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BKU BankUnited

Filed: 5 May 21, 4:44pm

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

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                
For the quarterly period ended March 31, 2021
Commission File Number: 001-35039 

BankUnited, Inc.
(Exact name of registrant as specified in its charter)
Delaware27-0162450
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
14817 Oak LaneMiami LakesFL33016
(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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filerAccelerated filer ☐Emerging growth company
Non-accelerated filerSmaller reporting 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. 
ClassTrading SymbolName of Exchange on Which Registered
Common Stock, $0.01 Par ValueBKUNew York Stock Exchange

The number of outstanding shares of the registrant common stock, $0.01 par value, as of May 3, 2021 was 93,242,811.






BANKUNITED, INC.
Form 10-Q
For the Quarter Ended March 31, 2021
TABLE OF CONTENTS

i


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.
ACLAllowance for credit losses
AFSAvailable for sale
ALCOAsset/Liability Committee
AOCIAccumulated other comprehensive income
APYAnnual Percentage Yield
ARMAdjustable rate mortgage
ASCAccounting Standards Codification
ASUAccounting Standards Update
BKUBankUnited, Inc.
BankUnitedBankUnited, National Association
The BankBankUnited, National Association
BridgeBridge Funding Group, Inc.
Buyout loansFHA and VA insured mortgages from third party servicers who have exercised their right to purchase these loans out of GNMA securitizations
CARES ActCoronavirus Aid, Relief, and Economic Security Act
CECLCurrent expected credit losses
CET1Common Equity Tier 1 capital
C&ICommercial and Industrial
CLOCollateralized loan obligations
CMBSCommercial mortgage-backed securities
CMEChicago Mercantile Exchange
CMOsCollateralized mortgage obligations
COVID-19Coronavirus disease of 2019
CRECommercial real estate
DFASTDodd-Frank Act Stress Test
DSCRDebt Service Coverage Ratio
EPSEarnings per common share
FASBFinancial Accounting Standards Board
FDIAFederal Deposit Insurance Act
FDICFederal Deposit Insurance Corporation
FHAFederal Housing Administration
FHLBFederal Home Loan Bank
FICOFair Isaac Corporation (credit score)
FRBFederal Reserve Bank
GAAPU.S. generally accepted accounting principles
GDPGross Domestic Product
GNMAGovernment National Mortgage Association
HPIHome price indices
HTMHeld to maturity
ISDAInternational Swaps and Derivatives Association
LGDLoss Given Default
LIBORLondon InterBank Offered Rate
LTVLoan-to-value
ii


MBSMortgage-backed securities
MSAMetropolitan Statistical Area
MSLFFederal Reserve Main Street Lending Facility
NRSRONationally recognized statistical rating organization
NYSENew York Stock Exchange
OREOOther real estate owned
PCDPurchased credit-deteriorated
PDProbability of default
PinnaclePinnacle Public Finance, Inc.
PPNRPre-tax, pre-provision net revenue
PPPSmall Business Administration’s Paycheck Protection Program
PPPLFFRB Paycheck Protection Program Liquidity Facility
PSUPerformance Share Unit
RSURestricted Share Unit
SBAU.S. Small Business Administration
SECSecurities and Exchange Commission
S&P 500Standard & Poor's 500 Index
TDRTroubled-debt restructuring
Tri-StateNew York, New Jersey and Connecticut
UPBUnpaid principal balance
VIXCBOE Volatility Index
WARMWeighted-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)
March 31,
2021
December 31,
2020
ASSETS  
Cash and due from banks:  
Non-interest bearing$20,750 $20,233 
Interest bearing1,029,046 377,483 
Cash and cash equivalents1,049,796 397,716 
Investment securities (including securities recorded at fair value of $9,234,784 and $9,166,683)9,244,784 9,176,683 
Non-marketable equity securities177,709 195,865 
Loans held for sale13,770 24,676 
Loans23,361,067 23,866,042 
Allowance for credit losses(220,934)(257,323)
Loans, net23,140,133 23,608,719 
Bank owned life insurance301,881 294,629 
Operating lease equipment, net681,003 663,517 
Goodwill77,637 77,637 
Other assets492,526 571,051 
Total assets$35,179,239 $35,010,493 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Liabilities:  
Demand deposits:  
Non-interest bearing$7,965,658 $7,008,838 
Interest bearing3,096,668 3,020,039 
Savings and money market12,885,645 12,659,740 
Time3,784,111 4,807,199 
Total deposits27,732,082 27,495,816 
Federal funds purchased180,000 
FHLB advances3,022,174 3,122,999 
Notes and other borrowings721,753 722,495 
Other liabilities641,395 506,171 
Total liabilities32,117,404 32,027,481 
Commitments and contingencies00
Stockholders' equity:  
Common stock, par value $0.01 per share, 400,000,000 shares authorized; 93,263,632 and 93,067,500 shares issued and outstanding933 931 
Paid-in capital1,008,603 1,017,518 
Retained earnings2,091,124 2,013,715 
Accumulated other comprehensive loss(38,825)(49,152)
Total stockholders' equity3,061,835 2,983,012 
Total liabilities and stockholders' equity$35,179,239 $35,010,493 
 
1
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 March 31,
 20212020
Interest income:  
Loans$205,335 $234,359 
Investment securities38,501 56,060 
Other1,593 3,720 
Total interest income245,429 294,139 
Interest expense:
Deposits22,376 82,822 
Borrowings26,813 30,741 
Total interest expense49,189 113,563 
Net interest income before provision for credit losses196,240 180,576 
Provision for (recovery of) credit losses(27,989)125,428 
Net interest income after provision for credit losses224,229 55,148 
Non-interest income:
Deposit service charges and fees4,900 4,186 
Gain on sale of loans, net1,754 3,466 
Gain (loss) on investment securities, net2,365 (3,453)
Lease financing12,488 15,481 
Other non-interest income8,789 3,618 
Total non-interest income30,296 23,298 
Non-interest expense:
Employee compensation and benefits59,288 58,887 
Occupancy and equipment11,875 12,369 
Deposit insurance expense7,450 4,403 
Professional fees1,912 3,204 
Technology and telecommunications15,741 12,596 
Depreciation of operating lease equipment12,217 12,603 
Other non-interest expense14,738 14,806 
Total non-interest expense123,221 118,868 
Income (loss) before income taxes131,304 (40,422)
Provision (benefit) for income taxes32,490 (9,471)
Net income (loss)$98,814 $(30,951)
Earnings (loss) per common share, basic$1.06 $(0.33)
Earnings (loss) per common share, diluted$1.06 $(0.33)
2
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 March 31,
 20212020
Net income (loss)$98,814 $(30,951)
Other comprehensive income (loss), net of tax: 
Unrealized gains (losses) on investment securities available for sale: 
Net unrealized holding loss arising during the period(22,485)(213,160)
Reclassification adjustment for net securities gains realized in income(2,955)(1,140)
Net change in unrealized gains (losses) on securities available for sale(25,440)(214,300)
Unrealized losses on derivative instruments: 
Net unrealized holding gain (loss) arising during the period24,611 (80,814)
Reclassification adjustment for net losses realized in income11,156 3,349 
Net change in unrealized losses on derivative instruments35,767 (77,465)
Other comprehensive income (loss)10,327 (291,765)
Comprehensive income (loss)$109,141 $(322,716)

3
The accompanying notes are an integral part of these consolidated financial statements



BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)

 Three Months Ended March 31,
 20212020
Cash flows from operating activities:  
Net income (loss)$98,814 $(30,951)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization and accretion, net(8,202)(5,520)
Provision for (recovery of) credit losses(27,989)125,428 
Gain on sale of loans, net(1,754)(3,466)
(Gain) loss on investment securities, net(2,365)3,453 
Equity based compensation7,669 3,637 
Depreciation and amortization18,142 10,319 
Deferred income taxes6,599 945 
Proceeds from sale of loans held for sale203,155 191,783 
Loans originated for sale, net of repayments(13,036)
Other:
(Increase) decrease in other assets24,498 (25,028)
Increase (decrease) in other liabilities67,832 (194,044)
Net cash provided by operating activities386,399 63,520 
Cash flows from investing activities:  
Purchase of investment securities(920,302)(945,793)
Proceeds from repayments and calls of investment securities535,586 282,822 
Proceeds from sale of investment securities410,242 306,532 
Purchase of non-marketable equity securities(1,199)(79,688)
Proceeds from redemption of non-marketable equity securities19,355 51,638 
Purchases of loans(963,441)(502,628)
Loan originations and repayments, net1,164,935 309,963 
Proceeds from sale of loans, net114,742 9,332 
Acquisition of operating lease equipment(38,875)
Other investing activities(1,771)(11,641)
Net cash used in (provided by) investing activities319,272 (579,463)
4
The accompanying notes are an integral part of these consolidated financial statements



BANKUNITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)



 Three Months Ended March 31,
 20212020
Cash flows from financing activities:  
Net increase in deposits236,266 606,180 
Net decrease in federal funds purchased(180,000)(100,000)
Additions to FHLB borrowings920,000 1,746,000 
Repayments of FHLB borrowings(1,020,000)(1,086,000)
Dividends paid(22,309)(20,775)
Repurchase of common stock(7,263)(100,972)
Other financing activities19,715 23,535 
Net cash provided by (used in) financing activities(53,591)1,067,968 
Net increase in cash and cash equivalents652,080 552,025 
Cash and cash equivalents, beginning of period397,716 214,673 
Cash and cash equivalents, end of period$1,049,796 $766,698 
Supplemental disclosure of cash flow information:
Interest paid$41,379 $111,191 
Income taxes paid, net$39,459 $4,891 
Supplemental schedule of non-cash investing and financing activities:
Transfers from loans to other real estate owned and other repossessed assets$$4,096 
Transfers from loans to loans held for sale$305,028 $164,293 
Dividends declared, not paid$21,405 $21,927 



5
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 December 31, 202093,067,500 $931 $1,017,518 $2,013,715 $(49,152)$2,983,012 
Comprehensive income— — — 98,814 10,327 109,141 
Dividends ($0.23 per common share)— — — (21,405)— (21,405)
Equity based compensation539,711 4,007 — — 4,012 
Forfeiture of unvested shares and shares surrendered for tax withholding obligations(140,084)(1)(5,686)— — (5,687)
Exercise of stock options1,569 — 25 — — 25 
Repurchase of common stock(205,064)(2)(7,261)— — (7,263)
Balance at March 31, 202193,263,632 $933 $1,008,603 $2,091,124 $(38,825)$3,061,835 
Balance at December 31, 201995,128,231 $951 $1,083,920 $1,927,735 $(31,827)$2,980,779 
Impact of adoption of ASU 2016-13— — — (23,817)— (23,817)
Balance at January 1, 202095,128,231 951 1,083,920 1,903,918 (31,827)2,956,962 
Comprehensive loss— — — (30,951)(291,765)(322,716)
Dividends ($0.23 per common share)— — — (21,927)— (21,927)
Equity based compensation687,008 7,666 — — 7,673 
Forfeiture of unvested shares and shares surrendered for tax withholding obligations(143,368)(2)(4,418)— — (4,420)
Exercise of stock options60,000 1,528 — — 1,529 
Repurchase of common stock(3,325,577)(33)(100,939)— — (100,972)
Balance at March 31, 202092,406,294 $924 $987,757 $1,851,040 $(323,592)$2,516,129 
6
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
March 31, 2021



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 69 banking centers located in 14 Florida counties and 4 banking centers located in the New York metropolitan area at March 31, 2021. 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, 2020 filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected in future periods. 
Accounting Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and disclosures of contingent assets and liabilities. Actual results could differ significantly from these estimates.
The most significant estimate impacting the Company's consolidated financial statements is the ACL.
New Accounting Pronouncements Adopted During the Three Months Ended March 31, 2021
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. The Company adopted this ASU on January 1, 2021 with no material impact on the Company’s consolidated financial position, results of operations, and cash flows.
ASU No. 2021-01, Reference Rate Reform (Topic 848). This ASU clarifies that certain optional expedients and exceptions provided for in ASU No. 2020-04 for applying GAAP to contract modifications and hedging relationships apply to derivatives that are affected by the discounting transition. The amendments in this ASU are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The Company elected to adopt this ASU on a retrospective basis. The impact of adoption of this ASU on the Company's consolidated financial position, results of operations, and cash flows was not material.
Accounting Pronouncements Not Yet Adopted
ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU simplifies the accounting for convertible debt and convertible preferred stock by reducing the number of accounting models for these instruments, resulting in fewer embedded conversion features being separately recognized from the host contract. Additionally, this ASU revises the criteria for determining whether contracts in an entity's own equity meet the scope exception from derivative accounting, which will change the population of contracts that are recognized as assets or liabilities. The amendments in this ASU also revise certain aspects of the guidance on calculating earnings per share with respect to convertible instruments and instruments that may be settled in the entity's own shares. This ASU is effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2021. The Company has not finalized its evaluation of the impact of adoption on its consolidated financial position, results of operations, and cash flows, but the impact is not currently expected to be material.
7

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021


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 March 31,
c20212020
Basic earnings per common share: 
Numerator: 
Net income (loss)$98,814 $(30,951)
Distributed and undistributed earnings allocated to participating securities(1,252)
Income (loss) allocated to common stockholders for basic earnings per common share$97,562 $(30,951)
Denominator:
Weighted average common shares outstanding93,075,702 93,944,529 
Less average unvested stock awards(1,205,529)(1,101,370)
Weighted average shares for basic earnings (loss) per common share91,870,173 92,843,159 
Basic earnings (loss) per common share$1.06 $(0.33)
Diluted earnings (loss) per common share:
Numerator:
Income (loss) allocated to common stockholders for basic earnings per common share$97,562 $(30,951)
Adjustment for earnings reallocated from participating securities
Income (loss) used in calculating diluted earnings per common share$97,563 $(30,951)
Denominator:
Weighted average shares for basic earnings (loss) per common share91,870,173 92,843,159 
Dilutive effect of stock options and certain shared-based awards93,540 
Weighted average shares for diluted earnings per common share91,963,713 92,843,159 
Diluted earnings (loss) per common share$1.06 $(0.33)
Potentially dilutive unvested shares and share units totaling 1,283,294 and 1,768,769 were outstanding at March 31, 2021 and 2020, respectively, but excluded from the calculation of diluted earnings (loss) per common share because their inclusion would have been anti-dilutive.
8

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021


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):
March 31, 2021
 Amortized CostGross Unrealized
Carrying Value (1)
 GainsLosses
Investment securities available for sale:
U.S. Treasury securities$119,062 $617 $(4,566)$115,113 
U.S. Government agency and sponsored enterprise residential MBS2,142,807 23,882 (5,168)2,161,521 
U.S. Government agency and sponsored enterprise commercial MBS656,629 5,969 (9,770)652,828 
Private label residential MBS and CMOs1,153,561 9,239 (1,832)1,160,968 
Private label commercial MBS2,639,383 18,785 (11,118)2,647,050 
Single family rental real estate-backed securities636,322 11,766 (665)647,423 
Collateralized loan obligations1,104,027 352 (7,122)1,097,257 
Non-mortgage asset-backed securities189,038 3,761 192,799 
State and municipal obligations212,110 18,562 230,672 
SBA securities227,743 2,274 (3,480)226,537 
9,080,682 $95,207 $(43,721)9,132,168 
Investment securities held to maturity10,000 10,000 
$9,090,682 9,142,168 
Marketable equity securities102,616 
$9,244,784 
9

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021



December 31, 2020
 Amortized CostGross Unrealized
Carrying Value (1)
 GainsLosses
Investment securities available for sale:
U.S. Treasury securities$79,919 $1,307 $(375)$80,851 
U.S. Government agency and sponsored enterprise residential MBS2,389,450 19,148 (3,028)2,405,570 
U.S. Government agency and sponsored enterprise commercial MBS531,724 9,297 (1,667)539,354 
Private label residential MBS and CMOs982,890 16,274 (561)998,603 
Private label commercial MBS(2)
2,514,271 24,931 (12,848)2,526,354 
Single family rental real estate-backed securities636,069 14,877 (58)650,888 
Collateralized loan obligations1,148,724 285 (8,735)1,140,274 
Non-mortgage asset-backed securities246,597 6,898 (234)253,261 
State and municipal obligations213,743 21,966 235,709 
SBA securities233,387 2,093 (3,935)231,545 
 8,976,774 $117,076 $(31,441)9,062,409 
Investment securities held to maturity10,000 10,000 
$8,986,774 9,072,409 
Marketable equity securities104,274 
$9,176,683 
(1)At fair value except for securities held to maturity.
(2)Amortized cost is net of ACL totaling $0.4 million at December 31, 2020.
Investment securities held to maturity at March 31, 2021 and December 31, 2020 consisted of 1 State of Israel bond maturing in 2024. At March 31, 2021 and December 31, 2020 accrued interest receivable on investments totaled $15 million and $17 million, respectively, and is included in other assets in the accompanying consolidated balance sheets.
At March 31, 2021, contractual maturities of investment securities available for sale, adjusted for anticipated prepayments when applicable, were as follows (in thousands):
Amortized CostFair Value
Due in one year or less$1,009,033 $1,012,050 
Due after one year through five years5,576,390 5,618,974 
Due after five years through ten years1,893,637 1,896,667 
Due after ten years601,622 604,477 
 $9,080,682 $9,132,168 
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 $3.8 billion and $4.1 billion at March 31, 2021 and December 31, 2020, respectively.
10

