S-1 1 a2200614zs-1.htm S-1

Table of Contents

As filed with the Securities and Exchange Commission on October 28, 2010

Registration No. 333-            

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



BankUnited, Inc.
(Exact name of registrant as specified in its charter)



Delaware
(State or other jurisdiction of
incorporation or organization)
  6035
(Primary Standard Industrial
Classification Code Number)
  27-0162450
(I.R.S. Employer
Identification Number)

14817 Oak Lane
Miami Lakes, Florida 33016
(305) 569-2000
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

John A. Kanas
Chairman, President and Chief Executive Officer
BankUnited, Inc.
14817 Oak Lane
Miami Lakes, Florida 33016
(305) 569-2000
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Richard B. Aftanas, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
(212) 735-3000

 

Richard D. Truesdell, Jr., Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
(212) 450-4000



Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

          If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933 check the following box. o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o

CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities
to Be Registered

  Proposed Maximum
Aggregate Offering
Price(1)(2)

  Amount of
Registration Fee(1)

 

Common stock, par value $0.01 per share

  $300,000,000   $21,390

 

(1)
Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.

(2)
Includes offering price of shares of common stock that the underwriters have the option to purchase pursuant to their over-allotment option.

          The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file an amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated October 28, 2010

PROSPECTUS

            Shares

GRAPHIC

BankUnited, Inc.

Common Stock



        This is the initial public offering of our common stock. We are offering            shares of our common stock. The selling stockholders identified in this prospectus are offering an additional            shares. We will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

        Prior to this offering there has been no public market for our common stock. It is currently estimated that the public offering price per share of our common stock will be between $            and $            per share. We intend to apply to list our common stock on the New York Stock Exchange under the symbol "BKU."

        See "Risk Factors" on page 13 to read about factors you should consider before buying our common stock.

        Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.



 
  Per Share   Total  

Initial public offering price

  $     $    

Underwriting discounts

  $     $    

Proceeds, before expenses, to us

  $     $    

Proceeds, before expenses, to the selling stockholders

  $     $    

        To the extent that the underwriters sell more than            shares of our common stock, the underwriters have the option to purchase up to an additional            shares of our common stock from the selling stockholders at the initial public offering price less the underwriting discount, within 30 days from the date of this prospectus, to cover over-allotments.



        The underwriters expect to deliver the shares of our common stock against payment in New York, New York on                        , 2010.

Morgan Stanley   BofA Merrill Lynch

Deutsche Bank Securities

 

Goldman, Sachs & Co.



Prospectus dated                        , 2010


        We, the selling stockholders and the underwriters have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We, the selling stockholders and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are not, and the selling stockholders and underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

TABLE OF CONTENTS

PROSPECTUS SUMMARY

  1

RISK FACTORS

  13

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

  28

REORGANIZATION

  29

USE OF PROCEEDS

  31

DIVIDEND POLICY

  32

CAPITALIZATION

  33

DILUTION

  34

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

  36

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  39

BUSINESS

  93

REGULATION AND SUPERVISION

  103

MANAGEMENT

  115

COMPENSATION DISCUSSION AND ANALYSIS

  122

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

  139

PRINCIPAL AND SELLING STOCKHOLDERS

  141

DESCRIPTION OF OUR CAPITAL STOCK

  144

SHARES ELIGIBLE FOR FUTURE SALE

  150

CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS OF COMMON STOCK

  152

UNDERWRITERS

  154

LEGAL MATTERS

  160

EXPERTS

  160

WHERE YOU CAN FIND MORE INFORMATION

  160

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

  F-1

        The shares of our common stock that you purchase in this offering will not be a bank deposit and will not be insured or guaranteed by the FDIC or any other government agency. Your investment will be subject to investment risk, and you must be capable of affording the loss of your entire investment.

        For investors outside the United States: None of we, the selling stockholders or any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.


MARKET AND INDUSTRY DATA AND FORECASTS

        This prospectus includes market and industry data and forecasts that we have developed from independent research firms, publicly available information, various industry publications, other

i



published industry sources or our internal data and estimates. Independent research reports, industry publications and other published industry sources generally indicate that the information contained therein was obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Although we believe that the publications and reports are reliable, none of we, the selling stockholders or the underwriters have independently verified the data. Our internal data, estimates and forecasts are based on information obtained from our investors, trade and business organizations and other contacts in the markets in which we operate and our management's understanding of industry conditions. Although we believe that such information is reliable, we have not had such information verified by any independent sources.

ii


Table of Contents


PROSPECTUS SUMMARY

        This summary highlights selected information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including the section entitled "Risk Factors," our financial statements and the related notes thereto and management's discussion and analysis thereof included elsewhere in this prospectus, before making an investment decision to purchase our common stock. Unless we state otherwise or the context otherwise requires, references in this prospectus to "we," "our," "us," and the "Company" for all periods subsequent to the Acquisition (as defined below) refer to BankUnited, Inc., a Delaware corporation, and its consolidated subsidiaries. References in this prospectus to "BankUnited" and the "Bank" for all periods beginning May 22, 2009 refer to BankUnited, a federal savings association, formed to acquire substantially all of the assets (including loans, employees and certain operations), and assume all of the non-brokered deposits and substantially all other liabilities, of the Failed Bank.


BankUnited, Inc.

Summary

        BankUnited, Inc. is a savings and loan holding company with two wholly-owned subsidiaries: BankUnited, which is the largest independent depository institution headquartered in Florida by assets, and BankUnited Investment Services, Inc., or BankUnited Investment Services, a Florida insurance agency which provides comprehensive wealth management products and financial planning services. BankUnited is a federally-chartered, federally-insured savings association headquartered in Miami Lakes, Florida, with $11.2 billion of assets, more than 1,100 professionals and 78 branches in 13 counties at June 30, 2010. We are building a premier, large regional bank with a low-risk, long-term value-oriented business model focused on small and medium sized businesses and consumers. We endeavor to provide personalized customer service and offer a full range of traditional banking products and financial services to both our commercial and consumer customers, who are predominantly located in Florida.

        BankUnited, Inc. was organized by a management team led by our Chairman, President and Chief Executive Officer, John A. Kanas, on April 28, 2009 and was initially capitalized with $945.0 million by a group of investors. On May 21, 2009, BankUnited was granted a savings association charter and the newly formed bank acquired substantially all of the assets and assumed all of the non-brokered deposits and substantially all other liabilities of BankUnited, FSB, or the Failed Bank, from the Federal Deposit Insurance Corporation, or the FDIC, in a transaction, which we refer to as the Acquisition. Concurrently with the Acquisition, we entered into two loss sharing agreements, or the Loss Sharing Agreements, which cover certain legacy assets, including the entire legacy loan portfolio and other real estate owned, or OREO, and certain purchased investment securities, including private-label mortgage-backed securities and non-investment grade securities. We refer to assets covered by the Loss Sharing Agreements as Covered Assets (or, in certain cases, Covered Loans or Covered Securities).

        Since the Bank's establishment in May 2009, we have pursued our new strategy and as part of this strategy we have recruited a new executive management team, substantially enhanced our middle management team, redesigned the Bank's underwriting functions, and have begun the process of improving the Bank's information technology systems and optimizing our existing branch network. For the six months ended June 30, 2010, the Company was one of the most profitable and well-capitalized bank holding companies in the United States, having earned 2.0% on its average assets and 19.3% on its average common stockholders' equity, and achieved a 40.0% efficiency ratio. BankUnited's tier 1 leverage ratio was 9.8% and its tier 1 risk-based capital ratio was 41.9% at June 30, 2010. The Company's tangible common equity ratio was 10.3% at June 30, 2010. We intend to invest our excess capital to grow opportunistically both organically and through acquisitions.

1


Table of Contents

        Our management team is led by Mr. Kanas, a veteran of the banking industry who built North Fork Bancorporation, or North Fork, into a leading regional bank based in New York. At the time of its sale to Capital One Financial Corporation, or Capital One, in December 2006, North Fork was one of the top 25 bank holding companies in the United States. Mr. Kanas served as the Chairman of North Fork from 1986 to 2006 and President and Chief Executive Officer of North Fork from 1977 to 2006. Through organic growth and over 15 acquisitions, Mr. Kanas oversaw the growth and expansion of North Fork from less than $1 billion in assets in 1977 to nearly $60 billion in assets by 2006. According to FactSet Research Systems, for the five- and ten-year periods prior to its sale to Capital One, North Fork generated a total annualized return of 11.2% and 20.5%, respectively, outperforming the S&P 500 by 9.2% and 11.4%, respectively. North Fork distinguished itself as one of the most profitable and efficient banking companies in the United States through Mr. Kanas' vision of safe and prudent expansion, cost control and capital management. North Fork was sold to Capital One in December 2006 for $13.2 billion, which represented a multiple of 4.0 times tangible equity.

The Acquisition

        On May 21, 2009, BankUnited entered into a purchase and assumption agreement, or the Purchase and Assumption Agreement, with the FDIC, Receiver of the Failed Bank, to acquire substantially all of the assets and assume all of the non-brokered deposits and substantially all other liabilities of the Failed Bank. Excluding the effects of acquisition accounting adjustments, BankUnited acquired $13.6 billion of assets and assumed $12.8 billion of liabilities. The fair value of the assets acquired was $10.9 billion and the fair value of the liabilities assumed was $13.1 billion. BankUnited received a net cash consideration from the FDIC in the amount of $2.2 billion.

        The Acquisition consisted of assets with a fair value of $10.9 billion, including $5.0 billion of loans (with a corresponding unpaid principal balance, or UPB, of $11.2 billion), a $3.4 billion FDIC indemnification asset, $538.9 million of investment securities, $1.2 billion of cash and cash equivalents, $177.7 million of foreclosed assets, $243.3 million of Federal Home Loan Bank, or FHLB, stock and $347.4 million of other assets. Liabilities with a fair value of $13.1 billion were also assumed, including $8.3 billion of non-brokered deposits, $4.6 billion of FHLB advances, and $112.2 million of other liabilities.

        Concurrently with the Acquisition, the Bank entered into the Loss Sharing Agreements with the FDIC that cover certain legacy assets, including the entire loan portfolio and OREO, and certain purchased investment securities, including private-label mortgage-backed securities and non-investment grade securities. The Bank acquired other BankUnited, FSB assets that are not covered by the Loss Sharing Agreements with the FDIC including cash, certain investment securities purchased at fair market value and other tangible assets. The Loss Sharing Agreements do not apply to subsequently acquired, purchased or originated assets. At June 30, 2010, the Covered Assets consisted of assets with a book value of $4.4 billion. The total UPB (or, for investment securities, unamortized cost basis) of the Covered Assets at June 30, 2010 was $9.4 billion.

        Pursuant to the terms of the Loss Sharing Agreements, the Covered Assets are subject to a stated loss threshold whereby the FDIC will reimburse the Bank for 80% of losses up to the $4.0 billion stated threshold and 95% of losses in excess of the $4.0 billion stated threshold, calculated, in each case, based on UPB (or, for investment securities, unamortized cost basis) plus certain interest and expenses. The carrying value of the FDIC indemnification asset at June 30, 2010 was $2.9 billion. The Bank will reimburse the FDIC for its share of recoveries with respect to losses for which the FDIC paid the Bank a reimbursement under the Loss Sharing Agreements. The FDIC's obligation to reimburse the Company for losses with respect to the Covered Assets began with the first dollar of loss incurred. We have received $863.3 million from the FDIC in reimbursements under the Loss Sharing Agreements for claims filed for losses incurred as of June 30, 2010. See "Business—The Acquisition—Loss Sharing Agreements."

2


Table of Contents

        Several elements of our Acquisition are favorable relative to other FDIC-assisted transactions and position the Company to generate significant value. At the time of the Acquisition, bank failures were on the rise and the U.S. Treasury's unprecedented Supervisory Capital Assessment Program for the largest U.S. bank holding companies was underway. Due in part to the distress in the banking system, economic uncertainty and poor capital markets conditions, the Covered Loans and OREO were purchased by the Bank for 76.5% of their $11.4 billion in UPB as of the Acquisition date, which represented the fair market value for those assets. The discount was one of the most favorable achieved relative to other FDIC-assisted transactions. Along with the pricing terms, the Loss Sharing Agreements and the size of the transaction enable the Company to generate significant capital even in severe loss scenarios. For example, in the worst case scenario of a 100% credit loss on all Covered Loans and OREO, we would recover no less than 89.7% of the UPB as of the Acquisition date, assuming compliance with the terms of the Loss Sharing Agreements.

        Furthermore, the Loss Sharing Agreements include attractive provisions that optimize our flexibility and reduce our risk associated with the Covered Assets, including the following:

    Ability to sell loans.  We may sell up to 2.5% of the Covered Loans based on the UPB at Acquisition, or approximately $280.0 million, on an annual basis without prior consent of the FDIC. Any losses incurred from such loan sales are covered under the Loss Sharing Agreements.

    No residual credit risk.  We have the right to sell any or all of the Covered Assets at the termination date of our Loss Sharing Agreements, and any losses incurred will be covered. This allows us to crystallize any residual loss that would otherwise materialize after the expiration of the Loss Sharing Agreements.

    Certain securities covered.  Certain private-label mortgage-backed securities purchased in the Acquisition are covered under the Loss Sharing Agreements.

    Enhanced flexibility to execute corporate strategy opportunistically.  The Bank has the ability to pursue certain strategic transactions including, after an 18-month lock-up period from the Acquisition date, this offering.

        We view our relationship with the FDIC as a long-term partnership in which both parties are economically aligned to minimize credit losses on the Covered Assets. As part of the Purchase and Assumption Agreement, we issued the FDIC a warrant which allows the FDIC to participate in the upside, along with our stockholders, in a liquidity event such as this offering.

Our Competitive Strengths

        We believe that we are especially well positioned to create value for our stockholders.

    Best-in-class management team.  Our management team is led by Mr. Kanas, who has attracted an entirely new executive management team and enhanced our middle management team with seasoned professionals with significant banking experience and a history of high performance at nationally recognized mid- to large-cap financial institutions. Many of our management team members have extensive experience working together at North Fork and have successfully executed operating business models similar to ours in the past. In addition, our management has a successful track record of growing bank franchises both organically and through acquisitions.

    Strong and reliable revenue.  A majority of BankUnited's revenue is currently derived from assets that are covered by the Loss Sharing Agreements. For the six months ended June 30, 2010, the Company earned 2.0% on its average assets and 19.3% on its average common equity, both of which were among the leading ratios in the U.S. banking industry.

3


Table of Contents

    Limited credit risk exposure for Covered Assets.  At June 30, 2010, the Covered Assets under the Loss Sharing Agreements were being carried at a book value of $4.4 billion and the total unpaid principal balance, or UPB (or, for investment securities, unamortized cost basis), of the Covered Assets was $9.4 billion. If the value of the Bank's Covered Assets were to deteriorate more than estimated, 95% of the incremental credit losses attributable to the Covered Assets would be absorbed by the FDIC and 5% of the losses would be absorbed by the Bank under the Loss Sharing Agreements.

    Robust capital position.  At June 30, 2010, BankUnited was one of the most well-capitalized banks in the United States affording it the financial flexibility to pursue growth opportunities and pay dividends. We had a 10.3% tangible common equity ratio, and the Bank had a 9.8% tier 1 leverage ratio and a 41.9% tier 1 risk-based ratio. On September 17, 2010, we declared a quarterly dividend of $14.0 million. In addition, on October 19, 2010, we declared a special one-time dividend of $6.0 million.

    Ideally situated for growth and expansion.  We believe we are extremely well positioned for growth. The banking industry in our markets, Florida and the southeastern United States, is significantly distressed. We believe this distress will give us opportunities to acquire other institutions and attract talented bankers and customers from competing banks. Our strong capital position and generation, as well as scalable operating system, should allow us to take advantage of these opportunities.

    New high-capacity operating platform.  Since May 2009, we have made significant investments in our infrastructure and technology in order to create a scalable platform for future organic and non-organic growth. We are in the midst of converting to a new core deposit system that has significant capacity and delivers comprehensive commercial and consumer products and services. We have made other significant investments in financial reporting and servicing systems. We believe we are creating a technology platform that will allow us to compete effectively with large regional banking institutions.

Our Business

        Our primary business is to offer a full range of traditional banking products and financial services coupled with high-touch, personalized customer service to both our commercial and consumer customers, who are predominantly located in Florida. We offer a full array of lending products to cater to our customers' needs, including, but not limited to, small business loans, commercial real estate loans, equipment loans, term loans, asset-backed loans, letters of credit, commercial lines of credit, residential mortgage loans, home equity and consumer loans. We also offer traditional depository products, including checking accounts, money market deposit accounts, savings accounts and certificates of deposit, repo products and cash management services. Through dedicated financial consultants and licensed bankers, BankUnited Investment Services provides comprehensive wealth management products and services, including mutual funds, annuities, life insurance, individual securities and succession, estate and financial planning services. We believe that our customers are attracted to us because we offer the resources and sophistication of a large bank as well as the responsiveness and relationship-based approach of a community bank.

Our Market Area

        We view our market as the southeast region of the United States with a current focus on Florida, and in particular the Miami metropolitan statistical area, or MSA. We believe Florida represents a long-term attractive banking market. According to estimates from SNL Financial, from 2000 to 2010, Florida added 2.9 million new residents, the third most of any U.S. state, and, at June 30, 2010, had a total population of 18.9 million and a median household income of $49,910. Additionally, the state has

4


Table of Contents


1.9 million active businesses. We believe Florida's population provides tremendous opportunities for us to grow our business. At June 30, 2010, BankUnited ranked 11th in deposit market share in Florida and 6th in the Miami MSA, according to SNL Financial.

        Florida's economy and banking industry continue to face significant challenges. Since 2007, many Florida banks have experienced capital constraints and liquidity challenges as a result of significant losses from loans with poor credit quality and investments that have had sizeable decreases in value or realized losses. The undercapitalization and increased regulation of the banking sector have caused many banks to reduce lending to new and existing clients and focus primarily on improving their balance sheets, putting pressure on commercial borrowers to look for new banking relationships. As of June 30, 2010, 30 banks with $29.5 billion in assets have failed since 2008 in Florida. Given our competitive strengths, including a best-in-class management team, robust capital position and scalable platform, we believe these challenges present significant acquisition and organic growth opportunities for us.

        Over time, we will look to expand our branch network outside of Florida in selected markets such as New York, where our management team has had significant experience and has the competitive advantage of having managed one of the most successful regional banks in that market. However, for a limited period of time, certain of our executive officers are subject to non-compete agreements which may restrict them from operating in some of these selected markets.

Our Business Strategy

        Since the Acquisition, we have focused on the financial needs of small and medium sized businesses and consumers throughout Florida. Through BankUnited, we deliver a comprehensive range of traditional depository and lending products, online services and cash management tools for businesses. We also offer on a national basis commercial lease financing services through United Capital Business Lending and municipal leasing services through Pinnacle Public Finance. Through our non-bank subsidiary, BankUnited Investment Services, we offer a suite of products including mutual funds, annuities, life insurance, individual securities and other wealth management services.

        We are building a premier, large regional bank in attractive growth markets, employing the following key elements:

    Transformation to relationship banking.  Since the Acquisition, our primary strategic objective has been to transform the Bank from a price-driven, transaction-based, mortgage lender to a service-driven, relationship-based, business-focused bank. We have taken an active approach to accomplish this transformation, including:

    Recruitment of top talent.  The entire management leadership team and a large majority of the next tier of management have been replaced with top performers who were recruited nationally. We have also hired teams of relationship bankers from regional competitors. Furthermore, given BankUnited's strong capital levels and expansion strategy, we believe we have an opportunity to continue hiring and developing talent for the foreseeable future.

    Shift of culture towards building relationships.  We emphasize winning relationships rather than gathering accounts. As such, we have implemented new compensation practices that properly align our employees with our strategic vision by rewarding long-term profitability instead of volume, exited the broker business and focused on building long-term relationships with small business customers.

    Investment in physical infrastructure.  In addition to our investment in people, we have been enhancing and optimizing both our facilities and branch network. We have focused on eliminating non-strategic branches and facilities, consolidated most of our non-branch

5


Table of Contents

        operations into one location and improved the overall presentation and infrastructure of our resulting footprint.

      Improvement of our technology platform.  We are committed to building a technology infrastructure that enables us to deliver best-in-class products and services to our clients and is also scalable to accommodate our long-term growth plans. As such, we have made and are continuing to make significant investments in our information technology infrastructure, including a conversion to a more robust core deposit platform that is scheduled for completion in early 2011.

      With the changes implemented as discussed above, we have increased our core deposits (defined as total deposits less certificates of deposit, or CDs) since the Acquisition to June 30, 2010 from $2.1 billion to $3.6 billion and lowered our cost of deposits (excluding the impact of accretion from fair value adjustments due to acquisition accounting) from 3.5% to 1.7%. In addition, since the Acquisition to June 30, 2010, we have generated $320.0 million of new loan commitments.

    Multi-faceted expansion plan.  We intend to geographically expand our franchise and reinvest our excess capital by hiring talented producers, opening de novo branches and acquiring complementary businesses. These expansion strategies complement our overall strategic vision.

    Hire talented producers.  A key component to expanding our franchise footprint is to opportunistically hire talented individuals or teams with relationships in commercial banking, small business banking or our other primary business lines. For example, since the Acquisition to June 30, 2010, we have hired 27 lenders from various regional competitors.

    Open de novo branches.  As part of our strategy to broaden our branch network, BankUnited plans to expand into new markets and to broaden its footprint. We plan to open new branches and consolidate certain existing branches with those in more desirable locations within the same market. In 2009, we consolidated 9 branches and in 2010, we opened 2 new branches and currently have 7 branches under development, which will allow us to, among other things, expand our presence in Tampa and enter the Orlando market.

    Acquire complementary businesses.  We believe significant opportunities exist for additional expansion through acquisitions both in our current market and in other markets within the United States with similar characteristics. Our acquisition strategy includes FDIC-assisted transactions, traditional whole bank acquisitions and complementary acquisitions of select banking and banking-related businesses. For example, we recently acquired two leasing businesses, which serve as the platform for our ability to provide commercial financing services on a national basis.

