Finance		Mortgage Warehouse Lending		Total
Pass	$	2,184,771	$	4,932,279	$	240,734	$	1,991,556	$	4,508,563	$	1,202,430	$	562,042	$	663,855	$	768,472	$	17,054,702
Special mention	—		5,831		—		27,870		28,498		—		10,682		—		—		72,881
Substandard⁽¹⁾	32,934		92,794		3,191		43,382		118,288		—		54,758		20,939		—		366,286
	$	2,217,705	$	5,030,904	$	243,925	$	2,062,808	$	4,655,349	$	1,202,430	$	627,482	$	684,794	$	768,472	$	17,493,869


(1)	Includes $180 million of substandard accruing loans at December 31, 2019.

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020

Past Due and Non-Accrual Loans:

The following table presents an aging of loans at the dates indicated (in thousands):



	June 30, 2020										December 31, 2019
	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	$	4,679,984	$	49,275	$	2,833	$	11,774	$	4,743,866	$	4,887,618	$	45,634	$	9,578	$	11,106	$	4,953,936
Government insured residential	51,276		53,017		52,620		669,325		826,238		93,560		45,347		30,426		529,311		698,644
Home equity loans and lines of credit	1,478		69		—		—		1,547		1,320		—		—		—		1,320
Other consumer loans	6,156		—		—		—		6,156		7,219		—		—		—		7,219
Multi-family	1,858,695		29,047		6,011		—		1,893,753		2,217,705		—		—		—		2,217,705
Non-owner occupied commercial real estate	4,859,344		52,937		7,979		20,271		4,940,531		5,015,458		—		928		14,518		5,030,904
Construction and land	246,263		—		—		346		246,609		240,647		2,396		—		882		243,925
Owner occupied commercial real estate	2,020,077		1,081		3,376		16,812		2,041,346		2,041,352		1,336		4,420		15,700		2,062,808
Commercial and industrial	4,593,422		20,855		22,601		54,448		4,691,326		4,595,847		2,313		4,301		52,888		4,655,349
PPP	827,359		—		—		—		827,359		—		—		—		—		—
Pinnacle	1,242,506		—		—		—		1,242,506		1,202,430		—		—		—		1,202,430
Bridge - franchise finance	596,136		—		625		26,378		623,139		610,315		3,840		2,501		10,826		627,482
Bridge - equipment finance	589,785		—		—		—		589,785		677,089		7,705		—		—		684,794
Mortgage warehouse lending	1,160,728		—		—		—		1,160,728		768,472		—		—		—		768,472
	$	22,733,209	$	206,281	$	96,045	$	799,354	$	23,834,889	$	22,359,032	$	108,571	$	52,154	$	635,231	$	23,154,988

Included in the table above is the guaranteed portion of SBA loans past due ~~more than~~by 90 days or more totaling ~~$18.4~~$37.3 million and ~~$8.8~~$36.3 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Loans contractually delinquent by 90 days or more and still accruing totaled $673 million, substantially all of which were government insured residential loans at June 30, 2020 and $531 million, of which $529 million were government insured residential loans at December 31, 2019. Substantially all of these loans are government insured pool buyout loans, which the Company buys out of GNMA securitizations upon default.

The following table presents information about loans on non-accrual status at the dates indicated (in thousands):



	June 30, 2020				December 31, 2019
	Amortized Cost		Amortized Cost With No Related Allowance		Amortized Cost
Residential and other consumer	$	13,183	$	2,622	$	18,894
Commercial:
Multi-family	6,011		6,011		6,138
Non-owner occupied commercial real estate	46,545		28,598		40,097
Construction and land	3,703		3,357		3,191
Owner occupied commercial real estate	30,493		8,765		27,141
Commercial and industrial	67,702		7,386		74,757
Bridge - franchise finance	32,857		1,848		13,631
Bridge - equipment finance	1,148		537		20,939
	$	201,642	$	59,124	$	204,788

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020

Included in the table above is the guaranteed portion of non-accrual SBA loans totaling $45.7 million at both June 30, 2020 and December 31, 2019, respectively. The amount of additional interest income that would have been recognized on non-accrual loans had they performed in accordance with their contractual terms was approximately $3.0 million and $5.7 million for the three and six months ended June 30, 2020, respectively and $2.5 million and $4.3 million for the three and six months ended June 30, 2019, respectively.

Collateral dependent loans:

The following table presents the amortized cost basis of collateral dependent loans at June 30, 2020 (in thousands):



	Amortized Cost		Extent to Which Secured by Collateral
Residential and other consumer	$	3,283	$	3,273
Commercial:
Multi-family	6,011		6,011
Non-owner occupied commercial real estate	30,980		30,980
Construction and land	3,703		3,703
Owner occupied commercial real estate	21,025		21,025
Commercial and industrial	54,232		29,468
Bridge - franchise finance	24,353		21,178
Bridge - equipment finance	1,148		1,078
Total commercial	141,452		113,443
	$	144,735	$	116,716

Collateral for the multi-family, 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. Bridge equipment finance loans are secured by the financed equipment. Residential loans are collateralized by residential real estate. There have been no significant changes to the extent to which collateral secures collateral dependent loans during the six months ended June 30, 2020.

Foreclosure of residential real estate

The recorded investment in residential loans in the process of foreclosure was $323 million, of which $315 million was government insured, at June 30, 2020 and $257 million, of which $248 million was government insured, at December 31, 2019. The carrying amount of foreclosed residential real estate included in "Other assets" in the accompanying consolidated balance ~~sheets totaled $5 million~~sheet was insignificant at June 30, 2020 and $6 million at December 31, 2019. In response to the COVID-19 pandemic, new foreclosure actions on residential loans have been temporarily suspended.

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2019 and December 31, 2018, respectively. The recorded investment in non-government insured residential mortgage loans in the process of foreclosure was $1.6 million at June 30, 2019 and was insignificant at December 31, 2018. The recorded investment in government insured residential loans in the process of foreclosure totaled $93 million and $85 million at June 30, 2019 and December 31, 2018, respectively.2020

Troubled debt restructurings

The following ~~tables summarize~~table summarizes loans that were modified in TDRs during the periods indicated, as well as loans modified during the twelve months preceding June 30, ~~2019~~2020 and ~~2018~~2019 that experienced payment defaults during the periods indicated (dollars in thousands):


	Three Months Ended June 30,												Three Months Ended June 30,
	2019						2018						2020						2019
	Loans Modified in TDRs During the Period			TDRs Experiencing Payment Defaults During the Period			Loans Modified in TDRs During the Period			TDRs Experiencing Payment Defaults During the Period			Loans Modified in TDRs During the Period			TDRs Experiencing Payment Defaults During the Period			Loans Modified in TDRs During the Period			TDRs Experiencing Payment Defaults During the Period
	Number of TDRs	Recorded Investment		Number of TDRs	Recorded Investment		Number of TDRs	Recorded Investment		Number of TDRs	Recorded Investment		Number of TDRs	Amortized Cost		Number of TDRs	Amortized Cost		Number of TDRs	Amortized Cost		Number of TDRs	Amortized Cost
1-4 single family residential⁽¹⁾	34	$	5,164	31	$	4,355	9	$	2,106	3	$	507
Government insured residential													52	$	7,291	121	$	19,512	34	$	5,164	31	$	4,355
Non-owner occupied commercial real estate	1	12,085		1	2,772		—	—		—	—		—	—		1	4,249		1	12,085		1	2,772
Owner occupied commercial real estate	—	—		3	1,878		—	—		—	—		—	—		—	—		—	—		3	1,878
Commercial and industrial	4	7,354		1	1,233		3	415		2	437		2	1,348		—	—		4	7,354		1	1,233
Commercial lending subsidiaries	1	2,073		—	—		—	—		—	—
Bridge - franchise finance													1	919		5	18,718		1	2,073		—	—
	40	$	26,676	36	$	10,238	12	$	2,521	5	$	944	55	$	9,558	127	$	42,479	40	$	26,676	36	$	10,238



	Six Months Ended June 30,
	2020						2019
	Loans Modified in TDRs During the Period			TDRs Experiencing Payment Defaults During the Period			Loans Modified in TDRs During the Period			TDRs Experiencing Payment Defaults During the Period
	Number of TDRs	Amortized Cost		Number of TDRs	Amortized Cost		Number of TDRs	Amortized Cost		Number of TDRs	Amortized Cost
1-4 single family residential	1	$	203	—	$	—	2	$	563	—	$	—
Government insured residential	86	12,183		150	23,994		46	6,782		32	4,517
Non-owner occupied commercial real estate	1	4,249		1	4,249		1	12,085		1	2,772
Owner occupied commercial real estate	—	—		—	—		1	849		3	1,878
Commercial and industrial	2	1,348		3	5,448		6	17,994		1	1,233
Bridge - franchise finance	9	14,666		8	23,358		3	3,238		—	—
Bridge - equipment finance	—	—		—	—		1	847		—	—
	99	$	32,649	162	$	57,049	60	$	42,358	37	$	10,400


~~(1)~~	~~Includes government insured residential loans modified totaling $5 million and $1 million during the three months ended June 30, 2019 and 2018, respectively.~~

Six Months Ended June 30,
2019 2018
Loans Modified in TDRs
During the Period TDRs Experiencing Payment
Defaults During the Period Loans Modified in TDRs
During the Period TDRs Experiencing Payment
Defaults During the Period
Number of
TDRs Recorded
Investment Number of
TDRs Recorded
Investment Number of
TDRs Recorded
Investment Number of
TDRs Recorded
Investment
1-4 single family residential⁽¹⁾
48
$ 7,345
32
$ 4,517
17
$ 5,545
3
$ 507
Non-owner occupied commercial real estate 1
12,085
1
2,772
—
—
—
—
Owner occupied commercial real estate 1
849
3
1,878
—
—
—
—
Commercial and industrial 6
17,994
1
1,233
8
1,517
5
1,372
Commercial lending subsidiaries 4
4,085
—
—
—
—
—
—
60
$ 42,358
37
$ 10,400
25
$ 7,062
8
$ 1,879


~~(1)~~	~~Includes government insured residential loans modified totaling $7 million and $1 million during the six months ended June 30, 2019 and 2018, respectively.~~

Modifications during the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019 included interest rate reductions, restructuring of the amount and timing of required periodic payments, extensions of maturity and covenant waivers. Included in TDRs are residential loans to borrowers who have not reaffirmed their debt discharged in Chapter 7 bankruptcy. The total amount of such loans is not material. ~~Modified ACI loans accounted for in pools are~~

Under recently issued inter-agency and authoritative guidance and consistent with the CARES Act, short-term (generally periods of six months or less) deferrals or modifications related to COVID-19 will typically not ~~considered TDRs, are not separated from the pools and are not classified~~be categorized as ~~impaired loans.~~TDRs.

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020

~~Note 5 Leases~~

~~Leases under which the Company is the lessee~~

~~The Company leases branches, office space and a small amount~~Disclosures Prescribed by Legacy GAAP (Before Adoption of ~~equipment under operating and finance leases with terms ranging from one to 16 years, some of which include extension options.~~ASU 2016-13) for Prior Periods

The following table presents ~~ROU assets~~information about the balance of the ALLL and ~~lease liabilities~~related loans as of ~~June 30,~~December 31, 2019 (in thousands):

June 30, 2019
ROU assets:
Operating leases $ 87,596
Finance leases 6,627
$ 94,223
Lease liabilities:
Operating leases $ 96,908
Finance leases 8,926
$ 105,834

ROU assets and lease liabilities for operating leases are included in "other assets" and "other liabilities", respectively, in the accompanying Consolidated Balance Sheet. ROU assets and lease liabilities for finance leases are included in "other assets" and "notes and other borrowings", respectively.



	Residential and Other Consumer		Commercial		Total
Allowance for loan and lease losses:
Ending balance	$	11,154	$	97,517	$	108,671
Ending balance: loans individually evaluated for impairment	$	9	$	20,481	$	20,490
Ending balance: loans collectively evaluated for impairment	$	11,145	$	77,036	$	88,181
Ending balance: ACI loans	$	—	$	—	$	—
Loans:
Ending balance	$	5,661,119	$	17,493,869	$	23,154,988
Ending balance: loans individually evaluated for impairment	$	57,117	$	187,788	$	244,905
Ending balance: loans collectively evaluated for impairment	$	5,454,422	$	17,288,901	$	22,743,323
Ending balance: ACI loans	$	149,580	$	17,180	$	166,760

The ~~weighted average remaining lease term and weighted average discount rate at June 30,~~table below presents information about loans identified as impaired as of December 31, 2019 ~~were:~~



~~Weighted average remaining lease term:~~
~~Operating lease~~	~~7.89 years~~
~~Finance lease~~	~~6.30 years~~
~~Weighted average discount rate:~~
~~Operating lease~~	~~3.4~~	%
~~Finance lease~~	~~11.7~~	%

~~The components of lease expense for the period indicated were~~ (in thousands):

Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
Operating lease cost $ 5,046
$ 10,080
Finance lease cost:
Amortization of ROU assets $ 359
$ 709
Interest on lease liabilities 250
505
Total finance lease cost $ 609
$ 1,214



	Recorded Investment		UPB		Related Specific Allowance
With no specific allowance recorded:
1-4 single family residential	$	992	$	989	$	—
Government insured residential	53,428		53,350		—
Multi-family	6,138		6,169		—
Non-owner occupied commercial real estate	38,345		38,450		—
Construction and land	3,191		3,155		—
Owner occupied commercial real estate	17,419		17,488		—
Commercial and industrial	10,585		10,574		—
Bridge - franchise finance	4,115		4,117		—
Bridge - equipment finance	6,807		6,793		—
With a specific allowance recorded:
1-4 single family residential	2,697		2,652		9
Owner occupied commercial real estate	2,522		2,509		401
Commercial and industrial	63,531		63,709		13,992
Bridge - franchise finance	21,011		21,050		2,953
Bridge - equipment finance	14,124		14,024		3,135
Total:
Residential and other consumer	$	57,117	$	56,991	$	9
Commercial	187,788		188,038		20,481
	$	244,905	$	245,029	$	20,490

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020

~~Short-term lease cost, variable lease cost, and sublease income were immaterial for the three and six months ended June 30, 2019.~~

~~Additional information related to operating and finance leases for the periods indicated follows (in thousands):~~

Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases $ 250
$ 505
Operating cash flows from operating leases 5,216
10,359
Financing cash flows from finance leases 726
1,461
$ 6,192
$ 12,325

Lease liabilities recognized from obtaining ROU assets:
Operating lease liabilities recognized upon adoption of ASC 842 $ —
$ 104,064
Operating leases 1,597
1,597
Finance leases —
1,521
$ 1,597
$ 107,182

~~Future lease payment obligations under leases with terms in excess of one year and a reconciliation to lease liabilities as of June 30, 2019 follows (in thousands):~~

Operating Leases Finance Leases Total
Years ending December 31:
2019 (excluding the six months ending June 30, 2019) $ 10,379
$ 939
$ 11,318
2020 17,499
2,456
19,955
2021 15,762
2,514
18,276
2022 12,524
2,053
14,577
2023 10,764
2,124
12,888
Thereafter 43,873
2,825
46,698
Total future minimum lease payments 110,801
12,911
123,712
Less: interest component (13,893 ) (3,985 ) (17,878 )
Lease liabilities $ 96,908
$ 8,926
$ 105,834

~~BANKUNITED, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~

~~June 30, 2019~~

~~As of December 31, 2018, future minimum rentals under non-cancelable operating leases with initial or remaining terms in excess of one year were as follows (in thousands):~~

Years ending December 31:
2019 $ 21,207
2020 17,629
2021 15,858
2022 12,114
2023 10,311
Thereafter through 2034 42,984
$ 120,103

~~Leases under which the Company is the lessor~~

Through its commercial lending subsidiaries, Pinnacle and Bridge, the Bank provides equipment financing using a variety of loan and lease structures. Pinnacle provides essential use equipment financing to state and local governmental entities. Bridge provides primarily transportation equipment financing.

The following table presents the ~~components of the~~average recorded investment in ~~direct or sales type financing leases, included in~~impaired loans infor the ~~Consolidated Balance Sheet, at the dates~~period indicated (in thousands):

June 30, 2019 December 31, 2018
Total minimum lease payments to be received $ 844,442
$ 808,921
Estimated unguaranteed residual value of leased assets 8,369
7,355
Gross investment in direct or sales type financing leases 852,811
816,276
Unearned income (83,943 ) (81,864 )
Initial direct costs 4,728
4,833
$ 773,596
$ 739,245



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Residential and other consumer:
1-4 single family residential	$	12,732	$	11,011
Commercial:
Multi-family	25,066		25,248
Non-owner occupied commercial real estate	24,599		21,563
Construction and land	9,604		9,730
Owner occupied commercial real estate	12,741		12,124
Commercial and industrial	32,690		30,564
Commercial lending subsidiaries	18,082		19,982
	122,782		119,211
	$	135,514	$	130,222

Note 5 Subordinated Notes

On June 11, 2020, the Company issued $300 million of 5.125% subordinated notes. The notes mature on June ~~30, 2019, future minimum lease payments~~11, 2030 with interest payable semiannually. The notes 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 ~~be received under direct or sales type financing leases were as follows (in thousands):~~

Years Ending December 31:
2019 (excluding the six months ending June 30, 2019) $ 122,931
2020 192,841
2021 132,419
2022 88,202
2023 68,031
Thereafter 240,018
$ 844,442

~~BANKUNITED, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~

~~June 30, 2019~~

~~Equipment under operating lease consists primarily~~100% of ~~railcars, non-commercial aircraft~~the principal amount being redeemed plus accrued 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. Additionally, we have partnered with an industry leading, experienced service provider who provides fleet management and servicing relatingunpaid interest, subject to the ~~railcar fleet. Residual risk is managed by setting appropriate residual values at inception and systematic reviews~~approval of ~~residual values based on independent appraisals, performed at least annually. We endeavor~~the Federal Reserve. The notes qualify as Tier 2 capital for regulatory capital purposes, subject to ~~lease to a stable end-user base, maintain a relatively young and diversified fleet of assets and stagger lease maturities.~~

~~As of June 30, 2019, scheduled minimum rental payments under operating leases were as follows (in thousands):~~

Years Ending December 31:
2019 (excluding the six months ending June 30, 2019) $ 34,159
2020 62,299
2021 52,949
2022 46,162
2023 37,951
Thereafter through 2034 109,933
$ 343,453

~~Lease income recognized for operating leases and direct or sales type finance leases follows (in thousands):~~

Three Months Ended June 30, 2019 Six Months Ended June 30, 2019 Location of Lease Income on Consolidated Statements of Income
Operating leases $ 17,005
$ 34,191
Non-interest income from lease financing
Direct or sales type finance leases 5,489
10,798
Interest income on loans
Total lease income $ 22,494
$ 44,989

applicable limitations.

Note 6 Income Taxes

The Company’s effective income tax rate was 21.0% and 19.3% for the three and six months ended June 30, 2020, respectively, and 25.2% and 25.9% for the three and six months ended June 30, 2019, ~~respectively, and 23.2% and 23.1% for the three and six months ended June 30, 2018,~~ respectively. The effective income tax ~~rate~~rates differed from the statutory federal income tax rate of 21% for the 2019 periods due primarily to the impact of state income taxes, partially offset by the benefit of income not subject to federal tax. These factors were largely offsetting for the 2020 periods, when the effective income tax rate did not differ materially from the Federal statutory rate of 21%. During the three and six months ended June 30 ~~2019 and 2018 due primarily to state income taxes, offset by~~2020, income not subject to ~~tax.~~tax was a larger percentage of pre-tax income.

Note 7 Derivatives and Hedging Activities

~~The Company uses interest rate swaps to manage interest rate risk related to liabilities that expose the Company to variability in cash flows due to changes in interest rates.~~ The Company enters into LIBOR-based interest rate swaps that are designated as cash flow hedges with the objective of limiting the variability of interest payment cash flows resulting from changes in the benchmark interest rate LIBOR. ~~Changes~~The Company also enters into LIBOR-based interest rate swaps designated as fair value hedges designed to hedge changes in the fair value of ~~interest~~outstanding fixed rate ~~swaps designated as cash flow hedging instruments are reported in AOCI and subsequently reclassified into interest expense~~borrowings caused by fluctuations in the ~~same period in which the related~~benchmark interest ~~on the floating-rate debt obligations affects earnings.~~rate.

The Company ~~also~~ 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. ~~The~~For the three and six months ended June 30, 2020 and 2019, the impact on earnings, included in "other non-interest income" in the accompanying consolidated statements of income, related to changes in fair value of these derivatives ~~for the three and six months ended June 30, 2019 and 2018~~ 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

~~BANKUNITED, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~

~~June 30, 2019~~

derivatives only with primary and highly rated counterparties, the use of ISDA master agreements, central clearing mechanisms

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020

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 a single unit of account for accounting and financial reporting purposes. The Company's clearing agent for interest rate derivative contracts centrally cleared through the CME settles the variation margin daily with the CME; therefore, those interest rate derivative contracts the Company clears through the CME are reported at a fair value of approximately ~~zero~~0 at both June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

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):


	June 30, 2019																		June 30, 2020
		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Remaining Life in Years															Weighted Average Pay Rate		Weighted Average Receive Rate	Weighted Average Remaining Life in Years
					Notional Amount			Balance Sheet Location		Fair Value												Notional Amount			Balance Sheet Location		Fair Value
	Hedged Item						Asset				Liability		Hedged Item							Asset					Balance Sheet Location	Liability
Derivatives designated as cash flow hedges:					Notional Amount			Balance Sheet Location														Notional Amount
Pay-fixed interest rate swaps	Variability of interest cash flows on variable rate borrowings		2.37%			3-Month Libor	3.7		$	3,131,000		Other assets / Other liabilities		$	—			$	(1,485	)	Variability of interest cash flows on variable rate borrowings		2.40%	3-Month LIBOR	2.8		$	3,021,000		Other liabilities		$	—			$	(7,156	)
Derivatives designated as fair value hedges:
Receive-fixed interest rate swaps																			Variability of fair value of fixed rate borrowings		3-Month LIBOR		1.55%	1.1	250,000				Other liabilities	—				—
Derivatives not designated as hedges:
Pay-fixed interest rate swaps	��	4.09%		Indexed to 1-month Libor		6.0	1,130,652				Other assets / Other liabilities	1,616				(16,236		)			3.69%		Indexed to 1-month LIBOR	5.9	1,488,928				Other assets / Other liabilities	—				(44,857		)
Pay-variable interest rate swaps		Indexed to 1-month Libor		4.09%		6.0	1,130,652				Other assets / Other liabilities	39,789				(1,530		)			Indexed to 1-month LIBOR		3.69%	5.9	1,488,928				Other assets	145,802				—
Interest rate caps purchased, indexed to 1-month Libor				3.62%		0.9	80,313				Other assets	—				—
Interest rate caps sold, indexed to 1-month Libor		3.62%				0.9	80,313				Other liabilities	—				—
Interest rate caps purchased, indexed to 1-month LIBOR																							3.71%	0.9	25,989				Other assets	—				—
Interest rate caps sold, indexed to 1-month LIBOR																					3.71%			0.9	25,989				Other liabilities	—				—
							$	5,552,930				$	41,405			$	(19,251	)							$	6,300,834				$	145,802			$	(52,013	)

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020


	December 31, 2018																		December 31, 2019
		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Remaining Life in Years															Weighted Average Pay Rate		Weighted Average Receive Rate	Weighted Average Remaining Life in Years
					Notional Amount			Balance Sheet Location		Fair Value												Notional Amount			Balance Sheet Location		Fair Value
	Hedged Item						Asset				Liability		Hedged Item							Asset					Balance Sheet Location	Liability
Derivatives designated as cash flow hedges:					Notional Amount			Balance Sheet Location														Notional Amount
Pay-fixed interest rate swaps	Variability of interest cash flows on variable rate borrowings		2.38%			3-Month Libor	4.0		$	2,846,000		Other assets / Other liabilities		$	3,405			$	—		Variability of interest cash flows on variable rate borrowings		2.37%	3-Month LIBOR	3.2		$	3,131,000		Other liabilities		$	—			$	(1,607	)
Derivatives not designated as hedges:
Receive-fixed interest rate swaps																			Variability of interest cash flows on fixed rate borrowings		3-Month LIBOR		1.55%	1.6	250,000				Other liabilities	—				—
Derivatives not designated as hedges
Pay-fixed interest rate swaps		4.10%		Indexed to 1-month Libor		6.0	1,048,196				Other assets / Other liabilities	14,883				(6,991		)			3.72%		Indexed to 1-month LIBOR	6.4	1,460,355				Other assets / Other liabilities	876				(15,307		)
Pay-variable interest rate swaps		Indexed to 1-month Libor		4.10%		6.0	1,048,196				Other assets / Other liabilities	11,318				(16,874		)			Indexed to 1-month LIBOR		3.72%	6.4	1,460,355				Other assets / Other liabilities	42,810				(2,115		)
Interest rate caps purchased, indexed to 1-month Libor				3.43%		1.2	98,407				Other assets	9				—
Interest rate caps sold, indexed to 1-month Libor		3.43%				1.2	98,407				Other liabilities	—				(9		)
Interest rate caps purchased, indexed to 1-month LIBOR																							3.30%	0.6	61,004				Other assets	—				—
Interest rate caps sold, indexed to 1-month LIBOR																					3.30%			0.6	61,004				Other liabilities	—				—
							$	5,139,206				$	29,615			$	(23,874	)							$	6,423,718				$	43,686			$	(19,029	)

The following table provides information about the amount of gain (loss) related to derivatives designated as cash flow hedges reclassified from AOCI into interest expense for the periods indicated ~~(dollars in~~(in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018 Location of Gain (Loss) Reclassified from AOCI into Income
Interest rate contracts $ 1,688
$ 728
$ 4,411
$ (211 ) Interest expense on borrowings



	Three Months Ended June 30,					Six Months Ended June 30,					Location of Gain (Loss) Reclassified from AOCI into Income
	2020			2019		2020			2019		Location of Gain (Loss) Reclassified from AOCI into Income
Interest rate contracts	$	(10,009	)	$	1,688	$	(14,565	)	$	4,411	Interest expense on borrowings

During the three and six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, 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 June 30, ~~2019,~~2020, the amount of net loss expected to be reclassified from AOCI into earnings during the next twelve months was ~~$11.5~~$60.7 million.

The following table provides information about the amount of gain (loss) related to derivatives designated as fair value hedges recognized in earnings for the periods indicated (in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,					Location of Gain (Loss) in Consolidated Statements of Income
	2020			2019		2020			2019
Fair value adjustment on derivatives	$	8		$	—	$	4,028		$	—	Interest expense on borrowings
Fair value adjustment on hedged items	(164		)	—		(4,072		)	—		Interest expense on borrowings
Gain recognized on fair value hedges (ineffective portion)	$	(156	)	$	—	$	(44	)	$	—

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020

The following table provides information about the hedged items related to derivatives designated as fair value hedges at the dates indicated (in thousands):



	June 30, 2020		December 31, 2019			Location in Consolidated Balance Sheets
Contractual balance outstanding of hedged item	$	250,000	$	250,000		FHLB and PPPLF borrowings
Cumulative fair value hedging adjustments	$	3,573	$	(499	)	FHLB and PPPLF borrowings

Some of the Company’s ISDA master agreements with financial institution counterparties contain provisions that permit either counterparty to terminate the agreements and require settlement in the event that regulatory capital ratios fall below certain designated thresholds, upon the initiation of other defined regulatory actions or upon suspension or withdrawal of the Bank’s credit rating. Currently, there are no circumstances that would trigger these provisions of the agreements.

The Company does not offset assets and liabilities under master netting agreements for financial reporting purposes. Information on interest rate swaps subject to these agreements is as follows at the dates indicated ~~(in~~(dollars in thousands):

June 30, 2019

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 $ 1,616
$ —
$ 1,616
$ (1,616 ) $ —
$ —
Derivative liabilities (17,721 ) —
(17,721 ) 1,616
16,105
—
$ (16,105 ) $ —
$ (16,105 ) $ —
$ 16,105
$ —

~~BANKUNITED, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~

~~June 30, 2019~~



	June 30, 2020
				Gross Amounts Offset in Balance Sheet		Net Amounts Presented in Balance Sheet			Gross Amounts Not Offset in Balance Sheet
	Gross Amounts Recognized			Gross Amounts Offset in Balance Sheet		Net Amounts Presented in Balance Sheet			Derivative Instruments		Collateral Pledged		Net Amount
Derivative assets	$	—		$	—	$	—		$	—	$	—	$	—
Derivative liabilities	(52,013		)	—		(52,013		)	—		51,887		(126		)
	$	(52,013	)	$	—	$	(52,013	)	$	—	$	51,887	$	(126	)


	December 31, 2018																			December 31, 2019
				Gross Amounts Offset in Balance Sheet				Net Amounts Presented in Balance Sheet			Gross Amounts Not Offset in Balance Sheet													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			Gross Amounts Recognized						Derivative Instruments					Net Amounts Presented in Balance Sheet			Collateral Pledged				Net Amount
Derivative assets	$	18,297		Gross Amounts Offset in Balance Sheet		$	—	Net Amounts Presented in Balance Sheet			$	18,297	$	(5,264	)		$	(13,129	)		$	(96	)	Gross Amounts Offset in Balance Sheet	$	876		$	—			$	876			$	(876	)		$	—	$	—
Derivative liabilities	(6,991		)	—				(6,991		)	5,264		436				(1,291		)	(16,914		)		—			(16,914		)		876				16,038				—
	$	11,306		$	—			$	11,306		$	—	$	(12,693	)		$	(1,387	)	$	(16,038	)		$	—		$	(16,038	)		$	—			$	16,038			$	—

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 ~~entered into with borrowers~~ not subject to master netting agreements.

