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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
or
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 1-13921
BankUnited Financial Corporation
(Exact name of registrant as specified in its charter)
Florida 65-0377773
(State or other (I.R.S. Employer
jurisdiction of Identification Number)
incorporation or
organization)
255 Alhambra Circle, Coral Gables 33134
(Address of principal executive offices) (Zip Code)
(305) 569-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
The number of shares outstanding of the registrant's common stock at the
close of business on August 12, 2002 was 24,634,222 shares of Class A Common
Stock, $.01 par value, and 536,562 shares of Class B Common Stock, $.01 par
value.
This Form 10-Q contains 37 pages.
The Index to Exhibits appears on page 38.
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 2002
INDEX
Page No.
--------
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of June 30, 2002 (unaudited) and
September 30, 2001.................................................................. 3
Consolidated Statements of Operations (unaudited) for the Three Months and Nine Months
Ended June 30, 2002 and June 30, 2001............................................... 4
Consolidated Statements of Stockholders' Equity (unaudited) for the Nine Months Ended
June 30, 2002 and June 30, 2001..................................................... 5
Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended June 30,
2002 and June 30, 2001.............................................................. 6
Condensed Notes to Consolidated Financial Statements (unaudited)...................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 14
Item 3. Quantitativeand Qualitative Disclosures about Market Risk............................. 35
PART II--OTHER INFORMATION
Item 6. Exhibitsand Reports on Form 8-K....................................................... 36
2
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, September 30,
2002 2001
---------- -------------
(Dollars in thousands,
except per share data)
Assets:
Cash........................................................................... $ 51,780 $ 45,113
Federal Home Loan Bank overnight deposits...................................... 285,441 246,902
Federal funds sold and securities purchased under agreements to resell......... 4,426 2,738
Tax certificates (net of reserves of $853 and $934 at June 30, 2002 and
September 30, 2001, respectively)............................................. 17 876
Investments held to maturity (fair value of approximately $66,700 and
$66,495 at June 30, 2002 and September 30, 2001, respectively)................ 66,471 66,417
Investments available for sale, at fair value.................................. 91,516 68,719
Mortgage-backed securities, held to maturity (fair value of approximately
$130,854 and $203,864 at June 30, 2002 and September 30, 2001, respectively).. 125,184 194,979
Mortgage-backed securities available for sale, at fair value................... 1,127,572 637,749
Loans receivable, net.......................................................... 3,575,660 3,499,608
Mortgage loans held for sale (fair value of approximately $263,380 and
$253,490 at June 30, 2002 and September 30, 2001, respectively)............... 259,055 250,041
Other earning assets........................................................... 85,974 75,625
Office properties and equipment, net........................................... 16,955 16,054
Real estate owned.............................................................. 1,124 1,832
Accrued interest receivable.................................................... 30,719 30,157
Mortgage servicing rights...................................................... 6,795 5,837
Goodwill....................................................................... 28,353 28,353
Securities sold pending settlement............................................. -- 25,469
Bank-owned life insurance...................................................... 52,410 20,516
Prepaid expenses and other assets.............................................. 23,981 21,210
---------- ----------
Total assets................................................................. $5,833,433 $5,238,195
========== ==========
Liabilities and Stockholders' Equity:
Liabilities:
Deposits....................................................................... $3,006,518 $2,653,145
Securities sold under agreements to repurchase................................. 252,914 283,116
Advances from Federal Home Loan Bank........................................... 1,710,951 1,509,721
Senior notes................................................................... 200,000 200,000
Company obligated mandatorily redeemable trust preferred securities of
subsidiary trust holding solely junior subordinated deferrable interest
debentures of BankUnited...................................................... 233,682 203,592
Interest payable (primarily on deposits and advances from Federal Home Loan
Bank).......................................................................... 17,303 14,265
Advance payments by borrowers for taxes and insurance.......................... 29,736 31,999
Securities purchased pending settlement........................................ 24,996 15,178
Accrued expenses and other liabilities......................................... 27,469 26,733
---------- ----------
Total liabilities............................................................ 5,503,569 4,937,749
========== ==========
Stockholders' Equity:
Preferred Stock, Series B, $0.01 par value. Authorized shares--10,000,000.
Issued shares--574,007 and 355,821 at June 30, 2002 and September 30, 2001,
respectively. Outstanding shares--547,287 and 355,821 at June 30, 2002 and
September 30, 2001, respectively.............................................. 6 4
Class A Common Stock, $0.01 par value. Authorized shares--60,000,000 and
30,000,000 at June 30, 2002 and September 30, 2001, respectively. Issued
shares--24,946,278 and 24,871,219 at June 30, 2002 and September 30, 2001,
respectively. Outstanding shares--24,613,278 and 24,538,219 at June 30,
2002 and September 30, 2001, respectively..................................... 250 249
Class B Common Stock, $0.01 par value. Authorized shares--3,000,000. Issued
and outstanding shares--536,562 and 505,669 at June 30, 2002 and September
30, 2001, respectively........................................................ 5 5
Additional paid-in capital..................................................... 253,007 249,788
Retained earnings.............................................................. 69,567 47,502
Treasury stock, 333,000 shares of Class A Common Stock......................... (2,794) (2,794)
Treasury stock, 26,720 shares of Series B Preferred at June 30, 2002, none
at September 30, 2001.......................................................... (528) --
Deferred compensation obligation............................................... 528 --
Accumulated other comprehensive income......................................... 9,823 5,692
---------- ----------
Total stockholders' equity................................................... 329,864 300,446
---------- ----------
Total liabilities and stockholders' equity................................... $5,833,433 $5,238,195
========== ==========
See accompanying condensed notes to consolidated financial statements
3
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three
Months Ended For the Nine Months
June 30, Ended June 30,
--------------------- ----------------------
2002 2001 2002 2001
------- ------- -------- --------
(Dollars and shares in thousands, except per
share data)
Interest income:
Interest and fees on loans..................................................... $61,959 $66,916 $192,207 $206,820
Interest on mortgage-backed securities......................................... 16,796 9,946 45,429 25,082
Interest on short-term investments............................................. 169 291 483 1,414
Interest and dividends on long-term investments and other interest-earning
assets......................................................................... 2,762 2,555 8,605 7,765
------- ------- -------- --------
Total interest income....................................................... 81,686 79,708 246,724 241,081
------- ------- -------- --------
Interest expense:
Interest on deposits........................................................... 25,839 35,531 80,642 111,057
Interest on borrowings......................................................... 22,990 20,462 69,356 60,184
Preferred dividends of subsidiary trust........................................ 4,879 4,954 14,753 14,996
------- ------- -------- --------
Total interest expense...................................................... 53,708 60,947 164,751 186,237
------- ------- -------- --------
Net interest income before provision for loan losses........................... 27,978 18,761 81,973 54,844
Provision for loan losses....................................................... 1,900 1,650 7,300 4,450
------- ------- -------- --------
Net interest income after provision for loan losses............................ 26,078 17,111 74,673 50,394
------- ------- -------- --------
Non-interest income:
Service fees, net.............................................................. 1,345 1,843 4,476 4,987
Insurance and investment services income....................................... 844 929 3,024 2,011
Net (loss)/gain on sale of investments and mortgage-backed securities.......... (295) 433 587 722
Net gain on sale of loans and other assets..................................... 1,442 428 2,954 874
Other.......................................................................... 951 243 2,199 281
------- ------- -------- --------
Total non-interest income................................................... 4,287 3,876 13,240 8,875
------- ------- -------- --------
Non-interest expenses:
Employee compensation and benefits............................................. 7,891 5,772 22,304 16,122
Occupancy and equipment........................................................ 2,863 2,280 8,179 6,630
Advertising and promotion expense.............................................. 1,256 505 4,536 1,816
Professional fees-legal and accounting......................................... 1,851 1,041 4,107 2,609
Telecommunications and data processing......................................... 1,106 884 3,267 2,453
Loan servicing expense......................................................... 652 1,093 2,384 3,611
Insurance...................................................................... 261 244 778 754
Amortization of goodwill....................................................... -- 388 -- 1,165
Other operating expenses....................................................... 2,215 1,530 7,332 4,288
------- ------- -------- --------
Total non-interest expenses................................................. 18,095 13,737 52,887 39,448
------- ------- -------- --------
Income before income taxes and extraordinary item.............................. 12,270 7,250 35,026 19,821
Provision for income taxes...................................................... 4,429 2,663 12,766 7,600
------- ------- -------- --------
Income before extraordinary item............................................... 7,841 4,587 22,260 12,221
Extraordinary item (net of tax expense (benefit) of $38 for the three months