Table of Contents
BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021


The following table provides information about gains and losses on investment securities for the periods indicated (in thousands):
Three Months Ended March 31,
 20212020
Proceeds from sale of investment securities AFS$410,242 $306,532 
Gross realized gains on investment securities AFS$3,992 $1,532 
Gross realized losses on investment securities AFS(25)(2)
Net realized gain3,967 1,530 
Net unrealized losses on marketable equity securities recognized in earnings(1,602)(4,983)
Gain (loss) on investment securities, net$2,365 $(3,453)
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):
 March 31, 2021
 Less than 12 Months12 Months or GreaterTotal
 Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasury securities$69,412 $(4,566)$$$69,412 $(4,566)
U.S. Government agency and sponsored enterprise residential MBS198,887 (1,452)378,588 (3,716)577,475 (5,168)
U.S. Government agency and sponsored enterprise commercial MBS157,330 (9,423)84,164 (347)241,494 (9,770)
Private label residential MBS and CMOs544,804 (1,832)544,804 (1,832)
Private label commercial MBS592,128 (8,576)352,125 (2,542)944,253 (11,118)
Single family rental real estate-backed securities115,200 (665)115,200 (665)
Collateralized loan obligations849,427 (7,122)849,427 (7,122)
SBA securities128,610 (3,480)128,610 (3,480)
 $1,677,761 $(26,514)$1,792,914 $(17,207)$3,470,675 $(43,721)
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021


 December 31, 2020
 Less than 12 Months12 Months or GreaterTotal
 Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasury securities$24,369 $(375)$$$24,369 $(375)
U.S. Government agency and sponsored enterprise residential MBS220,179 (320)370,727 (2,708)590,906 (3,028)
U.S. Government agency and sponsored enterprise commercial MBS152,233 (1,412)44,255 (255)196,488 (1,667)
Private label residential MBS and CMOs141,407 (561)141,407 (561)
Private label commercial MBS1,268,381 (12,771)37,783 (77)1,306,164 (12,848)
Single family rental real estate-backed securities28,758 (58)28,758 (58)
Collateralized loan obligations304,051 (1,171)588,463 (7,564)892,514 (8,735)
Non-mortgage asset-backed securities12,327 (234)12,327 (234)
SBA securities26,240 (298)104,598 (3,637)130,838 (3,935)
 $2,165,618 $(16,966)$1,158,153 $(14,475)$3,323,771 $(31,441)
The Company monitors its investment securities available for sale for credit loss impairment on an individual security basis. No securities were determined to be credit loss impaired during the three months ended March 31, 2021 and 2020. At March 31, 2021 the Company did not have an intent to sell securities that were in significant unrealized loss positions and it was not more likely than not that the Company would be required to sell these securities before recovery of the amortized cost basis, which may be at maturity. In making this determination, the Company considered its current and projected liquidity position, its investment policy as to permissible holdings and concentration limits, regulatory requirements and other relevant factors.
At March 31, 2021, 165 securities available for sale were in unrealized loss positions. The unrealized losses are primarily attributable to changes in interest rates and, in some cases, volatility in the financial markets since their purchase. The amount of impairment related to 51 of these securities was considered insignificant both individually and in the aggregate, totaling approximately $0.5 million and no further analysis with respect to these securities was considered necessary.
The basis for concluding that AFS securities were not credit loss impaired and no ACL was considered necessary at March 31, 2021 is further discussed below.
U.S. Government Agency and Government Sponsored Enterprise Securities
At March 31, 2021, 4 U.S. treasury, NaN U.S. Government agency and sponsored enterprise residential MBS, 11 U.S. Government agency and sponsored enterprise commercial MBS and 11 SBA securities were in unrealized loss positions. The timely payment of principal and interest on these securities is explicitly or implicitly guaranteed by the U.S. Government. As such, there is an assumption of zero credit loss and the Company expects to recover the entire amortized cost basis of these securities.
Private Label Securities:
None of the impaired private label securities had missed principal or interest payments or had been downgraded by a NRSRO at March 31, 2021. 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 March 31, 2021, and incorporated assumptions about voluntary prepayment rates, collateral defaults, delinquencies, severity and other relevant factors as described further below. Our analysis also considered the structural characteristics of each security and the level of credit enhancement provided by that structure.
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Private label residential MBS and CMOs
At March 31, 2021, 8 private label residential MBS and CMOs were in unrealized loss positions. Our analysis of cash flows expected to be collected on these securities incorporated assumptions about collateral default rates, voluntary prepayment rates, loss severity, delinquencies and recovery lag. In developing those assumptions, we took into account collateral quality measures such as FICO, LTV, documentation, loan type, property type, agency availability criteria and performing status. We also regularly monitor sector data including home price appreciation, forbearance, delinquency and prepay trends as well as other economic data which would indicate further stress in the sector. Our March 31, 2021 analysis projected weighted average collateral losses for impaired securities in this category of 2% compared to weighted average credit support of 13%. As of March 31, 2021, all of the impaired securities in this category were externally rated AAA.
Private label commercial MBS
At March 31, 2021, NaN private label commercial MBS were in unrealized loss positions. Our analysis of cash flows expected to be collected on these securities incorporated assumptions about collateral default rates, voluntary prepayment rates, loss severity, delinquencies and recovery lag. In developing those assumptions, we took into account collateral quality and type, loan size, loan purpose and other qualitative factors. We also regularly monitor collateral watch lists, bankruptcy data, special servicing trends, delinquency and other economic data which would indicate further stress in the sector. Unrealized losses in this sector were primarily attributable to changes in benchmark interest rates.
Our March 31, 2021 analysis projected weighted average collateral losses for impaired securities in this category of 11% compared to weighted average credit support of 38%. As of March 31, 2021, 82% of impaired securities in this category, based on carrying value, were externally rated AAA, 11% were rated AA and 7% were rated A.
Single family rental real estate-backed securities
At March 31, 2021, 3 single family rental real estate-backed securities were in unrealized loss positions. Our analysis of cash flows expected to be collected on these securities incorporated assumptions about collateral default rates, loss severity, delinquencies and recovery lag. We regularly monitor sector data including home prices appreciation, forbearance, delinquency and prepay trends as well as other economic data which would indicate further stress in the sector. Our March 31, 2021 analysis projected weighted average collateral losses for this category of 19% compared to weighted average credit support of 45%. As of March 31, 2021, all of the impaired securities in this category were externally rated AAA.
Collateralized loan obligations
At March 31, 2021, NaN collateralized loan obligations were in unrealized loss positions primarily due to widening spreads since the date of purchase. Unrealized losses in this portfolio sector are now lower than their pre-COVID levels in the aggregate. Our analysis of cash flows expected to be collected on these securities incorporated assumptions about collateral default rates, loss severity, and delinquencies, calibrated to take into account idiosyncratic risks associated with the underlying collateral. In developing those assumptions, we took into account each sector’s performance pre, during and post the 2008 financial crisis. We regularly engage with bond managers to monitor trends in underlying collateral including potential downgrades and subsequent cash flow diversions, liquidity, ratings migration, and any other relevant developments. Our March 31, 2021 analysis projected weighted average collateral losses for impaired securities in this category of 22% compared to weighted average credit support of 43%. As of March 31, 2021, 79% of the impaired securities in this category, based on carrying value, were externally rated AAA, 16% were rated AA and 5% were rated A.
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Note 4    Loans and Allowance for Credit Losses
Loans consisted of the following at the dates indicated (dollars in thousands):
 March 31, 2021December 31, 2020
 TotalPercent of TotalTotalPercent of Total
Residential and other consumer:    
1-4 single family residential$4,817,116 20.6 %$4,922,836 20.6 %
Government insured residential1,759,289 7.5 %1,419,074 5.9 %
Other consumer loans6,042 %6,312 0.1 %
 6,582,447 28.1 %6,348,222 26.6 %
Commercial:
Multi-family1,507,462 6.5 %1,639,201 6.9 %
Non-owner occupied commercial real estate4,871,110 20.9 %4,963,273 20.8 %
Construction and land287,821 1.2 %293,307 1.2 %
Owner occupied commercial real estate1,932,153 8.3 %2,000,770 8.4 %
Commercial and industrial4,048,473 17.3 %4,447,383 18.6 %
PPP911,951 3.9 %781,811 3.3 %
Pinnacle1,088,685 4.7 %1,107,386 4.6 %
Bridge - franchise finance524,617 2.2 %549,733 2.3 %
Bridge - equipment finance460,391 2.0 %475,548 2.0 %
Mortgage warehouse lending1,145,957 4.9 %1,259,408 5.3 %
 16,778,620 71.9 %17,517,820 73.4 %
Total loans23,361,067 100.0 %23,866,042 100.0 %
Allowance for credit losses(220,934)(257,323)
Loans, net$23,140,133 $23,608,719 
Premiums, discounts and deferred fees and costs, excluding the non-credit related discount on PCD loans, totaled $35 million and $39 million at March 31, 2021 and December 31, 2020, respectively. The amortized cost basis of residential PCD loans was $110 million and the related amount of non-credit discount was $106 million at March 31, 2021. The ACL related to PCD residential loans was $2.2 million and $2.8 million at March 31, 2021 and December 31, 2020, respectively.
Included in the table above are direct or sales type finance leases totaling $665 million and $670 million at March 31, 2021 and December 31, 2020, respectively. The amount of income recognized from direct or sales type finance leases for the three months ended March 31, 2021 and 2020 totaled $5.4 million and $5.5 million, respectively and is recorded as interest income on loans in the consolidated statements of income.
During the three months ended March 31, 2021 and 2020, the Company purchased 1-4 single family residential loans totaling $963 million and $503 million, respectively. Purchases for the three months ended March 31, 2021 and 2020 included $578 million, and $286 million, respectively, of government insured residential loans.
At March 31, 2021 and December 31, 2020, the Company had pledged loans with a carrying value of approximately $9.4 billion and $9.6 billion, respectively, as security for FHLB advances and Federal Reserve discount window capacity.
At March 31, 2021 and December 31, 2020, accrued interest receivable on loans, net of related ACL, totaled $101 million and $99 million, respectively, and is included in other assets in the accompanying consolidated balance sheets. The amount of interest income reversed on non-accrual loans was not material for the three months ended March 31, 2021 and 2020.
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Allowance for credit losses
The ACL was determined utilizing a 2-year reasonable and supportable forecast period based on a single economic scenario. Activity in the ACL is summarized below for the periods indicated (in thousands):
Three Months Ended March 31,
 20212020
 Residential and Other ConsumerCommercialTotalResidential and Other ConsumerCommercialTotal
Beginning balance, December 31$18,719 $238,604 $257,323 $11,154 $97,517 $108,671 
Impact of adoption of ASU 2016-138,098 19,207 27,305 
Balance after adoption of ASU 2016-1318,719 238,604 257,323 19,252 116,724 135,976 
Provision (recovery)(2,864)(23,442)(26,306)(6,648)128,513 121,865 
Charge-offs(14)(11,978)(11,992)(31)(7,775)(7,806)
Recoveries1,906 1,909 541 544 
Ending balance, March 31$15,844 $205,090 $220,934 $12,576 $238,003 $250,579 
The decrease in the ACL from December 31, 2020 to March 31, 2021 related primarily to the recovery of credit losses recorded during the three months ended March 31, 2021. The recovery of provision was driven largely by an improving economic forecast. The increase in the ACL from January 1, 2020, the date of initial adoption of ASU 2016-13, to March 31, 2020 was reflective of the impact of the COVID-19 pandemic on current economic conditions, the economic forecast and on individual borrowers and portfolio sub-segments.
The following table presents the components of the provision for credit losses for the periods indicated (in thousands):
Three Months Ended March 31,
20212020
Amount related to funded portion of loans$(26,306)$121,865 
Amount related to off-balance sheet credit exposures(1,048)3,563 
Amount related to accrued interest receivable(271)
Amount related to AFS debt securities(364)
Total provision for (recovery of) credit losses$(27,989)$125,428 
Credit quality information
The credit quality of the loan portfolio has been and may continue to be impacted by the continuing COVID-19 crisis, its impact on the economy broadly and more specifically on the Company's individual borrowers. Uncertainty continues to exist about the full extent of this impact and the trajectory of recovery. The ultimate impact may not be fully reflected in some of the credit quality indicators disclosed below. Delinquency statistics may not be fully reflective of the impact of the COVID-19 crisis due to deferral and modification programs offered to affected borrowers.
Credit quality of loans held for investment is continuously monitored by dedicated residential credit risk management and commercial portfolio management functions. The Company also has a workout and recovery department that monitors the credit quality of criticized and classified loans and an independent internal credit review function.
Credit quality indicators for residential loans
Management considers delinquency status to be the most meaningful indicator of the credit quality of residential and other consumer loans, other than government insured residential loans. Delinquency statistics are updated at least monthly. LTV and FICO scores are also important indicators of credit quality for 1-4 single family residential loans other than government insured loans. FICO scores are generally updated at least annually, and were most recently updated in the first quarter of 2021. 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
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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: 
March 31, 2021
Amortized Cost By Origination Year
20212020201920182017PriorTotal
Current$219,576 $1,202,652 $551,812 $330,672 $514,051 $1,917,624 $4,736,387 
30 - 59 Days Past Due32,608 6,878 2,793 2,349 15,438 60,066 
60 - 89 Days Past Due1,172 3,259 4,431 
90 Days or More Past Due3,944 853 11,435 16,232 
$219,576 $1,235,260 $558,690 $338,581 $517,253 $1,947,756 $4,817,116 
December 31, 2020
Amortized Cost By Origination Year
20202019201820172016PriorTotal
Current$1,092,183 $645,993 $374,838 $611,377 $740,749 $1,392,192 $4,857,332 
30 - 59 Days Past Due17,826 5,741 2,564 927 2,913 18,880 48,851 
60 - 89 Days Past Due111 145 435 2,825 3,973 7,489 
90 Days or More Past Due807 1,762 53 1,027 5,515 9,164 
$1,110,120 $652,686 $379,599 $612,357 $747,514 $1,420,560 $4,922,836 
1-4 Single Family Residential credit exposure, excluding government insured residential loans, based on LTV: 
March 31, 2021
Amortized Cost By Origination Year
LTV20212020201920182017PriorTotal
Less than 61%$89,627 $444,289 $121,469 $72,176 $149,738 $698,583 $1,575,882 
61% - 70%58,280 333,773 132,020 81,107 105,229 473,310 1,183,719 
71% - 80%71,669 455,711 294,828 164,433 220,928 734,549 1,942,118 
More than 80%1,487 10,373 20,865 41,358 41,314 115,397 
$219,576 $1,235,260 $558,690 $338,581 $517,253 $1,947,756 $4,817,116 
December 31, 2020
Amortized Cost By Origination Year
LTV20202019201820172016PriorTotal
Less than 61%$395,977 $143,273 $82,199 $174,223 $286,092 $487,487 $1,569,251 
61% - 70 %298,941 151,633 92,928 119,381 184,119 341,159 1,188,161 
71% - 80%413,003 344,998 181,852 271,605 258,931 565,781 2,036,170 
More than 80%2,199 12,782 22,620 47,148 18,372 26,133 129,254 
$1,110,120 $652,686 $379,599 $612,357 $747,514 $1,420,560 $4,922,836 
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1-4 Single Family Residential credit exposure, excluding government insured residential loans, based on FICO score:
March 31, 2021
Amortized Cost By Origination Year
FICO20212020201920182017PriorTotal
760 or greater$182,867 $913,350 $360,569 $199,818 $360,981 $1,333,959 $3,351,544 
720 - 75930,756 234,942 117,967 69,185 96,854 348,809 898,513 
719 or less5,953 86,968 80,154 69,578 59,418 264,988 567,059 
$219,576 $1,235,260 $558,690 $338,581 $517,253 $1,947,756 $4,817,116 
December 31, 2020
Amortized Cost By Origination Year
FICO20202019201820172016PriorTotal
760 or greater$843,199 $435,582 $225,292 $451,304 $549,119 $956,254 $3,460,750 
720 - 759223,831 128,875 84,602 102,859 130,592 256,703 927,462 
719 or less43,090 88,229 69,705 58,194 67,803 207,603 534,624 
$1,110,120 $652,686 $379,599 $612,357 $747,514 $1,420,560 $4,922,836 
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 influencing the level and nature of ongoing monitoring of loans and may impact the estimation of the ACL. Internal risk ratings are updated on a continuous basis. Generally, relationships with balances in excess of defined thresholds, ranging from $1 million to $3 million, are re-evaluated at least annually and more frequently if circumstances indicate that a change in risk rating may be warranted. Since the onset of the COVID-19 pandemic, risk ratings have been re-evaluated for a substantial portion of the commercial portfolio, with a focus on portfolio segments we identified for enhanced monitoring and loans that have been modified or for which we granted temporary payment deferrals. Loans exhibiting potential credit weaknesses that deserve management’s close attention and that could result in deterioration of repayment prospects at some future date if not checked or corrected are categorized as special mention. Loans with well-defined credit weaknesses, including payment defaults, declining collateral values, frequent overdrafts, operating losses, increasing balance sheet leverage, inadequate cash flow from current operations, project cost overruns, unreasonable construction delays, past due real estate taxes or exhausted interest reserves, are assigned an internal risk rating of substandard. A loan with a weakness so severe that collection in full is highly questionable or improbable, but because of certain reasonably specific pending factors has not been charged off, will be assigned an internal risk rating of doubtful. 
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Commercial credit exposure based on internal risk rating:
March 31, 2021
Amortized Cost By Origination YearRevolving Loans
20212020201920182017PriorTotal
Multi-Family
Pass$30,039 $168,936 $251,014 $143,027 $167,997 $364,398 $39,383 $1,164,794 
Special mention15,260 11,204 10,881 37,345 
Substandard20,716 38,331 9,623 32,359 204,294 305,323 
Total Multi-Family$30,039 $189,652 $289,345 $167,910 $211,560 $579,573 $39,383 $1,507,462 
Non-owner occupied commercial real estate
Pass$129,110 $531,385 $1,047,328 $636,932 $405,182 $985,104 $90,983 $3,826,024 
Special mention2,668 30,000 16,181 36,977 22,199 108,025 
Substandard26,120 162,530 72,832 72,857 602,722 937,061 
Total non-owner occupied commercial real estate$129,110 $560,173 $1,239,858 $725,945 $515,016 $1,610,025 $90,983 $4,871,110 
Construction and Land
Pass$$27,795 $132,255 $10,139 $48,307 $27,494 $5,469 $251,459 
Special mention1,047 5,708 8,604 15,359 
Substandard111 2,570 9,250 9,072 21,003 
Total Construction and Land$$28,953 $140,533 $19,389 $56,911 $36,566 $5,469 $287,821 
Owner occupied commercial real estate
Pass$19,605 $228,254 $295,650 $246,467 $221,675 $600,161 $29,849 $1,641,661 
Special mention1,802 4,075 7,160 25,158 29,950 68,145 
Substandard5,565 25,848 25,556 43,420 121,958 222,347 
Total owner occupied commercial real estate$19,605 $235,621 $325,573 $279,183 $290,253 $752,069 $29,849 $1,932,153 
Commercial and industrial
Pass$161,114 $510,874 $699,542 $180,955 $224,376 $213,571 $1,556,288 $3,546,720 
Special mention5,757 40,298 17,911 1,657 2,627 110,670 178,920 
Substandard19,651 123,238 40,754 13,464 49,524 58,791 305,422 
Doubtful— — — — — 17,411 17,411 
Total commercial and industrial$161,114 $536,282 $863,078 $239,620 $239,497 $265,722 $1,743,160 $4,048,473 
PPP
Pass$265,420 $646,531 $— $— $— $— $— $911,951 
Total PPP$265,420 $646,531 $— $— $— $— $— $911,951 
Pinnacle
Pass$26,973 $150,085 $111,993 $65,030 $206,208 $528,396 $$1,088,685 
Total Pinnacle$26,973 $150,085 $111,993 $65,030 $206,208 $528,396 $$1,088,685 
Bridge - Franchise Finance
Pass$2,494 $53,883 $123,704 $24,681 $13,699 $18,325 $$236,786 
Special mention271 8,852 937 685 10,745 
Substandard30,846 108,767 84,298 31,381 21,302 276,594 
Doubtful492 492 
Total Bridge - Franchise Finance$2,494 $85,000 $241,323 $109,916 $45,080 $40,804 $$524,617 
Bridge - Equipment Finance
Pass$35,167 $20,459 $127,129 $58,366 $39,360 $73,088 $$353,569 
Special mention1,792 1,792 
Substandard29,083 26,358 49,589 105,030 
Total Bridge - Equipment Finance$35,167 $20,459 $156,212 $86,516 $88,949 $73,088 $$460,391 
Mortgage Warehouse Lending
Pass$$$$$$$1,145,957 $1,145,957 
Total Mortgage Warehouse Lending$$$$$$$1,145,957 $1,145,957 
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December 31, 2020
Amortized Cost By Origination YearRevolving Loans
20202019201820172016PriorTotal
Multi-Family
Pass$184,287 $264,254 $149,188 $206,768 $203,481 $313,758 $38,509 $1,360,245 
Special mention390 10,985 11,260 8,400 5,300 36,335 
Substandard8,393 25,239 9,645 15,125 43,920 140,299 242,621 
Total Multi-Family$192,680 $289,883 $169,818 $233,153 $255,801 $459,357 $38,509 $1,639,201 
Non-owner occupied commercial real estate
Pass$532,567 $1,070,940 $706,730 $442,599 $462,201 $607,922 $99,627 $3,922,586 
Special mention2,687 56,533 16,271 34,283 43,699 66,370 219,843 
Substandard30,401 132,814 69,507 56,219 288,998 242,905 820,844 
Total non-owner occupied commercial real estate$565,655 $1,260,287 $792,508 $533,101 $794,898 $917,197 $99,627 $4,963,273 
Construction and Land
Pass$20,860 $158,413 $9,003 $48,657 $26,845 $904 $297 $264,979 
Special mention8,010 8,604 4,284 20,898 
Substandard23 1,366 1,287 4,408 346 7,430 
Total Construction and Land$20,883 $159,779 $18,300 $57,261 $35,537 $1,250 $297 $293,307 
Owner occupied commercial real estate
Pass$229,670 $263,138 $251,413 $232,171 $288,403 $361,130 $17,281 $1,643,206 
Special mention2,593 42,485 11,789 41,799 19,839 20,347 17,985 156,837 
Substandard2,615 24,673 21,114 36,411 26,997 79,860 9,057 200,727 
Total owner occupied commercial real estate$234,878 $330,296 $284,316 $310,381 $335,239 $461,337 $44,323 $2,000,770 
Commercial and industrial
Pass$574,601 $759,384 $257,451 $250,787 $165,105 $47,086 $1,882,856 $3,937,270 
Special mention10,387 49,471 17,096 2,451 20,838 2,977 66,385 169,605 
Substandard21,122 120,275 34,045 14,073 29,907 31,478 89,436 340,336 
Doubtful— — — — — 172 172 
Total commercial and industrial$606,110 $929,130 $308,592 $267,311 $215,850 $81,713 $2,038,677 $4,447,383 
PPP
Pass$781,811 $$— $— $— $— $— $781,811 
Total PPP$781,811 $$— $— $— $— $— $781,811 
Pinnacle
Pass$165,218 $118,139 $70,498 $208,568 $203,990 $340,973 $$1,107,386 
Total Pinnacle$165,218 $118,139 $70,498 $208,568 $203,990 $340,973 $$1,107,386 
Bridge - Franchise Finance
Pass$48,741 $91,509 $23,650 $8,745 $11,817 $6,416 $$190,878 
Special mention2,693 54,271 5,175 4,699 2,088 2,667 71,593 
Substandard36,515 101,772 84,064 33,213 16,706 3,297 275,567 
Doubtful10,771 924 11,695 
Total Bridge - Franchise Finance$87,949 $247,552 $123,660 $46,657 $31,535 $12,380 $$549,733 
Bridge - Equipment Finance
Pass$23,684 $137,730 $66,004 $50,000 $36,963 $49,875 $$364,256 
Special mention19,542 16,863 36,405 
Substandard30,762 9,894 34,231 74,887 
Total Bridge - Equipment Finance$23,684 $168,492 $95,440 $101,094 $36,963 $49,875 $$475,548 
Mortgage Warehouse Lending
Pass$$$$$$$1,259,408 $1,259,408 
Total Mortgage Warehouse Lending$$$$$$$1,259,408 $1,259,408 