At June 30, ~~2019,~~2020, the Company had pledged net financial collateral of ~~$17.3~~$56.0 million as collateral for interest rate swaps in a liability position that are not centrally cleared. The amount of collateral required to be posted varies based on the settlement value of outstanding swaps and in some cases may include initial margin requirements.

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020

Note 8 Stockholders’ Equity

Accumulated Other Comprehensive Income

Changes in other comprehensive income are summarized as follows for the periods indicated (in thousands):

Three Months Ended June 30,
2019 2018
Before Tax Tax Effect Net of Tax Before Tax Tax Effect Net of Tax
Unrealized gains on investment securities available for sale:

Net unrealized holding gain (loss) arising during the period $ 31,737
$ (8,410 ) $ 23,326
$ (17,831 ) $ 4,725
$ (13,106 )
Amounts reclassified to gain on investment securities available for sale, net (3,914 ) 1,037
(2,877 ) (2,551 ) 676
(1,875 )
Net change in unrealized gains on investment securities available for sale 27,823
(7,373 ) 20,449
(20,382 ) 5,401
(14,981 )
Unrealized losses on derivative instruments:
Net unrealized holding gain (loss) arising during the period (50,637 ) 13,419
(37,218 ) 13,396
(3,550 ) 9,846
Amounts reclassified to interest expense on borrowings (1,688 ) 447
(1,241 ) (728 ) 193
(535 )
Net change in unrealized losses on derivative instruments (52,325 ) 13,866
(38,459 ) 12,668
(3,357 ) 9,311
Other comprehensive loss $ (24,502 ) $ 6,493
$ (18,010 ) $ (7,714 ) $ 2,044
$ (5,670 )



	Three Months Ended June 30,
	2020									2019
	Before Tax			Tax Effect			Net of Tax			Before Tax			Tax Effect			Net of Tax
Unrealized gains (losses) on investment securities available for sale:
Net unrealized holding gain arising during the period	$	252,893		$	(64,488	)	$	188,405		$	31,736		$	(8,410	)	$	23,326
Amounts reclassified to gain on investment securities available for sale, net	(5,723		)	1,459			(4,264		)	(3,914		)	1,037			(2,877		)
Net change in unrealized gains (losses) on investment securities available for sale	247,170			(63,029		)	184,141			27,822			(7,373		)	20,449
Unrealized losses on derivative instruments:
Net unrealized holding loss arising during the period	(12,288		)	1,218			(11,070		)	(50,637		)	13,419			(37,218		)
Amounts reclassified to interest expense on borrowings	10,009			(2,507		)	7,502			(1,688		)	447			(1,241		)
Net change in unrealized losses on derivative instruments	(2,279		)	(1,289		)	(3,568		)	(52,325		)	13,866			(38,459		)
Other comprehensive income (loss)	$	244,891		$	(64,318	)	$	180,573		$	(24,503	)	$	6,493		$	(18,010	)



	Six Months Ended June 30,
	2020									2019
	Before Tax			Tax Effect			Net of Tax			Before Tax			Tax Effect			Net of Tax
Unrealized gains (losses) on investment securities available for sale:
Net unrealized holding gain (loss) arising during the period	$	(33,743	)	$	8,988		$	(24,755	)	$	61,147		$	(16,204	)	$	44,943
Amounts reclassified to gain on investment securities available for sale, net	(7,253		)	1,849			(5,404		)	(8,231		)	2,181			(6,050		)
Net change in unrealized gains (losses) on investment securities available for sale	(40,996		)	10,837			(30,159		)	52,916			(14,023		)	38,893
Unrealized losses on derivative instruments:
Net unrealized holding loss arising during the period	(122,239		)	30,355			(91,884		)	(78,766		)	20,873			(57,893		)
Amounts reclassified to interest expense on borrowings	14,565			(3,714		)	10,851			(4,411		)	1,169			(3,242		)
Net change in unrealized losses on derivative instruments	(107,674		)	26,641			(81,033		)	(83,177		)	22,042			(61,135		)
Other comprehensive loss	$	(148,670	)	$	37,478		$	(111,192	)	$	(30,261	)	$	8,019		$	(22,242	)

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020

Six Months Ended June 30,
2019 2018
Before Tax Tax Effect Net of Tax Before Tax Tax Effect Net of Tax
Unrealized gains on investment securities available for sale:

Net unrealized holding gain (loss) arising during the period $ 61,147
$ (16,204 ) $ 44,943
$ (55,007 ) $ 14,577
$ (40,430 )
Amounts reclassified to gain on investment securities available for sale, net (8,231 ) 2,181
(6,050 ) (3,527 ) 935
(2,592 )
Net change in unrealized gains on investment securities available for sale 52,916
(14,023 ) 38,893
(58,534 ) 15,512
(43,022 )
Unrealized losses on derivative instruments:
Net unrealized holding gain (loss) arising during the period (78,766 ) 20,873
(57,893 ) 40,325
(10,686 ) 29,639
Amounts reclassified to interest expense on borrowings (4,411 ) 1,169
(3,242 ) 211
(56 ) 155
Net change in unrealized losses on derivative instruments (83,177 ) 22,042
(61,135 ) 40,536
(10,742 ) 29,794
Other comprehensive loss $ (30,261 ) $ 8,019
$ (22,242 ) $ (17,998 ) $ 4,770
$ (13,228 )

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										(30,159		)	(81,033		)	(111,192		)
Balance at June 30, 2020										$	(1,974	)	$	(141,045	)	$	(143,019	)
	Unrealized Gain (Loss) on Investment Securities Available for Sale			Unrealized Gain (Loss) on Derivative Instruments			Total
Balance at December 31, 2018	$	4,194		$	679		$	4,873		$	4,194		$	679		$	4,873
Other comprehensive loss	38,893			(61,135		)	(22,242		)	38,893			(61,135		)	(22,242		)
Balance at June 30, 2019	$	43,087		$	(60,456	)	$	(17,369	)	$	43,087		$	(60,456	)	$	(17,369	)

Balance at December 31, 2017	$	56,534		$	(1,548	)	$	54,986
Cumulative effect of adoption of new accounting standards	9,187			(285		)	8,902
Other comprehensive loss	(43,022		)	29,794			(13,228		)
Balance at June 30, 2018	$	22,699		$	27,961		$	50,660

~~Other~~

In January 2019, the Company's Board of Directors authorized the repurchase of up to $150 million of its outstanding common stock. Any repurchases will be made in accordance with applicable securities laws from time to time in open market or private transactions. The program may be commenced, suspended or discontinued without prior notice.

~~BANKUNITED, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~

~~June 30, 2019~~

Note 9 Equity Based and Other Compensation Plans

Share Awards

Unvested share awards

A summary of activity related to unvested share awards follows for the periods indicated:


					Number of Share Awards		Weighted Average Grant Date Fair Value
Unvested share awards outstanding, December 31, 2019					1,050,455		$	38.24
Granted					644,300		29.73
Vested					(455,260	)	39.15
Canceled or forfeited					(33,137	)	36.21
Unvested share awards outstanding, June 30, 2020					1,206,358		$	33.41
	Number of Share Awards		Weighted Average Grant Date Fair Value
Unvested share awards outstanding, December 31, 2018	1,186,238		$	38.86	1,186,238		$	38.86
Granted	582,353		36.57		582,353		36.57
Vested	(533,125	)	37.67		(533,125	)	37.67
Canceled or forfeited	(115,825	)	39.11		(115,825	)	39.11
Unvested share awards outstanding, June 30, 2019	1,119,641		$	38.21	1,119,641		$	38.21

Unvested share awards outstanding, December 31, 2017	1,108,477		$	36.06
Granted	640,828		40.34
Vested	(513,948	)	34.68
Canceled or forfeited	(48,907	)	38.21
Unvested share awards outstanding, June 30, 2018	1,186,450		$	38.88

Unvested share awards are generally valued at the closing price of the Company's common stock on the date of grant. All shares granted prior to 2019 vest in equal annual installments over a period of three years from the date of grant. All shares granted in 2019 and 2020 to Company employees vest in equal annual installments over a period of four years from the date of grant. Shares granted to the Company's Board of Directors vest over a period of one year.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020

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):


	Six Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2020		2019
Range of the closing price on date of grant	$34.23 - $36.65		$40.28 - $42.80
Closing price on date of grant ⁽¹⁾					$13.99 - $30.90		$34.23 - $36.65
Aggregate grant date fair value of shares vesting	$	20,083	$	17,825	$	17,824	$	20,083


(1)	During the six months ended June 30, 2020, the Company granted 599,766 and 44,534 shares with a closing price on date of grant of $30.90 and $13.99, respectively.

The total unrecognized compensation cost of ~~$32.3~~$29.5 million for all unvested share awards outstanding at June 30, ~~2019~~2020 will be recognized over a weighted average remaining period of ~~2.42~~2.75 years.

Executive share-based awards

Certain of the Company's executives are eligible to receive annual awards of RSUs and PSUs (collectively, the "share units"). Annual awards of RSUs represent a fixed number of shares and vest on December 31st in equal tranches over three years for ~~awards issued~~grants prior to 2019, and over four years for awards issued in ~~2019.~~2019 and 2020. PSUs are initially granted based on a target value. The number of PSUs that ultimately vest at the end of the performance measurement period will be based on the achievement of performance criteria pre-established by the Compensation Committee of the Board of Directors. ~~The performance criteria established for the PSUs granted in 2019, 2018 and 2017 include both performance and market conditions.~~ Upon vesting, the share units will be converted to common stock on a one-for-one basis, or may be settled in cash at the Company's option. The share units will accumulate dividends declared on the Company's common stock from the date of grant to be paid subsequent to vesting.

~~The Company has cash settled all tranches of RSUs and PSUs that have vested through December 31, 2018.~~ As a result of the majority of previous settlements being in cash, ~~settlements,~~ all RSUs and PSUs have been determined to be liability instruments and are remeasured at fair

~~BANKUNITED, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~

~~June 30, 2019~~

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~~period indicatedfollows:

RSU PSU
Unvested executive share-based awards outstanding, December 31, 2018 90,612
99,874
Granted 73,062
73,062
Unvested executive share-based awards outstanding, June 30, 2019 163,674
172,936

Unvested executive share-based awards outstanding, December 31, 2017 91,171
105,721
Granted 52,026
52,026
Unvested executive share-based awards outstanding, June 30, 2018 143,197
157,747



	RSU	PSU
Unvested executive share-based awards outstanding, December 31, 2019	112,116	125,088
Granted	106,731	106,731
Unvested executive share-based awards outstanding, June 30, 2020	218,847	231,819

Unvested executive share-based awards outstanding, December 31, 2018	90,612	99,874
Granted	73,062	73,062
Unvested executive share-based awards outstanding, June 30, 2019	163,674	172,936

The total liability for ~~these executive share-based awards~~the share units was ~~$4.0~~$2.9 million at June 30, ~~2019.~~2020. The total unrecognized compensation cost of ~~$7.2~~$6.2 million for ~~unvested executive share-based awards~~these share units at June 30, ~~2019~~2020 will be recognized over a weighted average remaining period of ~~2.28~~2.45 years.

Incentive awards

The Company's annual incentive compensation arrangements for employees other than those eligible for the executive share-based awards discussed above provide for settlement through a combination of cash payments and unvested share awards following the end of the annual performance period. The dollar value of share awards to be granted is based on the achievement of performance criteria established in the incentive arrangements. The number of shares of common stock to be awarded is variable based on the closing price of the Company's stock on the date of grant; therefore, these awards are initially classified as

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020

liability instruments, with compensation cost recognized from the beginning of the performance period. Awards related to performance periods prior to 2019 ~~included in the~~ ~~summary of activity related to unvested share awards above,~~ vest overthree years and awards related to the 2019 and 2020 performance ~~period will~~periods vest in equal installments over a period of four years from the date of grant. These awards are included in the summary of activity related to unvested share awards above. The total liability and unrecognized compensation cost for incentive share awards for the ~~2019~~2020 performance period was $0.4 million at June 30, 2019. The related total unrecognized compensation cost of $3.6 million for these incentive share awards at June 30, 2019 will be recognized over a weighted average remaining period of 4.51 years.not material. The accrued liability and unrecognized compensation cost are based on management's current estimate of the likely outcome of the performance criteria established in the incentive arrangements and may differ from actual results.

The ~~582,353~~644,300 unvested share awards granted during the six months ended June 30, ~~2019,~~2020, as discussed above, included ~~60,290~~114,936 unvested share awards granted under the Company's annual incentive compensation arrangements based on the achievement of established performance criteria for the year ended December 31, ~~2018.~~2019.

~~BANKUNITED, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~

~~June 30, 2019~~

Option Awards

A summary of activity related to stock option awards for thesix months ended June 30, ~~2019~~2020 and ~~2018~~ 2019follows:

Number of
Option
Awards

Weighted
Average
Exercise Price
Option awards outstanding, December 31, 2018 964,840
$ 26.53
Exercised (3,910 ) 11.14
Canceled or forfeited (1,960 ) 63.74
Option awards outstanding and exercisable, June 30, 2019 958,970
$ 26.52

Option awards outstanding, December 31, 2017 1,270,688
$ 26.93
Exercised (291,689 ) 26.94
Option awards outstanding, June 30, 2018 978,999
$ 27.07



	Number of Option Awards		Weighted Average Exercise Price
Option awards outstanding, December 31, 2019	737,753		$	26.64
Exercised	(60,000	)	25.48
Option awards outstanding and exercisable, June 30, 2020	677,753		$	26.74

Option awards outstanding, December 31, 2018	964,840		$	26.53
Exercised	(3,910	)	11.14
Canceled or forfeited	(1,960	)	63.74
Option awards outstanding, June 30, 2019	958,970		$	26.52

The intrinsic value of options exercised and related tax benefits was ~~$0.1 million and $4.6 million, respectively, during~~immaterial for the six months ended June 30, ~~2019~~2020 and ~~2018. The related tax benefit of options exercised was immaterial for both the six months ended June 30, 2019 and~~ ~~2018~~.2019.

Note 10 Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis

Following is a description of the methodologies used to estimate the fair values of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which those measurements are typically classified.

Investment securities available for sale and marketable equity securities—Fair value measurements are based on quoted prices in active markets when available; these measurements are classified within level 1 of the fair value hierarchy. These securities typically include U.S. Treasury securities and certain preferred stocks. If quoted prices in active markets are not available, fair values are estimated using quoted prices of securities with similar characteristics, quoted prices of identical securities in less active markets, discounted cash flow techniques, or matrix pricing models. These securities are generally classified within level 2 of the fair value hierarchy and include U.S. Government agency securities, U.S. Government agency and sponsored enterprise MBS, preferred stock investments for which level 1 valuations are not available, ~~corporate debt securities,~~ non-mortgage asset-backed securities, single family rental real estate-backed securities, certain private label residential MBS and CMOs, private label commercial MBS, collateralized loan obligations and state and municipal obligations. Pricing of these securities is generally primarily spread driven. Observable inputs that may impact the valuation of these securities include benchmark yield curves, credit spreads, reported trades, dealer quotes, bids, issuer spreads, current rating, historical constant prepayment rates, historical voluntary prepayment rates, structural and waterfall features of individual securities, published collateral data, and for certain securities, historical constant default rates and default severities. Investment securities available for sale generally classified within level 3 of the fair value hierarchy include certain private label MBS and trust preferred securities. The Company typically values these securities using third-party proprietary pricing models, primarily discounted cash flow valuation techniques, which incorporate both observable and unobservable inputs. Unobservable inputs that may impact the valuation of these securities include risk adjusted discount rates, projected prepayment rates, projected default rates and projected loss severity.

The Company uses third-party pricing services in determining fair value measurements for investment securities. To obtain an understanding of 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

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020

value selected securities as considered necessary. Management has established a robust price challenge process that includes a review by the treasury front office of all prices provided on a monthly basis. Any price evidencing unexpected month over month fluctuations or deviations from expectations is challenged. If considered necessary to resolve any discrepancies, a price will be obtained from an additional independent valuation source. The Company does not typically adjust the prices provided, other than through this established challenge process. The results of price challenges are subject to review by executive management. The Company has also established a quarterly process whereby prices provided by its primary pricing service for

~~BANKUNITED, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~

~~June 30, 2019~~

a sample of securities are validated. Any price discrepancies are resolved based on careful consideration of the assumptions and inputs employed by each of the pricing sources.

Servicing rights—Commercial servicing rights are valued using a discounted cash flow methodology incorporating contractually specified servicing fees and market based assumptions about prepayments, discount rates, default rates and costs of servicing. Prepayment and default assumptions are based on historical industry data for loans with similar characteristics. Assumptions about costs of servicing are based on market convention. Discount rates are based on rates of return implied by observed trades of underlying loans in the secondary market. These instruments are classified within level 2 of the fair value hierarchy.

Derivative financial instruments—Fair values of interest rate swaps are determined using widely accepted discounted cash flow modeling techniques. These discounted cash flow models use projections of future cash payments and receipts that are discounted at mid-market rates. Observable inputs that may impact the valuation of these instruments include LIBOR swap rates and LIBOR forward yield curves. These fair value measurements are generally classified within level 2 of the fair value hierarchy.

The following tables present assets and liabilities measured at fair value on a recurring basis at the dates indicated (in thousands):


	June 30, 2019										June 30, 2020
	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Total
Investment securities available for sale:
U.S. Treasury securities	$	50,213	$	—		$	—	$	50,213		$	77,180	$	—		$	77,180
U.S. Government agency and sponsored enterprise residential MBS	—		2,227,795			—		2,227,795			—		2,379,840			2,379,840
U.S. Government agency and sponsored enterprise commercial MBS	—		381,104			—		381,104			—		464,277			464,277
Private label residential MBS and CMOs	—		1,369,656			25,526		1,395,182			—		1,116,086			1,116,086
Private label commercial MBS	—		1,557,953			—		1,557,953			—		2,043,620			2,043,620
Single family rental real estate-backed securities	—		392,306			—		392,306			—		618,207			618,207
Collateralized loan obligations	—		1,198,282			—		1,198,282			—		1,128,753			1,128,753
Non-mortgage asset-backed securities	—		157,817			—		157,817			—		261,531			261,531
State and municipal obligations	—		279,327			—		279,327			—		259,495			259,495
SBA securities	—		421,773			—		421,773			—		245,942			245,942
Other debt securities	—		—			4,781		4,781
Marketable equity securities	62,175		—			—		62,175			88,697		—			88,697
Servicing rights	—		—			9,435		9,435			—		7,291			7,291
Derivative assets	—		41,405			—		41,405			—		145,802			145,802
Total assets at fair value	$	112,388	$	8,027,418		$	39,742	$	8,179,548		$	165,877	$	8,670,844		$	8,836,721
Derivative liabilities	$	—	$	(19,251	)	$	—	$	(19,251	)	$	—	$	(52,013	)	$	(52,013	)
Total liabilities at fair value	$	—	$	(19,251	)	$	—	$	(19,251	)	$	—	$	(52,013	)	$	(52,013	)

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BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, ~~2019~~2020


	December 31, 2018										December 31, 2019
	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Total
Investment securities available for sale:
U.S. Treasury securities	$	39,873	$	—		$	—	$	39,873		$	70,325	$	—		$	70,325
U.S. Government agency and sponsored enterprise residential MBS	—		1,897,474			—		1,897,474			—		2,022,175			2,022,175
U.S. Government agency and sponsored enterprise commercial MBS	—		374,787			—		374,787			—		370,976			370,976
Private label residential MBS and CMOs	—		1,499,514			34,684		1,534,198			—		1,012,177			1,012,177
Private label commercial MBS	—		1,485,716			—		1,485,716			—		1,724,684			1,724,684
Single family rental real estate-backed securities	—		402,458			—		402,458			—		470,025			470,025
Collateralized loan obligations	—		1,235,198			—		1,235,198			—		1,197,366			1,197,366
Non-mortgage asset-backed securities	—		204,067			—		204,067			—		194,904			194,904
State and municipal obligations	—		398,429			—		398,429			—		273,302			273,302
SBA securities	—		519,313			—		519,313			—		362,731			362,731
Other debt securities	—		—			4,846		4,846
Marketable securities	60,519		—			—		60,519
Marketable equity securities											60,572		—			60,572
Servicing rights	—		—			9,525		9,525			—		7,977			7,977
Derivative assets	—		29,615			—		29,615			—		43,686			43,686
Total assets at fair value	$	100,392	$	8,046,571		$	49,055	$	8,196,018		$	130,897	$	7,680,003		$	7,810,900
Derivative liabilities	$	—	$	(23,874	)	$	—	$	(23,874	)	$	—	$	(19,029	)	$	(19,029	)
Total liabilities at fair value	$	—	$	(23,874	)	$	—	$	(23,874	)	$	—	$	(19,029	)	$	(19,029	)

~~BANKUNITED, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~

~~June 30, 2019~~

The following table reconciles changes in the fair value of assets and liabilities measured at fair value on a recurring basis and classified in level 3 of the fair value hierarchy during the periods indicated (in thousands):

Three Months Ended June 30,
2019 2018
Private Label
Residential
MBS Other Debt
Securities Servicing Rights Private Label
Residential
MBS Other Debt
Securities Servicing Rights
Balance at beginning of period $ 27,904
$ 4,818
$ 9,585
$ 44,120
$ 5,714
$ 33,432
Gains (losses) for the period included in:
Net income 196
—
(486 ) —
—
(1,868 )
Other comprehensive income (800 ) (32 ) —
(963 ) (91 ) —
Discount accretion 941
55
—
714
182
—
Purchases or additions —
—
336
—
—
4,351
Sales (561 ) —
—
—
—
—
Settlements (2,154 ) (60 )

(3,307 ) (224 ) —
Transfers into level 3 —
—
—
—
—
—
Transfers out of level 3 —
—
—
—
—
—
Balance at end of period $ 25,526
$ 4,781
$ 9,435
$ 40,564
$ 5,581
$ 35,915
Change in unrealized gains or losses included in OCI for assets held at the end of the reporting period $ (320 ) $ (32 ) $ (933 ) $ (91 )

Six Months Ended June 30,
2019 2018
Private Label
Residential
MBS Other Debt
Securities Servicing Rights Private Label
Residential
MBS Other Debt
Securities Servicing Rights
Balance at beginning of period $ 34,684
$ 4,846
$ 9,525
$ 52,214
$ 5,329
$ 30,737
Gains (losses) for the period included in:
Net income 1,630
—
(1,148 ) 1,319
—
(1,621 )
Other comprehensive income (4,064 ) (67 ) —
(3,461 ) 287
—
Discount accretion 3,044
70
—
1,585
213
—
Purchases or additions —
—
1,058
—
—
6,799
Sales (5,531 ) —
—
(5,120 ) —
—
Settlements (4,237 ) (68 ) —
(5,973 ) (248 ) —
Transfers into level 3 —
—
—
—
—
—
Transfers out of level 3 —
—
—
—
—
—
Balance at end of period $ 25,526
$ 4,781
$ 9,435
$ 40,564
$ 5,581
$ 35,915
Change in unrealized gains or losses included in OCI for assets held at the end of the reporting period $ (731 ) $ (67 ) $ (1,992 ) $ 287

~~Gains on private label residential MBS recognized in net income during the three and six months ended June 30, 2019 and 2018 are included in the consolidated statement of income line item "Gain on investment securities, net." Changes in the fair value of servicing rights are included in the consolidated statement of income line item “Other non-interest income~~.” Changes in fair value include changes due to valuation assumptions, primarily discount rates and prepayment speeds, as well as other changes such as runoff and the passage of time. The amount of net unrealized gains (losses) included in earnings for the six

~~BANKUNITED, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~

~~June 30, 2019~~

months ended June 30, 2019 related to servicing rights held at June 30, 2019 was insignificant; and approximately $1.1 million for the six months ended June 30, 2018 related to servicing rights held at June 30, 2018. The net unrealized gains (losses)were primarily due to changes in discount rates and prepayment speeds.

Securities for which fair value measurements are categorized in level 3 of the fair value hierarchy at June 30, 2019 consisted of pooled trust preferred securities with a fair value of $5 million and private label residential MBS and CMOs with a fair value of $26 million. The trust preferred securities are not material to the Company’s financial statements. Private label residential MBS consisted of senior and mezzanine tranches collateralized by prime fixed rate and hybrid 1-4 single family residential mortgages originated before 2005. Substantially all of these securities have variable rate coupons. Weighted average subordination levels at June 30, 2019 were 19.4% and 14.4% for investment grade and non-investment grade securities, respectively.

The following table provides information about the valuation techniques and unobservable inputs used in the valuation of private label residential MBS and CMOs falling within level 3 of the fair value hierarchy as of June 30, 2019 (dollars in thousands):

Fair Value at Valuation Technique
Unobservable
Input

Range (Weighted
Average)
June 30, 2019
Investment grade $ 13,199
Discounted cash flow Voluntary prepayment rate 5.00% - 27.20% (15.70%)
Probability of default 0.10% - 10.00% (2.09%)
Loss severity 15.00% - 100.00% (41.05%)
Discount rate 2.40% - 6.15% (3.42%)

Non-investment grade $ 12,327
Discounted cash flow Voluntary prepayment rate 7.10% - 30.00% (15.48%)
Probability of default 0.00% - 5.56% (2.26%)
Loss severity 15.00% - 100.00% (29.87%)
Discount rate 1.59% - 12.15% (4.61%)

The significant unobservable inputs impacting the fair value measurement of private label residential MBS and CMOs include voluntary prepayment rates, probability of default, loss severity given default and discount rates. Generally, increases in probability of default, loss severity or discount rates would result in a lower fair value measurement. Alternatively, decreases in probability of default, loss severity or discount rates would result in a higher fair value measurement. For securities with less favorable credit characteristics, decreases in voluntary prepayment speeds may be interpreted as a deterioration in the overall credit quality of the underlying collateral and as such, lead to lower fair value measurements. The fair value measurements of those securities with higher levels of subordination will be less sensitive to changes in these unobservable inputs other than discount rates, while securities with lower levels of subordination will show a higher degree of sensitivity to changes in these unobservable inputs other than discount rates. Generally, a change in the assumption used for probability of default is accompanied by a directionally similar change in the assumption used for loss severity given default and a directionally opposite change in the assumption used for voluntary prepayment rate.

~~The following table provides information about the valuation techniques and significant unobservable inputs used in the valuation of servicing rights as of June 30, 2019 (dollars in thousands):~~

Fair Value at Valuation Technique
Unobservable
Input

Range (Weighted
Average)
June 30, 2019
Commercial servicing rights $ 9,435
Discounted cash flow Prepayment rate 0.60% - 19.91% (14.11%)
Discount rate 3.61% - 16.81% (11.28%)

~~Increases in prepayment rates or discount rates would result in lower fair value measurements and decreases in prepayment rates or discount rates would result in higher fair value measurements.~~ ~~Although the prepayment rate and the discount rate are not directly interrelated, they generally move in opposite directions.~~

~~BANKUNITED, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~

~~June 30, 2019~~

Assets and liabilities measured at fair value on a non-recurring basis

Following is a description of the methodologies used to estimate the fair values of assets and liabilities that may be measured at fair value on a non-recurring basis, and the level within the fair value hierarchy in which those measurements are typically classified.

Impaired loans, OREO and other repossessed assets—The carrying amount of collateral dependent impaired loans is typically based on the fair value of the underlying collateral, which may be real estate or other business assets, less estimated costs to ~~sell.~~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. When current appraisals are not available, the Company may use brokers’ price opinions, home price indices or other available information about changes in real estate market conditions to adjust the latest appraised value available. These adjustments to appraised values may be subjective and involve significant management judgment. The fair value of repossessed assets or collateral consisting of other business assets may be based on third-party appraisals or internal analyses that use market approaches to valuation incorporating ~~primarily~~a combination of observable and unobservable inputs.

Fair value measurements related to collateral dependent impaired loans, OREO and other repossessed assets are generally classified within ~~levels 2 and~~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.

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020

The following tables present the carrying value of assets for which non-recurring changes in fair value have been recorded for the periods indicated (in thousands):


	June 30, 2019								Losses from Fair Value Changes						June 30, 2020								Losses from Fair Value Changes
	Level 1		Level 2		Level 3		Total		Three Months Ended June 30, 2019			Six Months Ended June 30, 2019			Level 1		Level 2		Level 3		Total		Three Months Ended June 30, 2020			Six Months Ended June 30, 2020
OREO and repossessed assets	$	—	$	—	$	1,557	$	1,557	$	(203	)	$	(221	)	$	—	$	—	$	4,401	$	4,401	$	(243	)	$	(360	)
Impaired loans	$	—	$	—	$	15,385	$	15,385	$	(529	)	$	(279	)	$	—	$	—	$	101,353	$	101,353	$	(23,545	)	$	(42,221	)
Operating lease equipment															$	—	$	—	$	839	$	839	$	—		$	(691	)

June 30, 2018 Losses from Fair Value Changes
Level 1 Level 2 Level 3 Total Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
OREO and repossessed assets $ —
$ 1,530
$ 432
$ 1,962
$ (396 ) $ (1,801 )
Impaired loans $ —
$ 26,604
$ 54,089
$ 80,693
$ (10,966 ) $ (14,157 )

Included in the tables above are impaired taxi medallion loans with carrying values of $66.1 million at June 30, 2018. Losses from fair value changes included in the tables above include $12.7 million recognized on impaired taxi medallion loans during the six months ended June 30, 2018. In addition, OREO and repossessed assets reported above included repossessed taxi medallions with carrying values of $1.5 million at June 30, 2018. Losses of $0.1 million and $0.6 million were recognized on repossessed taxi medallions during the three and six months ended June 30, 2018.