ended June 30, 2001, and $(12) and $515 for the nine months ended June 30,
2002 and 2001, respectively)................................................... -- 61 (17) 822
------- ------- -------- --------
Net income..................................................................... $ 7,841 $ 4,648 $ 22,243 $ 13,043
======= ======= ======== ========
Earnings Per Share:
Basic earnings per share before extraordinary item............................. $ 0.31 $ 0.23 $ 0.88 $ 0.62
Basic earnings per share from extraordinary item............................... -- -- -- 0.05
------- ------- -------- --------
Basic earnings per share.................................................... $ 0.31 $ 0.23 $ 0.88 $ 0.67
======= ======= ======== ========
Diluted earnings per share before extraordinary item........................... $ 0.29 $ 0.22 $ 0.83 $ 0.60
Diluted earnings per share from extraordinary item............................. -- -- -- 0.04
------- ------- -------- --------
Diluted earnings per share.................................................. $ 0.29 $ 0.22 $ 0.83 $ 0.64
======= ======= ======== ========
Weighted average number of common shares outstanding:
Basic.......................................................................... 25,125 19,150 25,129 18,614
Diluted........................................................................ 27,176 20,487 26,954 19,578
See accompanying condensed notes to consolidated financial statements
4
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended June 30, 2002 and 2001
-----------------------------------------------------------------------------------
Accumulated
Other
Deferred Comprehensive Total
Preferred Common Paid-in Retained Treasury Compensation Income (Loss) Stockholders'
Stock Stock Capital Earnings Stock Obligation Net of Tax Equity
--------- ------ -------- -------- -------- ------------ ------------- -------------
(Dollars in thousands)
Balance at September 30,
2001....................... $ 4 $254 $249,788 $47,502 $(2,794) $ -- $ 5,692 $300,446
Comprehensive income:
Net income for the nine
months ended June 30,
2002.................... -- -- -- 22,243 -- -- -- 22,243
Payment of dividends on
preferred stock......... -- -- -- (178) -- -- -- (178)
Other comprehensive
income, net of tax...... -- -- -- -- -- -- 4,131 4,131
--------
Total comprehensive
income................. 26,196
Deferred compensation
obligation.............. -- -- -- -- -- 528 -- 528
Issuance of stock........ -- -- 472 -- -- -- -- 472
Purchase of Series B
Preferred Stock......... -- -- -- -- (528) -- -- (528)
Stock options and other
awards.................. 2 1 2,747 -- -- -- -- 2,750
--- ---- -------- ------- ------- ----- ------- --------
Balance at June 30, 2002.... $ 6 $255 $253,007 $69,567 $(3,322) $ 528 $ 9,823 $329,864
=== ==== ======== ======= ======= ===== ======= ========
Balance at September 30,
2000....................... $10 $185 $181,692 $29,055 $(2,801) $ -- $(5,554) $202,587
Comprehensive income:
Net income for the nine
months ended June 30,
2001.................... -- -- -- 13,043 -- -- -- 13,043
Payment of dividends on
preferred stock......... -- -- -- (600) -- -- -- (600)
Other comprehensive
income, net of tax...... -- -- -- -- -- -- 2,759 2,759
--------
Total comprehensive
income................. 15,202
Stock offering-Class A
Common Stock............. -- 57 64,081 -- -- -- -- 64,138
Stock options and other
awards................... 1 3 1,248 -- -- -- -- 1,252
--- ---- -------- ------- ------- ----- ------- --------
Balance at June 30, 2001.... $11 $245 $247,021 $41,498 $(2,801) $-- $(2,795) $283,179
=== ==== ======== ======= ======= ===== ======= ========
See accompanying condensed notes to consolidated financial statements
5
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
June 30,
------------------------
2002 2001
--------- ---------
(Dollars in thousands)
Cash flows from operating activities:
Net income........................................................................ $ 22,243 $ 13,043
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses........................................................ 7,300 4,450
Depreciation and amortization.................................................... 2,597 2,272
Adjustments to the carrying value of real estate owned........................... 1,403 377
Amortization of fees, discounts and premiums, net................................ 11,364 3,442
Amortization of mortgage servicing rights........................................ 2,610 1,115
Amortization of goodwill......................................................... -- 1,165
Amortization of restricted stock and other awards................................ 327 207
Amortization of unrealized losses on transferred mortgage-backed securities...... 179 167
Amortization of issuance cost of Senior Notes.................................... 400 400
Increase in bank-owned life insurance cash surrender value....................... (1,894) (198)
Net gain on sale of investment and mortgage-backed securities available for sale. (587) (722)
Net gain on sale of loans, and other assets...................................... (2,954) (874)
Net gain on sale of real estate owned............................................ (498) (317)
Extraordinary loss (gain) on repurchase of trust preferred securities............ 29 (1,337)
Loans originated for sale......................................................... (289,296) (31,113)
Proceeds from sale of loans....................................................... 88,222 34,281
Increase in accrued interest receivable........................................... (562) (2,165)
Increase in interest payable on deposits and FHLB advances........................ 3,038 3,744
Decrease in accrued taxes......................................................... (2,177) (2,360)
Increase in deferred compensation obligation...................................... 528 --
Increase in other liabilities..................................................... 325 669
(Increase) decrease in prepaid expenses and other assets.......................... (1,032) 4,706
Other, net........................................................................ (3,568) (672)
--------- ---------
Net cash (used in) provided by operating activities............................ (162,003) 30,280
--------- ---------
Cash flows from investing activities:
Net increase in loans............................................................ (135,894) (160,069)
Purchase of investment securities held to maturity............................... -- (66,227)
Purchase of investment securities available for sale............................. (39,516) (9,932)
Purchase of mortgage-backed securities held to maturity.......................... -- (50,320)
Purchase of mortgage-backed securities available for sale........................ (655,359) (329,363)
Purchase of other earning assets................................................. (57,849) (44,699)
Purchase of office properties and equipment...................................... (3,558) (2,473)
Purchase of bank owned life insurance............................................ (30,000) (20,000)
Proceeds from repayments of investment securities held to maturity............... -- 5,000
Proceeds from repayments of investment securities available for sale............. 10,067 350
Proceeds from repayments of mortgage-backed securities held to maturity.......... 70,199 52,458
Proceeds from repayments of mortgage-backed securities available for sale........ 254,853 32,238
Proceeds from repayments of other earning assets................................. 47,500 40,750
Proceeds from the sale of investment securities available for sale............... 7,230 --
Proceeds from the sale of mortgage-backed securities held to maturity............ -- 21
Proceeds from the sale of mortgage-backed securities available for sale.......... 181,046 146,620
Proceeds from sale of real estate owned.......................................... 6,833 2,614
Net decrease in tax certificates................................................. 859 4,088
--------- ---------
Net cash used in investing activities.......................................... (343,589) (398,944)
--------- ---------
Cash flows from financing activities:
Net increase in deposits......................................................... 353,373 32,836
Net increase in Federal Home Loan Bank advances.................................. 201,230 78,288
Net (decrease) increase in other borrowings...................................... (30,202) 100,513
Increase in capitalized costs for senior notes................................... (164) (263)
Repurchase of trust preferred securities......................................... (15,325) (6,105)
Purchase of Series B Preferred Stock............................................. (528) --
Net proceeds from issuance of stock.............................................. 2,895 65,183
Net proceeds from the issuance of trust preferred securities..................... 43,648 --
Dividends paid on preferred stock................................................ (178) (600)
Decrease in advances from borrowers for taxes and insurance...................... (2,263) (3,536)
--------- ---------
Net cash provided by financing activities...................................... 552,486 266,316
--------- ---------
Increase (decrease) in cash and cash equivalents.................................. 46,894 (102,348)
Cash and cash equivalents at beginning of period.................................. 294,753 339,321
--------- ---------
Cash and cash equivalents at end of period........................................ $ 341,647 $ 236,973
========= =========
Supplemental disclosure of non-cash investing and financing activities:
Securitization of loans receivable and mortgage loans held for sale.............. $ 230,958 $ 173,878
Transfers from loans to real estate owned........................................ $ 7,030 $ 1,816
Transfer of loans from portfolio to held for sale................................ $ 283,786 $ 34,142
Purchase of securities settling in July.......................................... $ 24,996 $ 94,798
See accompanying condensed notes to consolidated financial statements
6
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements include the
accounts of BankUnited Financial Corporation ("BankUnited") and its
subsidiaries, including BankUnited, FSB (the "Bank"). All significant
intercompany transactions and balances have been eliminated.
The unaudited consolidated financial statements have been prepared in
conformity with Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and therefore do not include information or footnotes necessary for
a complete presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. However, all
adjustments (consisting of normal recurring accruals), which, in the opinion of
management, are necessary for a fair presentation of the financial statements,
have been included. Operating results for the nine-month period ended June 30,
2002 are not necessarily indicative of the results that may be expected for the
year ending September 30, 2002. For further information, refer to the
Consolidated Financial Statements and Notes thereto included in BankUnited's
Annual Report on Form 10-K for the fiscal year ended September 30, 2001.
Certain prior period amounts have been reclassified to conform to the June
30, 2002 consolidated financial statements.
7
2. Earnings Per Share
The following tables reconcile basic and diluted earnings per share for the
three and nine months ended June 30, 2002 and 2001.