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At March 31, 2021, the balance of revolving loans converted to term loans was immaterial.
The following tables summarize the Company's commercial credit exposure based on internal risk rating, in aggregate, at the dates indicated (in thousands):
 March 31, 2021
 Multi-FamilyNon-Owner Occupied Commercial Real EstateConstruction
and Land
Owner Occupied Commercial Real EstateCommercial and IndustrialPPPPinnacleBridge - Franchise FinanceBridge - Equipment FinanceMortgage Warehouse LendingTotal
Pass$1,164,794 $3,826,024 $251,459 $1,641,661 $3,546,720 $911,951 $1,088,685 $236,786 $353,569 $1,145,957 $14,167,606 
Special mention37,345 108,025 15,359 68,145 178,920 — — 10,745 1,792 — 420,331 
Substandard - accruing292,624 873,275 16,215 198,896 256,341 — — 240,810 105,030 — 1,983,191 
Substandard non-accruing12,699 63,786 4,788 23,451 49,081 — — 35,784 — 189,589 
Doubtful17,411 492 17,903 
 $1,507,462 $4,871,110 $287,821 $1,932,153 $4,048,473 $911,951 $1,088,685 $524,617 $460,391 $1,145,957 $16,778,620 

 December 31, 2020
 Multi-FamilyNon-Owner Occupied Commercial Real EstateConstruction
and Land
Owner Occupied Commercial Real EstateCommercial and IndustrialPPPPinnacleBridge - Franchise FinanceBridge - Equipment FinanceMortgage Warehouse LendingTotal
Pass$1,360,245 $3,922,586 $264,979 $1,643,206 $3,937,270 $781,811 $1,107,386 $190,878 $364,256 $1,259,408 14,832,025 
Special mention36,335 219,843 20,898 156,837 169,605 — — 71,593 36,405 — 711,516 
Substandard -accruing218,532 756,825 2,676 177,575 285,925 — — 242,234 74,887 — 1,758,654 
Substandard non-accruing24,089 64,019 4,754 23,152 54,411 — — 33,333 — 203,758 
Doubtful172 11,695 11,867 
 $1,639,201 $4,963,273 $293,307 $2,000,770 $4,447,383 $781,811 $1,107,386 $549,733 $475,548 $1,259,408 $17,517,820 
Past Due and Non-Accrual Loans:
The following table presents an aging of loans at the dates indicated (in thousands):
 March 31, 2021December 31, 2020
 Current30 - 59
Days Past
Due
60 - 89
Days Past
Due
90 Days or
More Past
Due
TotalCurrent30 - 59
Days Past
Due
60 - 89
Days Past
Due
90 Days or
More Past
Due
Total
1-4 single family residential$4,736,387 $60,066 $4,431 $16,232 $4,817,116 $4,857,332 $48,851 $7,489 $9,164 $4,922,836 
Government insured residential962,165 97,675 71,361 628,088 1,759,289 722,367 77,883 56,495 562,329 1,419,074 
Other consumer loans6,020 22 6,042 6,022 37 22 231 6,312 
Multi-family1,472,926 24,623 2,844 7,069 1,507,462 1,602,990 17,842 18,369 1,639,201 
Non-owner occupied commercial real estate4,791,332 41,223 2,302 36,253 4,871,110 4,876,823 34,117 20,291 32,042 4,963,273 
Construction and land281,127 5,460 888 346 287,821 288,032 4,530 399 346 293,307 
Owner occupied commercial real estate1,907,656 5,704 3,323 15,470 1,932,153 1,971,475 10,756 3,203 15,336 2,000,770 
Commercial and industrial3,990,577 27,923 7,454 22,519 4,048,473 4,366,009 52,117 552 28,705 4,447,383 
PPP911,951 911,951 781,811 781,811 
Pinnacle1,088,685 1,088,685 1,107,386 1,107,386 
Bridge - franchise finance484,927 10,664 4,157 24,869 524,617 498,831 16,423 8,664 25,815 549,733 
Bridge - equipment finance460,391 460,391 475,548 475,548 
Mortgage warehouse lending1,145,957 1,145,957 1,259,408 1,259,408 
 $22,240,101 $273,338 $96,782 $750,846 $23,361,067 $22,814,034 $262,556 $97,115 $692,337 $23,866,042 
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021


Included in the table above is the guaranteed portion of SBA loans past due by 90 days or more totaling $35.9 million and $40.3 million at March 31, 2021 and December 31, 2020, respectively.
Loans contractually delinquent by 90 days or more and still accruing totaled $629 million and $562 million at March 31, 2021 and December 31, 2020, respectively, substantially all of which were government insured residential loans. These loans are government insured pool buyout loans, which the Company buys out of GNMA securitizations upon default.
The following table presents information about loans on non-accrual status at the dates indicated (in thousands):
March 31, 2021December 31, 2020
Amortized CostAmortized Cost With No Related AllowanceAmortized CostAmortized Cost With No Related Allowance
Residential and other consumer$25,063 $1,691 $28,828 $1,755 
Commercial:
Multi-family12,701 12,701 24,090 24,090 
Non-owner occupied commercial real estate63,785 35,298 64,017 32,843 
Construction and land4,788 4,442 4,754 4,408 
Owner occupied commercial real estate23,451 4,110 23,152 2,110 
Commercial and industrial66,491 10,810 54,584 9,235 
Bridge - franchise finance36,276 10,050 45,028 9,754 
$232,555 $79,102 $244,453 $84,195 
Included in the table above is the guaranteed portion of non-accrual SBA loans totaling $48.2 million and $51.3 million at March 31, 2021 and December 31, 2020, respectively. The amount of interest income recognized on non-accrual loans was immaterial for the three months ended March 31, 2021 and 2020. The amount of additional interest income that would have been recognized on non-accrual loans had they performed in accordance with their contractual terms was approximately $3.0 million for both the three months ended March 31, 2021 and 2020.
Collateral dependent loans:
The following table presents the amortized cost basis of collateral dependent loans at the dates indicated (in thousands):
March 31, 2021December 31, 2020
Amortized CostExtent to Which Secured by CollateralAmortized CostExtent to Which Secured by Collateral
Residential and other consumer$2,458 $2,427 $2,528 $2,513 
Commercial:
Multi-family12,701 12,701 24,090 24,090 
Non-owner occupied commercial real estate52,902 52,273 52,813 52,435 
Construction and land4,788 4,788 4,754 4,754 
Owner occupied commercial real estate17,247 17,247 14,814 14,777 
Commercial and industrial50,334 33,332 28,112 18,093 
Bridge - franchise finance25,991 17,975 28,986 12,832 
Total commercial163,963 138,316 153,569 126,981 
 $166,421 $140,743 $156,097 $129,494 

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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021


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 three months ended March 31, 2021.
Foreclosure of residential real estate
The recorded investment in residential loans in the process of foreclosure was $205 million, of which $195 million was government insured, at March 31, 2021 and $217 million, of which $209 million was government insured, at December 31, 2020. The carrying amount of foreclosed residential real estate included in other assets in the accompanying consolidated balance sheet was insignificant at March 31, 2021 and December 31, 2020. In response to the COVID-19 pandemic, new foreclosure actions on residential loans have been temporarily suspended.
Troubled debt restructurings
The following table summarizes loans that were modified in TDRs during the periods indicated, as well as loans modified during the twelve months preceding March 31, 2021 and 2020 that experienced payment defaults during those periods (dollars in thousands):
 Three Months Ended March 31,
 20212020
 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 CostNumber of
TDRs
Amortized CostNumber of
TDRs
Amortized CostNumber of
TDRs
Amortized Cost
1-4 single family residential$$$200 $
Government insured residential68 11,497 58 10,054 90 14,855 25 3,628 
Non-owner occupied commercial real estate4,249 
Bridge - franchise finance492 11 13,872 10 12,321 
 68 $11,497 59 $10,546 103$33,176 35$15,949 
TDRs during the three months ended March 31, 2021 and 2020 generally included interest rate reductions and extensions of maturity. Included in TDRs are residential loans to borrowers who have not reaffirmed their debt discharged in Chapter 7 bankruptcy. The total amount of such loans is not material. The majority of loan modifications or deferrals that took place after the onset of the COVID-19 pandemic have not been categorized as TDRs, in accordance with interagency and authoritative guidance and the provisions of the CARES Act.
Note 5    Income Taxes
The Company’s effective income tax rate was 24.7% and 23.4% for the three months ended March 31, 2021 and 2020, respectively. The effective income tax rates differed from the statutory federal income tax rate of 21% for the three months ended March 31, 2021 and 2020 due primarily to the impact of state income taxes, partially offset by the benefit of income not subject to federal tax.
Note 6    Derivatives and Hedging Activities
The Company enters into LIBOR-based interest rate swaps and caps that are designated as cash flow hedges with the objective of limiting the variability of interest payment cash flows. The Company also enters into LIBOR-based interest rate swaps designated as fair value hedges designed to hedge changes in the fair value of outstanding fixed rate borrowings caused by fluctuations in the benchmark interest rate.
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021


