BankUnited, Inc. (BKU) FY 2022 MD&A

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to assist readers in understanding the consolidated financial condition and results of operations of BankUnited, Inc. and its subsidiary (the "Company", "we", "us" and "our") and should be read in conjunction with the consolidated financial statements, accompanying footnotes and supplemental financial data included herein. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management's expectations. Factors that could cause such differences are discussed in the sections entitled "Forward-looking Statements" and "Risk Factors." We assume no obligation to update any of these forward-looking statements.

Overview

The following discussion and analysis presents the more significant factors that affected our financial condition as of December 31, 2022 and 2021 and results of operations for each of the years then ended. Refer to Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K filed with the SEC on February 24, 2022 for a discussion and analysis of the more significant factors that affected periods prior to 2021.

Performance Highlights

In evaluating our financial performance, we consider the level of and trends in net interest income, the net interest margin, the cost of deposits, levels and composition of non-interest income and non-interest expense, performance ratios such as the return on average equity and return on average assets and asset quality ratios, including the ratio of non-performing loans to total loans, non-performing assets to total assets, trends in criticized and classified assets and portfolio delinquency and charge-off trends. We consider growth in and the composition of earning assets and deposits, trends in funding mix and cost of funds. We analyze these ratios and trends against our own historical performance, our budgeted performance and the financial condition and performance of comparable financial institutions.

Performance highlights include:

•Net income for year ended December 31, 2022 was $285.0 million, or $3.54 per diluted share, compared to $415.0 million, or $4.52 per diluted share, for the year ended December 31, 2021. For the year ended December 31, 2022, the return on average stockholders' equity was 10.6% and the return on average assets was 0.79%.

•Pre-tax, pre-provision net revenue ("PPNR") was $450.3 million for the year ended December 31, 2022, compared to $382.3 million for the year ended December 31, 2021. PPNR for the year ended December 31, 2021 was impacted by certain notable items, further discussed below in the sections titled "Results of Operations - Non-Interest Income" and "Results of Operations - Non-Interest Expense".

•Loans, excluding the runoff of PPP loans, grew by $1.4 billion for the year ended December 31, 2022. The core C&I and commercial real estate portfolio segments grew by a total of $1.6 billion, offset by declines in other commercial segments. Given the market-wide decline in mortgage origination activity, mortgage warehouse loans declined by $567 million. The residential segment grew by $532 million for the year ended December 31, 2022.

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•The net interest margin, calculated on a tax-equivalent basis, expanded to 2.68% for the year ended December 31, 2022, from 2.38% for the year ended December 31, 2021. Net interest income increased by $117.3 million compared to the year ended December 31, 2021. The following chart provides a comparison of net interest margin, the interest rate spread, the average yield on interest earning assets and the average rate paid on interest bearing liabilities for the years ended December 31, 2022 and 2021 (on a tax equivalent basis):

•In response to the rising interest rate environment and tightening liquidity, particularly over the latter half of the year, the average cost of total deposits rose to 0.65% for the year ended December 31, 2022, from 0.24% for the year ended December 31, 2021. The yield on average interest earning assets increased to 3.59% for the year ended December 31, 2022, from 2.86% for the year ended December 31, 2021.

•For the year ended December 31, 2022, the Company recorded a provision for credit losses of $75.2 million, compared to a recovery of the provision for credit losses of $(67.1) million for the year ended December 31, 2021. The recovery recorded for the year ended December 31, 2021 was reflective of emergence of the economy from the COVID-19 pandemic while the provision for the year ended December 31, 2022 reflected a heightened level of uncertainty around the future trajectory of the economy. The ratio of the ACL to total loans increased to 0.59% at December 31, 2022, from 0.53% at December 31, 2021.

•Total deposits declined by $1.9 billion and non-interest bearing demand deposits declined by $938 million during the year ended December 31, 2022, consistent with the broader outflow of deposits from the banking system as the Federal Reserve increased its benchmark interest rate and adopted a policy stance of quantitative tightening. Time deposits grew by $884 million during the year ended December 31, 2022, reflecting a strategy to extend the term of deposits. The following charts illustrate the composition of deposits at the dates indicated:

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•The positive trend in levels of criticized and classified loans continued during the year ended December 31, 2022, declining by $722 million; the annualized net charge-off ratio was 0.22% compared to 0.29% for the year ended December 31, 2021. The ratio of non-performing loans to total loans was 0.42% at December 31, 2022, compared to 0.87% at December 31, 2021. The guaranteed portion of SBA loans on non-accrual status represented 0.16% of total loans and 38% of non-performing loans at December 31, 2022.

•Results for the year ended December 31, 2022 were impacted by declines in the fair value of investment securities. Accumulated Other Comprehensive Loss increased by $422 million for the year, primarily due to an increase in unrealized losses on investment securities available for sale. Unrealized losses were generally attributable to rising interest rates and widening spreads related to the Federal Reserve's quantitative tightening and benchmark interest rate increases. None of the unrealized losses were attributable to credit loss impairments. Non-interest income was impacted by a $19.7 million decline in the fair value of certain preferred stock investments.

•Book value per common share and tangible book value per common share was $32.19 and $31.16, respectively, at December 31, 2022, compared to $35.47 and $34.56, respectively at December 31, 2021.

•During the year ended December 31, 2022, the Company repurchased approximately 10.3 million shares of its common stock for an aggregate purchase price of $401.3 million, at a weighted average price of $39.13 per share.

•In the first quarter of 2022, the Company increased its quarterly cash dividend by $0.02, to $0.25 per share, reflecting a 9% increase from the previous quarterly cash dividend of $0.23 per share and maintained that quarterly dividend level through 2022.

•During the year ended December 31, 2022, we opened a new wholesale banking office in Atlanta and a new banking center in Dallas.

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•The Company's and the Bank's capital ratios exceeded all regulatory "well capitalized" guidelines. The charts below present the Company's and the Bank's regulatory capital ratios compared to regulatory guidelines at the dates indicated:

BankUnited, Inc.

BankUnited, N.A

Strategic Priorities

Our vision is to build a leading regional commercial and small business bank, with a distinctive value proposition based on strong service-oriented relationships, robust digital enabled customer experiences, and operational excellence with an entrepreneurial work environment that empowers employees to deliver their best. Management has identified the following strategic priorities for our Company:

•Building a scalable middle market and small business franchise by growing core customer relationships on both sides of the balance sheet;

•Maximizing risk adjusted returns through a combination of sustainable, diversified and prudently managed organic growth and capital optimization;

•Transitioning the left side of the balance sheet to a mix of assets with higher risk-adjusted returns;

•Growth of depository relationship with an emphasis on new non-interest bearing deposit relationships;

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•Playing where we can win - focusing on niche business segments where our delivery model is a differentiator;

•Investing in people, processes and technology to support organic growth;

•Using technology to enable success by investing in digital capabilities and nimble architecture;

•Retaining the ability to pivot nimbly when opportunities arise;

•Maintaining an efficient, effective and scalable support model through operational excellence;

•While our primary growth strategy is organic, we will continue to monitor the M&A landscape.