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
-------------------- -------------------
2002 2001 2002 2001
------- ------- ------- -------
(Dollars and shares in thousands,
except per share data)
Basic earnings per share:
Numerator:
Net income before extraordinary item................ $ 7,841 $ 4,587 $22,260 $12,221
Extraordinary item.............................. -- 61 (17) 822
------- ------- ------- -------
Net income.......................................... 7,841 4,648 22,243 13,043
Preferred stock dividends........................... 77 205 178 600
------- ------- ------- -------
Net income available to common stockholders......... $ 7,764 $ 4,443 $22,065 $12,443
======= ======= ======= =======
Denominator:
Weighted average common shares outstanding.......... 25,125 19,150 25,129 18,614
======= ======= ======= =======
Basic earnings per share before extraordinary item..... $ 0.31 $ 0.23 $ 0.88 $ 0.62
Basic earnings per share from extraordinary item.... -- -- -- 0.05
------- ------- ------- -------
Basic earnings per share............................... $ 0.31 $ 0.23 $ 0.88 $ 0.67
======= ======= ======= =======
Diluted earnings per share:
Numerator:
Net income available to common stockholders before
extraordinary item................................ $ 7,764 $ 4,382 $22,082 $11,621
Plus:
Reduction of convertible preferred stock
dividends..................................... 77 49 178 130
------- ------- ------- -------
Diluted net income available to common
stockholders before extraordinary item............ 7,841 4,431 22,260 11,751
Extraordinary item.............................. -- 61 (17) 822
------- ------- ------- -------
Diluted net income available to common
stockholders...................................... $ 7,841 $ 4,492 $22,243 $12,573
======= ======= ======= =======
Denominator:
Weighted average common shares outstanding.......... 25,125 19,150 25,129 18,614
Plus:
Number of common shares from the conversion
of options and warrants....................... 1,193 878 1,164 516
Number of common shares from the conversion
of preferred stock............................ 858 459 661 448
------- ------- ------- -------
Diluted weighted average shares outstanding......... 27,176 20,487 26,954 19,578
======= ======= ======= =======
Diluted earnings per share before extraordinary item... $ 0.29 $ 0.22 $ 0.83 $ 0.60
Diluted earnings per share from extraordinary
item.............................................. -- -- -- 0.04
------- ------- ------- -------
Diluted earnings per share............................. $ 0.29 $ 0.22 $ 0.83 $ 0.64
======= ======= ======= =======
8
3. Derivative Instruments
On April 2, 2002, the Bank entered into an interest rate swap contract
("hedge") having a notional value of $25.0 million and providing for the
receipt by the Bank of fixed-rate payments based on an interest rate of 10.25%
in exchange for variable-rate payments paid by the Bank based on 3-Month LIBOR
plus 3.41% with quarterly resets. The Bank entered into this contract for the
purpose of hedging its fixed-rate long-term interest costs on the 10.25% Trust
Preferred Securities ("hedged item"), issued by BankUnited Capital, a
wholly-owned trust subsidiary of BankUnited. Due to the terms of both the hedge
and the hedged item, BankUnited has accounted for this contract as a fair value
hedge using the shortcut method, under the provisions of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities," ("SFAS No. 133").
In addition, BankUnited maintains financial instruments which may contain
imbedded options or other derivatives. For a discussion of these instruments
see Item 7a. "Quantitative and Qualitative Disclosures about Market Risk" on
page 49, and Note 11 to the notes to consolidated financial statements
("Advances from Federal Home Loan Bank") on page 81 of BankUnited's Form 10-K
for the fiscal year ended September 30, 2001.
4. Company Obligated Mandatorily Redeemable Trust Preferred Securities of
Subsidiary Trust Holding Solely Junior Subordinated Deferrable Interest
Debentures of BankUnited
BankUnited Statutory Trust I and II are wholly owned trust subsidiaries of
BankUnited that were created under Connecticut law for the purpose of issuing
trust preferred securities and investing the proceeds from the sale thereof in
Junior Subordinated Deferrable Interest Debentures issued by BankUnited (the
"Junior Subordinated Debentures").
On December 18, 2001, BankUnited Statutory Trust I issued Trust Preferred
Securities in the amount of $20.0 million and issued common securities in the
amount of $0.6 million, which common securities are wholly owned by BankUnited.
BankUnited Statutory Trust I simultaneously purchased $20.6 million of Junior
Subordinated Debentures issued by BankUnited. The sole asset of the trust is
the Junior Subordinated Debentures.
These Trust Preferred Securities mature December 18, 2031 and pay a
preferential cumulative cash distribution in accordance with the following rate
schedule:
. For each period beginning on March 18, 2002, and each succeeding interest
payment date, and ending on (but excluding) the next succeeding interest
payment date at the rate equal to the 3-Month LIBOR plus 3.60%; provided,
however, that prior to December 18, 2006, this rate shall not exceed
12.50%.
The interest payment dates are on each March 18, June 18, September 18 and
December 18 during the 30-year term. As of June 30, 2002, the rate of interest
being paid on these Trust Preferred Securities was 5.48%.
BankUnited has the right to redeem the debentures, in whole or in part, but
in all cases in multiples of $1,000 in principal, on any payment date on or
after December 18, 2006, at the redemption price. BankUnited and BankUnited
Statutory Trust I have the right to defer payment of interest at any time and
from time to time for up to 20 consecutive quarterly periods.
On March 26, 2002, BankUnited Statutory Trust II issued floating rate Trust
Preferred Securities in the amount of $25.0 million and issued common
securities in the amount of $0.8 million, which common securities are wholly
owned by BankUnited. BankUnited Statutory Trust II simultaneously purchased
$25.8 million of Junior Subordinated Debentures issued by BankUnited. The sole
asset of the trust is the Junior Subordinated Debentures.
9
These Trust Preferred Securities mature March 26, 2032 and pay a
preferential cumulative cash distribution in accordance with the following rate
schedule:
. For the period beginning on March 26, 2002 through June 25, 2002, at the
rate of 5.59% per annum.
. For each successive period beginning on June 26, 2002, and each
succeeding interest payment date, and ending on (but excluding) the next
succeeding interest payment date at the rate equal to the 3-Month LIBOR
plus 3.60%; provided, however, that prior to March 26, 2007, this rate
shall not exceed 11.00%.
The interest payment dates are on each June 26, September 26, December 26
and March 26 during the 30-year term. As of June 30, 2002, the rate of interest
being paid on these Trust Preferred Securities was 5.47%.
BankUnited has the right to redeem the Junior Subordinated Debentures, in
whole or in part, but in all cases in multiples of $1,000 in principal, on any
payment date on or after March 26, 2007, at the redemption price. BankUnited
and BankUnited Statutory Trust II have the right to defer payment of interest
at any time and from time to time or up to 20 consecutive quarterly periods.
BankUnited has guaranteed all of the obligations of the Trust Preferred
Securities subject to certain limitations.
5. Capital
The Office of Thrift Supervision ("OTS") requires that the Bank meet minimum
regulatory, core and risk-based capital requirements. Currently, the Bank
exceeds all minimum regulatory capital requirements. The Bank's required,
actual and excess regulatory capital levels as of June 30, 2002 and 2001 were
as follows:
Regulatory Capital
----------------------------------------------------------
Required Actual Excess
------------------ ------------------ ------------------
2002 2001 2002 2001 2002 2001
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
Core capital...... $172,662 $146,055 $445,921 $358,248 $273,259 $212,193
3.0% 3.0% 7.8% 7.4% 4.8% 4.4%
Risk-based capital $222,004 $198,726 $463,822 $370,210 $241,818 $171,484
8.0% 8.0% 16.7% 14.9% 8.7% 6.9%
10
6. Comprehensive Income
BankUnited's comprehensive income includes all items which comprise net
income after preferred stock dividends, plus other comprehensive income. Other
comprehensive income represents the change in accumulated comprehensive income
derived from the unrealized holding gains and losses on available for sale
securities, including investments and mortgage-backed securities. For the three
and nine months ended June 30, 2002 and 2001, BankUnited's other comprehensive
income was as follows:
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
------------------- ------------------
2002 2001 2002 2001
------- ------- ------- ------
(Dollars in thousands)
Other comprehensive income, net of tax:
Unrealized holding gains arising during
the period, net of tax expense of
$7,905 and $236 for the three months
ended June 30, 2002 and 2001,
respectively, and $2,008 and $1,876 for
the nine months ended June 30, 2002 and
2001, respectively.......................... $12,627 $ 377 $3,208 $2,997
Less reclassification adjustment for:
Amortization of unrealized losses on
transferred securities, net of tax
expense of $31 and $22 for the
three months ended June 30, 2002
and 2001, respectively, and $69 and
$64 for the nine months ended June
30, 2002 and 2001, respectively......... 50 35 110 103
Realized (losses) gains on securities
sold included in net income, net of
tax benefit of $(211) for the three
months ended June 30, 2001, and
expense (benefit) of $509 and
($213) for the nine months ended
June 30, 2002 and 2001,
respectively............................ -- (337) 813 (341)
------- ----- ------ ------
Total other comprehensive income, net of tax..... $12,677 $ 75 $4,131 $2,759
======= ===== ====== ======
7. Commitments and Contingencies
BankUnited is a party to certain claims and litigation arising in the
ordinary course of business. In the opinion of management, the resolution of
such claims and litigation will not materially affect BankUnited's consolidated
financial position or results of operations.