The Company enters into interest rate derivative contracts with certain of its commercial borrowers to enable those borrowers to manage their exposure to interest rate fluctuations. To mitigate interest rate risk associated with these derivative contracts, the Company enters into offsetting derivative contract positions with primary dealers. These interest rate derivative contracts are not designated as hedging instruments; therefore, changes in the fair value of these derivatives are recognized immediately in earnings. For the three months ended March 31, 2021 and 2020, the impact on earnings related to changes in fair value of these derivatives was not material.
The Company may be exposed to credit risk in the event of non-performance by the counterparties to its interest rate derivative agreements. The Company assesses the credit risk of its financial institution counterparties by monitoring publicly available credit rating and financial information. The Company manages dealer credit risk by entering into interest rate derivatives only with primary and highly rated counterparties, the use of ISDA master agreements, central clearing mechanisms and counterparty limits. The agreements contain bilateral collateral arrangements with the amount of collateral to be posted generally governed by the settlement value of outstanding swaps. The Company manages the risk of default by its commercial borrower counterparties through its normal loan underwriting and credit monitoring policies and procedures. The Company does not currently anticipate any significant losses from failure of interest rate derivative counterparties to honor their obligations.
The CME legally characterizes variation margin payments for centrally cleared derivatives as settlements of the derivatives' exposures rather than collateral. As a result, the variation margin payment and the related derivative instruments are considered 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 0 at both March 31, 2021 and December 31, 2020.
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):
 March 31, 2021
Weighted
Average Pay Rate
Weighted
Average Receive Rate
Weighted
Average
Remaining
Life in Years
  Notional AmountBalance Sheet LocationFair Value
 Hedged ItemAssetLiability
Derivatives designated as cash flow hedges:        
Pay-fixed interest rate swapsVariability of interest cash flows on variable rate borrowings2.42% 3-Month LIBOR2.3$2,721,000 Other liabilities$$(5,129)
Interest rate caps purchased, indexed to Fed Funds effective rateVariability of interest cash flows on variable rate borrowings—%—%4.7100,000 Other assets1,992 — 
Derivatives designated as fair value hedges:
Receive-fixed interest rate swaps Variability of fair value of fixed rate borrowings 3-Month LIBOR1.54%0.4200,000 Other liabilities
Derivatives not designated as hedges: 
Pay-fixed interest rate swaps 3.63%Indexed to 1-month LIBOR5.61,659,653 Other assets / Other liabilities5,210 (28,815)
Pay-variable interest rate swaps Indexed to 1-month LIBOR3.63%5.61,659,653 Other assets69,959 (5,211)
Interest rate caps purchased, indexed to 1-month LIBOR2.36%2.943,000 Other assets523 
Interest rate caps sold, indexed to 1-month LIBOR2.36%2.943,000 Other liabilities(523)
  $6,426,306 $77,684 $(39,678)
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021


 December 31, 2020
Weighted
Average Pay Rate
Weighted
Average Receive Rate
Weighted
Average
Remaining
Life in Years
  Notional AmountBalance Sheet LocationFair Value
 Hedged ItemAssetLiability
Derivatives designated as cash flow hedges:        
Pay-fixed interest rate swapsVariability of interest cash flows on variable rate borrowings2.41% 3-Month LIBOR2.5$2,771,000 Other liabilities$$(5,971)
Interest rate caps purchased, indexed to Fed Funds effective rateVariability of interest cash flows on variable rate borrowings—%—%4.9100,000 Other assets485 — 
Derivatives designated as fair value hedges: 
Receive-fixed interest rate swapsVariability of fair value of fixed rate borrowings 3-Month LIBOR1.55%0.6250,000 Other liabilities
Derivatives not designated as hedges:
Pay-fixed interest rate swaps 3.61%Indexed to 1-month LIBOR5.31,626,152 Other assets / Other liabilities(38,519)
Pay-variable interest rate swaps Indexed to 1-month LIBOR3.61%5.31,626,152 Other assets / Other liabilities123,345 
Interest rate caps purchased, indexed to 1-month LIBOR3.72%0.425,921 Other assets— 
Interest rate caps sold, indexed to 1-month LIBOR3.72%0.425,921 Other liabilities— 
  $6,425,146 $123,830 $(44,490)
The following table provides information about the amount of gain (loss) related to derivatives designated as cash flow hedges reclassified from AOCI into interest expense for the periods indicated (in thousands):
Three Months Ended March 31,Location of Loss Reclassified from AOCI into Income
20212020
Interest rate contracts$(14,975)$(4,566)Interest expense on borrowings
During the three months ended March 31, 2021 and 2020, no derivative positions designated as cash flow hedges were discontinued and none of the gains and losses reported in AOCI were reclassified into earnings as a result of the discontinuance of cash flow hedges or because of the early extinguishment of debt. As of March 31, 2021, the amount of net loss expected to be reclassified from AOCI into earnings during the next twelve months was $45.7 million.
The following table provides information about the amount of gain (loss) related to derivatives designated as fair value hedges recognized in earnings for the periods indicated (in thousands):
Three Months Ended March 31,Location of Gain (Loss) in Consolidated Statements of Income
20212020
Fair value adjustment on derivatives$(827)$4,020 Interest expense on borrowings
Fair value adjustment on hedged items825 (3,908)Interest expense on borrowings
Gain (loss) recognized on fair value hedges (ineffective portion)$(2)$112 
The following table provides information about the hedged items related to derivatives designated as fair value hedges at the dates indicated (in thousands):
March 31, 2021December 31, 2020Location in Consolidated Balance Sheets
Contractual balance outstanding of hedged item$200,000 $250,000 FHLB advances
Cumulative fair value hedging adjustments$1,174 $1,999 FHLB advances
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021


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 thousands):
 March 31, 2021
  Gross Amounts Offset in Balance
Sheet
Net Amounts Presented in
Balance Sheet
Gross Amounts Not Offset in
Balance Sheet
 
 Gross Amounts
Recognized
Derivative
Instruments
Collateral
Pledged
Net Amount
Derivative assets$5,733 $$5,733 $(4,757)$$976 
Derivative liabilities(33,944)(33,944)4,757 29,187 
 $(28,211)$$(28,211)$$29,187 $976 
 December 31, 2020
  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$$$$$$
Derivative liabilities(44,490)(44,490)44,332 (158)
$(44,490)$$(44,490)$$44,332 $(158)
The difference between the amounts reported for interest rate swaps subject to master netting agreements and the total fair value of interest rate contract derivative financial instruments reported in the consolidated balance sheets is related to interest rate derivative contracts not subject to master netting agreements.
At March 31, 2021, the Company had pledged net financial collateral of $33.3 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
March 31, 2021


Note 7    Stockholders’ Equity
Accumulated Other Comprehensive Income
Changes in other comprehensive income are summarized as follows for the periods indicated (in thousands):
Three Months Ended March 31,
 20212020
 Before TaxTax EffectNet of TaxBefore TaxTax EffectNet of Tax
Unrealized gains (losses) on investment securities available for sale:   
Net unrealized holding loss arising during the period$(30,181)$7,696 $(22,485)$(286,636)$73,476 $(213,160)
Amounts reclassified to gain on investment securities available for sale, net(3,967)1,012 (2,955)(1,530)390 (1,140)
Net change in unrealized gains (losses) on investment securities available for sale(34,148)8,708 (25,440)(288,166)73,866 (214,300)
Unrealized losses on derivative instruments:
Net unrealized holding gain (loss) arising during the period33,035 (8,424)24,611 (109,951)29,137 (80,814)
Amounts reclassified to interest expense on borrowings14,975 (3,819)11,156 4,556 (1,207)3,349 
Net change in unrealized losses on derivative instruments48,010 (12,243)35,767 (105,395)27,930 (77,465)
Other comprehensive income (loss)$13,862 $(3,535)$10,327 $(393,561)$101,796 $(291,765)
The categories of AOCI and changes therein are presented below for the periods indicated (in thousands):
Three Months Ended March 31,
Unrealized Gain (Loss) on
Investment Securities
Available for Sale
Unrealized Gain (Loss)
on Derivative
Instruments
Total
Balance at December 31, 2020$63,799 $(112,951)$(49,152)
Other comprehensive income (loss)(25,440)35,767 10,327 
Balance at March 31, 2021$38,359 $(77,184)$(38,825)
Balance at December 31, 2019$28,185 $(60,012)$(31,827)
Other comprehensive loss(214,300)(77,465)(291,765)
Balance at March 31, 2020$(186,115)$(137,477)$(323,592)
 
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021


Note 8    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 AwardsWeighted Average Grant Date Fair Value
Unvested share awards outstanding, December 31, 20201,161,835 $33.32 
Granted539,711 42.01 
Vested(413,527)36.02 
Canceled or forfeited(4,725)33.87 
Unvested share awards outstanding, March 31, 20211,283,294 $36.10 
Unvested share awards outstanding, December 31, 20191,050,455 $38.24 
Granted599,766 30.90 
Vested(430,840)39.36 
Canceled or forfeited(3,308)38.58 
Unvested share awards outstanding, March 31, 20201,216,073 $34.22 
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 later to Company employees vest in equal annual installments over a period of four years from the date of grant. Shares granted to the Company's Board of Directors vest over a period of one year.
The following table summarizes the closing price of the Company's stock on the date of grant for shares granted and the aggregate grant date fair value of shares vesting for the periods indicated (in thousands, except per share data):
Three Months Ended March 31,
20212020
Closing price on date of grant$42.01 $30.90 
Aggregate grant date fair value of shares vesting$14,893 $16,958 
The total unrecognized compensation cost of $37.4 million for all unvested share awards outstanding at March 31, 2021 will be recognized over a weighted average remaining period of 3.18 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 generally vest on December 31st in equal tranches over three years for grants prior to 2019, and over four years for awards issued in 2019 and after. PSUs are initially granted based on a target value. The number of PSUs that ultimately vest at the end of the performance measurement period will be based on the achievement of performance criteria pre-established by the Compensation Committee of the Board of Directors. Upon vesting, the share units will be converted to common stock on a one-for-one basis, or may be settled in cash at the Company's option. The share units will accumulate dividends declared on the Company's common stock from the date of grant to be paid subsequent to vesting.
As a result of the majority of previous settlements being in cash, all RSUs and PSUs have been determined to be liability instruments and are remeasured at fair value each reporting period until the awards are settled. The RSUs are valued based on the closing price of the Company's common stock at the reporting date. The PSUs are valued based on the closing price of the Company's common stock at the reporting date net of a discount related to any applicable market conditions, considering the
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021


probability of meeting the defined performance conditions. Compensation cost related to PSUs is recognized during the performance period based on the probable outcome of the respective performance conditions.
A summary of activity related to executive share-based awards for the periods indicated follows:
RSUPSU
Unvested executive share-based awards outstanding, December 31, 2020156,555 179,793 
Granted63,814 63,814 
Unvested executive share-based awards outstanding, March 31, 2021220,369 243,607 
Unvested executive share-based awards outstanding, December 31, 2019112,116 125,088 
Granted106,731 106,731 
Unvested executive share-based awards outstanding, March 31, 2020218,847 231,819 
The total liability for the share units was $5.6 million at March 31, 2021. The total unrecognized compensation cost of $14.8 million for these share units at March 31, 2021 will be recognized over a weighted average remaining period of 2.39 years.
Incentive awards
The Company's annual incentive compensation arrangements for employees other than those eligible for the executive share-based awards discussed above provide for settlement through a combination of cash payments and unvested share awards following the end of the annual performance period. The dollar value of share awards to be granted is based on the achievement of performance criteria established in the incentive arrangements. The number of shares of common stock to be awarded is variable based on the closing price of the Company's stock on the date of grant; therefore, these awards are initially classified as liability instruments, with compensation cost recognized from the beginning of the performance period. Awards related to performance periods prior to 2019 vest over three years and awards related to the 2019 and subsequent performance periods vest in equal installments over a period of four years from the date of grant. No common stock was awarded pursuant to these incentive arrangements for the 2020 performance period. These awards are included in the summary of activity related to unvested share awards above. 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.
Option Awards
A summary of activity related to stock option awards for the three months ended March 31, 2021 and 2020 follows:
Number of
Option
Awards
Weighted
Average
Exercise Price
Option awards outstanding, December 31, 20201,569 $15.94 
Exercised(1,569)15.94 
Option awards outstanding and exercisable, March 31, 2021$
Option awards outstanding, December 31, 2019737,753 $26.64 
Exercised(60,000)25.48 
Option awards outstanding, March 31, 2020677,753 $26.74 
The intrinsic value of options exercised and related tax benefits was immaterial for the three months ended March 31, 2021 and 2020.
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021


Note 9    Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis
The following is a description of the methodologies used to estimate the fair values of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which those measurements are typically classified.
Investment securities available for sale and marketable equity securities—Fair value measurements are based on quoted prices in active markets when available; these measurements are classified within level 1 of the fair value hierarchy. These securities typically include U.S. Treasury securities and certain preferred stocks. If quoted prices in active markets are not available, fair values are estimated using quoted prices of securities with similar characteristics, quoted prices of identical securities in less active markets, discounted cash flow techniques, or matrix pricing models. These securities are generally classified within level 2 of the fair value hierarchy and include U.S. Government agency securities, U.S. Government agency and sponsored enterprise MBS, preferred stock investments for which level 1 valuations are not available, non-mortgage asset-backed securities, single family rental real estate-backed securities, private label residential MBS and CMOs, private label commercial MBS, collateralized loan obligations and state and municipal obligations. Pricing of these securities is generally primarily spread driven. Observable inputs that may impact the valuation of these securities include benchmark yield curves, credit spreads, reported trades, dealer quotes, bids, issuer spreads, current rating, historical constant prepayment rates, historical voluntary prepayment rates, structural and waterfall features of individual securities, published collateral data, and for certain securities, historical constant default rates and default severities.
The Company uses third-party pricing services in determining fair value measurements for investment securities. To obtain an understanding of the methodologies and assumptions used, management reviews written documentation provided by the pricing services, conducts interviews with valuation desk personnel and reviews model results and detailed assumptions used to value selected securities as considered necessary. Management has established a robust price challenge process that includes a review by the treasury front office of all prices provided on a monthly basis. Any price evidencing unexpected month over month fluctuations or deviations from expectations is challenged. If considered necessary to resolve any discrepancies, a price will be obtained from an additional independent valuation source. The Company does not typically adjust the prices provided, other than through this established challenge process. The results of price challenges are subject to review by executive management. The Company has also established a quarterly process whereby prices provided by its primary pricing service for a sample of securities are validated. Any price discrepancies are resolved based on careful consideration of the assumptions and inputs employed by each of the pricing sources.
Servicing rights—Commercial servicing rights are valued using a discounted cash flow methodology incorporating contractually specified servicing fees and market based assumptions about prepayments, discount rates, default rates and costs of servicing. Prepayment and default assumptions are based on historical industry data for loans with similar characteristics. Assumptions about costs of servicing are based on market convention. Discount rates are based on rates of return implied by observed trades of underlying loans in the secondary market. These instruments are classified within level 2 of the fair value hierarchy.
Derivative financial instruments—Fair values of interest rate swaps and caps 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.
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021


The following tables present assets and liabilities measured at fair value on a recurring basis at the dates indicated (in thousands):
 March 31, 2021
 Level 1Level 2Total
Investment securities available for sale:   
U.S. Treasury securities$115,113 $— $115,113 
U.S. Government agency and sponsored enterprise residential MBS— 2,161,521 2,161,521 
U.S. Government agency and sponsored enterprise commercial MBS— 652,828 652,828 
Private label residential MBS and CMOs— 1,160,968 1,160,968 
Private label commercial MBS— 2,647,050 2,647,050 
Single family rental real estate-backed securities— 647,423 647,423 
Collateralized loan obligations— 1,097,257 1,097,257 
Non-mortgage asset-backed securities— 192,799 192,799 
State and municipal obligations— 230,672 230,672 
SBA securities— 226,537 226,537 
Marketable equity securities102,616 — 102,616 
Servicing rights— 7,067 7,067 
Derivative assets— 77,684 77,684 
Total assets at fair value$217,729 $9,101,806 $9,319,535 
Derivative liabilities$— $(39,678)$(39,678)
Total liabilities at fair value$— $(39,678)$(39,678)
 December 31, 2020
 Level 1Level 2Total
Investment securities available for sale:   
U.S. Treasury securities$80,851 $— $80,851 
U.S. Government agency and sponsored enterprise residential MBS— 2,405,570 2,405,570 
U.S. Government agency and sponsored enterprise commercial MBS— 539,354 539,354 
Private label residential MBS and CMOs— 998,603 998,603 
Private label commercial MBS— 2,526,354 2,526,354 
Single family rental real estate-backed securities— 650,888 650,888 
Collateralized loan obligations— 1,140,274 1,140,274 
Non-mortgage asset-backed securities— 253,261 253,261 
State and municipal obligations— 235,709 235,709 
SBA securities— 231,545 231,545 
Marketable equity securities104,274 104,274 
Servicing rights— 7,073 7,073 
Derivative assets— 123,830 123,830 
Total assets at fair value$185,125 $9,112,461 $9,297,586 
Derivative liabilities$— $(44,490)$(44,490)
Total liabilities at fair value$— $(44,490)$(44,490)
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021