Some of the challenges confronting our Company, certain of which may impact the banking industry more broadly, include:

•The ultimate impact of monetary policy on liquidity remains uncertain and competition for deposits is intense. This may impact our ability to grow deposits and/or lead to increases in the cost of deposits.

•Economic conditions may not turn out to be as favorable as current consensus forecasts indicate. A more severe economic downturn could limit the demand for our products and services or lead to an increase in credit losses.

•Achieving planned commercial loan growth may be challenging in an uncertain and competitive environment.

•Talent attraction and retention are a focus given current labor market dynamics and trends.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP and follow general practices within the banking industry. Application of these principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates. The most significant estimate impacting the Company's financial statements is the ACL.

Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position. We believe that the critical accounting policies and estimates discussed below involve a heightened level of management judgment due to the complexity, subjectivity and sensitivity involved in their application.

Note 1 to the consolidated financial statements contains a further discussion of our significant accounting policies.

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ACL

The ACL represents management's estimate of current expected credit losses, or the amount of amortized cost basis not expected to be collected, on our loan portfolio and the amount of credit loss impairment on our AFS securities portfolio. Determining the amount of the ACL is considered a critical accounting estimate because of its complexity and because it requires extensive judgment and estimation. Estimates that are particularly susceptible to change that may have a material impact on the amount of the ACL include:

•our evaluation of current conditions;

•our determination of a reasonable and supportable economic forecast and selection of the reasonable and supportable forecast period;

•our evaluation of historical loss experience;

•our evaluation of changes in composition and characteristics of the loan portfolio, including internal risk ratings;

•our estimate of expected prepayments;

•the value of underlying collateral, which may impact loss severity and certain cash flow assumptions for collateral-dependent, criticized and classified loans;

•our selection and evaluation of qualitative factors; and

•our estimate of expected cash flows on AFS debt securities in unrealized loss positions.

Our selection of models and modeling techniques may also have a material impact on the estimate.

Note 1 to the consolidated financial statements describes the methodology used to determine the ACL.

Recent Accounting Pronouncements

See Note 1 to the consolidated financial statements for a discussion of recent accounting pronouncements.

Results of Operations

Net Interest Income

Net interest income is the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities and is the primary driver of core earnings. Net interest income is impacted by the mix of interest earning assets and interest bearing liabilities, the ratio of interest earning assets to total assets and of interest bearing liabilities to total funding sources, movements in market interest rates, the shape of the yield curve, levels of non-performing assets and pricing pressure from competitors.

The mix of interest earning assets is influenced by loan demand, market and competitive conditions in our primary lending markets, by management's continual assessment of the rate of return and relative risk associated with various classes of earning assets and liquidity considerations. The mix of interest bearing liabilities is influenced by the Company's liquidity profile, management's assessment of the desire for lower cost funding sources weighed against relationships with customers and growth expectations, our ability to attract and retain core deposit relationships, competition for deposits in the Company's markets and the availability and pricing of other sources of funds.

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The following table presents, for the periods indicated, information about (i) average balances, the total dollar amount of taxable equivalent interest income from earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Non-accrual loans are included in the average balances presented in this table; however, interest income foregone on non-accrual loans is not included. Interest income, yields, spread and margin have been calculated on a tax-equivalent basis for loans and investment securities that are exempt from federal income taxes, at a federal tax rate of 21% (dollars in thousands):

(1)On a tax-equivalent basis where applicable. The tax-equivalent adjustment for tax-exempt loans was $12.7 million, $13.3 million and $14.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. The tax-equivalent adjustment for tax-exempt investment securities was $3.0 million, $2.7 million and $3.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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

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Increases and decreases in interest income, calculated on a tax-equivalent basis, and interest expense result from changes in average balances (volume) of interest earning assets and liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest earning assets and the interest incurred on our interest bearing liabilities for the years indicated. The effect of changes in volume is determined by multiplying the change in volume by the previous year's average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous year's volume. Changes applicable to both volume and rate have been allocated to volume (in thousands):

Net interest income, calculated on a tax-equivalent basis, was $928.7 million for the year ended December 31, 2022, compared to $811.7 million for the year ended December 31, 2021, an increase of $117.0 million. The increase in net interest income was comprised of increases in tax-equivalent interest income and interest expense of $270.7 million and $153.7 million, respectively, for the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase in tax equivalent interest income was driven primarily by increases in interest income from loans and investment securities of $133.3 million and $127.7 million, respectively, for the year ended December 31, 2022 compared to the year ended December 31, 2021. These increases reflected increases in both the average balance of and yields on loans and investment securities in a rising interest rate environment. The increase in interest expense for the year ended December 31, 2022, compared to the year ended December 31, 2021, reflected the increased cost of interest bearing deposits related to the rising rate environment, partially offset by declines in the related average balances. Interest expense on FHLB advances also increased mainly due to an increase in the average balance.

The net interest margin, calculated on a tax-equivalent basis, was 2.68% for the year ended December 31, 2022, compared to 2.38% for the year ended December 31, 2021. Offsetting factors impacting the net interest margin for the year ended December 31, 2022 compared to the year ended December 31, 2021 included:

•The tax-equivalent yield on loans expanded to 3.96% for the year ended December 31, 2022, from 3.53% for the year ended December 31, 2021. Factors contributing to this increase were the resetting of variable rate loans at higher coupon rates and originations of new loans at higher rates.

•The tax-equivalent yield on investment securities increased to 2.81% for the year ended December 31, 2022, from 1.57% for the year ended December 31, 2021. The reset of coupon rates on variable rate securities, purchases of higher-yielding securities and slowing prepayment speeds on securities purchased at a premium contributed to the increases in yield.

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•The average rate paid on interest bearing deposits increased to 0.96% for the year ended December 31, 2022, from 0.34% for the year ended December 31, 2021, primarily in response to the rising interest rate environment.

•The average rate paid on FHLB advances decreased to 2.23% for the year ended December 31, 2022, from 2.25% for the year ended December 31, 2021. The average rate paid decreased as a result of the impact of cash flow hedging on these borrowings and the impact of higher-cost cash flow hedges discontinued in the fourth quarter of 2021.

Provision for Credit Losses

The provision for credit losses is a charge or credit to earnings required to maintain the ACL at a level consistent with management’s estimate of expected credit losses on financial assets carried at amortized cost at the balance sheet date. The amount of the provision is impacted by changes in current economic conditions as well as in management's reasonable and supportable economic forecast, loan originations and runoff, changes in portfolio mix, risk rating migration and portfolio seasoning, changes in specific reserves, changes in expected prepayment speeds and other assumptions. The provision for credit losses also includes amounts related to off-balance sheet credit exposures and may include amounts related to accrued interest receivable and AFS debt securities.

The following table presents the components of the provision for (recovery of) credit losses for the periods indicated (in thousands):

The most significant factors impacting the provision for credit losses for the year ended December 31, 2022 included actual and forecasted economic conditions, including uncertainty about the trajectory of the economy and increases in certain specific reserves. Volatility in the provision for credit losses over the periods presented was in part related to the COVID-19 pandemic and its actual and forecasted impact on economic conditions as reserves were increased in 2020 upon onset of the pandemic, and then partially released in 2021 as the economy began to recover.