    Build a scalable and efficient operating model.  Our management team has a history of running highly efficient banking institutions and is focused on building a culture of expense control. Furthermore, we have made and intend to continue to make significant investments in our information technology systems to position us for future growth. For the six months ended June 30, 2010, the Company's efficiency ratio was 40.0%, which compares favorably with other U.S. banks.

    Maintain strong regulatory relationships.  We believe that maintaining strong relationships with regulators is an important element of any bank strategy. As such, we maintain an active dialogue with our primary regulators. Additionally, we view our relationship with the FDIC as a long-term partnership in which both parties are economically aligned to minimize credit losses on the Covered Assets. We continually collaborate with the FDIC to develop and implement new loss mitigation strategies for the Covered Assets. We have received $863.3 million from the FDIC in reimbursements under the Loss Sharing Agreements for claims filed for losses incurred as of June 30, 2010.

6


Table of Contents

Additional Information

        Our principal executive offices are located at 14817 Oak Lane, Miami Lakes, Florida 33016. Our telephone number is (305) 569-2000. Our Internet address is www.bankunited.com. Information on, or accessible through, our website is not part of this prospectus.


Reorganization

        We are currently a direct, wholly-owned subsidiary of BU Financial Holdings LLC, or the LLC, a Delaware limited liability company, and whose common equity interests are referred to herein as units. Prior to the completion of this offering, we will effect a reorganization so that our investors, our named executive officers and all other members of the LLC will hold equity interests in us directly rather than indirectly through the LLC. Immediately prior to the consummation of this offering, the LLC will be liquidated and all interests in the registrant, BankUnited, Inc., a Delaware corporation, will be distributed to the members of the LLC in accordance with its amended and restated limited liability company agreement dated as of May 21, 2009, or the LLC Agreement. There are currently 36 holders of units in the LLC. For additional information, see "Compensation Discussion and Analysis—Executive Officer Compensation—Equity-Based Compensation."

7


Table of Contents

The Offering

Common stock offered by us

              shares of common stock

Common stock offered by the selling stockholders

 

            shares of common stock

Over-allotment option

 

            shares of common stock from the selling stockholders

Common stock to be outstanding after this offering

 

            shares of common stock

Use of proceeds

 

We estimate that the net proceeds to us from this offering after deducting estimated underwriting discounts and commissions and offering expenses will be approximately $             million, based on an assumed initial public offering price of $            per share, the midpoint of the price range set forth on the cover of this prospectus. We intend to use the net proceeds from this offering for general corporate purposes. We will not receive any proceeds from the sale of our common stock by the selling stockholders, including any proceeds that the selling stockholders may receive from the exercise by the underwriters of their over-allotment option. For additional information, see the section of this prospectus entitled "Use of Proceeds."

Dividend policy

 

We initially anticipate paying a quarterly dividend of $            per share on our common stock, subject to the discretion of our board of directors, or our Board. Our ability to pay dividends in the future is limited by various regulatory requirements and policies of bank regulatory agencies having jurisdiction over us and our banking subsidiary, our earnings, cash resources and capital needs, general business conditions and other factors deemed relevant by our Board. For additional information, see the section of this prospectus entitled "Dividend Policy."

New York Stock Exchange symbol

 

BKU

Risk factors

 

Please read the section of this prospectus entitled "Risk Factors" beginning on page 13 for a discussion of some of the factors you should consider before buying our common stock.

        References in this section to the number of shares of our common stock to be outstanding after this offering are based on             shares of our common stock outstanding and excludes             shares of our common stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $            per share and             shares of common stock reserved for issuance under our benefit plans, in each case as of                        , 2010.

        Unless otherwise indicated, the information presented in this prospectus:

    gives effect to a      -for-1 common stock split, which we will effect prior to the consummation of this offering;

    assumes an initial public offering price of $            per share, the midpoint of the price range set forth on the cover of this prospectus;

8


Table of Contents

    assumes that the underwriters' option to purchase additional shares of our common stock from the selling stockholders to cover over-allotments, if any, is not exercised;

    gives effect to the reorganization transactions that will be completed in connection with this offering (see the section of this prospectus entitled "Reorganization"), including the transactions with respect to profits interest units, or PIUs, in the LLC described under "Compensation Discussion and Analysis—Executive Officer Compensation—Equity-Based Compensation;" and

    for purposes of the number or weighted average of shares of common stock outstanding only, assumes that the warrant issued to the FDIC in connection with the Acquisition is redeemed in cash pursuant to the terms thereof.

9


Table of Contents


Summary Historical Consolidated Financial Data

        You should read the summary historical consolidated financial information set forth below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Capitalization" and the consolidated financial statements and the related notes thereto included elsewhere in this prospectus. The summary historical consolidated financial information set forth below at and for the six months ended June 30, 2010 is derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus and includes all adjustments (consisting of normal recurring adjustments) that we considered necessary for a fair presentation of the financial position and the results of operations for these periods. Operating results for the six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ended December 31, 2010. The summary historical consolidated financial information set forth below at December 31, 2009 and for the period from April 28, 2009 (date of inception) to December 31, 2009 has been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary historical consolidated financial information set forth below for each of the periods from October 1, 2008 to May 21, 2009 and at and for the fiscal years ended September 30, 2008 and 2007 has been derived from the audited consolidated financial statements of the Failed Bank included elsewhere in this prospectus.

        Although we were incorporated on April 28, 2009, neither we nor the Bank had any substantive operations prior to the Acquisition on May 21, 2009. Results of operations of the Company for the post-Acquisition periods are not comparable to the results of operations of the Failed Bank for the pre-Acquisition periods. Results of operations for the post-Acquisition periods reflect, among other things, the acquisition method of accounting. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Periods Presented and Factors Affecting Comparability."

 
  BankUnited, Inc.   Failed Bank  
 
  At June 30, 2010    
  At September 30,  
 
  Actual   As
Adjusted(1)
  At
December 31,
2009
  2008   2007  
 
  (unaudited)
   
   
   
 
 
  (dollars in thousands)
 

Consolidated Balance Sheet Data:

                               
 

Cash and cash equivalents

  $ 166,908         $ 356,215   $ 1,223,346   $ 512,885  
 

Investment securities available for sale, at fair value

    3,245,453           2,243,143     755,225     1,098,665  
 

Loans held in portfolio, net

    4,224,140           4,588,898     11,249,367     12,561,693  
 

FDIC indemnification asset

    2,854,175           3,279,165          
 

Goodwill and other intangible assets

    60,832           60,981     28,353     28,353  
 

Total assets

    11,212,637           11,129,961     14,088,591     15,107,310  
 

Deposits

    7,468,381           7,666,775     8,176,817     7,305,788  
 

Advances from Federal Home Loan Bank

    2,264,813           2,079,051     5,279,350     6,234,360  
 

Total liabilities

    10,007,781           10,035,701     13,689,821     13,904,508  
 

Total stockholders' equity

    1,204,856           1,094,260     398,770     1,202,802  

10


Table of Contents


 
  BankUnited, Inc.   Failed Bank  
 
   
   
  Period from
October 1,
2008
to May 21,
2009(2)
  Fiscal Years Ended
September 30,
 
 
   
  Period from
April 28, to
December 31,
2009(2)
 
 
  Six Months Ended
June 30,
2010
 
 
  2008   2007  
 
  (unaudited)
   
   
   
 
 
  (dollars in thousands, except share data)
 

Consolidated Income Statement Data:

                               

Interest income

  $ 273,585   $ 335,524   $ 339,068   $ 834,460   $ 957,897  

Interest expense

    84,909     83,856     333,392     555,594     604,558  
                       
 

Net interest income

    188,676     251,668     5,676     278,866     353,339  

Provision for loan losses

    26,091     22,621     919,139     856,374     31,500  
                       
 

Net interest income (loss) after provision for loan losses

    162,585     229,047     (913,463 )   (577,508 )   321,839  

Non-interest income (loss)

    169,372     252,828     (81,431 )   (128,859 )   28,367  

Non-interest expense

    143,302     282,454     238,403     246,480     185,634  
                       

Income (loss) before income taxes

    188,655     199,421     (1,233,297 )   (952,847 )   164,572  

Provision (benefit) for income before taxes

    76,772     80,375         (94,462 )   55,067  
                       

Net income (loss)

  $ 111,883   $ 119,046   $ (1,233,297 ) $ (858,385 ) $ 109,505  
                       

Share Data:

                               

Earnings (loss) per common share, basic and diluted

  $ 12.04   $ 12.85   $ (12,332,970 ) $ (8,583,850 ) $ 1,095,054  

Weighted average common shares outstanding

    9,294,183     9,266,491     100     100     100  

Other Data (unaudited):

                               

Financial ratios

                               
 

Return on average assets(3)

    1.98 %   1.69 %   (14.26 )%   (5.94 )%   0.78 %
 

Return on average common stockholders' equity(3)

    19.25 %   18.98 %   (2,041.04 )%   (75.43 )%   10.04 %
 

Yield on earning assets(3)

    7.13 %   7.42 %   3.91   %   5.91   %   6.96 %
 

Cost of interest bearing liabilities(3)

    1.81 %   1.39 %   3.94   %   4.36   %   4.91 %
 

Equity to assets ratio

    10.75 %   9.83 %   (7.25 )%   2.83   %   7.96 %
 

Interest rate spread(3)

    5.32 %   6.03 %   (0.03 )%   1.55   %   2.05 %
 

Net interest margin(3)

    4.90 %   5.57 %   0.06   %   1.98   %   2.57 %
 

Loan to deposit ratio

    57.12 %   60.15 %   128.73   %   146.33   %   172.74 %

Asset quality ratios

                               
 

Non-performing loans to total loans(4)

    0.55 %   0.38 %   24.58   %   11.98   %   1.59 %
 

Non-performing assets to total loans and OREO(5)

    4.21 %   2.91 %   25.78   %   12.96   %   1.81 %
 

Non-performing assets to total assets(5)

    1.66 %   1.24 %   23.53   %   11.13   %   1.51 %
 

Allowance for loan losses to total loans

    0.97 %   0.49 %   11.14   %   5.98   %   0.46 %
 

Allowance for loan losses to non-performing loans

    177.92 %   130.22 %   45.33   %   49.96   %   29.15 %
 

Net charge-offs to average loans(3)

    0.33 %   0.00 %   5.51   %   1.58   %   0.08 %

11


Table of Contents

 
  BankUnited, Inc.   Failed Bank  
 
   
   
  At
September 30,
 
 
  At
June 30,
2010
  At
December 31,
2009(2)
 
 
  2008   2007  
 
  (unaudited)
   
   
 

Capital ratios(6)

                         
 

Tangible common equity to tangible assets(7)

    10.26 %   9.33 %   2.63 %   7.79 %
 

Tier 1 common capital to total risk weighted assets

    41.91 %   40.42 %   4.90 %   14.64 %
 

Tier 1 risk-based capital

    41.91 %   40.42 %   4.90 %   14.64 %
 

Total risk-based capital

    42.47 %   40.55 %   6.21 %   15.37 %
 

Tier 1 leverage

    9.76 %   8.78 %   2.89 %   7.84 %

(1)
On an as adjusted basis to give effect to the sale of             shares of our common stock in this offering at an assumed initial public offering price of $            per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and offering expenses.

(2)
The Company was incorporated on April 28, 2009, but neither the Company nor the Bank had any substantive operations prior to the Acquisition on May 21, 2009. The period from May 22, 2009 to December 31, 2009 contained 224 days. The period from October 1, 2008 to May 21, 2009 contained 233 days.

(3)
Ratio is annualized for the period from October 1, 2008 to May 21, 2009, for the period from May 22, 2009 to December 31, 2009 and for the six months ended June 30, 2010. See note 2 above.

(4)
Non-performing loans include nonaccrual loans, loans past due 90 days or more and certain other impaired loans still accruing interest. For the pre-Acquisition periods, restructured 1-4 single family residential loans in compliance with modified terms are excluded from non-performing loans. For the post-Acquisition periods, contractually delinquent ACI loans accounted for in pools are excluded from non-performing loans.

(5)
Non-performing assets include non-performing loans and OREO.

(6)
All capital ratios presented are ratios of the Bank except for the tangible common equity to tangible assets ratio which is of the Company.

(7)
Tangible common equity to tangible assets is a non-GAAP financial measure. For purposes of computing tangible common equity to tangible assets, tangible common equity is calculated as common stockholders' equity less goodwill and other intangible assets, net, and tangible assets is calculated as total assets less goodwill and other intangible assets, net. The most directly comparable GAAP financial measure is total stockholders' equity to total assets. See the reconciliation under Note 6 under "Selected Historical Consolidated Financial Data."

        A $1.00 increase (decrease) in the assumed initial public offering price of $            per share would increase (decrease) additional cash and cash equivalents, total assets and total stockholders' equity by $             million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and offering expenses.

12


Table of Contents


RISK FACTORS

        Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as all of the other information contained in this prospectus including our consolidated financial statements and the related notes thereto, before deciding to invest in our common stock. The occurrence of any of the following risks could materially and adversely affect our business, prospects, financial condition, results of operations and cash flow. In such case, the trading price of our common stock could decline and you could lose all or part of your investment. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition, results of operations and cash flow.

Risks Related to Our Business

Failure to comply with the terms of our Loss Sharing Agreements with the FDIC may result in significant losses.

        In May 2009, we purchased substantially all of the assets and assumed all of the non-brokered deposits and substantially all other liabilities of the Failed Bank in an FDIC-assisted transaction, and presently a substantial portion of BankUnited's revenue is derived from such assets. The purchased loans, commitments, foreclosed assets and certain securities are covered by the Loss Sharing Agreements with the FDIC, which provide that a significant portion of the losses related to the Covered Assets will be borne by the FDIC. We, however, may experience difficulties in complying with the requirements of the Loss Sharing Agreements, which could result in Covered Assets losing some or all of their coverage. BankUnited is subject to audits with the terms of the Loss Sharing Agreements by the FDIC through its designated agent. The required terms of the agreements are extensive and failure to comply with any of the guidelines could result in a specific asset or group of assets losing their loss sharing coverage. See "Business—The Acquisition—Loss Sharing Agreements."

Our business is highly susceptible to credit risk.

        As a lender, we are exposed to the risk that our customers will be unable to repay their loans according to their terms and that the collateral securing the payment of their loans (if any) may not be sufficient to assure repayment. Similarly, we have credit risk embedded in our securities portfolio. Our credit standards, procedures and policies may not prevent us from incurring substantial credit losses, particularly in light of market developments in recent years. Recent economic and market developments and the potential for continued economic disruption present considerable risks to us and it is difficult to determine the depth and duration of the economic and financial market problems and the many ways in which they may impact our business in general. Although we have the Loss Sharing Agreements, the agreements do not cover 100% of the losses attributable to Covered Assets, and credit losses on such assets or assets not covered in the Loss Sharing Agreements could still have a material adverse effect on our operating results.

The geographic concentration of our markets in the coastal regions of Florida makes our business highly susceptible to local economic conditions.

        Unlike larger financial institutions that are more geographically diversified, our branch offices are primarily concentrated in the coastal regions of Florida. Additionally, a significant portion of our loans secured by real estate are secured by commercial and residential properties in Florida. The Florida economy, and our market in particular, has been affected by the downturn in commercial and residential property values. Additionally, the Florida economy relies heavily on tourism and seasonal residents, which have also been affected by recent market disruptions. Continued deterioration in economic conditions in the markets we serve or the occurrence of a natural disaster, such as a

13


Table of Contents


hurricane, or an unanticipated catastrophe, such as the Gulf of Mexico oil spill, could result in one or more of the following:

    an increase in loan delinquencies;

    an increase in problem assets and foreclosures;

    a decrease in the demand for our products and services; or

    a decrease in the value of collateral for loans, especially real estate, in turn reducing customers' borrowing power, the value of assets associated with problem loans and collateral coverage.

        A decline in existing and new real estate sales decreases lending opportunities, may delay the collection of our cash flow from the Loss Sharing Agreements, and negatively affects our income. We do not anticipate that the real estate market will improve in the near-term and, accordingly, this could lead to additional valuation adjustments on our loan portfolios.

Delinquencies and defaults in residential mortgages have recently increased, creating a backlog in courts and an increase in the amount of legislative action that might restrict or delay our ability to foreclose and collect payments for single family residential loans under the Loss Sharing Agreements.

        For the single family residential loans covered by the Loss Sharing Agreements, we cannot collect loss share payments until we liquidate the properties securing those loans. These loss share payments could be delayed by an extended foreclosure process, including delays resulting from a court backlog, local or national foreclosure moratoriums or other delays, and these delays could have a material adverse effect on our results of operations. Home owner protection laws may also delay the initiation or completion of foreclosure proceedings on specified types of residential mortgage loans. Any such limitations are likely to cause delayed or reduced collections from mortgagors. Any restriction on our ability to foreclose on a loan, any requirement that we forgo a portion of the amount otherwise due on a loan or any requirement that we modify any original loan terms could negatively impact our business, financial condition, liquidity and results of operations.

Our loan portfolio has and will continue to be affected by the ongoing correction in residential and commercial real estate prices and reduced levels of residential and commercial real estate sales.

        Soft residential and commercial real estate markets, higher delinquency and default rates, and increasingly volatile and constrained secondary credit markets have affected the mortgage industry generally, and Florida in particular, which is where our business is currently most heavily concentrated. Our financial results may be adversely affected by changes in real estate values. We make credit and reserve decisions based on the current conditions of borrowers or projects combined with our expectations for the future. If the slowdown in the real estate market continues, we could experience higher charge-offs and delinquencies beyond that which is provided in the allowance for loan losses. Although we have the Loss Sharing Agreements with the FDIC, these agreements do not cover 100% of the losses attributable to Covered Assets. In addition, the Loss Sharing Agreements will not mitigate any losses on our non-Covered Assets and our earnings could be adversely affected through a higher than anticipated provision for loan losses on such assets.

Changes in interest rates could have an adverse impact on our results of operations and financial condition.

        Our earnings and cash flows depend to a great extent upon the level of our net interest income. Changes in interest rates can increase or decrease our net interest income, because different types of assets and liabilities may react differently, and at different times, to market interest rate changes. Net interest income is the difference between the interest income we earn on loans, investments and other interest earning assets, and the interest we pay on interest bearing liabilities, such as deposits and borrowings. When interest bearing liabilities mature or reprice more quickly than interest earning assets in a period, an increase in interest rates could reduce net interest income. Similarly, when interest earning assets mature or reprice more quickly than interest bearing liabilities, falling interest rates

14


Table of Contents


could reduce net interest income. Additionally, an increase in interest rates may, among other things, reduce the demand for loans and our ability to originate loans and decrease loan repayment rates. A decrease in the general level of interest rates may affect us through, among other things, increased prepayments on our loan and mortgage-backed securities portfolios and increased competition for deposits. Accordingly, changes in the level of market interest rates affect our net yield on interest earning assets, loan origination volume, loan and mortgage-backed securities portfolios, and our overall results. Interest rates are highly sensitive to many factors beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, particularly the Federal Reserve. We cannot predict the nature and timing of the Federal Reserve's interest rate policies or other changes in monetary policies and economic conditions, which could negatively impact our financial performance.

        We attempt to manage our risk from changes in market interest rates by adjusting the rates, maturity, repricing, and balances of the different types of interest-earning assets and interest bearing liabilities; however, interest rate risk management techniques are not precise, and we may not be able to successfully manage our interest rate risk. As a result, a rapid increase or decrease in interest rates could have an adverse effect on our net interest margin and results of operations.

We depend on our executive officers and key personnel to continue the implementation of our long-term business strategy and could be harmed by the loss of their services.

        We believe that our continued growth and future success will depend in large part on the skills of our senior management team. The loss of service of one or more of our executive officers or key personnel could reduce our ability to successfully implement our long-term business strategy, our business could suffer and the value of our common stock could be materially adversely affected. Leadership changes will occur from time to time and we cannot predict whether significant resignations will occur or whether we will be able to recruit additional qualified personnel. We believe our senior management team possesses valuable knowledge about the banking industry and that their knowledge and relationships would be very difficult to replicate. Although our senior management team has entered into employment agreements with us, they may not complete the term of their employment agreements or renew them upon expiration. Our success also depends on the experience of our branch managers and lending officers and on their relationships with the customers and communities they serve. The loss of these key personnel could negatively impact our banking operations. The loss of key senior personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition or operating results.

Our allowance for credit losses may not be adequate to cover actual credit losses.

        We maintain an allowance for loan losses that represents management's estimate of probable losses inherent in our credit portfolio. This estimate requires management to make certain assumptions and involves a high degree of judgment, particularly as our originated loan portfolio is not yet seasoned and has not yet developed an observable loss trend and Covered Loans that did not exhibit evidence of deterioration in credit quality at acquisition, or non-ACI loans, have limited delinquency statistics. Management considers numerous factors, including, but not limited to, internal risk ratings, loss forecasts, collateral values, geographic location, borrower FICO scores, delinquency rates, the proportion of non-performing and restructured loans in the loan portfolio, origination channels, product mix, underwriting practices, industry conditions, economic trends and net charge-off trends.

        If management's assumptions and judgments prove to be incorrect, our current allowance may be insufficient and we may be required to increase our allowance for loan losses. In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs, based on judgments different than those of our management. Continued adverse economic conditions could make management's estimate even more complex and difficult to determine. Any increase in our allowance for loan losses will result in a

15


Table of Contents


decrease in net income and capital and could have a material adverse effect on our financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Analysis of the Allowance for Loan Losses" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Accounting for Covered Loans."

We may not be able to meet the cash flow requirements of our depositors and borrowers unless we maintain sufficient liquidity.

        Our liquidity is used to make loans and to repay deposit liabilities as they become due or are demanded by customers. As a result of a sudden decline in depositor confidence, if a substantial number of bank customers tried to withdraw their bank deposits simultaneously, our reserves may not be able to cover the withdrawals without sufficient liquidity. Collateralized borrowings such as FHLB advances are an important potential source of liquidity. Our borrowing capacity is generally dependent on the value of the collateral pledged to the FHLB. An adverse regulatory change could reduce our borrowing capacity or eliminate certain types of collateral and could otherwise modify or even terminate FHLB advances. Any such change or termination may have an adverse effect on our liquidity. Our access to other funding sources could be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of recent turmoil faced by banking organizations and the unstable credit markets. Without sufficient liquidity, we may not be able to meet the cash flow requirements of our depositors and borrowers.