Assets and liabilities measured at fair value on a non-recurring basis
Following is a description of the methodologies used to estimate the fair values of assets and liabilities that may be measured at fair value on a non-recurring basis, and the level within the fair value hierarchy in which those measurements are typically classified. 
Collateral dependent loans, OREO and other repossessed assets—The carrying amount of collateral dependent 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 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. 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 a combination of observable and unobservable inputs.
Fair value measurements related to collateral dependent loans, OREO and other repossessed assets are generally classified within level 3 of the fair value hierarchy.
Loans held for sale—Loans not originated or otherwise acquired with the intent to sell are transferred into the held for sale classification at the lower of carrying amount or fair value, typically determined based on the estimated selling price of the loans. These fair value measurements are typically classified within level 3 of the fair value hierarchy.
The following table presents the net carrying value of assets classified within level 3 of the fair value hierarchy at the dates indicated, for which non-recurring changes in fair value have been recorded (in thousands):
March 31, 2021December 31, 2020
Collateral dependent loans$77,129 $73,803 
Loans held for sale11,300 20,500 
OREO and repossessed assets2,726 2,786 
$91,155 $97,089 
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):
 March 31, 2021December 31, 2020
 LevelCarrying ValueFair ValueCarrying ValueFair Value
Assets:     
Cash and cash equivalents1$1,049,796 $1,049,796 $397,716 $397,716 
Investment securities1/2$9,244,784 $9,245,750 $9,176,683 $9,177,870 
Non-marketable equity securities2$177,709 $177,709 $195,865 $195,865 
Loans held for sale2$13,770 $14,063 $24,676 $25,057 
Loans, net3$23,361,067 $23,721,941 $23,608,719 $24,205,016 
Derivative assets2$77,684 $77,684 $123,830 $123,830 
Liabilities:
Demand, savings and money market deposits2$23,947,971 $23,947,971 $22,688,617 $22,688,617 
Time deposits2$3,784,111 $3,786,415 $4,807,199 $4,814,862 
Federal funds purchased2$$$180,000 $180,000 
FHLB advances2$3,022,174 $3,024,922 $3,122,999 $3,127,190 
Notes and other borrowings2$721,753 $823,475 $722,495 $849,120 
Derivative liabilities2$39,678 $39,678 $44,490 $44,490 
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BANKUNITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2021


Note 10    Commitments and Contingencies 
The Company issues off-balance sheet financial instruments to meet the financing needs of its customers. These financial instruments include commitments to fund loans, unfunded commitments under existing lines of credit, and commercial and standby letters of credit. These commitments expose the Company to varying degrees of credit and market risk which are essentially the same as those involved in extending loans to customers, and are subject to the same credit policies used in underwriting loans. Collateral may be obtained based on the Company’s credit evaluation of the counterparty. The Company’s maximum exposure to credit loss is represented by the contractual amount of these commitments.
Commitments to fund loans
These are agreements to lend funds to customers as long as there is no violation of any condition established in the contract. Commitments to fund loans generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of these commitments are expected to expire without being funded and, therefore, the total commitment amounts do not necessarily represent future liquidity requirements. 
Unfunded commitments under lines of credit
Unfunded commitments under lines of credit include commercial, commercial real estate and consumer lines of credit to existing customers, for many of which additional extensions of credit are subject to borrowing base requirements. Some of these commitments may mature without being fully funded. 
Commercial and standby letters of credit
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These letters of credit are primarily issued to support trade transactions or guarantee arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. 
Total lending related commitments outstanding at March 31, 2021 were as follows (in thousands):
Commitments to fund loans$418,775 
Unfunded commitments under lines of credit4,013,395 
Commercial and standby letters of credit90,291 
$4,522,461 
Legal Proceedings
The Company is involved as plaintiff or defendant in various legal actions arising in the normal course of business. In the opinion of management, based upon advice of legal counsel, the likelihood is remote that the impact of these proceedings, either individually or in the aggregate, would be material to the Company’s consolidated financial position, results of operations or cash flows.
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Item 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 three months ended March 31, 2021 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 2020 Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 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,” "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, 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 2020 Annual Report on Form 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 a global pandemic. Governmental authorities implemented a number of 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. While many of these restrictions have been lifted or moderated and economic activity has started to resume, the pandemic and these precautionary measures have negatively impacted the global and domestic economies, including in the Company's primary market areas. Certain sectors to which the Company has credit exposure, such as travel and hospitality and retail have been particularly impacted. The response of the U.S. Government to the economic impact of 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 and subsequent extension 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. While development and deployment of vaccines and improvements in treatments for the virus are positive signs and economic indicators are showing improvement, uncertainty remains about the future trajectory of the virus and its ultimate impact on the economy and on our financial condition and results of operations.
A summary of the effects the COVID-19 pandemic has had on our Company is discussed in the "Impact of the COVID-19 Pandemic and Our Response" section in the MD&A of the Company's 2020 Annual report on Form 10-K. A discussion of how our Company continues to be and 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 were impacted by the COVID-19 pandemic.
The COVID-19 pandemic and its effect on the economy and our borrowers has impacted the provision for credit losses and the ACL. The provision for credit losses has been more volatile since the onset of the pandemic; deterioration in economic conditions led to a higher provision for credit losses during the year ended December 31, 2020, while improvement in economic conditions and our reasonable and supportable economic forecast contributed to a recovery of provision for credit losses of $(28.0) million for the quarter ended March 31, 2021. While key economic indicators and our economic forecast have improved and the rollout of vaccines has been gaining momentum, there continues to be significant uncertainty as to the ultimate impact of the COVID-19 crisis on future credit loss expense and future levels of the ACL. The provision for credit losses may continue to be volatile and the level of the ACL may change materially from current levels. Future levels of the ACL could be significantly impacted, in either direction, by changes in the economic outlook and by the evolving impact of COVID-19 on individual borrowers in the portfolio.
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Levels of criticized and classified assets and non-performing assets increased in 2020, largely as a result of the COVID-19 pandemic and its impact or potential impact on our borrowers and certain portfolio sub-segments. Additionally, a significant number of borrowers requested and were granted relief in the form of temporary payment deferrals or modifications. Risk ratings were re-evaluated for a substantial portion of the commercial portfolio during 2020, with a particular focus on portfolio segments we identified for enhanced monitoring and loans for which we granted temporary payment deferrals or modifications in light of the COVID-19 pandemic. We continue to closely monitor risk rating of the commercial portfolio. At March 31, 2021, total criticized and classified loans had declined by approximately $75 million to $2.6 billion from $2.7 billion at December 31, 2020, however, we did experience further migration from the special mention category to the substandard accruing category during the first quarter of 2021. Non-performing assets decreased to $236.4 million at March 31, 2021 from $247.6 million at December 31, 2020. If the economic recovery continues on the path of our current reasonable and supportable forecast, we would expect to see the impact of that recovery on the operations of borrowers, and would expect the level of criticized and classified assets to decline over the remainder of 2021. However, uncertainty remains about the trajectory of the COVID-19 virus and the economy, and the specific impact on our borrowers; therefore, the level of criticized and classified assets may not decline, and could in fact increase. Similarly, non-performing assets, charge-offs and delinquencies could increase from current levels, particularly as loans currently subject to temporary payment deferrals and modifications reach the end of those deferral or modification periods.
The level of commercial loan origination activity, outside of our participation in the PPP, was lower in 2020 as a result of the pandemic, and commercial loan demand remained below pre-pandemic levels through the first quarter of 2021. Line utilization also remained below pre-pandemic levels.
The pandemic continues to impact our operations. Currently, the substantial majority of our non-branch employees are working remotely. We have not experienced any significant operational difficulties, technology failures or outages, or customer service disruptions as a result of the transition to a remote work environment. 90% of our branches remain open to serve customers via drive-through or lobby appointments, in some cases operating with reduced hours. We have focused on ensuring 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 control environment. 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, has been and may continue to be negatively affected 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. Loan production in many portfolio segments may continue to be muted, at least in the near term. While we currently expect loan production to increase by the second half of 2021, our ability to increase production will depend on the future trajectory of the pandemic and on the pace and timing of economic recovery.
In response to the pandemic, we prioritized risk management and implemented a number of measures to support our customers, employees and communities. 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, although we have not experienced constraints on liquidity since the onset of the pandemic.
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.
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Supported our clients through participating in the Small Business Administration’s PPP, the Federal Reserve's MSLF, and granting payment deferrals, loan modifications and fee waivers on a case-by-case basis.
Temporarily halted new residential foreclosure actions.
Disbursed over 150 grants to nonprofit organizations across our footprint, including an end of year donation of $100,000 to local food banks.
Continued helping to meet the various needs of our community partners through over 1,500 employee "virtual" volunteer hours during the pandemic.
We remain confident in our long-term underlying strength and stability, and our ability to navigate these challenging conditions.
Overview
The following discussion and analysis presents the more significant factors that affected our financial condition as of March 31, 2021 and results of operations for the three months then ended. Refer to Item 2 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in our Quarterly Report on Form 10-Q filed with the SEC on May 8, 2020 for a more comprehensive discussion and analysis of the quarter ended March 31, 2020.
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, particularly non-interest bearing 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 March 31, 2021 was $98.8 million, or $1.06 per diluted share, compared to a net loss of $(31.0) million, or $(0.33) per diluted share, for the three months ended March 31, 2020 and net income of $85.7 million or $0.89 per diluted share for the immediately preceding quarter ended December 31, 2020. For the three months ended March 31, 2021, the return on average stockholders' equity was 13.2% and the return on average assets was 1.14%.
Net interest income increased by $2.9 million compared to the immediately preceding three months ended December 31, 2020 and by $15.7 million compared to the three months ended March 31, 2020. The net interest margin, calculated on a tax-equivalent basis, was 2.39% for the three months ended March 31, 2021 compared to 2.33% for the immediately preceding quarter and 2.35% for the three months ended March 31, 2020.
The average cost of total deposits declined by 0.10% to 0.33% for the three months ended March 31, 2021 from 0.43% for the immediately preceding three months ended December 31, 2020, and 1.36% for the three months ended March 31, 2020. On a spot basis, the APY on total deposits declined to 0.27% at March 31, 2021 from 0.36% at December 31, 2020 and 1.35% at March 31, 2020.
For the three months ended March 31, 2021, the Company recorded a recovery of the provision for credit losses of $(28.0) million compared to a recovery of $(1.6) million for the immediately preceding three months ended December 31, 2020 and a provision for credit losses of $125.4 million for the three months ended March 31, 2020.
PPNR improved to $103.3 million for the three months ended March 31, 2021 from $85.0 million for the three months ended March 31, 2020. PPNR was $105.3 million for the three months ended December 31, 2020.
Non-interest bearing demand deposits grew by $957 million during the three months ended March 31, 2021. Total deposits grew by $236 million as higher cost time deposits continued to runoff, declining by $1.0 billion for the three months ended March 31, 2021. Average non-interest bearing demand deposits grew by $338 million for the three months ended March 31, 2021 compared to the immediately preceding quarter and by $3.1 billion compared to the three months ended March 31, 2020. At March 31, 2021, non-interest bearing demand deposits represented 29% of total deposits, compared to 25% of total deposits at December 31, 2020.
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Total loans and operating lease equipment declined by $487 million for the three months ended March 31, 2021.
Loans on deferral totaled $126 million or less than 1% of total loans at March 31, 2021. Loans modified under the CARES Act totaled $636 million at March 31, 2021. In the aggregate, this represents $762 million or 3% of the total loan portfolio at March 31, 2021.
Book value per common share and tangible book value per common share at March 31, 2021 increased to $32.83 and $32.00, respectively, from $32.05 and $31.22, respectively at December 31, 2020 and pre-pandemic levels of $31.33 and $30.52, respectively at December 31, 2019.
During the three months ended March 31, 2021, the Company repurchased approximately 0.2 million shares of its common stock for an aggregate purchase price of $7.3 million, at a weighted average price of $35.42 per share.
Results of Operations
Net Interest Income
Net interest income is the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities and is the primary driver of core earnings. Net interest income is impacted by the mix of interest earning assets and interest bearing liabilities, the ratio of interest earning assets to total assets and of interest bearing liabilities to total funding sources, movements in market interest rates, the shape of the yield curve, levels of non-performing assets and pricing pressure from competitors.
The mix of interest earning assets is influenced by loan demand, market and competitive conditions in our primary lending markets, by management's continual assessment of the rate of return and relative risk associated with various classes of earning assets and liquidity considerations. The mix of interest bearing liabilities is influenced by the Company's liquidity profile, management's assessment of the desire for lower cost funding sources weighed against relationships with customers and growth expectations, our ability to attract and retain core deposit relationships, competition for deposits in the Company's markets and the availability and pricing of other sources of funds.
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The following table presents, for the periods indicated, information about (i) average balances, the total dollar amount of taxable equivalent interest income from earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Non-accrual loans are included in the average balances presented in this table; however, interest income foregone on non-accrual loans is not included. Interest income, yields, spread and margin have been calculated on a tax-equivalent basis for loans and investment securities that are exempt from federal income taxes, at a federal tax rate of 21% (dollars in thousands):
Three Months Ended
March 31, 2021
Three Months Ended
December 31, 2020
Three Months Ended
March 31, 2020
 