The provision for credit losses may continue to be volatile and the level of the ACL may change materially from current levels. Future levels of the ACL could be significantly impacted, in either direction, by changes in factors such as economic conditions or the economic outlook, in composition of the loan portfolio, in the financial condition of our borrowers and collateral values.

The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. See “Analysis of the Allowance for Credit Losses” below for more information about how we determine the appropriate level of the ACL and about factors that impacted the ACL and provision for credit losses.

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Non-Interest Income

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

Gain on sale of loans for the year ended December 31, 2021 included a gain of $18.2 million on the sale of a portfolio of single-family residential loans in the fourth quarter of 2021.

The unrealized losses on marketable equity securities reflected in the table above were attributable to the decline in the fair value of certain preferred stock investments resulting from rising market interest rates and widening spreads.

The most significant factor leading to the decrease in other non-interest income for the year ended December 31, 2022, compared to the year ended December 31, 2021, was a decline in BOLI revenue related to the rising interest rate environment.

Non-Interest Expense

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

Employee compensation and benefits

Employee compensation and benefits increased by $22.0 million for the year ended December 31, 2022, compared to the year ended December 31, 2021. The most significant factor leading to this increase was a combination of higher headcount and salary increases. Higher variable compensation and medical benefits also contributed to the increase.

Professional fees

Professional fees for the year ended December 31, 2021 included $4.2 million related to a tax settlement with the state of Florida.

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Technology

The increase in technology expense is reflective of our investment in a variety of technology initiatives in support of future growth of the franchise, such as cloud migration and digital capabilities.

Discontinuance of cash flow hedges

During the fourth quarter of 2021, we recognized a loss of $44.8 million on discontinuance of derivative positions designated as cash flow hedges with a notional amount totaling $401 million following the Company's determination that the hedged forecasted transactions were no longer probable of occurring.

Other non-interest expense

Other non-interest expense increased by $15.2 million for the year ended December 31, 2022, compared to the year ended December 31, 2021. Contributing to the increase were increases in advertising and public relations, travel, entertainment and business development corresponding to a return to pre-COVID levels of activity, and the cost of certain customer deposit rebate programs.

Income Taxes

The provision for income taxes for the years ended December 31, 2022 and 2021 was $90.2 million and $34.4 million, respectively. The Company's effective income tax rate was 24.03% and 7.66% for the years ended December 31, 2022 and 2021, respectively. The effective income tax rate for the year ended December 31, 2021 was impacted by a settlement with the Florida Department of Revenue related to certain tax matters for the 2009-2019 tax years and a reduction in the liability for unrecognized tax benefits arising primarily from expiration of statues of limitations in federal and certain state jurisdictions.

See Note 9 to the consolidated financial statements for information about income taxes.

Analysis of Financial Condition

Total loans, excluding the runoff of PPP loans, grew by $1.4 billion for 2022, with the highest growth in the core C&I and commercial real estate portfolios. Total deposits declined by $1.9 billion in 2022, while FHLB advances grew by $3.5 billion. Non-interest bearing demand deposits decreased by $938 million; growth in non-interest bearing demand deposits has been pressured by the rising interest rate environment and quantitative tightening by the Federal Reserve. Contributing to the decline in both total deposits and non-interest bearing demand deposits in 2022 was a reduction in deposits held by customers serving the residential real estate sector, as the level of mortgage loan origination activity declined significantly in light of rapidly rising interest rates.

Average interest-earning assets increased by $644 million to $34.7 billion for the year ended December 31, 2022, from $34.1 billion for the year ended December 31, 2021, reflecting increases in average balances of both loans and investment securities. During the year ended December 31, 2022, average interest bearing liabilities increased by $779 million and average non-interest bearing demand deposits increased by $380 million.

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Investment Securities

The following table shows the amortized cost and carrying value, which, with the exception of investment securities held to maturity, is fair value, of investment securities at the dates indicated (in thousands):

Our investment strategy has focused on insuring adequate liquidity, maintaining a suitable balance of high credit quality, diverse assets, managing interest rate risk, and generating acceptable returns given our established risk parameters. We have sought to maintain liquidity by investing a significant portion of the portfolio in high quality liquid securities including U.S. Treasury and U.S. Government Agency and sponsored enterprise securities. Investment grade municipal securities provide liquidity and attractive tax-equivalent yields. We have also invested in highly rated structured products, including private-label commercial and residential MBS, collateralized loan obligations, single family real estate-backed securities and non-mortgage asset-backed securities that, while somewhat less liquid, provide us with attractive yields. Relatively short effective portfolio duration helps mitigate interest rate risk. Based on the Company’s assumptions, the estimated weighted average life of the investment portfolio as of December 31, 2022 was 4.9 years and the effective duration of the portfolio was 2.0 years.

The investment securities available for sale portfolio was in a net unrealized loss position of $674.2 million at December 31, 2022, compared to a net unrealized gain position of $3.8 million at December 31, 2021. Net unrealized losses at December 31, 2022 included $2.9 million of gross unrealized gains and $677.1 million of gross unrealized losses. Investment securities available for sale in unrealized loss positions at December 31, 2022 had an aggregate fair value of $9.3 billion. The unrealized losses resulted primarily from rising interest rates and widening spreads related to the Federal Reserve's quantitative tightening and benchmark interest rate increases. Continuing uncertainty with respect to the trajectory of the economy and geopolitical events have also led to market uncertainty, producing some yield curve dislocations. None of the unrealized losses were attributable to credit loss impairments.

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The ratings distribution of our AFS securities portfolio at December 31, 2022 is depicted in the chart below:

We evaluate the credit quality of individual securities in the portfolio quarterly to determine whether we expect to recover the amortized cost basis of the investments in unrealized loss positions. This evaluation considers, but is not necessarily limited to, the following factors, the relative significance of which varies depending on the circumstances pertinent to each individual security:

•Whether we intend to sell the security prior to recovery of its amortized cost basis;

•Whether it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis;

•The extent to which fair value is less than amortized cost;

•Adverse conditions specifically related to the security, an industry or geographic area;

•Changes in the financial condition of the issuer or underlying loan obligors;

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

•Failure of the issuer to make scheduled payments;

•Changes in credit ratings;

•Relevant market data;

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

We do not intend to sell securities in significant unrealized loss positions at December 31, 2022. Based on an assessment of our liquidity position and internal and regulatory guidelines for permissible investments and concentrations, it is not more likely than not that we will be required to sell securities in significant unrealized loss positions prior to recovery of amortized cost basis, which may be at maturity.

We regularly engage with bond managers to monitor trends in underlying collateral, including potential downgrades and subsequent cash flow diversions, liquidity, ratings migration, and any other relevant developments.

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The following table presents subordination levels and average internal stress scenario losses for select non-agency portfolio segments at December 31, 2022:

For further discussion of our analysis of impaired investment securities AFS for credit loss impairment see Note 3 to the consolidated financial statements.