8. Deferred Compensation Obligation
In March 2002, BankUnited and its Chief Executive Officer, ("CEO") agreed to
restructure the CEO's compensation to assist BankUnited in ensuring that, to
the extent possible and in accordance with Internal Revenue Code Section
162(m), the CEO's compensation for the period from April 1, 2002 to September
30, 2005 would be deductible for federal income tax purposes. In connection
with the compensation restructuring, the CEO received and exercised the right
to acquire, on a deferred basis, 26,720 shares of BankUnited's Noncumulative
Convertible Preferred Stock, Series B in lieu of his cash bonus of $528,000 for
2001. These shares have been issued and placed into a trust established by
BankUnited to provide a source of funds used to satisfy BankUnited's obligation
to the CEO under a nonqualified benefit plan. Delivery of these shares has been
deferred and made subject to conditions intended to enable BankUnited to avoid
being precluded from deducting the bonus for tax purposes. BankUnited accrued
for and reflected the bonus in fiscal 2001 earnings. The deferred obligation is
classified in the stockholders' equity section of BankUnited's Consolidated
Statement of Financial Condition.
11
9. Impact of New Accounting Pronouncements
SFAS No. 142
In June of 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets" ("No. 142"). This statement addresses how goodwill
should be accounted for after it has been initially recognized in the financial
statements. The provisions of SFAS No. 142 no longer allow the amortization of
goodwill and it requires that impairment of goodwill be tested annually.
BankUnited adopted SFAS No. 142 effective October 1, 2001. The initial
application of SFAS No. 142, did not result in the need to recognize any
impairment losses for goodwill resulting from a transitional impairment test.
BankUnited expects that the elimination of goodwill amortization will
positively impact pretax net income by approximately $1.5 million in fiscal
year 2002. The elimination of goodwill amortization has increased pretax net
income by $1.1 million for the first nine months of fiscal year 2002 ending on
June 30, 2002, an increase in basic and diluted earnings per share of $0.04.
Had BankUnited accounted for its goodwill under SFAS No. 142 for all periods
presented, BankUnited's net income and earnings per share would have been as
follows:
Three months ended Nine months ended
June 30, June 30,
2002 2001 2002 2001
------- ------- -------- -------
(Dollars in thousands, except per share amounts)
Net income:...................................................
Income before income taxes.................................... $12,270 $ 7,311 $ 35,009 $20,643
Add back: amortization of goodwill previously amortized....... - 388 - 1,165
------- ------- -------- -------
Income before income taxes, excluding amortization of goodwill 12,270 7,699 35,009 21,808
Provision for income taxes.................................... (4,429) (2,663) (12,766) (7,600)
------- ------- -------- -------
Net income, excluding amortization of goodwill................ 7,841 5,036 22,243 14,208
Preferred stock dividends..................................... (77) (205) (178) (600)
------- ------- -------- -------
Adjusted net income available to common stockholders.......... $ 7,764 $ 4,831 $ 22,065 $13,608
======= ======= ======== =======
Basic earnings per share:
Net income, as reported....................................... $ 0.31 $ 0.23 $ 0.88 $ 0.67
Goodwill amortization......................................... - 0.02 - 0.06
Adjusted net income........................................... $ 0.31 $ 0.25 $ 0.88 $ 0.73
Diluted earnings per share:
Net income, as reported....................................... $ 0.31 $ 0.23 $ 0.88 $ 0.67
Goodwill amortization......................................... - 0.02 - 0.06
Adjusted net income........................................... $ 0.31 $ 0.25 $ 0.88 $ 0.73
SFAS No. 145
In May of 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections as of April 2002". Under SFAS No. 4, all gains and losses from
extinguishment of debt were required to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. This was
an exception to Accounting Principals Board Opinion No. 30, "Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" ("APB No. 30"), which defines extraordinary items as events and
transactions that are distinguished by their unusual nature and by the
infrequency of their occurrence.
12
SFAS No. 145 eliminates SFAS No. 4 and, thus, the exception to applying APB
No. 30 to all gains and losses related to extinguishments of debt (other than
extinguishments of debt to satisfy sinking-fund requirements). As a result,
gains and losses from extinguishment of debt should be classified as
extraordinary items only if they meet the criteria in APB No. 30. Applying APB
No. 30 will distinguish transactions that are part of an entity's recurring
operations from those that are unusual or infrequent in nature or that meet the
criteria for classification as an extraordinary item. The provisions of SFAS
No. 145 related to the rescission of SFAS No. 4 shall be applied in fiscal
years beginning after May 15, 2002. Although early application is encouraged,
BankUnited will apply the provisions of SFAS No. 145 related to the rescission
of SFAS No. 4 in its fiscal year beginning October 1, 2002.
10. Extraordinary Item
In November 1999, the Board of Directors of BankUnited authorized the
purchase, from time to time, in the open market, or otherwise, of up to 300,000
shares of Trust Preferred Securities issued by its trust subsidiaries.
BankUnited purchased 7,000 shares of Trust Preferred Securities at a cost of
$6.7 million during the three months ended December 31, 2001, and 9,000 shares
at a cost of $8.6 million during the three months ended March 31, 2002,
resulting in total purchases of 16,000 shares of Trust Preferred Securities
issued by BankUnited Capital at a cost of $15.3 million for the nine months
ended June 30, 2002. As a result of the early extinguishments of the Trust
Preferred Securities, extraordinary losses of $17,251, net of $10,799 in tax
benefit, were recorded for the nine months ended June 30, 2002.
11. Related Party Transactions
During the quarter ended June 30, 2002, the Bank made residential mortgage
or home improvement loans in the ordinary course of business to three of its
executive officers. All of such loans received the standard employee discount
available to all employees of the Bank, were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons, and do not involve more than
the normal risk of collectibility or present other unfavorable features.
During the quarter ended June 30, 2002, the Bank amended its lease with
Webster Park Associates, a partnership ownership owned 25% by Alfred Camner,
Chairman of the Board and CEO, for property on which the Bank maintains a
branch office. The Bank exercised an option to extend the lease term for an
additional three years, to expire on June 30, 2012, and to decrease the minimum
rent by 50 cents per square foot, to $9,966 per month. The Bank believes that
the lease terms reflect market rates comparable to those prevailing in the area
for similar transactions involving non-affiliated parties at the time that the
lease was made.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis and the related financial data present
a review of the consolidated operating results and financial condition of
BankUnited Financial Corporation ("BankUnited") for the three and nine-month
periods ended June 30, 2002 and 2001. This discussion and analysis should be
read in conjunction with the consolidated financial statements and notes
thereto contained in BankUnited's Annual Report on Form 10-K for the year ended
September 30, 2001.
This Quarterly Report on Form 10-Q contains forward-looking statements.
Additional written or oral forward-looking statements may be made by BankUnited
from time to time in filings with the Securities and Exchange Commission or
otherwise. Such forward-looking statements are within the meaning of that term
in Section 27A of the Securities Act of 1933, as amended (the "Securities
Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Such statements may include, but are not limited to,
projections of income, borrowing costs, prepayment rates, and plans for future
operations or acquisitions, as well as assumptions relating to the foregoing.
The words "believe," "expect," "anticipate," "estimate," "project," "intend,"
and similar expressions identify forward-looking statements that are inherently
subject to risks and uncertainties, some of which cannot be predicted or
quantified, and in many instances, are beyond BankUnited's control. Factors or
events associated with risks and uncertainties include, but are not limited to:
general economic conditions, competition, national and local market and
economic conditions, credit risks related to BankUnited's loan portfolio,
monetary and fiscal policies and regulations, which include those determined by
the Federal Reserve Board, the Federal Home Loan Bank ("FHLB") the Federal
Deposit Insurance Corporation, state regulators and the Office of Thrift
Supervision ("OTS"), the impact of changes in accounting policies, laws and
regulations effecting the banking and financial services industries, adverse
changes in interest rates, market volatility, and potential litigation
liabilities. Future events and actual results could differ materially from
those set forth in, contemplated by, or underlying the forward-looking
statements.
General
BankUnited is a Florida-incorporated savings and loan holding company for
BankUnited, FSB (the "Bank"). The Bank was founded in 1984 as a state chartered
savings and loan association. In 1993, the Bank was converted to a federally
chartered savings bank and became a wholly owned subsidiary of BankUnited
pursuant to a plan of re-organization approved by the shareholders.
BankUnited's principal business currently consists of the operation of its
wholly owned subsidiary, the Bank. In addition to managing the business
activities of the Bank, BankUnited invests primarily in U.S. Government and
federal agency securities, mortgage-backed securities and other permitted
investments. The Bank's primary business has traditionally been to attract
retail deposits from the general public and to invest those deposits, together
with borrowings, principal repayments and other funds, primarily in one-to-four
family residential mortgage loans and, to a lesser extent, mortgage-backed
securities, commercial real estate loans, multi-family mortgage loans,
commercial business loans and consumer loans. The Bank has also made other
investments permitted by the OTS. The Bank is subject to the regulations issued
by certain federal agencies and undergoes periodic examinations by those
regulatory authorities. References to BankUnited include the activities of all
of its subsidiaries, including the Bank and its subsidiaries, if the context so
requires.
BankUnited's results of operations are dependent primarily on its net
interest income, which is the difference between the interest earned on its
assets, primarily its loan and securities portfolios, and its cost of funds,
which consists of the interest paid on its deposits and borrowings.