 Average
Balance
Interest (1)
Yield/
Rate (1)(2)
Average
Balance
Interest (1)
Yield/
Rate
(1)(2)
Average
Balance
Interest (1)
Yield/
Rate (1)(2)
Assets:
Interest earning assets:      
Loans$23,549,309 $208,821 3.58 %$23,706,859 $210,896 3.55 %$22,850,065 $238,108 4.18 %
Investment securities (3)
9,070,185 39,188 1.73 %9,446,389 42,966 1.82 %8,107,649 56,951 2.81 %
Other interest earning assets1,062,840 1,593 0.61 %726,273 1,628 0.89 %646,628 3,720 2.31 %
Total interest earning assets33,682,334 249,602 2.98 %33,879,521 255,490 3.01 %31,604,342 298,779 3.79 %
Allowance for credit losses(254,438)(280,243)(138,842)
Non-interest earning assets1,724,176 1,817,476 1,749,752 
Total assets$35,152,072 $35,416,754 $33,215,252 
Liabilities and Stockholders' Equity:
Interest bearing liabilities:
Interest bearing demand deposits$2,942,874 $2,774 0.38 %$2,903,300 $3,637 0.50 %$2,173,628 $6,959 1.29 %
Savings and money market deposits12,793,019 12,127 0.38 %11,839,631 14,517 0.49 %10,412,202 37,756 1.46 %
Time deposits4,330,781 7,475 0.70 %5,360,630 11,136 0.83 %7,510,070 38,107 2.04 %
Total interest bearing deposits20,066,674 22,376 0.45 %20,103,561 29,290 0.58 %20,095,900 82,822 1.66 %
Federal funds purchased8,000 0.15 %20,707 0.12 %94,066 367 1.56 %
FHLB and PPPLF borrowings3,072,717 17,558 2.32 %3,698,666 19,207 2.07 %4,414,830 25,084 2.29 %
Notes and other borrowings722,305 9,252 5.12 %722,581 9,251 5.12 %429,098 5,290 4.93 %
Total interest bearing liabilities23,869,696 49,189 0.83 %24,545,515 57,754 0.94 %25,033,894 113,563 1.82 %
Non-interest bearing demand deposits7,491,249 7,152,967 4,368,553 
Other non-interest bearing liabilities746,973 772,277 749,101 
Total liabilities32,107,918 32,470,759 30,151,548 
Stockholders' equity3,044,154 2,945,995 3,063,704 
Total liabilities and stockholders' equity$35,152,072 $35,416,754 $33,215,252 
Net interest income$200,413 $197,736 $185,216 
Interest rate spread2.15 %2.07 %1.97 %
Net interest margin2.39 %2.33 %2.35 %
(1)On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was $3.5 million for the three months ended March 31, 2021 and $3.7 million for both the three months ended December 31, 2020 and March 31, 2020. The tax-equivalent adjustment for tax-exempt investment securities was $0.7 million for both the three months ended March 31, 2021 and December 31, 2020; and $0.9 million for the three months ended March 31, 2020.
(2)Annualized.
(3)     At fair value except for securities held to maturity.    
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Three months ended March 31, 2021 compared to the immediately preceding three months ended December 31, 2020
Net interest income, calculated on a tax-equivalent basis, was $200.4 million for the three months ended March 31, 2021 compared to $197.7 million for the three months ended December 31, 2020, an increase of $2.7 million; comprised of decreases in tax-equivalent interest income and interest expense of $5.9 million and $8.6 million, respectively. Decreases in interest income resulted from the impact of repayment of assets originated in a higher rate environment and declines in average loans and investment securities. Declines in interest expense reflected the impact of our strategy focused on lowering the cost of deposits and improving the deposit mix and declines in average interest bearing liabilities. Day count also contributed to the decreases.
The net interest margin, calculated on a tax-equivalent basis, was 2.39% for the three months ended March 31, 2021, compared to 2.33% for the three months ended December 31, 2020. The decline in the average rate paid on interest bearing liabilities, particularly deposits, exceeded the decline in the average yield on interest earning assets.
Offsetting factors contributing to the increase in the net interest margin for the three months ended March 31, 2021 compared to the immediately preceding quarter ended December 31, 2020 included:
The average rate paid on interest bearing deposits decreased to 0.45% for the three months ended March 31, 2021, from 0.58% for the three months ended December 31, 2020. This decline reflected continued initiatives taken to lower rates paid on deposits, including the re-pricing of term deposits. The cost of deposits is expected to continue to decline.
The tax-equivalent yield on investment securities decreased to 1.73% for the three months ended March 31, 2021 from 1.82% for the three months ended December 31, 2020. This decrease resulted from the impact of purchases of lower-yielding securities, prepayments of higher yielding mortgage-backed securities and decreases in coupon interest rates on floating rate assets.
The tax-equivalent yield on loans increased to 3.58% for the three months ended March 31, 2021, from 3.55% for the three months ended December 31, 2020. Accelerated amortization of origination fees on PPP loans that were partially or fully forgiven during the quarter impacted the yield on loans by approximately 0.06% for the quarter ended March 31, 2021 and by 0.03% for the quarter ended December 31, 2020.
The average rate paid on FHLB and PPPLF borrowings increased to 2.32% for the three months ended March 31, 2021, from 2.07% for the three months ended December 31, 2020, reflecting the maturity of short-term, lower rate FHLB advances and the payoff of all PPPLF borrowings during the fourth quarter of 2020.
The increase in average non-interest bearing demand deposits as a percentage of average total deposits also positively impacted the cost of total deposits and the net interest margin.
Three months ended March 31, 2021 compared to the three months ended March 31, 2020
Net interest income, calculated on a tax-equivalent basis, was $200.4 million for the three months ended March 31, 2021, compared to $185.2 million for the three months ended March 31, 2020, an increase of $15.2 million; comprised of decreases in tax-equivalent interest income and interest expense of $49.2 million and $64.4 million, respectively. The decrease in interest income reflected the impact of declines in market interest rates, partially offset by the increase in average interest earning assets. The decrease in interest expense reflected declines in both market interest rates and average interest bearing liabilities in addition to continued execution of our strategy focused on reducing the cost of deposits.
The net interest margin, calculated on a tax-equivalent basis, was 2.39% for the three months ended March 31, 2021, compared to 2.35% for the three months ended March 31, 2020. The reduction in cost of interest bearing liabilities outpaced the decline in the yield on interest earning assets.
The tax-equivalent yield on loans decreased to 3.58% for the three months ended March 31, 2021, from 4.18% for the three months ended March 31, 2020, while the tax-equivalent yield on investment securities declined to 1.73% from 2.81% for the same periods. Factors contributing to these decreases included the decline in benchmark interest rates, impacting the rates earned on both existing floating rate assets and new production, and repayment of assets originated in a higher rate environment.
The average rate paid on interest bearing deposits decreased to 0.45% for the three months ended March 31, 2021, from 1.66% for the three months ended March 31, 2020. This decrease reflected declines in market interest rates and continued execution of initiatives taken to lower rates paid on deposits, including the re-pricing of term deposits. The increase in average non-interest bearing demand deposits also positively impacted the net interest margin.
The average rate paid on notes and other borrowings increased due to the issuance of subordinated notes in June 2020.
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Provision for Credit Losses
The provision for credit losses is a charge to earnings required to maintain the ACL at a level consistent with management’s estimate of expected credit losses on financial assets carried at amortized cost at the balance sheet date. The amount of the provision is impacted by changes in current economic conditions as well as in management's reasonable and supportable economic forecast, loan originations and runoff, changes in portfolio mix, risk rating migration and portfolio seasoning, changes in specific reserves, changes in expected prepayment speeds and other assumptions. The provision for credit losses also includes amounts related to off-balance sheet credit exposures, accrued interest receivable and AFS debt securities.
The following table presents the components of the provision for credit losses for the three months ended March 31, 2021 (in thousands):
Amount related to funded portion of loans$(26,306)
Amount related to off-balance sheet credit exposures(1,048)
Amount related to accrued interest receivable(271)
Amount related to AFS debt securities(364)
Total recovery of credit losses$(27,989)
The recovery of credit losses for the three months ended March 31, 2021 was largely driven by improvements in forecasted economic conditions. For the three months ended December 31, 2020 and March 31, 2020, the Company recorded a recovery of credit losses of $(1.6) million and a provision for credit losses of $125.4 million, respectively. The provision for credit losses for the three months ended March 31, 2020 was impacted by deteriorating current and forecasted economic conditions related to the onset of the COVID-19 pandemic.
The evolving COVID-19 situation and its actual and forecasted impact on economic conditions may continue to lead to volatility in the provision for credit losses.
The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. See “Analysis of the Allowance for Credit Losses” below for more information about how we determine the appropriate level of the ACL.
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 March 31,
 20212020
Deposit service charges and fees$4,900 $4,186 
Gain on sale of loans:
Guaranteed portions of SBA loans445 1,195 
GNMA early buyout loans1,309 2,255 
Other— 16 
Gain on sale of loans, net1,754 3,466 
Gain on investment securities:
Net realized gains on sale of securities AFS3,967 1,530 
Net unrealized losses on marketable equity securities(1,602)(4,983)
Gain (loss) on investment securities, net2,365 (3,453)
Lease financing12,488 15,481 
Other non-interest income8,789 3,618 
$30,296 $23,298 
The increase in deposit service charges for the three months ended March 31, 2021 compared to 2020 resulted primarily from higher treasury management fee income.
The decline in gain on sale of GNMA early buyout loans for the three months ended March 31, 2021 compared to the comparable period of the prior year related to lower levels of re-pooling activity. The decrease in gains on the sale of
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guaranteed portions of SBA loans for the three months ended March 31, 2021 compared to 2020 was a result of declining origination volume of SBA loans as resources were re-directed to the PPP.
The decrease in income from lease financing for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was primarily attributed to the increase in operating lease equipment off-lease and re-leasing of assets at lower rates.
The most significant factor leading to the increase in other non-interest income for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was increased revenue from our customer derivative program.
Non-Interest Expense
The following table presents the components of non-interest expense for the periods indicated (in thousands):
Three Months Ended March 31,
 20212020
Employee compensation and benefits$59,288 $58,887 
Occupancy and equipment11,875 12,369 
Deposit insurance expense7,450 4,403 
Professional fees1,912 3,204 
Technology and telecommunications15,741 12,596 
Depreciation of operating lease equipment12,217 12,603 
Other non-interest expense14,738 14,806 
Total non-interest expense$123,221 $118,868 
Deposit insurance expense
Deposit insurance expense increased by $3.0 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, reflecting an increase in the assessment rate.
Technology and telecommunications
Technology and telecommunications increased by $3.1 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. This increase is reflective of investments in digital and data analytics capabilities and in the infrastructure to support cloud migration.
Income Taxes
See Note 5 to the consolidated financial statements for information about income taxes.
Analysis of Financial Condition
Average interest-earning assets increased $2.1 billion to $33.7 billion for the three months ended March 31, 2021 from $31.6 billion for the three months ended March 31, 2020. This increase was driven by a $963 million increase in the average balance of investment securities and a $699 million increase in the average balance of outstanding loans, related in part to PPP loans. Average interest bearing liabilities declined by $1.2 billion for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, while average non-interest bearing deposits increased by $3.1 billion to $7.5 billion for the three months ended March 31, 2021.
Cash and cash equivalents increased by $652 million to $1.0 billion at March 31, 2021, compared to $398 million at December 31, 2020 while total loans declined by $505 million. Total deposits increased by $236 million offset by a decrease of $282 million in borrowings.