We may not be able to find suitable acquisition candidates and may be unable to manage our growth due to acquisitions.

        A key component of our growth strategy is to pursue acquisitions of complementary businesses. We cannot predict the number, size or timing of acquisitions, or whether any such acquisitions will occur at all. As consolidation of the banking industry continues, the competition for suitable acquisition candidates may increase. We compete with other banking companies for acquisition opportunities and there are a limited number of candidates that meet our acquisition criteria. Consequently, we may not be able to identify suitable candidates for acquisitions. If we are unable to locate suitable acquisition candidates willing to sell on terms acceptable to us, our net income could decline and we would be required to find other methods to grow our business.

        Even if suitable candidates are identified and we succeed in consummating future acquisitions, acquisitions involve risks that the acquired business may not achieve anticipated revenue, earnings or cash flows. There may also be unforeseen liabilities relating to the acquired institution or arising out of the acquisition, asset quality problems of the acquired entity, difficulty operating in markets in which we have had no or only limited experience and other conditions not within our control, such as adverse personnel relations, loss of customers because of change in identity, and deterioration in local economic conditions.

        In addition, the process of integrating acquired entities will divert significant management time and resources. We may not be able to integrate successfully or operate profitably any financial institutions we may acquire. We may experience disruption and incur unexpected expenses in integrating acquisitions. Any acquisitions we do make may not enhance our cash flows, business, financial condition, results of operations or prospects and may have an adverse effect on our results of operations, particularly during periods in which the acquisitions are being integrated into our operations.

16


Table of Contents


We face significant competition from other financial institutions and financial services providers, which may decrease our growth or profits.

        The primary market we serve is Florida. Consumer and commercial banking in Florida is highly competitive. Our market contains not only a large number of community and regional banks, but also a significant presence of the country's largest commercial banks. We compete with other state and national financial institutions located in Florida and adjoining states as well as savings and loan associations, savings banks and credit unions for deposits and loans. In addition, we compete with financial intermediaries, such as consumer finance companies, mortgage banking companies, insurance companies, securities firms, mutual funds and several government agencies as well as major retailers, all actively engaged in providing various types of loans and other financial services.

        The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Increased competition among financial services companies due to the recent consolidation of certain competing financial institutions may adversely affect our ability to market our products and services. Also, technology has lowered barriers to entry and made it possible for banks to compete in our market without a retail footprint by offering competitive rates, as well as non-banks to offer products and services traditionally provided by banks. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may offer a broader range of products and services as well as better pricing for certain products and services than we can.

        Our ability to compete successfully depends on a number of factors, including:

    the ability to develop, maintain and build upon long-term customer relationships based on quality service, high ethical standards and safe and sound assets;

    the ability to attract and retain qualified employees to operate our business effectively;

    the ability to expand our market position;

    the scope, relevance and pricing of products and services offered to meet customer needs and demands;

    the rate at which we introduce new products and services relative to our competitors;

    customer satisfaction with our level of service; and

    industry and general economic trends.

        Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could harm our business, financial condition and results of operations.

Since we engage in lending secured by real estate and may be forced to foreclose on the collateral property and own the underlying real estate, we may be subject to the increased costs and risks associated with the ownership of real property, which could have an adverse effect on our business or results of operations.

        A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans, in which case, we are exposed to the risks inherent in the ownership of real estate. The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including:

    general or local economic conditions;

    environmental cleanup liability;

    neighborhood values;

17


Table of Contents

    interest rates;

    real estate tax rates;

    operating expenses of the mortgaged properties;

    supply of and demand for rental units or properties;

    ability to obtain and maintain adequate occupancy of the properties;

    zoning laws;

    governmental rules, regulations and fiscal policies; and

    hurricanes or other natural or man-made disasters.

        Certain expenditures associated with the ownership of real estate, principally real estate taxes and maintenance costs, may also adversely affect our operating expenses.

Hurricanes or other natural or man-made disasters could negatively affect local economies where we maintain branch offices or disrupt our operations, which could have an adverse effect on our business or results of operations.

        Like other coastal areas, some of our markets in Florida are susceptible to hurricanes and tropical storms. Such weather events can disrupt our operations, result in damage to our properties, reduce or destroy the value of mortgage properties and negatively affect the local economies in which we operate. We cannot predict whether or to what extent damage that may be caused by future hurricanes or other weather events will affect our operations or the economies in our market areas, but such weather events could result in a decline in loan originations, a decline in the value or destruction of properties securing our loans and an increase in delinquencies, foreclosures and loan losses. Our business or results of operations may be adversely affected by these and other negative effects of hurricanes or other significant weather events. Extensive or multiple disruptions in our operations, whether at our branches or our corporate headquarters, due to natural or man-made disasters could have a material adverse effect on our results of operations.

We are dependent on our information technology and telecommunications systems and third-party servicers, and systems failures, interruptions or breaches of security could have an adverse effect on our financial condition and results of operations.

        Our business is highly dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party servicers. We outsource our major systems including our electronic funds transfer, or EFT, transaction processing, cash management and our online banking services. We rely on these systems to process new and renewal loans, gather deposits, provide customer service, facilitate collections and share data across our organization. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. If sustained or repeated, a system failure or service denial could result in a deterioration of our ability to process new and renewal loans, gather deposits and provide customer service, compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

        We are currently in the process of implementing substantial changes to our core deposit platform. We may not be able to successfully implement this new core system in an effective manner. In addition, we may incur significant increases in costs and encounter extensive delays in the implementation and rollout of our new operating system. If there are technological impediments, unforeseen complications, errors or breakdowns in implementing this new core operating system or if this new core operating

18


Table of Contents


system does not meet the requirements of our customers, our business, financial condition, results of operations or customer perceptions may be adversely affected.

        In addition, we provide our customers the ability to bank remotely, including online and over the telephone. The secure transmission of confidential information over the Internet and other remote channels is a critical element of remote banking. Our network could be vulnerable to unauthorized access, computer viruses, phishing schemes and other security breaches. We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses. To the extent that our activities or the activities of our customers involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, litigation and other possible liabilities. Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in our systems and could adversely affect our reputation and our ability to generate business.

BankUnited is a de novo bank, which could be mistaken for the Failed Bank, and this and other reputational risks could affect our results.

        BankUnited was established as a de novo federal savings association in order to participate in the FDIC-assisted acquisition of the Failed Bank. There is a reputational risk in being incorrectly associated with the Failed Bank. Our ability to originate and maintain accounts is highly dependent upon consumer and other external perceptions of our business practices and/or our financial health. Adverse perceptions regarding our business practices and/or our financial health could damage our reputation in both the customer and funding markets, leading to difficulties in generating and maintaining accounts as well as in financing them. Adverse developments with respect to the consumer or other external perceptions regarding the practices of our competitors, or our industry as a whole, may also adversely impact our reputation. In addition, adverse reputational impacts on third parties with whom we have important relationships may also adversely impact our reputation. Adverse reputational impacts or events may also increase our litigation risk. We carefully monitor internal and external developments for areas of potential reputational risk and have established governance structures to assist in evaluating such risks in our business practices and decisions.

As a public company, we will be required to meet periodic reporting requirements under the rules and regulations of the United States Securities and Exchange Commission, or the SEC. Complying with federal securities laws as a public company is expensive, and we will incur significant time and expense enhancing, documenting, testing, and certifying our internal control over financial reporting. Any deficiencies in our financial reporting or internal controls could adversely affect our business and the trading price of our common stock.

        We are not yet required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. However, as a publicly traded company following completion of this offering, we will be required to file periodic reports containing our financial statements with the SEC within a specified time following the completion of quarterly and annual periods. Prior to becoming a public company, we have not been required to comply with SEC requirements to have our financial statements completed and reviewed or audited within a specified time. We may experience difficulty in meeting the SEC's reporting requirements. Any failure by us to file our periodic reports with the SEC in a timely manner could harm our reputation and reduce the trading price of our common stock.

        As a public company, we will incur significant legal, accounting, insurance and other expenses. Compliance with other rules of the SEC and the rules of the stock exchange on which our common stock is listed will increase our legal and financial compliance costs and make some activities more time consuming and costly. Beginning with our Annual Report on Form 10-K for our fiscal year ending December 31, 2012, SEC rules will require that our Chief Executive Officer and Chief Financial Officer periodically certify the existence and effectiveness of our internal controls over financial reporting. Our

19


Table of Contents


independent registered public accounting firm will be required to attest to our assessment of our internal controls over financial reporting. This process will require significant documentation of policies, procedures and systems, review of that documentation by our internal auditing staff and our outside auditors, and testing of our internal controls over financial reporting by our internal auditing and accounting staff and our outside independent registered public accounting firm. This process will involve considerable time and expense, may strain our internal resources, and have an adverse impact on our operating costs. We may experience higher than anticipated operating expenses and outside auditor fees during the implementation of these changes and thereafter.

        During the course of our testing, we may identify deficiencies that would have to be remediated to satisfy the SEC rules for certification of our internal controls over financial reporting. As a consequence, we may have to disclose in periodic reports we file with the SEC material weaknesses in our system of internal controls. The existence of a material weakness would preclude management from concluding that our internal controls over financial reporting are effective and would preclude our independent auditors from issuing an unqualified opinion that our internal controls over financial reporting are effective. In addition, disclosures of this type in our SEC reports could cause investors to lose confidence in our financial reporting and may negatively affect the trading price of our common stock. Moreover, effective internal controls are necessary to produce reliable financial reports and to prevent fraud. If we have deficiencies in our disclosure controls and procedures or internal controls over financial reporting, it may negatively impact our business, results of operations, and reputation.

Future material weaknesses in our internal controls, if not properly corrected, could result in material misstatements in our financial statements.

        We are not yet required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, or to make an assessment of the effectiveness of our internal control over financial reporting under the Sarbanes-Oxley Act of 2002. Furthermore, our independent auditors have not been engaged to express, nor have they expressed, an opinion on the effectiveness of our internal control over financial reporting in accordance with Sarbanes-Oxley Act of 2002. However, in connection with the audit of our consolidated financial statements for the period ended December 31, 2009, we identified three material weaknesses in our system of internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies in internal controls over financial reporting, that results in a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

        The first material weakness identified relates to the fact that management did not design effective controls over its loan modeling process in order to account for certain loans in accordance with the requirements of Accounting Standards Codification, or ASC, Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. A material weakness existed due to the fact that the design of internal control did not provide for an independent review or approval and validation of the loan cash flow model and related assumptions. In addition, the design of internal control over the loan cash flow model did not provide for adequate access, change management, and end-user computing controls including spreadsheets. Furthermore, management's controls were not designed to reflect on a timely basis the impact of changes in market conditions on the loan cash flow model and related assumptions. The second material weakness relates to the fact that management did not maintain effective internal controls over the valuation and resulting writedown to fair market value of OREO properties. Specifically, a material weakness existed due to the fact that the control over the timely recording of OREO values by the Collateral Valuation Department in the Company's sub ledger system was not operating effectively. The third material weakness relates to the fact that BankUnited did not design effective controls over its financial reporting process in order to ascertain the complete, accurate, and timely preparation of its consolidated financial statements, including the applicable disclosures and footnotes, or design effective review controls to provide for proper accounting of nonroutine transactions. A material weakness existed due to the fact that the design of internal control did not

20


Table of Contents

provide for a comprehensive review of interim financial information and the consolidated financial statements to ensure the completeness and accuracy of information supporting various financial statement components.

        In order to improve the effectiveness of our internal control over financial reporting for the above material weaknesses, we have taken the following remedial measures:

    hired additional resources to help maintain/update the loan model, and engaged outside consultants to produce a closed form solution for the loan model which eliminates the manual aspect of data processing and aggregation;

    management of the accounting and loan servicing departments has developed procedures designed to ensure the proper fields in the loan servicing system are populated with the most current OREO values to allow for proper recording in our consolidated financial statements;

    hired additional managers and staff in the financial reporting area, and completed conversion to a new general ledger system; and

    in conjunction with the above, monthly closing procedures have been reviewed and revised to incorporate the anticipated efficiencies related to the new general ledger system.

        While we are taking steps to address the identified material weaknesses and prevent additional material weaknesses from occurring, there is no guarantee that these steps will be sufficient to remediate the identified material weaknesses or prevent additional material weaknesses from occurring. If we fail to remediate the material weaknesses or if additional material weaknesses are discovered in the future, we may fail to meet our future reporting obligations and our financial statements may contain material misstatements. Any such failure could also adversely affect the results of the periodic management evaluations and annual auditor attestation reports regarding the effectiveness of our internal controls over financial reporting, and could negatively impact our business, results of operations and reputation.

We rely on our systems and employees, and any errors or fraud could materially adversely affect our operations.

        We are exposed to many types of operational risk, including the risk of fraud by employees and outsiders, clerical recordkeeping errors and transactional errors. Our business is dependent on our employees as well as third parties to process a large number of increasingly complex transactions. We could be materially adversely affected if one of our employees causes a significant operational breakdown or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems. Third parties with which we do business also could be sources of operational risk to us, including breakdowns or failures of such parties' own systems or employees. Any of these occurrences could result in a diminished ability of us to operate our business, potential liability to customers, reputational damage and regulatory intervention, which could materially adversely affect us.

BankUnited Investment Services offers third-party products including mutual funds, annuities, life insurance, individual securities and other wealth management services which could experience significant declines in value subjecting us to reputational damage and litigation risk.

        Through our subsidiary BankUnited Investment Services, we offer third-party products including mutual funds, annuities, life insurance, individual securities and other wealth management products and services. If these products do not generate competitive risk-adjusted returns that satisfy clients in a variety of asset classes, we will have difficulty maintaining existing business and attracting new business. Additionally, our investment services businesses involve the risk that clients or others may sue us, claiming that we have failed to perform under a contract or otherwise failed to carry out a duty owed to them. Our investment services businesses are particularly subject to this risk and this risk may be heightened during periods when credit, equity or other financial markets are deteriorating in value or are particularly volatile, or when clients or investors are experiencing losses. Significant declines in the performance of these third-party products could subject us to reputational damage and litigation risk.

21


Table of Contents

Risks Relating to the Regulation of Our Industry

The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 may have a material effect on our operations.

        On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, which imposes significant regulatory and compliance changes. The key effects of the Dodd-Frank Act on our business are:

    changes to the thrift supervisory structure;

    changes to regulatory capital requirements;

    creation of new government regulatory agencies;

    limitation on federal preemption;

    changes in insured depository institution regulations; and

    mortgage loan origination and risk retention.

        The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. Failure to comply with the new requirements may negatively impact our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to investors in our common stock. For a more detailed description of the Dodd-Frank Act, see "Regulation and Supervision—The Dodd-Frank Act."

We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in them, or our failure to comply with them, may adversely affect us.

        We are subject to extensive regulation, supervision, and legislation that govern almost all aspects of our operations. Intended to protect customers, depositors and deposit insurance funds, these laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, limit the dividend or distributions that BankUnited can pay to us, restrict the ability of institutions to guarantee our debt, and impose certain specific accounting requirements on us that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than generally accepted accounting principles. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs. Our failure to comply with these laws and regulations, even if the failure follows good faith effort or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our securities. Further, any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect our business and financial condition.

The FDIC's restoration plan and the related increased assessment rate could adversely affect our earnings.

        Market developments have significantly depleted the deposit insurance fund, or DIF, of the FDIC and reduced the ratio of reserves to insured deposits. As a result of recent economic conditions and the enactment of the Dodd-Frank Act, the FDIC has increased the deposit insurance assessment rates

22


Table of Contents


and thus raised deposit premiums for insured depository institutions. There is no guarantee that these increases will be sufficient for the DIF to meet its funding requirements, which may necessitate further special assessments or increases in deposit insurance premiums. We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional bank or financial institution failures, we may be required to pay even higher FDIC premiums than the recently increased levels. Any future additional assessments, increases or required prepayments in FDIC insurance premiums may materially adversely affect results of operations.

Federal banking agencies periodically conduct examinations of our business, including compliance with laws and regulations, and our failure to comply with any supervisory actions to which we are or become subject as a result of such examinations may adversely affect us.

        Federal banking agencies, including the Office of Thrift Supervision, or OTS, periodically conduct examinations of our business, including compliance with laws and regulations. If, as a result of an examination, a federal banking agency were to determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that the Company or its management was in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate. These actions include the power to enjoin "unsafe or unsound" practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in BankUnited's capital, to restrict our growth, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate BankUnited's deposit insurance. If we become subject to such regulatory actions, our business, results of operations and reputation may be negatively impacted.

Changes in accounting standards may affect how we report our financial condition and results of operations.

        Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, the Financial Accounting Standards Board, or FASB, or regulatory authorities change the financial accounting and reporting standards that govern the preparation of financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in us restating prior period financial statements.

Changes and interpretations of tax laws and regulations may adversely impact our financial statements.

        Changes in state and federal tax laws can make our business less profitable. Local, state or federal tax authorities may interpret tax laws and regulations differently than us and challenge tax positions that we have taken on our tax returns. This may result in the disallowance of deductions or differences in the timing of deductions and result in the payment of additional taxes, interests, or penalties that could materially affect our performance.

Many of our new activities and expansion plans require regulatory approvals, and failure to obtain them may restrict our growth.

        We intend to complement and expand our business by pursuing strategic acquisitions of banks and other financial institutions. We must generally receive federal regulatory approval before we can acquire an institution or business. In determining whether to approve a proposed acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on the competition, our financial condition, and our future prospects. The regulators also review current and projected capital ratios and levels, the competence, experience, and integrity of management and its record of

23


Table of Contents


compliance with laws and regulations, the convenience and needs of the communities to be served (including the acquiring institution's record of compliance under the Community Reinvestment Act, or CRA) and the effectiveness of the acquiring institution in combating money laundering activities. Such regulatory approvals may not be granted on terms that are acceptable to us, or at all. We may also be required to sell branches as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition.

        In addition to the acquisition of existing financial institutions, as opportunities arise, we plan to continue de novo branching as a part of our internal growth strategy and possibly enter into new markets through de novo branching. De novo branching and any acquisition carries with it numerous risks, including the inability to obtain all required regulatory approvals. The failure to obtain these regulatory approvals for potential future strategic acquisitions and de novo branches may impact our business plans and restrict our growth.

Financial institutions, such as BankUnited, face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

        The federal Bank Secrecy Act, the USA PATRIOT Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network, established by the U.S. Treasury Department to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements, and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service. There is also increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control.

        In order to comply with regulations, guidelines and examination procedures in this area, we have enhanced our anti-money laundering program by adopting new policies and procedures and selecting a new, robust automated anti-money laundering software solution that is scheduled to be implemented in early 2011. If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of the financial institutions that we have already acquired or may acquire in the future are deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans.

We are subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties.

        The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful challenge to an institution's performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity, and restrictions on expansion activity. Private parties may also have the ability to challenge an institution's performance under fair lending laws in private class action litigation.

Risks Related to this Offering and Ownership of Our Common Stock

There is no prior public market for our common stock and one may not develop.

        Prior to this offering, there has not been a public trading market for our common stock. An active trading market may not develop or be sustained after this offering. If an active trading market does not

24


Table of Contents


develop, you may have difficulty selling your shares of common stock at an attractive price, or at all. The initial public offering price for our common stock sold in this offering will be determined by negotiations among us, the selling stockholders and the underwriters. This price may not be indicative of the price at which our common stock will trade after this offering. The market price of our common stock may decline below the initial offering price, and you may not be able to sell your common stock at or above the price you paid in this offering, or at all.

Our stock price may be volatile, and you could lose all or part of your investment as a result.

        You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand a significant loss and wide fluctuation in the market value of your investment. The market price of our common stock could be subject to wide fluctuations in response to, among other things, the factors described in this "Risk Factors" section, and other factors, some of which are beyond our control. These factors include:

    quarterly variations in our results of operations or the quarterly financial results of companies perceived to be similar to us;

    changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;

    our announcements or our competitors' announcements regarding new products or services, enhancements, significant contracts, acquisitions or strategic investments;

    fluctuations in the market valuations of companies perceived by investors to be comparable to us;

    future sales of our common stock;

    additions or departures of members of our senior management or other key personnel;

    changes in industry conditions or perceptions; and

    changes in applicable laws, rules or regulations and other dynamics.

        Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market price of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations, as well as general economic, systemic, political and market conditions, such as recessions, loss of investor confidence, interest rate changes, or international currency fluctuations, may negatively affect the market price of our common stock.

        If any of the foregoing occurs, it could cause our stock price to fall and may expose us to securities class action litigation that, even if unsuccessful, could be costly to defend and a distraction to management.

We may not pay cash dividends on our common stock.

        Although we intend to pay dividends to our stockholders, we have no obligation to do so and may change our dividend policy at any time without notice to our stockholders. Holders of our common stock are only entitled to receive such cash dividends as our Board may declare out of funds legally available for such payments. Any decision to declare and pay dividends will be dependent on a variety of factors, including our financial condition, earnings, legal requirements and other factors that our Board deems relevant. In addition, our ability to pay dividends may be limited by covenants of any future indebtedness we or our subsidiaries incur. As a result, you many not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it. In addition, since we are a holding company with no significant assets other than the

25


Table of Contents


capital stock of our banking subsidiary, we will need to depend upon dividends from the Bank for substantially all of our income. Accordingly, our ability to pay dividends depends primarily upon the receipt of dividends or other capital distributions from the Bank. The Bank's ability to pay dividends to us is subject to, among other things, its earnings, financial condition and need for funds, as well as federal and state governmental policies and regulations applicable to us and the Bank, which limit the amount that may be paid as dividends without prior regulatory approval.

You will incur immediate and substantial dilution in the net tangible book value of the shares you purchase in this offering.

        The initial public offering price is likely to be substantially higher than the net tangible book value per share of our common stock based on the total value of our tangible assets less our total liabilities divided by our shares of common stock outstanding immediately following this offering. Therefore, if you purchase common stock in this offering, you will experience immediate and substantial dilution in net tangible book per share value after completion of this offering. To the extent outstanding options to purchase our common stock are exercised, there will be further dilution. See the section entitled "Dilution."