BankUnited's results of operations are also affected by its provision for loan
losses, as well as non-interest income, non-interest expenses and income tax
expense. Non-interest expenses consist of employee compensation and benefits,
occupancy and equipment, insurance, professional fees, telecommunications and
data processing, loan servicing expense and other operating expenses. The
earnings of BankUnited are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates and the
U.S. Treasury yield curves, government policies and actions of regulatory
authorities.
14
BankUnited operates in and has its' primary lending and deposit markets in
the state of Florida. Current market conditions reflect an inflow of population
to the state of Florida. Such market conditions may generally be considered
favorable for financial institutions or other financial services companies that
operate in BankUnited's primary market areas. BankUnited has significant
competition from other financial institutions that are both headquartered in
and operate branch offices in the state of Florida. In addition, BankUnited has
competition from other financial services companies that offer lending and
deposit products and other products and services similar to that offered by
BankUnited. There can be no assurance that an increase in the demand for
lending and deposit products and other products and services will continue. In
addition, BankUnited may be more susceptible to downturns in the economy in the
state of Florida and the Southeast region of the country. Other larger
financial institutions and financial services companies that have greater
geographic diversification may not be as susceptible to such risks. Furthermore
because the south Florida market in particular, has significant economic ties
with the Latin American and Canadian markets as well as some additional foreign
countries, economic changes in these countries may have an effect on BankUnited.
Critical Accounting Policies
BankUnited's financial position and results of operations are impacted by
management's application of accounting policies involving judgments made to
arrive at the carrying value of certain assets. Management's greatest challenge
in implementing its policies is the need to make estimates about the effect of
matters that are inherently less than certain. For a detailed discussion of
BankUnited's significant accounting policies, see Note 1 to the Notes to
Consolidated Financial Statements ("Summary of Significant Accounting
Policies") in BankUnited's Form 10-K for the fiscal year ended September 30,
2001. The most critical accounting policies applied by BankUnited are those
that relate to the loan portfolio, which includes the allowance for loan
losses, and the valuation of mortgage servicing rights pertaining to the sale
of, or securitization of mortgage loans.
A variety of estimates impact the carrying value of the loan portfolio,
including the amount of the allowance for loan losses, the placement of loans
on non-accrual status, and the valuation of loans held for sale.
The allowance for loan losses is management's most difficult subjective
judgment regarding the loan portfolio, and is established and maintained at
levels that management believes are adequate to cover losses resulting from the
inability of borrowers to make required payments on loans. Estimates for loan
losses are arrived at by analyzing historical loan losses, current trends in
delinquencies and charge-offs, plans for problem loan administration and
resolution, the views of regulators, changes in the size and composition of the
loan portfolio, and peer group information. In addition, this analysis requires
consideration of the economic climate and direction, increases or decreases in
overall lending rates, political conditions, legislation directly or indirectly
impacting the banking industry, and economic conditions effecting specific
geographical areas in which BankUnited conducts business. Where there is a
question as to the impairment of a specific loan, management obtains valuations
of the property or collateral securing the loan, and current financial
information of the borrower including financial statements, when available.
Since the calculation of appropriate loan loss allowances relies on
management's estimates and judgments relating to inherently less than certain
events, actual results may differ from management's estimates.
For a more detailed discussion about the allowance for loan losses, see
"Asset Quality" on pages 11 and 35 and "Allowance for Loan Losses" in Note 1 to
the notes to consolidated financial statements ("Summary of Significant
Accounting Policies") on page 66 of the BankUnited's Form 10-K for the fiscal
year ended September 30, 2001.
Several estimates impact mortgage servicing rights, including the amount of
gains or losses recognized upon the securitization and sale of residential
loans, the amortization of the assets, and the periodic valuation of the
assets. The initial and ongoing valuation and amortization of mortgage
servicing rights are significantly impacted by the interest rates, prepayment
experience and the credit performance of the underlying loans. In general, in
periods of declining interest rates, the value of these assets declines due to
prepayment on loans serviced by
15
BankUnited. See discussion contained herein, under Item 3. "Quantitative and
Qualitative Disclosures about Market Risk."
For a more detailed discussion on mortgage servicing rights, see "Mortgage
Servicing Rights" on page 68 in Note 1 to the notes to consolidated financial
statements ("Summary of Significant Accounting Policies") on page 66 of
BankUnited's Form 10-K for the fiscal year ended September 30, 2001.
Third Quarter Highlights
BankUnited reported net income of $7.8 million for the quarter ended June
30, 2002, up $3.2 million, or 69.6%, compared to $4.6 million for the same
period in the prior year. Basic and diluted earnings per share, were $0.31 and
$0.29 per share, respectively, for the quarter ended June 30, 2002, versus
$0.23 and $0.22 per share, for basic and diluted earnings, respectively, for
the same period in the prior year.
Assets grew to $5.8 billion at June 30, 2002, compared to $5.2 billion at
September 30, 2001 and $5.6 billion at March 31, 2002, which represents an
11.5% increase from fiscal year-end 2001 and a 3.6% increase over the previous
quarter. Loan production continues to fuel asset growth, which reached $553
million for the quarter ended June 30, 2002.
BankUnited opened its thirty-eighth banking office, in the Broward County
community of Plantation, Florida during the third quarter of fiscal 2002, and
its thirty-ninth banking office in the Miami Dade County community of Aventura,
Florida in July of 2002. Also during the quarter, BankUnited announced the
appointment of Edward Pickney as a member of its Board of Directors. Mr.
Pickney is a private investor with no affiliation to BankUnited other than this
appointment. In addition, BankUnited appointed John Kuczwanski, as Senior
Executive Vice President of Residential Lending. Mr. Kuczwanski will be
responsible for growing and overseeing BankUnited's mortgage banking operations
including, in particular, originations through wholesale and correspondent
channels.
Liquidity and Capital Resources
BankUnited utilizes an asset/liability management strategy designed to
maximize net yields on interest earning assets, maintain sufficient levels of
liquidity attain profitability goals and maximize franchise value.
Liquidity management is concerned with meeting all cash outflow commitments
on a daily and ongoing basis while minimizing the cost of foregone earnings on
idle cash, satisfying minimum reserve requirements and other regulatory
standards, and avoiding the cost of emergency borrowing and forced liquidation
of assets. The overall objective is to fund operations and meet obligations in
the most cost effective manner.
BankUnited manages liquidity through the analysis of alternative sources of
short-term funding used to meet short-term demands. Short-term demands can be
met with funds provided by borrowings, deposits, the maturity and repayment of
portfolio loans, mortgage-backed and other securities, and proceeds from the
sale of mortgage-backed securities, securitized loans and loans held for sale.
When determining which sources of funds to utilize, BankUnited takes into
consideration any known trends, events or uncertainties in order to prevent
impediments to liquidity. For instance, customer deposits have historically
been one of BankUnited's most reliable sources of funds. If customer
satisfaction were to wane or if BankUnited were unable to offer competitive
interest rates on our deposit products, this source could potentially be
hampered, having a negative impact on liquidity. Furthermore, since over 69% of
BankUnited's loans receivable before net items as of June 30, 2002 were secured
by properties located in Florida, a downturn in the local economy could also
have a negative impact on liquidity by reducing the ability of borrowers to
repay loans. At June 30, 2002, BankUnited had not identified any known trends,
events, or uncertainties, that would impede its ability to satisfy working
capital needs, repay contractual obligations on borrowings and Trust Preferred
Securities, and make payments necessary for capital improvements and other
expansion plans.
BankUnited experienced a $46.9 million increase in cash and cash equivalents
from $294.8 million at September 30, 2001 to $341.6 million at June 30, 2002.
Cash equivalents consist of FHLB overnight deposits, federal funds sold and
securities purchased under agreements to resell.
BankUnited's primary source of funds is through investing activities, which
includes principal and interest payments as well as maturities on loans and
mortgage-backed securities, and other securities. For the nine months ended
June 30, 2002 and 2001, principal and interest payments and maturities on loans
and mortgage-backed securities, and other securities totaled $1.8 billion and
$1.1 billion, respectively. Other significant sources
16
of funds provided by investing activities include the sales of assets. Those
sales generated proceeds of $181.0 million, and $146.6 million from the sale of
mortgage-backed securities, including securitized loans, for the nine months
ended June 30, 2002 and 2001 respectively, and $7.2 million from the sale of
investment securities for the nine months ended June 30, 2002. There were no
sales of investment securities during the nine months ended June 30, 2001.
Financing activities are the second largest source of funds for BankUnited.
For the nine months ended June 30, 2002 and 2001, deposits, borrowings, and the
issuance of Trust Preferred Securities have provided BankUnited with $568.0
million and $211.6 million, respectively. The majority of the increase of
$356.4 million of funds provided by financing activities for the nine months
ended June 30, 2002 compared to the same period in 2001 is from an increase in
deposits of $353.4 million. BankUnited attributes this increase in deposits to
the aggressive advertising campaign and strategic partnerships with two of
South Florida's professional sports teams, which helps to increase the Bank's
market visibility. BankUnited also utilizes FHLB advances to help fund new
residential mortgage loan, consumer loan, and commercial loan production. FHLB
advances have increased by $201.2 million and $78.3 million for the nine months
ended June 30, 2002 and 2001, respectively. In addition, at June 30, 2002,
BankUnited had the ability to borrow an additional $267.0 million from the FHLB
based upon its available collateral. BankUnited issued Trust Preferred
Securities through its subsidiary trusts BankUnited Statutory Trust I and II,
during the nine months ended June 30, 2002, which provided $43.6 million in net
proceeds. There were no issuances of Trust Preferred Securities during the same
period in 2001. (See note 4 of the accompanying condensed notes to consolidated
financial statements for a discussion of issuances of Trust Preferred
Securities.) These proceeds were offset by purchases, by BankUnited, of $15.3
million of the 10.25% Trust Preferred Securities, issued by BankUnited's trust
subsidiary BankUnited Capital. (See note 10 of the accompanying condensed notes
to consolidated financial statements).