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Investment Securities
The following table shows the amortized cost and carrying value, which, with the exception of investment securities held to maturity, is fair value, of investment securities at the dates indicated:
March 31, 2021December 31, 2020
 Amortized
Cost
Carrying ValueAmortized
Cost
Carrying Value
U.S. Treasury securities$119,062 $115,113 $79,919 $80,851 
U.S. Government agency and sponsored enterprise residential MBS2,142,807 2,161,521 2,389,450 2,405,570 
U.S. Government agency and sponsored enterprise commercial MBS656,629 652,828 531,724 539,354 
Private label residential MBS and CMOs1,153,561 1,160,968 982,890 998,603 
Private label commercial MBS(1)
2,639,383 2,647,050 2,514,271 2,526,354 
Single family rental real estate-backed securities636,322 647,423 636,069 650,888 
Collateralized loan obligations1,104,027 1,097,257 1,148,724 1,140,274 
Non-mortgage asset-backed securities189,038 192,799 246,597 253,261 
State and municipal obligations212,110 230,672 213,743 235,709 
SBA securities227,743 226,537 233,387 231,545 
Investment securities held to maturity10,000 10,000 10,000 10,000 
$9,090,682 9,142,168 $8,986,774 9,072,409 
Marketable equity securities102,616 104,274 
$9,244,784 $9,176,683 
(1)Amortized cost is net of ACL totaling $0.4 million at December 31, 2020.
Our investment strategy has focused on insuring adequate liquidity, maintaining a suitable balance of high credit quality, diverse assets, managing interest rate risk, and generating acceptable returns given our established risk parameters. We have sought to maintain liquidity by investing a significant portion of the portfolio in high quality liquid securities including U.S. Treasury and U.S. Government Agency and sponsored enterprise securities. Investment grade municipal securities provide liquidity and attractive tax-equivalent yields. We have also invested in highly rated structured products, including private-label commercial and residential MBS, collateralized loan obligations, single family 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 March 31, 2021 was 4.7 years and the effective duration of the investment portfolio as of March 31, 2021 was 1.6 years.
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The investment securities available for sale portfolio was in a net unrealized gain position of $51.5 million at March 31, 2021, with aggregate fair value equal to 101% of amortized cost. Net unrealized gains at March 31, 2021 included $95.2 million of gross unrealized gains and $43.7 million of gross unrealized losses. Investment securities available for sale in an unrealized loss position at March 31, 2021 had an aggregate fair value of $3.5 billion. The ratings distribution of our AFS securities portfolio at March 31, 2021 is depicted in the chart below:
bku-20210331_g1.jpg
We evaluate the credit quality of individual securities in the portfolio quarterly to determine whether we expect to recover the amortized cost basis of the investments in unrealized loss positions. This evaluation considers, but is not necessarily limited to, the following factors, the relative significance of which varies depending on the circumstances pertinent to each individual security:
Whether we intend to sell the security prior to recovery of its amortized cost basis;
Whether it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis;
The extent to which fair value is less than amortized cost;
Adverse conditions specifically related to the security, an industry or geographic area;
Changes in the financial condition of the issuer or underlying loan obligors;
The payment structure and remaining payment terms of the security, including levels of subordination or over-collateralization;
Failure of the issuer to make scheduled payments;
Changes in credit ratings;
Relevant market data;
Estimated prepayments, defaults, and the value and performance of underlying collateral at the individual security level.
We do not intend to sell securities in significant unrealized loss positions at March 31, 2021. Based on an assessment of our liquidity position and internal and regulatory guidelines for permissible investments and concentrations, it is not more likely than not that we will be required to sell securities in significant unrealized loss positions prior to recovery of amortized cost basis, which may be at maturity.
The timely payment of principal and interest on securities issued by the U.S. government, U.S. government agencies and U.S. government sponsored enterprises is explicitly or implicitly guaranteed by the U.S. Government. As such, there is an assumption of zero credit loss and the Company expects to recover the entire amortized cost basis of these securities.
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None of our private label securities in unrealized loss positions had missed principal or interest payments or had been downgraded by a NRSRO at March 31, 2021. 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 March 31, 2021, and incorporated assumptions about voluntary prepayment rates, collateral defaults, delinquencies, severity and other relevant factors. Our analysis also considered the structural characteristics of each security and the level of credit enhancement provided by that structure. Based on the results of this analysis, none of the private label AFS securities in unrealized loss positions were projected to sustain credit losses at March 31, 2021.
The following table presents the distribution of third-party ratings and subordination levels compared to average internal stress scenario losses for the private label CMBS and CLOs at March 31, 2021:
SubordinationWeighted Average Stress Scenario Loss
RatingPercent of TotalMinimumMaximumAverage
Private label CMBSAAA82.4 %30.0 %49.8 %37.9 %11.1 %
AA10.7 %35.3 %60.4 %42.6 %10.2 %
A6.9 %24.5 %48.6 %31.9 %10.2 %
Weighted average100.0 %30.2 %47.8 %38.0 %11.0 %
CLOsAAA79.5 %41.9 %56.5 %45.5 %21.2 %
AA15.8 %32.8 %40.7 %34.8 %22.8 %
A4.7 %24.5 %29.9 %26.6 %21.7 %
Weighted average100.0 %39.7 %52.7 %43.0 %21.5 %
For further discussion of our analysis of impaired investment securities AFS for credit loss impairment see Note 3 to the consolidated financial statements.
We use third-party pricing services to assist us in estimating the fair value of investment securities. We perform a variety of procedures to ensure that we have a thorough understanding of the methodologies and assumptions used by the pricing services including obtaining and reviewing written documentation of the methods and assumptions employed, conducting interviews with valuation desk personnel and reviewing model results and detailed assumptions used to value selected securities as considered necessary. Our classification of prices within the fair value hierarchy is based on an evaluation of the nature of the significant assumptions impacting the valuation of each type of security in the portfolio. We have established a robust price challenge process that includes a review by our treasury front office of all prices provided on a monthly basis. Any price evidencing unexpected month over month fluctuations or deviations from our expectations based on recent observed trading activity and other information available in the marketplace that would impact the value of the security is challenged. Responses to the price challenges, which generally include specific information about inputs and assumptions incorporated in the valuation and their sources, are reviewed in detail. If considered necessary to resolve any discrepancies, a price will be obtained from additional independent valuation sources. We do not typically adjust the prices provided, other than through this established challenge process. Our primary pricing services utilize observable inputs when available, and employ unobservable inputs and proprietary models only when observable inputs are not available. As a matter of course, the services validate prices by comparison to recent trading activity whenever such activity exists. Quotes obtained from the pricing services are typically non-binding.
We also have a quarterly price validation process to assess the propriety of the pricing methodologies utilized by our primary pricing services by independently verifying the prices of a sample of securities in the portfolio. Sample sizes vary based on the type of security being priced, with higher sample sizes applied to more difficult to value security types. Verification procedures may consist of obtaining prices from an additional outside source. We have established acceptable percentage deviations from the price provided by the initial pricing source. If deviations fall outside the established parameters, we will obtain and evaluate more detailed information about the assumptions and inputs used by each pricing source or, if considered necessary, employ an additional valuation source to price the security in question. Pricing issues identified through this evaluation are addressed with the applicable pricing service and methodologies or inputs are revised as determined necessary. Depending on the results of the validation process, sample sizes may be extended for particular classes of securities. Results of the validation process are reviewed by the treasury front office and by senior management.
The majority of our investment securities are classified within level 2 of the fair value hierarchy. U.S. Treasury securities and marketable equity securities are classified within level 1 of the hierarchy. We continue to monitor the impact of the
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COVID-19 pandemic on markets. While, particularly at the onset of the pandemic, we observed increased volatility and 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 fair value estimates within the fair value hierarchy.
For additional discussion of the fair values of investment securities, see Note 9 to the consolidated financial statements.
The following table shows the weighted average prospective yields, categorized by scheduled maturity, for AFS investment securities as of March 31, 2021. Scheduled maturities have been adjusted for anticipated prepayments when applicable. Yields on tax-exempt securities have been calculated on a tax-equivalent basis, based on a federal income tax rate of 21%:
 Within One YearAfter One Year
Through Five Years
After Five Years
Through Ten Years
After Ten YearsTotal
U.S. Treasury securities1.21 %— %— %— %1.21 %
U.S. Government agency and sponsored enterprise residential MBS0.84 %0.81 %0.76 %0.74 %0.79 %
U.S. Government agency and sponsored enterprise commercial MBS1.64 %1.97 %1.05 %1.49 %1.30 %
Private label residential MBS and CMOs2.41 %2.16 %1.94 %1.82 %2.17 %
Private label commercial MBS2.06 %1.85 %2.21 %2.66 %1.93 %
Single family rental real estate-backed securities2.75 %2.17 %2.31 %— %2.20 %
Collateralized loan obligations1.49 %1.85 %1.84 %— %1.83 %
Non-mortgage asset-backed securities2.86 %2.67 %2.03 %— %2.69 %
State and municipal obligations2.91 %3.85 %4.61 %4.07 %3.99 %
SBA securities1.31 %1.26 %1.19 %1.09 %1.25 %
1.75 %1.79 %1.43 %1.52 %1.69 %
Loans Held for Sale
Loans held for sale at March 31, 2021 included $2 million of the guaranteed portion of SBA loans held for sale in the secondary market and $11 million of other commercial loans transferred to held for sale. At December 31, 2020, loans held for sale included $4 million of the SBA loans held for sale and $21 million of other commercial loans. SBA loans are generally sold with servicing retained.
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Loans
The loan portfolio comprises the Company’s primary interest-earning asset. The following table shows the composition of the loan portfolio at the dates indicated (dollars in thousands):
March 31, 2021December 31, 2020
TotalPercent of TotalTotalPercent of Total
Residential and other consumer loans$6,582,447 28.1 %$6,348,222 26.6 %
Multi-family1,507,462 6.5 %1,639,201 6.9 %
Non-owner occupied commercial real estate4,871,110 20.9 %4,963,273 20.8 %
Construction and land287,821 1.2 %293,307 1.2 %
Owner occupied commercial real estate1,932,153 8.3 %2,000,770 8.4 %
Commercial and industrial4,048,473 17.3 %4,447,383 18.6 %
PPP911,951 3.9 %781,811 3.3 %
Pinnacle1,088,685 4.7 %1,107,386 4.6 %
Bridge - franchise finance524,617 2.2 %549,733 2.3 %
Bridge - equipment finance460,391 2.0 %475,548 2.0 %
Mortgage warehouse lending1,145,957 4.9 %1,259,408 5.3 %
Total loans23,361,067 100.0 %23,866,042 100.0 %
Allowance for credit losses(220,934)(257,323)
Loans, net$23,140,133 $23,608,719 
For the three months ended March 31, 2021, total loans declined by $505 million. Growth in residential and other consumer loans for the quarter was attributable to GNMA early buyout loans. Residential activity for the three months ended March 31, 2021 included purchases of approximately $578 million in GNMA early buyout loans, offset by approximately $237 million in re-poolings and paydowns. Residential and other consumer loans, excluding GNMA early buyout loans, declined by approximately $107 million.
In the aggregate, commercial loans declined by $739 million for the three months ended March 31, 2021 as the environment remained challenging for new production, line utilization was below historical levels and accelerated prepayment activity continued. MWL line utilization declined seasonally to 55% at March 31, 2021 compared to 62% at December 31, 2020.
We originated $265 million of PPP loans under the Second Draw Program during the three months ended March 31, 2021. Loans originated under the First Draw Program totaling $138 million were fully or partially forgiven during the quarter.
Residential mortgages and other consumer loans
The following table shows the composition of residential and other consumer loans at the dates indicated (in thousands):
March 31, 2021December 31, 2020
1-4 single family residential$4,817,116 $4,922,836 
Government insured residential1,759,289 1,419,074 
Other consumer loans6,042 6,312 
$6,582,447 $6,348,222 
The 1-4 single family residential loan portfolio, excluding government insured residential loans, is primarily comprised of loans purchased through established correspondent channels. 1-4 single family residential mortgage loans are primarily closed-end, first lien jumbo mortgages for the purchase or re-finance of owner occupied property. The loans have terms ranging from 10 to 30 years, with either fixed or adjustable interest rates. At March 31, 2021, $512 million or 11% were secured by investor-owned properties.
The Company acquires non-performing FHA and VA insured mortgages from third party servicers who have exercised their right to purchase these loans out of GNMA securitizations (collectively, "government insured pool buyout loans" or "buyout loans"). Buyout loans that re-perform, either through modification or self-cure, may be eligible for re-securitization. The Company and the servicer share in the economics of the sale of these loans into new securitizations. The balance of buyout loans totaled $1.7 billion at March 31, 2021. The Company is not the servicer of these loans.
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The following charts present the distribution of the 1-4 single family residential mortgage portfolio at the dates indicated:
bku-20210331_g2.jpg
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):
March 31, 2021December 31, 2020
TotalPercent of TotalTotalPercent of Total
California$1,488,423 30.9 %$1,541,779 31.3 %
New York1,098,003 22.8 %1,084,143 22.0 %
Florida489,838 10.2 %518,877 10.5 %
Virginia195,383 4.1 %196,641 4.0 %
New Jersey165,962 3.4 %160,276 3.3 %
Others1,379,507 28.6 %1,421,120 28.9 %
$4,817,116 100.0 %$4,922,836 100.0 %
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Commercial loans and leases
Commercial loans include commercial and industrial loans and leases, loans secured by owner-occupied commercial real-estate, multi-family properties and other income-producing non-owner occupied commercial real estate, a limited amount of construction and land loans, SBA loans, mortgage warehouse lines of credit, PPP loans, municipal loans and leases originated by Pinnacle and franchise and equipment finance loans and leases originated by Bridge.
The following charts present the distribution of the commercial loan portfolio at the dates indicated (dollars in millions):
bku-20210331_g3.jpg
Commercial real estate loans include term loans secured by non-owner occupied income producing properties including rental apartments, mixed-use properties, industrial properties, retail shopping centers, free-standing single-tenant buildings, office buildings, warehouse facilities, hotels, real estate secured lines of credit, as well as credit facilities to institutional real estate entities such as REITs and commercial real estate investment funds.
The following table presents the distribution of commercial real estate loans by property type along with weighted average DSCRs and LTVs at March 31, 2021 (dollars in thousands):
Amortized CostPercent of TotalFLTri StateOtherWeighted Average DSCRWeighted Average LTV
Office$2,077,957 31 %59 %26 %15 %2.3957.1 %
Multifamily1,688,949 25 %34 %65 %%1.7856.8 %
Retail1,292,260 20 %53 %40 %%1.4757.8 %
Warehouse/Industrial845,050 13 %65 %24 %11 %2.2953.4 %
Hotel619,095 %74 %16 %10 %1.2262.8 %
Other143,082 %86 %13 %%2.0636.9 %
$6,666,393 100 %54 %37 %%1.9356.8 %
DSCRs and LTVs in the 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 75%. Construction and land loans, included by property type in the table above, represented 1.2% of the total loan portfolio at March 31, 2021.
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Included in the table above are approximately $254 million of mixed-use properties in New York, consisting of $187 million categorized as multi-family, $48 million categorized as retail and $19 million categorized as office.
The New York legislature 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 New York multi-family portfolio included $755 million of loans collateralized by properties with some or all of the units subject to rent regulation at March 31, 2021, substantially all of which were stabilized properties.
The following tables present the distribution of stabilized rent-regulated multi-family loans, by DSCR and LTV at March 31, 2021 (in thousands):
DSCR
Less than 1.11$290,175 
1.11 - 1.24152,666 
1.25 - 1.50104,986 
1.51 or greater169,378 
$717,205 
LTV
Less than 50%$207,391 
50% - 65%284,433 
66% - 75%124,493 
More than 75%100,888 
$717,205 
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, or of the COVID-19 pandemic. Loans with DSCR less than 1.11 may be those with temporary rent deferments, unit vacancies or increases in expenses exceeding rental receipts, such as real estate taxes. Certain type of ancillary income may be excluded from the DSCR calculations.
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, SBA product offerings and business acquisition finance credit facilities. These loans may be structured as term loans, typically with maturities of five to seven years, or revolving lines of credit which may have multi-year maturities. The Bank also provides financing to state and local governmental entities generally within our geographic markets. Commercial loans included shared national credits totaling $2.5 billion at March 31, 2021, the majority of which were relationship based loans to borrowers in Florida and New York. The Bank makes loans secured by owner-occupied commercial real estate that typically have risk profiles more closely aligned with that of commercial and industrial loans than with other types of commercial real estate loans.
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The following table presents the exposure in the commercial and industrial portfolio by industry, including $1.9 billion of owner-occupied commercial real estate loans, by industry at March 31, 2021 (in thousands):
Amortized CostPercent of Total
Finance and Insurance$865,695 14.5 %
Educational Services638,430 10.7 %
Wholesale Trade628,088 10.5 %
Transportation and Warehousing454,246 7.6 %
Health Care and Social Assistance409,543 6.8 %
Manufacturing333,893 5.6 %
Information317,732 5.3 %
Retail Trade298,790 5.0 %
Accommodation and Food Services288,942 4.8 %
Real Estate and Rental and Leasing270,572 4.5 %
Public Administration238,338 4.0 %
Professional, Scientific, and Technical Services233,311 3.9 %
Other Services (except Public Administration)233,306 3.9 %
Construction219,813 3.7 %
Administrative and Support and Waste Management170,220 2.8 %
Arts, Entertainment, and Recreation168,152 2.8 %
Utilities161,040 2.7 %
Other50,515 0.9 %
$5,980,626 100.0 %
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 58% and 34% of the portfolio, respectively. The equipment finance division provides primarily transportation equipment financing through a variety of loan and lease structures. The Bank also engages in mortgage warehouse lending on a national basis.
The Company has originated PPP loans under both the First and Second Draw Programs. These loans bear interest at 1% and are guaranteed as to principal and interest by the SBA. PPP loans have terms of 2 and 5 years under the First and Second Draw Programs, respectively , and are eligible for earlier forgiveness under the terms of the PPP in prescribed circumstances. The following table summarizes PPP loan balances at March 31, 2021, and the amount of interest income related to accelerated amortization of origination fees that were partially or fully forgiven, under each program during the three months ended March 31, 2021 (in thousands):
March 31, 2021Three Months Ended March 31, 2021
UPBDeferred Origination FeesAmortized CostFees recognized on forgiveness
First Draw Program$652,853 $(6,321)$646,532 $2,570 
Second Draw Program274,313 (8,894)265,419 — 
$927,166 $(15,215)$911,951 $2,570 
Geographic Concentrations
The Company's commercial and commercial real estate portfolios are concentrated in Florida and the Tri-state area. 54% and 37% of commercial real estate loans were secured by collateral located in Florida and the Tri-state area, respectively; while 39% and 23% of all other commercial loans were to borrowers in Florida and the Tri-state area, respectively.
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The following table presents the five states with the largest concentration of commercial loans and leases originated through Bridge, Pinnacle and our mortgage warehouse finance unit at the dates indicated (dollars in thousands):
March 31, 2021December 31, 2020
TotalPercent of TotalTotalPercent of Total
California$610,002 18.9 %$609,419 18.0 %
Tri State427,357 13.3 %545,458 16.1 %
Florida311,859 9.7 %330,587 9.7 %
Virginia188,164 5.8 %186,443 5.5 %
Ohio165,117 5.1 %194,558 5.7 %
All Others1,517,151 47.2 %1,525,610 45.0 %
$3,219,650 100.0 %$3,392,075 100.0 %
Operating lease equipment, net
Operating lease equipment, net of accumulated depreciation totaled $681 million at March 31, 2021, including off-lease equipment, net of accumulated depreciation of $125 million. The portfolio consists primarily of railcars, non-commercial aircraft and other transport equipment. Our operating lease customers are North American commercial end users. We have a total of 5,077 railcars with a carrying value of $387 million at March 31, 2021, including hoppers, tank cars, boxcars, auto carriers, center beams and gondolas. The largest concentrations of rail cars were 2,403 hopper cars and 1,594 tank cars, primarily used to ship sand and petroleum products, respectively, for the energy industry.
The chart below presents operating lease equipment by type at the dates indicated:
bku-20210331_g4.jpg
At March 31, 2021, the breakdown of carrying values of operating lease equipment, excluding equipment off-lease, by the year leases are scheduled to expire was as follows (in thousands):
Years Ending December 31:
2021$69,396 
202242,085 
202347,517 
202426,230 
2025101,323 
Thereafter through 2034269,228 
$555,779 
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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, portfolio management and workout and recovery departments. Generally, commercial relationships with balances in excess of defined thresholds are re-evaluated at least annually and more frequently if circumstances indicate that a change in risk rating may be warranted. The defined thresholds range from $1 million to $3 million. Homogenous groups of smaller balance commercial loans may be monitored collectively. The credit quality and risk rating of commercial loans as well as our underwriting and portfolio management practices are regularly reviewed by our internal credit review department.
We believe internal risk rating is the best indicator of the credit quality of commercial loans. The Company utilizes a 16 grade internal asset risk classification system as part of its efforts to monitor and maintain commercial asset quality. The special mention rating is considered a transitional rating for loans exhibiting potential credit weaknesses that could result in deterioration of repayment prospects at some future date if not checked or corrected and that deserve management’s close attention. These borrowers may exhibit declining cash flows or revenues or increasing leverage. Loans with well-defined credit weaknesses that may result in a loss if the deficiencies are not corrected are assigned a risk rating of substandard. These borrowers may exhibit payment defaults, inadequate cash flows, 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. During 2020, 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 or modifications in light of the COVID-19 pandemic. We continue to closely monitor the risk rating of commercial loans in light of the evolving COVID-19 situation.
The following table summarizes the Company's commercial credit exposure, based on internal risk rating, at the dates indicated (dollars in thousands):
March 31, 2021December 31, 2020December 31, 2019
Amortized CostPercent of Commercial LoansAmortized CostPercent of Commercial LoansAmortized CostPercent of Commercial Loans
Pass$14,167,606 84.5 %$14,832,025 84.6 %$17,054,702 97.5 %
Special mention420,331 2.5 %711,516 4.1 %72,881 0.4 %
Substandard accruing1,983,191 11.8 %1,758,654 10.0 %180,380 1.0 %
Substandard non-accruing189,589 1.1 %203,758 1.2 %185,906 1.1 %
Doubtful17,903 0.1 %11,867 0.1 %— — %
$16,778,620 100.0 %$17,517,820 100.0 %$17,493,869 100.0 %
Our internal risk ratings at March 31, 2021 continued to be influenced by the impact of the COVID-19 pandemic and the measures and restrictions employed to contain the spread of the virus on the economy, our borrowers and the sectors in which they operate. Management has taken what we believe to be a proactive and objective approach to risk rating the commercial loan portfolio since the onset of the pandemic. The increase in levels of criticized and classified loans, particularly in the special mention and substandard accruing categories, over the course of 2020 was directly related to the impact of the COVID-19 pandemic. During the three months ended March 31, 2021, total criticized and classified assets declined by $74.8 million; however, there was continued migration into the substandard accruing category. If the economic recovery and its impact on individual borrowers evolve in line with our current expectations and economic forecast, we would expect to see a decline in the level of criticized and classified assets over the remainder of 2021. However, uncertainty remains around the future trajectory of the COVID-19 pandemic, the roll-out of vaccines and related economic and social impacts. In light of that uncertainty, it is possible that criticized and classified asset levels will not decline or that they may increase.
The following table provides additional information about special mention and substandard accruing loans, at the dates indicated (dollars in thousands). Non-performing loans are discussed further in the section entitled "Non-performing Assets" below.
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March 31, 2021December 31, 2020
Amortized Cost% of Loan SegmentAmortized Cost% of Loan Segment
Special mention:
CRE
Hotel$34,113 5.5 %$68,413 11.0 %
Retail51,547 4.0 %86,935 6.4 %
Multi-family67,345 4.0 %66,336 3.7 %
Office3,973 0.2 %37,943 1.8 %
Industrial1,047 0.1 %9,440 1.1 %
Other2,704 1.9 %8,009 5.4 %
$160,729 277,076 
Owner occupied commercial real estate68,145 3.5 %156,837 %
Commercial and industrial178,920 4.4 %169,605 %
Bridge - franchise finance10,745 2.0 %71,593 13 %
Bridge - equipment finance1,792 0.4 %36,405 %
$420,331 $711,516 
Substandard accruing:
CRE
Hotel$453,289 73 %$400,468 64 %
Retail284,427 22 %284,638 21 %
Multi-family310,800 18 %237,159 13 %
Office105,743 %40,477 %
Industrial17,237 %13,902 %
Other10,618 %1,389 %
1,182,114 978,033 
Owner occupied commercial real estate198,896 10 %177,575 %
Commercial and industrial256,341 %285,925 %
Bridge - franchise finance240,810 46 %242,234 44 %
Bridge - equipment finance105,030 23 %74,887 16 %
$1,983,191 $1,758,654 
Payment Deferrals and Modifications
We believe, in the current environment, information about loans that are on temporary payment deferral or have been modified as a result of the COVID-19 pandemic provides additional insight into segments or sub-segments of the portfolio that are experiencing some level of stress related to the pandemic The following table summarizes deferral and modification activity in the commercial portfolio, as of March 31, 2021 (dollars in thousands):
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Currently Under Short-Term DeferralCARES Act ModificationsTotal% of Portfolio Segment
CRE by Property Type:
Retail$18,108 $18,507 $36,615 %
Hotel— 343,354 343,354 55 %
Office13,163 43,379 56,542 %
Multifamily— 24,014 24,014 %
Total CRE31,271 429,254 460,525 %
C&I by Industry
Accommodation and Food Services233 24,651 24,884 %
Retail Trade— 33,644 33,644 11 %
Manufacturing— 13,058 13,058 %
Transportation and Warehousing (cruise lines)— 47,500 47,500 10 %
Finance and Insurance— 18,244 18,244 %
Other3,434 16,176 19,610 %
Total C&I3,667 153,273 156,940 %
Bridge - franchise finance— 38,182 38,182 %
Total Commercial$34,938 $620,709 $655,647 %
For commercial borrowers, payment deferrals were generally deferrals of principal and/or interest payments for up to two periods of 90 days each. The deferred payments along with interest accrued during the deferral period are generally due and payable on the maturity date. CARES Act modifications represent longer-term modifications and most commonly have taken the form of 9 to 12 month interest only periods. The majority of loan modifications or deferrals and payment deferrals that took place after the onset of the COVID-19 pandemic have not been categorized as TDRs, in accordance with interagency and authoritative guidance and the provisions of the CARES Act.
The following table presents additional information, as of March 31, 2021, about loan portfolio sub-segments that, in light of the COVID-19 pandemic, were identified for enhanced monitoring (dollars in thousands):
March 31, 2021
Amortized CostPercent of Total LoansNon-PerformingSpecial MentionSubstandard Accruing
Retail - CRE$1,292,260 5.5 %$21,932 $51,547 $284,427 
Retail - C&I298,790 1.3 %4,493 3,762 42,201 
Bridge - franchise finance524,617 2.2 %36,276 10,745 240,810 
Hotel619,095 2.7 %34,003 34,113 453,289 
Airlines and aviation authorities117,428 0.5 %— — 74,769 
Cruise lines82,020 0.4 %— — 70,092 
$2,934,210 12.6 %$96,704 $100,167 $1,165,588 
At March 31, 2021, 76% of commercial loans on deferral or modified due to the COVID-19 pandemic and 52% of criticized and classified assets were in the above portfolio sub-segments.
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 in New York City 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 58%, 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 $85 million, or 28% of the sub-segment. 64% of loans in this sub-segment are collateralized by owner-occupied real estate.
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Bridge - Franchise Finance
The following table presents the franchise portfolio by concept at March 31, 2021:
Amortized CostPercent of Bridge -Franchise Finance
Restaurant concepts:
Burger King$61,339 11.6 %
Popeyes27,952 5.3 %
Dunkin Donuts27,368 5.1 %
Jimmy John's19,264 3.6 %
Domino's17,225 3.2 %
Other152,975 29.4 %
$306,123 58.2 %
Non-restaurant concepts:
Planet Fitness$95,231 18.1 %
Orange Theory Fitness83,334 15.8 %
Other39,929 7.9 %
218,494 41.8 %
$524,617 100.0 %
Hotel
Many hotels experienced significant disruption in revenue due to social distancing measures arising from the pandemic. The weighted average LTV for this sub-segment is 63%, based on the most recent information available. The majority of our hotel exposure is in Florida at 74%, followed by 16% in New York. This sub-segment includes $60 million in SBA loans. All but one of our 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.
Operating Lease Equipment, net
Six operating leases with a carrying value of assets under lease totaling $39 million, all of which were exposures to the energy industry, were internally risk rated substandard at March 31, 2021. On a quarterly basis, management performs an impairment analysis on assets with indicators of potential impairment. Potential impairment indicators include evidence of changes in residual value, macro-economic conditions, an extended period of time off-lease, criticized or classified status, or management's intention to sell the asset at an amount potentially below its carrying value. During the three months ended March 31, 2021 and 2020, impairment charges recognized related to operating lease equipment were insignificant.
The primary risks inherent in the equipment leasing business are asset risk resulting from ownership of the equipment on lease and credit risk. Asset risk arises from fluctuations in supply and demand for the underlying leased equipment. The equipment is leased to commercial end users with original lease terms generally ranging from three to ten years. We are exposed to the risk that, at the end of the lease term, the value of the asset will be lower than expected, potentially resulting in reduced future lease income over the remaining life of the asset or a lower sale value. Asset risk may also lead to changes in depreciation as a result of changes in the residual values of the leased assets or through impairment of asset carrying values.
Asset risk is evaluated and managed by a dedicated internal staff of asset managers, managed by seasoned equipment finance professionals with a broad depth and breadth of experience in the leasing business. Additionally, we have partnered with an industry leading, experienced service provider who provides fleet management and servicing relating to the railcar fleet, including lease administration and reporting, a Regulation Y compliant full service maintenance program and railcar re-marketing. Risk is managed by setting appropriate residual values at inception and systematic reviews of residual values based on independent appraisals, performed at least annually. Additionally, our internal management team and our external service provider closely follow the rail markets, monitoring traffic flows, supply and demand trends and the impact of new technologies and regulatory requirements. Demand for railcars is sensitive to shifts in general and industry specific economic and market trends and shifts in trade flows from specific events such as natural or man-made disasters, including events such as the COVID-19 pandemic. We seek to mitigate these risks by leasing to a stable end user base, by maintaining a relatively young
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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.
Bridge had exposure to the energy industry of $321 million at March 31, 2021. The majority of the energy exposure was in the operating lease equipment portfolio where energy exposure totaled $273 million. The remaining energy exposure, totaling approximately $48 million was comprised of loans and direct or sales type finance leases.
Residential and Other Consumer Loans
Our residential mortgage portfolio, excluding GNMA buyout loans, consists primarily of loans purchased through established correspondent channels. Most of our purchases are of performing jumbo mortgage loans which have FICO scores above 700, primarily are owner-occupied and full documentation, and have a current LTV of 80% or less although loans with LTVs higher than 80% may be extended to selected credit-worthy borrowers. We perform due diligence on the purchased loans for credit, compliance, counterparty, payment history and property valuation.
We have a dedicated residential credit risk management function, and the residential portfolio is monitored by our internal credit review function. Residential mortgage loans 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 government insured residential loans.
The following charts present information about the 1-4 single family residential portfolio, excluding government insured loans, by FICO distribution, LTV distribution and vintage at March 31, 2021:
bku-20210331_g5.jpg
FICO scores are generally updated at least annually, and were most recently updated in the first quarter of 2021. LTVs are typically based on valuation at origination since we do not routinely update residential appraisals.
At March 31, 2021, the majority of the 1-4 single family residential loan portfolio, excluding government insured residential loans, was owner-occupied, with 81% primary residence, 8% second homes and 11% investment properties.
1-4 single family residential loans, excluding government insured residential loans, past due more than 30 days totaled $81 million and $66 million March 31, 2021 and December 31, 2020, respectively. The amount of these loans 90 days or more past due was $16.2 million and $9.2 million at March 31, 2021 and December 31, 2020, respectively. Delinquency statistics as of March 31, 2021 may not be fully reflective of the impact of the COVID-19 pandemic on residential borrowers due to payment deferral programs. Loans on deferral that are in compliance with the terms of the deferral program are not reported as delinquent.
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At March 31, 2021, $106 million or 2% of 1-4 single family residential loans, excluding government insured residential loans, were under short-term deferral or modified due to the COVID-19 pandemic. Through March 31, 2021, $525 million of residential loans, excluding government insured loans, had been granted at least one short term payment deferral. The following table presents information about residential loans granted payment deferrals as a result of the COVID-19 pandemic as of March 31, 2021, excluding government insured residential loans (dollars in thousands):
Loans That Have Rolled Off of Short-Term Deferral
Loans Still Under Short-Term DeferralPaid Off or Paying as AgreedNot Resumed Regular Payments
Balance
% of Loans Initially Granted Short-Term Deferral(1)
Balance% of Loans Rolled Off Short-Term DeferralBalance% of Loans Rolled Off Short-Term Deferral
$90,811 17%$408,569 94%$26,134 6%
(1)    Includes $18 million of loans continuing to make payments
For residential borrowers, relief has typically initially 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 initial 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.
Note 4 to the consolidated financial statements presents additional information about key credit quality indicators and delinquency status of the loan portfolio.
Non-Performing Assets
Non-performing assets generally consist of (i) non-accrual loans, including loans that have been modified in TDRs or CARES Act modifications and placed on non-accrual status, (ii) accruing loans that are more than 90 days contractually past due as to interest or principal, excluding PCD loans for which management has a reasonable basis for an expectation about future cash flows and government insured residential loans, and (iii) OREO and repossessed assets.
The following table and charts summarize the Company's non-performing loans and non-performing assets at the dates indicated (dollars in thousands):
March 31, 2021December 31, 2020
Non-accrual loans:
Residential and other consumer:
1-4 single family residential$23,159 $26,842 
Other consumer loans1,904 1,986 
Total residential and other consumer loans25,063 28,828 
Commercial:
Multi-family12,701 24,090 
Non-owner occupied commercial real estate63,785 64,017 
Construction and land4,788 4,754 
Owner occupied commercial real estate23,451 23,152 
Commercial and industrial66,491 54,584 
Bridge - franchise finance36,276 45,028 
Total commercial loans207,492 215,625 
Total non-performing loans232,555 244,453 
Loans past due 90 days and still accruing1,077 — 
Total non-performing loans233,632 244,453 
OREO and repossessed assets2,726 3,138 
Total non-performing assets$236,358 $247,591 
Non-performing loans to total loans (1)
1.00 %1.02 %
Non-performing assets to total assets (1)
0.67 %0.71 %
ACL to total loans0.95 %1.08 %
ACL to non-performing loans94.56 %105.26 %
Net charge-offs to average loans (2)
0.17 %0.26 %
(1)    Non-performing loans and assets include the guaranteed portion of non-accrual SBA loans totaling $48.2 million or 0.21% of total loans and 0.14% of total assets, at March 31, 2021; compared to $51.3 million or 0.22% of total loans and 0.15% of total assets, at December 31, 2020.
(2)    Annualized for March 31, 2021.
Contractually delinquent government insured residential loans are excluded from non-performing loans as defined in the table above due to their government guarantee. The carrying value of such loans contractually delinquent by more than 90 days was $629 million and $562 million at March 31, 2021 and December 31, 2020, respectively. Decreases in the ratios of the ACL to total loans and the ACL to non-performing loans at March 31, 2021 compared to December 31, 2020 are attributable to the recovery of credit losses recorded during the three months ended March 31, 2021, which resulted primarily from an improving economic forecast.
The following chart presents trends in non-performing loans and non-performing assets. The increase in the non-performing loan and non-performing asset ratios compared to pre-pandemic levels is reflective of the impact of the COVID-19 pandemic.bku-20210331_g6.jpg
The following chart presents trends in non-performing loans by portfolio sub-segment (in millions):
bku-20210331_g7.jpg