~~BANKUNITED, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED~~

~~June 30, 2019~~



	June 30, 2019								Losses from Fair Value Changes
	Level 1		Level 2		Level 3		Total		Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
OREO and repossessed assets	$	—	$	—	$	1,557	$	1,557	$	(203	)	$	(221	)
Impaired loans	$	—	$	—	$	15,385	$	15,385	$	(529	)	$	(279	)

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):


		June 30, 2019				December 31, 2018					June 30, 2020				December 31, 2019
	Level	Carrying Value		Fair Value		Carrying Value		Fair Value		Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Cash and cash equivalents	1	$	442,833	$	442,833	$	382,073	$	382,073	1	$	402,231	$	402,231	$	214,673	$	214,673
Investment securities	1/2/3	8,138,708		8,139,257		8,166,878		8,167,127		1/2	$	8,693,628	$	8,694,622	$	7,769,237	$	7,769,949
Non-marketable equity securities	2	289,789		289,789		267,052		267,052		2	$	233,051	$	233,051	$	253,664	$	253,664
Loans held for sale	2	224,759		232,000		36,992		39,931		2	$	2,623	$	2,802	$	37,926	$	39,731
Loans	3	22,479,708		22,815,851		21,867,077		21,868,258
Loans, net										3	$	23,568,766	$	24,024,615	$	23,046,317	$	23,350,684
Derivative assets	2	41,405		41,405		29,615		29,615		2	$	145,802	$	145,802	$	43,686	$	43,686
Liabilities:
Demand, savings and money market deposits	2	$	16,841,684	$	16,841,684	$	16,654,465	$	16,654,465	2	$	19,339,621	$	19,339,621	$	17,047,344	$	17,047,344
Time deposits	2	7,080,716		7,093,055		6,819,758		6,820,355		2	$	6,730,803	$	6,762,832	$	7,347,247	$	7,377,301
Federal funds purchased	2	99,000		99,000		175,000		175,000		2	$	100,000	$	100,000	$	100,000	$	100,000
FHLB advances	2	5,331,000		5,353,836		4,796,000		4,810,446
FHLB and PPPLF borrowings										2	$	4,650,599	$	4,648,739	$	4,480,501	$	4,500,969
Notes and other borrowings	2	403,661		442,782		402,749		416,142		2	$	722,332	$	779,966	$	429,338	$	473,327
Derivative liabilities	2	19,251		19,251		23,874		23,874		2	$	52,013	$	52,013	$	19,029	$	19,029

Note 11 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.

Table of Contents

BANKUNITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

June 30, 2020

Commitments to fund loans

These are agreements to lend funds to customers as long as there is no violation of any condition established in the contract. Commitments to fund loans generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of these commitments are expected to expire without being funded and, therefore, the total commitment amounts do not necessarily represent future liquidity requirements.

Unfunded commitments under lines of credit

Unfunded commitments under lines of credit include commercial, commercial real estate, home equity and consumer lines of credit to existing ~~customers.~~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.

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 - UNAUDITED~~

~~June 30, 2019~~

Total lending related commitments outstanding at June 30, ~~2019~~2020 were as follows (in thousands):


Commitments to fund loans	$	450,898	$	770,860
Commitments to purchase loans	660,965		733,451
Unfunded commitments under lines of credit	2,950,555		3,145,104
Commercial and standby letters of credit	84,731		88,438
	$	4,147,149	$	4,737,853

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.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to focus on significant matters impacting and changes in the financial condition and results of operations of the Company during the six months ended June 30, ~~2019~~2020 and should be read in conjunction with the consolidated financial statements and notes hereto included in this Quarterly Report on Form 10-Q and BKU's ~~2018~~2019 Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (the ~~"2018~~"2019 Annual Report on Form 10-K”).

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the Company’s current views with respect to, among other things, future events and financial performance. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” ~~“estimates”~~“estimates,” "future" and similar expressions identify forward-looking statements. These forward-looking statements are based on the historical performance of the Company or on the Company’s current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the Company that the future plans, estimates or expectations so contemplated will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to the Company’s operations, financial results, financial condition, business prospects, growth strategy and ~~liquidity.~~liquidity, including as impacted by the COVID-19 pandemic. If one or more of these or other risks or uncertainties materialize, or if the Company’s underlying assumptions prove to be incorrect, the Company’s actual results may vary materially from those indicated in these statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, the risk factors described in Part I, Item 1A of the ~~2018~~2019 Annual Report on Form ~~10-K.~~10-K and any subsequent Quarterly Report on Form 10-Q or Current Report on Form

8-K. The Company does not undertake any obligation to publicly update or review any forward looking statement, whether as a result of new information, future developments or otherwise.

Impact of the COVID-19 Pandemic and Our Response

In March 2020, the World Health Organization declared COVID-19 as a global pandemic. The initial response to the pandemic by governmental authorities included implementation of numerous measures attempting to contain the spread and impact of COVID-19 such as travel bans and restrictions, quarantines, shelter in place orders, and limitations on business activities, including in major markets in which the Company and its clients are located or do business. While many of these restrictions are beginning to ease and economic activity has started to resume, the COVID-19 pandemic and these necessary precautionary measures have negatively impacted the global economy, disrupted global supply chains, created significant volatility and disruption in financial markets and led to sharp declines in GDP and increases in unemployment levels. The response of the U.S. Government to the crisis was swift and broad-based. The government has taken a series of actions to support individuals, households and businesses that have been negatively impacted by the economic disruption caused by the pandemic including enactment of the CARES Act. The Federal Reserve also enacted a suite of facilities using its emergency lending powers designed to support liquidity and the flow of credit. Banking regulators reduced reserve requirements and enacted rules designed to support financial institutions in their efforts to work with customers during this time. The situation continues to evolve, and there remains a high level of uncertainty about the future trajectory of the virus and its impact on the economy.

A summary of the effects the COVID-19 pandemic has had on our Company and of our expectations about how our Company may be impacted in the future follows. These matters are discussed in further detail throughout this Form 10-Q.

Our results of operations and financial condition at and for the three and six months ended June 30, 2020 were impacted by the COVID-19 pandemic.

Deteriorating economic conditions and a worsening forward looking economic forecast led to a higher provision for credit losses and ACL during the six months ended June 30, 2020. There continues to be significant uncertainty as to the impact of the COVID-19 crisis on future credit loss expense and future levels of the ACL, but they may be more volatile and may change materially from current levels.

Levels of criticized and classified assets increased at June 30, 2020, largely as a result of the COVID-19 pandemic. Additionally, a significant number of borrowers have requested relief in the form of temporary payment deferrals. Beginning late in the first quarter of 2020 and continuing through the second quarter, risk ratings were re-evaluated for a substantial portion of the commercial portfolio, with a particular focus on portfolio segments we identified for enhanced monitoring and loans for which we granted temporary payment deferrals in light of the COVID-19 pandemic. At June 30, 2020, we had not experienced an increase in non-performing assets as a result of the pandemic. It is difficult to predict when, if, or to what extent levels of non-performing assets and delinquencies will increase as a result of the pandemic, although they may do so. Similarly, charge-offs may increase. These impacts may manifest in a delayed fashion due to the impact of temporary payment deferrals and various forms of government assistance that our borrowers may receive.

The level of loan origination activity, outside of our participation in the PPP, was lower in the second quarter as a result of the pandemic.

Our share price has been negatively impacted by the COVID-19 crisis. We temporarily suspended our share repurchase program, utilizing our capital to provide support to customers through lending and other services.

We raised $300 million in subordinated debt to strengthen our capital position during this challenging economic environment.

Although we took significant measures to prepare for possible disruptions in liquidity, we have not experienced such disruptions to date and continue to have sufficient levels of available liquidity.

The pandemic has impacted our operations. Currently, the substantial majority of our non-branch employees are working remotely. We did not experience any significant operational difficulties, technology failures or outages, or customer service disruptions in our transition to a remote work environment. 76% of our branches remain open to serve customers via drive-through or lobby appointments, operating with reduced hours. Generally, branch locations without drive-through facilities are temporarily closed. We have focused on insuring that our technology systems and internal controls continue to operate effectively in a remote work environment. We have put mechanisms in place to allow us to evaluate all significant modifications to processes and procedures to insure continued effectiveness of our controls. We have not identified any instances in which our control environment has failed to operate effectively.

Customer demand for our products and services, particularly lending products, may be impacted by the impact of the pandemic on their businesses or by social distancing measures. Potential borrowers impacted by the pandemic may no longer meet our underwriting criteria. We expect loan production in many portfolio segments to be muted in the near term as a result of the pandemic.

In response to the pandemic, we have prioritized risk management and implemented a number of measures to support our customers and employees. Specifically, we have:

Activated and continue to operate under our business continuity plan under the leadership of executive management.

Enhanced liquidity monitoring and management protocols.

Maintained a regular cadence of Board of Directors update calls.

Enhanced the level and frequency of pro-active outreach to borrowers and our portfolio management activities.

Segregated certain segments of the loan portfolio for enhanced monitoring.

Enhanced our workout and recovery staffing and processes.

Enhanced our stress testing framework. Results of internal stress testing indicate that we have sufficient capital to withstand an increase in credit losses materially beyond levels currently expected, and to withstand a severe downturn.

Proactively reached out to our critical third party service providers and evaluated their ability to continue to provide support in the current environment. We have experienced no significant service disruptions.

Expanded certain employee benefits and launched a number of programs to keep our employees healthy and engaged.

Enhanced personal protective measures for employees working at our corporate locations and begun planning for the eventual return to office of a larger percentage of our workforce, when conditions permit. We have not yet set a definite date to begin a phased return to office.

Supported our clients through participating in the Small Business Administration’s PPP, and granting payment deferrals and fee waivers on a case-by-case basis.

Temporarily halted new residential foreclosure actions.

We remain confident in our long-term underlying strength and stability, and our ability to navigate these challenging conditions.

Overview

Quarterly 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 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.

Quarterly highlights include:

Net income for the three months ended June 30, ~~2019~~2020 was ~~$81.5~~$76.5 million, or ~~$0.81~~$0.80 per diluted share, compared to ~~$89.9~~$81.5 million, or ~~$0.82~~$0.81 per diluted share, for the three months ended June 30, ~~2018. Non-loss share diluted earnings per share, as previously reported, for the quarter ended June 30, 2018 was $0.59.~~2019. For the six months ended June 30, ~~2019~~2020, net income was $45.6 million, or $0.47 per diluted share, compared to $147.4 million, or $1.45 per diluted share, ~~compared to $175.1 million, or $1.59 per diluted share, for~~

~~the six months ended June 30, 2018. Earnings~~ for the six months ended June 30, ~~2019 generated an annualized return on average stockholders' equity of 10.1% and an annualized return on average assets of 0.91%.~~

For the quarter ended June 30, 2019, non-interest bearing demand deposits grew by $335 million, to 17.1% of total deposits at June 30, 2019 compared to 15.4% of total deposits at December 31, 2018. Total deposits increased by $243 million for the quarter ended June 30, 2019. ~~Non-interest bearing demand deposits grew by $478 million~~Results for the six months ended June 30, ~~2019 while total deposits increased~~2020 were negatively impacted by ~~$448 million.~~the application of the CECL accounting methodology, including the expected impact of COVID-19 on the provision for credit losses.

~~Loans~~PPNR improved by $37.3 million, or 44%, to $122.3 million for the three months ended June 30, 2020 compared to $85.0 million for the immediately preceding three months ended March 31, 2020 and ~~leases, including equipment under operating lease, grew~~ by ~~$231~~$16.2 million, ~~during~~compared to $106.1 million for the ~~quarter; loan and lease growth was $420 million excluding the transfer of $189 million of Pinnacle Public Finance loans to loans held for sale at~~three months ended June 30, 2019. For the six months ended June 30, 2020 and 2019, ~~excluding the transfer of Pinnacle loans to held for sale, loans~~PPNR was $207.3 million and ~~leases grew by $809 million.~~$206.6 million, respectively.

~~Net interest income for the quarter ended June 30, 2019 decreased by $64.4 million from $255.3 million for the quarter ended June 30, 2018.~~ The net interest margin, calculated on a tax-equivalent basis, increased to 2.39% for the three months ended June 30, 2020 from 2.35% for the immediately preceding quarter. The net interest margin was 2.52% for the three months ended June 30, 2019. The yield on interest earnings assets declined by 0.44% while the cost of interest bearing liabilities declined by 0.60% for the three months ended June 30, 2020 compared to the three months ended March 31, 2020.

The average cost of total deposits declined to 0.80% for the quarter ended June 30, ~~2019,~~2020 compared to ~~3.60%~~1.70% for the quarter ended June 30, ~~2018.~~ 2019. On a spot basis, the APY on total deposits declined to 0.65% at June 30, 2020.

The ~~most significant reason~~provision for credit losses totaled $25.4 million for the ~~decline in net interest income and the net interest margin~~three months ended June 30, 2020. The provision for credit losses was $150.8 million for the ~~quarter~~six months ended June 30, 2020. For the three and six months ended June 30, 2019, ~~compared to~~ the ~~quarter~~Company recorded a provision for (recovery of) loan losses, under the incurred loss model, of $(2.7) million and $7.5 million, respectively.

Non-interest bearing demand deposits grew by $1.3 billion, or 28%, for the three months ended June 30, ~~2018~~2020, to 23% of total deposits compared to 18% of total deposits at March 31, 2020. Total deposits increased by $1.1 billion during the three months ended June 30, 2020. Growth in non-interest bearing demand deposits for the three months ended June 30, 2020 was ~~the decrease in accretion on formerly covered residential~~positively impacted by proceeds from PPP loans.

•

~~During~~Loans and leases, including operating lease equipment, grew by $656 million for the ~~quarter ended June 30, 2019, the Company repurchased approximately 3.0 million shares of its common stock for an aggregate purchase price of approximately $102 million. During the six~~three months ended June 30, ~~2019,~~2020. Loan and lease growth for the ~~Company repurchased approximately~~ ~~4.1~~three months ended June 30, 2020 included growth of $827 million ~~shares of its common stock for an aggregate purchase price of approximately $142~~ in PPP loans and $308 million~~, at a weighted average price of $34.44 per share.~~ in mortgage warehouse outstandings, partially offset by expected declines in certain other portfolio segments. We funded over 3,500 PPP loans totaling $876 million during the three months ended June 30, 2020.

~~Book~~The net unrealized loss on investment securities available for sale improved to $2.6 million at June 30, 2020 from $249.8 million at March 31, 2020, in response to both declines in market rates and tightening spreads.

Stockholders' equity increased by $238.9 million during the three months ended June 30, 2020 to $2.8 billion. The increase was driven by the recovery of $180.6 million in accumulated other comprehensive income related to the reduction in unrealized losses on investment securities available for sale and by the retention of earnings. At June 30, 2020, book value per common share ~~grew to $30.09 at June 30, 2019 from $29.49 at December 31, 2018 while~~and tangible book value per common share ~~increased to $29.27 from $28.71 over~~were $29.81 and $28.97, respectively.

During the ~~same period.~~

~~Asset quality remained strong. The ratio of non-performing loans to total loans was 0.61% and the ratio of non-performing assets to total assets was 0.45% at~~three months ended June 30, ~~2019.~~2020, the Company completed an underwritten public offering of $300 million aggregate principal amount of its 5.125% subordinated notes, augmenting Tier 2 capital.

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 ~~relative~~ 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, ~~and~~ by management's continual assessment of the rate of return and relative risk associated with various classes of earning ~~assets.~~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 ~~is impacted by~~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,~~tables present, 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 and restructured loans are included in the average balances presented in this table; however, interest income foregone on non-accrual loans is not included. Interest income, yields, spread and margin have been calculated on a tax-equivalent basis for loans and investment securities that are exempt from federal income taxes, at a federal tax rate of 21% (dollars in thousands):

Three Months Ended June 30,
2019 2018
Average
Balance
Interest ⁽¹⁾⁽²⁾

Yield/
Rate ⁽¹⁾⁽²⁾
Average
Balance
Interest ⁽¹⁾⁽²⁾

Yield/
Rate ⁽¹⁾⁽²⁾
Assets:
Interest earning assets:

Non-covered loans $ 22,505,138
$ 253,766
4.52 % $ 21,117,897
$ 208,415
3.96 %
Covered loans —
—
— % 475,568
84,200
70.82 %
Total loans 22,505,138
253,766
4.52 % 21,593,465
292,615
5.43 %
Investment securities ⁽³⁾
8,187,518
73,867
3.61 % 6,902,634
57,444
3.33 %
Other interest earning assets 525,563
5,069
3.87 % 484,087
4,499
3.73 %
Total interest earning assets 31,218,219
332,702
4.27 % 28,980,186
354,558
4.90 %
Allowance for loan and lease losses (117,206 ) (140,223 )
Non-interest earning assets 1,589,286
1,912,471

Total assets $ 32,690,299
$ 30,752,434

Liabilities and Stockholders' Equity:
Interest bearing liabilities:
Interest bearing demand deposits $ 1,773,912
6,225
1.41 % $ 1,621,161
4,195
1.04 %
Savings and money market deposits 10,924,580
52,191
1.92 % 10,553,624
33,317
1.27 %
Time deposits 6,944,862
41,571
2.40 % 6,475,569
27,786
1.72 %
Total interest bearing deposits 19,643,354
99,987
2.04 % 18,650,354
65,298
1.40 %
Federal funds purchased 127,242
771
2.42 % —
—
— %
FHLB advances 5,028,418
30,263
2.41 % 4,761,659
22,988
1.94 %
Notes and other borrowings 405,726
5,325
5.25 % 402,805
5,306
5.27 %
Total interest bearing liabilities 25,204,740
136,346
2.17 % 23,814,818
93,592
1.58 %
Non-interest bearing demand deposits 3,932,716
3,315,851

Other non-interest bearing liabilities 601,703
536,800

Total liabilities 29,739,159
27,667,469

Stockholders' equity 2,951,140
3,084,965

Total liabilities and stockholders' equity $ 32,690,299
$ 30,752,434

Net interest income $ 196,356
$ 260,966

Interest rate spread 2.10 % 3.32 %
Net interest margin 2.52 % 3.60 %


~~(1)~~	On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was $4.4 million and $4.4 million, and the tax-equivalent adjustment for tax-exempt investment securities was $1.1 million and $1.4 million for the three months ended June 30, 2019 and~~2018, respectively.~~


~~(2)~~	~~Annualized.~~


~~(3)~~	~~At fair value except for securities held to maturity.~~


	Six Months Ended June 30,														Three Months Ended June 30,							Three Months Ended March 31,							Three Months Ended June 30,
	2019							2018							2020							2020							2019
	Average Balance			Interest ⁽¹⁾⁽²⁾		Yield/ Rate ⁽¹⁾⁽²⁾		Average Balance			Interest ⁽¹⁾⁽²⁾		Yield/ Rate ⁽¹⁾⁽²⁾		Average Balance			Interest ⁽¹⁾⁽²⁾		Yield/ Rate ⁽¹⁾⁽²⁾		Average Balance			Interest ⁽¹⁾⁽²⁾		Yield/ Rate ⁽¹⁾⁽²⁾		Average Balance			Interest ⁽¹⁾⁽²⁾		Yield/ Rate ⁽¹⁾⁽²⁾
Assets:
Interest earning assets:
Non-covered loans	$	22,241,262		$	498,776	4.51	%	$	20,951,864		$	405,293	3.89	%
Covered loans	—			—		—	%	487,070			165,509		67.96	%
Total loans	22,241,262			498,776		4.51	%	21,438,934			570,802		5.35	%
Loans															$	23,534,684		$	217,691	3.71	%	$	22,850,065		238,108		4.18	%	$	22,505,138		$	253,766	4.52	%
Investment securities ⁽³⁾	8,353,116			151,474		3.63	%	6,837,901			108,967		3.19	%	8,325,217			51,684		2.48	%	8,107,649			56,951		2.81	%	8,187,518			73,867		3.61	%
Other interest earning assets	510,933			9,921		3.91	%	501,376			8,291		3.33	%	765,848			2,908		1.53	%	646,628			3,720		2.31	%	525,563			5,069		3.87	%
Total interest earning assets	31,105,311			660,171		4.26	%	28,778,211			688,060		4.80	%	32,625,749			272,283		3.35	%	31,604,342			298,779		3.79	%	31,218,219			332,702		4.27	%
Allowance for loan and lease losses	(114,157		)					(142,706		)
Allowance for credit losses															(254,396		)					(138,842		)					(117,206		)
Non-interest earning assets	1,596,565							1,928,486							1,976,398							1,749,752							1,589,286
Total assets	$	32,587,719						$	30,563,991						$	34,347,751						$	33,215,252						$	32,690,299
Liabilities and Stockholders' Equity:
Interest bearing liabilities:
Interest bearing demand deposits	$	1,738,393		11,864		1.38	%	$	1,610,643		8,352		1.05	%	$	2,448,545		4,722		0.78	%	$	2,173,628		6,959		1.29	%	$	1,773,912		6,225		1.41	%
Savings and money market deposits	11,187,818			105,008		1.89	%	10,675,768			62,371		1.18	%	10,450,310			17,447		0.67	%	10,412,202			37,756		1.46	%	10,924,580			52,191		1.92	%
Time deposits	6,926,041			80,536		2.34	%	6,395,299			50,936		1.61	%	7,096,097			28,018		1.59	%	7,510,070			38,107		2.04	%	6,944,862			41,571		2.40	%
Total interest bearing deposits	19,852,252			197,408		2.01	%	18,681,710			121,659		1.31	%	19,994,952			50,187		1.01	%	20,095,900			82,822		1.66	%	19,643,354			99,987		2.04	%
Federal funds purchased	132,282			1,596		2.41	%	—			—		—	%
FHLB advances	4,845,337			57,637		2.40	%	4,611,359			41,285		1.81	%
Short term borrowings															119,835			32		0.11	%	94,066			367		1.57	%	127,242			771		2.42	%
FHLB and PPPLF borrowings															4,961,376			21,054		1.71	%	4,414,830			25,084		2.29	%	5,028,418			30,263		2.41	%
Notes and other borrowings	405,547			10,633		5.24	%	402,822			10,615		5.27	%	493,278			6,168		5.00	%	429,099			5,290		4.93	%	405,726			5,325		5.25	%
Total interest bearing liabilities	25,235,418			267,274		2.13	%	23,695,891			173,559		1.48	%	25,569,441			77,441		1.22	%	25,033,895			113,563		1.82	%	25,204,740			136,346		2.17	%
Non-interest bearing demand deposits	3,769,828							3,306,238							5,313,009							4,368,553							3,932,716
Other non-interest bearing liabilities	629,123							487,313							820,439							749,100							601,703
Total liabilities	29,634,369							27,489,442							31,702,889							30,151,548							29,739,159
Stockholders' equity	2,953,350							3,074,549							2,644,862							3,063,704							2,951,140
Total liabilities and stockholders' equity	$	32,587,719						$	30,563,991						$	34,347,751						$	33,215,252						$	32,690,299
Net interest income				$	392,897						$	514,501						$	194,842						$	185,216						$	196,356
Interest rate spread						2.13	%						3.32	%						2.13	%						1.97	%						2.10	%
Net interest margin						2.53	%						3.58	%						2.39	%						2.35	%						2.52	%


(1)	On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was ~~$8.8~~$3.8 million and ~~$8.5~~$4.4 million, and the tax-equivalent adjustment for tax-exempt investment securities was ~~$2.3~~$0.8 million and ~~$2.9~~$1.1 million for the ~~six~~three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.


(2)	Annualized.


(3)	At fair value except for securities held to maturity.



	Six Months Ended June 30,
	2020							2019
	Average Balance			Interest ⁽¹⁾⁽²⁾		Yield/ Rate ⁽¹⁾⁽²⁾		Average Balance			Interest ⁽¹⁾⁽²⁾		Yield/ Rate ⁽¹⁾⁽²⁾
Assets:
Interest earning assets:
Loans	$	23,192,374		$	455,799	3.94	%	$	22,241,262		$	498,776	4.51	%
Investment securities ⁽³⁾	8,216,433			108,635		2.64	%	8,353,116			151,474		3.63	%
Other interest earning assets	706,238			6,628		1.89	%	510,933			9,921		3.91	%
Total interest earning assets	32,115,045			571,062		3.57	%	31,105,311			660,171		4.26	%
Allowance for credit losses	(196,619		)					(114,157		)
Non-interest earning assets	1,863,074							1,596,565
Total assets	$	33,781,500						$	32,587,719
Liabilities and Stockholders' Equity:
Interest bearing liabilities:
Interest bearing demand deposits	$	2,311,086		11,681		1.02	%	$	1,738,393		11,864		1.38	%
Savings and money market deposits	10,431,256			55,203		1.06	%	11,187,818			105,008		1.89	%
Time deposits	7,303,083			66,125		1.82	%	6,926,041			80,536		2.34	%
Total interest bearing deposits	20,045,425			133,009		1.33	%	19,852,252			197,408		2.01	%
Short term borrowings	106,951			399		0.75	%	132,282			1,596		2.41	%
FHLB and PPPLF borrowings	4,688,102			46,138		1.98	%	4,845,337			57,637		2.40	%
Notes and other borrowings	461,188			11,458		4.97	%	405,547			10,633		5.24	%
Total interest bearing liabilities	25,301,666			191,004		1.52	%	25,235,418			267,274		2.13	%
Non-interest bearing demand deposits	4,840,781							3,769,828
Other non-interest bearing liabilities	784,770							629,123
Total liabilities	30,927,217							29,634,369
Stockholders' equity	2,854,283							2,953,350
Total liabilities and stockholders' equity	$	33,781,500						$	32,587,719
Net interest income				$	380,058						$	392,897
Interest rate spread						2.05	%						2.13	%
Net interest margin						2.37	%						2.53	%


(1)	On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was $7.5 million and $8.8 million, and the tax-equivalent adjustment for tax-exempt investment securities was $1.6 million and $2.3 million for the six months ended June 30, 2020 and 2019, respectively.


(2)	Annualized.


(3)	At fair value except for securities held to maturity.

Three months ended June 30, ~~2019~~2020 compared to the immediately preceding three months ended ~~June 30, 2018~~March 31, 2020

Net interest income, calculated on a tax-equivalent basis, was $194.8 million for the three months ended June 30, 2020 compared to $185.2 million for the three months ended March 31, 2020, an increase of $9.6 million, comprised of decreases in tax-equivalent interest income and interest expense of $26.5 million and $36.1 million, respectively. The decreases in both tax-equivalent interest income and interest expense resulted from decreases in market interest rates, partially offset by the impact of increases in average interest earnings assets and average interest bearing liabilities.

The net interest margin, calculated on a tax-equivalent basis, was 2.39% for the three months ended June 30, 2020, compared to 2.35% for the three months ended March 31, 2020. The interest rate spread increased to 2.13% for the quarter ended June 30, 2020 from 1.97% for the three months ended March 31, 2020 as declines in the cost of interest bearing liabilities outpaced declines in the yield on interest earning assets.

Offsetting factors contributing to the increase in the net interest margin for the three months ended June 30, 2020 compared to the three months ended March 31, 2020 included:

The most significant factor leading to the increase in the net interest margin for the quarter ended June 30, 2020 compared to the three months ended March 31, 2020 was the decline in the cost of deposits. The average rate on interest bearing deposits decreased to 1.01% for the three months ended June 30, 2020, from 1.66% for the three months ended March 31, 2020, reflecting initiatives taken to lower rates paid on deposits following actions by the Fed in the fourth quarter of 2019 and first quarter of 2020. We expect the cost of interest bearing deposits to continue to decline.

For the three months ended June 30, 2020, the increase in average non-interest bearing demand deposits as a percentage of average total deposits also positively impacted the cost of deposits and the net interest margin.

The average rate paid on borrowings declined to 1.97% for the three months ended June 30, 2020, from 2.51% for the three months ended March 31, 2020, reflecting declines in rates on overnight and short-term FHLB advances as well as the impact of PPPLF borrowings priced at rates lower than the average rate paid by the Company on its borrowings.

The tax-equivalent yield on loans decreased to 3.71% for the three months ended June 30, 2020, from 4.18% for the three months ended March 31, 2020. The most significant factor contributing to this decrease was the decline in benchmark interest rates, which impacted the level of prepayments of higher rate loans as well as rates earned on both existing floating rate assets and new production. The addition of lower yielding PPP loans to the balance sheet also contributed to the decline in the yield on loans.

The tax-equivalent yield on investment securities decreased to 2.48% for the three months ended June 30, 2020 from 2.81% for the three months ended March 31, 2020. The most significant factor contributing to this decrease was the impact of decreases in benchmark interest rates on both existing floating rate assets and new securities added to the portfolio.

Three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019

Net interest income, calculated on a tax-equivalent basis, was $194.8 million for the three months ended June 30, 2020 compared to $196.4 million for the three months ended June 30, 2019, ~~compared to $261.0~~a decrease of $1.5 million. Net interest income, calculated on a tax-equivalent basis, was $380.1 million for the ~~three~~six months ended June 30, ~~2018,~~2020 compared to $392.9 million for the six months ended June 30, 2019, a decrease of ~~$65~~$12.8 million. The ~~decrease~~decreases in net interest income ~~was~~were comprised of ~~a decrease~~decreases in tax-equivalent interest income of ~~$21.9~~$60.4 million and ~~an increase~~$89.1 million and decreases in interest expense of ~~$42.8 million.~~$58.9 million and $76.3 million for the three and six months ended June 30, 2020, respectively, compared to the three and six months ended June 30, 2019.