Our stock price could decline due to the large number of outstanding shares of our common stock eligible for future sale.

        Sales of substantial amounts of our common stock in the public market following this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. These sales could also make it more difficult for us to sell equity or equity related securities in the future, at a time and place that we deem appropriate.

        Upon completion of this offering, we will have                        outstanding shares of common stock, assuming no exercise of the underwriters' over-allotment option, and an initial public offering price of $            per share, the midpoint of the price range set forth on the cover of this prospectus. Of the outstanding shares, all of the shares sold in this offering, plus any additional shares sold upon exercise of the underwriters' over-allotment option will be freely tradable, except that any shares purchased by "affiliates" (as that term is defined in Rule 144 under the Securities Act), only may be sold in compliance with the limitations described in the section entitled "Shares Eligible For Future Sale—Rule 144." Taking into consideration the effect of the lock-up agreements described below and the provisions of Rule 144 and Rule 701 of the Securities Act, the remaining shares of our common stock will be available for sale in the public market as follows:

    shares will be eligible for sale on the date of this prospectus; and

    shares will be eligible for sale upon the expiration of the lock-up agreements described below.

        We, our executive officers, directors, and the selling stockholders have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their shares of common stock or securities convertible into or exchangeable for shares during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Morgan Stanley & Co. Incorporated and Merrill, Lynch, Pierce, Fenner & Smith Incorporated. See the section entitled "Shares Eligible For Future Sale—Lock-Up Agreements."

"Anti-takeover" provisions and the regulations to which we are subject may make it more difficult for a third party to acquire control of us, even if the change in control would be beneficial to stockholders.

        We are a savings and loan holding company incorporated in the state of Delaware. Anti-takeover provisions in Delaware law and our certificate of incorporation and by-laws, as well as regulatory approvals that would be required under federal law, could make it more difficult for a third-party to

26


Table of Contents


take control of us and may prevent stockholders from receiving a premium for their shares of our common stock. These provisions could adversely affect the market price of our common stock and could reduce the amount that stockholders might get if we are sold.

        Our certificate of incorporation will provide for, among other things:

    advance notice for nomination of directors and other stockholder proposals;

    the removal of directors by stockholders for cause only;

    limitations on the ability of stockholders to call a special meeting of stockholders;

    a prohibition of stockholder action by written consent;

    the approval by a super-majority of outstanding shares to amend certain provisions of the by-laws and the certificate of incorporation; and

    the authorization of "blank check" preferred stock with such designations, rights and preferences as may be determined from time to time by our Board.

        Delaware law also imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. See the section entitled "Description of Our Capital Stock—Anti-Takeover Considerations and Special Provisions of our Certificate of Incorporation, By-Laws and Delaware Law." We believe that these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our Board and by providing our Board with more time to assess any acquisition proposal. However, these provisions apply even if the offer may be determined to be beneficial by some stockholders and could delay or prevent an acquisition that our Board determines is not in our best interest and that of our stockholders.

        Furthermore, banking laws impose notice, approval and ongoing regulatory requirements on any shareholder or other party that seeks to acquire direct or indirect "control" of an FDIC-insured depository institution. These laws include the Savings and Loan Holding Company Act, the Bank Holding Company Act of 1956 and the Change in Bank Control Act. These laws could delay or prevent an acquisition.

We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our common stock as to distributions and in liquidation, which could negatively affect the value of our common stock.

        Shares of our common stock are equity interests and do not constitute indebtedness. In the future, we may attempt to increase our capital resources by entering into debt or debt-like financing that is unsecured or secured by all or a substantial portion of our assets, or by issuing additional debt or equity securities, which could include the issuance of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, preferred stock or securities convertible into or exchangeable for equity securities. Additionally, we may issue additional debt or equity securities as consideration for future mergers and acquisitions. Such additional debt or equity offerings may place restrictions on our ability to pay dividends on or repurchase our common stock, dilute the holdings of our existing stockholders or reduce the market price of our common stock. In the event of our liquidation, our lenders and holders of our debt and preferred securities would receive a distribution of our available assets before distributions to the holders of our common stock. Because our decision to incur debt and issue securities in our future offerings will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings and debt financings. Furthermore, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.

27


Table of Contents


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

        Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus may contain forward-looking statements that reflect our current views with respect to, among other things, future events and financial performance. We generally identify forward-looking statements by terminology such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "could," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of those words or other comparable words. Any forward-looking statements contained in this prospectus are based on the historical performance of us and our subsidiaries or on our current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us, the underwriters or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included elsewhere in this prospectus. We do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. 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, those factors described in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

28


Table of Contents


REORGANIZATION

        We are currently a direct, wholly-owned subsidiary of the LLC. Prior to the completion of this offering, we will effect reorganization so that our investors, our named executive officers and all other members of the LLC will hold equity interests in us directly rather than indirectly through the LLC.

        Immediately prior to the consummation of this offering, the LLC will be liquidated and all interests in the registrant, BankUnited, Inc. will be distributed to the members of the LLC in accordance with its LLC Agreement. Following this liquidation, BankUnited, Inc. will be the ultimate parent entity of the group and will have two wholly-owned subsidiaries: BankUnited and BankUnited Investment Services. There are currently 36 holders of units in the LLC. All of the transactions necessary to effect the liquidation are collectively referred to herein as the "Reorganization."

        For additional information, see "Compensation Discussion and Analysis—Executive Officer Compensation—Equity-Based Compensation."

29


Table of Contents

        The following diagram shows our organizational structure, including our principal subsidiaries only, prior to giving effect to the Reorganization:


Pre-Reorganization

GRAPHIC

                 Immediately after the consummation of this offering and after the completion of the Reorganization, the following diagram shows our organization structure, including our principal subsidiaries only:


Post-Reorganization

GRAPHIC

30


Table of Contents


USE OF PROCEEDS

        We estimate that the net proceeds to us from the sale of our common stock in this offering will be $             million, at an assumed initial public offering price of $            per share, the midpoint of the price range set forth on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and offering expenses. Each $1.00 increase (decrease) in the assumed initial public offering price of $            per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us of this offering by $             million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and offering expenses. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders. We intend to use the net proceeds of this offering for general corporate purposes.

31


Table of Contents


DIVIDEND POLICY

        We initially anticipate paying a dividend of $            per share on our common stock, subject to the discretion of our Board and dependent on, among other things, our financial condition, results of operations, capital requirements, restrictions contained in future financing instruments and other factors that our Board may deem relevant. Dividends from the Bank are the principal source of funds for the payment of dividends on our common stock. The Bank is subject to certain restrictions that may limit its ability to pay dividends to us. See "Regulation and Supervision—Regulatory Limits on Dividends and Distributions." During the period ended December 31, 2009, we did not pay a cash dividend to the holder of our common stock. On September 17, 2010, we declared a quarterly dividend of $14.0 million. Additionally, on October 19, 2010, we declared a special one-time dividend of $6.0 million.

32


Table of Contents


CAPITALIZATION

        The following table sets forth our cash and cash equivalents and our capitalization at June 30, 2010:

    on an actual basis; and

    on an as adjusted basis to give effect to the sale of shares of common stock in this offering at an assumed initial public offering price of $            per share, the midpoint of the price range on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and offering expenses as if it had occurred on June 30, 2010.

        This table should be read in conjunction with "Selected Historical Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus.

 
  At June 30, 2010  
 
  Actual   As Adjusted  
 
  (unaudited)
(dollars in thousands,
except per share data)

 

Cash and cash equivalents

  $ 166,908   $    
           

Other borrowings

 
$

2,264,813
 
$
 

Stockholders' equity:

             
 

Preferred stock $0.01 par value per share: no shares authorized, no shares issued and outstanding, actual;                 shares authorized, no shares issued and outstanding, as adjusted

           
 

Common stock, $0.01 par value per share: 11,000,000 shares authorized, 9,294,681.45 shares issued and outstanding, actual;                 shares authorized,                 shares issued and outstanding, as adjusted

    93        
 

Additional paid-in-capital

    949,657        
 

Non-vested stock options

    742        
 

Retained earnings

    230,929        
 

Accumulated other comprehensive income, net

    23,435        
           

Total stockholders' equity

    1,204,856        
           
         

Total capitalization

  $ 3,469,669   $    
           

        A $1.00 increase (decrease) in the assumed initial public offering price of $            per share would increase (decrease) total stockholders' equity and total capitalization by $             million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and offering expenses.

33


Table of Contents


DILUTION

        If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the as adjusted net tangible book value per share of our common stock upon consummation of this offering. Our historical net tangible book value at June 30, 2010 was $1.1 billion, or $123.08 per share of common stock based on the 9,294,681.45 shares issued and outstanding as of such date. Net tangible book value per share represents the book value of our total tangible assets less the book value of our total liabilities divided by the number of shares of common stock then issued and outstanding.

        After giving effect to our sale of                        shares of common stock at an assumed initial public offering price of $            per share, the midpoint of the price range on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and offering expenses, our as adjusted net tangible book value at June 30, 2010 would have been $             million, or $            per share. This amount represents an immediate increase in net tangible book value to our existing stockholders of $            per share and an immediate dilution to new investors of $            per share.

        The following table illustrates this per share dilution:

Assumed initial public offering price per share

        $    
 

Net tangible book value per share at June 30, 2010

  $ 123.08        
 

Increase per share attributable to this offering

             

As adjusted net tangible book value per share after this offering

             
             

Net tangible book value dilution per share to new investors in this offering

        $    
             

        Each $1.00 increase (decrease) in the assumed initial public offering price of $            per share would increase (decrease) our as adjusted net tangible book value by approximately $             million, or approximately $            per share, and the pro forma dilution per share to investors in this offering by approximately $            per share, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and offering expenses. The number of shares offered by us in this offering may be increased or decreased from the number of shares on the cover page of this prospectus. Each increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) our as adjusted net tangible book value by approximately $             million, or approximately $            per share, and the pro forma dilution per share to investors in this offering by approximately $            per share, assuming the assumed initial public offering price per share of $            per share, the midpoint of the price range on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and offering expenses. The as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.

        If the underwriters exercise their option to purchase additional shares of our common stock in full in this offering, the net tangible book value per share after this offering would not change since the shares for this option are all being provided by our selling stockholders and we will not receive any of the proceeds from the sale of these shares.

        The following table summarizes at June 30, 2010 the average price per share paid by our existing stockholders and by investors participating in this offering, based on an assumed initial public offering

34


Table of Contents


price of $            per share, the midpoint of the price range on the cover of this prospectus, and before deducting estimated underwriting discounts and commissions and offering expenses.

 
  Shares Purchase   Total Consideration   Average Price
Per Share
 
 
  Number   Percent   Amount   Percentage   Amount  

Existing equity holder

            % $         % $    

Investors participating in this offering

                               
                         
         

Total

          100 %                  
                         

        Assuming no exercise of the over-allotment option, sales of shares of common stock by the selling stockholders in this offering will reduce the number of shares of common stock held by existing stockholders to                        , or approximately        % of the total shares of common stock outstanding after this offering, and will increase the number of shares held by new investors to                        , or approximately        % of the total shares of common stock outstanding after this offering. If the underwriters exercise their over-allotment option in full, the number of shares held by existing stockholders will be reduced to                        shares, or        % of the total shares outstanding, and the number of shares held by investors participating in this offering will be increased to                        shares, or        % of the total shares outstanding.

        The above discussion and tables excludes            shares of our common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $            per share and            shares of common stock reserved for issuance under our benefit plans in each case as of                        , 2010. To the extent any of the foregoing options are exercised, there will be further dilution to investors participating in this offering.

35


Table of Contents


SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

        You should read the selected historical consolidated financial information set forth below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Capitalization" and the consolidated financial statements and the related notes thereto included elsewhere in this prospectus. The selected historical consolidated financial information set forth below at and for the six months ended June 30, 2010 is derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus and includes all adjustments (consisting of normal recurring adjustments) that we considered necessary for a fair presentation of the financial position and the results of operations for these periods. Operating results for the six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ended December 31, 2010. The selected historical consolidated financial information set forth below at December 31, 2009 and for the period from April 28, 2009 (date of inception) to December 31, 2009 has been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected historical consolidated financial information set forth below at September 30, 2008 and 2007, for each of the periods from October 1, 2008 to May 21, 2009 and for the fiscal years ended September 30, 2008 and 2007 has been derived from the audited consolidated financial statements of the Failed Bank included elsewhere in this prospectus. The selected historical consolidated financial information set forth below at and for the fiscal years ended September 30, 2006 and 2005 has been derived from the unaudited consolidated financial statements of the Failed Bank not included in this prospectus.

        Although we were incorporated on April 28, 2009, neither we nor the Bank had any substantive operations prior to the Acquisition on May 21, 2009. Results of operations of the Company for the post-Acquisition periods are not comparable to the results of operations of the Failed Bank for the pre-Acquisition periods. Results of operations for the post-Acquisition periods reflect, among other things, the acquisition method of accounting. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Periods Presented and Factors Affecting Comparability."

 
   
   
  Failed Bank  
 
  BankUnited, Inc.  
 
  At September 30,  
 
  At
June 30,
2010
  At
December 31,
2009
 
 
  2008   2007   2006   2005  
 
  (unaudited)
   
   
   
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands, except per share data)
 

CONSOLIDATED BALANCE SHEET DATA:

                                     
 

Cash and cash equivalents

  $ 166,908   $ 356,215   $ 1,223,346   $ 512,885   $ 66,600   $ 237,950  
 

Investment securities available for sale, at fair value

    3,245,453     2,243,143     755,225     1,098,665     1,520,294     1,912,643  
 

Loans held in portfolio, net

    4,224,140     4,588,898     11,249,367     12,561,693     11,400,706     8,027,592  
 

FDIC indemnification asset

    2,854,175     3,279,165                  
 

Goodwill and other intangible assets

    60,832     60,981     28,353     28,353     28,353     28,353  
 

Total assets

    11,212,637     11,129,961     14,088,591     15,107,310     13,543,992     10,639,895  
 

Deposits

    7,468,381     7,666,775     8,176,817     7,305,788     6,044,800     4,705,559  
 

Advances from Federal Home Loan Bank

    2,264,813     2,079,051     5,279,350     6,234,360     5,174,350     3,820,385  
 

Total liabilities

    10,007,781     10,035,701     13,689,821     13,904,508     12,538,156     9,870,482  
 

Total stockholders' equity

    1,204,856     1,094,260     398,770     1,202,802     1,005,836     769,413  

36


Table of Contents


 
  BankUnited, Inc.   Failed Bank  
 
   
  Period from
April 28,
2009 to
December 31,
2009(1)
  Period from
October 1,
2008 to
May 21,
2009(1)
   
   
   
   
 
 
  Six Months
Ended
June 30,
2010
  Fiscal Years Ended September 30,  
 
  2008   2007   2006   2005  
 
  (unaudited)
   
   
   
   
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands, except share data)
 

Consolidated Income Statement Data:

                                           

Interest income

  $ 273,585   $ 335,524   $ 339,068   $ 834,460   $ 957,897   $ 712,807   $ 428,692  

Interest expense

    84,909     83,856     333,392     555,594     604,558     442,333     250,873  
                               
 

Net interest income

    188,676     251,668     5,676     278,866     353,339     270,474     177,819  

Provision for loan losses

    26,091     22,621     919,139     856,374     31,500     10,400     3,840  
                               
 

Net interest income (loss) after provision for loan losses

    162,585     229,047     (913,463 )   (577,508 )   321,839     260,074     173,979  

Non-interest income (loss)

    169,372     252,828     (81,431 )   (128,859 )   28,367     32,598     18,213  

Non-interest expense

    143,302     282,454     238,403     246,480     185,634     136,668     133,327  
                               

Income (loss) before income taxes

    188,655     199,421     (1,233,297 )   (952,847 )   164,572     156,004     58,865  

Provision (benefit) for income before taxes

    76,772     80,375         (94,462 )   55,067     51,794     17,909  
                               

Net income (loss)

  $ 111,883   $ 119,046   $ (1,233,297 ) $ (858,385 ) $ 109,505   $ 104,210   $ 40,956  
                               

Share Data:

                                           

Earnings (loss) per common share, basic and diluted

  $ 12.04   $ 12.85   $ (12,332,970 ) $ (8,583,850 ) $ 1,095,054   $ 1,042,100   $ 409,560  

Weighted average common shares outstanding

    9,294,183     9,266,491     100     100     100     100     100  

Other Data (unaudited):

                                           

Financial ratios

                                           
 

Return on average assets(2)

    1.98 %   1.69 %   (14.26 )%   (5.94 )%   0.78 %   0.86 %   0.44 %
 

Return on average common stockholders' equity(2)

    19.25 %   18.98 %   (2,041.04 )%   (75.43 )%   10.04 %   12.04 %   5.86 %
 

Yield on earning assets(2)

    7.13 %   7.42 %   3.91  %   5.91  %   6.96 %   6.06 %   4.70 %
 

Cost of interest bearing liabilities(2)

    1.81 %   1.39 %   3.94  %   4.36  %   4.91 %   4.16 %   3.05 %
 

Equity to assets ratio

    10.75 %   9.83 %   (7.25 )%   2.83  %   7.96 %   9.45 %   5.68 %
 

Interest rate spread(2)

    5.32 %   6.03 %   (0.03 )%   1.55  %   2.05 %   1.90 %   1.65 %
 

Net interest margin(2)

    4.90 %   5.57 %   0.06  %   1.98  %   2.57 %   2.30 %   1.95 %
 

Loan to deposit ratio

    57.12 %   60.15 %   128.73  %   146.33  %   172.74 %   189.21 %   171.15 %

Asset quality ratios

                                           
 

Non-performing loans to total loans(3)

    0.55 %   0.38 %   24.58  %   11.98  %   1.59 %   0.18 %   0.10 %
 

Non-performing assets to total loans and OREO(4)

    4.21 %   2.91 %   25.78  %   12.96  %   1.81 %   0.19 %   0.11 %
 

Non-performing assets to total assets(4)

    1.66 %   1.24 %   23.53  %   11.13  %   1.51 %   0.20 %   0.07 %
 

Allowance for loan losses to total loans

    0.97 %   0.49 %   11.14  %   5.98  %   0.46 %   0.32 %   0.32 %
 

Allowance for loan losses to non-performing loans

    177.92 %   130.22 %   45.33  %   49.96  %   29.15 %   175.40 %   306.94 %
 

Net charge-offs to average loans(2)

    0.33 %   0.00 %   5.51  %   1.58  %   0.08 %   0.00 %   0.03 %

37


Table of Contents


 
   
   
  Failed Bank  
 
  BankUnited, Inc.  
 
   
  At September 30,  
 
  At
June 30,
2010
  At
December 31,
2009(1)
  At
May 21,
2009(1)
 
 
  2008   2007   2006   2005  
 
  (unaudited)
   
   
   
   
  (unaudited)
  (unaudited)
 

Capital ratios(5)

                                           
 

Tangible common equity to tangible assets(6)

    10.26 %   9.33 %   (7.50 )%   2.63 %   7.79 %   7.23 %   6.98 %
 

Tier 1 common capital to total risk weighted assets

    41.91 %   40.42 %   n/a     4.90 %   14.64 %   13.79 %   14.03 %
 

Tier 1 risk-based capital

    41.91 %   40.42 %   n/a     4.90 %   14.64 %   13.79 %   14.03 %
 

Total risk-based capital

    42.47 %   40.55 %   n/a     6.21 %   15.37 %   14.28 %   14.49 %
 

Tier 1 leverage

    9.76 %   8.78 %   n/a     2.89 %   7.84 %   7.31 %   7.11 %

(1)
The Company was incorporated on April 28, 2009, but neither the Company nor the Bank had any substantive operations prior to the Acquisition on May 21, 2009. The period from May 22, 2009 to December 31, 2009 contained 224 days. The period from October 1, 2008 to May 21, 2009 contained 233 days.

(2)
Ratio is annualized for the period from October 1, 2008 to May 21, 2009, for the period from May 22, 2009 to December 31, 2009 and for the six months ended June 30, 2010. See note 1 above.

(3)
Non-performing loans include nonaccrual loans, loans past due 90 days or more and certain other impaired loans still accruing interest. For the pre-Acquisition periods, restructured 1-4 single family residential loans in compliance with modified terms are excluded from non-performing loans. For the post-Acquisition periods, contractually delinquent ACI loans accounted for in pools are excluded from non-performing loans.

(4)
Non-performing assets include non-performing loans and OREO.

(5)
All capital ratios presented are ratios of the Bank except for the tangible common equity to tangible assets ratio which is of the Company.

(6)
Tangible common equity to tangible assets is a non-GAAP financial measure. For purposes of computing tangible common equity to tangible assets, tangible common equity is calculated as common stockholders' equity less goodwill and other intangible assets, net, and tangible assets is calculated as total assets less goodwill and other intangible assets, net. The most directly comparable GAAP financial measure is total stockholders' equity to total assets. See the reconciliation below:

 
   
   
  Failed Bank  
 
  BankUnited, Inc.  
 
  At September 30,  
 
  At
June 30,
2010
  At
December 31,
2009
 
 
  2008   2007   2006   2005  
 
  (unaudited)
   
   
   
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands)
 

Total stockholders' equity

  $ 1,204,856   $ 1,094,260   $ 398,770   $ 1,202,802   $ 1,005,836   $ 769,413  
 

Less: goodwill and other intangible assets, net

    60,832     60,981     28,353     28,353     28,353     28,353  
                           

Tangible common stockholders' equity

  $ 1,144,024   $ 1,033,279   $ 370,417   $ 1,174,449   $ 977,483   $ 741,060  

Total assets

 
$

11,212,637
 
$

11,129,961
 
$

14,088,591
 
$

15,107,310
 
$

13,543,992
 
$

10,639,895
 
 

Less: goodwill and other intangible assets, net

    60,832     60,981     28,353     28,353     28,353     28,353  
                           

Tangible assets

  $ 11,151,805   $ 11,068,980   $ 14,060,238   $ 15,078,957   $ 13,515,639   $ 10,611,542  

38


Table of Contents


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

        The following discussion should be read in conjunction with the "Selected Historical Consolidated Financial Information," and our financial statements and related notes thereto included elsewhere in this prospectus. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management's expectations. Factors that could cause such differences are discussed in the sections of this prospectus entitled "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors." We assume no obligation to update any of these forward-looking statements.