We use third-party pricing services to assist us in estimating the fair value of investment securities. We perform a variety of procedures to ensure that we have a thorough understanding of the methodologies and assumptions used by the pricing services including obtaining and reviewing written documentation of the methods and assumptions employed, conducting interviews with valuation desk personnel and reviewing model results and detailed assumptions used to value selected securities as considered necessary. Our classification of prices within the fair value hierarchy is based on an evaluation of the nature of the significant assumptions impacting the valuation of each type of security in the portfolio. We have established a robust price challenge process that includes a review by our treasury front office of all prices provided on a monthly basis. Any price evidencing unexpected month over month fluctuations or deviations from our expectations based on recent observed trading activity and other information available in the marketplace that would impact the value of the security is challenged. Responses to the price challenges, which generally include specific information about inputs and assumptions incorporated in the valuation and their sources, are reviewed in detail. If considered necessary to resolve any discrepancies, a price will be obtained from additional independent valuation sources. We do not typically adjust the prices provided, other than through this established challenge process. Our primary pricing services utilize observable inputs when available, and employ unobservable inputs and proprietary models only when observable inputs are not available. As a matter of course, the services validate prices by comparison to recent trading activity whenever such activity exists. Quotes obtained from the pricing services are typically non-binding.

The majority of our investment securities are classified within level 2 of the fair value hierarchy. U.S. Treasury securities and marketable equity securities are classified within level 1 of the hierarchy.

For additional discussion of the fair values of investment securities, see Note 14 to the consolidated financial statements.

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The following table shows the weighted average prospective yields, categorized by scheduled maturity, for AFS investment securities as of December 31, 2022. Scheduled maturities have been adjusted for anticipated prepayments when applicable. Yields on tax-exempt securities have been calculated on a tax-equivalent basis, based on a federal income tax rate of 21%:

Loans

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

For the year ended December 31, 2022, total loans grew by $1.1 billion, while total loans, excluding PPP loans, grew by $1.4 billion.

Growth in residential and other consumer loans for the year ended December 31, 2022 totaled $532 million. Commercial and industrial loans, including owner-occupied commercial real estate, grew by $1.6 billion for the year ended December 31, 2022. Most of the remaining commercial portfolio segments showed declines during the year ended December 31, 2022. MWL declined by $567 million for this period, as rising rates have led to lower refinancing and mortgage origination activity. PPP loans declined by $245 million during the year ended December 31, 2022, resulting primarily from full or partial forgiveness from the SBA.

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Residential mortgages and other consumer loans

The following table shows the composition of residential and other consumer loans at the dates indicated (in thousands):

The 1-4 single family residential loan portfolio, excluding government insured residential loans, is primarily comprised of loans purchased through established correspondent channels. 1-4 single family residential mortgage loans are primarily closed-end, first lien jumbo mortgages for the purchase or re-finance of owner occupied property. The loans have terms ranging from 10 to 30 years, with either fixed or adjustable interest rates. At December 31, 2022, $1.1 billion or 16% were secured by investor-owned properties.

The Company acquires non-performing FHA and VA insured mortgages from third party servicers who have exercised their right to purchase these loans out of GNMA securitizations (collectively, "government insured pool buyout loans" or "buyout loans"). Buyout loans that re-perform, either through modification or self-cure, may be eligible for re-securitization. The Company and the servicer share in the economics of the sale of these loans into new securitizations. During the years ended December 31, 2022 and 2021, the Company purchased $480 million and $1.6 billion, respectively, of government insured residential loans. The balance of buyout loans totaled $1.7 billion at December 31, 2022. The Company is not the servicer of these loans.

The following charts present the distribution of the 1-4 single family residential mortgage portfolio at the dates indicated:

See Note 4 to the consolidated financial statements for information about geographic concentrations in the 1-4 single family residential portfolio.

The following table presents a breakdown of the 1-4 single family residential mortgage portfolio, excluding government insured residential loans, categorized between fixed rate loans and ARMs at the dates indicated below (dollars in thousands):

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Commercial loans and leases

Commercial loans include a diverse portfolio of commercial and industrial loans and lines of credit, loans secured by owner-occupied commercial real-estate, multi-family properties and other income-producing non-owner occupied commercial real estate, a limited amount of construction and land loans, SBA loans, mortgage warehouse lines of credit, PPP loans, municipal loans and leases originated by Pinnacle and franchise and equipment finance loans and leases originated by Bridge.

The following charts present the distribution of the commercial loan portfolio at the dates indicated (dollars in millions):

(1) Included in C&I are $3 million and $249 million of PPP loans at December 31, 2022 and 2021, respectively.

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

The following table presents the distribution of commercial real estate loans by property type, along with weighted average DSCRs and LTVs at December 31, 2022 (dollars in thousands):

Geographic distribution in the table above is based on location of the underlying collateral property. LTVs and DSCRs are based on the most recent available information; if current information is not available, values may be adjusted by our models based on current sub-market conditions. DSCRs are calculated based on current contractually required payments, which may in some cases may be interest only.

The Company’s commercial real estate underwriting standards most often provide for loan terms of five to seven years, with amortization schedules of no more than thirty years. The multi-family portfolio includes $419 million of New York loans collateralized by properties with some or all of the units subject to rent regulation at December 31, 2022.

Commercial and industrial loans are typically made to small, middle market and larger corporate businesses and not-for-profit entities and include equipment loans, secured and unsecured working capital facilities, formula-based loans, subscription finance lines of credit, trade finance, SBA product offerings, business acquisition finance credit facilities, credit facilities to

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institutional real estate entities such as REITs and commercial real estate investment funds, and commercial credit cards. These loans may be structured as term loans, typically with maturities of five to seven years, or revolving lines of credit which may have multi-year maturities. In addition to financing provided by Pinnacle, the Bank provides financing to state and local governmental entities generally within our geographic markets. Commercial loans included loans meeting the regulatory definition of shared national credits totaling $4.7 billion at December 31, 2022, the majority of which were relationship based loans to borrowers in our primary geographic footprint. The Bank makes loans secured by owner-occupied commercial real estate that typically have risk profiles more closely aligned with that of commercial and industrial loans than with other types of commercial real estate loans.

The following table presents the exposure in the C&I portfolio, excluding PPP loans, by industry, at December 31, 2022 (dollars in thousands):

Through its commercial lending subsidiaries, Pinnacle and Bridge, the Bank provides equipment and franchise financing on a national basis using both loan and lease structures. Pinnacle provides essential-use equipment financing to state and local governmental entities directly and through vendor programs and alliances. Pinnacle offers a full array of financing structures including equipment lease purchase agreements and direct (private placement) bond re-fundings and loan agreements. Bridge has two operating divisions. The franchise finance division offers franchise acquisition, expansion and equipment financing, typically to experienced operators in well-established concepts. The franchise finance portfolio is made up primarily of quick service restaurant and fitness concepts comprising 43% and 52% of the portfolio, respectively. The equipment finance division provides primarily transportation equipment financing through a variety of loan and lease structures.

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The following table presents the franchise portfolio by concept at December 31, 2022 (dollars in thousands):

See Note 4 to the consolidated financial statements for information about the geographic distribution of the loan portfolio.

Loan Maturities

The following table sets forth, as of December 31, 2022, the maturity distribution of our loan portfolio by category, excluding government insured residential loans. Commercial and other consumer loans are presented by contractual maturity, including scheduled payments for amortizing loans. Contractual maturities of residential loans have been adjusted for an estimated rate of voluntary prepayments, based on historical trends, current interest rates, types of loans and refinance patterns (in thousands):

(1)Includes PPP loans.