The ~~decrease~~decreases in tax-equivalent interest income ~~was comprised primarily of a $38.8 million decrease~~and tax-equivalent interest expense resulted from decreases in market interest ~~income from loans~~rates, partially offset by a $16.4 million increase in interest income from investment securities. Decreased interest income from loans was primarily attributable to a 0.91% decrease in the tax-equivalent yield to 4.52% for the three months ended June 30, 2019 from 5.43% for the three months ended June 30, 2018, partially offset by a $912 million increase in the average balance outstanding.

The decline in the tax-equivalent yield on loans was mainly the result of the decrease in accretion on formerly covered residential loans. Both the average balance of and yield on these loans declined. The decline in the average balance resulted from the sale of a substantial portion of the loans during 2018 in anticipation of the termination of the Single Family Shared-Loss Agreement. Interest income on formerly covered residential loans declined by $67.7 million to $16.5 million for the three months ended June 30, 2019 from $84.2 million for the three months ended June 30, 2018. The yield on the remaining loans declined to 34.05% for the three months ended June 30, 2019 from 70.82% for the three months ended June 30, 2018, due primarily to changes in assumptions about the remaining period over which accretable yield would be realized, attributable to management's decision to retain certain loans beyond expiration of the Single Family Shared-Loss Agreement.

The tax-equivalent yield on loans other than formerly covered residential loans increased to 4.26% for the three months ended June 30, 2019, from 3.96% for the three months ended June 30, 2018. The most significant factor contributing to this increased yield was the impact of increases in ~~benchmark~~average interest ~~rates.~~

The average balance of investment securities increased by $1.3 billion for the three months ended June 30, 2019 from the three months ended June 30, 2018, while the tax-equivalent yield increased to 3.61% from 3.33%. The increase in tax-equivalent yield primarily reflects resetting of coupon rates on floating-rate securities.

The primary components of the increase in interest expense for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018 were a $35 million increase in interest expense on depositsearning assets and ~~a $7 million increase in interest expense on FHLB advances.~~

~~The increase in interest expense on deposits was attributable to an increase of $993 million in~~ average interest bearing deposits and an increase in the average cost of interest bearing deposits of 0.64% to 2.04% for the three months ended June 30, 2019 from 1.40% for the three months ended June 30, 2018. These cost increases were generally driven by the growth of deposits in competitive markets and a rising short-term interest rate environment.

The increase in interest expense on FHLB advances was primarily a result of an increase in the average cost of advances of 0.47% to 2.41% for the three months ended June 30, 2019 from 1.94% for the three months ended June 30, 2018. The increased cost was driven primarily by increased market rates.liabilities.

The net interest margin, calculated on a tax-equivalent basis, was 2.39% for the three months ended June 30, ~~2019 was 2.52% as~~2020, compared to ~~3.60%~~2.52% for the three months ended June 30, ~~2018.~~2019. The interest rate spread ~~decreased~~increased to 2.13% for the quarter ended June 30, 2020 from 2.10% for the three months ended June 30, 2019 ~~from 3.32%~~as declines in the cost of interest bearing liabilities outpaced declines in the yield on interest earning assets.

Offsetting factors contributing to the decrease in the net interest margin for the three ~~months ended June 30, 2018. The decrease in net interest margin is primarily attributed to the decline in the average balance of~~ and ~~yield on formerly covered residential loans discussed above.~~

~~Six months ended June 30, 2019~~ ~~compared to~~ six months ended June 30, ~~2018~~2020 compared to comparable periods of the prior year included:

~~Net~~The average rate on interest ~~income, calculated on a tax-equivalent basis, was $392.9 million~~bearing deposits decreased to 1.01% and 1.33% for the three and six months ended June 30, 2020, from 2.04% and 2.01% for the three and six months ended June 30, 2019, ~~compared~~reflecting initiatives taken to ~~$514.5 million~~decrease the rate paid on deposits.

The average rate on borrowings declined to 1.97% and 2.22%% for the three and six months ended June 30, ~~2018, a decrease of $121.6 million. The decrease in net interest income was comprised of a decrease in tax-equivalent interest income of $27.9 million~~2020, from 2.62% and ~~an increase in interest expense of $93.7 million. Interest income on formerly covered residential loans declined by $132.7 million to $32.8 million~~2.61%% for the three and six months ended June 30, 2019.

The tax-equivalent yield on loans decreased to 3.71% and 3.94% for the three and six months ended June 30, 2020, from 4.52% and 4.51% for the three and six months ended June 30, 2019, ~~from $165.5 million~~due primarily to declines in benchmark interest rates.

The tax-equivalent yield on investment securities decreased to 2.48% and 2.64% for the three and six months ended June 30, ~~2018.~~

~~The decrease in tax-equivalent interest income was comprised primarily of a $72.0 million decrease in interest income~~2020 from ~~loans partially offset by a $42.5 million increase in interest income from investment securities.~~

~~Decreased interest income from loans was primarily attributable to a 0.84% decrease in the tax-equivalent yield to 4.51%~~3.61% and 3.63% for the ~~six~~three and months ended June 30, ~~2019 from 5.35% for the six months ended June 30, 2018, partially offset by an $802 million increase in the average balance outstanding.~~

2019. The average balance of investment securities increased by $1.5 billion for the six months ended June 30, 2019 from the six months ended June 30, 2018, while the tax-equivalent yield increased to 3.63% from 3.19%.

The primary components of the increase in interest expense for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018 were a $75.7 million increase in interest expense on deposits and a $16.4 million increase in interest expense on FHLB advances.

The increase in interest expense on deposits was attributable to an increase of $1.2 billion in average interest bearing deposits and an increase in the average cost of interest bearing deposits of 0.70% to 2.01% for the six months ended June 30, 2019 from 1.31% for the six months ended June 30, 2018. The increase in interest expense on FHLB advances was primarily a result of an increase in the average cost of advances of 0.59% to 2.40% for the six months ended June 30, 2019 from 1.81% for the six months ended June 30, 2018.most significant factors

~~Factors~~ contributing to ~~the changes~~this decrease were decreases in ~~yields~~benchmark interest rates impacting new purchases of investments and ~~costs for the six month periods were consistent with those for the three month periods discussed above.~~

~~The net interest margin, calculated on~~re-pricing of variable rate securities, and to a tax-equivalent basis, for the six months ended June 30, 2019 was 2.53% as compared to 3.58% for the six months ended June 30, 2018. The interest rate spread decreased to 2.13% for the six months ended June 30, 2019 from 3.32% for the six months ended June 30, 2018. The declines in net interest margin and interest rate spread resulted primarily from the factors discussed above.lesser extent, increased prepayment speeds.

Provision for ~~Loan~~Credit Losses

The provision for ~~loan~~credit losses is ~~the amount of expense that, based on our judgment, is~~a charge to earnings required to maintain the ~~ALLL~~ACL at ~~an adequate~~a level ~~to absorb probable~~consistent with management’s estimate of expected credit losses ~~inherent in the loan portfolio~~on financial assets carried at amortized cost at the balance sheet ~~date and that, in management’s judgment, is appropriate under GAAP.~~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 ~~growth,~~originations and runoff, changes in portfolio mix, ~~historical loss rates,~~risk rating migration and portfolio seasoning, the level of charge-offs, ~~and~~changes in specific reserves, changes in expected prepayment speeds and other assumptions. The provision for ~~impaired loans, and management's evaluation of qualitative factors in the determination of general reserves.~~credit losses also includes an amount related to off-balance sheet credit exposures. The determination of the amount of the ~~ALLL~~ACL is complex and involves a high degree of judgment and subjectivity. Our determination of the amount of the allowance and corresponding provision for loan losses considers ongoing evaluations of the credit quality of and level of credit risk inherent in various segments of the loan portfolio and of individually significant credits, levels of non-performing loans and charge-offs, historical and statistical trends and economic and other relevant factors. See “Analysis of the Allowance for ~~Loan and Lease~~Credit Losses” below for more information about how we determine the appropriate level of the ~~allowance.~~ACL.

For the three and six months ended June 30, ~~2019 and 2018~~2020, the ~~Company recorded a net recovery of loan losses of~~ ~~$2.7 million~~ ~~and a~~ provision for ~~loan~~(recovery of) credit losses of ~~$9.0~~totaled $25.4 million~~, respectively. Factors contributing~~ and $150.8 million, respectively, which included $(6.2) million and $2.6 million, respectively, related to ~~the recovery of loan~~off-balance sheet credit exposures. The provision for credit losses for the three and six months ended June 30, ~~2019 as compared to~~2020 was determined using the ~~provision recorded for~~CECL methodology and reflected management's estimate of the ~~three months ended June 30, 2018 included reductions in~~expected negative economic impact of the provision related to (i) taxi medallion loans; (ii) a decrease in the provision related to specific reserves for other loans; and (iii) changes in the composition of portfolio growth; partially offset by increases related to the relative impact on the provision of changes in certain qualitative loss factors. COVID-19 pandemic.

For the three ~~months ended June 30, 2018, there was a reduction in overall qualitative reserves.~~

~~For the~~and six months ended June 30, 2019, ~~and 2018,~~ the Company recorded ~~provisions~~a provision for (recovery of) loan losses, under the incurred loss methodology, of $(2.7) million and $7.5 million, ~~and $12.1 million,~~ respectively. ~~Offsetting factors impacting the amount of~~

The evolving COVID-19 situation may lead to increased volatility in the provision for ~~the six months ended June 30, 2019~~credit losses and if economic forecasts deteriorate further as ~~compared to the six months ended June 30, 2018 were (i) the reduction in~~a result of COVID-19, the provision ~~related to taxi medallion loans; (ii) a decrease in~~for credit losses and the provision related to specific reserves for other loans; partially offset by (iii) increases related to the relative impact on the provision of changes in quantitative and qualitative loss factors. For the six months ended June 30, 2018, there was a reduction in overall qualitative reserves.ACL will likely increase.

Non-Interest Income

The following table presents a comparison of the categories of non-interest income for the periods indicated (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018			2019		2018			2020		2019		2020			2019
Income from resolution of covered assets, net	$	—	$	4,238		$	—	$	7,555
Net loss on FDIC indemnification	—		(1,400		)	—		(5,015		)
Deposit service charges and fees	4,290		3,510			8,120		6,997			$	3,701	$	4,290	$	7,887		$	8,120
Gain on sale of loans:
Guaranteed portions of SBA loans											375		848		1,569			2,635
GNMA early buyout loans											3,951		1,273		6,206			2,192
Other											—		—		17			230
Gain on sale of loans, net	2,121		768			5,057		4,269			4,326		2,121		7,792			5,057
Gain on investment securities:
Net realized gains on sale of AFS											5,723		3,915		7,253			8,232
Net unrealized gains (losses) on marketable equity securities											1,113		201		(3,870		)	1,669
Gain on investment securities, net	4,116		2,142			9,901		2,506			6,836		4,116		3,383			9,901
Lease financing	17,005		17,492			34,191		31,594			16,150		17,005		31,631			34,191
Other non-interest income	7,805		5,223			14,323		12,053			7,338		7,805		10,956			14,323
	$	35,337	$	31,973		$	71,592	$	59,959
Non-interest income											$	38,351	$	35,337	$	61,649		$	71,592

~~Declines in income from resolution~~Deposit service charges for the quarter ended June 30, 2020 were impacted by fee waivers related to COVID-19 and to lower levels of ~~covered assets, net and net loss on FDIC indemnification resulted from the termination of the Single Family Shared-Loss Agreement on February 13, 2019.~~activity, also related to COVID-19.

The ~~most significant contributor to the increases~~increase in ~~deposit service charges and fees was higher treasury management fee income.~~

~~The most significant components of~~ gain on sale of GNMA early buyout loans ~~net are gains on sales of the guaranteed portions of SBA loans totaling $0.8 million and $2.6 million~~ for the three and six months ended June 30, 2020 compared to the comparable periods of 2019 ~~respectively; and~~resulted from an increase in the volume of activity.

The decrease in gains on ~~sale~~guaranteed portions of SBA loans period over period is a result of declining origination volume of SBA loans, impacted by our focus on PPP lending during the second quarter of 2020.

The net unrealized loss on marketable equity securities for the six months ended June 30, 2020 was primarily due to a $5.0 million unrealized loss recorded during the first quarter, resulting from the impact on markets of the COVID-19 crisis; this improved to a gain of $1.1 million for the quarter ended June 30, 2020.

~~government-insured residential loans totaling $1.3 million and $2.2 million~~The decrease in income from lease financing for the three and six months ended June 30, ~~2019, respectively. Gain on sale of loans, net for the three and six months ended June 30, 2018 included losses of $2.0 million and $0.3 million, respectively, related~~2020 compared to ~~the sale of covered loans.~~

~~Gain on investment securities, net for~~ the three and six months ended June 30, 2019, reflected net realized gains of $3.9 million and $8.2 million, respectively, from the sale of investment securities available for sale and net unrealized gains on marketable equity securities of $0.2 million and $1.7 million, respectively. Sales of securities during the quarter and six month periods relatedis primarily ~~to ongoing management of the Company's liquidity position and the risk/return profile of the portfolio.~~

~~Lease financing income decreased by $0.5 million for the three months ended June 30, 2019 compared~~attributed to the ~~three months ended June 30, 2018. The three months ended June 30, 2018 included gains of $3.8 million related to the disposition of~~increase in operating lease equipment ~~under operating lease. Year over year increases in income from lease financing generally corresponded to the growth in the portfolio of equipment under operating lease.~~off-lease.

Non-Interest Expense

The following table presents the components of non-interest expense for the periods indicated (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Employee compensation and benefits	$	48,877		$	57,251		$	107,764		$	122,484
Occupancy and equipment	11,901			13,991			24,270			27,157
Deposit insurance expense	4,806			5,027			9,209			9,068
Professional fees	3,131			6,937			6,335			14,808
Technology and telecommunications	14,025			12,013			26,621			23,181
Depreciation of operating lease equipment	12,219			11,489			24,822			23,301
Other non-interest expense	11,411			13,377			26,217			26,776
Total non-interest expense	$	106,370		$	120,085		$	225,238		$	246,775
Less:
Depreciation of operating lease equipment	(12,219		)	(11,489		)	(24,822		)	(23,301		)
Loss on debt extinguishment							—			—
Costs incurred directly related to implementation of BankUnited 2.0	(255		)	(6,217		)	(334		)	(12,109		)
COVID-19 expenses	(1,519		)	—			(1,519		)	—
Recurring operating expenses ⁽¹⁾	$	92,377		$	102,379		$	198,563		$	211,365

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Employee compensation and benefits $ 57,251
$ 65,537
$ 122,484
$ 132,573
Occupancy and equipment 13,991
14,241
27,157
28,544
Amortization of FDIC indemnification asset —
44,250
—
84,597
Deposit insurance expense 5,027
4,623
9,068
9,435
Professional fees 6,937
2,657
14,808
5,532
Technology and telecommunications 12,013
8,644
23,181
16,858
Depreciation of equipment under operating lease 11,489
9,476
23,301
18,792
Other non-interest expense 13,377
11,819
26,776
26,733
$ 120,085
$ 161,247
$ 246,775
$ 323,064

~~Amortization of FDIC indemnification asset~~

~~The FDIC indemnification asset was amortized to zero during the fourth quarter of 2018 in light of the expected termination of the Single Family Shared-Loss Agreement~~


(1)	Recurring operating expenses is a non-GAAP measure. See section entitled "Non-GAAP Financial Measures" below for reconciliation of non-GAAP financial measurements to their comparable GAAP financial measurements.

Employee compensation and benefits

Employee compensation and benefits declined by ~~$8.3~~$8.4 million and ~~$10.1~~$14.7 million for the three and six months ended June 30, ~~2019 relative to the comparable periods of the prior year, primarily due to a reduction in headcount.~~

~~Professional fees~~

~~Professional fees increased by $4.3 million and $9.3 million,~~2020, respectively ~~during the three and six months ended June 30, 2019~~as compared to the three and six months ended June 30, ~~2018. The increases~~2019, primarily due to a reduction in ~~professional fees were primarily attributable to consulting services~~headcount related to our BankUnited 2.0 initiative. Lower variable compensation costs and the impact of a declining stock price on liability-classified awards also contributed to reduced expense levels.

~~Technology and telecommunications~~Professional fees

~~Increased technology~~Professional fees decreased by $3.8 million and ~~telecommunications expense~~$8.5 million for the three and six months ended June 30, 2020, respectively as compared to the three and six months ended June 30, 2019. The decrease was primarily due to the consulting services in 2019 related ~~primarily~~ to ~~investments we are making in cloud technology,~~ our ~~digital platforms, data initiatives and enhancement of some of our risk management capabilities.~~BankUnited 2.0 initiative.

Other non-interest expense

The most significant components of other non-interest expense are advertising, promotion and business development, costs related to lending activities, loan servicing and deposit generation, insurance, expenses related to workouts and foreclosures, regulatory examination assessments, travel and general office expense.

For both the quarter and six months ended June 30, 2020, non-interest expense included approximately $1.5 million related directly to COVID-19, the most significant of which include technology and consulting costs related to our participation in the PPP, laptops and other equipment to facilitate employees working remotely and costs related to cleaning, sanitizing and personal protective equipment.

Income Taxes

The Company’s effective income tax rate was 21.0% and 19.3% for the three and six months ended June 30, 2020, respectively, and 25.2% and 25.9% for the three and six months ended June 30, 2019, ~~respectively, and 23.2% and 23.1%~~respectively. See Note 6 to the consolidated financial statements for ~~the three and six months ended June 30, 2018, respectively. The effective~~information about income ~~tax rate differed from the statutory federal income tax rate of 21% for the three and six months ended June 30, 2019 and 2018 due primarily to state income taxes, offset by income not subject to tax.~~taxes.

Analysis of Financial Condition

Average interest-earning assets increased ~~$2.3~~$1.0 billion to $32.1 billion for the six months ended June 30, 2020 from $31.1 billion for the six months ended June 30, ~~2019 from $28.8 billion for the six months ended June 30, 2018.~~2019. This increase was driven by ~~an $802~~a $951 million increase in the average balance of outstanding loans, ~~and~~offset by a ~~$1.5 billion increase~~$137 million decrease in the average balance of investment securities. A $332 million decrease in average non-interest earning assets was primarily attributed to (i) the decrease in the FDIC indemnification asset, which was amortized to zero during the fourth quarter of 2018 and (ii) a decrease in income taxes receivable related to a discrete income tax benefit recognized during the fourth quarter of 2017, partially offset by (iii) the recognition of the ROU asset subsequent to the adoption of ASU 2016-02 effective January1, 2019.

Average interest bearing liabilities was consistent for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. Average non-interest bearing deposits increased ~~$1.5~~by $1.1 billion to ~~$25.2~~$4.8 billion for the six months ended June 30, ~~2019 from $23.7 billion for the six months ended June 30, 2018, due primarily to an increase of $1.2 billion in average interest bearing deposits.~~

~~Average stockholders' equity decreased by $121 million, due primarily to the repurchase of common stock, offset by the retention of earnings.~~2020.

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 ~~as of~~at the dates indicated (in thousands):


	June 30, 2019				December 31, 2018				June 30, 2020				December 31, 2019
	Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value
U.S. Treasury securities	$	49,992	$	50,213	$	39,885	$	39,873	$	75,217	$	77,180	$	70,243	$	70,325
U.S. Government agency and sponsored enterprise residential MBS	2,222,327		2,227,795		1,885,302		1,897,474		2,371,729		2,379,840		2,018,853		2,022,175
U.S. Government agency and sponsored enterprise commercial MBS	378,167		381,104		374,569		374,787		455,344		464,277		366,787		370,976
Private label residential MBS and CMOs	1,374,008		1,395,182		1,539,058		1,534,198		1,101,390		1,116,086		1,001,337		1,012,177
Private label commercial MBS	1,549,733		1,557,953		1,486,835		1,485,716		2,075,683		2,043,620		1,719,228		1,724,684
Single family rental real estate-backed securities	387,104		392,306		406,310		402,458		608,019		618,207		467,459		470,025
Collateralized loan obligations	1,205,295		1,198,282		1,239,355		1,235,198		1,166,929		1,128,753		1,204,905		1,197,366
Non-mortgage asset-backed securities	155,542		157,817		204,372		204,067		255,854		261,531		194,171		194,904
State and municipal obligations	265,856		279,327		398,810		398,429		239,502		259,495		257,528		273,302
SBA securities	418,494		421,773		514,765		519,313		247,914		245,942		359,808		362,731
Other debt securities	1,395		4,781		1,393		4,846
Investment securities held to maturity	10,000		10,000		10,000		10,000		10,000		10,000		10,000		10,000
	$	8,017,913	8,076,533		$	8,100,654	8,106,359		$	8,607,581	8,604,931		$	7,670,319	7,708,665
Marketable equity securities			62,175				60,519				88,697				60,572
			$	8,138,708			$	8,166,878			$	8,693,628			$	7,769,237

Our investment strategy has focused on insuring adequate liquidity, maintaining a suitable balance of high credit quality, diverse assets, managing interest rate risk, and generating acceptable returns given our established risk parameters. We have sought to maintain liquidity by investing a significant portion of the portfolio in high quality liquid securities including U.S. Treasury securities, GNMA securities, SBA securities and U.S. Government Agency MBS. Investment grade municipal securities provide liquidity and attractive tax-equivalent yields. We have also invested in highly rated structured products, including private-label commercial and residential MBS, collateralized loan obligations, single family rental real estate-backed securities and non-mortgage asset-backed securities that, while somewhat less liquid, provide us with attractive yields. Relatively short effective portfolio duration helps mitigate interest rate risk. Based on the Company’s assumptions, the estimated

weighted average life of the investment portfolio as of June 30, ~~2019~~2020 was ~~4.6~~4.4 years. The effective duration of the investment portfolio as of June 30, ~~2019~~2020 was ~~1.2 years.~~1.3 years . The model results are based on assumptions that may differ from actual results.

The following table shows the scheduled maturities, carrying values and current yields for investment securities available for sale as of June 30, 2019, as well as the carrying value and yield of marketable equity securities. Scheduled maturities have been adjusted for anticipated prepayments when applicable. Yields on tax-exempt securities have been calculated on a tax-equivalent basis, based on a federal income tax rate of 21% (dollars in thousands):

Within One Year
After One Year
Through Five Years

After Five Years
Through Ten Years
After Ten Years Total

Carrying
Value

Weighted
Average
Yield

Carrying
Value

Weighted
Average
Yield

Carrying
Value

Weighted
Average
Yield

Carrying
Value

Weighted
Average
Yield

Carrying
Value

Weighted
Average
Yield
U.S. Treasury securities $ 50,213
2.27 % $ —
— % $ —
— % $ —
— % $ 50,213
2.27 %
U.S. Government agency and sponsored enterprise residential MBS 213,745
3.06 % 1,001,087
2.90 % 851,341
2.78 % 161,622
2.80 % 2,227,795
2.86 %
U.S. Government agency and sponsored enterprise commercial MBS 4,562
3.79 % 41,748
3.69 % 228,039
3.17 % 106,755
3.78 % 381,104
3.40 %
Private label residential MBS and CMOs 288,891
3.85 % 791,200
3.85 % 244,915
3.68 % 70,176
3.70 % 1,395,182
3.81 %
Private label commercial MBS 71,294
4.24 % 1,279,895
3.99 % 204,844
3.51 % 1,920
3.28 % 1,557,953
3.94 %
Single family rental real estate-backed securities 12,920
2.94 % 113,041
3.24 % 266,345
3.52 % —
— % 392,306
3.42 %
Collateralized loan obligations 28,470
4.37 % 821,206
4.04 % 348,606
4.43 % —
— % 1,198,282
4.16 %
Non-mortgage asset-backed securities 18,397
4.57 % 93,114
3.53 % 45,005
3.44 % 1,301
3.58 % 157,817
3.62 %
State and municipal obligations 1,581
1.96 % 33,425
2.78 % 196,001
3.98 % 48,320
4.09 % 279,327
3.84 %
SBA securities 85,305
3.50 % 196,359
3.41 % 95,018
3.36 % 45,091
3.31 % 421,773
3.41 %
Other debt securities —
— % —
— % —
— % 4,781
14.74 % 4,781
14.74 %
$ 775,378
3.54 % $ 4,371,075
3.66 % $ 2,480,114
3.40 % $ 439,966
3.42 % 8,066,533
3.56 %
Marketable equity securities with no scheduled maturity

62,175
7.29 %
Total investment securities available for sale and marketable equity securities

$ 8,128,708
3.58 %

The investment securities available for sale portfolio was in a net unrealized ~~gain~~loss position of ~~$58.6~~$2.6 million at June 30, ~~2019 with aggregate fair value equal to 100.7%~~2020, having recovered substantially from a net unrealized loss position of ~~amortized cost.~~$249.8 million at the prior quarter end. Net unrealized ~~gains~~losses included ~~$80.4~~$98.4 million of gross unrealized gains and ~~$21.8~~$101.1 million of gross unrealized losses. Investment securities available for sale in an unrealized loss position at June 30, ~~2019~~2020 had an aggregate fair value of ~~$2.7~~$4.3 billion. ~~At June 30, 2019, 99.1%~~The majority of ~~investment securities available for sale were backed by~~ the U.S. Government, U.S. Government agencies or sponsored enterprises or were rated AAA, AA or A, based on the most recent third-party ratings. Investment securities available for sale totaling $63 million were not ratedunrealized losses at June 30, ~~2019. These securities have been determined by management~~2020 related to bethe private label CMBS and CLO portfolio segments, which were in net unrealized loss positions of ~~investment grade quality. Additionally, $12~~$32.1 million and $38.2 million, respectively. Comparatively, at March 31, 2020 the private label CMBS and CLO portfolios were in net unrealized loss positions of ~~securities acquired at substantial discounts in the FSB acquisition were rated below investment grade~~$123.8 million and $74.7 million, respectively. Unrealized losses at June 30, ~~2019.~~2020 were primarily attributable to widening spreads, resulting in large part from market response to, and dislocation in the wake of, the COVID-19 pandemic. The ~~majority~~ratings distribution of ~~these~~our AFS securities ~~were held~~portfolio at June 30, 2020 is depicted in ~~significant unrealized gain positions.~~the chart below:

We evaluate the credit quality of individual securities in the portfolio quarterly to determine whether ~~any~~we expect to recover the amortized cost basis of the investments in unrealized loss ~~positions are other-than-temporarily impaired.~~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:

~~our intent~~whether we intend to ~~hold~~sell the security ~~until maturity or for a period~~prior to recovery of ~~time sufficient for a recovery in value;~~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 length of time and~~The extent to which fair value ~~has been~~is less than amortized cost;

~~adverse changes~~Adverse conditions specifically related to the security, an industry or geographic area;

Changes in ~~expected cash flows;~~the financial condition of the issuer or underlying loan obligors;

~~collateral values and performance;~~

~~the~~The payment structure and remaining payment terms of the security, including levels of subordination or over-collateralization;

~~changes in the economic or regulatory environment;~~

~~the general market condition~~Failure of the ~~geographic area or industry of the issuer;~~issuer to make scheduled payments;

~~the issuer’s financial condition, performance and business prospects; and~~

~~changes~~Changes in credit ~~ratings.~~ratings;

Relevant market data;

Estimated prepayments, defaults, and the value and performance of underlying collateral at the individual security level.

No securities were determined to be ~~other-than-temporarily~~credit loss impaired atduring the six months ended June 30, ~~2019 and 2018.~~

2020 or other than temporarily impaired during the six months ended June 30, 2019. We do not intend to sell securities in significant unrealized loss

positions at June 30, ~~2019.~~2020. Based on an assessment of our liquidity position and internal and regulatory guidelines for permissible investments and concentrations, it is not more likely than not that we will be required to sell securities in significant unrealized loss positions prior to recovery of amortized cost ~~basis. Unrealized losses in the portfolio~~basis, which may be at June 30, 2019 were primarily attributable to an increase in market interest rates subsequent to the date the securities were acquired and, for some securities, widening spreads. At June 30, 2019, 83%, 14% and 3% of CLOs were rated AAA, AA and A, respectively, based on the most recent third-party ratings, with a weighted-average subordination level at 41.6%, ranging from 26.3% to 43.6%. Management performs a thorough analysis prior to purchasing CLOs, including extensive vetting of the asset manager and stress testing of collateral. Management engages an independent third party to perform ongoing credit surveillance of the CLO portfolio, performs periodic stress testing of the portfolio and continuously monitors exposure, default status, and other relevant security characteristics.maturity.

The timely ~~repayment~~payment of principal and interest on ~~SBA~~ securities issued by the U.S. government, U.S. government agencies and U.S. ~~Government agency and~~government sponsored ~~enterprise securities in unrealized loss positions~~enterprises is explicitly or implicitly guaranteed by the ~~full faith and credit of the~~ U.S. Government. ~~Management performed projected cash flow analyses~~As such, there is an assumption of zero credit loss and the Company expects to recover the entire amortized cost basis of these securities.

None of our impaired private label ~~residential MBS~~securities had missed principal or interest payments or had been downgraded by a NRSRO at June 30, 2020. 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 severe than our reasonable and ~~CMOs, private label commercial MBS, collateralized loan obligations~~supportable economic forecast at June 30, 2020, and ~~non-mortgage asset-backed securities in unrealized loss positions, incorporating CUSIP level~~incorporated assumptions ~~consistent with~~about voluntary prepayment rates, collateral defaults, delinquencies, severity and other relevant factors. Our analysis also considered the ~~collateral~~structural characteristics of each security ~~including collateral default rate, voluntary prepayment rate, severity~~ and ~~delinquency assumptions.~~the level of credit enhancement provided by that structure. Based on the results of this analysis, nowe expect to recover the entire amortized cost basis of the impaired private label AFS securities. Further information about the portfolio segments evidencing the largest unrealized losses at June 30, 2020, the CMBS and CLO portfolio segments, follows.

