Business Context and Reporting Period
Company: BankUnited, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: November 2, 2018
Event Date: October 31, 2018
Context: The Company received consent from the Federal Deposit Insurance Corporation (FDIC) to execute a final portfolio sale of certain covered loans and other real estate owned (OREO) under the Single Family Shared-Loss Agreement. This agreement originated from the 2009 acquisition of BankUnited, FSB.
Key Financial Metrics and Transaction Details
- Loans to be Sold: Approximately $263 million in unpaid principal balance (UPB) as of September 30, 2018.
- Loans to be Retained: Approximately $421 million in UPB as of September 30, 2018.
- Agreement Termination: The Single Family Shared-Loss Agreement is expected to terminate on May 21, 2019.
- Q4 2018 Accretion Estimate: Approximately $114 million related to Covered Loans.
- Q4 2018 Amortization Estimate: Approximately $117 million of the FDIC indemnification asset.
- Future Accretion Estimate: Approximately $302 million expected to be recognized after Q4 2018 over the lives of retained loans.
Material Changes and Accounting Impact
The filing discloses a material change in the timing of loan sales and the resulting accounting treatment for the FDIC indemnification asset and accretable yield:
- Timing Shift: Previously, the Company assumed a final sale of all remaining Covered Loans would occur in Q2 2019. The new consent accelerates the sale of a portion of these loans to Q4 2018, while a portion will be retained beyond Q2 2019.
- Amortization Acceleration: The change in timing results in increased amortization of the FDIC indemnification asset in Q4 2018. The Company expects the balance of this asset to be amortized to zero or near zero in Q4 2018, as expected losses eligible for indemnification on retained loans prior to the agreement's termination are insignificant.
- Accretion Adjustment: The balance of accretable yield related to retained loans is expected to increase due to expected collection of additional contractual interest. This accretion will occur over a longer period reflecting the expected lives of the retained loans.
Outlook, Risks, and Management Commentary
Management Commentary: The Company intends to sell the $263 million loan portfolio in the fourth quarter of 2018. This transaction represents the final portfolio sale under the Single Family Shared-Loss Agreement.
Risks and Uncertainties: The financial estimates provided ($114 million accretion, $117 million amortization, $302 million future accretion) are based on several assumptions, including:
- Estimated price to be received for loans in the Q4 2018 portfolio sale.
- Estimated future prepayment speeds.
- Default rates and loss severity related to retained loans.
The Company explicitly states that actual results may differ materially from these estimates if underlying assumptions prove incorrect.
Investor Verification Checklist
- Verify the actual sale price and timing of the $263 million loan portfolio in Q4 2018.
- Monitor the Q4 2018 financial statements for the recognition of the estimated $114 million accretion and $117 million amortization.
- Confirm the termination of the Single Family Shared-Loss Agreement on May 21, 2019.
- Track future accretion on the $421 million retained loan portfolio against the $302 million estimate.
- Review subsequent filings for updates on prepayment speeds and loss severity assumptions.