Overview

        BankUnited, Inc. is a savings and loan holding company with two wholly-owned subsidiaries: BankUnited, which is the largest independent depository institution headquartered in Florida by assets, and BankUnited Investment Services, a Florida insurance agency. As of the close of business on May 21, 2009, BankUnited entered into the Purchase and Assumption Agreement including the Loss Sharing Agreements with the FDIC to acquire substantially all of the assets and assume all of the non-brokered deposits and substantially all other liabilities of the Failed Bank. The Failed Bank was closed by the OTS and placed into receivership with the FDIC on May 21, 2009. Neither the Company nor the Bank had any substantive operations prior to the Acquisition.

        BankUnited has a network of 78 branches in 13 Florida counties as of June 30, 2010. Since the Acquisition, we have focused on providing a full range of commercial and consumer banking services to growing companies and their executives, commercial and middle-market businesses and consumers in Florida's coastal regions. Through BankUnited, we deliver a comprehensive range of traditional depository and lending products, online banking services and cash management tools to our customers. Through its non-bank subsidiary, BankUnited Investment Services, the Company offers wealth management products as well as succession planning, estate planning and financial planning services. The Company recently acquired two businesses to start its leasing platform on a national basis. Through United Capital Business Lending, we offer equipment financing services and through Pinnacle Public Finance, we offer municipal leasing services.

Periods Presented and Factors Affecting Comparability

        Financial information presented throughout this "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the six months ended June 30, 2010 and the period from May 22, 2009 through December 31, 2009 (which we refer to as the post-Acquisition periods) is that of the Company. Historical financial information for the period from October 1, 2008 through May 21, 2009 and the fiscal years ended September 30, 2008, 2007, 2006 and 2005 (which we refer to as the pre-Acquisition periods) is that of the Failed Bank. Results of operations of the Company for the post-Acquisition periods are not comparable to the results of operations of the Failed Bank for the pre-Acquisition periods. Results of operations for the post-Acquisition periods reflect, among other things, the acquisition method of accounting.

        Under the acquisition method of accounting, all of the assets acquired and liabilities assumed were initially recorded on the consolidated balance sheet of the Company at their estimated fair values as of May 21, 2009. These estimated fair values differed substantially from the carrying amounts of the assets acquired and liabilities assumed as reflected in the financial statements of the Failed Bank immediately prior to the Acquisition. The most significant reasons for the non-comparability of the consolidated financial statements include:

    The estimated fair value at which the acquired loans were initially recorded by the Company was significantly less than the pre-Acquisition carrying value of those loans on the balance sheet of

39


Table of Contents

      the Failed Bank. No allowance for loan losses was recorded with respect to acquired loans at the Acquisition date. The writedown of loans to fair value in conjunction with the application of acquisition accounting and credit protection provided by the Loss Sharing Agreements resulted in a significantly lower provision for loan losses subsequent to the Acquisition;

    Acquired investment securities were recorded at their estimated fair values at the Acquisition date, significantly reducing the potential for other-than-temporary impairment charges in periods subsequent to the Acquisition for the acquired securities;

    An indemnification asset related to the Loss Sharing Agreements with the FDIC was recorded in conjunction with the Acquisition;

    Interest income, interest expense and the net interest margin subsequent to the Acquisition reflect the impact of accretion of the fair value adjustments made to the carrying amounts of interest earning assets and interest bearing liabilities;

    Non-interest income for periods subsequent to the Acquisition includes the effects of accretion of discount on the indemnification asset and net gains associated with the resolution of Covered Assets;

    Certain loans reflected as nonaccrual loans in the financial statements of the Failed Bank are no longer categorized as non-performing assets due to classification of such loans as ACI loans in accordance with ASC Subtopic 310-30, Loan and Debt Securities Acquired with Deteriorated Credit Quality. The balances of non-performing assets were significantly reduced by the adjustments to fair value recorded in conjunction with the Acquisition;

    Goodwill was recorded in conjunction with the Acquisition;

    The Company received $2.2 billion in cash from the FDIC upon consummation of the Acquisition; and

    The Company received a capital injection of $945.0 million at inception.

40


Table of Contents

        A summary comparison of the pre-Acquisition carrying amounts and estimated fair values of assets acquired and liabilities assumed as of the Acquisition date follows (dollars in thousands):

 
  As Recorded
by the
Failed Bank
  Fair Value
Adjustments
  Net Cash
Received
From the
FDIC
  As Recorded
by the
Company
 

Assets

                         
 

Cash and cash equivalents

  $ 1,160,321   $   $ 2,156,393   $ 3,316,714  
 

Investment securities, at fair value

    608,388     (69,444 )       538,944  
 

FHLB stock

    243,334             243,334  
 

Loans held in portfolio, net

    11,174,232     (6,163,904 )       5,010,328  
 

FDIC receivable

        69,444         69,444  
 

FDIC indemnification asset

        3,442,890         3,442,890  
 

Bank owned life insurance

    129,111             129,111  
 

Other real estate owned

    199,819     (22,140 )       177,679  
 

Deferred tax asset, net

        37,269         37,269  
 

Goodwill and other intangible assets

        61,150         61,150  
 

Other assets

    95,171     (44,696 )       50,475  
                   
   

Total assets

    13,610,376     (2,689,431 )   2,156,393     13,077,338  
                   

Liabilities

                         

Deposits

    8,225,916     108,566         8,334,482  

Securities sold under agreements to repurchase

    1,310             1,310  

Advances from FHLB

    4,429,350     201,264         4,630,614  

Advance payments by borrowers for taxes

                       

and insurance

    52,362             52,362  

Other liabilities

    59,137     (567 )       58,570  
                   
   

Total liabilities

    12,768,075     309,263         13,077,338  
                   
         

Net Assets

  $ 842,301   $ (2,998,694 ) $ 2,156,393   $  
                   

Primary Factors Used to Evaluate Our Business

        As a financial institution, we manage and evaluate various aspects of both our results of operations and our financial condition. We evaluate the levels and trends of the line items included in our balance sheet and income statement, as well as various financial ratios that are commonly used in our industry. We analyze these ratios and financial trends against our own historical performance, our budgeted performance and the financial condition and performance of comparable financial institutions in our region and nationally.

        Subsequent to the Acquisition, comparison of our financial performance against other financial institutions is impacted by the application of the acquisition method of accounting and the accounting for loans acquired with evidence of deterioration in credit quality, which we refer to as ACI loans, as discussed below.

    Results of operations

        The primary line items we use to manage and evaluate our results of operations include net interest income, the provision for loan losses, non-interest income, non-interest expense and net income.

41


Table of Contents

    Net interest income

        Net interest income is the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities and is the primary driver of core earnings. Net interest income is impacted by the relative mix of interest earning assets and interest bearing liabilities, the ratio of interest earning assets to total assets and of interest bearing liabilities to total funding sources, movements in market interest rates, levels of non-performing assets and pricing pressure from competitors. Due to the revaluation of Covered Assets in conjunction with the application of acquisition accounting and the resultant accretion, generally Covered Assets have higher yields than do assets purchased or originated since May 21, 2009. Net interest income will be impacted in future periods as Covered Assets are repaid or mature and these assets comprise a lower percentage of total interest earning assets. The mix of interest earning assets is influenced by loan demand and by management's continual assessment of the rate of return and relative risk associated with various classes of earning assets.

        The mix of interest bearing liabilities is influenced by management's assessment of the need for lower cost funding sources weighed against relationships with customers and growth requirements and is impacted by competition for deposits in the Bank's market and the availability and pricing of other sources of funds.

        Key measures that we use to evaluate our net interest income are the level and stability of the net interest margin and the interest rate spread. Net interest margin is calculated by dividing net interest income for the period by average interest earning assets. The interest rate spread is the difference between the yield earned on average interest earning assets and the rate paid on average interest bearing liabilities for the period.

        At Acquisition, ACI loans were recorded at fair value, measured based on the present value of expected cash flows. The excess of expected cash flows over the recorded fair value at Acquisition, known as accretable yield, is being recognized as interest income over the lives of the underlying loans. Since the post-Acquisition carrying value of ACI loans is based on the amount expected to be collected, and due to the resultant accretion, these loans are not classified as nonaccrual, although they may be contractually delinquent. Accretion related to ACI loans has a positive impact on our net interest income, net interest margin and interest rate spread. The impact of accretion and ACI loan accounting on net interest income makes it difficult to compare our net interest margin and interest rate spread to those reported by other financial institutions.

        For the post-Acquisition periods, net interest income is also impacted by accretion of fair value adjustments recorded in conjunction with the Acquisition and the accounting for ACI loans. Fair value adjustments of interest earning assets and interest bearing liabilities recorded at Acquisition are accreted to interest income or expense over the lives of the related assets or liabilities. Generally, accretion of fair value adjustments increases interest income and decreases interest expense, and thus has a positive impact on our net interest income, net interest margin and interest rate spread.

        The accretion of fair value adjustments will continue to have a significant impact on our net interest income as long as Covered Assets represent a significant portion of our interest earning assets as opposed to assets originated or purchased after May 21, 2009. At June 30, 2010, Covered Loans represented 94.3% of our loan portfolio (based on book value) and Covered Securities represented 8.4% of our investment portfolio. In total, covered interest earning assets represented 55.8% of our interest earning assets at June 30, 2010.

        Interest expense incurred on our interest bearing liabilities is impacted by the accretion of fair value adjustments on our time deposits and our advances from the FHLB recorded in connection with the Acquisition. However, the impact on interest expense has decreased significantly in 2010 and will continue to decrease in 2011. Accretion of fair value adjustments on time deposits totaled $14.7 million for the period ending June 30, 2010 (and is projected to be $21.4 million for 2010) as compared to

42


Table of Contents


$79.9 million for the period ending December 31, 2009. Accretion of fair value adjustments on FHLB advances totaled $14.2 million for the period ended June 30, 2010 (and is projected to be $23.9 million for 2010) as compared to $25.1 million for the period ended December 31, 2009. For 2011, accretion of fair value adjustments on time deposits is projected to be $7.0 million, and accretion of fair value adjustments on FHLB advances is projected to be $19.1 million.

    Provision for loan losses

        The provision for loan losses is the amount of expense that, based on our judgment, is required to maintain the allowance for loan losses at an adequate level to absorb probable losses inherent in the loan portfolio at the balance sheet date. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity.

        The risk of loss associated with Covered Loans differs significantly from the risk of loss associated with non-Covered Loans. The Loss Sharing Agreements significantly limit the Company's exposure to credit losses on Covered Loans. Recognition of future losses on Covered Loans is also mitigated by the fair market value of loans established in the application of acquisition accounting. Because the determination of fair value at which the loans acquired from the Failed Bank were initially recorded as of May 21, 2009 encompassed assumptions about expected future cash flows and credit risk, no allowance for loan losses was recorded at the date of acquisition. Fair value adjustments to the carrying amount of acquired loans totaled $6.2 billion.

        Covered Loans may be further broken out into two broad categories: (i) ACI loans and (ii) loans that did not exhibit evidence of deterioration in credit quality at acquisition, or non-ACI loans. Subsequent to the Acquisition, an allowance for loan losses related to the ACI loans is recorded only when estimates of future cash flows related to these loans are revised downward, indicating further deterioration in credit quality. An allowance for loan losses for non-ACI loans may be established if factors considered relevant by management indicate that the credit quality of the non-ACI loans has deteriorated. However, any provision for loan losses on Covered Loans is significantly mitigated by an increase in the FDIC indemnification asset and a corresponding increase in non-interest income, recorded in "Net loss on indemnification asset resulting from net recoveries" as discussed below in the section entitled "Non-interest income." For the six months ended June 30, 2010 and the period ended December 31, 2009, we recorded provisions for loan losses on Covered Loans of $24.4 million and $21.3 million, respectively. The impact to earnings from these provisions was significantly mitigated by recording non-interest income of $19.0 million and $14.4 million, respectively.

        For the six months ended June 30, 2010 and the period ended December 31, 2009, we recorded provisions for loan losses of $1.7 million and $1.3 million, respectively, for loans we originated or purchased subsequent to the Acquisition. These loans are not protected by the Loss Sharing Agreements and as such, these provisions are not offset by an increase in non-interest income.

    Non-interest income

        For the six months ended June 30, 2010 and the period ended December 31, 2009, the majority of our non-interest income resulted from the resolution of assets covered by our Loss Sharing Agreements with the FDIC and accretion of discount on the FDIC indemnification asset. Typically, the primary components of non-interest income of financial institutions are service charges and fees and gains or losses related to the sale or valuation of investment securities, loans and other assets. Thus, it is difficult to compare the amount and composition of our non-interest income with that of other financial institutions of our size both regionally and nationally.

        The FDIC indemnification asset was initially recorded at its estimated fair value of $3.4 billion, represented by the present value of estimated future cash payments from the FDIC for probable losses on Covered Assets, up to 90 days of past due interest, excluding loans on nonaccrual at Acquisition,

43


Table of Contents


and reimbursement of certain expenses. The discount rate of 7.10% used in the initial calculation of fair value was determined using a risk-free yield curve plus a premium reflecting the uncertainty related to the collection, amount and timing of the cash flows and other liquidity concerns. Accretion is a result of discounting and may also increase or decrease from period to period due to changes in expected cash flows from the Covered Loans.

        In general, if projected cash flows from the ACI loans increase, the yield on the loans will increase and the discount rate of accretion on the FDIC indemnification asset will decrease as less cash flow is expected to be recovered from the indemnification asset. For the six months ended June 30, 2010 and the period ended December 31, 2009, the average rate at which income was accreted on the FDIC indemnification asset was 6.03% and 7.10%, respectively. However, if projected cash flows from ACI loans decrease, a provision for loan losses is recorded, significantly mitigated by recording income associated with the increase in the FDIC indemnification asset reflected within non-interest income, as discussed above.

        Each period, the balance of the FDIC indemnification asset is increased for accretion, reduced by the amount of claims filed for losses incurred and increased or reduced as appropriate for changes in estimated discounted future cash flows arising from additional provisions for losses on Covered Assets and estimated income or loss from ultimate sale or resolution of those assets as discussed below. A roll-forward of the FDIC indemnification asset from May 21, 2009 to June 30, 2010 follows (dollars in thousands):

Balance, May 21, 2009

  $ 3,442,890  
 

Accretion

    149,544  
 

Reduction for claims filed

    (290,701 )
 

Net loss on indemnification asset resulting from net recoveries

    (22,568 )
       

Balance, December 31, 2009

    3,279,165  
 

Accretion

    91,160  
 

Reduction for claims filed

    (469,332 )
 

Net loss on indemnification asset resulting from net recoveries

    (46,818 )
       

Balance, June 30, 2010

  $ 2,854,175  
       

        In the income statement line item "Net loss on indemnification asset resulting from net recoveries," we record income or loss representing the net change in the FDIC indemnification asset resulting from increases or decreases in cash flows estimated to be received from the FDIC related to the ultimate resolution of Covered Assets. This includes the significantly mitigating impact of loan loss provisions on Covered Loans, income from resolution of Covered Loans, gains or losses on the sale of Covered Loans and impairment of OREO.

        Any provision for loan losses on Covered Loans is significantly mitigated by an increase in the FDIC indemnification asset and a corresponding increase in non-interest income.

        Income from resolution of Covered Loans is included in the income statement line item "Income from resolution of Covered Assets, net" and represents the difference in the projected losses from ACI loans and payment received in satisfaction of such loans that were resolved, either by prepayment, sale, foreclosure, short sale or, for the commercial portfolio, charge-offs, during the period. The amount of income recorded in any period will be impacted by the number and UPB of ACI loans resolved and our ability to accurately project cash flows from ACI loans in future periods. In general, we expect the amount of this income to decrease in future periods as we gain additional history in terms of the performance of the loans we acquired, which we will reflect in the update of our projected cash flows from ACI loans each quarter. Income from the resolution of non-ACI loans is not significant.

44


Table of Contents

        Under the Purchase and Assumption Agreement, we are permitted to sell on an annual basis up to 2.5% of the Covered Loans, based upon the UPB at Acquisition, or approximately $280.0 million, without prior consent of the FDIC. Any losses incurred from such loan sales are covered under the Loss Sharing Agreements. A loss of $47.1 million was recognized during the period ending December 31, 2009 on non-recourse sales of ACI loans to third parties. This loss was significantly mitigated by income of approximately $37.5 million, included in the income statement line item "Net loss on indemnification asset resulting from net recoveries." We may continue to exercise our right to sell Covered Loans in future periods.

        Certain OREO related expenses are also reimbursed under the terms of the Loss Sharing Agreements with the FDIC. Such expenses are recorded in non-interest expense when incurred, and the reimbursement is recorded as "FDIC reimbursement of foreclosure expense" in non-interest income when received from the FDIC. This may result in the expense and the related income from reimbursements being recorded in different periods.

    Non-interest expense

        Non-interest expense includes employee compensation and benefits, occupancy and equipment, impairment of OREO, professional fees, foreclosure expense, deposit insurance expense, OREO expense, telecommunications and data processing and other expense. For the period ending December 31, 2009, non-interest expense also included two significant non-recurring items. The first of these was the write-off of a receivable from the FDIC in the amount of $69.4 million, which was established at the date of the Acquisition and related to the disputed valuation of certain acquired investment securities. The Company has reached a settlement with the FDIC regarding this dispute. Under the settlement, the Company will receive $24.1 million, which will be reflected in non-interest income during the fourth quarter of 2010. The second of these non-recurring items was $39.8 million in direct costs associated with the Acquisition, consisting primarily of legal and investment banking advisory fees.

        Our employee compensation and benefits expense includes expense related to PIUs issued to certain members of executive management. The PIUs are divided into two equal types of profits interests. Half of the PIUs are time-based and vest with the passage of time following the grant date (which we refer to as Time-based PIUs) and the remaining half of the PIUs vest upon attainment of certain investment returns to our investors and a liquidity event as defined in the LLC Agreement (which we refer to as IRR-based PIUs). Fair value of PIUs is estimated using a Black-Scholes option pricing model. For additional information, see "Compensation Discussion and Analysis—Executive Officer Compensation—Equity-Based Compensation." Compensation expense for the Time-based PIUs is recorded over the vesting period based on their fair value. For the six months ended June 30, 2010 and the period ended December 31, 2009, we recorded compensation expense related to Time-based PIUs of $10.6 million and $8.8 million, respectively.

        In conjunction with this offering, we expect to record compensation expense related to the IRR-based PIUs in the quarter in which this offering occurs. The amount of compensation expense will be based on the initial public offering price. Assuming an initial public offering price of $            per share, the midpoint of the price range on the cover of this prospectus, we would expect to incur a charge of approximately $             million.

        OREO expense and foreclosure expense is comprised of net losses on the sale of OREO properties, expenses of holding and maintaining OREO properties such as real estate taxes and insurance, and legal fees and other foreclosure expenses. Impairment of OREO represents further deterioration in the fair value of properties that were initially recorded at fair value at the time of foreclosure. OREO expense, foreclosure expense and impairment of OREO have remained at high levels since the Acquisition due to continuing deterioration in home prices coupled with the high volume of foreclosures.

45


Table of Contents

        At June 30, 2010, all OREO properties were covered by the Loss Sharing Agreements with the FDIC. For the post-Acquisition periods, OREO losses are substantially offset by non-interest income related to indemnification by the FDIC. Generally, OREO related expenses are also reimbursed under the terms of the Loss Sharing Agreements with the FDIC.

        Other non-interest expense includes expenses related to the increase in fair value of a warrant issued to the FDIC in conjunction with the Acquisition. The warrant was initially recorded with a fair value of $1.5 million at May 21, 2009. For the six months ended June 30, 2010 and the period ended December 31, 2009, we recorded $3.2 million and $1.7 million, respectively, reflecting the increase in the fair value of the warrant. In October 2010, the Company agreed to amend the warrant to guarantee a minimum value to the FDIC in the amount of $25.0 million. The Company will recognize at least the difference between the recorded liability of $6.4 million at June 30, 2010 and the guaranteed minimum value of the warrant in non-interest expense in the fourth quarter of 2010.

        We evaluate our non-interest expense based on measures including our efficiency ratio and trends in the individual categories of non-interest expense, after giving consideration to the planned growth of our business.

    Net income

        We evaluate our net income based on measures including return on average assets and return on average common stockholders' equity.

Financial Condition

        Balance sheets of the Company for the post-Acquisition periods reflect the impact of the application of acquisition accounting and the resulting adjustment of assets acquired and liabilities assumed to their fair values, and are therefore not comparable in many respects to balance sheets of the Failed Bank for the pre-Acquisition periods. In particular, the carrying amount of investment securities, loans, the FDIC indemnification asset, goodwill and other intangible assets, net deferred tax assets, deposit liabilities, and FHLB advances were materially impacted by these adjustments.

        Loans, OREO and certain investment securities, including certain private-label mortgage-backed and non-investment grade securities acquired from the Failed Bank are covered by the Loss Sharing Agreements with the FDIC. The Loss Sharing Agreements afford the Company significant protection against future credit losses related to these assets. Under the agreements, the FDIC will cover 80% of losses and certain expenses related to the Covered Assets up to the $4.0 billion stated threshold and 95% of losses and certain expenses that exceed the $4.0 billion stated threshold. The Loss Sharing Agreements last for ten years for single family residential loans and for five years (with recoveries for eight years) for other loan types and investment securities. The Loss Sharing Agreements coverage may be extended for two additional years under certain circumstances.