Funds are also provided by operating activities, which include the proceeds
from the sale of loans originated by BankUnited, which however, due to
BankUnited's asset/liability management strategy are sold into the secondary
market. During the nine months ended June 30, 2002 and 2001, proceeds from the
sale of loans were $88.2 million and $34.3 million, respectively.
BankUnited's primary use of funds is its operating and investing activities,
which includes funding loans and purchasing mortgage-backed and other
securities. For the nine months ended June 30, 2002 and 2001, BankUnited funded
loans in the amount of $1.8 billion and $1.2 billion, respectively. The
increase in loan fundings is largely the result of the increase in loan
production of 47% for the nine months ended June 30, 2002 versus the same
period in the prior year. This increase in production is a reflection of
BankUnited's efforts, which includes increasing sales staff, enhancing our
product line, and increasing automation, as well as its ability to take
advantage of the low interest rate environment by offering borrowers more
favorable rates. For the nine months ended June 30, 2002 and 2001, BankUnited
purchased $694.9 million and $455.8 million, respectively, of mortgage-backed
and other securities. This activity is also part of BankUnited's continuing
asset/liability management strategy.
As a publicly held entity, BankUnited has the ability to raise capital from
the issuance of its Class A Common Stock. During fiscal year 2001, BankUnited
raised over $73.0 million from an additional offering of Class A Common Stock.
Federal savings banks such as the Bank are required to maintain capital at
levels specified by applicable minimum capital ratios. At June 30, 2002, the
Bank was in compliance with all minimum capital requirements and met the
definition of a "well capitalized" institution under applicable federal
regulations. (See note 5 of the accompanying condensed notes to consolidated
financial statements for information on regulatory capital requirements).
Asset Quality
Non-performing assets as of June 30, 2002 were $28.0 million, which
represents a decrease of $3.6 million or 11.4% from $31.6 million as of
September 30, 2001.
17
The following table sets forth information concerning BankUnited's
non-performing assets at June 30, 2002 and September 30, 2001.
June 30, September 30,
2002 2001
-------- -------------
(Dollars in thousands)
Non-accrual loans............................................................. $25,438 $27,429
Restructured loans............................................................ 636 1,034
------- -------
Total non-performing loans................................................. 26,074 28,463
Non-accrual tax certificates.................................................. 803 1,264
Real estate owned............................................................. 1,124 1,832
------- -------
Total non-performing assets................................................ $28,001 $31,559
======= =======
Allowance for losses on tax certificates...................................... $ 853 $ 934
Allowance for loan losses..................................................... 18,856 15,940
------- -------
Total allowance............................................................ $19,709 $16,874
======= =======
Non-performing assets as a percentage of total assets......................... 0.48% 0.60%
Non-performing loans as a percentage of total loans........................... 0.68% 0.76%
Allowance for loan losses as a percentage of total loans...................... 0.49% 0.42%
Allowance for loan losses as a percentage of non-performing loans............. 72.32% 56.00%
Total allowance as a percentage of non-performing assets...................... 70.39% 53.47%
Net annualized year-to-date charge-offs as a percentage of average total loans 0.15% 0.11%
BankUnited's allowance for loan losses is established and maintained based
upon management's evaluation of the risks inherent in BankUnited's loan
portfolio, including the economic trends and other conditions in specific
geographic areas as they relate to the nature of BankUnited's portfolio. See
discussion contained herein on "Critical Accounting Policies."
The following table sets forth the change in BankUnited's allowance for loan
losses for the three and nine months ended June 30, 2002 and September 30, 2001.
For the Three Months Ended For the Nine Months Ended
------------------------- ------------------------
June 30, September 30, June 30, September 30,
2002 2001 2002 2001
-------- ------------- -------- -------------
(Dollars in thousands)
Allowance for loan losses, balance (at beginning of
period)............................................ $17,831 $14,334 $15,940 $13,291
Provision for loan losses............................ 1,900 2,650 7,300 5,900
Loans charged off.................................... (922) (1,066) (4,513) (3,306)
Recoveries........................................... 47 22 129 55
------- ------- ------- -------
Allowance for loan losses, balance (at end of period) $18,856 $15,940 $18,856 $15,940
======= ======= ======= =======
The following table sets forth charge-offs by category of BankUnited's
non-performing loans for the three and nine months ended June 30, 2002 and
September 30, 2001.
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
June 30, September 30, June 30, September 30,
2002 2001 2002 2001
-------- ------------- -------- -------------
(Dollars in thousands)
One-to-four family residential mortgages $123 $ 4 $ 443 $ 253
Commercial real estate.................. -- -- 887 --
Commercial business..................... 733 1,034 2,934 2,932
Consumer................................ 66 28 249 121
---- ------ ------ ------
Total charge-offs....................... $922 $1,066 $4,513 $3,306
==== ====== ====== ======
18
The following table sets forth recoveries by category of BankUnited's
non-performing loans for the three and nine months ended June 30, 2002 and
September 30, 2001.
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
June 30, September 30, June 30, September 30,
2002 2001 2002 2001
-------- ------------- -------- -------------
(Dollars in thousands)
One-to-four family residential mortgages $ 4 $ 4 $ 4 $ 5
Commercial real estate.................. 2 -- 71 --
Commercial business..................... 39 15 40 36
Consumer................................ 2 3 14 14
--- ---- ---- ---
Total recoveries........................ $47 $ 22 $129 $55
=== ==== ==== ===
The following table sets forth BankUnited's allocation of the allowance for
loan losses by category as of June 30, 2002 and September 30, 2001.
June 30, September 30,
2002 2001
-------- -------------
(Dollars in thousands)
Balance at the end of the period applicable to:
One-to-four family residential mortgages.... $ 3,905 $ 3,616
Multi-family residential mortgages.......... 468 270
Commercial real estate...................... 3,479 3,131
Construction................................ 1,539 1,377
Land........................................ 724 867
Commercial business......................... 5,220 5,298
Consumer.................................... 2,319 1,351
Unallocated................................. 1,202 30
------- -------
Total allowance for loan losses......... $18,856 $15,940
======= =======
Loan Portfolio
The following table sets forth the composition of BankUnited's loan
portfolio, including loans held for sale, at June 30, 2002 and September 30,
2001.
June 30, 2002 September 30, 2001
--------------------- ---------------------
Percent of Percent of
Amount Total(1) Amount Total(1)
---------- ---------- ---------- ----------
(Dollars in thousands)
Mortgage loans:
One-to-four family residential mortgages(2).......... $3,266,153 85.2% $3,198,331 85.3%
Multi-family residential mortgages................... 28,582 0.7 20,619 0.5
Commercial real estate............................... 145,781 3.8 158,451 4.2
Construction......................................... 128,216 3.3 114,790 3.1
Land................................................. 21,728 0.6 33,620 0.9
---------- ----- ---------- -----
Total mortgage loans............................. 3,590,460 93.6 3,525,811 94.0
---------- ----- ---------- -----
Other loans:
Commercial business.................................. 134,296 3.5 132,438 3.5
Consumer............................................. 100,198 2.6 84,698 2.3
---------- ----- ---------- -----
Total other loans.................................... 234,494 6.1 217,136 5.8
---------- ----- ---------- -----
Total loans...................................... 3,824,954 99.7 3,742,947 99.8
Unearned discounts, premiums and deferred loan fees, net 28,617 0.8 22,642 0.6
Allowance for loan losses............................... (18,856) (0.5) (15,940) (0.4)
---------- ----- ---------- -----
Loans receivable, net................................... $3,834,715 100.0% $3,749,649 100.0%
========== ===== ========== =====
(1) Percent of Total is calculated using "Loans receivable, net" in the
denominator.
(2) During the nine months ended June 30, 2002, $231.0 million of one-to-four
family residential mortgage loans were securitized and transferred to
BankUnited's mortgage-backed securities available for sale portfolio.
19
Securities Portfolio
Presented below is an analysis of the carrying values and approximate fair
values of investments held to maturity.
June 30, 2002
--------------------------------------
Gross Gross
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-------- ---------- ---------- -------
(Dollars in thousands)
U.S. government agency securities.......... $50,001 $ -- $(390) $49,611
Trust preferred securities of other issuers 15,409 903 (333) 15,979
State of Israel Bonds...................... 61 -- -- 61
Other...................................... 1,000 49 -- 1,049
------- ---- ----- -------
Total................................... $66,471 $952 $(723) $66,700
======= ==== ===== =======
September 30, 2001
--------------------------------------
Gross Gross
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-------- ---------- ---------- -------
(Dollars in thousands)
U.S. government agency securities.......... $50,001 $ -- $(362) $49,639
Trust preferred securities of other issuers 16,355 683 (243) 16,795
State of Israel Bonds...................... 61 -- -- 61
------- ---- ----- -------
Total................................... $66,417 $683 $(605) $66,495
======= ==== ===== =======
Presented below is an analysis of investments designated as available for
sale.