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The following table shows the distribution of those loans that mature in more than one year between fixed and adjustable interest rate loans as of December 31, 2022 (in thousands):

(1)Includes PPP loans

Excluded from the tables above are government insured residential loans. Resolution of these loans is generally accomplished through the re-securitization and sale of the loans after they re-perform, either through modification or self-cure, or through pursuit of the applicable guarantee.

Operating lease equipment, net

Operating lease equipment, net of accumulated depreciation, totaled $540 million at December 31, 2022, including off-lease equipment, net of accumulated depreciation of $63 million.

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

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At December 31, 2022, the breakdown of carrying values of operating lease equipment, excluding equipment off-lease, by the year leases are scheduled to expire was as follows (in thousands):

Asset Quality

Commercial Loans

We have a robust credit risk management framework, an experienced team to lead the workout and recovery process for the commercial and commercial real estate portfolios and a dedicated internal credit review function. Loan performance is monitored by our credit administration, portfolio management and workout and recovery departments. Generally, commercial relationships with balances in excess of defined thresholds are re-evaluated at least annually and more frequently if circumstances indicate that a change in risk rating may be warranted. The defined thresholds range from $1 million to $3 million. Homogenous groups of smaller balance commercial loans may be monitored collectively. The credit quality and risk rating of commercial loans as well as our underwriting and portfolio management practices are regularly reviewed by our internal independent credit review department.

We believe internal risk rating is the best indicator of the credit quality of commercial loans. The Company utilizes a 16-grade internal asset risk classification system as part of its efforts to monitor and maintain commercial asset quality. The special mention rating is considered a transitional rating for loans exhibiting potential credit weaknesses that could result in deterioration of repayment prospects at some future date if not checked or corrected and that deserve management’s close attention. These borrowers may exhibit declining cash flows or revenues or increasing leverage. Loans with well-defined credit weaknesses that may result in a loss if the deficiencies are not corrected are assigned a risk rating of substandard. These borrowers may exhibit payment defaults, inadequate cash flows from current operations, operating losses, increasing balance sheet leverage, project cost overruns, unreasonable construction delays, exhausted interest reserves, declining collateral values, frequent overdrafts or past due real estate taxes. Loans with weaknesses so severe that collection in full is highly questionable or improbable, but because of certain reasonably specific pending factors have not been charged off, are assigned an internal risk rating of doubtful.

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

The table above clearly reflects the ongoing trend of improvement in the risk rating profile of the portfolio as the impact of the COVID-19 pandemic has waned; however, our internal risk ratings at December 31, 2022 continued to be influenced by the impact of the pandemic as sustained operating cash flows of some borrowers have yet to fully recover. Management took what it believed to be a proactive and objective approach to risk rating the commercial loan portfolio at the onset of the pandemic. Levels of criticized and classified loans therefore increased over the course of 2020 and have declined throughout 2021 and 2022.

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The following table provides additional information about special mention and substandard accruing loans, at the dates indicated (dollars in thousands). Non-performing loans are discussed further in the section entitled "Non-performing Assets" below.

Operating Lease Equipment, net

Operating leases with a carrying value of assets under lease totaling $19 million, were internally risk rated substandard at December 31, 2022. On a quarterly basis, management performs an impairment analysis on assets with indicators of potential impairment. Potential impairment indicators include evidence of changes in residual value, macro-economic conditions, an extended period of time off-lease, criticized or classified status, or management's intention to sell the asset at an amount potentially below its carrying value. During the year ended December 31, 2021, impairment charges recognized related to operating lease equipment totaled $2.8 million. There were no impairment charges recognized during the year ended December 31, 2022.

Bridge had exposure to the energy industry of $250 million at December 31, 2022. The majority of the energy exposure was in the operating lease equipment portfolio where energy exposure totaled $219 million.

Residential Loans

Our residential mortgage portfolio, excluding GNMA buyout loans, consists primarily of loans purchased through established correspondent channels. Most of our purchases are of performing jumbo mortgage loans which have FICO scores above 700, primarily are owner-occupied and full documentation, and have a current LTV of 80% or less although loans with LTVs higher than 80% may be extended to selected credit-worthy borrowers. We perform due diligence on the purchased loans for credit, compliance, counterparty, payment history and property valuation.

We have a dedicated residential credit risk management function, and the residential portfolio is monitored by our internal credit review function. Residential mortgage loans are not individually risk rated. Delinquency status is the primary measure we use to monitor the credit quality of these loans. We also consider original LTV and most recently available FICO score to be

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significant indicators of credit quality for the 1-4 single family residential portfolio, excluding government insured residential loans.

The following charts present information about the 1-4 single family residential portfolio, excluding government insured loans, by FICO distribution, LTV distribution and vintage at December 31, 2022:

FICO scores are generally updated semi-annually and were most recently updated in the third quarter of 2022. LTVs are typically based on valuation at origination since we do not routinely update residential appraisals.

At December 31, 2022, the majority of the 1-4 single family residential loan portfolio, excluding government insured residential loans, was owner-occupied, with 79% primary residence, 5% second homes and 16% investment properties.

1-4 single family residential loans excluding government insured residential loans past due more than 30 days totaled $62 million and $76 million at December 31, 2022 and 2021, respectively. The amount of these loans 90 days or more past due was $15 million and $17 million at December 31, 2022 and 2021, respectively.

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

Non-Performing Assets

Non-performing assets generally consist of (i) non-accrual loans, including loans that have been modified in TDRs and placed on non-accrual status, (ii) accruing loans that are more than 90 days contractually past due as to interest or principal, excluding PCD loans for which management has a reasonable basis for an expectation about future cash flows and government insured residential loans, and (iii) OREO and other non-performing assets.

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

(1)    Non-performing loans and assets include the guaranteed portion of non-accrual SBA loans totaling $40.3 million or 0.16% of total loans and 0.11% of total assets, at December 31, 2022, and $46.1 million or 0.19% of total loans and 0.13% of total assets, at December 31, 2021.

Contractually delinquent government insured residential loans are typically GNMA early buyout loans and are excluded from non-performing loans as defined in the table above due to their government guarantee. The carrying value of such loans contractually delinquent by 90 days or more was $493 million and $730 million at December 31, 2022 and 2021, respectively.

See "Results of Operations - Provision for Credit Losses" above and “Analysis of the Allowance for Credit Losses” below for further discussion of trends in the Provision for Credit Losses and the ACL.

The following chart presents trends in non-performing loans and non-performing assets. Levels of non-performing loans and non-performing assets have returned to below pre-pandemic levels.

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

Commercial loans are placed on non-accrual status when (i) management has determined that full repayment of all contractual principal and interest is in doubt, or (ii) the loan is past due 90 days or more as to principal or interest unless the loan is well secured and in the process of collection. Residential and consumer loans, other than government insured pool buyout loans, are generally placed on non-accrual status when they are 90 days past due. When a loan is placed on non-accrual status, uncollected interest accrued is reversed and charged to interest income. Commercial loans are returned to accrual status only after all past due principal and interest has been collected and full repayment of remaining contractual principal and

interest is reasonably assured. Residential loans are generally returned to accrual status when less than 90 days past due. Past due status of loans is determined based on the contractual next payment due date. Loans less than 30 days past due are reported as current.