        The portfolio of available for sale securities has grown to $3.2 billion at June 30, 2010 from $2.2 billion at December 31, 2009 and $0.5 billion immediately following the Acquisition. Growth of the investment portfolio since the Acquisition has been driven primarily by the deployment of cash acquired into higher yielding assets during a period of diminished loan demand. Our investment strategy has focused on providing liquidity necessary for the day-to-day operations of the Company, adding a suitable balance of high credit quality, diversifying assets on the consolidated balance sheet, managing interest rate risk, and generating acceptable returns given our established risk parameters. We have sought to maintain liquidity and manage interest rate risk by investing a significant portion of the portfolio in high quality liquid securities consisting primarily of U.S. Government agency floating rate residential mortgage-backed securities. We have also invested in highly rated structured products including private-label residential mortgage-backed securities and Re-Real Estate Mortgage Investment Conduits, or Re-REMICS, bank preferred stocks and asset-backed securities collateralized primarily by

46


Table of Contents


auto loans, credit card receivables, student loans and floor plan loans that, while somewhat less liquid, provide the Company with higher yields. A relatively short effective portfolio duration helps mitigate interest rate risk arising from the currently low level of market interest rates and the longer duration of the loan portfolio acquired from the Failed Bank.

        Loans acquired in the Acquisition were recorded at their estimated fair values at Acquisition, which were substantially less than the UPB of the loans. Additionally, the allowance for loan losses, discounts, premiums, and deferred origination fees and costs related to the acquired loans were eliminated in the application of the acquisition method of accounting. Net loans decreased to $4.2 billion at June 30, 2010 from $4.6 billion at December 31, 2009 and $5.0 billion immediately following the Acquisition, primarily due to the resolution of ACI loans.

        Residential loan demand in the Company's primary market areas remains depressed, limiting the volume of new residential originations, but there has been growth in the commercial loan portfolio commensurate with a shift in our lending strategy to an emphasis on commercial and commercial real estate lending.

Asset Quality

        In discussing asset quality, a distinction must be made between Covered Loans and loans originated or purchased by us since the Acquisition, or the non-Covered Loans. Non-Covered Loans were underwritten under significantly different and generally more conservative standards than the Covered Loans. In particular, credit approval policies have been strengthened, wholesale mortgage origination channels have been eliminated, "no-doc" and option adjustable rate mortgage, or ARM, loan products have been eliminated, and real estate appraisal policies have been improved. Although the risk profile of Covered Loans is higher than that of the non-Covered Loans, our exposure to loss related to the Covered Loans is significantly mitigated by the Loss Sharing Agreements and by the fair value basis recorded in these loans resulting from the application of acquisition accounting.

        In monitoring asset quality, we consider the results of our internal credit risk rating process and certain key ratios including the ratio of non-performing loans to total loans, non-performing assets to total assets, portfolio delinquency and charge-off trends, among other factors. Comparison of these metrics to those reported by other financial institutions and to historical metrics of the Failed Bank is difficult because of the impact of the revaluation of the acquired loans and of ACI loan accounting. Our non-performing asset ratios as well as the ratio of the allowance for loan losses to total loans and to non-performing loans are lower as a result of acquisition accounting and ACI loan accounting. ACI loans accounted for in pools are not reflected as nonaccrual loans even though they may be contractually delinquent due to continuing discount accretion because these pools are performing substantially as expected at the time of the Acquisition.

        As of June 30, 2010, substantially all of our non-performing assets are Covered Assets.

Funding Sources

        Deposits are our primary funding source, supplemented by FHLB advances. Since the Acquisition, we have worked towards optimizing our deposit mix and lowering our cost of deposits by reducing rate sensitive time deposits. In the future, we expect commercial core deposits will drive core deposit growth. At Acquisition, approximately 74.8% of total deposits were concentrated in time deposits, with consumer core deposits accounting for 21.7% of total deposits and commercial core deposits accounting for 3.5% of total deposits. At June 30, 2010, time deposits accounted for 52.2% of total deposits while consumer core deposits represented 38.7% of the total and commercial core deposits represented 9.1% of total deposits.

        The Bank's liquidity needs are primarily met by its cash position, growth in core deposits, cash flow from its amortizing investment and loan portfolios, and reimbursements under the Loss Sharing

47


Table of Contents


Agreements. If necessary, the Bank currently has the ability to raise additional liquidity through collateralized borrowings, FHLB advances or the sale of available for sale investment securities. We regularly monitor several measures of liquidity, including liquid assets, defined as cash and cash equivalents, and pledgeable securities, to total assets.

Strengths, Opportunities and Challenges

        Management believes that our Company has several key strengths, including:

    An experienced, re-built management team.

    A strong balance sheet due to significant protection from credit losses on Covered Assets arising from the Loss Sharing Agreements with the FDIC.

    A robust capital position. The Company was initially capitalized with common equity of $945.0 million, of which $875.0 million has been contributed to the Bank. The Bank currently exceeds "well-capitalized" guidelines under regulatory standards, with tier 1 leverage and tier 1 risk-based capital ratios of 9.8% and 41.9%, respectively, at June 30, 2010.

        Management has identified significant opportunities for our Company, including:

    Our capital position, market presence and experienced lending team position us well to compete for high quality commercial credits in our primary market areas. As of June 30, 2010, the commercial real estate and commercial loan portfolios contained $182.3 million in gross loans originated since the Acquisition.

    Organic growth through planned expansion of our branch footprint.

    Potential growth through strategic acquisitions of healthy financial institutions and complementary businesses and participation in the resolution of failed and troubled institutions in the Southeast.

    The potential to further shift our deposit mix from time deposits into lower cost money market and transaction accounts. Since the Acquisition to June 30, 2010, we have increased our core deposits from $2.1 billion to $3.6 billion.

        We have also identified significant challenges confronting the industry and our Company:

    The economic impact of the 2008 financial crisis continues into 2010 and can be expected to continue into 2011.

    The Company expects that it and the banking industry as a whole may be required by market forces and/or regulation to operate with higher capital ratios than in the recent past.

    Continued distressed economic conditions in the Company's primary markets, including home price depreciation, may lead to further elevated levels of non-performing assets and continued deterioration in credit quality, particularly in the acquired loan portfolio.

    Loan demand weakened throughout 2009 in the geographic markets that the Company serves as a result of sharply curtailed real estate activities and the economic recession. We believe the Company's capital and liquidity levels position us well to compete successfully for quality credits in our market. Since the Acquisition, our loan origination strategy has focused on conservative underwriting and traditional, high quality commercial and single family residential loan products. However, continued distressed economic and real estate market conditions could negatively impact the credit quality of loans originated since the Acquisition. Additionally, weak loan demand may put pressure on our net interest margin.

    The current low interest rate environment limits the yields we are able to obtain on interest earning assets, including both new assets acquired as we grow and assets that replace existing, high yielding Covered Assets as they are paid down or mature. The yield on newly acquired assets will depend on prevailing interest rates at the date they are purchased or originated.

48


Table of Contents

Recent Regulatory Actions Impacting the Financial Services Industry

        Regulatory policy and actions have become increasingly subject to change and difficult to predict, both in general and as they may be applied specifically to the Company.

        On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act implements far-reaching changes across the financial regulatory landscape, including provisions that, among other things, will:

    Abolish the OTS by April 2012, transferring the supervision of federal thrifts, such as BankUnited, to the Office of the Comptroller of the Currency, or OCC, and the supervision of thrift holding companies, such as the Company, to the Federal Reserve.

    Centralize responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, or CFPB, with broad rulemaking, supervision and enforcement authority.

    Require a variety of new capital rules.

    Change the assessment base for federal deposit insurance.

    Increase the minimum ratio of net worth to insured deposits of the DIF. This increase is generally expected to impose more deposit insurance cost on us and other institutions with assets of $10 billion or more.

    Provide for new disclosure and other requirements relating to executive compensation and corporate governance.

    Make permanent the $250,000 limit for federal deposit insurance and provide unlimited federal deposit insurance until January 1, 2013 for non-interest bearing demand transaction accounts at all insured depository institutions.

    Repeal the federal prohibitions on the payment of interest on demand deposits.

    Increase the examination and rule-making authority of the Federal Reserve Board.

    Require companies, including thrift holding companies that directly or indirectly control an insured depository institution to serve as a source of financial strength to their depository institution subsidiaries.

    Restrict proprietary trading by banks, bank holding companies and others, and their acquisition and retention of ownership interests in and sponsorship of hedge funds and private equity funds.

        Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company and the financial services industry more generally. Provisions in the legislation that affect deposit insurance assessments and payment of interest on demand deposits could increase the costs associated with deposits. Provisions in the legislation that will impose new capital requirements on the Company could require the Company to seek additional sources of capital in the future.

        In addition, other proposals have been offered by the current administration, by members of Congress and international regulatory forums that, if enacted, may have significant and potentially adverse effects on the Company, the full impact of which is difficult to predict at this time. For additional discussion, see "Regulation and Supervision."

Results of Operations for the Post-Acquisition Periods

        The Company reported net income of $111.9 million for the six months ending June 30, 2010 and $119.0 million for the period from April 28, 2009 (date of inception) through December 31, 2009.

49


Table of Contents

    Net Interest Income

        The following table presents, for the periods indicated, information about (i) average balances, the total dollar amount of 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. Nonaccrual and restructured loans are included in the average balances presented in this table; however, interest income foregone on nonaccrual loans is not included. Yields have been calculated on a pre-tax basis (dollars in thousands):

 
  Six Months Ended
June 30, 2010
  Period from May 22, 2009
to December 31, 2009
 
 
  Average
Balance
  Interest   Yield/
Rate(1)
  Average
Balance
  Interest   Yield/
Rate(1)
 

Assets:

                                     
 

Interest earning assets:

                                     
   

Investment securities available for sale

  $ 292,120   $ 3,488     2.39 % $ 69,778   $ 1,999     4.71 %
   

Mortgage-backed securities

    2,400,214     57,639     4.80 %   889,776     43,143     7.97 %
                           
     

Total investment securities available for sale

    2,692,334     61,127     4.54 %   959,554     45,142     7.73 %
   

Other interest earning assets

    648,527     788     0.25 %   1,719,417     2,922     0.28 %
   

Loans receivable

    4,332,510     211,670     9.77 %   4,754,739     287,460     9.94 %
                           
     

Total interest earning assets

    7,673,371     273,585     7.13 %   7,433,710     335,524     7.42 %
                               
 

Allowance for loan losses

    (25,060 )               (101 )            
 

Noninterest earning assets

    3,667,121                 4,025,699              
                                   
     

Total assets

  $ 11,315,432               $ 11,459,308              
                                   

Liabilities and Equity:

                                     
 

Interest bearing liabilities:

                                     
   

Interest bearing deposits:

                                     
   

Interest bearing demand

  $ 233,580   $ 917     0.79 % $ 183,416   $ 891     0.79 %
   

Savings and money market

    2,728,210     18,119     1.34 %   2,153,445     25,578     1.94 %
   

Time deposits

    4,261,996     37,878     1.79 %   5,523,623     31,360     0.93 %
                           
     

Total interest bearing deposits

    7,223,786     56,914     1.59 %   7,860,484     57,829     1.20 %
   

Borrowings:

                                     
   

FHLB advances

    2,228,703     27,947     2.53 %   1,974,755     26,026     2.15 %
   

Repurchase agreements

    12,512     48     0.77 %   2,091     1     0.02 %
                           
     

Total interest bearing liabilities

    9,465,001     84,909     1.81 %   9,837,330     83,856     1.39 %
                               
 

Non-interest bearing demand deposits

    382,117                 303,871              
 

Other non-interest bearing liabilities

    305,678                 295,914              
                                   
     

Total liabilities

    10,152,796                 10,437,115              
 

Equity

    1,162,636                 1,022,193              
                                   
     

Total liabilities and equity

  $ 11,315,432               $ 11,459,308              
                                   
     

Net interest income

        $ 188,676               $ 251,668        
                                   
     

Interest rate spread

                5.32 %               6.03 %
     

Net interest margin

                4.90 %               5.57 %

(1)
Annualized.

50


Table of Contents

        Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest earning assets and liabilities, as well as changes in average interest rates. The comparison of total interest income and total interest expense for the six months ended June 30, 2010 to the period ended December 31, 2009, is also impacted by the different number of days in the comparative periods. The following table shows the effect that these factors had on the interest earned on our interest earning assets and the interest incurred on our interest bearing liabilities for the periods indicated. The effect of changes in volume is determined by multiplying the change in volume by the previous period's average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period's volume. Changes applicable to both volume and rate have been allocated to volume (dollars in thousands):

 
  Six Months Ended
June 30, 2010 Compared to Period
From May 22, 2009 to December 31, 2009
 
 
  Changes
in Volume
  Changes
in Rate
  Change due
to Number
of Days
  Total
Increase
(Decrease)
 

Interest Income Attributable to

                         
 

Investment securities available for sale

  $ 2,654   $ (809 ) $ (356 ) $ 1,489  
 

Mortgage-backed securities

    36,281     (14,103 )   (7,682 )   14,496  
                   
   

Total investment securities available for sale

    38,935     (14,912 )   (8,038 )   15,985  
 

Other interest earning assets

    (1,311 )   (256 )   (567 )   (2,134 )
 

Loans receivable

    (20,547 )   (4,042 )   (51,201 )   (75,790 )
                   
   

Total interest earning assets

    17,077     (19,210 )   (59,806 )   (61,939 )
                   

Interest Expense Attributable to

                         
 

Interest bearing demand deposits

  $ 197   $   $ (171 ) $ 26  
 

Savings and money market deposit accounts

    3,870     (6,407 )   (4,922 )   (7,459 )
 

Time deposits

    (10,986 )   23,556     (6,052 )   6,518  
                   
   

Total interest bearing deposits

    (6,919 )   17,149     (11,145 )   (915 )
 

FHLB advances

    3,202     3,721     (5,002 )   1,921  
 

Repurchase agreements

    39     8         47  
                   
   

Total interest bearing liabilities

    (3,678 )   20,878     (16,147 )   1,053  
                   
   

Increase (decrease) in net interest income

  $ 20,755   $ (40,088 ) $ (43,659 ) $ (62,992 )
                   

Six months ending June 30, 2010 compared to period from May 22, 2009 to December 31, 2009

        Net interest income was $188.7 million for the six months ending June 30, 2010 and $251.7 million for the period ending December 31, 2009, for a decline of $63.0 million. The decline in net interest income was comprised of a decline in interest income of $61.9 million and an increase in interest expense of $1.1 million. On an annualized basis, net interest income was $380.5 million and $410.1 million for the periods ending June 30, 2010 and December 31, 2009, respectively. The decline of $29.6 million, or 7.2%, in annualized net interest income was comprised of an increase of $34.6 million in interest expense partly offset by an increase of $5.0 million in interest income.

        The increase in interest income resulted from an increase in the average volume of investment securities significantly mitigated by a decline in the average yield on both the investment and loan portfolios. The average yield on investment securities declined to 4.54% for the period ending June 30, 2010 from 7.73% for the period ending December 31, 2009. The decrease in average yield resulted primarily from new purchases reflecting lower general market rates of interest as well as a shift in the type of securities purchased, including $1.3 billion of U.S. Government agency floating rate securities purchased as of June 30, 2010. The average yield on the loan portfolio decreased to 9.77% for the

51


Table of Contents


period ending June 30, 2010 from 9.94% for the period ending December 31, 2009. The origination and purchase of new loans at lower prevailing market rates of interest had the effect of reducing the average yield on the portfolio for the period ending June 30, 2010. The average yield on loans originated and purchased since the Acquisition was 5.50% and 6.35% for the periods ending June 30, 2010 and December 31, 2009, respectively.

        Interest expense on deposits increased on an annualized basis by $20.5 million for the period ending June 30, 2010 due to lower accretion of fair market value adjustments on time deposits as acquired time deposits matured, offset by a shift in deposit mix toward lower rate products and a decline in market rates. Accretion of fair value adjustments on time deposits totaled $14.7 million for the period ending June 30, 2010 as compared to $79.9 million for the period ending December 31, 2009. The average rate paid on time deposits excluding the impact of accretion was 2.49% for the six months ending June 30, 2010 and 3.28% for the period ending December 31, 2009. The decline in the adjusted average rate is attributable to lower prevailing rates. Interest expense on FHLB advances increased by $13.9 million on an annualized basis as a result of lower accretion of fair value adjustments, as well as increased volume of outstanding advances. Accretion of fair value adjustments on FHLB advances totaled $14.2 million for the period ended June 30, 2010 as compared to $25.1 million for the period ended December 31, 2009 decreasing the average rate paid by 129 and 191 basis points, respectively. The decline in accretion is due to the maturity and repayment of a portion of the advances outstanding at the Acquisition date, along with the difference in the number of days in the comparative periods.

        The net interest margin for the period ending June 30, 2010 was 4.90% as compared to 5.57% for the period ending December 31, 2009, a decline of 67 basis points. The average yield on interest earning assets declined by 29 basis points for the period ending June 30, 2010 as compared to the period ending December 31, 2009 while the average rate paid on interest bearing liabilities increased by 42 basis points, for a decline in the interest rate spread of 71 basis points. The decline in both net interest margin and interest rate spread resulted from lower accretion of fair value adjustments on interest earning assets and interest bearing liabilities, the origination and purchase of loans and investment securities at lower prevailing market rates of interest, and a shift in the composition of interest earning assets from loans to investment securities as discussed above.

    Provision for Loan Losses

        Our determination of the amount of the allowance and corresponding provision for loan losses considers ongoing evaluations of the various segments of the Company's loan portfolio and of individually significant credits, levels of non-performing loans and charge-offs, statistical trends and economic and other relevant factors. See "—Analysis of the Allowance for Loan Losses" below for more information about how we determine the appropriate level of the allowance.

52


Table of Contents

    Non-Interest Income

        The Company reported non-interest income of $169.4 million for the six months ending June 30, 2010 and $252.8 million for the period from May 22, 2009 to December 31, 2009. The following table presents a comparison of the categories of non-interest income for the periods indicated (dollars in thousands):

 
  Six Months
Ended
June 30, 2010
  Period from
May 22, 2009 to
December 31, 2009
 

Accretion of discount on FDIC indemnification asset

  $ 91,160   $ 149,544  

Income from resolution of Covered Assets, net

    98,127     120,954  

Net loss on indemnification asset resulting from net recoveries

    (46,818 )   (22,568 )

FDIC reimbursement of foreclosure expense

    11,178     8,095  

Net loss on sale of loans

        (47,078 )
           
 

Non-interest income from Covered Assets

    153,647     208,947  

Service charges on deposits and other fee income

    4,008     4,913  

Service charges on loans

    1,217     1,509  

Loan servicing fees

        331  

Insurance and investment services income

    479     830  

Gain on extinguishment of debt

        31,303  

Net loss on sale of investment securities

    (2,810 )    

Other non-interest income

    12,831     4,995  
           
 

Total non-interest income

  $ 169,372   $ 252,828  
           

        The following table summarizes the pre-tax components of the gains and losses associated with the resolution of Covered Assets, plus the provision for loan losses on non-Covered Loans, for the periods ended June 30, 2010 and December 31, 2009 (dollars in thousands):

 
  Six Months Ended
June 30, 2010
  Period Ended
December 31, 2009
 
 
  Transaction
Income (Loss)
  FDIC
Indemnification
Income (Loss)
  Net Impact
on Earnings
  Transaction
Income (Loss)
  FDIC
Indemnification
Income (Loss)
  Net Impact
on Earnings
 

Provision for losses on Covered Loans

  $ (24,422 ) $ 18,991   $ (5,431 ) $ (21,287 ) $ 14,433   $ (6,854 )

Loans not covered

    (1,669 )       (1,669 )   (1,334 )       (1,334 )
                           
 

Total

    (26,091 )   18,991     (7,100 )   (22,621 )   14,433     (8,188 )
                           

Income from resolution of Covered Assets, net

    98,127                 120,954              

Net loss on sale of Covered Loans

                    (47,078 )            
                                   
 

Total

    98,127     (70,608 )   27,519     73,876     (51,201 )   22,675  
                           

Loss due to impairment of OREO

    (5,901 )   4,799     (1,102 )   (21,055 )   14,200     (6,855 )
                           
 

Total

  $ 66,135   $ (46,818 ) $ 19,317   $ 30,200   $ (22,568 ) $ 7,632  
                           

Six months ending June 30, 2010 compared to period from May 22, 2009 to December 31, 2009

        For the six months ended June 30, 2010 and the period from May 22, 2009 to December 31, 2009, non-interest income was significantly impacted by the effect of the Acquisition and the related Loss

53


Table of Contents


Sharing Agreements with the FDIC. Accretion of discount on the FDIC indemnification asset totaled $91.2 million for the six months ending June 30, 2010 and $149.5 million for the period ending December 31, 2009. The decrease in accretion for the period ending June 30, 2010 as compared to the period ending December 31, 2009 was related to the decrease in the average balance of the indemnification asset as well as a decrease in the average discount rate during the period to 6.03% from 7.10%.

        The net impact on earnings before taxes of transactions related to Covered Assets, plus the provision for loan losses on non-Covered Loans, for the periods ending June 30, 2010 and December 31, 2009 was $19.3 million and $7.6 million, respectively, as detailed in the table above. For the periods ending June 30, 2010 and December 31, 2009, ACI loans with an UPB of $816.7 million and $1.4 billion were resolved, resulting in income of $98.1 million and $121.0 million, respectively. A loss of $47.1 million was recognized during the period ending December 31, 2009 on non-recourse sales of ACI loans to third parties. Net loss on indemnification asset resulting from net recoveries of $(46.8) million and $(22.6) million was recorded for the periods ending June 30, 2010 and December 31, 2009, respectively, representing the net change in the FDIC indemnification asset resulting from increases or decreases in cash flows estimated to be received from the FDIC related to the ultimate resolution of Covered Assets.

        During the periods ending June 30, 2010 and December 31, 2009, $11.2 million and $8.1 million, respectively, were received from the FDIC in reimbursement of certain expenses incurred with respect to Covered Assets. Non-interest expense for the period ending June 30, 2010 and December 31, 2009 includes $29.0 million and $19.7 million, respectively, in expenses subject to reimbursement under the Loss Sharing Agreements. As of June 30, 2010, $12.8 million of these expenses, based on a reimbursement level of 80%, remains to be submitted for reimbursement from the FDIC in future periods.

        The Company prepaid FHLB advances with a principal balance of $2.7 billion during the period ending December 31, 2009. These advances had a carrying amount of $2.8 billion at the time of repayment. The Company recognized a gain of $31.3 million on this transaction.

        Other non-interest income for the period ended June 30, 2010 includes $5.1 million received in settlement of mortgage insurance claims.