For private label CMBS, our analysis of cash flows expected to be collected 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 watchlists, bankruptcy data, special servicing trends, delinquency and other economic data which would indicate further stress in the sector.

For CLOs, our analysis of cash flows expected to be collected 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.

The following table presents the distribution of the third-party ratings and subordination levels compared to average stress scenario losses based on our credit ~~losses were projected. Management's~~loss impairment analysis of the ~~credit characteristics of individual securities~~CMBS and ~~the underlying collateral and levels of subordination for each of the single family rental real estate-backed securities in unrealized loss positions is not indicative of projected credit losses.~~CLOs at June 30, 2020:



				Subordination						Weighted Average Stress Scenario Loss
	Rating	Percent of Total		Minimum		Maximum		Average		Weighted Average Stress Scenario Loss
Private label CMBS	AAA	83.0	%	29.4	%	54.5	%	43.1	%	12.8	%
	AA	12.0	%	31.1	%	81.8	%	37.2	%	11.4	%
	A	5.0	%	21.5	%	68.7	%	28.8	%	11.9	%
Weighted average		100.0	%	29.2	%	58.5	%	41.6	%	12.6	%

CLOs	AAA	84.0	%	36.1	%	48.2	%	43.0	%	20.7	%
	AA	13.0	%	26.9	%	40.4	%	32.4	%	22.0	%
	A	3.0	%	24.9	%	29.5	%	26.7	%	25.0	%
Weighted average		100.0	%	34.5	%	46.6	%	41.1	%	21.0	%

For further discussion of our analysis of impaired investment securities AFS for ~~OTTI,~~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.

We ~~have~~ also ~~established~~have a quarterly price validation process to assess the propriety of the pricing methodologies utilized by our primary pricing services by independently verifying the prices of a sample of securities in the portfolio. Sample sizes vary based on the type of security being priced, with higher sample sizes applied to more difficult to value security types. Verification procedures may consist of obtaining prices from an additional outside ~~source or internal modeling, generally based on Intex.~~source. We have established acceptable percentage deviations from the price provided by the initial pricing source. If deviations fall outside the established parameters, we will obtain and evaluate more detailed information about the assumptions and inputs used by each pricing source or, if considered necessary, employ an additional valuation source to price the security in question. Pricing issues identified through this evaluation are addressed with the applicable pricing service and methodologies or inputs are revised as determined necessary. Depending on the results of the validation process, sample sizes may be extended for particular classes of securities. Results of the validation process are reviewed by the treasury front office and by senior management.

The majority of our investment securities are classified within level 2 of the fair value hierarchy. U.S. Treasury securities and marketable equity securities are classified within level 1 of the hierarchy. ~~At June 30, 2019~~We continue to monitor the impact of the COVID-19 pandemic on markets, and ~~2018, 0.4%~~on our ability to price securities in our portfolio. While, particularly at the onset of the pandemic, we observed increased volatility and ~~0.7%, respectively,~~dislocation, we believe the fiscal and monetary response to the crisis has been effective in supporting liquidity and stabilizing markets. To date, circumstances have not led to a change in the categorization of our ~~investment securities were classified~~fair value estimates within ~~level 3 of~~ the fair value hierarchy. ~~Securities classified within level 3 of the hierarchy at June 30, 2019 included certain private label residential MBS and trust preferred securities. These~~

securities were classified within level 3 of the hierarchy because proprietary assumptions related to voluntary prepayment rates, default probabilities, loss severities and discount rates were considered significant to the valuation. There were no transfers of investment securities between levels of the fair value hierarchy during the six months ended June 30, 2019 and 2018.

For additional discussion of the fair values of investment securities, see Note 10 to the consolidated financial statements.

The following table shows the scheduled maturities, carrying values and prospective yields for investment securities available for sale as of June 30, 2020, as well as the carrying value and yield of marketable equity securities. Scheduled maturities have been adjusted for anticipated prepayments when applicable. Yields on tax-exempt securities have been calculated on a tax-equivalent basis, based on a federal income tax rate of 21% (dollars in thousands):



	Within One Year				After One Year Through Five Years				After Five Years Through Ten Years				After Ten Years				Total
	Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield
U.S. Treasury securities	$	77,180	1.71	%	$	—	—	%	$	—	—	%	$	—	—	%	$	77,180	1.71	%
U.S. Government agency and sponsored enterprise residential MBS	229,123		1.11	%	1,051,085		0.99	%	865,614		0.96	%	234,018		0.89	%	2,379,840		0.98	%
U.S. Government agency and sponsored enterprise commercial MBS	3,433		1.88	%	49,877		2.08	%	258,846		1.06	%	152,121		1.48	%	464,277		1.31	%
Private label residential MBS and CMOs	379,488		3.27	%	579,159		3.07	%	127,964		2.88	%	29,475		2.50	%	1,116,086		3.10	%
Private label commercial MBS	75,949		3.37	%	1,587,327		2.03	%	350,148		2.34	%	30,196		3.03	%	2,043,620		2.15	%
Single family rental real estate-backed securities	3,788		2.96	%	297,246		3.10	%	317,173		1.51	%	—		—	%	618,207		2.27	%
Collateralized loan obligations	55,507		1.76	%	962,673		1.96	%	110,573		2.47	%	—		—	%	1,128,753		2.00	%
Non-mortgage asset-backed securities	32,763		2.89	%	158,375		2.65	%	68,737		2.27	%	1,656		2.63	%	261,531		2.58	%
State and municipal obligations	7,219		2.53	%	20,647		3.77	%	180,309		3.99	%	51,320		4.08	%	259,495		3.95	%
SBA securities	50,520		1.28	%	124,110		1.23	%	52,757		1.15	%	18,555		1.06	%	245,942		1.21	%
	$	914,970	2.37	%	$	4,830,499	1.99	%	$	2,332,121	1.69	%	$	517,341	1.60	%	8,594,931		1.92	%
Marketable equity securities with no scheduled maturity																	88,697		7.13	%
Total investment securities available for sale and marketable equity securities																	$	8,683,628	1.98	%

Loans Held for Sale

Loans held for sale at June 30, ~~2019~~2020 included ~~$189 million of Pinnacle loans transferred to held for sale and $36~~$3 million of the guaranteed portion of SBA loans held for sale in the secondary market. At December 31, ~~2018,~~2019, loans held for sale ~~consisted entirely~~included $28.6 million of the ~~guaranteed portion~~SBA loans held for sale and $9.3 million of ~~SBA loans.~~other commercial loans transferred to held for sale. SBA loans are generally sold with servicing retained. ~~Commercial servicing activity did not have a material impact~~Because of our focus on PPP lending in the ~~results~~second quarter, the origination volume of ~~operations for the six months ended June 30, 2019 and 2018.~~traditional SBA loans declined.

Loans

The loan portfolio comprises the Company’s primary interest-earning asset. The following tables show the composition of the loan portfolio at the dates indicated (dollars in thousands):

June 30, 2019 December 31, 2018
Total Percent of Total Total Percent of Total
Residential and other consumer:

1-4 single family residential $ 4,830,943
21.4 % $ 4,606,828
21.0 %
Government insured residential 354,731
1.6 % 265,701
1.2 %
Other 14,533
0.1 % 17,369
0.1 %
5,200,207
23.1 % 4,889,898
22.3 %
Commercial:
Multi-family 2,381,346
10.6 % 2,583,331
11.8 %
Non-owner occupied commercial real estate 4,945,017
21.9 % 4,700,188
21.4 %
Construction and land 237,222
1.1 % 227,134
1.0 %
Owner occupied commercial real estate 2,080,578
9.2 % 2,122,381
9.7 %
Commercial and industrial 5,164,571
22.9 % 4,801,226
21.9 %
Commercial lending subsidiaries 2,531,767
11.2 % 2,608,834
11.9 %
17,340,501
76.9 % 17,043,094
77.7 %
Total loans 22,540,708
100.0 % 21,932,992
100.0 %
Premiums, discounts and deferred fees and costs, net 51,141
44,016

Loans including premiums, discounts and deferred fees and costs 22,591,849
21,977,008

Allowance for loan and lease losses (112,141 ) (109,931 )
Loans, net $ 22,479,708
$ 21,867,077

~~Total loans, including premiums, discounts and deferred fees and costs, increased by $615 million to $22.6 billion at~~



	June 30, 2020					December 31, 2019
	Total			Percent of Total		Total			Percent of Total
Residential and other consumer loans	$	5,577,807		23.5	%	$	5,661,119		24.5	%
Multi-family	1,893,753			7.9	%	2,217,705			9.6	%
Non-owner occupied commercial real estate	4,940,531			20.7	%	5,030,904			21.7	%
Construction and land	246,609			1.0	%	243,925			1.1	%
Owner occupied commercial real estate	2,041,346			8.6	%	2,062,808			8.9	%
Commercial and industrial	4,691,326			19.7	%	4,655,349			20.1	%
PPP	827,359			3.5	%	—			—	%
Pinnacle	1,242,506			5.1	%	1,202,430			5.2	%
Bridge - franchise finance	623,139			2.6	%	627,482			2.6	%
Bridge - equipment finance	589,785			2.5	%	684,794			3.0	%
Mortgage warehouse lending	1,160,728			4.9	%	768,472			3.3	%
Total loans	23,834,889			100.0	%	23,154,988			100.0	%
Allowance for credit losses	(266,123		)			(108,671		)
Loans, net	$	23,568,766				$	23,046,317

For the six months ended June 30, ~~2019, from $22.0 billion at December 31, 2018.~~

~~Residential and other consumer~~2020, total loans grew by ~~$319~~$680 million, primarily driven by $827 million in PPP loans and a $392 million increase in mortgage warehouse outstandings due to increased utilization. The decline in multi-family balances was driven primarily by continued runoff of the New York portfolio. Residential activity for the six months ended June 30, ~~2019. Multi-family~~2020 included purchases of approximately $529 million in GNMA early buyout loans, ~~declined~~offset by ~~$202~~approximately $400 million ~~for~~in re-poolings and paydowns. The residential portfolio, excluding GNMA early buyout loans, experienced a net decline of approximately $212 million driven by higher prepayment speeds in the six months ended June 30, 2019, primarily due to continued run-off of the New York portfolio, while other categories of commercial real estate loans grew by $213 million. Commercial and industrial loans, inclusive of owner occupied commercial real estate, grew by $320 million for the six months ended June 30, 2019.

Included in multi-family and non-owner occupied commercial real estate loans above were $81 million and $14 million, respectively, in re-positioning loans at June 30, 2019. These loans, substantially all of which are in New York, provided financing for some level of improvements by the borrower to the underlying collateral to enhance the cash flow generating capacity of the collateral. The primary purpose of these loans was not for construction.

current rate environment.

Residential mortgages and other consumer loans

The following table shows the composition of residential and other consumer loans at the dates ~~indicated. Amounts include premiums, discounts and deferred fees and costs~~indicated (in thousands):


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
1-4 single family residential	$	4,897,552	$	4,664,920	$	4,743,866	$	4,953,936
Government insured residential	355,719		266,729		826,238		698,644
Home equity loans and lines of credits	1,445		1,393
Other consumer loans	13,072		15,947		7,703		8,539
	$	5,267,788	$	4,948,989	$	5,577,807	$	5,661,119

The 1-4 single family residential loan portfolio, excluding government insured residential loans, is primarily comprised of loans purchased ~~on a national basis~~ through established correspondent channels. The portfolio also includes loans originated through retail channels in our Florida and New York geographic footprint prior to the termination of our retail residential mortgage origination business in 2016. 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 June 30, ~~2019, $111~~2020, $507 million or ~~2.3% of residential mortgage loans~~11% were ~~interest-only loans, substantially all of which begin amortizing 10 years after origination.~~secured by investor-owned properties.

The Company acquires non-performing FHA and VA insured mortgages from third party servicers who have exercised their right to purchase these loans out of GNMA securitizations (collectively, "government insured pool buyout loans" or "buyout loans"). Buyout loans that re-perform, either through modification or self-cure, may be eligible for re-securitization. The Company and the servicer share in the economics of the sale of these loans into new securitizations. The balance of ~~government insured residential~~ buyout loans totaled ~~$331~~$805 million at June 30, ~~2019.~~2020. 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:

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):


									June 30, 2020				December 31, 2019
	June 30, 2019				December 31, 2018				Total		Percent of Total		Total		Percent of Total
California	$	1,254,896	25.6	%	$	1,177,221	25.2	%	$	1,333,404	28.1	%	$	1,280,243	25.8	%
New York	1,012,800		20.7	%	977,146		20.9	%	1,072,564		22.6	%	1,057,926		21.4	%
Florida	643,887		13.2	%	645,020		13.8	%	548,488		11.6	%	597,359		12.1	%
Virginia	202,096		4.1	%	184,756		4.0	%	175,221		3.7	%	189,869		3.8	%
DC	196,024		4.0	%	183,211		4.0	%
All others	1,587,849		32.4	%	1,497,566		32.1	%
New Jersey									172,483		3.6	%	189,018		3.8	%
Others									1,441,706		30.4	%	1,639,521		33.1	%
	$	4,897,552	100.0	%	$	4,664,920	100.0	%	$	4,743,866	100.0	%	$	4,953,936	100.0	%

Commercial loans and leases

~~The~~Commercial loans include commercial ~~portfolio segment includes~~and industrial loans and leases, loans secured by owner-occupied commercial real-estate, multi-family properties ~~loans secured by both owner-occupied~~ and other income-producing non-owner occupied commercial real estate, a limited amount of construction and land loans, ~~commercial and industrial~~SBA loans, mortgage warehouse lines of credit, PPP loans, municipal loans and ~~leases. Management’s loan origination strategy is heavily focused on the commercial portfolio segment, which comprised 76.9%~~leases originated by Pinnacle and ~~77.7% of~~franchise and equipment finance loans ~~as of June 30, 2019~~ and ~~December 31, 2018, respectively.~~leases originated by Bridge.

The following ~~table shows~~charts present the ~~composition~~distribution of the commercial loan portfolio ~~held for investment~~ at the dates ~~indicated. Amounts include premiums, discounts and deferred fees and costs (in thousands)~~indicated (dollars in millions):

June 30, 2019 December 31, 2018
Multi-family $ 2,383,116
$ 2,585,421
Non-owner occupied commercial real estate 4,862,256
4,611,573
Construction and land 220,536
210,516
Owner occupied commercial real estate 1,966,004
2,007,603
Commercial and industrial 4,531,948
4,312,213
National commercial lending platforms
Pinnacle 1,269,468
1,462,655
Bridge - franchise finance 593,005
517,305
Bridge - equipment finance 677,061
636,838
SBF 256,274
252,221
Mortgage warehouse lending 564,393
431,674
$ 17,324,061
$ 17,028,019

Commercial real estate loans include term loans secured by ~~owner and~~ non-owner occupied income producing properties including rental apartments, mixed-use properties, industrial properties, retail shopping centers, free-standing single-tenant buildings, office buildings, warehouse facilities, ~~and~~ hotels, ~~as well as~~ real estate secured lines of ~~credit.~~

credit, as well as credit facilities to institutional real estate entities such as REITs and commercial real estate investment funds.

The following ~~charts present~~table presents the distribution of ~~non-owner occupied~~ commercial real estate loans by ~~product~~property type along with weighted average DSCRs and LTVs at June 30, 2020 (dollars in thousands).



	Amortized Cost		Percent of Total		Weighted Average DSCR	Weighted Average LTV
Office	$	2,079,560	29.3	%	2.17	59.0	%
Multifamily	2,010,289		28.4	%	1.77	56.0	%
Retail	1,437,681		20.3	%	1.61	59.3	%
Warehouse/Industrial	783,387		11.1	%	2.52	55.5	%
Hotel	620,673		8.8	%	1.59	57.1	%
Other	149,303		2.1	%	1.66	48.9	%
	$	7,080,893	100.0	%	1.92	57.4	%

DSCRs and LTVs in the ~~dates indicated:~~

table above are based on the most recent information available, which may not be fully reflective of the ultimate impact of the COVID-19 pandemic on borrowers' financial condition or property values.

The Company’s commercial real estate underwriting standards generally provide for loan terms of five to seven years, with amortization schedules of no more than thirty years. LTV ratios are typically limited to no more than ~~80%~~75%. ~~Owner-occupied commercial real estate loans typically have risk profiles more closely aligned with that of commercial and industrial loans than with other types of commercial real estate loans.~~ Construction and land loans, included by property type in the table above, represented only ~~1.1%~~1% of the total loan portfolio at June 30, ~~2019.~~2020. Construction and land loans are generally made for projects expected to stabilize within eighteen months of completion in sub-markets with strong fundamentals and, to a lesser extent, for-sale residential projects to experienced developers with a strong cushion between market prices and loan basis. 75% of the commercial real estate portfolio, including 79% and 76% of the retail and hotel segments, respectively, had LTVs less than 65% at June 30, 2020.

The New York legislature ~~recently~~has enacted a number of rent regulation reform measures that generally have the impact of limiting landlords' ability to increase rents on stabilized units and to convert stabilized units to market rate units. The following ~~tables present information about~~table presents the ~~Company's exposure to rent-regulated~~amount of loans secured by New York multi-family properties in which some or all units are rent regulated at June 30, ~~2019~~2020 (in thousands):

Loans to stabilized properties subject to rent regulation $ 1,364,261
Loans to non-stabilized properties subject to rent regulation 85,168
$ 1,449,429



Loans secured by stabilized properties subject to rent regulation	$	957,439
Loans secured by non-stabilized properties subject to rent regulation	58,333
	$	1,015,772

We believe loans secured by non-stabilized properties may present a heightened level of risk as these loans were underwritten to expected cash flows upon stabilization; those expected cash flows may be impacted by the recent rent regulation reform measures.

The following tables present the distribution of stabilized rent-regulated multi-family loans, by DSCR and LTV at June 30, 2020 (in thousands):


DSCR
Less than 1.11	$	163,690	$	101,129
1.11 - 1.24	387,445		284,101
1.25 - 1.50	556,078		288,910
1.51 or greater	257,048		283,299
	$	1,364,261	$	957,439


LTV
Less than 50%	$	301,941	$	243,997
50% - 65%	737,626		610,258
66% - 75%	313,394		97,524
More than 75%	11,300		5,660
	$	1,364,261	$	957,439

The LTVs in the table above are based on the most recent appraisal obtained, which may not be fully reflective of changes in valuations that may result from the impact of the rent regulation reforms. Loans with DSCR less than 1.11 may be those with temporary vacancies or those for which expenses, particularly real estate taxes, have increased more rapidly than rents. Substantially all of the loans included in the tables above are current and performing.

Commercial and industrial loans are typically made to small, middle market and larger corporate businesses and not-for-profit entities and include equipment loans, secured and unsecured working capital facilities, formula-based loans, trade finance, ~~mortgage warehouse lines,~~ SBA product offerings and business acquisition finance credit facilities. These loans may be structured as term loans, typically with maturities of five to seven years, or revolving lines of credit which may have multi-year maturities. The Bank also provides financing to state and local governmental entities generally within ~~its~~our geographic ~~footprint.~~markets. Commercial loans included shared

national credits totaling ~~$3.0~~$2.6 billion at June 30, ~~2019,~~2020, the majority of which ~~are~~were relationship based loans to borrowers in Florida and New York. The Bank makes loans secured by owner-occupied commercial real estate that typically have risk profiles more closely aligned with that of commercial and industrial loans than with other types of commercial real estate loans.

The following table presents the exposure in the commercial and industrial portfolio, including $2.0 billion of owner-occupied commercial real estate loans, by industry at June 30, 2020 (in thousands):



	Amortized Cost		Percent of Total
Finance and Insurance	$	1,007,480	15.1	%
Wholesale Trade	719,847		10.7	%
Educational Services	640,657		9.5	%
Transportation and Warehousing	507,305		7.5	%
Health Care and Social Assistance	472,793		7.0	%
Manufacturing	375,569		5.6	%
Accommodation and Food Services	358,635		5.3	%
Retail Trade	332,421		4.9	%
Information	298,465		4.4	%
Real Estate and Rental and Leasing	288,045		4.3	%
Professional, Scientific, and Technical Services	277,081		4.1	%
Construction	273,685		4.1	%
Public Administration	244,967		3.6	%
Administrative and Support and Waste Management	239,441		3.5	%
Other Services (except Public Administration)	238,933		3.5	%
Arts, Entertainment, and Recreation	215,999		3.2	%
Utilities	188,808		2.8	%
Other	52,541		0.9	%
	$	6,732,672	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 61% and 31% of the portfolio, respectively. The equipment finance division provides primarily transportation equipment financing through a variety of loan and lease structures. The Bank's SBF unit primarily originates SBA guaranteed commercial and commercial real estate loans, generally selling the guaranteed portion in the secondary market and retaining the unguaranteed portion in portfolio. The Bank also engages in mortgage warehouse lending on a national basis.

The Company originated over 3,500 SBA PPP loans totaling $876 million during the quarter ended June 30, 2020. These loans bear interest at 1% and are guaranteed as to principal and interest by the SBA. They have terms of 2 years, and are eligible for earlier forgiveness under the terms of the PPP in prescribed circumstances. The Company also received origination fees associated with these loans; $21 million of these fees remain to be recognized in income as of June 30, 2020.

Geographic Concentrations

The Company's commercial and commercial real estate portfolios are concentrated in Florida and the Tri-state area. Excluding loans originated through our national platforms, 47% and 44% of commercial real estate loans were secured by collateral located in Florida and the Tri-state area, respectively; while 54% and 27% of commercial and industrial and owner-occupied real estate loans were to borrowers in Florida and the Tri-state area, respectively.

The following table presents the five states with the largest concentration of commercial loans and ~~direct financing~~ leases ~~in the~~originated through our national platforms, including Bridge, Pinnacle, SBF and our mortgage warehouse finance unit at the dates ~~indicated. Amounts include premiums, discounts and deferred fees and costs~~indicated (dollars in thousands):


									June 30, 2020				December 31, 2019
	June 30, 2019				December 31, 2018				Total		Percent of Total		Total		Percent of Total
California	$	567,705	16.9	%	$	498,842	15.1	%	$	650,706	16.8	%	$	585,222	16.5	%
Florida	473,198		14.1	%	595,843		18.1	%	457,859		11.8	%	465,146		13.1	%
Texas	150,330		4.5	%	150,878		4.6	%
Virginia	149,038		4.4	%	153,619		4.7	%
Arizona	144,850		4.3	%	149,087		4.5	%
New Jersey									339,873		8.8	%	178,514		5.0	%
North Carolina									207,298		5.3	%	146,146		4.1	%
Maryland									187,639		4.8	%	152,663		4.3	%
All others	1,875,080		55.8	%	1,752,424		53.0	%	2,038,326		52.5	%	2,018,704		57.0	%
	$	3,360,201	100.0	%	$	3,300,693	100.0	%	$	3,881,701	100.0	%	$	3,546,395	100.0	%

~~At June 30, 2019, 37.0% and 24.8%~~Operating lease equipment, net

Operating lease equipment, net of commercial loans were originated within the Florida and New York portfolios, respectively. At December 31, 2018, 37.0% and 25.4% of commercial loans were originated within the Florida and New York portfolios, respectively.

~~Equipment under Operating Lease~~

~~Equipment under operating lease~~accumulated depreciation totaled ~~$708~~$690 million at June 30, ~~2019.~~2020, including off-lease equipment, net of accumulated depreciation totaling $89 million. The portfolio ~~consisted~~consists primarily of railcars, non-commercial aircraft and other transport equipment. We have a total of ~~5,629~~5,313 railcars with a carrying value of ~~$441~~$409 million at June 30, ~~2019,~~2020, including hoppers, tank cars, boxcars, auto carriers, center beams and gondolas leased to North American commercial ~~end-users.~~end users. The largest concentrations of rail cars were ~~2,421~~2,411 hopper cars and 1,594 tank cars, primarily used to ship sand and petroleum products, respectively, for the energy industry. ~~Equipment with a carrying value of $285 million at June 30, 2019 was leased to companies for use in the energy industry.~~

The chart below presents ~~equipment under~~ operating lease equipment by type at the dates indicated:

At June 30, 2020, the breakdown of carrying values of operating lease equipment, excluding equipment off-lease, by the year current leases are scheduled to expire was as follows (in thousands):



Years Ending December 31:
2020	$	78,492
2021	60,237
2022	70,404
2023	40,812
2024	14,553
Thereafter through 2034	335,829
	$	600,327

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. In response to the COVID-19 pandemic, we have further enhanced our workout and recovery staffing and processes. Loan performance is monitored by our credit administration and workout and recovery departments. Generally, commercial relationships with balances in excess of defined thresholds are re-evaluated at least annually and more frequently if circumstances indicate that a change in risk rating may be warranted. The defined thresholds range from $1 million to $3 million. Homogenous groups of smaller balance commercial loans may be monitored collectively. ~~Additionally,~~The credit quality and risk rating of commercial loans as well as our underwriting and portfolio management practices are regularly reviewed by our internal credit review department.

We believe internal risk rating is the best indicator of the credit quality of commercial loans. The Company utilizes a 13 grade internal asset risk classification system as part of its efforts to monitor and maintain commercial asset quality. ~~Loans~~The special mention rating is considered a transitional rating for loans exhibiting potential credit weaknesses that ~~deserve management’s close attention and, that if left uncorrected, may~~could result in deterioration of ~~the~~ repayment ~~capacity of the borrower are categorized as special mention.~~prospects at some future date if not checked or corrected and that deserve management’s close attention. These borrowers may exhibit ~~negative financial trends~~declining cash flows or ~~erratic financial performance, strained liquidity, marginal collateral coverage, declining industry trends~~revenues or ~~weak management.~~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, 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.

~~We believe internal~~ Beginning late in the first quarter and throughout the second quarter of 2020, risk ~~rating is the best indicator~~ratings were re-evaluated for a substantial portion of the ~~credit quality~~commercial portfolio, with a particular focus on portfolio segments we identified for enhanced monitoring and loans for which we granted temporary payment deferrals in light of ~~commercial loans.~~ the COVID-19 pandemic.

The following table summarizes the Company's commercial credit exposure, based on internal risk rating, at the dates indicated (dollars in thousands):



	June 30, 2020				March 31, 2020				December 31, 2019
	Amortized Cost		Percent of Commercial Loans		Amortized Cost		Percent of Commercial Loans		Amortized Cost		Percent of Commercial Loans
Pass	$	16,169,767	88.6	%	$	16,841,243	96.0	%	$	17,054,702	97.5	%
Special mention	1,338,232		7.3	%	288,148		1.6	%	72,881		0.4	%
Substandard accruing	560,624		3.1	%	238,786		1.4	%	180,380		1.0	%
Substandard non-accruing	187,510		1.0	%	181,278		1.0	%	185,906		1.1	%
Doubtful	949		—	%	—		—	%	—		—	%
	$	18,257,082	100.0	%	$	17,549,455	100.0	%	$	17,493,869	100.0	%

It is possible, given the uncertainty surrounding the COVID-19 pandemic and related economic impacts, that the amount of criticized and classified assets could increase further in the future.

Both special mention and substandard accruing loans increased significantly at June 30, 2020 compared to March 31, 2020 and December 31, 2019. We believe the substantial majority of this increase to be directly related to the COVID-19 pandemic, its impact on the economy generally and on borrowers' businesses specifically. Special mention loans increased by $1.1 billion and $1.3 billion during the three and six months ended June 30, 2020, while substandard accruing loans increased by $322 million and $380 million for those same periods. Management has taken what we believe to be a pro-active and objective approach to re-risk rating the commercial loan portfolio based on granular outreach to borrowers since the onset of the pandemic.

The following table provides additional information about special mention and substandard accruing loans, at the dates indicated (in thousands):

June 30, 2019 December 31, 2018
Balance Percent of Total Balance Percent of Total
Pass $ 16,956,966
97.9 % $ 16,728,534
98.2 %
Special mention 59,787
0.3 % 81,070
0.5 %
Substandard 300,760
1.7 % 210,026
1.2 %
Doubtful 6,548
0.1 % 8,389
0.1 %
$ 17,324,061
100.0 % $ 17,028,019
100.0 %



	June 30, 2020				March 31, 2020				December 31, 2019
	Amortized Cost		Percent of Loan Segment		Amortized Cost		Percent of Loan Segment		Amortized Cost		Percent of Loan Segment
Special mention:
CRE:
Hotel	$	273,877	44.1	%	$	4,201	0.7	%	$	4,227	0.6	%
Retail	172,364		12.0	%	4,284		0.3	%	—		—	%
Multi-family	54,623		2.7	%	4,471		0.2	%	115		—	%
Office	29,735		1.4	%	—		—	%	—		—	%
Industrial	12,968		1.7	%	—		—	%	1,489		—	%
Other	1,393		0.9	%	—		—	%	—		—	%
	544,960				12,956				5,831
Owner occupied commercial real estate	179,305		8.8	%	26,170		1.3	%	27,870		1.4	%
Commercial and industrial	243,398		3.6	%	67,173		1.1	%	28,498		0.5	%
Bridge - franchise finance	327,375		52.5	%	181,049		28	%	10,682		1.7	%
Bridge - equipment finance	43,194		7.3	%	800		0.1	%	—		—	%
	$	1,338,232			$	288,148			$	72,881

Substandard accruing:
CRE
Hotel	$	92,066	14.8	%	$	11,296	1.8	%	$	34,645	5.3	%
Retail	63,957		4.4	%	20,049		1.4	%	—		—	%
Multi-family	67,896		3.4	%	35,691		1.7	%	26,797		1.7	%
Office	28,994		1.4	%	6,214		0.3	%	8,299		0.3	%
Industrial	19,814		2.5	%	9,675		1.2	%	9,753		1.2	%
Owner occupied commercial real estate	38,332		1.9	%	24,520		1.2	%	16,241		0.8	%
Commercial and industrial	185,201		3.9	%	77,810		1.6	%	43,518		0.9	%
Bridge - franchise finance	56,628		9.1	%	53,531		8.3	%	41,127		6.6	%
Bridge - equipment finance	7,736		1.3	%	—		—	%	—		—	%
	$	560,624			$	238,786			$	180,380

~~Equipment Under~~ The increases in special mention and substandard accruing loans at June 30, 2020 were concentrated in those categories expected to exhibit additional stress in the current environment. Within the commercial real estate portfolio, the most significant increases were in the retail and hotel sub-segments as reflected in the table above. We also saw significant increases in special mention loans in the franchise finance portfolio; of a total increase of $317 million during the six months ended June 30, 2020, $154 million related to restaurant concepts and $163 million related to fitness concepts. In the C&I categories, the largest increases were in the cruise line, retail trade, food services and airport concession areas.

as inadequate debt service coverage or liquidity that, if not remedied, may lead to a downgrade to non-accrual status and identification as impaired in the near-term.