TDRs

A loan modification is considered a TDR if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise grant. These concessions may take the form of temporarily or permanently reduced interest rates, payment abatement periods, restructuring of payment terms or extensions of maturity at below market terms. Included in TDRs are residential loans to borrowers who have not reaffirmed their debt discharged in Chapter 7 bankruptcy.

Under inter-agency and authoritative guidance and consistent with the CARES Act, short-term deferrals or modifications related to COVID-19 were typically not categorized as TDRs. Additionally, section 4013 of the CARES Act, as amended by the Consolidated Appropriations Act, effectively suspended the guidance related to TDRs codified in ASC 310-40 until January 1, 2022, the date the CARES Act expired.

The following table summarizes loans that had been modified in TDRs at the dates indicated (dollars in thousands):

(1)    Includes 2,883 government insured residential loans modified in TDRs totaling $456 million at December 31, 2022, and 435 government insured residential loans modified in TDRs totaling $76 million at December 31, 2021.

See Note 4 to the consolidated financial statements for additional information about TDRs.

Loss Mitigation Strategies

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

Our servicers evaluate each residential loan in default to determine the most effective loss mitigation strategy, which may be modification, short sale, or foreclosure, and pursue the alternative most suitable to the consumer and to mitigate losses to the bank.

Analysis of the Allowance for Credit Losses

The ACL is management's estimate of the amount of expected credit losses over the life of the loan portfolio, or the amount of amortized cost basis not expected to be collected, at the balance sheet date. This estimate encompasses information about historical events, current conditions and reasonable and supportable economic forecasts. Determining the amount of the ACL is complex and requires extensive judgment by management about matters that are inherently uncertain. Given the current level of economic uncertainty, the complexity of the ACL estimate and level of management judgment required, we believe it is possible that the ACL estimate could change, potentially materially, in future periods. Changes in the ACL may result from changes in current economic conditions, our economic forecast, loan portfolio composition and circumstances not currently known to us that may impact the financial condition and operations of our borrowers, among other factors.

Expected credit losses are estimated on a collective basis for groups of loans that share similar risk characteristics. For loans that do not share similar risk characteristics with other loans such as collateral dependent loans and TDRs, expected credit

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losses are estimated on an individual basis. Expected credit losses are estimated over the contractual terms of the loans, adjusted for expected prepayments, generally excluding expected extensions, renewals, and modifications.

For the substantial majority of portfolio segments and subsegments, including residential loans other than government insured loans, and most commercial and commercial real estate loans, expected losses are estimated using econometric models.

See Note 1 to the consolidated financial statements for more detailed information about our ACL methodology and related accounting policies.

At December 31, 2022 and 2021, we used a single externally provided baseline scenario in calculating the quantitative portion of the ACL. At December 31, 2022, we incorporated a downside scenario to inform the amount of qualitative reserves.

The following table provides an analysis of the ACL, provision for (recovery of) credit losses related to the funded portion of loans and net charge-offs by loan segment for the periods indicated (dollars in thousands):

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

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

The following table presents the ACL as a percentage of loans at the dates indicated:

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Significant offsetting factors contributing to the change in the ACL during the year ended December 31, 2022 are depicted in the chart below (in millions):

Changes in the ACL during the year ended December 31, 2022

As depicted in the chart above, the primary reasons for the increase in the ACL from December 31, 2021 to December 31, 2022 were increases in specific reserves and qualitative overlay related primarily to economic uncertainty, partially offset by net charge-offs. The ACL as a percentage of loans was 0.59% at December 31, 2022, compared to 0.53% at December 31, 2021.

The ACL for residential and other consumer segment increased by $2.6 million during the year ended December 31, 2022, from 0.11% to 0.13% of loans. The increase in the ACL for this segment was primarily driven by the economic forecast, particularly a decline in the HPI and increases in forecasted mortgage and unemployment rates.

The ACL for the CRE portfolio sub-segment, including non-owner occupied CRE and construction and land, decreased by $4.1 million during the year ended December 31, 2022, from 0.51% to 0.43% of loans. The decrease in the ACL for CRE was driven mainly by net charge-offs and improvements in the credit quality of existing loans as reflected in the reduction in criticized and classified loans.

The ACL for the commercial and industrial sub-segment, including owner-occupied commercial real estate, increased by $29.2 million during the year ended December 31, 2022, from 0.84% to 1.10% of loans. The increase was mainly driven by (i) increases in specific reserves; (ii) an increase in qualitative loss factors mainly related to economic uncertainty and (iii) loan growth; partially offset by net charge-offs and the reduction in the levels of criticized and classified loans.

The ACL for the BFG franchise finance portfolio segment decreased by $5.0 million during the year ended December 31, 2022, from 4.90% to 4.63% of loans primarily due to (i) a decline in the amortized cost basis of the portfolio; (ii) net charge-offs; and to a lesser extent, (iii) a decrease in qualitative loss factors.

The estimate of the ACL at December 31, 2022 was informed by forecasted economic scenarios published in December 2022, a wide variety of additional economic data, information about borrower financial condition and collateral values and other relevant information. The economic forecast used in modeling the quantitative ACL as of December 31, 2022, was a

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third-party provided baseline forecast. Some of the assumptions and data points informing the reasonable and supportable economic forecast used in estimating the quantitative ACL at December 31, 2022 included:

•Labor market assumptions, which reflected national unemployment at 3.8% for the first quarter of 2023, and 4.2% and 3.9% by the end of 2023 and 2024, respectively;

•Annualized growth in GDP at 0.1% for the first quarter of 2023, and averaging 0.9% and 2.0% for 2023 and 2024, respectively;

•S&P 500 declining by 14% in the first quarter of 2023 with gains of 7.9% and 0.3% by the end of 2023 and 2024, respectively;

•HPI decline of 1.1% in the first quarter of 2023, and declines of 3.8% and 3.3% by the end of 2023 and 2024, respectively.

Additional variables and assumptions not explicitly stated, including but not limited to residential and commercial property forecasts, also contributed to the overall impact economic conditions and the economic forecast had on the ACL estimate. Furthermore, while the variables presented above are at the national level, many of the variables are regionalized at the market and submarket level in the models.

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

Deposits

A further breakdown of deposits at the dates indicated is shown below:

The estimated amount of uninsured deposits at December 31, 2022 and 2021 was $19.2 billion and $20.2 billion, respectively. Time deposit accounts with balances of $250,000 or more totaled $730 million and $603 million at December 31, 2022 and 2021, respectively. The following table shows scheduled maturities of uninsured time deposits as of December 31, 2022 (in thousands):

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Borrowings

In addition to deposits, we utilize FHLB advances as a funding source; the advances provide us with additional flexibility in managing both term and cost of funding and in managing interest rate risk. FHLB advances are secured by qualifying residential first mortgage and commercial real estate loans and MBS. The following table presents information about the contractual balance of outstanding FHLB advances, as of December 31, 2022 (dollars in thousands):

The table above reflects contractual maturities of outstanding advances and does not incorporate the impact that interest rate swaps designated as cash flow hedges have on the duration or cost of borrowings.