54


Table of Contents

    Non-Interest Expense

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

 
  Six Months
Ended
June 30, 2010
  Period from
May 22, 2009 to
December 31, 2009
 

Employee compensation and benefits

  $ 63,504   $ 62,648  

Occupancy and equipment

    13,426     19,925  

Impairment of OREO

    5,901     21,055  

Professional fees

    4,684     14,854  

Foreclosure expense

    18,374     16,632  

Deposit insurance expense

    6,951     11,850  

OREO expense

    8,886     7,576  

Telecommunications and data processing

    5,736     6,440  

Other non-interest expense

    15,840     12,230  
           
 

    143,302     173,210  

Loss on FDIC receivable—securities valuation dispute

        69,444  

Acquisition related costs

        39,800  
           
 

Acquisition related expense

        109,244  
           
 

Total non-interest expense

  $ 143,302   $ 282,454  
           

Six months ending June 30, 2010 compared to period from May 22, 2009 to December 31, 2009

        On an annualized basis, non-interest expense as a percentage of average assets was 2.5% for the six months ended June 30, 2010 as compared to 4.0% for the period ended December 31, 2009. The decline was primarily attributable to non-recurring expenses related to the Acquisition that were incurred during the period ended December 31, 2009, reduced professional fees, lower occupancy costs, and lower deposit insurance assessments, partially offset by increased employee compensation and benefits cost.

        As is typical for financial institutions, employee compensation and benefits represent the single largest component of recurring non-interest expense. On an annualized basis, employee compensation and benefits increased by approximately $24.9 million or 24.4% for the period ending June 30, 2010 as compared to the period ending December 31, 2009. This increase resulted in part from continued enhancement of our management team and other personnel subsequent to the Acquisition. Employee compensation and benefits also included $10.6 million and $8.8 million for the periods ended June 30, 2010 and December 31, 2009, respectively, related to Time-based PIUs.

        The decline in occupancy and equipment expense for the six months ended June 30, 2010 resulted primarily from the renegotiation of leases and reduced depreciation.

        Professional fees for the period ended December 31, 2009 included non-recurring legal and accounting fees related to certain litigation matters and formation of the Company.

        OREO expense, foreclosure expense and impairment of OREO remained at high levels during the six months ended June 30, 2010 and the period ended December 31, 2009 due to continuing deterioration in home prices and the high volume of foreclosures. The rate of home price deterioration moderated to some extent during the first six months of 2010, contributing to reduced impairment charges for the period ending June 30, 2010 as compared to the period ending December 31, 2009. At June 30, 2010, just under 7,000 units were in the foreclosure process, down from a peak of approximately 7,300 units in November of 2009. For the post-Acquisition periods, OREO losses and

55


Table of Contents


OREO related expenses are substantially offset by non-interest income related to indemnification by the FDIC.

        The primary components of other non-interest expense are loan related expenses, advertising and promotion, the cost of regulatory examinations, expense related to the warrant issued to the FDIC and general office expense.

    Income Taxes

        The provision for income taxes for the periods ending June 30, 2010 and December 31, 2009 was $76.8 million and $80.4 million, respectively. The Company's effective tax rate was 40.7% and 40.3% for the periods ending June 30, 2010 and December 31, 2009. The Company's effective tax rate differed from the statutory federal tax rate of 35.0% primarily due to the effect of state income taxes and expense related to PIUs. At June 30, 2010 and December 31, 2009, the Company had net deferred tax assets of $4.2 million and $22.5 million, respectively. Based on an evaluation of the ultimate realization of these deferred tax assets considering the availability of tax loss carrybacks, future taxable income that will result from reversal of existing taxable temporary differences, including negative goodwill recognized for tax purposes, and taxable income expected to be generated from future operations in light of the Company's current level of profitability, we have concluded it is more likely than not that the deferred tax asset will be realized.

Balance Sheet Analysis for the Post-Acquisition Periods

        Average interest earning assets increased $239.7 million to $7.7 billion for the six months ending June 30, 2010 from $7.4 billion for the period ending December 31, 2009. This increase was driven primarily by an increase in the average balance of investment securities resulting from continued deployment of cash acquired in the Acquisition and reimbursements under the Loss Sharing Agreements. Average non-interest earning assets declined by $383.5 million, largely attributable to the decrease in the FDIC indemnification asset.

        Average interest bearing liabilities decreased by $372.3 million to $9.5 billion for the six months ending June 30, 2010 from $9.8 billion for the period ending December 31, 2009, reflecting a decrease in average total deposits partially offset by an increase in outstanding FHLB advances. The reduction in outstanding deposits resulted from a reduction in rates offered and shift in emphasis away from rate sensitive time deposits. Average non-interest bearing liabilities increased by $88.0 million, primarily as a result of an increase in unrealized losses on interest rate swaps. Average equity increased by $140.4 million, primarily due to earnings.

56


Table of Contents

    Investment Securities Available for Sale

        The following table shows the amortized cost and fair value of our investment securities as of the dates indicated. All of our investment securities are classified available for sale (dollars in thousands):

 
  At June 30,
2010
  At December 31,
2009
 
 
  Amortized
Cost
  Fair
Value
  Amortized
Cost
  Fair
Value
 

U.S. Treasury securities

  $   $   $ 10,066   $ 10,072  

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

    1,408,963     1,424,445     1,288,277     1,288,643  

Other residential collateralized mortgage obligations

    789,364     794,234     480,478     476,839  

Residential mortgage pass-through certificates

    319,749     378,909     318,018     364,672  

Asset-backed securities

    497,383     496,887     30,000     30,000  

Mutual funds and preferred stocks

    121,891     120,721     43,344     43,523  

State and Municipal obligations

    23,447     23,609     23,214     23,356  

Other debt securities

    3,501     6,648     3,331     6,038  
                   
 

Total investment securities available for sale

  $ 3,164,298   $ 3,245,453   $ 2,196,728   $ 2,243,143  
                   

        Our available for sale securities portfolio consists of the securities acquired in the Acquisition (the "acquired securities") and those purchased by us subsequent to the Acquisition. Investment securities increased by $1.7 billion, from $0.5 billion at May 21, 2009 to $2.2 billion at December 31, 2009 and by an additional $1.0 billion, to $3.2 billion, at June 30, 2010. Purchases of investment securities totaled $1.3 billion and $1.8 billion for the periods ending June 30, 2010 and December 31, 2009, respectively, offset by pay-downs and sales of $0.4 billion and $0.2 billion, respectively.

        The following tables show, as of June 30, 2010 and December 31, 2009, the breakdown of Covered and non-Covered Securities in the Company's investment portfolio (dollars in thousands):

 
  At June 30, 2010  
 
  Covered Securities   Non-Covered Securities  
 
  Amortized
Cost
  Unrealized
Gains
  Unrealized
Losses
  Fair
Value
  Amortized
Cost
  Unrealized
Gains
  Unrealized
Losses
  Fair
Value
 

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

  $   $   $   $   $ 1,408,963   $ 17,245   $ (1,763 ) $ 1,424,445  

Other residential collateralized mortgage obligations

    1,733     83         1,816     787,631     8,837     (4,050 )   792,418  

Residential mortgage pass-through certificates

    188,719     59,483     (1,171 )   247,031     131,030     986     (138 )   131,878  

Asset-backed securities

                    497,383     544     (1,040 )   496,887  

Mutual funds and preferred stocks

    16,577     56     (351 )   16,282     105,314     1,059     (1,934 )   104,439  

State and municipal obligations

                    23,447     174     (12 )   23,609  

Other debt securities

    3,501     3,147         6,648                  
                                   
 

Total investment securities available for sale

  $ 210,530   $ 62,769   $ (1,522 ) $ 271,777   $ 2,953,768   $ 28,845   $ (8,937 ) $ 2,973,676  
                                   

57


Table of Contents


 
  At December 31, 2009  
 
  Covered Securities   Non-Covered Securities  
 
  Amortized
Cost
  Unrealized
Gains
  Unrealized
Losses
  Fair
Value
  Amortized
Cost
  Unrealized
Gains
  Unrealized
Losses
  Fair
Value
 

U.S. Treasury securities

  $   $   $   $   $ 10,066   $ 6   $   $ 10,072  

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

                    1,288,277     3,581     (3,215 )   1,288,643  

Other residential collateralized mortgage obligations

    1,747     89         1,836     478,731     1,007     (4,735 )   475,003  

Residential mortgage pass-through certificates

    199,402     51,196     (480 )   250,118     118,616         (4,062 )   114,554  

Asset-backed securities

                    30,000             30,000  

Mutual funds and preferred stocks

    18,094     338     (698 )   17,734     25,250     661     (122 )   25,789  

State and municipal obligations

                    23,214     143     (1 )   23,356  

Other debt securities

    3,331     2,707         6,038                  
                                   
 

Total investment securities available for sale

  $ 222,574   $ 54,330   $ (1,178 ) $ 275,726   $ 1,974,154   $ 5,398   $ (12,135 ) $ 1,967,417  
                                   

        The following table shows the composition, at June 30, 2010, of securities added to the portfolio since the Acquisition (dollars in millions):

 
  Fair
Value
 

U.S. Government agency floating rate securities

  $ 1,348.1  

Private-label residential mortgage-backed securities

    180.2  

Private-label residential mortgage-backed Re-REMICS

    744.1  

Asset-backed securities

    429.4  

Bank preferred stock

    94.2  

Mutual funds

    10.2  
       
 

Total investment securities available for sale

  $ 2,806.2  
       

58


Table of Contents

        The following table shows the scheduled maturities, carrying values and current yields for our investment portfolio as of June 30, 2010. Yields on tax-exempt securities have been calculated on a pre-tax basis (dollars in thousands):

 
  Within One Year   After One Year Through Five Years   After Five Years Through Ten Years   After Ten Years   Total  
 
  Carrying
Value
  Weighted
Average
Yield
  Carrying
Value
  Weighted
Average
Yield
  Carrying
Value
  Weighted
Average
Yield
  Carrying
Value
  Weighted
Average
Yield
  Carrying
Value
  Weighted
Average
Yield
 

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

  $ 288,844     1.45 % $ 663,344     1.33 % $ 302,403     1.28 % $ 169,854     1.30 % $ 1,424,445     1.34 %

Other residential collateralized mortgage
obligations

    256,514     5.07 %   449,247     4.81 %   80,119     5.40 %   8,354     4.15 %   794,234     4.95 %

Residential mortgage pass-through certificates

    61,818     9.09 %   173,346     8.16 %   92,214     7.99 %   51,531     8.28 %   378,909     8.29 %

Asset-backed
securities

    100,789     1.49 %   364,508     2.63 %   28,933     3.10 %   2,657     2.90 %   496,887     2.43 %

State and Municipal obligations

    10,238     0.80 %   11,259     2.31 %   1,445     2.96 %   667     1.81 %   23,609     1.68 %

Other debt securities

    152     13.95 %   501     13.95 %   377     13.99 %   5,618     6.17 %   6,648     7.38 %
                                           

  $ 718,355     3.40 % $ 1,662,205     3.28 % $ 505,491     3.28 % $ 238,681     3.04 %   3,124,732     3.29 %
                                               

Mutual funds and preferred stocks with no scheduled maturity

                                                    120,721     6.58 %
                                                           
 

Total investment securities available for sale

                                                  $ 3,245,453     3.41 %
                                                           

        The average effective duration of the portfolio as of June 30, 2010 is 0.9 years.

        We evaluate the credit quality of individual securities in the portfolio quarterly to determine whether any of the investments in unrealized loss positions are other-than-temporarily impaired. This evaluation considers the duration and severity of impairment; collateral values and levels of subordination or over-collateralization; collateral performance; the credit rating, earnings performance and business prospects of the issuer and other relevant factors. We may consider factors that raise significant concerns about an issuer's ability to continue as a going concern such as negative cash flows from operations, working capital deficiencies, or non-compliance with statutory capital requirements or debt covenants. We may also consider adverse changes in the regulatory or economic environment as well as significant adverse changes in general market conditions of the geographic area or the industry in which individual issuers operate. We consider both our intent to sell investment securities and whether it is more likely than not that we will be able to retain the securities for a period of time sufficient for a recovery in value, which might be until maturity for debt securities or for a reasonable forecasted period of recovery for equity securities.

        No securities were determined to be other-than-temporarily impaired during the six months ending June 30, 2010 or the period ending December 31, 2009. Approximately 94% of the securities purchased since the Acquisition were agency backed or rated AAA at the time of acquisition. At June 30, 2010, securities in unrealized loss positions included U.S. Government agency mortgage-backed securities with total unrealized losses of $1.8 million, private-label mortgage-backed securities with total unrealized losses of $5.4 million, asset-backed securities with total unrealized losses of $1.0 million, and

59


Table of Contents


equity securities with total unrealized losses of $2.3 million. At December 31, 2009, securities in significant unrealized loss positions included U.S. Government agency mortgage-backed securities with total unrealized losses of $3.2 million and private-label mortgage-backed securities with total unrealized losses of $9.3 million. All of these securities had been in unrealized loss positions for less than twelve months at June 30, 2010 and at December 31, 2009.

        The timely repayment of principal and interest on the U.S. Government agency mortgage-backed securities is either explicitly or implicitly guaranteed by the full faith and credit of the U.S. Government. Management engaged a third party to perform projected cash flow analyses of the private-label mortgage-backed securities and the asset-backed securities, incorporating CUSIP level collateral default rate, voluntary prepayment rate, severity and delinquency assumptions. Based on the results of this analysis, no credit losses were projected. We do not intend to sell these securities and it is more likely than not that we will be able to retain them for a period of time sufficient for recovery in value. Given the expectation of timely repayment of principal and the limited duration and severity of impairment, we concluded that none of the debt securities were other-than-temporarily impaired. Given the results of our analysis of the underlying issuers and the limited duration and severity of impairment, we considered the impairment of the equity securities to be temporary.

        As a member institution of the Federal Home Loan Bank of Atlanta, BankUnited is required to own capital stock in the FHLB. No market exists for this stock, and the Bank's investment can be liquidated only through repurchase by the FHLB. Such repurchases have historically been at par value. The Company monitors its investment in FHLB stock for impairment through review of recent financial results, dividend payment history and information from credit agencies. As of June 30, 2010, management did not identify any indicators of impairment of FHLB stock.

    Loan Portfolio

        The loan portfolio comprises the Company's primary interest-earning asset. At June 30, 2010 and December 31, 2009, respectively, 96.9% and 98.4% of real estate loans and 94.1% and 97.3% of total loans were Covered Loans. The following table shows the composition of the Company's loan portfolio and the breakdown of the portfolio between covered ACI loans, Covered non-ACI Loans and non-Covered Loans at the dates indicated (dollars in thousands):

 
  At
June 30, 2010
  At
December 31, 2009
 
 
  Covered Loans    
   
   
  Covered Loans    
   
   
 
 
  ACI   Non-
ACI
  Non-
Covered
Loans
  Total
Loans
  % of
Total
  ACI   Non-
ACI
  Non-
Covered
Loans
  Total
Loans
  % of
Total
 

Real estate loans:

                                                             
 

1-4 single family residential

  $ 2,948,629   $ 154,849   $ 68,658   $ 3,172,136     73.7 % $ 3,277,423   $ 187,121   $ 43,184   $ 3,507,728     75.4 %
 

Home equity loans and lines of credit

    135,664     214,540     2,573     352,777     8.2 %   150,257     215,591     2,198     368,046     7.9 %
 

Multi-family

    76,358     10,455     9,287     96,100     2.2 %   71,321     4,971     700     76,992     1.7 %
 

Commercial real estate

    315,676     33,911     43,128     392,715     9.1 %   356,169     37,281     24,386     417,836     9.0 %
 

Construction

    10,010             10,010     0.2 %   44,812     377         45,189     1.0 %
 

Land

    48,345     173     1,594     50,112     1.2 %   43,903     173         44,076     0.9 %
                                           
   

Total real estate loans

    3,534,682     413,928     125,240     4,073,850     94.6 %   3,943,885     445,514     70,468     4,459,867     95.9 %
                                           

Other loans:

                                                             
 

Commercial

    51,713     42,461     128,217     222,391     5.2 %   81,765     48,635     51,565     181,965     3.9 %
 

Consumer

    5,559         1,983     7,542     0.2 %   7,065         2,568     9,633     0.2 %
                                           
   

Total other loans

    57,272     42,461     130,200     229,933     5.4 %   88,830     48,635     54,133     191,598     4.1 %
                                           
   

Total loans

    3,591,954     456,389     255,440     4,303,783     100.0 %   4,032,715     494,149     124,601     4,651,465     100.0 %
                                               
 

Unearned discount, premiums, and
deferred costs, net

        (36,798 )   (1,325 )   (38,123 )             (39,986 )   40     (39,946 )      
 

Allowance for loan losses

    (25,546 )   (12,971 )   (3,003 )   (41,520 )         (20,021 )   (1,266 )   (1,334 )   (22,621 )      
                                               
   

Total loans, net

  $ 3,566,408   $ 406,620   $ 251,112   $ 4,224,140         $ 4,012,694   $ 452,897   $ 123,307   $ 4,588,898        
                                               

60


Table of Contents

    Residential Mortgages

        The portfolio contains option ARM, "no-doc" or "reduced-doc" and wholesale production loans originated by the Failed Bank prior to the Acquisition. All of these loans are Covered Loans; therefore, the Company's exposure to future losses on these mortgage loans is mitigated by the Loss Sharing Agreements as well as by the fair value basis recorded in these loans resulting from the application of acquisition accounting. Loans secured by residential real estate have consistently represented the majority of the total loan portfolio.

        We currently originate residential mortgage loans with terms ranging from 10 to 40 years, with either fixed or adjustable interest rates, primarily to customers in the state of Florida. Newly originated residential mortgage loans are primarily closed-end first lien loans for the purchase or re-finance of owner occupied property.

        The majority of the residential loans added to the portfolio since the Acquisition are purchased loans. We do not originate or purchase "no-doc," option ARM or sub-prime products or utilize wholesale origination channels.

        One-to-four single family residential mortgages totaled $3.2 billion, or 73.7%, of the portfolio and $3.5 billion, or 75.4%, of the portfolio at June 30, 2010 and December 31, 2009, respectively. The decline in this portfolio segment subsequent to the Acquisition, both in total and as a percentage of loans, is primarily a result of the resolution of Covered Loans and transfers to OREO.

        The following table presents a breakdown of the 1-4 single family residential mortgage portfolio categorized between fixed rate and adjustable rate mortgages at the dates indicated (dollars in thousands):

 
  At June 30, 2010   At December 31, 2009  
 
  Covered
Loans
  Non-
Covered
Loans
  Total   % of
Total
  Covered
Loans
  Non-
Covered
Loans
  Total   % of
Total
 

1-4 single family residential loans:

                                                 
 

Fixed rate loans

  $ 611,563   $ 55,627   $ 667,190     21.0 % $ 541,438   $ 42,651   $ 584,089     16.7 %
 

Adjustable rate loans(1)

    2,491,915     13,031     2,504,946     79.0 %   2,923,106     533     2,923,639     83.3 %
                                   
   

Total 1-4 single family residential loans

  $ 3,103,478   $ 68,658   $ 3,172,136     100.0 % $ 3,464,544   $ 43,184   $ 3,507,728     100.0 %
                                   

(1)
As of June 30, 2010 and December 31, 2009, option ARM loans with UPB of $2.9 billion and $3.7 billion, respectively, were negatively amortizing. Negative amortization included in the UPB of the option ARM portfolio totaled $206.3 million and $258.2 million at June 30, 2010 and December 31, 2009, respectively. However, due to initially recording these loans at their fair value on the Acquisition date as a result of the application of acquisition accounting, the carrying amount of the portfolio was substantially less than the aggregate UPB.

        At June 30, 2010, 57.6%, 7.6%, 5.8%, 5.8% and 4.1% of 1-4 single family residential loans (based on UPB) were to borrowers domiciled in Florida, California, Illinois, New Jersey and Arizona, respectively. At December 31, 2009, 56.8%, 8.1%, 5.7%, 5.6% and 4.9% of 1-4 single family residential loans were to borrowers domiciled in Florida, California, Illinois, New Jersey and Arizona, respectively. No other state represented borrowers with more than 4.0% of 1-4 single family residential loans outstanding.

    Other Loans

        Other loans include commercial real estate, commercial and consumer loans.

        Commercial real estate loans include term loans secured by income producing properties including rental apartments, industrial properties, retail shopping centers, office buildings and hotels as well as real estate secured lines of credit and acquisition, development and construction loans. Commercial real

61


Table of Contents


estate loans typically have shorter repayment periods and reprice more frequently than 1-4 single family residential loans. The Company's underwriting standards generally provide for loan terms of five years, with amortization schedules of no more than twenty-five years. Loan-to-value, or LTV, ratios are typically limited to no more than 80%. In addition, the Company usually obtains personal guarantees of the principals as additional security for most commercial real estate loans.

        Commercial loans are typically made to growing companies and middle market businesses and include equipment loans, working capital lines of credit, asset-backed loans, acquisition finance credit facilities and Small Business Administration product offerings. These loans may be structured as term loans, typically with maturities of five years or less, or revolving lines of credit which typically mature annually.

        Since the Acquisition, management's loan origination strategy has been more heavily focused on the commercial and commercial real estate portfolio segments, which collectively comprise 71.3% of loans originated or purchased since the Acquisition as of June 30, 2010.

        Consumer loans include home equity loans and lines of credit, loans secured by certificates of deposit, auto loans, demand deposit account overdrafts and unsecured personal lines of credit.