Payment Deferrals

The following table summarizes deferral activity in the commercial portfolio, through July 17, 2020 (dollars in millions).



	First Deferral Granted					Re-Deferral Requested
	Loan Count	UPB		% of Portfolio		Loan Count	UPB		% of Portfolio
CRE - Property Type:
Retail	119	$	769,025	53	%	8	$	75,890	5	%
Hotel	93	536,826		86	%	21	298,388		48	%
Office	30	372,796		18	%	2	54,243		3	%
Multifamily	37	276,711		14	%	2	12,083		1	%
Industrial	14	97,776		13	%	—	—		—	%
Other	1	1,060		1	%	—	—		—	%
Total CRE - Property Type	294	$	2,054,194	29	%	33	$	440,604	6	%
C&I - Industry
Accommodation and Food Services	89	$	106,288	30	%	21	$	65,729	18	%
Retail Trade	221	68,299		20	%	4	21,575		7	%
Health Care and Social Assistance	126	59,305		12	%	—	—		—	%
Manufacturing	35	57,026		15	%	1	9,066		2	%
Other	265	178,512		3	%	1	4,169		—	%
Total C&I - Industry	736	469,430		7	%	27	100,539		1	%
BFG - Equipment	35	35,278		6	%	—	—		—	%
BFG - Franchise	362	459,590		74	%	82	155,321		25	%
Total Commercial	1,427	$	3,018,492	17	%	142	$	696,464	4	%

For commercial borrowers, initial payment deferrals were typically deferrals of principal and/or interest payments for 90 days. Re-deferrals usually take the form of additional 90 day extensions, granted on a case by case basis. The deferred payments along with interest accrued during the deferral period are generally due and payable on the maturity date.

We believe deferral rates, and particularly the rate at which borrowers have requested a second deferral, are important indicators of the extent to which borrowers' businesses and financial condition have been impacted by the COVID-19 pandemic. The majority of initial deferrals were granted in late March and April, 2020. Most of those loans have reached, or are now reaching, the end of the initial 90 day deferral period. New initial deferral requests received after June 1 were negligible.

The following table presents additional information about loan portfolio sub-segments that, in light of evolving conditions related to the COVID-19 pandemic, have been identified for enhanced monitoring as of June 30, 2020 (dollars in thousands):



	June 30, 2020
	Amortized Cost		Percent of Total Loans		Non Performing		Special Mention		Substandard Accruing
Retail - CRE	$	1,437,681	6.0	%	$	10,968	$	172,364	$	63,957
Retail - C&I	332,421		1.4	%	4,238		54,873		20,894
BFG - franchise finance	623,139		2.6	%	32,857		327,375		56,628
Hotel	620,673		2.6	%	32,827		273,877		92,066
Airlines and aviation authorities	163,846		0.7	%	—		27,050		—
Cruise line	74,696		0.3	%	—		59,886		—
Energy	56,310		0.2	%	—		—		—
	$	3,308,766	13.8	%	$	80,890	$	915,425	$	233,545

Retail Exposure in the CRE Portfolio

The predominant collateral types supporting this sub-segment include both anchored and unanchored suburban and urban retail properties, some single tenant properties as well as some mixed-use properties with a significant retail component. We have no significant large shopping mall or "big box" exposure. The weighted average LTV for this sub-segment is 59.3% and 79% has LTVs less than 65%, based on the most recently available information.

Retail Exposure in the C&I Portfolio

This is a well-diversified sub-segment by industry. The largest exposure is to gas stations, generally with convenience stores, representing $99 million, or 29% of the sub-segment. 67% of loans in this sub-segment are collateralized by owner-occupied real estate.

BFG - Franchise Finance

The following table presents the franchise portfolio by concept at June 30, 2020:



	Amortized Cost		Percent of BFG Franchise Finance
Restaurant concepts:
Burger King	$	66,012	11.0	%
Dunkin Donuts	44,737		7.0	%
Sonic	27,586		4.0	%
Domino's	23,370		4.0	%
Jimmy Johns	23,359		4.0	%
Other	193,958		31.0	%
	379,022		61.0	%
Non-restaurant concepts:
Planet Fitness	107,303		17.0	%
Orange Theory Fitness	86,654		14.0	%
Other	50,160		8.0	%
	244,117		39.0	%
	$	623,139	100.0	%

Restaurant concepts that have established drive-through or delivery models are generally performing well in the current environment. Fitness concepts are beginning to re-open.

Hotel

This sub-segment is experiencing significant disruption in revenue due to social distancing measures arising from the pandemic. The weighted average LTV for this sub-segment is 57% and 76% has LTVs less than 65%, based on the most recent information available. The majority of our hotel exposure is in Florida at 75%, followed by 12% in New York. This sub-segment includes $60 million in SBA loans, of which $14 million is guaranteed. Substantially all hotel collateral properties have now re-opened for business.

Airlines and Aviation Authorities

These borrowers have directly benefited from government relief programs enacted in response to the COVID-19 pandemic.

Energy

Recent declines in oil prices have elevated this sub-segment to a level of enhanced monitoring. The Company's energy exposure in the loan portfolio is not material; approximately 64% of these loans are secured by marine transport equipment.

Bridge also had exposure to the energy industry in the operating lease equipment portfolio totaling $287 million at June 30, 2020, consisting of $229 million in railcars, $39 million in helicopters and $18 million in vessels.

If current conditions persist, further deterioration could occur in this sector.

Operating Lease Equipment, net

~~Three~~Two operating lease relationships with a carrying value of assets under lease totaling ~~$72~~$35 million, all of which ~~$67 million~~ were exposures to the energy industry, were internally risk rated ~~special mention or~~ substandard at June 30, ~~2019. One relationship had been restructured as~~2020. 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. At June 30, ~~2019.~~2020, there were 22 operating leases for which a triggering event was met. Based on a recoverability analysis performed, the Company recognized an impairment charge of $0.7 million during the six months ended June 30, 2020 related to one operating lease relationship; this was not an energy exposure.

The primary risks inherent in the equipment leasing business are asset risk resulting from ownership of the equipment on ~~operating~~ lease and credit risk. Asset risk arises from fluctuations in supply and demand for the underlying leased equipment. The equipment is leased to commercial ~~end-users~~end users with original lease terms generally ranging from three to ten ~~years at June 30, 2019.~~years. We are exposed to the risk that, at the end of the lease term, the value of the asset will be lower than expected, potentially resulting in reduced future lease income over the remaining life of the asset or a lower sale value. Asset risk may also lead to changes in depreciation as a result of changes in the residual values of the ~~operating lease~~leased assets or through impairment of asset carrying values.

Asset risk is evaluated and managed by a dedicated internal staff of asset managers, managed by seasoned equipment finance professionals with a broad depth and breadth of experience in the leasing business. Additionally, we have partnered with an industry leading, experienced service provider who provides fleet management and servicing relating to the railcar fleet, including lease administration and reporting, a Regulation Y compliant full service maintenance program and railcar re-marketing. Risk is managed by setting appropriate residual values at inception and systematic reviews of residual values based on independent appraisals, performed at least annually. Additionally, our internal management team and our external service provider closely follow the rail markets, monitoring traffic flows, supply and demand trends and the impact of new technologies and regulatory requirements. Demand for railcars is sensitive to shifts in general and industry specific economic and market trends and shifts in trade flows from specific events such as natural or man-made disasters. We seek to mitigate these risks by leasing to a stable ~~end-user~~end user base, by maintaining a relatively young and diversified fleet of assets that are expected to maintain stronger and more stable utilization rates despite impacts from unexpected events or cyclical trends and

by staggering lease maturities. We regularly monitor the impact of oil prices on the estimated residual value of rail cars being used in the petroleum/natural gas extraction sector.

Credit risk in the leased equipment portfolio results from the potential default of lessees, possibly driven by obligor specific or industry-wide conditions, and is economically less significant than asset risk, because in the operating lease business, there is no extension of credit to the obligor. Instead, the lessor deploys a portion of the useful life of the asset. Credit losses, if any, will manifest through reduced rental income due to missed payments, time off lease, or lower rental payments due either to a restructuring or re-leasing of the asset to another obligor. Credit risk in the operating lease portfolio is managed and monitored utilizing credit administration infrastructure, processes and procedures similar to those used to manage and monitor credit risk in the commercial loan portfolio. We also mitigate credit risk in this portfolio by leasing to high credit quality obligors.

Residential and Other Consumer Loans

~~The majority of our~~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 and consumer loans are not individually risk rated. Delinquency status is the primary measure we use to monitor the credit quality of these loans. We also consider original LTV and most recently available FICO score to be significant indicators of credit quality for the 1-4 single family residential portfolio, excluding ~~FSB loans and~~ government insured residential loans.

The following ~~tables show~~charts present information about the ~~distribution of~~ 1-4 single family residential ~~loans,~~portfolio, excluding ~~FSB loans and~~ government insured ~~residential~~ loans, by ~~original~~ FICO distribution, LTV distribution and ~~LTV as of the dates indicated:~~vintage at June 30, 2020:

June 30, 2019
FICO
LTV 720 or less 721 - 740 741 - 760 761 or
greater Total
Less than 60% 2.3 % 2.6 % 4.0 % 16.9 % 25.8 %
60% - 70% 3.0 % 2.6 % 3.8 % 13.3 % 22.7 %
70% - 80% 3.9 % 4.7 % 8.5 % 29.2 % 46.3 %
More than 80% 0.5 % 0.8 % 0.8 % 3.1 % 5.2 %
9.7 % 10.7 % 17.1 % 62.5 % 100.0 %

December 31, 2018
FICO
LTV 720 or less 721 - 740 741 - 760 761 or
greater Total
Less than 60% 2.4 % 2.8 % 4.4 % 18.2 % 27.8 %
60% - 70% 2.7 % 2.4 % 3.8 % 13.4 % 22.3 %
70% - 80% 3.5 % 4.6 % 8.4 % 28.3 % 44.8 %
More than 80% 0.4 % 0.8 % 0.8 % 3.1 % 5.1 %
9.0 % 10.6 % 17.4 % 63.0 % 100.0 %
FICO scores are generally updated at least annually and LTVs are typically based on valuation at origination.

At June 30, ~~2019,~~2020, the majority of the 1-4 single family residential loan portfolio, excluding ~~FSB loans and~~ government insured residential loans, ~~had the following characteristics: substantially all were full documentation with a weighted-average FICO score of 763 and a weighted-average LTV of 68.2%. The majority of this portfolio~~ was owner-occupied, with ~~84.7%~~81% primary residence, ~~7.3%~~8% second homes and ~~8.0%~~11% investment properties. ~~In terms of vintage, 42.1% of the portfolio was originated pre-2016, 18.2% in 2016, 20.4% in 2017, 14.5% in 2018 and 4.8% in 2019.~~

1-4 single family residential loans, excluding government insured residential loans, past due more than 30 days totaled ~~$62.3~~$63.9 million and ~~$23.5~~$66.3 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The increase in loans past due more than 30 days is procedural, attributable to the transfer of the servicing of the residential loan portfolio during the first quarter of 2019. Delinquency levels have started to normalize subsequent to quarter-end. The amount of these loans 90 days or more past due was ~~$10.1~~$11.8 million and ~~$7.0~~$11.1 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

~~Other Consumer Loans~~

~~Substantially all~~At June 30, 2020 and December 31, 2019 other consumer loans were ~~current at~~all current.

The following table presents information about residential loans granted payment deferrals as a result of the COVID-19 pandemic, as of June 30, ~~2019~~2020, excluding government insured residential loans (dollars in millions):




	Balance		% of Portfolio		Balance		% of Initial Deferrals		Balance		% of Portfolio
Residential	$	594	13	%	$	252	42	%	$	52	1	%

For residential borrowers, relief has typically taken the form of 90 day payment deferrals, with deferred payments due at the end of the 90 day period. At the end of the 90 day deferral period, residential borrowers may either (i) make all payments due, (ii) be granted an additional deferral period or (iii) enter into a modification or repayment plan. As indicated in the table above, 42% of residential borrowers granted an initial deferral continued to make payments during the deferral period.

Under recently issued regulatory guidance, residential borrowers granted an initial 90 day deferral are automatically granted an additional 90 day deferral period unless they actively "opt out" of the additional deferral.

Note 4 to the consolidated financial statements presents additional information about key credit quality indicators and ~~December 31, 2018.~~delinquency status of the loan portfolio.

~~Impaired Loans and~~ Non-Performing Assets

Non-performing assets generally consist of (i) non-accrual loans, including loans that have been modified in TDRs and placed on non-accrual status, (ii) accruing loans that are more than 90 days contractually past due as to interest or principal, excluding ~~ACI loans and~~ government insured residential loans, and (iii) OREO and repossessed assets. Impaired loans also typically include loans modified in TDRs that are accruing and ACI loans or pools for which expected cash flows at acquisition (as adjusted for any additional cash flows expected to be collected arising from changes in estimates after acquisition) have been revised downward since acquisition, other than due to changes in interest rate indices and prepayment assumptions.

The following table ~~summarizes~~and charts summarize the Company's ~~impaired~~non-performing loans and non-performing assets at the dates indicated (dollars in thousands):


	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Non-accrual loans
Residential and other consumer:
1-4 single family residential	$	10,807		$	6,316		$	11,234		$	18,877
Home equity loans and lines of credit	30			—
Other consumer loans	277			288			1,949			17
Total residential and other consumer loans	11,114			6,604			13,183			18,894
Commercial:
Multi-family	24,834			25,560			6,011			6,138
Non-owner occupied commercial real estate	27,623			16,050			46,545			40,097
Construction and land	9,418			9,923			3,703			3,191
Owner occupied commercial real estate	21,752			19,789			30,493			27,141
Commercial and industrial	27,176			28,584			67,702			74,757
Commercial lending subsidiaries	16,236			22,733
Bridge - franchise finance							32,857			13,631
Bridge - equipment finance							1,148			20,939
Total commercial loans	127,039			122,639			188,459			185,894
Total non-accrual loans	138,153			129,243			201,642			204,788
Loans past due 90 days and still accruing	—			650			2,606			—
Total non-performing loans	138,153			129,893			204,248			204,788
OREO and repossessed assets	10,042			9,517			4,956			3,897
Total non-performing assets	148,195			139,410			$	209,204		$	208,685
Performing TDRs	31,303			7,898
Total impaired loans and non-performing assets	$	179,498		$	147,308

Non-performing loans to total loans ⁽¹⁾⁽⁴⁾	0.61		%	0.59		%
Non-performing assets to total assets⁽⁴⁾	0.45		%	0.43		%
ALLL to total loans ⁽¹⁾	0.50		%	0.50		%
ALLL to non-performing loans	81.17		%	84.63		%
Net charge-offs to average loans⁽²⁾⁽³⁾	0.05		%	0.28		%

Non-performing loans to total loans ⁽¹⁾							0.86		%	0.88		%
Non-performing assets to total assets⁽¹⁾							0.60		%	0.63		%
ACL to total loans							1.12		%	0.47		%
ACL to non-performing loans							130.29		%	53.07		%
Net charge-offs to average loans ⁽²⁾							0.20		%	0.05		%


(1)	~~Total loans for purposes of calculating these ratios include premiums, discounts and deferred fees and costs.~~


~~(2)~~	~~Annualized for June 30, 2019.~~


~~(3)~~	~~The ratio of charge-offs of taxi medallion loans to average total loans was 0.18% for the year ended December 31, 2018.~~


~~(4)~~	Non-performing loans and assets include the guaranteed portion of non-accrual SBA loans totaling ~~$28.4~~$45.7 million or ~~0.13%~~0.19% of total loans and ~~0.09%~~0.13% of total assets, at June 30, ~~2019;~~2020; compared to ~~$17.8~~$45.7 million or ~~0.08%~~0.20% of total loans and ~~0.06%~~0.14% of total assets, at December 31, ~~2018.~~2019.


(2)	Annualized for June 30, 2020.

~~Contractually delinquent ACI loans with remaining accretable yield are not reflected as non-accrual~~

The following chart presents trends in non-performing loans and ~~are~~non-performing assets:

The following chart presents trends in non-performing loans by portfolio sub-segment (in millions):

The ultimate impact of the recent and evolving COVID-19 pandemic may not ~~considered to~~ be reflected in the level of non-performing assets ~~because accretion continues~~reported above. The potential effect on non-performing asset levels may be delayed in the near-term due to be recorded in income. Accretion continues to be recorded as long as there is an expectation of future cash flows in excess of carrying amount from these loans. The carrying value of ACI loans contractually delinquent by more than 90 days but on which income was still being recognized was immaterial at June 30, 2019government assistance and ~~December 31, 2018.~~ loan deferral programs.

Contractually delinquent government insured residential loans are excluded from non-performing loans as defined in the table ~~above.~~above due to their government guarantee. The carrying value of such loans contractually delinquent by more than 90 days was ~~$287~~$669 million and ~~$218~~$529 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The increase of ACL to total loans and ACL to non-performing loans ratios at June 30, 2020 from December 31, 2019 is attributable to the adoption of CECL effective January 1, 2020 and the impact on the provision for credit losses recorded during the six months ended June 30, 2020 resulting from changes in economic conditions, our economic forecast and borrower financial performance as a result of COVID-19.

Commercial ~~loans, other than ACI~~ loans are placed on non-accrual status when (i) management has determined that full repayment of all contractual principal and interest is in doubt, or (ii) the loan is past due 90 days or more as to principal or interest unless the loan is well secured and in the process of collection. Residential and consumer loans, other than ~~ACI loans and~~ government insured pool buyout loans, are generally placed on non-accrual status when they are 90 days ~~of interest is due and unpaid.~~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 ~~of interest is due and unpaid.~~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, extensions of maturity at below market terms, or in some cases, partial forgiveness of principal. ~~Under GAAP, modified ACI loans accounted for in pools are not accounted for as TDRs and are not separated from their respective pools when modified.~~ Included in TDRs are residential loans to borrowers who have not reaffirmed their debt discharged in Chapter 7 bankruptcy.

Under recently issued inter-agency and authoritative guidance and consistent with the CARES Act, short-term (generally periods of six months or less) deferrals or modifications related to COVID-19 will typically not be categorized as TDRs. All of the COVID-19 related deferrals the Company has granted to date fall into this category. See the sections entitled "Asset Quality - Commercial Loans - Payment Deferrals" and "Asset Quality - Residential and Other Consumer Loans" " for further discussion.

The following table summarizes loans that have been modified in TDRs at ~~June 30, 2019~~the dates indicated (dollars in thousands):


	Number of TDRs	Recorded Investment		Related Specific Allowance		June 30, 2020					December 31, 2019
Residential and other consumer	90	$	14,572	$	15
						Number of TDRs	Amortized Cost		Related Specific Allowance		Number of TDRs	Amortized Cost		Related Specific Allowance
Residential and other consumer ⁽¹⁾						248	$	38,736	$	35	361	$	57,117	$	12
Commercial	29	65,472		4,075		30	62,100		5,644		25	56,736		6,311
	119	$	80,044	$	4,090	278	$	100,836	$	5,679	386	$	113,853	$	6,323


(1)	Includes 232 government insured residential loans modified in TDRs totaling $34.9 million at June 30, 2020; and 346 government insured residential loans modified in TDRs totaling $53.4 million at December 31, 2019.

See Note 4 to the ~~Consolidated Financial Statements~~consolidated financial statements for additional information about TDRs.

~~Potential Problem Loans~~

Potential problem loans have been identified by management as those commercial loans included in the "substandard accruing" risk rating category. These loans are typically performing, but possess specifically identified credit weaknesses that, if not remedied, may lead to a downgrade to non-accrual status and identification as impaired in the near-term. Substandard accruing commercial loans totaled $180 million and $96 million at June 30, 2019 and December 31, 2018, respectively, substantially all of which were current as to principal and interest. Management closely monitors each of these loans as well as indicators of potential negative trends developing within any particular portfolio segment. The increase in substandard accruing loans at June 30, 2019 compared to December 31, 2018 does not appear to be concentrated in any one business line, geography, product type or asset class. Management has not identified any specific trends or correlated risk characteristics associated with these downgrades.

Loss Mitigation Strategies

Criticized or classified commercial loans in excess of certain thresholds are reviewed quarterly by the Criticized Asset Committee, which evaluates the appropriate strategy for collection to mitigate the amount of credit losses. Criticized asset reports for each relationship are presented by the assigned relationship manager and credit officer to the Criticized Asset Committee until such time as the relationships are returned to a satisfactory credit risk rating or otherwise resolved. The Criticized Asset Committee may require the transfer of a loan to our workout and recovery department, which is tasked to effectively manage the loan with the goal of minimizing losses and expenses associated with restructure, collection and/or liquidation of collateral. Commercial loans with a risk rating of ~~substandard;~~substandard, impaired loans on non-accrual ~~status;~~status, loans modified as ~~TDRs;~~TDRs or assets classified as OREO or repossessed assets are usually transferred to workout and recovery. Oversight of the workout and recovery department is provided by the Criticized Asset ~~Recovery~~ Committee.

Our servicers evaluate each residential loan in default to determine the most effective loss mitigation strategy, which may be modification, short sale, or foreclosure, and pursue the alternative most suitable to the consumer and to mitigate losses to the bank. In response to the COVID-19 pandemic, we have temporarily suspended new residential foreclosure actions.

In response to the COVID-19 pandemic and its potential economic impact to our customers, we implemented a short-term program that complies with the CARES Act under which we are providing temporary relief on a case by case basis to borrowers directly impacted by COVID-19 who were not more than 30 days past due as of December 31, 2019. See the sections entitled "Asset Quality - Commercial Loans - Payment Deferrals" and "Asset Quality - Residential and Other Consumer Loans" for further details about COVID-19 related payment deferrals. Under recently issued inter-agency guidance and consistent with the CARES Act, deferrals or modifications related to COVID-19 will generally not be categorized as TDRs. Loans subject to these temporary deferrals or modifications, if in compliance with the contractual terms of the deferral or modification agreements, will typically not be reported as past due or classified as non-accrual during the deferral period.

Analysis of the Allowance for ~~Loan and Lease~~Credit Losses

The ~~determination~~ACL is management's estimate of the amount of expected credit losses over the ~~ALLL is, by nature, highly complex and subjective. Future events that are inherently uncertain could result in material changes to the level~~life of the ~~ALLL. General economic~~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 ~~including but not limited to unemployment rates, the level of business investment~~ and ~~growth, real estate values, vacancy rates~~reasonable and rental rates in our primary market areas, the level of interest rates, and a variety of other factors that affect the ability of borrowers’ businesses to generate cash flows sufficient to service their debts will impact the future performance of the portfolio. Adoption of the CECL model in the first quarter of 2020 will result in significant changes to the methodology employed to determinesupportable forecasts. Determining the amount of the ~~ALLL,~~ACL is complex and ~~may materially~~requires extensive judgment by management about matters that are inherently uncertain. There is currently a high level of uncertainty around the impact the ~~amount~~COVID-19 crisis will have on the economy broadly, and on our borrowers specifically. In light of this uncertainty, we believe it is possible that the ~~ALLL recorded~~ACL estimate could change, potentially materially, in future periods. Changes in the ~~consolidated financial statements.~~

~~Commercial loans~~

~~The allowance is comprised of specific reserves for loans that are individually evaluated~~ACL may result from changes in current economic conditions, our economic forecast, and ~~determined to be impaired~~in loan portfolio composition, as well as ~~general reserves for loans~~circumstances not currently known to us that ~~have not been identified as impaired.~~may impact the financial condition and operations of our borrowers, among other factors.

Commercial relationships graded substandard or doubtful and on non-accrual status with committed credit facilities greater than or equal to $1.0 million, as well as loans modified in TDRs, are individually evaluated for impairment. Other commercial relationships on non-accrual status with committed balances under $1.0 million may also be evaluated individually for impairment, at management's discretion. For ~~loans evaluated individually for impairment and determined to be impaired, a specific allowance is established based on~~ the ~~present value of expected cash flows discounted at the loan’s effective interest rate, the estimated fair value~~substantial majority of the loan ~~or the~~portfolio, expected losses are estimated ~~fair value~~using econometric models that employ a factor based methodology to estimate PD and LGD. Projected PDs and LGDs are applied to estimated exposure at default to generate estimates of ~~collateral less costs to sell.~~

We believe that loans rated special mention, substandard or doubtful that are not individually evaluated for impairment exhibit characteristics indicative of a heightened level of credit risk. We apply a quantitativeexpected loss factor for loans rated special mention based on average annual probability of default and implied severity, derived from internal and external data. Loss factors for substandard and doubtful loans that are not individually evaluated are determined by using default frequency and severity information applied at the loan level. ~~Estimated default frequencies~~These loan level estimates are aggregated by portfolio segment and ~~severities are based on available industry and internal data. In addition, we apply~~loan class to generate a ~~floor to these calculated loss factors, based on the loss factor~~collective estimate for groups of loans that share common risk characteristics. Qualitative adjustments may also be applied to ~~the special mention portfolio.~~

~~To the extent,~~incorporate factors that management does not believe have been adequately considered in ~~management's judgment, commercial portfolio segments have sufficient observable loss history,~~ the quantitative ~~portion of the ALLL is based on the Bank's historical net charge-off rates. These commercial segments include owner-occupied commercial real estate~~estimate. For loans ~~commercial and industrial~~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 Bridge portfolios. For commercial portfolio segments that have not yet exhibited an observable loss trend, the quantitative loss factors are based on peer group average annual historical net charge-off rates by loan class and the Company’s internal credit risk rating system. These commercial segments include multifamily, non-owner occupied commercial real estate and construction and land loans. For Pinnacle, quantitative loss factors are based primarily on historical municipal default data. For most commercial portfolio segments, we use a 20 quarter look-back period in the calculation of historical net charge-off rates.

Where applicable, the peer group used to calculate average annual historical net charge-off rates used in estimating general reserves is made up of 24 banks included in the OCC Midsize Bank Group plus five additional banks not included in the OCC Midsize Bank Group that management believes to be comparable based on size, geography and nature of lending operations. Peer bank data is obtained from the Statistics on Depository Institutions Report published by the FDIC for the most recent quarter available. These banks, as a group, are considered by management to be comparable to BankUnited in size, nature of lending operations and loan portfolio composition. We evaluate the composition of the peer group annually, or more frequently if, in our judgment, a more frequent evaluation is necessary. Our internal risk rating system comprises 13 credit grades; grades 1 through 8 are “pass” grades. The risk ratings are driven largely by debt service coverage. Peer group historical loss rates are adjusted upward for loans assigned a lower “pass” rating.

As noted above, we generally use a 20 quarter look-back period to calculate quantitative loss rates. We believe this look-back period to be consistent with the range of industry practice and appropriate to capture a sufficient range of observations reflecting the performance of our loans, which were originated in the current economic cycle. With the exception of the Pinnacle municipal finance portfolio, a four quarter loss emergence period is used in the calculation of general reserves. A twelve quarter loss emergence period is used in the calculation of general reserves for the Pinnacle portfolio.

The primary assumptions underlying estimates of expected cash flows for ACI commercial loans are default probability and severity of loss given default. Assessments of default probability and severity are based on net realizable value analyses prepared at the individual loan level. Based on our analysis, no ALLL related to ACI commercial loans was recorded at June 30, 2019 or December 31, 2018. Commercial ACI loans are not a significant portion of the loan portfolio.

~~Residential and other consumer loans~~

The residential and other consumer loan portfolio has not yet developed an observable loss trend. Therefore, the ALLL for residential loans is based primarily on relevant proxy historical loss rates. The ALLL for 1-4 single family residential loans, excluding government insured residential loans and ACI loans, is estimated using average annual loss rates on prime residential mortgage securitizations issued between 2003 and 2008 as a proxy. Based on the comparability of FICO scores and LTV ratios between loans included in those securitizations and loans in the Bank’s portfolio and the geographic diversity in the new purchased residential portfolio, we determined that prime residential mortgage securitizations provide an appropriate proxy for incurred losses in this portfolio class. A peer group 20-quarter average net charge-off rate is used to estimate the ALLL for the home equity and other consumer loan classes. See further discussion of peer group loss factors above. The home equity and other consumer loan portfolios are not significant components of the overall loan portfolio.

~~Qualitative Factors~~

Qualitative adjustments are made to the ALLL when, based on management’s judgment, there are internal or external factors impacting probable incurred losses not taken into account by the quantitative calculations. Potential qualitative adjustments are categorized as follows:

~~Portfolio performance trends, including trends in and the levels of delinquencies, non-performing loans and classified loans;~~

~~Changes in the nature of the portfolio and terms~~contractual term of the loans, ~~specifically including~~adjusted for expected prepayments.