The table below presents information about outstanding interest rate swaps hedging the variability of interest cash flows on the FHLB advances included in the table above, as of December 31, 2022 (dollars in thousands):

During the year ended December 31, 2021, derivative positions designated as cash flow hedges with a notional amount totaling $401 million, at a weighted average pay rate of 3.24%, were discontinued following the Company's determination that the related forecasted transactions were not probable of occurring.

The Bank utilizes federal funds purchased to manage the daily cash position. See Note 7 to the consolidated financial statements for more information about the Company's FHLB advances and notes. Additionally, see Note 10 to the consolidated financial statements for more information about derivative instruments the Company uses to manage risk.

Liquidity and Capital Resources

Liquidity

Liquidity involves our ability to generate adequate funds to support planned interest earning asset growth, meet deposit withdrawal and credit line usage requests, maintain reserve requirements, conduct routine operations, pay dividends, service outstanding debt and meet other contractual obligations.

BankUnited's ongoing liquidity needs have historically been met primarily by cash flows from operations, deposit growth, the investment portfolio and FHLB advances. FRB discount window borrowings, reverse repurchase agreement capacity and a letter of credit with the FHLB provide additional sources of contingent liquidity. For the years ended December 31, 2022, 2021 and 2020, net cash provided by operating activities was $1.3 billion, $1.2 billion and $864 million, respectively.

Available liquidity includes cash, borrowing capacity at the Federal Home Loan Bank of Atlanta and the Federal Reserve Discount Window, Federal Funds lines of credit and unpledged agency securities. Additional sources of liquidity include cash flows from operations, wholesale deposits, cash flow from the Bank's amortizing securities and loan portfolios, and the sale of investment securities. Management also has the ability to exert substantial control over the rate and timing of loan production, and resultant requirements for liquidity to fund new loans.

The ALM policy establishes limits or operating thresholds and guidelines for a number of measures of liquidity which are monitored at least monthly by the ALCO and quarterly by the Board of Directors. The primary measures used to dimension liquidity risk are the ratio of available liquidity to volatile liabilities and a liquidity stress test coverage ratio. Other measures employed to monitor and manage liquidity include but are not limited to a 30-day total liquidity ratio, a one-year liquidity ratio,

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a wholesale funding ratio, concentrations of large deposits, a measure of on-balance sheet available liquidity, the ratio of FHLB advances to total assets and the ratio of non-interest bearing deposits to total deposits, which is reflective of the quality and cost, rather than the quantity, of available liquidity. At December 31, 2022, BankUnited was in compliance with the limits prescribed by the ALM policy.

The ALM policy stipulates that BankUnited’s liquidity is within policy limits if the available liquidity/volatile liabilities ratio and liquidity stress test ratios exceed 100%. At December 31, 2022, BankUnited’s available liquidity/volatile liabilities ratio was 176% and the liquidity stress test ratio was 188%. The Company has a comprehensive contingency liquidity funding plan and conducts a quarterly liquidity stress test, the results of which are reported to the risk committee of the Board of Directors.

As a holding company, BankUnited, Inc. is a corporation separate and apart from its banking subsidiary, and therefore, provides for its own liquidity. BankUnited, Inc.’s main sources of funds include management fees and dividends from the Bank, access to capital markets and, to a lesser extent, its own securities portfolio. There are regulatory limitations that may affect the ability of the Bank to pay dividends to BankUnited, Inc. Management believes that such limitations will not impact our ability to meet our ongoing near-term cash obligations.

The following table presents the Company's material cash requirements for the following twelve months, as of December 31, 2022 (in thousands):

(1)Includes interest to be paid on the outstanding contractual obligations.

At December 31, 2022, the Company had $4.0 billion in term deposits with a contractual maturity of twelve months or less. The majority of term deposits and FHLB advances are expected to roll over into new instruments; this amount therefore does not represent future anticipated cash requirements. Additionally, as discussed in Note 15 to the consolidated financial statements, the Bank had $271 million in outstanding commitments to fund loans and $5.7 billion in unfunded commitments under existing lines of credit at December 31, 2022. Many of these commitments are expected to expire without being fully funded and, therefore, also do not necessarily represent future cash requirements.

Macro factors, including the Fed's quantitative tightening policy stance, have led to reduced deposit levels across the banking system. BankUnited's total deposits declined by $1.9 billion during the year ended December 31, 2022, and there is uncertainty as to the future impact of monetary policy on deposit levels both system-wide and at BankUnited. We believe that we have sufficient on-balance sheet and contingent liquidity, through the sources described above, to satisfy our liquidity needs and cash requirements over the next twelve months.

Capital

Pursuant to the FDIA, the federal banking agencies have adopted regulations setting forth a five-tier system for measuring the capital adequacy of the financial institutions they supervise. At December 31, 2022 and 2021, the Company and the Bank had capital levels that exceeded both the regulatory well-capitalized guidelines and all internal capital ratio targets. Upon adoption of ASU 2016-13 on January 1, 2020, the Company elected the option to temporarily delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period. See Note 13 to the consolidated financial statements for more information about the Company's and the Bank's regulatory capital ratios.

We believe we are well positioned, from a capital perspective, to withstand a severe downturn in the economy. We continue to evolve our stress testing framework and adapt it to evolving macro-economic conditions as necessary. The majority of our commercial portfolio is subject to quarterly stress test analysis. On an annual basis, we also run a rigorous stress test of our entire balance sheet incorporating the Fed's CCAR scenarios as well as additional idiosyncratic scenarios reflective of evolving macro-economic themes.

We have an active shelf registration statement on file with the SEC that allows the Company to periodically offer and sell in one or more offerings, individually or in any combination, our common stock, preferred stock and other non-equity securities. The shelf registration provides us with flexibility in issuing capital instruments and enables us to more readily access

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the capital markets as needed to pursue future growth opportunities and to ensure continued compliance with regulatory capital requirements. Our ability to issue securities pursuant to the shelf registration is subject to market conditions.

Interest Rate Risk

A principal component of the Company’s risk of loss arising from adverse changes in the fair value of financial instruments, or market risk, is interest rate risk, including the risk that assets and liabilities with similar re-pricing characteristics may not reprice at the same time or to the same degree. A primary objective of the Company’s asset/liability management activities is to maximize net interest income, while maintaining acceptable levels of interest rate risk. The ALCO is responsible for establishing policies to manage exposure to interest rate risk, and to ensure procedures are established to monitor compliance with these policies. The policies established by the ALCO are approved at least annually by the Board of Directors or its Risk Committee.

Management believes that the simulation of net interest income in different interest rate environments provides the most meaningful measure of interest rate risk. Income simulation analysis is designed to capture not only the potential of all assets and liabilities to mature or reprice, but also the probability that they will do so. Income simulation also attends to the relative interest rate sensitivities of these items, and projects their behavior over an extended period of time. Finally, income simulation permits management to assess the probable effects on the balance sheet not only of changes in interest rates, but also of proposed strategies for responding to them.