The ultimate impact of the COVID-19 pandemic on non-performing asset levels and net charge-offs may be delayed in the near-term due to government assistance and loan deferral programs.

Commercial loans are placed on non-accrual status when (i) management has determined that full repayment of all contractual principal and interest is in doubt, or (ii) the loan is past due 90 days or more as to principal or interest unless the loan is well secured and in the process of collection. Residential and consumer loans, other than government insured pool buyout loans, are generally placed on non-accrual status when they are 90 days past due. When a loan is placed on non-accrual status, uncollected interest accrued is reversed and charged to interest income. Commercial loans are returned to accrual status only after all past due principal and interest has been collected and full repayment of remaining contractual principal and interest is reasonably assured. Residential loans are generally returned to accrual status when less than 90 days past due. Past due status of loans is determined based on the contractual next payment due date. Loans less than 30 days past due are reported as current.
TDRs
A loan modification is considered a TDR if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise grant. These concessions may take the form of temporarily or permanently reduced interest rates, payment abatement periods, restructuring of payment terms or extensions of maturity at below market terms. Included in TDRs are residential loans to borrowers who have not reaffirmed their debt discharged in Chapter 7 bankruptcy.
Under 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. Additionally, section 4013 of the CARES Act, as amended by the Consolidated Appropriations Act on December 27, 2020, effectively suspended the guidance related to TDRs codified in ASC 310-40 until the earlier of January 1, 2022 or sixty days after the date of the suspension of the declared state of emergency related to the COVID-19 pandemic. None of the COVID-19 related deferrals the Company has granted to date that fall under these provisions have been categorized as TDRs. 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 had been modified in TDRs at the dates indicated (dollars in thousands):
March 31, 2021December 31, 2020
Number of TDRsAmortized CostRelated Specific AllowanceNumber of TDRsAmortized CostRelated Specific Allowance
Residential and other consumer (1)
357 $58,943 $110 342 $57,017 $94 
Commercial23 42,970 4,222 25 55,515 15,630 
380 $101,913 $4,332 367 $112,532 $15,724 
(1)    Includes 342 government insured residential loans modified in TDRs totaling $55.4 million at March 31, 2021; and 326 government insured residential loans modified in TDRs totaling $52.8 million at December 31, 2020.
See Note 4 to the consolidated financial statements for additional information about TDRs.
Loss Mitigation Strategies
Criticized or classified commercial loans in excess of certain thresholds are reviewed quarterly by the Criticized Asset Committee, which evaluates the appropriate strategy for collection to mitigate the amount of credit losses and considers the appropriate risk rating for these loans. Criticized asset reports for each relationship are presented by the assigned relationship manager and credit officer to the Criticized Asset Committee until such time as the relationships are returned to a satisfactory credit risk rating or otherwise resolved. The Criticized Asset Committee may require the transfer of a loan to our workout and recovery department, which is tasked to effectively manage the loan with the goal of minimizing losses and expenses associated with restructure, collection and/or liquidation of collateral. Commercial loans with a risk rating of substandard, loans on non-accrual status, loans modified as TDRs or CARES Act modifications and assets classified as OREO or repossessed assets are usually transferred to workout and recovery. Oversight of the workout and recovery department is provided by the Criticized Asset Committee.
Our servicers evaluate each residential loan in default to determine the most effective loss mitigation strategy, which may be modification, short sale, or foreclosure, and pursue the alternative most suitable to the consumer and to mitigate losses to the bank. 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 interagency guidance and the CARES Act under which we have provided temporary relief, and in some cases longer term modifications, 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 the 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.
Analysis of the Allowance for Credit Losses
The ACL is management's estimate of the amount of expected credit losses over the life of the loan portfolio, or the amount of amortized cost basis not expected to be collected, at the balance sheet date. This estimate encompasses information about historical events, current conditions and reasonable and supportable economic forecasts. Determining the amount of the ACL is complex and requires extensive judgment by management about matters that are inherently uncertain. Uncertainty remains around the impact the 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 ACL estimate could change, potentially materially, in future periods, in either direction. Changes in the ACL may result from changes in current economic conditions, our economic forecast, and in loan portfolio composition, as well as circumstances not currently known to us that may impact the financial condition and operations of our borrowers, among other factors.
Expected credit losses are estimated on a collective basis for groups of loans that share similar risk characteristics. For loans that do not share similar risk characteristics with other loans such as collateral dependent loans and TDRs, expected credit losses are estimated on an individual basis. Expected credit losses are estimated over the contractual terms of the loans, adjusted for expected prepayments, generally excluding. expected extensions, renewals, and modifications.
For the substantial majority of portfolio segments and subsegments, including residential loans other than government insured loans, and most commercial and commercial real estate loans, expected losses are estimated using econometric models. 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, determined based on pool level characteristics, are applied to estimated exposure at default, considering the contractual term and payment structure of loans, adjusted for prepayments, to generate estimates of expected loss. For criticized or classified loans, PDs are adjusted to benchmark PDs established for each risk rating. The ACL estimate incorporates a reasonable and supportable economic forecast through the use of externally developed macroeconomic scenarios applied in the models.
A single economic scenario or a probability weighted blend of economic scenarios may be used. The models ingest numerous national, regional and MSA level variables and data points. Variables with the most significant impact on the commercial real estate model include unemployment, the CRE property forecast by property type, 10 year treasury yield, Baa corporate yield and real GDP growth. Those with the most significant impact on the commercial model include a stock market volatility index, the S&P 500 index, unemployment and a variety of interest rates and spreads. Those with the most significant impact on the residential model include HPI, unemployment, real GDP growth, and a 30 year mortgage rate. The length of the reasonable and supportable forecast period is evaluated at each reporting period and adjusted if deemed necessary. Currently, the Company uses a 2-year reasonable and supportable forecast period in estimating the ACL. After the reasonable and supportable forecast period, the models effectively revert to long-term mean losses on a straight-line basis over 12 months.
For certain less material portfolios including loans and leases to state and local government entities originated by Pinnacle, small balance commercial loans and consumer loans, the WARM method is used to estimate expected credit losses. Loss rates are applied to the exposure at default, after factoring in amortization and expected prepayments. Expected credit losses for the funded portion of mortgage warehouse lines of credit are estimated based primarily on the Company's historical loss experience. All loss estimates are conditioned as applicable on changes in current conditions and the reasonable and supportable economic forecast.
The Company expects to collect the amortized cost basis of government insured residential loans and PPP loans due to the nature of the government guarantee, so the ACL is zero for these loans.
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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;
Credit policy and staffing;
Concentrations;
Model imprecision; and
Other factors deemed appropriate by management that may materially impact the amount of expected credit losses.
See Note 1 to the consolidated financial statements of the Company's 2020 Annual report on Form 10-K for more detailed information about our ACL methodology.
The following table provides an analysis of the ACL, provision for credit losses related to the funded portion of loans and net charge-offs by loan segment for the periods indicated (in thousands):
 Residential and Other Consumer LoansMulti-familyNon-owner Occupied Commercial Real EstateConstruction and LandOwner Occupied Commercial Real EstateCommercial and IndustrialPinnacleBridge - Franchise FinanceBridge - Equipment FinanceTotal