See Note 1 to the ~~volume~~consolidated financial statements for more detailed information about our ACL methodology and ~~nature of policy and procedural exceptions;~~

~~Portfolio growth trends;~~

~~Changes in lending policies and procedures, including credit and underwriting guidelines and portfolio management practices;~~

~~Economic factors, including unemployment rates and GDP growth rates and other factors considered relevant by management;~~

~~Changes in the value of underlying collateral;~~

~~Quality of risk ratings, as evaluated by our independent credit review function;~~

~~Credit concentrations;~~

~~Changes in and experience levels of credit administration management and staff; and~~

~~Other factors identified by management that may impact the level of losses inherent in the portfolio, including but not limited to competition and legal and regulatory considerations.~~

~~ACI Loans~~

~~For ACI loans, a valuation allowance is established when periodic evaluations of expected cash flows reflect a deterioration resulting from credit~~ related factors from the level of cash flows that were estimated to be collected at acquisition plus any additional expected cash flows arising from revisions in those estimates. We perform a quarterly analysis of expected cash flows for ACI loans.

Expected cash flows for ACI 1-4 single family residential loans are estimated at the pool level. The analysis of expected cash flows incorporates assumptions about expected prepayment rates, default rates, delinquency levels and loss severity given default.

~~No ALLL related to 1-4 single family residential ACI pools was recorded at June 30, 2019 or December 31, 2018.~~accounting policies.

The following table provides an analysis of the ~~ALLL,~~ACL, provision for ~~loan~~credit losses related to the funded portion of loans and net charge-offs for the periods indicated (in thousands):. For the six months ended June 30, 2020, the ACL was estimated using the CECL methodology. For the six months ended June 30, 2019, prior to the adoption of ASU 2016-13, an incurred loss methodology was used.


	Six Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2020			2019
Balance at beginning of period:	$	109,931		$	144,795		$	108,671		$	109,931
Impact of adoption of ASU 2016-13							27,305			—
							135,976			109,931
Provision for (recovery of) loan losses:
1-4 single family residential	397			(35		)	(8,538		)	397
Home equity loans and lines of credit	(150		)	(8		)	(40		)	(150		)
Other consumer loans	34			137			6			34
Multi-family	(1,330		)	(6,421		)	16,803			(1,330		)
Non-owner occupied commercial real estate	5,309			(3,864		)	75,109			5,309
Construction and land	498			(651		)	766			498
Owner occupied commercial real estate	(2,611		)	2,036			5,205			(2,611		)
Commercial and industrial	6,481			19,096			31,735			6,481
Commercial lending subsidiaries
Pinnacle	(116		)	(36		)	(173		)	(116		)
Bridge - franchise finance	1,094			585			26,527			1,094
Bridge - equipment finance	(2,072		)	1,303			6,049			(2,072		)
Total Provision	7,534			12,142			153,449			7,534
Charge-offs:
1-4 single family residential	—			(239		)	(31		)	—
Other consumer loans	—			(265		)
Non-owner occupied commercial real estate	(1,703		)	(243		)	(552		)	(1,703		)
Construction and land	(76		)	—			—			(76		)
Owner occupied commercial real estate	(174		)	(5,640		)	(187		)	(174		)
Commercial and industrial⁽¹⁾	(4,688		)	(16,513		)
Commercial lending subsidiaries
Commercial and industrial							(2,933		)	(4,688		)
Bridge - franchise finance	(1,203		)	—			(16,561		)	(1,203		)
Bridge - equipment finance							(6,720		)	—
Total Charge-offs	(7,844		)	(22,900		)	(26,984		)	(7,844		)
Recoveries:
Home equity loans and lines of credit	149			4			43			149
Other consumer loans	18			24			2			18
Multi-family							2			—
Non-owner occupied commercial real estate	41			123			82			41
Owner occupied commercial real estate	718			42			92			718
Commercial and industrial	1,594			739			3,012			1,594
Commercial lending subsidiaries
Bridge - franchise finance	—			2			449			—
Total Recoveries	2,520			934			3,682			2,520
Net Charge-offs:	(5,324		)	(21,966		)
Net Charge-offs							(23,302		)	(5,324		)
Balance at end of period	$	112,141		$	134,971		$	266,123		$	112,141


~~(1)~~	~~Includes charge-offs of $13.5 million related to taxi medallion loans during the six months ended June 30, 2018.~~

The following table shows the distribution of the ~~ALLL~~ACL at the dates indicated (dollars in thousands):


	June 30, 2019				December 31, 2018				June 30, 2020				March 31, 2020				January 1, 2020 ⁽¹⁾				December 31, 2019
	Total		%⁽¹⁾		Total		%⁽¹⁾		Total		%⁽²⁾		Total		%⁽²⁾		Total		%⁽²⁾		Total		%⁽²⁾
Residential and other consumer:
1 - 4 single family residential	$	11,023	23.0	%	$	10,626	22.2	%
Home equity loans and lines of credit	2		0.1	%	3		—	%
Other consumer loans	211		—	%	159		0.1	%
Residential portfolio segment									$	10,695	23.5	%	$	12,576	24.4	%	$	19,252	24.5	%	$	11,154	24.5	%
	11,236		23.1	%	10,788		22.3	%
Commercial:
Multi-family	6,069		10.6	%	7,399		11.8	%	21,049		7.9	%	13,087		8.5	%	4,244		9.6	%	5,024		9.6	%
Non-owner occupied commercial real estate	33,905		21.9	%	30,258		21.4	%	84,436		20.7	%	25,078		21.5	%	9,798		21.7	%	23,240		21.7	%
Construction and land	1,800		1.1	%	1,378		1.0	%	3,384		1.0	%	2,610		1.0	%	2,618		1.1	%	764		1.1	%
CRE portfolio segment									108,869				40,775				16,660				29,028

Owner occupied commercial real estate	7,732		9.2	%	9,799		9.7	%	36,416		8.6	%	50,685		8.7	%	31,306		8.9	%	8,066		8.9	%
Commercial and industrial	37,703		22.9	%	34,316		21.9	%	84,142		28.1	%	106,964		25.3	%	52,326		23.4	%	43,485		23.4	%
Commercial lending subsidiaries
Pinnacle	759		5.6	%	875		6.6	%	238		5.1	%	585		5.0	%	411		5.2	%	720		5.2	%
Bridge - franchise finance	5,451		2.6	%	5,560		2.4	%	19,446		2.6	%	32,910		2.8	%	9,030		2.6	%	9,163		2.6	%
Bridge - equipment finance	7,486		3.0	%	9,558		2.9	%	6,317		2.5	%	6,084		2.8	%	6,991		3.0	%	7,055		3.0	%
Commercial portfolio segment									146,559				197,228				100,064				68,489
	100,905		76.9	%	99,143		77.7	%	$	266,123	100.0	%	$	250,579	100.0	%	$	135,976	100.0	%	$	108,671	100.0	%
	$	112,141	100.0	%	$	109,931	100.0	%


(1)	Adoption date of ASU 2016-13.


(2)	Represents percentage of loans receivable in each category to total loans receivable.

Changes in the ACL for the first quarter of 2020:

The ~~balance~~following chart depicts the changes in the ACL from December 31, 2019 to March 31, 2020 (in millions):

The increase in the ACL from January 1, 2020, the date of initial adoption of ASC 326, to March 31, 2020 was primarily due to changes in our reasonable and supportable economic forecast, in large part resulting from the estimated impact of the ~~ALLL~~emerging COVID-19 pandemic, which added $93.3 million to the ACL. An increase in specific reserves, primarily related to the franchise finance portfolio, contributed an additional $16.1 million to the increase in the ACL for the three months ended March 31, 2020. The ACL for residential and other consumer loans decreased from January 1, 2020 to March 31,2020. This decline was primarily attributable to the introduction of a qualitative loss factor related to model imprecision.

ASU 2016-13 was adopted effective January 1, 2020, increasing the ACL by $27.3 million. In general, the change in methodology resulted in increased reserves due to the transition to a lifetime expected loss model from an incurred loss model. However, as noted in the table above, there are certain CRE portfolios where the reserve decreased. This was mainly driven by the use of quantitative models to estimate the ACL at the loan level, specific to the Company's portfolio, under CECL, instead of the peer group historical losses rates utilized under the prior incurred loss model. Certain qualitative factors were also removed, as their impact was captured in the quantitative estimate under CECL.

Changes in the ACL for the second quarter of 2020

The ACL increased by $15.5 million from March 31, 2020 to June 30, ~~2019 increased $2.2 million from~~2020. At a high level, increases in the ~~balance at December 31, 2018,~~ACL for CRE portfolio segments offset a decline in the ACL for most other commercial portfolio segments during the quarter, while the ~~ratio of~~ACL for the ~~ALLL~~residential segment did not change materially. Significant offsetting factors contributing to ~~total loans remained consistent at 0.50%. Factors influencing~~ the change in the ~~ALLL~~ACL for the second quarter are depicted in the chart below (in millions):

The following charts depict the changes in the ACL by major portfolio segment from March 31, 2020 to June 30, 2020 (in millions):

In the aggregate, the ACL for the CRE portfolio segments, including multi-family, non-owner occupied CRE and construction and land, increased by $68.1 million during the quarter ended June 30, 2020. The primary factors contributing to this increase were:

deterioration in current economic conditions and in the economic forecast, particularly unemployment levels and commercial property forecasts; and

a qualitative overlay based on data collected from borrowers reflecting recent deterioration in operating results or financial condition.

In the aggregate, the ACL for the commercial portfolio segments declined by $50.7 million during the quarter ended June 30, 2020. The largest segments in this group are commercial and industrial and owner-occupied CRE; the Bridge and Pinnacle portfolios are also included. The most significant offsetting factors contributing to this decrease were:

an increase related to ~~specific loan types~~deterioration in current economic conditions compared to the prior quarter-end, offset by a decrease related to the forward path of the economic forecast, particularly the path of the volatility index and the S&P 500 index which improved from the prior quarter-end;

a decrease related to changes in assumptions about expected prepayments; and

an increase from a qualitative overlay based on data collected from borrowers that reflected recent deterioration in operating results or financial condition.

The ACL for the franchise finance portfolio declined in part due to charge-offs taken during the second quarter.

The econometric models we use to estimate expected credit losses ingest a wide array of national, regional and MSA level economic variables and data points. Some of the data points informing the reasonable and supportable economic forecast used in estimating the ACL at June 30, ~~2019 as compared~~2020 were:

Unemployment rates starting at 13.4% and declining to ~~December 31, 2018 include:~~9% by the end of 2020, and to 7% by the end of 2021;

~~A decrease of $1.3 million for multi-family loans was primarily attributable to a decrease~~Annualized growth in GDP starting at negative (27%) with recovery beginning in the ~~balance~~third quarter of ~~loans outstanding~~2020 and ~~a decrease~~returning to pre-recession levels in ~~quantitative~~2023;

VIX trailing average starting at 32, remaining elevated through 2020, and ~~qualitative loss factors.~~then trending downward; and

An increase of $3.6 million for non-owner occupied commercial real estate loans was primarily attributable to increases in certain qualitative loss factors, as well as growth in the corresponding portfolio.

~~A decrease of $2.1 million for owner occupied commercial real estate loans was primarily attributable to a decrease in quantitative~~S&P 500 starting at 2900 and ~~qualitative loss factors, a decrease in the specific reserve for one impaired loan relationship and a decline in the portfolio balance.~~declining moderately through 2020 before increasing.

An increase of $3.4 million for other commercial and industrial loans was attributable to loan growth, an increase in specific reserves, partially offset by net decreases in quantitative and qualitative loss factors.


•	~~A decrease of~~ ~~$2.1 million~~ ~~for equipment finance loans was primarily attributable to a decrease in the specific reserve for one impaired loan relationship and a decline in qualitative loss factors.~~

For additional information about the ~~ALLL,~~ACL, see Note 4 to the consolidated financial statements.

Deposits

Average balances and rates paid on deposits were as follows for the periods indicated (dollars in thousands):


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended June 30,								Six Months Ended June 30,
	2019				2018				2019				2018				2020				2019				2020				2019
	Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		Average Balance		Average Rate Paid
Demand deposits:
Non-interest bearing	$	3,932,716	—	%	$	3,315,851	—	%	$	3,769,828	—	%	$	3,306,238	—	%	$	5,313,009	—	%	$	3,932,716	—	%	$	4,840,781	—	%	$	3,769,828	—	%
Interest bearing	1,773,912		1.41	%	1,621,161		1.04	%	1,738,393		1.38	%	1,610,643		1.05	%	2,448,545		0.78	%	1,773,912		1.41	%	2,311,086		1.02	%	1,738,393		1.38	%
Money market	10,710,550		1.95	%	10,260,713		1.30	%	10,964,547		1.93	%	10,365,109		1.21	%	10,270,027		0.68	%	10,710,550		1.95	%	10,251,575		1.08	%	10,964,547		1.93	%
Savings	214,030		0.28	%	292,911		0.25	%	223,271		0.28	%	310,659		0.26	%	180,283		0.09	%	214,030		0.28	%	179,681		0.14	%	223,271		0.28	%
Time	6,944,862		2.40	%	6,475,569		1.72	%	6,926,041		2.34	%	6,395,299		1.61	%	7,096,097		1.59	%	6,944,862		2.40	%	7,303,083		1.82	%	6,926,041		2.34	%
	$	23,576,070	1.70	%	$	21,966,205	1.19	%	$	23,622,080	1.68	%	$	21,987,948	1.12	%	$	25,307,961	0.80	%	$	23,576,070	1.70	%	$	24,886,206	1.07	%	$	23,622,080	1.68	%

The following table shows scheduled maturities of certificates of deposit with denominations greater than or equal to $100,000 as of June 30, ~~2019~~2020 (in thousands):


Three months or less	$	815,410	$	833,151
Over three through six months	533,385		967,778
Over six through twelve months	1,882,466		1,284,607
Over twelve months	299,722		166,568
	$	3,530,983	$	3,252,104

~~FHLB Advances, Notes and Other~~ Borrowings

In addition to deposits, we utilize FHLB advances ~~to fund growth in interest earning assets;~~as a funding source; the advances provide us with additional flexibility in managing both term and cost of ~~funding.~~funding and in managing interest rate risk. FHLB advances are secured by FHLB stock, qualifying residential first mortgage and commercial real estate loans, and MBS.

We have utilized the Federal Reserve's PPPLF to fund PPP loans. These borrowings bear interest at 0.35%, are secured by PPP loans, and mature as the underlying PPP loans are repaid. FHLB and PPPLF borrowings consisted of the following at the dates indicated (in thousands):



	June 30, 2020		December 31, 2019
FHLB advances, net of hedge accounting fair value adjustments	$	3,999,573	$	4,480,501
PPPLF borrowings	651,026		—
	$	4,650,599	$	4,480,501

The contractual balance of FHLB advances outstanding at June 30, ~~2019~~2020 is scheduled to mature as follows (in thousands):


Maturing in:
2019—One month or less	$	2,055,000
2019—Over one month	1,026,000
2020	1,975,000
2020—One month or less			$	1,470,000
2020—Over one month			2,176,000
2021	275,000		250,000
Thereafter			100,000
Total contractual balance outstanding			3,996,000
Cumulative fair value hedging adjustments			3,573
Carrying value	$	5,331,000	$	3,999,573

The table above reflects contractual maturities of outstanding FHLB advances, and does not incorporate the impact that interest rate swaps designated as ~~cash flow~~ hedges have on the duration of borrowings. See Note 7 to the consolidated financial statements for more information about derivative instruments.

Outstanding ~~senior~~ notes payable and other borrowings consisted of the following at the dates indicated (in thousands):

June 30, 2019 December 31, 2018
Senior notes $ 394,735
$ 394,390
Finance leases 8,926
8,359
$ 403,661
$ 402,749

~~Senior notes have a face amount of $400 million, a fixed coupon rate of 4.875% and mature on November 17, 2025.~~



	June 30, 2020			December 31, 2019
Senior notes:
Principal amount of 4.875% senior notes maturing on November 17, 2025	$	400,000		$	400,000
Unamortized discount and debt issuance costs	(4,547		)	(4,910		)
	395,453			395,090
Subordinated notes:
Principal amount of 5.125% subordinated notes maturing on June 11, 2030	300,000			—
Unamortized discount and debt issuance costs	(6,116		)	—
	293,884			—
Total outstanding notes payable	689,337			395,090
Finance leases	32,995			34,248
Notes and other borrowings	$	722,332		$	429,338

~~The Bank utilizes federal funds purchased to manage the daily cash position. At June 30, 2019, the Company had $99 million in federal funds purchased.~~

Capital Resources

Pursuant to the FDIA, the federal banking agencies have adopted regulations setting forth a five-tier system for measuring the capital adequacy of the financial institutions they supervise. At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, BankUnited and the Company had capital levels that exceeded both the regulatory well-capitalized guidelines and all internal capital ratio targets.

~~Stockholders' equity remained relatively flat compared to December 31, 2018. The repurchase of common shares and payment of dividends were largely offset by the retention of earnings.~~ ~~Our dividend payout ratio was 25.9%~~ ~~and~~ ~~28.8% for the three and~~ ~~six months ended June 30, 2019, respectively, compared to 25.5% and 26.2% for the three and~~ ~~six months ended June 30, 2018, respectively.~~

In January 2019 the Board of Directors of the Company authorized the repurchase of up to an additional $150 million in shares of its outstanding common stock, subject to any applicable regulatory approvals. Any repurchases will be made in accordance with applicable securities laws from time to time in open market or private transactions. The extent to which the Company repurchases shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, the Company’s capital position, regulatory requirements and other considerations. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time.

During the quarter ended June 30, 2019, the Company repurchased approximately 3.0 million shares of its common stock for an aggregate purchase price of approximately $102 million. During the six months ended June 30, 2019, the Company repurchased approximately 4.1 million shares of its common stock for an aggregate purchase price of approximately $142 million, at a weighted average price of $34.44 per share.

The following table provides information regarding regulatory capital for the Company and the Bank as of June 30, ~~2019~~2020 (dollars in thousands):

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 $ 2,805,540
8.61 %
N/A ⁽¹⁾

N/A⁽¹⁾

$ 1,302,846
4.00 %
N/A⁽¹⁾

N/A⁽¹⁾

CET1 risk-based capital $ 2,805,540
11.95 % $ 1,525,425
6.50 % $ 1,056,063
4.50 % $ 1,642,765
7.00 %
Tier 1 risk-based capital $ 2,805,540
11.95 % $ 1,877,446
8.00 % $ 1,408,085
6.00 % $ 1,994,787
8.50 %
Total risk based capital $ 2,920,497
12.44 % $ 2,346,808
10.00 % $ 1,877,446
8.00 % $ 2,464,148
10.50 %
BankUnited:

Tier 1 leverage $ 3,013,135
9.28 % $ 1,623,836
5.00 % $ 1,299,069
4.00 % N/A
N/A
CET1 risk-based capital $ 3,013,135
12.88 % $ 1,520,227
6.50 % $ 1,052,465
4.50 % $ 1,637,167
7.00 %
Tier 1 risk-based capital $ 3,013,135
12.88 % $ 1,871,049
8.00 % $ 1,403,286
6.00 % $ 1,987,989
8.50 %
Total risk based capital $ 3,128,092
13.37 % $ 2,338,811
10.00 % $ 1,871,049
8.00 % $ 2,455,751
10.50 %



	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	$	2,874,094	8.46	%	N/A ⁽¹⁾		N/A⁽¹⁾		$	1,359,339	4.00	%	N/A⁽¹⁾		N/A⁽¹⁾
CET1 risk-based capital	$	2,874,094	12.19	%	$	1,533,087	6.50	%	$	1,061,368	4.50	%	$	1,651,017	7.00	%
Tier 1 risk-based capital	$	2,874,094	12.19	%	$	1,886,876	8.00	%	$	1,415,157	6.00	%	$	2,004,806	8.50	%
Total risk based capital	$	3,381,536	14.34	%	$	2,358,595	10.00	%	$	1,886,876	8.00	%	$	2,476,525	10.50	%
BankUnited:
Tier 1 leverage	$	3,147,423	9.29	%	$	1,694,528	5.00	%	$	1,355,622	4.00	%	N/A		N/A
CET1 risk-based capital	$	3,147,423	13.42	%	$	1,524,283	6.50	%	$	1,055,273	4.50	%	$	1,641,535	7.00	%
Tier 1 risk-based capital	$	3,147,423	13.42	%	$	1,876,040	8.00	%	$	1,407,030	6.00	%	$	1,993,293	8.50	%
Total risk based capital	$	3,354,864	14.31	%	$	2,345,050	10.00	%	$	1,876,040	8.00	%	$	2,462,303	10.50	%

1)(1) There is no Tier 1 leverage ratio component in the definition of a well-capitalized bank holding company.

~~Beginning January 1, 2019,~~The Company initially elected to phase-in the ~~Bank~~initial impact of adopting CECL for regulatory capital purposes, allowing CECL's regulatory capital effects to be phased in at 25 percent per year, beginning in the first year of adoption. As part of its response to the impact of COVID-19, our banking regulators issued an inter-agency interim final rule providing the option to temporarily delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period. The Company has elected to adopt the provisions of this interim final rule.

Total stockholders' equity decreased by approximately $226 million at June 30, 2020 compared to December 31, 2019. The most significant reason for this decrease was the repurchase of common shares, followed by a comprehensive loss of $66 million for the six months ended June 30, 2020. The comprehensive loss included an increase of $111 million in accumulated other comprehensive loss, attributed to an increase in unrealized losses on AFS securities and derivative instruments. See the section of this Management's Discussion and Analysis entitled "Analysis of Financial Condition; Investment Securities" and Note 3 to the consolidated financial statements for further discussion of unrealized losses on AFS securities. Management expects to recover the entire amortized cost basis of its AFS securities. Unrealized losses on derivative instruments designated as hedging instruments were attributable to reductions in benchmark interest rates. Other factors contributing to the decrease in total stockholders equity were the initial adoption of ASU 2016-13 which impacted retained earnings by $24 million, and dividends in the amount of $44 million.

During the first quarter of 2020, the Company repurchased approximately 3.3 million shares of its common stock for an aggregate purchase price of $101 million, at a weighted average price of $30.36 per share. The Company has temporarily suspended its share repurchase program.

We believe we are well positioned, from a capital perspective, to withstand a severe downturn in the economy. In light of the COVID-19 crisis, uncertainty around its ultimate impact on the economy and, by extension, on our financial condition and results of operations, we have enhanced our stress testing framework. We have increased both the frequency of stress testing and the spectrum of scenarios utilized. One exercise we completed was to stress our March 31, 2020 loan portfolio using both the 2018 DFAST severely adverse scenario and the 2020 DFAST severely adverse scenario. The results of each of these stress tests projected regulatory capital ratios in excess of all well capitalized thresholds.

We have an active shelf registration statement on file with the SEC that allows the Company ~~are required~~ to ~~maintain~~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. We successfully accessed the capital markets in the second quarter of 2020, augmenting our regulatory Tier 2 capital with a ~~capital conservation buffer composed~~$300 million issuance of CET1 capital equal to 2.50% of risk-weighted assets above the amounts required to be adequately capitalized in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers.subordinated notes.

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 been and continue to be met primarily by cash flows from operations, deposit growth, the investment portfolio and FHLB advances.

For the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 net cash provided by operating activities was $320.8 million and $237.8 million, respectively.

The onset of the COVID-19 pandemic led to dislocation and ~~$229.9 million, respectively. When compared with~~volatility in funding and capital markets and evoked widespread concerns about the ~~six months ended~~ongoing functioning of those markets, the availability of liquidity and the economy generally. In response, the Federal Reserve reduced its benchmark interest rate to a target level of 0 - 0.25% and has maintained it at that level to date, actively adjusted the size of its overnight and term repurchase agreement operations, reduced reserve requirements and the cost of discount window borrowings, encouraged banks to utilize the discount window and committed to purchasing large amounts of U.S. Treasury securities and MBS. The U.S. government has announced an unprecedented variety of additional stimulus and measures to support markets, the flow of credit, and systemic liquidity. These include the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility, the Term Asset-Backed Securities Loan Facility, the Municipal Liquidity Facility, the Main Street New Loan Facility, the Main Street Expanded Loan Facility, Paycheck Protection Program loans, the Paycheck Protection Program Liquidity Facility (PPPLF), the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Money Market Mutual Fund Liquidity Facility. These actions appear to have been effective in stabilizing market liquidity.

In response to the onset of COVID-19 and potential concerns that might arise about the stability of liquidity, we initially took a number of precautionary measures to ensure adequacy of liquidity. We took steps to optimize available same day liquidity. We increased the level of cash held on balance sheet, to be prepared to meet potential increased demand for deposit withdrawals and line usage, which to date have not materialized. While we took proactive steps to be prepared for disruptions in liquidity, the COVID-19 pandemic has not been a liquidity event; we have not experienced unusual volatility or stress on our liquidity position to date.

At June 30, ~~2018, operating~~2020, available liquidity totaled approximately $9.8 billion, including cash, borrowing capacity at the Federal Home Loan Bank of Atlanta and the Federal Reserve Discount Window, Federal Funds lines of credit, unpledged agency securities and availability under the PPPLF, as depicted in the following chart:

Additional sources of liquidity include cash flows ~~were negatively impacted by approximately $143 million~~from operations, wholesale deposits, and cash flow from the Bank's amortizing securities and loan portfolios. In the near-term, cash flows from the loan portfolio may be reduced as a result of the daily cash settlement of derivative positions. These settlements, which are reported in cash flows from operating activities, are directly affected by changes in market interest rates. Accretion on ACI loans, which is reflected as a non-cash reduction in net incometemporary payment deferrals granted to ~~arrive at operating cash flows, totaled $33.1 million~~borrowers. This has not to date and $167.8 million for the six months ended June 30, 2019 and 2018, respectively. Accretable yield on ACI loans represents the excess of expected future cash flows over the carrying amount of the loans, and is recognized as interest income over the expected lives of the loans. Amounts recorded as accretion are realized in cash as individual loans are paid down or otherwise resolved; however, the timing of cash realization may differ from the timing of income recognition. These cash flows from the repayment of ACI loans, inclusive of amounts that have been accreted through earnings over time, are recognized as cash flows from investing activities in the consolidated statements of cash flows upon receipt.

~~BankUnited has access~~we do not currently expect it to ~~additional~~materially impact our liquidity through FHLB advances, other collateralized borrowings, wholesale deposits or the sale of available for sale securities. At June 30, 2019, unencumbered investment securities totaled $5.8 billion. At June 30, 2019, BankUnited had available borrowing capacity at the FHLB of $3.6 billion, unused borrowing capacity at the FRB of $430 million and unused Federal funds lines of credit totaling $161 million.position. Management also has the ability to exert substantial control over the rate and timing of ~~growth of the~~ loan ~~portfolio,~~ production,

and resultant requirements for liquidity to fund new loans.

~~Continued growth~~ Since the onset of ~~deposits~~the COVID-19 pandemic, we have not experienced unusual deposit outflows or volatility. Credit line usage, which we have monitored regularly since the onset of COVID-19, has not deviated materially from and ~~loans are~~is currently below our trailing three year average. Our available liquidity may also change as the ~~most significant trends expected to impact the Bank’s liquidity~~FHLB and Federal Reserve Bank reprice our collateral in the ~~near term.~~normal course of business based on June 30, 2020 valuations. Based on our initial analysis, we do not expect the impact to be material to our overall liquidity position.

The ALCO policy has established several measures of liquidity which are typically monitored monthly by the ALCO and quarterly by the Board of Directors. ~~One~~In light of the COVID-19 situation, we have enhanced the frequency and extent of liquidity monitoring and reporting to both executive management and the Board of Directors.

The ALCO policy establishes limits for the ratio of available liquidity to volatile liabilities, the ratio of wholesale funding to total assets, the ratio of brokered deposits to total deposits and a government backed securities holding ratio, measured as the ratio of U.S. Government backed securities to total securities. At June 30, 2020 BankUnited was in compliance with all of these ALCO policy limits.

An additional primary measure of liquidity monitored by management is the ~~30 day~~30-day total liquidity ratio, defined as (a) the sum of cash and cash equivalents, pledgeable securities and a measure of funds expected to be generated by operations over the next 30 days; divided by (b) the sum of potential deposit runoff, liabilities maturing within the 30 day time frame and a measure of funds expected to be used in operations over the next 30 days. ALCO policy thresholds stipulate that BankUnited’s liquidity is considered acceptable if the ~~30 day~~30-day total liquidity ratio exceeds 100%. At June 30, ~~2019,~~2020, BankUnited’s ~~30 day~~30-day total liquidity ratio was ~~200%~~235%. Management also monitors a ~~one year~~one-year liquidity ratio, defined as (a) cash and cash equivalents, pledgeable securities, unused borrowing capacity at the FHLB, and loans and non-agency securities maturing within one year; divided by (b) forecasted deposit outflows and borrowings maturing within one year. This ratio allows management to monitor liquidity over a longer time horizon. The acceptable threshold established by the ALCO for this liquidity measure is 100%. At June 30, ~~2019,~~2020, BankUnited’s ~~one year~~one-year liquidity ratio was ~~160%~~207%. Additional measures of liquidity regularly monitored by the ALCO include the ratio of ~~wholesale funding to total assets, a measure of available liquidity to volatile liabilities, the ratio of brokered deposits to total deposits, the ratio of~~ FHLB advances to total funding, ~~the percentage of investment securities backed by the U.S. government and government agencies and~~ concentrations of large ~~deposits. At June 30, 2019, BankUnited was within acceptable limits established by~~deposits, a measure of on balance sheet available liquidity and the ~~ALCO~~ratio of non-interest bearing deposits to total deposits, which is reflective of the quality and cost, rather than the quantity, of available liquidity. The Company also has a comprehensive contingency liquidity funding plan and conducts a quarterly liquidity stress test, the results of which are reported to the risk committee of the Board of ~~Directors for each of these measures.~~Directors.