        The following table sets forth, as of December 31, 2009, the anticipated repayments of our loan portfolio by category, based on UPB. Anticipated repayments are based on contractual maturities adjusted for an estimated rate of prepayments based on historical trends, current interest rates, types of loans and refinance patterns (dollars in thousands):

 
  Due in  
 
  One Year
or Less
  After One
Through
Five Years
  After
Five Years
  Total  

Real Estate Loans:

                         
 

1-4 single family residential

  $ 807,937   $ 4,723,820   $ 2,683,097   $ 8,214,854  
 

Home equity loans and lines of credit

    56,513     182,805     232,887     472,205  
 

Multi-family

    24,804     42,042     43,877     110,723  
 

Commercial real estate

    62,913     204,367     306,422     573,702  
 

Construction

    36,641     62,721     10,472     109,834  
 

Land

    34,887     66,815     10,614     112,316  
                   
   

Total real estate loans

    1,023,695     5,282,570     3,287,369     9,593,634  
                   

Other Loans:

                         
 

Commercial

    46,188     93,007     65,333     204,528  
 

Consumer

    7,591     4,139     257     11,987  
                   
   

Total other loans

    53,779     97,146     65,590     216,515  
                   
   

Total loans

  $ 1,077,474   $ 5,379,716   $ 3,352,959   $ 9,810,149  
                   

62


Table of Contents

        The following table shows the distribution of UPB of those loans that mature in more than one year between fixed and adjustable interest rate loans as of December 31, 2009 (dollars in thousands):

 
  Interest Rate Type    
 
 
  Fixed   Adjustable   Total  

Real Estate Loans:

                   
 

1-4 single family residential

  $ 1,112,386   $ 6,294,531   $ 7,406,917  
 

Home equity loans and lines of credit

    56,268     359,424     415,692  
 

Multi-family

    19,845     66,074     85,919  
 

Commercial real estate

    238,833     271,956     510,789  
 

Construction

    4,982     68,211     73,193  
 

Land

    2,162     75,267     77,429  
               
   

Total real estate loans

  $ 1,434,476   $ 7,135,463   $ 8,569,939  
               

Other Loans:

                   
 

Commercial

    41,262     117,078     158,340  
 

Consumer

    4,393     3     4,396  
               
   

Total other loans

    45,655     117,081     162,736  
               
   

Total loans

  $ 1,480,131   $ 7,252,544   $ 8,732,675  
               

Asset Quality

        We recognize that developing and maintaining a strong credit culture is paramount to the success of the Company. We have established a credit risk management framework and put in place an experienced team to lead the workout and recovery process for the commercial and commercial real estate portfolios. We have also implemented a dedicated internal loan review function that reports directly to our Audit Committee. We have an experienced resolution team in place for covered residential mortgage loans, and have implemented outsourcing arrangements with industry leading firms in certain areas such as OREO resolution.

        Loan performance is monitored by our credit, workout and recovery and loan review departments. Commercial and commercial real estate loans are regularly reviewed by our internal loan review department. The Company utilizes an asset risk classification system as part of its efforts to monitor and improve commercial asset quality. Borrowers with credit weaknesses that may jeopardize collectability will likely demonstrate one or more of the following: payment defaults, frequent overdrafts, operating losses, increasing balance sheet leverage, inadequate cash flow, project cost over-runs, unreasonable construction delays, exhausted interest reserves, past due real estate taxes or declining collateral values. Generally, a loan with one or more of these identified weaknesses will be classified substandard. Loans that have credit weaknesses that render collection or liquidation in full highly questionable or improbable based on current circumstances are classified "doubtful." Loans exhibiting potential credit weaknesses that deserve management's close attention and that if left uncorrected may result in deterioration of the repayment capacity of the borrower are categorized as special mention.

    Non-Covered Loans

        At June 30, 2010, two originated commercial loans aggregating $6.6 million were rated special mention and none were adversely classified. At December 31, 2009, no originated commercial loans were rated special mention and none were adversely classified.

        At June 30, 2010, one non-covered residential loan with a principal balance of $0.1 million was delinquent greater than 30 days. There were no delinquent non-covered home equity loans at June 30,

63


Table of Contents


2010. There were no delinquencies in the non-covered residential mortgage or home equity loan portfolios as of December 31, 2009. At June 30, 2010, the average LTV of the originated 1-4 single family residential portfolio was 60% and the average FICO score was 769.

        Delinquent consumer loans in the originated portfolio were insignificant as of June 30, 2010 and December 31, 2009.

    Covered Loans

        Covered Loans consist of both ACI loans and non-ACI loans. At June 30, 2010, ACI loans totaled $3.6 billion and non-ACI loans totaled $0.5 billion. Covered 1-4 single family residential loans were placed into homogenous pools at Acquisition and the ongoing credit quality and performance of these loans is monitored on a pool basis. At Acquisition, the fair value of the pools was measured based on the expected cash flows to be derived from each pool. Initial cash flow expectations incorporated significant assumptions regarding prepayment rates, frequency of default and loss severity. For ACI pools, the difference between total contractual payments due and the cash flows expected to be received at Acquisition was recognized as non-accretable difference. The excess of expected cash flows over the recorded fair value of each ACI pool at Acquisition, known as the accretable yield, is being recognized as interest income over the life of each pool. We monitor the pools quarterly to determine whether any material changes have occurred in expected cash flows that would be indicative of impairment or necessitate reclassification between non-accretable difference and accretable yield. Generally, improvements in expected cash flows less than 2% of the UPB of a pool are not recorded. This initial threshold may be revised as we gain greater experience. Generally, commercial and commercial real estate loans are monitored individually due to their size and other unique characteristics.

        Residential mortgage loans, including home equity loans, comprised 87.8% of the UPB of the acquired loan portfolio at the Acquisition date. We performed a detailed analysis of the portfolio to determine the key loan characteristics influencing performance. Key characteristics influencing the performance of the residential mortgage portfolio, including home equity loans, were determined to be delinquency status; product type, in particular, amortizing as opposed to option ARM products; current indexed LTV ratio; and original FICO score. The ACI loans in the residential mortgage portfolio were grouped into ten homogenous static pools based on these characteristics, and the non-ACI residential loans were grouped into two homogenous static pools. There were other variables which we initially expected to have a significant influence on performance and which were considered in our analysis; however, the results of our analysis demonstrated that their impact was less significant after controlling for current indexed LTV, product type, and FICO score. Therefore, these additional factors were not used in grouping the covered residential loans into pools and are not used in monitoring ongoing asset quality of the pools. The factors we considered but determined not to be significant included the level and type of documentation required at origination, i.e., whether a loan was originated under full documentation, reduced documentation, or no documentation programs; occupancy, defined as owner occupied vs. non-owner occupied collateral properties; geography; and vintage, i.e., year of origination.

        1-4 single family residential non-ACI loans had an aggregate UPB of $212.8 million as of May 21, 2009. As of June 30, 2010, only two of these loans had defaulted through short sale or foreclosure. As of June 30, 2010, 14.9% of the UPB had been repaid in full and additional principal repayments of 14.2% of UPB had been received, demonstrating the intent and ability of borrowers in this group to satisfy their mortgage obligations. The remaining UPB of these loans was $154.8 million at June 30, 2010.

        At June 30, 2010, 35.3% of the total UPB of the covered 1-4 single family residential loans was contractually delinquent. However, future losses to the Company related to these loans are significantly mitigated by the Loss Sharing Agreements with the FDIC.

64


Table of Contents

        Covered home equity loans and lines of credit had a carrying amount of $350.2 million at June 30, 2010, including ACI loans of $135.7 million and non-ACI loans of $214.5 million. At June 30, 2010, 8.8% of covered home equity loans were 60 days or more contractually delinquent. Of the ACI home equity portfolio, 15.5% was 60 days or more contractually delinquent while 3.3% of the non-ACI portfolio was 60 days or more delinquent. Losses related to these loans are significantly mitigated by the Loss Sharing Agreements.

        Commercial and other Covered Loans were stratified at Acquisition based primarily on product/collateral type and delinquency status. Ongoing asset quality of significant commercial and commercial real estate loans is monitored on an individual basis through the Company's regular credit review and risk rating process. Homogenous groups of smaller balance commercial and consumer loans are monitored collectively.

        Non-ACI commercial and other loans had an aggregate UPB of $48.6 million at December 31, 2009. At June 30, 2010, non-ACI commercial and other loans had an aggregate UPB of $42.5 million. Substantially all of these loans were rated "pass" or "good" at June 30, 2010 and December 31, 2009 and the portfolio segment has limited delinquency history. At June 30, 2010, 21 loans totaling $13.0 million were rated special mention and 40 loans totaling $5.4 million were rated substandard.

    Impaired Loans and Non-Performing Assets

        Non-performing assets consist of (i) nonaccrual loans, including loans that have been restructured and placed on nonaccrual status because of deterioration in the financial condition of the borrower, (ii) accruing loans that are more than 90 days contractually past due as to interest or principal, excluding ACI loans, and (iii) OREO. Impaired loans also include ACI loan pools for which expected cash flows have been revised downward since Acquisition. Because of discount accretion, these loans have not been classified as nonaccrual loans and we do not consider them to be non-performing assets. As of June 30, 2010 and December 31, 2009, substantially all of the nonaccrual loans and OREO are Covered Assets. One commercial loan originated since the Acquisition with a balance of approximately $74,000 was on nonaccrual status at June 30, 2010. There are no other loans originated since the Acquisition that fall within these categories. The Company's exposure to loss related to Covered Assets is significantly mitigated by the Loss Sharing Agreements with the FDIC and by the fair value basis recorded in these loans resulting from the application of acquisition accounting.

65


Table of Contents

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

 
  At
June 30,
2010
  At
December 31,
2009
 

Nonaccrual loans

             
 

Real estate loans:

             
   

1-4 single family residential

  $ 15,823   $ 14,495  
   

Home equity loans and lines of credit

    5,560     2,726  
   

Multi-family

    377      
   

Commercial real estate

         
   

Construction

         
   

Land

         
           
       

Total real estate loans

    21,760     17,221  
 

Other loans:

             
   

Commercial

    1,576     150  
   

Consumer

         
           
     

Total other loans

    1,576     150  
           
     

Total nonaccrual loans

    23,336     17,371  

Accruing loans 90 days or more past due

         
           
     

Total non-performing loans

    23,336     17,371  

OREO

    163,222     120,110  
           
     

Total non-performing assets

    186,558     137,481  

Acquired credit impaired loans on accrual status

    147,771     567,253  
           
     

Total impaired loans and non-performing assets

  $ 334,329   $ 704,734  
           

Non-performing loans to total loans

    0.55 %   0.38 %

Non-performing assets to total assets

    1.66 %   1.24 %

Allowance for loan losses to total loans

    0.97 %   0.49 %

Allowance for loan losses to

             
 

non-performing loans

    177.92 %   130.22 %

        At June 30, 2010 and December 31, 2009, substantially all of the nonaccrual loans consist of non-ACI loans that have been placed on nonaccrual status. Contractually delinquent ACI loans are not reflected as nonaccrual loans because the discount continues to be accreted. Discount accretion continues to be recorded because, to date, these pools are performing substantially as expected at the time of the Acquisition.

        Non-performing assets reported for the post-Acquisition periods are substantially lower than non-performing assets for the pre-Acquisition periods primarily due to the recording of these assets at their fair value in conjunction with the application of acquisition accounting and the fact that ACI loans are no longer reflected as nonaccrual loans as discussed above. The low ratio of the allowance for loan losses to total loans at dates subsequent to the Acquisition is a direct result of the fact that no allowance was initially recorded with respect to the acquired loans. Rather, the estimated fair value at which these loans were initially recorded incorporated significant assumptions related to credit quality and default probabilities.

        Except for ACI loans accounted for in pools, loans are placed on nonaccrual status when (i) management has determined that full payment of all contractual principal and interest, or in the case of ACI loans not accounted for in pools, all expected cash flows, is in doubt, or (ii) the loan is

66


Table of Contents


past due 90 days or more as to principal and/or interest, unless the loan is well-secured and in the process of collection. Residential and consumer loans not accounted for in pools are returned to accrual status as of the date the loan is no longer delinquent in excess of 90 days and ultimate collectability is assured. Commercial real estate and commercial loans are returned to accruing status only after all past due principal and interest have been collected. Except for ACI loans accounted for in pools, loans that are the subject of troubled debt restructurings are placed on nonaccrual status at the time of the modification unless the borrower has no history of missed payments for six months prior to the restructuring. If borrowers perform pursuant to the modified loan terms for at least six months and the remaining loan balances are considered collectable, the loans are returned to accrual status. Interest income foregone on nonaccrual loans amounted to $0.2 million for the six months ending June 30, 2010 and to $0.6 million for period ending December 31, 2009. Interest income reversed due to loans being placed on nonaccrual status amounted to $31,122 and $76,969 for the periods ending June 30, 2010 and December 31, 2009, respectively.

        A loan modification is considered a troubled debt restructuring 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, extensions of maturity, or in some cases, partial forgiveness of principal. Under generally accepted accounting principles, modified ACI loans accounted for in pools are not considered troubled debt restructurings and are not separated from their respective pools when modified.

        Commercial and commercial real estate loans are charged off when, in management's judgment, the carrying amount of the loan is not collectible. Residential real estate loans and secured consumer loans are typically charged off when they become 120 to 180 days past due, depending on the collateral type. Secured loans may be written down to the fair value of the collateral less estimated disposition costs. Unsecured consumer loans are generally charged off when they become 90 days past due. Home equity loans and lines of credit are fully reserved for when they become 120 days past due, and generally fully charged off when they are 180 days past due.

    Loss Mitigation Strategies

        Although our exposure to loss on Covered Assets is mitigated by the Loss Sharing Agreements, we have implemented strategies designed to minimize losses on these assets. We have increased the quality and experience level of our workout and recovery and mortgage servicing departments. We evaluate each ACI loan to determine the most effective loss mitigation strategy, which may be modification in a troubled debt restructuring, short sale, or foreclosure. In 2009, we began loan modifications under the U.S. Treasury Department's Home Affordable Modification Program, or HAMP, for eligible borrowers in the residential ACI portfolio. HAMP is a uniform loan modification process that provides eligible borrowers with sustainable monthly mortgage payments equal to a target 31% of their gross monthly income. As of June 30, 2010, 7,805 borrowers had been counseled regarding their participation in HAMP; 5,563 of those borrowers were initially determined to be potentially eligible for loan modifications under the program. As of June 30, 2010, 1,321 borrowers who did not elect to participate in the program had been sent termination letters and 1,243 borrowers had been denied due to ineligibility. At June 30, 2010, there were 1,388 permanent loan modifications and 403 active trial modifications.

67


Table of Contents

Other Real Estate Owned

        All of the OREO properties owned by the Company are Covered Assets. The following table presents the changes in OREO for the periods ending June 30, 2010 and December 31, 2009 (dollars in thousands):

 
  At
June 30,
2010
  At
December 31,
2009
 

Balance at beginning of period

  $ 120,110   $ 177,679  
 

Transfers from the loan portfolio

    164,463     115,192  
 

Sales

    (124,720 )   (177,408 )
 

Impairment loss recognized

    (5,901 )   (21,055 )
 

Income from resolution of Covered Assets, net

    9,270     25,702  
           

Balance at end of period

  $ 163,222   $ 120,110  
           

Analysis of the Allowance for Loan Losses

        The allowance for loan losses at dates subsequent to the Acquisition relates to (i) loans originated since the Acquisition, (ii) estimated additional losses arising on non-ACI loans subsequent to the Acquisition, and (iii) additional impairment recognized as a result of decreases in expected cash flows on ACI loans due to further credit deterioration. The impact of any additional provision for losses on Covered Loans is significantly mitigated by an increase in the FDIC indemnification asset.

    Non-Covered and non-ACI Loans

        Based on an analysis of historical performance of the non-ACI residential mortgage and home equity portfolio, OREO and short sale losses and recent trending data, we have concluded that changes in LTV ratios and FICO scores are the leading indicators of performance for this portfolio. The non-ACI residential mortgage portfolio has therefore been divided into homogenous pools based on LTV and FICO score for purposes of calculating the allowance for loan losses. Calculated frequency of roll to loss and severity percentages are applied to the dollar value of loans in each pool to calculate an overall loss allowance. FICO scores are refreshed quarterly and LTV ratios are updated using the Case-Shiller quarterly MSA Home Price Index to adjust the original appraised value of the underlying collateral. Frequency is calculated for each pool using a four month roll to loss percentage, based on the assumption that if an event has occurred with a borrower that will ultimately result in a loss, this will manifest itself as a loan in default and in process of foreclosure within four months. Loss severity given default is estimated based on internal data about OREO sales and short sales from the portfolio.

        Due to the lack of similarity between the risk characteristics of non-Covered Loans and Covered Loans in the residential and home equity loan portfolios, management does not believe it is appropriate to use the historical performance of the Failed Bank's residential mortgage portfolio as a basis for calculating the allowance for loan losses applicable to non-Covered Loans. The portfolio of loans originated and purchased since the Acquisition is not seasoned and has not yet developed an observable loss trend. Therefore, the allowance for loan losses for non-covered residential loans is based primarily on the OTS "Thrift Industry Charge-Off Rates by Asset Type, annualized Net Charge-Off Rates—Twelve Quarter Average" for the southeast region (the "OTS Charge-Off Rates"). We believe use of the twelve quarter average to be appropriate for this portfolio since it takes into account periods of both economic growth and serious economic contraction.

        The allowance for non-covered and non-ACI commercial loans is based primarily on the Bank's internal credit risk rating system, the OTS Charge-Off Rates, and management's assessment of portfolio risk characteristics. The allowance is comprised of specific reserves for significant and classified loans

68


Table of Contents


that are individually evaluated and determined to be impaired as well as general reserves for individually evaluated loans determined not to be impaired and smaller balance, non-classified loans. For all commercial and commercial real estate exposures with committed credit facilities greater than $1,000,000, a quarterly net realizable value analysis is prepared by the credit, workout and recovery and loan review departments. This analysis forms the basis for specific reserves. Since the originated portfolio is not yet seasoned enough to exhibit a loss trend and the non-ACI portfolio has limited delinquency statistics, we currently use the OTS Charge-Off Rates and management's assessment of risk characteristics by portfolio segment in determining the appropriate general reserve percentages. We believe that loans rated special mention or substandard that are not determined to be individually impaired exhibit characteristics indicative of a heightened level of credit risk. Management may therefore augment general reserve percentages for loans in these categories.

        The allowance for non-covered and non-ACI consumer loans is based on an analysis of historical losses over the most recent four quarters. Since the non-covered portfolio is not yet seasoned enough to exhibit a loss trend, we also consider the OTS Charge-Off Rates and management's assessment of portfolio risk characteristics in calculating reserves for this portfolio. We provide a 100% reserve for home equity and consumer loans more than 120 days past due and for overdrafts aged more than 30 days.

        In addition to the quantitative calculations described above, a dollar value adjustment is made to the allowance for relevant qualitative factors when there is a material observable trend in those factors not already taken into account in the quantitative calculations. Qualitative factors that may result in an adjustment to the allowance include levels of and trends in delinquencies and impaired loans; levels of and trends in recoveries of prior charge-offs; trends in volume, type and terms of loans; effects of changes in lending policies and procedures; experience, ability and depth of lending management, loan review and workout and recovery staff; credit concentrations; national, regional and local economic trends; housing and banking industry conditions and trends; emerging trends for particular loan types; and strategic initiatives of the Company that may impact loan performance.

        For non-ACI loans, the allowance is calculated based on UPB. The total of UPB, less the calculated allowance, is then compared to the carrying amount of the loans. If the calculated balance net of the allowance is less than the carrying amount, an additional allowance is established. Any such increase in the allowance for non-ACI loans will result in a corresponding increase in the FDIC indemnification asset. For the periods ended June 30, 2010 and December 31, 2009, we recorded a provision for non-ACI loans of $11.7 million and $1.3 million, respectively.

    ACI Loans

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

        The analysis of expected cash flows for residential ACI pools incorporates updated pool level expected prepayment rates, default rates, and delinquency levels, and loan level loss severity given default assumptions. Prepayment, delinquency and default curves used for this purpose are derived from roll rates generated from the historical performance of the ACI residential loan portfolio observed over the immediately preceding four quarters. Given the static nature of the pools and unique characteristics of the loans, we believe that regularly updated historical information from the Company's own portfolio is the best available indicator of future performance. Estimates of default probability and severity of loss given default also incorporate updated LTV ratios. Historic and projected values for the Case-Shiller Home Price Index for the relevant MSA are utilized at the individual loan level to project current and future property values. Costs and fees represent an

69


Table of Contents


additional component of loss on default, and are projected using the "Making Home Affordable" cost factors provided by the Federal government. Our analysis at December 31, 2009 indicated a decrease in expected cash flows due to credit related assumptions related to two ACI residential mortgage pools; therefore, a provision for loan losses of $20.0 million was recorded, along with a corresponding increase in the FDIC indemnification asset of $14.4 million. At June 30, 2010, our analysis evidenced a significant improvement in expected cash flows related to these two ACI residential pools and an offsetting decrease in expected cash flows due to credit related assumptions related to the ACI home equity loan pool. As a result, $19.6 million of the allowance established at December 31, 2009 related to ACI residential pools was reversed and a provision for loan losses of $9.4 million was recorded related to the pooled home equity ACI loans during the period ending June 30, 2010.

        The primary assumptions underlying estimates of expected cash flows for commercial and other loans are default probability and severity of loss given default. Updated assumptions for large balance and delinquent loans in the commercial and commercial real estate ACI portfolios are based on net realizable value analyses prepared at the individual loan level by the Company's workout and recovery department. Updated assumptions for smaller balance, homogenous commercial loans not individually reviewed are based on a combination of the Company's own historical delinquency data and industry level delinquency data. Delinquency data is used as a proxy for defaults as the Company's experience has been that few of these loans return to performing status after being delinquent greater than 60 days. An additional multiplier is also applied in developing assumptions for loans rated special mention, substandard, or doubtful based on the Company's historical loss experience with classified loans. Cash flow estimates for consumer loan pools are based primarily on regularly updated historical performance information.

        For the period ended December 31, 2009, there were no decreases in expected cash flows for commercial and other ACI loans; therefore, no allowance for loan losses was provided related to these loans. For the six months ended June 30, 2010, our analysis indicated a decrease in expected cash flows from certain commercial and commercial real estate loans evaluated individually for impairment, resulting in a provision for loan losses of $22.9 million related to these ACI loans.

        An increase in the FDIC indemnification asset of $19.0 million was reflected in non-interest income for the period ending June 30, 2010 related to the provision for loan losses on Covered Loans (including ACI and non-ACI loans).

70


Table of Contents

        The following table provides an analysis of the allowance for loan losses, provis