The income simulation model analyzes interest rate sensitivity by projecting net interest income over twelve and twenty-four month periods in a most likely rate scenario based on consensus forward interest rate curves versus net interest income in alternative rate scenarios. Management continually reviews and refines its interest rate risk management process in response to changes in the interest rate environment, the economic climate and observed customer behavior. Currently, our interest rate risk policy framework is based on modeling instantaneous rate shocks of plus and minus 100, 200, 300 and 400 basis point shifts. We also model a variety of yield curve slope and dynamic balance sheet scenarios. We continually evaluate the scenarios being modeled with a view toward adapting them to changing economic conditions, expectations and trends.

The following table presents the impact on forecasted net interest income compared to a "most likely" scenario in parallel rate shock scenarios of plus 100, 200, 300 and 400 basis points at December 31, 2022 and 2021, as well as minus 100, 200 and 300 basis points scenarios at December 31, 2022. At December 31, 2022, the most likely rate scenario incorporated a bear flattening yield curve and floored all indices at 0%. We did not apply a falling rate scenario at December 31, 2021 due to the low prevailing interest rate environment at that time.

Management also simulates changes in EVE in various interest rate environments. The following table illustrates the modeled change in EVE in the indicated scenarios at December 31, 2022 and December 31, 2021:

All of the modeled results presented above fall within designated "low" or "moderate" risk zones as set forth in the Company's ALM policy. Many assumptions were used by the Company to calculate the impact of changes in interest rates, including the change in rates. Actual results may not be similar to the Company’s projections due to several factors including the timing and frequency of rate changes, market conditions, changes in depositor behavior and loan prepayment speeds and the shape of the yield curve. Actual results may also differ due to the Company’s actions, if any, in response to changing rates and conditions.

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Derivative Financial Instruments

Interest rate derivatives designated as cash flow or fair value hedging instruments are one of the tools we use to manage interest rate risk. These derivative instruments are used to mitigate exposure to changes in interest cash flows on variable rate liabilities and to changes in the fair value of fixed rate financial instruments, in each case caused by fluctuations in benchmark interest rates, as well as to manage duration of liabilities. The fair value of derivative instruments designated as hedges is included in other assets and other liabilities in our consolidated balance sheets. Changes in fair value of derivative instruments designated as cash flow hedges are reported in accumulated other comprehensive income. Changes in the fair value of derivative instruments designated as fair value hedges are recognized in earnings, as is the offsetting gain or loss on the hedged item. At December 31, 2022, outstanding interest rate swaps, caps and collars designated as cash flow hedges had an aggregate notional amount of $2.3 billion and outstanding interest rate swaps designated as fair value hedges had an aggregate notional amount of $100 million.

Interest rate swaps and caps not designated as hedges had an aggregate notional amount of $3.9 billion at December 31, 2022. These interest rate swaps and caps were entered into as accommodations to certain of our commercial borrowers. To mitigate interest rate risk associated with these derivatives, the Company enters into offsetting derivative positions with primary dealers.

See Note 10 to the consolidated financial statements for additional information about derivative financial instruments.

LIBOR Transition

The FCA, which regulates LIBOR, discontinued the one-week and two-month LIBOR tenors effective December 31, 2021. The remaining tenors will be discontinued effective June 30, 2023. The Company has implemented and is in the process of executing a detailed plan to facilitate the transition from LIBOR to alternative reference rates, with SOFR being the preferred alternative to LIBOR. We established a cross-functional LIBOR transition working group that (i) continually assesses the Company's remaining exposure to LIBOR indexed instruments (ii) evaluated the systems, models and processes impacted by reference rate transition and implemented any necessary modifications to ensure compliance with the new reference rate framework; (iii) developed and continues to execute under a formal governance structure for the transition; and (iv) continues to monitor and report on execution under a detailed transition implementation plan. We have taken the following actions, among others, to facilitate the transition to alternative reference rates by the Bank and our customers:

•     Evaluated the fallback language in all financial instruments referencing LIBOR, and effective January 2021, adopted the ARRC recommended hardwired approach fallback provisions incorporating SOFR pursuant to a waterfall for all bilateral commercial loans which provide for the determination of replacement rates for LIBOR-linked financial products;

•     Adhered to the 2020 ISDA IBOR Fallbacks Protocol to amend fallback language in all of our existing derivative counterparty agreements;

•     Adopted primarily SOFR based products and pricing for newly originated commercial loans and interest rate swaps for borrowers, purchases of residential mortgage loans and investment securities and derivative hedging instruments;

•     Effective 12/31/2021, ceased originating LIBOR indexed loans and implemented SOFR as the preferred alternative to LIBOR;

•Completed testing and implementation of replacement indices in applicable systems and models;

•Established detailed operational protocols for the implementation of fallback language in existing LIBOR instruments maturing after June 30, 2023;

•Provided ongoing education to client-facing associates and customers; and

•Adopted and continue to execute a detailed remediation plan for bilateral and agent loans maturing after June 30, 2023, while actively monitoring LIBOR-based loans scheduled to mature prior to June 30, 2023.

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The following table presents information about the Company's exposure to instruments that reference LIBOR, as of December 31, 2022 (in thousands):

(1)Represents notional amount.

Impact of the COVID-19 Pandemic

A more detailed discussion of the effects the COVID-19 pandemic had during 2020 and 2021 on our Company appears in the "Impact of the COVID-19 Pandemic and Our Response" section in the MD&A of the Company's 2021 and 2020 Annual Reports on Form 10-K.

2021 and 2022 were characterized broadly by recovery of the U.S. economy from the impact of the COVID-19 pandemic. The actual and expected impact of the pandemic on our financial condition and results of operations continues to decline. Levels of criticized and classified assets remain elevated at December 31, 2022 when compared to pre-pandemic levels although they continue to trend downward; levels of non-performing assets have returned to below pre-pandemic levels. The composition of the balance sheet at December 31, 2022 and corresponding levels of net interest income reflect the opportunity cost of the decline in commercial loans and the increase in residential loans and securities that occurred over the course of the pandemic. Historically, commercial loans have generally tended to be higher yielding assets than residential loans and securities. During the first quarter of 2022, we welcomed our employees back to the office, adopting a hybrid work model for most non-branch employees. This model will likely continue to evolve over the near to medium term.

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Non-GAAP Financial Measures

PPNR is a non-GAAP financial measure. Management believes this measure is relevant to understanding the performance of the Company attributable to elements other than the provision for credit losses and the ability of the Company to generate earnings sufficient to cover estimated credit losses, particularly in view of the volatility of the provision for credit losses. This measure also provides a meaningful basis for comparison to other financial institutions since it is commonly employed and is a measure frequently cited by investors and analysts. The following table reconciles the non-GAAP financial measurement of PPNR to the comparable GAAP financial measurement of income before income taxes for the periods indicated (in thousands):

Tangible book value per common share is a non-GAAP financial measure. Management believes this measure is relevant to understanding the capital position and performance of the Company. Disclosure of this non-GAAP financial measure also provides a meaningful basis for comparison to other financial institutions as it is a metric commonly used in the banking industry. The following table reconciles the non-GAAP financial measurement of tangible book value per common share to the comparable GAAP financial measurement of book value per common share at the dates indicated (in thousands except share and per share data):

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