As a holding company, BankUnited, Inc. is a corporation separate and apart from its banking subsidiary, and therefore, provides for its own liquidity. BankUnited, Inc.’s main sources of funds include management fees and dividends from the Bank, access to capital markets and ~~to a lesser extent,~~ its own ~~available for sale~~ securities portfolio. There are regulatory limitations that 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.

We expect that our liquidity requirements will continue to be satisfied over the next 12 months through the sources of funds described above.

Interest Rate Risk

~~The~~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 limit exposure to interest rate risk, and to ensure procedures are established to monitor compliance with these policies. The ~~guidelines~~thresholds established by the ALCO are approved at least annually by the Board of ~~Directors.~~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. ~~Simulations are generated based on both static and dynamic balance sheet assumptions.~~ Management continually reviews and refines its interest rate risk management process in response to changes in the interest rate environment and economic climate. Currently, ~~our model projects~~we are modeling instantaneous rate shocks of ~~down 200, down 100,~~ plus 100, plus 200, plus 300 and plus 400 basis point shifts as well as ~~flattening~~a variety of yield curve slope, negative rate and ~~inverted yield curve~~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 Company’s ALCO policy provides that net interest income sensitivity will be considered acceptable if decreases in forecast net interest income in specified parallel rate shock scenarios, generally by policy plus and minus 100, 200, 300 and 400 basis points, are within specified percentages of forecast net interest income in the most likely rate scenario over the next twelve months and in the second year. ~~Currently,~~At June 30, 2020, the most likely rate scenario ~~contemplates four 25 basis point~~assumes that all indices are floored at 0%. We did not apply the minus rate ~~cuts over~~scenarios at June 30, 2020 due to the ~~forecast horizon.~~low level of current interest rates. The following table illustrates the ~~guidelines~~thresholds set forth in the ALCO policy and the impact on forecasted net interest income in the indicated simulated scenarios at June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

Down 200 Down 100 Plus 100 Plus 200 Plus 300 Plus 400
Policy Guidelines:
In year 1 (10.0 )% (6.0 )% (6.0 )% (10.0 )% (14.0 )% (18.0 )%
In year 2 (13.0 )% (9.0 )% (9.0 )% (13.0 )% (17.0 )% (21.0 )%
Model Results at June 30, 2019 - increase (decrease):
In year 1 (10.0 )% (3.3 )% 1.9 % 3.8 % 4.3 % 3.7 %
In year 2 (13.8 )% (5.3 )% 3.2 % 5.2 % 7.1 % 8.0 %
Model Results at December 31, 2018 - increase (decrease):
In year 1 (4.3 )% (0.8 )% 0.3 % (0.9 )% (2.4 )% (5.6 )%
In year 2 (9.7 )% (3.0 )% 3.6 % 4.4 % 4.0 % 3.1 %

The main contributor to the variation in results at June 30, 2019 as compared to the results at December 31, 2018 was the change in the path of the forward rate curve in the most likely scenario. At June 30, 2019, modeled results exceeded policy guidelines in the Down 200 scenario for year 2. Management is currently evaluating a variety of strategies that could potentially be employed to address this result, including but not limited to the re-positioning of a portion of its investment portfolio, restructuring of borrowings, or the use of derivatives.



	Down 100		Plus 100		Plus 200		Plus 300		Plus 400
Policy Thresholds:
In year 1	(6.0	)%	(6.0	)%	(10.0	)%	(14.0	)%	(18.0	)%
In year 2	(9.0	)%	(9.0	)%	(13.0	)%	(17.0	)%	(21.0	)%
Model Results at June 30, 2020 - increase (decrease):
In year 1	N/A		2.6	%	3.7	%	3.5	%	2.5	%
In year 2	N/A		3.0	%	4.9	%	5.3	%	4.7	%
Model Results at December 31, 2019 - increase (decrease):
In year 1	(1.1	)%	1.0	%	0.1	%	(2.1	)%	(5.1	)%
In year 2	(4.8	)%	4.6	%	7.2	%	8.7	%	9.4	%

Management also simulates changes in EVE in various interest rate environments. The ALCO policy has established parameters of acceptable risk that are defined in terms of the percentage change in EVE from a base scenario under eight rate scenarios, derived by implementing immediate parallel movements of plus and down 100, 200, 300 and 400 basis points from current rates. We did not simulate decreases in interest rates ~~greater than 200 basis points~~ at June 30, ~~2019 or December 31, 2018~~2020 due to the ~~relatively~~currently low level of market interest rates. The following table illustrates the acceptable ~~guidelines~~thresholds as established by ALCO and the modeled change in EVE in the indicated scenarios at June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

Down 200 Down 100 Plus 100 Plus 200 Plus 300 Plus 400
Policy Limits (18.0 )% (9.0 )% (9.0 )% (18.0 )% (27.0 )% (36.0 )%
Model Results at June 30, 2019 - increase (decrease): (5.7 )% (1.2 )% (1.5 )% (4.4 )% (8.0 )% (12.0 )%
Model Results at December 31, 2018 - increase (decrease): 0.6 % 2.5 % (3.1 )% (7.5 )% (12.4 )% (17.3 )%



	Down 100		Plus 100		Plus 200		Plus 300		Plus 400
Policy Thresholds	(9.0	)%	(9.0	)%	(18.0	)%	(27.0	)%	(36.0	)%
Model Results at June 30, 2020 - increase (decrease):	N/A		1.4	%	(1.2	)%	(5.1	)%	(9.3	)%
Model Results at December 31, 2019 - increase (decrease):	(1.5	)%	(0.7	)%	(3.1	)%	(6.2	)%	(9.7	)%

These measures fall within an acceptable level of interest rate risk per the ~~guidelines~~thresholds established in the ALCO policy.

Many assumptions were used by the Company to calculate the impact of changes in interest rates, including the change in rates. Actual results may not be similar to the Company’s projections due to several factors including the timing and frequency of rate changes, market conditions, changes in depositor behavior and loan prepayment speeds and the shape of the yield curve. Actual results may also differ due to the Company’s actions, if any, in response to changing rates and conditions.

Derivative Financial Instruments

Interest rate swaps designated as cash flow or fair value hedging instruments are one of the tools we use to manage interest rate risk. These derivative instruments are used to mitigate exposure to changes in interest ~~rates~~cash flows on variable rate borrowings ~~such~~and to changes in the fair value of fixed rate borrowings, in each case caused by fluctuations in benchmark interest rates, as ~~FHLB advances and~~well as to manage duration of liabilities. ~~These interest rate swaps are designated as cash flow hedging instruments.~~ The fair value of ~~these~~derivative instruments designated as hedges is included in other assets and other liabilities in our consolidated balance ~~sheets and changes~~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 June 30, ~~2019,~~2020, outstanding interest rate swaps designated as cash flow hedges had an aggregate notional amount of ~~$3.1 billion.~~$3.0 billion and outstanding interest rate swaps designated as fair value hedges had an aggregate notional amount of $250 million. The aggregate fair value of interest rate swaps designated as cash flow hedges included in other liabilities was ~~$1.5~~$7.2 million.

Interest rate swaps and caps not designated as ~~cash flow~~ hedges had an aggregate notional amount of ~~$2.4~~$3.0 billion at June 30, ~~2019.~~2020. The aggregate fair value of these interest rate swaps and caps included in other assets was ~~$41.4~~$145.8 million and the aggregate fair

value included in other liabilities was ~~$17.8~~$44.9 million. These interest rate swaps and caps were entered into as accommodations to certain of our commercial borrowers. To mitigate interest rate risk associated with these derivatives, the Company enters into offsetting derivative positions with primary dealers.

See Note 7 to the consolidated financial statements for additional information about derivative financial instruments.

Off-Balance Sheet Arrangements

For more information on contractual obligations and commitments, see Note 11 to the consolidated financial statements, the Borrowings section of this MD&A and Off-Balance Sheet Arrangements in the MD&A of the Company's ~~2018~~2019 Annual ~~Report on Form 10-K.~~

~~Critical Accounting Policies and Estimates~~

~~The Company has made no significant changes in its critical accounting policies and significant estimates from those disclosed in the 2018 Annual Report~~report on Form 10-K.

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, particularly in view of the adoption of the CECL accounting methodology, which may impact comparability of operating results to prior periods. This measure also provides a meaningful basis for comparison to other financial institutions and is a measure frequently cited by investors. The following table reconciles the non-GAAP financial measurement of PPNR to the comparable GAAP financial measurement of income before income taxes for the three and six months ended June 30, 2020 and 2019 and the three months ended March 31, 2020 (in thousands):



	Three Months Ended June 30,		Three Months Ended March 31,			Three Months Ended June 30,			Six Months Ended June 30,
	2020		2020			2019			2020		2019
Income (loss) before income taxes (GAAP)	$	96,904	$	(40,422	)	$	108,882		$	56,482	$	199,067
Plus: Provision for (recovery of) credit losses	25,414		125,428			(2,747		)	150,842		7,534
PPNR (non-GAAP)	$	122,318	$	85,006		$	106,135		$	207,324	$	206,601

Recurring operating expenses is a non-GAAP financial measure. Management believes disclosure of this measure provides readers with information that may be useful in comparing current period results to prior periods and in interpreting trends in operational costs, particularly in light of our BankUnited 2.0 initiative. The following table reconciles the non-GAAP financial measurement of recurring operating expenses to the comparable GAAP financial measurement of total non-interest expense for the three and six months ended June 30, 2020 and 2019 (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Total non-interest expense (GAAP)	$	106,370		$	120,085		$	225,238		$	246,775
Less:
Depreciation of operating lease equipment	(12,219		)	(11,489		)	(24,822		)	(23,301		)
Costs incurred directly related to implementation of BankUnited 2.0	(255		)	(6,217		)	(334		)	(12,109		)
COVID-19 expenses	(1,519		)	—			(1,519		)	—
Recurring operating expenses (non-GAAP)	$	92,377		$	102,379		$	198,563		$	211,365

Tangible book value per common share is a non-GAAP financial measure. Management believes this measure is relevant to understanding the capital position and performance of the Company. Disclosure of this non-GAAP financial measure also provides a meaningful base for ~~comparability~~comparison to other financial ~~institutions.~~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 June 30, ~~2019~~2020 (in thousands except share and per share data):

Total stockholders' equity $ 2,867,910
Less: goodwill and other intangible assets 77,696
Tangible stockholders’ equity $ 2,790,214

Common shares issued and outstanding 95,315,633

Book value per common share $ 30.09

Tangible book value per common share $ 29.27

Non-loss share diluted earnings per share is a non-GAAP financial measure. Management believes disclosure of this measure provides readers with information that may be useful in understanding the impact of the covered loans and FDIC indemnification asset on the Company’s earnings for periods prior to the termination of the Single Family Shared-Loss Agreement. The following table reconciles this non-GAAP financial measurement to the comparable GAAP financial measurement of diluted earnings per common share for the three months ended June 30, 2018 (in millions except share and per share data, shares in thousands):

Three Months Ended June 30, 2018
Net Income (GAAP) $ 89.9
Less Loss Share Contribution (25.0 )
Net Income as reported, minus Loss Share Contribution $ 64.9
Diluted earnings per common share, excluding Loss Share Contribution:
Diluted earnings per common share (GAAP) $ 0.82
Less: Net impact on diluted earnings per common share of Loss Share Contribution (non-GAAP) (0.23 )
Non-loss share diluted earnings per common share (non-GAAP) $ 0.59
Non-loss share diluted earnings per share:
Loss Share Contribution $ 25.0
Weighted average shares for diluted earnings per common share (GAAP) 105,471
Impact on diluted earnings per common share of Loss Share Contribution (non-GAAP) 0.24
Impact on diluted earnings per common share of Loss Share Contribution:
Loss Share Contribution, net of tax, allocated to participating securities (1.0 )
Weighted average shares for diluted earnings per common share (GAAP) 105,471
Impact on diluted earnings per common share of Loss Share Contribution allocated to participating securities (non-GAAP) (0.01 )
Net impact on diluted earnings per common share of Loss Share Contribution (non-GAAP) $ 0.23

~~Supplemental Calculations~~

~~Calculation of Loss Share Contribution and Non-Loss Share Earnings Per Share~~

Non-Loss Share Earnings are calculated by removing the total Loss Share Contribution from Net Income. The Loss Share Contribution is a hypothetical presentation of the impact of the covered loans and FDIC indemnification asset on earnings for each respective quarter, reflecting the excess of Loss Share Earnings over hypothetical interest income that could have been earned on alternative assets (in millions except share and per share data):

Three Months Ended June 30, 2018 ⁽³⁾
Net Income As Reported $ 89.9
Calculation of Loss Share Contribution:
Interest Income - Covered Loans (Accretion) $ 84.2
Amortization of FDIC Indemnification Asset (44.3 )
Loss Share Earnings 40.0
Hypothetical interest income on alternate assets ⁽¹⁾
(5.9 )
Loss Share Contribution, pre-tax 34.1
Income taxes ⁽²⁾
(9.0 )
Loss Share Contribution, after tax $ 25.0

Net Income as reported, minus Loss Share Contribution $ 64.9

Diluted Earnings Per Common Share, as Reported $ 0.82
Earnings Per Share, Loss Share Contribution (0.23 )
Non-Loss Share Diluted Earnings Per Share $ 0.59


~~(1)~~	~~See section entitled "Supplemental Calculations - Calculation of Hypothetical Interest Income on Alternate Assets" below for calculation of these amounts and underlying assumptions.~~

~~(2) An assumed marginal tax rate of 26.5% was applied.~~

~~(3) Calculation variances of $0.1 million in the table above are due to rounding.~~

~~Calculation of Hypothetical Interest Income on Alternate Assets~~

The hypothetical interest income calculated below reflects the estimated income that may have been earned if the average balance of covered loans and the FDIC indemnification asset were liquidated and the proceeds assumed to be invested in securities at the weighted average yield on the Company’s investment securities portfolio as reported. Historically, cash received from the repayment, sale, or other resolution of covered loans and cash payments received from the FDIC under the terms of the Shared Loss Agreement have generally been reinvested in non-covered loans or investment securities. There is no assurance that the hypothetical results illustrated below would have been achieved if the covered loans and FDIC indemnification asset had been liquidated and proceeds reinvested (dollars in millions):

Three Months Ended June 30, 2018
Average Balances ⁽¹⁾

Average Covered Loans $ 476
Average FDIC Indemnification Asset 231
Average Loss Share Asset $ 707

Yield
Yield on securities - reported ⁽²⁾
3.33 %
Hypothetical interest income on alternate assets $ 5.9


~~(1)~~	~~Calculated as the simple average of beginning and ending balances reported for each period.~~

~~(2) The weighted average yield on the Company’s investment securities as reported for the applicable quarter.~~



Total stockholders’ equity	$	2,755,053
Less: goodwill and other intangible assets	77,652
Tangible stockholders’ equity	$	2,677,401

Common shares issued and outstanding	92,420,278

Book value per common share	$	29.81

Tangible book value per common share	$	28.97

Item 3. Quantitative and Qualitative Disclosures About Market Risk

See the section entitled “Interest Rate Risk” included in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Form 10-Q, 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.

Effective January 1, 2020, the Company adopted ASU 2016-13. The Company designed new controls and modified existing controls as part of its adoption. These additional internal controls over financial reporting included controls over model governance, assumptions, the determination of a reasonable and supportable economic forecast, and expanded controls over loan level data.

During the quarter ended June 30, ~~2019,~~2020, there were no changes in the Company's internal control over financial reporting, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. We have focused on insuring that our technology systems and internal controls continue to operate effectively in a remote work environment and have not identified any instances in which our control environment has failed to operate effectively. We are continually monitoring and assessing any impact of the COVID-19 situation on our internal controls to address impacts to their design, implementation and operating effectiveness.

PART II. OTHER INFORMATION

Item 1. 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 currently available information and the advice of legal counsel, the likelihood is remote that the impact of these proceedings, either individually or in the aggregate, would be material to the Company’s consolidated financial position, results of operations or cash flows.

We received a subpoena from the United States Department of Justice in October 2019 requesting documentation related to the taxi medallion line of business formerly conducted by the Bank. We are cooperating with this investigation.

Item 1A. Risk Factors

~~Possible replacement of~~The COVID-19 pandemic has caused substantial disruption to the ~~LIBOR benchmark interest rate may have an impact on our~~global economy which has adversely affected, and is expected to continue to adversely affect, the Company’s business ~~financial condition~~ and results of operations. The future impacts of the COVID-19 pandemic on the global economy and the Company’s business, results of operations and financial condition remains uncertain.

In ~~July 2017,~~March 2020, the ~~Financial Conduct Authority,~~World Health Organization declared novel coronavirus disease 2019 (COVID-19) as a ~~regulator~~global pandemic. The pandemic has resulted in governmental authorities implementing numerous measures attempting to contain the spread and impact of financial services firms in the United Kingdom, announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. The announcement indicated that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR, although alternative reference ratesCOVID-19 such as ~~SOFR are under consideration,~~travel bans and ~~it is impossible to predict the effect of any such alternatives~~restrictions, quarantines, shelter in place orders, and limitations on ~~the value of LIBOR-based securities and variable rate loans, subordinated debentures, or other securities or financial arrangements, given LIBOR's role~~business activities, including in determining market interest rates globally. There is uncertainty with respect to the impact a potential discontinuation of LIBOR may have on credit, securities and derivatives markets broadly. Uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans and securities in our portfolio, and may impact themajor markets in which ~~we lend~~the Company and its clients are located or do business. The COVID-19 pandemic, and governmental responses to ~~customers~~the pandemic, have severely negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and ~~the availability~~disruption in financial markets, and ~~cost of hedging instruments~~increased unemployment levels.

This macroeconomic environment has had, and ~~borrowings. If LIBOR rates are no longer available, and we are required~~could continue to implement substitute indices for the calculation of interest rates under our loan agreements with our borrowers, we may incur significant expenses in effecting the transition, and may be subject to disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute indices, which could have, an adverse effect on the Company’s business and operations. Should current economic impacts persist or continue to deteriorate, this macroeconomic environment could have a continued adverse effect on our business and operations, including, but not limited to, decreased demand for the Company’s products and services, protracted periods of lower interest rates, loss of income resulting from forbearances, deferrals and fee waivers provided by the Company to its consumer and commercial borrowers, increased credit losses due to deterioration in the financial condition of our consumer and commercial borrowers, including declining asset and collateral values, which may continue to increase our provision for credit losses and net charge-offs and possible constraints on liquidity and capital, whether due to increases in risk-weighted assets related to supporting client activities or to regulatory actions. The business operations of the Company may also be disrupted if significant portions of its workforce or those of vendors or third-party service providers are unable to work effectively, including because of illness, quarantines, government actions, restrictions in connection with the pandemic, and technology limitations and/or disruptions. The Company also faces an increased risk of litigation and governmental and regulatory scrutiny as a result of the effects of the pandemic on market and economic conditions and actions taken by governmental authorities in response to those conditions.

The extent to which the COVID-19 pandemic impacts the Company’s business, results of ~~operations.~~

~~Management is~~operations, and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic. Moreover, the effects of the COVID-19 pandemic may heighten many of the other risks described in the ~~process~~section entitled “Risk Factors” in our most recent Annual Report on Form 10-K and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K including, but not limited to, financial market conditions, economic conditions, credit risk, interest rate risk, risk of evaluating the impact of the Company's possible transition from LIBOR to an alternative reference rate. To date, the Company has completed a gap assessment, identified the population of its current exposures to LIBOR-indexed instrumentssecurity breaches and ~~the systems and models that may be impacted by the transition, established a formal governance structure for its LIBOR transition and is in the process of designing a detailed implementation plan.~~technology changes.

There have been no material changes in the other risk factors disclosed by the Company in its ~~2018~~2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February ~~27, 2019.~~28, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

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⁽²⁾
April 1 - April 30, 2019 —
$ —
—
$ 110,025,642
May 1 - May 31, 2019 1,312,496
34.77
1,312,496
$ 64,386,442
June 1 - June 30, 2019 1,699,496
33.22
1,699,496
$ 7,934,581
Total 3,011,992
$ 33.89
3,011,992

None.


~~(1)~~	~~The total number of shares purchased during the periods indicated includes shares purchased as part of a publicly announced program.~~

~~(2)~~

On January 22, 2019, the Company's Board of Directors authorized a share repurchase program under which the Company may repurchase up to $150 million of its outstanding common stock. No time limit was set for the completion of the share repurchase program. The authorization does not require the Company to acquire any specified number of common shares and may be commenced, suspended or discontinued without prior notice. Under this authorization, $7,934,581 remained available for purchase at June 30, 2019.

Item 6.

Exhibits



Exhibit Number	Description	Location

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

101.INS	The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL 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

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized this ~~6th~~7th day of August ~~2019.~~2020.



	/s/ Rajinder P. Singh
	Rajinder P. Singh
	Chairman, President and Chief Executive Officer


	/s/ Leslie N. Lunak
	Leslie N. Lunak
	Chief Financial Officer

7183



		Page

	Glossary of Defined Terms	ii

PART I.	FINANCIAL INFORMATION

ITEM 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets	1
	Consolidated Statements of Income	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Statements of Cash Flows	4
	Consolidated Statements of Stockholders’ Equity	6
	Notes to Consolidated Financial Statements	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4041

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	6879

ITEM 4.	Controls and Procedures	6880

PART II.	OTHER INFORMATION

ITEM 1.	Legal Proceedings	6880

ITEM 1A.	Risk Factors	6880

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6981

ITEM 6.	Exhibits	7082

SIGNATURES		7183



Balance at December 31, 2017	$	455,059
Reclassifications from non-accretable difference, net	128,499
Accretion	(369,915		)
Other changes, net ⁽¹⁾	78,204
Balance at December 31, 2018	291,847
Reclassifications to non-accretable difference, net	(429		)
Accretion	(33,103		)
Other changes, net ⁽¹⁾	(6,929		)
Balance at June 30, 2019	$	251,386



	June 30, 2019
	FICO
LTV	720 or less		721 - 740		741 - 760		761 or greater		Total
Less than 60%	$	110,475	$	124,463	$	190,874	$	796,918	$	1,222,730
60% - 70%	139,870		120,664		178,995		625,452		1,064,981
70% - 80%	183,277		221,490		400,406		1,375,700		2,180,873
More than 80%	21,467		35,938		39,863		147,703		244,971
	$	455,089	$	502,555	$	810,138	$	2,945,773	$	4,713,555



	June 30, 2019
ROU assets:
Operating leases	$	87,596
Finance leases	6,627
	$	94,223
Lease liabilities:
Operating leases	$	96,908
Finance leases	8,926
	$	105,834



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	5,046	$	10,080
Finance lease cost:
Amortization of ROU assets	$	359	$	709
Interest on lease liabilities	250		505
Total finance lease cost	$	609	$	1,214



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	250	$	505
Operating cash flows from operating leases	5,216		10,359
Financing cash flows from finance leases	726		1,461
	$	6,192	$	12,325

Lease liabilities recognized from obtaining ROU assets:
Operating lease liabilities recognized upon adoption of ASC 842	$	—	$	104,064
Operating leases	1,597		1,597
Finance leases	—		1,521
	$	1,597	$	107,182



Years ending December 31:
2019	$	21,207
2020	17,629
2021	15,858
2022	12,114
2023	10,311
Thereafter through 2034	42,984
	$	120,103



	June 30, 2019			December 31, 2018
Total minimum lease payments to be received	$	844,442		$	808,921
Estimated unguaranteed residual value of leased assets	8,369			7,355
Gross investment in direct or sales type financing leases	852,811			816,276
Unearned income	(83,943		)	(81,864		)
Initial direct costs	4,728			4,833
	$	773,596		$	739,245



Years Ending December 31:
2019 (excluding the six months ending June 30, 2019)	$	122,931
2020	192,841
2021	132,419
2022	88,202
2023	68,031
Thereafter	240,018
	$	844,442



Years Ending December 31:
2019 (excluding the six months ending June 30, 2019)	$	34,159
2020	62,299
2021	52,949
2022	46,162
2023	37,951
Thereafter through 2034	109,933
	$	343,453



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019		Location of Lease Income on Consolidated Statements of Income
Operating leases	$	17,005	$	34,191	Non-interest income from lease financing
Direct or sales type finance leases	5,489		10,798		Interest income on loans
Total lease income	$	22,494	$	44,989



	Fair Value at		Valuation Technique	Unobservable Input	Range (Weighted Average)
	June 30, 2019		Valuation Technique	Unobservable Input	Range (Weighted Average)
Investment grade	$	13,199	Discounted cash flow	Voluntary prepayment rate	5.00% - 27.20% (15.70%)
				Probability of default	0.10% - 10.00% (2.09%)
				Loss severity	15.00% - 100.00% (41.05%)
				Discount rate	2.40% - 6.15% (3.42%)

Non-investment grade	$	12,327	Discounted cash flow	Voluntary prepayment rate	7.10% - 30.00% (15.48%)
				Probability of default	0.00% - 5.56% (2.26%)
				Loss severity	15.00% - 100.00% (29.87%)
				Discount rate	1.59% - 12.15% (4.61%)



	June 30, 2018								Losses from Fair Value Changes
	Level 1		Level 2		Level 3		Total		Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
OREO and repossessed assets	$	—	$	1,530	$	432	$	1,962	$	(396	)	$	(1,801	)
Impaired loans	$	—	$	26,604	$	54,089	$	80,693	$	(10,966	)	$	(14,157	)



Loans to stabilized properties subject to rent regulation	$	1,364,261
Loans to non-stabilized properties subject to rent regulation	85,168
	$	1,449,429



	June 30, 2019		December 31, 2018
Senior notes	$	394,735	$	394,390
Finance leases	8,926		8,359
	$	403,661	$	402,749



	Down 200		Down 100		Plus 100		Plus 200		Plus 300		Plus 400
Policy Guidelines:
In year 1	(10.0	)%	(6.0	)%	(6.0	)%	(10.0	)%	(14.0	)%	(18.0	)%
In year 2	(13.0	)%	(9.0	)%	(9.0	)%	(13.0	)%	(17.0	)%	(21.0	)%
Model Results at June 30, 2019 - increase (decrease):
In year 1	(10.0	)%	(3.3	)%	1.9	%	3.8	%	4.3	%	3.7	%
In year 2	(13.8	)%	(5.3	)%	3.2	%	5.2	%	7.1	%	8.0	%
Model Results at December 31, 2018 - increase (decrease):
In year 1	(4.3	)%	(0.8	)%	0.3	%	(0.9	)%	(2.4	)%	(5.6	)%
In year 2	(9.7	)%	(3.0	)%	3.6	%	4.4	%	4.0	%	3.1	%



	Three Months Ended June 30, 2018
Net Income (GAAP)	$	89.9
Less Loss Share Contribution	(25.0		)
Net Income as reported, minus Loss Share Contribution	$	64.9
Diluted earnings per common share, excluding Loss Share Contribution:
Diluted earnings per common share (GAAP)	$	0.82
Less: Net impact on diluted earnings per common share of Loss Share Contribution (non-GAAP)	(0.23		)
Non-loss share diluted earnings per common share (non-GAAP)	$	0.59
Non-loss share diluted earnings per share:
Loss Share Contribution	$	25.0
Weighted average shares for diluted earnings per common share (GAAP)	105,471
Impact on diluted earnings per common share of Loss Share Contribution (non-GAAP)	0.24
Impact on diluted earnings per common share of Loss Share Contribution:
Loss Share Contribution, net of tax, allocated to participating securities	(1.0		)
Weighted average shares for diluted earnings per common share (GAAP)	105,471
Impact on diluted earnings per common share of Loss Share Contribution allocated to participating securities (non-GAAP)	(0.01		)
Net impact on diluted earnings per common share of Loss Share Contribution (non-GAAP)	$	0.23



	Three Months Ended June 30, 2018 ⁽³⁾
Net Income As Reported	$	89.9
Calculation of Loss Share Contribution:
Interest Income - Covered Loans (Accretion)	$	84.2
Amortization of FDIC Indemnification Asset	(44.3		)
Loss Share Earnings	40.0
Hypothetical interest income on alternate assets ⁽¹⁾	(5.9		)
Loss Share Contribution, pre-tax	34.1
Income taxes ⁽²⁾	(9.0		)
Loss Share Contribution, after tax	$	25.0

Net Income as reported, minus Loss Share Contribution	$	64.9

Diluted Earnings Per Common Share, as Reported	$	0.82
Earnings Per Share, Loss Share Contribution	(0.23		)
Non-Loss Share Diluted Earnings Per Share	$	0.59



	Three Months Ended June 30, 2018
Average Balances ⁽¹⁾
Average Covered Loans	$	476
Average FDIC Indemnification Asset	231
Average Loss Share Asset	$	707

Yield
Yield on securities - reported ⁽²⁾	3.33		%
Hypothetical interest income on alternate assets	$	5.9



	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⁽²⁾
April 1 - April 30, 2019	—	$	—	—	$	110,025,642
May 1 - May 31, 2019	1,312,496	34.77		1,312,496	$	64,386,442
June 1 - June 30, 2019	1,699,496	33.22		1,699,496	$	7,934,581
Total	3,011,992	$	33.89	3,011,992