June 30, 2002
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
--------- ---------- ---------- --------
(Dollars in thousands)
U.S. government agency securities.......... $ 3,093 $ 20 $ -- $ 3,113
Equity securities.......................... 2,749 299 -- 3,048
Trust preferred securities of other issuers 30,090 274 (2,175) 28,189
Other...................................... 57,011 302 (147) 57,166
------- ------ ------- --------
Total................................... $92,943 $ 895 $(2,322) $ 91,516
======= ====== ======= ========
September 30, 2001
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
--------- ---------- ---------- --------
(Dollars in thousands)
U.S. government agency securities.......... $ 4,999 $ 67 $ -- $ 5,066
Equity securities.......................... 3,359 1,347 -- 4,706
Trust preferred securities of other issuers 42,109 143 (2,305) 39,947
Other...................................... 19,000 -- -- 19,000
------- ------ ------- --------
Total................................... $69,467 $1,557 $(2,305) $ 68,719
======= ====== ======= ========
20
Investment securities at June 30, 2002, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because the
underlying borrowers may have the right to call obligations with or without
call penalties.
Held to Maturity Available for Sale
------------------- ------------------
Carrying Amortized Carrying
Value Fair Value Cost Value
-------- ---------- --------- --------
(Dollars in thousands)
Due in one year or less............... $ -- $ -- $ -- $ --
Due after one year through five years. -- -- 3,093 3,113
Due after five years through ten years -- -- 26,489 26,647
Due after ten years................... 66,410 66,639 35,110 33,199
Equity securities (maturity n/a)...... 61 61 28,251 28,557
------- ------- ------- -------
Total.............................. $66,471 $66,700 $92,943 $91,516
======= ======= ======= =======
Presented below is an analysis of the carrying values and approximate fair
values of mortgage-backed securities held to maturity.
June 30, 2002
-----------------------------------------
Gross Gross
Carrying Unrealized Unrealized
Value Gains Losses Fair Value
-------- ---------- ---------- ----------
(Dollars in thousands)
GNMA mortgage-backed securities.... $ 35,018 $2,187 $ -- $ 37,205
FNMA mortgage-backed securities.... 15,088 759 -- 15,847
FHLMC mortgage-backed securities... 42,989 1,936 -- 44,925
Collateralized mortgage obligations 23,970 641 -- 24,611
Mortgage pass-through certificates. 8,119 147 -- 8,266
-------- ------ ----- --------
Total........................... $125,184 $5,670 $ -- $130,854
======== ====== ===== ========
September 30, 2001
-----------------------------------------
Gross Gross
Carrying Unrealized Unrealized
Value Gains Losses Fair Value
-------- ---------- ---------- ----------
(Dollars in thousands)
GNMA mortgage-backed securities.... $ 57,423 $3,326 $ -- $ 60,749
FNMA mortgage-backed securities.... 32,071 1,252 -- 33,323
FHLMC mortgage-backed securities... 55,965 2,534 -- 58,499
Collateralized mortgage obligations 38,646 1,492 -- 40,138
Mortgage pass-through certificates. 10,874 281 -- 11,155
-------- ------ ----- --------
Total........................... $194,979 $8,885 $ -- $203,864
======== ====== ===== ========
Presented below is an analysis of mortgage-backed securities designated as
available for sale.
June 30, 2002
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
---------- ---------- ---------- ----------
(Dollars in thousands)
GNMA mortgage-backed securities.... $ 40,312 $ 1,405 $ -- $ 41,717
FNMA mortgage-backed securities.... 360,125 7,554 -- 367,679
FHLMC mortgage-backed securities... 181,753 2,767 (8) 184,512
Collateralized mortgage obligations 88,354 1,319 (10) 89,663
Mortgage pass-through certificates. 437,528 6,473 -- 444,001
---------- ------- ---- ----------
Total........................... $1,108,072 $19,518 $(18) $1,127,572
========== ======= ==== ==========
21
September 30, 2001
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
--------- ---------- ----------- ----------
(Dollars in thousands)
GNMA mortgage-backed securities................... $ 56,068 $ 1,482 $ -- $ 57,550
FNMA mortgage-backed securities................... 217,449 4,175 -- 221,624
FHLMC mortgage-backed securities.................. 105,080 2,182 -- 107,262
Collateralized mortgage obligations............... 116,397 2,613 (3) 119,007
Mortgage pass-through certificates................ 130,471 1,835 -- 132,306
-------- -------- ----------- ----------
Total.......................................... $625,465 $ 12,287 $ (3) $ 637,749
======== ======== =========== ==========
Mortgage-backed securities at June 30, 2002, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities
because the underlying borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Held to Maturity Available for Sale
------------------- ---------------------
Carrying Amortized Carrying
Value Fair Value Cost Value
-------- ---------- ---------- ----------
(Dollars in thousands)
Due in one year or less........................... $ -- $ -- $ 72 $ 73
Due after one year through five years............. -- -- 16 16
Due after five years through ten years............ -- -- 9,624 9,748
Due after ten years............................... 125,184 130,854 1,098,360 1,117,735
-------- -------- ---------- ----------
Total.......................................... $125,184 $130,854 $1,108,072 $1,127,572
======== ======== ========== ==========
During the nine months ended June 30, 2002, BankUnited securitized $231.0
million of residential mortgage loans with FNMA and FHLMC, $72.7 million of
which were serviced by others, and transferred them into BankUnited's
mortgage-backed securities available for sale portfolio, which is carried at
fair value. BankUnited subsequently sold $156.3 million of the resulting
securities, recognizing net gains of $1.4 million, which includes the
recognition of mortgage servicing rights of $2.6 million. At June 30, 2002,
there were $97.5 million of securities remaining from loan securitizations, all
of which are serviced by others.
In these securitization transactions, with the exception of loans serviced
by others, BankUnited retains servicing responsibilities. BankUnited receives
annual servicing fees approximating 0.25% of the outstanding receivable
balance. The fair value of servicing assets retained upon the securitization of
residential mortgage loans and the sale of the resulting securities during the
nine months ended June 30, 2002 was $2.6 million.
The investors in the securitized assets have no recourse to BankUnited's
other assets for failure of debtors to pay when due. BankUnited's retained
interests are subordinate to investor's interests. The value of the retained
interests is subject to prepayment risk on the transferred financial assets,
and the general level of interest rates.
At June 30, 2002, key economic assumptions and the sensitivity of the
current fair value of securities remaining from loan securitizations to
immediate adverse 10 percent and 20 percent changes in those assumptions were
as follows:
Retained Securities
----------------------
(Dollars in thousands)
Carrying amount (fair value) of retained securities.... $97,519
Weighted average life in years......................... 2.6
Annual prepayment assumption........................... 32.50%
Impact on fair value of 10 percent adverse change... $ (281)
Impact on fair value of 20 percent adverse change... $ (553)
Annual cash flow discount rate assumed................. 5.29%
Impact on fair value of 10 percent adverse change... $ (774)
Impact on fair value of 20 percent adverse change... $(2,200)
22
Credit losses are substantially reduced due to FNMA's full guarantee to
BankUnited for losses on loans collateralizing the securities.
The sensitivities presented above are hypothetical and are presented for
informational purposes only. As the amounts indicate, the fair values due to a
variation in any assumption generally cannot be extrapolated because the
relationship of the change in any assumption to the change in fair value may
not be linear. The effect of a change in a particular assumption on the fair
value of the retained securities is calculated without considering the changes
in other assumptions. However, changes in one assumption may result in changes
in another.
The total principal amount of loans underlying the retained securities at
June 30, 2002 was $94.3 million, none of which was 60 days or more past due.
There were no credit losses during the nine months ended June 30, 2002 from the
loans underlying the retained securities outstanding at June 30, 2002.
23
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM SEPTEMBER 30, 2001
TO JUNE 30, 2002 AND RESULTS OF OPERATIONS FOR THE THREE AND NINE
MONTHS ENDED JUNE 30, 2002 AND 2001.
FINANCIAL CONDITION
The following is a discussion of material changes from September 30, 2001 to
June 30, 2002 in the Consolidated Statement of Financial Condition. For a
discussion of changes in cash and cash equivalents, see Liquidity and Capital
Resources.
Assets
Investments available for sale -- Investments available for sale increased
by $22.8 million or 33.2% from $68.7 million at September 30, 2001 to $91.5
million at June 30, 2002. This net increase primarily resulted from purchases
in the amount of $39.5 million, which were offset by repayments of $10.1
million, and sales of $5.9 million (including gains of $1.3 million).
Mortgage-backed securities -- Mortgage-backed securities held to maturity
decreased by $69.8 million, or 35.8%, from $195.0 million at September 30, 2001
to $125.2 million at June 30, 2002. This decrease was due predominantly to
repayments of $70.2 million.
Mortgage-backed securities available for sale increased by $489.9 million,
or 76.8%, from $637.7 million at September 30, 2001 to $1.1 billion at June 30,
2002. This increase is due to purchases of $665.2 million, the securitization
of $231.0 million of mortgage loans, and unrealized gains of $7.2 million.
These increases were offset by decreases due to repayments of $254.9 million,
sales of $156.2 million.
Loans -- Although loans receivable, net (including loans held for sale)
remained relatively flat at $3.8 billion increasing slightly by $85.1 million,
or 2.3%, this is the net result of significant activity during the nine months
ended June 30, 2002. Loan fundings of $1.8 billion were offset by repayments of
$1.4 billion (including accretion of discounts and amortization of premiums),
the securitization of $231.0 million of residential mortgage loans, loan sales
of $88.2 million, including $3.0 million in realized gains, a provision for
loan losses of $7.3 million, and a transfer to real estate owned of $7.0
million.
Other interest earnings assets -- Other interest earning assets increased by
$10.4 million or 13.8% from $75.6 million at September 30, 2001 to $86.0
million at June 30, 2002. This category is primarily comprised of FHLB stock,
which is required to be purchased in proportion to advances received from the
FHLB.
Securities sold pending settlement -- represents the amount of securities
sold at the end of a period pending settlement in the next period. At September
30, 2001, there were $25.5 million of securities sold pending settlement in
October 2001. At the end of June 30, 2002, there were no sales of securities
pending settlement.
Bank owned life insurance -- Bank owned life insurance increased by $31.9
million, or 155.6%, from $20.5 million at September 30, 2001 to $52.4 million
at June 30, 2002. During the nine-month period ended June 30, 2002, BankUnited
purchased an additional $30.0 million of bank owned life insurance and the cash
value of the policies increased by $1.9 million. The additional bank owned life
insurance was purchased as an investment in order to further offset the
projected cost of the Bank's benefit plans for all employees.
Liabilities
Deposits -- Deposits increased by $353.4 million, or 13.3%, from $2.7
billion at September 30, 2001 to $3.0 billion at June 30, 2002. The increase
stems primarily from an increase in core deposits of $284.0 million
24
accompanied by a relatively smaller increase of $69.4 million in certificates
of deposit. The increase in deposits, including core deposits, reflects
primarily the Bank's aggressive marketing and service efforts, branch
expansion, and the offering of competitive products and rates sufficient to be
attractive to the Bank's customer base.
Securities sold under agreements to repurchase -- Securities sold under
agreements to repurchase decreased by $30.2 million or 10.7% from $283.1
million at September 30, 2001 to $252.9 million at June 30, 2002.
FHLB advances -- FHLB advances increased by $201.3 million, or 13.4%, from
$1.5 billion at September 30, 2001 to $1.7 billion at June 30, 2002. FHLB
advances are used to fund investing activities such as funding loans and
purchasing securities.
Trust Preferred Securities -- Trust preferred securities increased by $30.1
million, or 14.8%, from $203.6 million at September 30, 2001 to $233.7 million
at June 30, 2002. The net increase of $30.1 million is primarily the result of
$43.6 million of net proceeds received from the issuance by BankUnited
Statutory Trust I and BankUnited Statutory Trust II (see note 4 of the
accompanying condensed notes to consolidated financial statements) offset by
repurchases of $15.3 million of Trust Preferred Securities originally issued by
BankUnited Capital. In addition, there was an increase of $1.1 million as a
result of an adjustment as required by Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." See note 3 of the accompanying condensed notes to consolidated
financial statements for a full description of this transaction.
Securities purchased pending settlement -- represents the amount of
securities purchased at the end of a period, pending settlement in the next
period. At September 30, 2001, there were $15.2 million of securities purchased
pending settlement in October 2001. At June 30, 2002, there was $25.0 million
in purchases of securities pending settlement in July 2002.
Stockholders' Equity
The net increase in stockholders' equity of $29.5 million or 9.8% from
$300.4 million at September 30, 2001 to $329.9 million at June 30, 2002, is due
largely to comprehensive income of $26.2 million for the nine months ended June
30, 2002 which is the net result of net income after preferred stock dividends
of $22.1 million, plus $4.1 million of other comprehensive income. To a lesser
extent the issuance of stock during the nine months ended June 30, 2002
increased equity by $3.2 million, $2.8 million of which is from the exercise of
stock options and other awards to BankUnited associates under various incentive
and stock compensation plans all of which have been approved by BankUnited's
shareholders. The balance of the changes in stockholders' equity relates to the
restructuring of the compensation of the Chairman of the Board and Chief
Executive Officer ("CEO"), pursuant to rights granted under the 2002 Stock
Award and Incentive Plan that BankUnited and its CEO agreed to implement in
March 2002 to assist BankUnited in ensuring, to the extent possible, that the
CEO's compensation for the period from April 1, 2002 to September 30, 2005
would be deductible for federal income tax purposes under Section 162(m) of the
Internal Revenue Code. In connection with the compensation restructuring, the
CEO acquired, on a deferred basis, 26,720 shares of BankUnited's Noncumulative
Convertible Preferred Stock, Series B in lieu of his deferred cash bonus for
2001. Delivery of these shares has been deferred and made subject to conditions
intended to enable BankUnited to avoid being precluded from deducting the bonus
for tax purposes. These shares have been placed in a trust established by
BankUnited to provide a source of funds used to satisfy BankUnited's obligation
to the CEO under a nonqualified benefit plan, on behalf of the CEO and are
classified as Treasury Stock in the stockholders' equity section of
BankUnited's Consolidated Statement of Financial Condition.
25
RESULTS OF OPERATIONS
General
Net income reached $7.8 million for the three months ended June 30, 2002, an
increase of $3.2 million, or 69.6%, compared to $4.6 million for the same
period in 2001. The net increase of $3.2 million for the three-month period
includes an increase in net interest income before provision for loan losses of
$9.2 million, and an increase in non-interest income of $0.4 million. These
increases in income were offset by an increase in the provision for loan losses
of $0.2 million, an increase in non-interest expense of $4.4 million, an
increase in the provision for income taxes of $1.7 million and a decrease in
extraordinary gains of $0.1 million.
For the nine months ended June 30, 2002, net income reached $22.2 million,
which is a $9.2 million, or 70.8% increase over the $13.0 million achieved in
the same period in 2001. The net increase of $9.2 million for the nine-month
period includes an increase in net interest income before provision for loan
losses of $27.1 million, and an increase in non-interest income of $4.4
million. These increases were offset by an increase in the provision for loan
losses of $2.9 million, an increase in non-interest expense of $13.4 million,
an increase in the provision for income taxes of $5.2 million, and a decrease
in extraordinary gains of $0.8 million.
Below is a more detailed discussion of each major category of income and
expenses for both the three and nine-month periods ended June 30, 2002 compared
to the same periods in the prior year.
In conjunction with the following discussion of interest income and interest
expense, please review the Yields Earned and Rates Paid and Rate/Volume
Analysis tables below.
Net Interest Income
Three Months Ended June 30, 2002 and 2001
Net interest income before provision for loan losses was $28.0 million for
the three months ended June 30, 2002, a $9.2 million, or 48.9%, increase over
$18.8 million for the same period in 2001. The majority of the total increase
of $9.2 million is due to two factors: an increase of $4.8 million due to
changes in volume of average interest-earning assets and interest-bearing
liabilities, and an increase of $4.4 million due to changes in yields earned on
interest-earning assets and rates paid on interest-bearing liabilities.
Collectively, these two factors contributed to an expansion in the net interest
margin of 43 basis points from 1.74% for the three months ended June 30, 2001
to 2.17% for the three months ended June 30, 2002. In addition there was an
increase in interest rate spread of 48 basis points from 1.54% for the three
months ended June 30, 2001 to 2.02% for the three months ended June 30, 2002.
During the three months ended June 30, 2002, BankUnited has been able to take
advantage of the lower interest rate environment due to the favorable gap in
re-pricing frequencies of its interest earning assets and interest bearing
liabilities. The expansion in margin and increase in interest rate spread for
the three month period ended June 30, 2002, compared to the same period in
2001, is attributable to this favorable gap. BankUnited monitors such interest
rate gaps and seeks to manage changes in interest rates by adjusting the
re-pricing frequencies of its interest earning assets and interest bearing
liabilities.
Interest Income -- Interest income increased by $2.0 million, or 2.5%, to
$81.7 million for the three months ended June 30, 2002, compared to $79.7
million for the same period in the prior year. This net increase is the result
of increases of $14.8 million due to changes in volume, offset by decreases of
$10.4 million and $2.4 million due to changes in rate and changes in
rate/volume, respectively.
The volume related changes in interest income stem from the increase in
average mortgage-backed securities, loans, and long-term investments, which
increased interest income by $9.8 million, $3.6 million, and $1.3 million,
respectively for the three months ended June 30, 2002 compared to the same
period in the prior year.
26
The rate related changes in interest income stem mostly from the decrease in
the yield on loans of 89 basis points from 7.42% for the three months ended
June 30, 2001 to 6.53% for the same period in 2002. This drop in yield on loans
reduced interest income by $8.0 million for the three months June 30, 2002
compared to the same period in the prior year. The yield also dropped on
mortgage-backed securities, short-term and long-term investments, reducing
interest income by $2.3 million, in the aggregate, for the three months June
30, 2002 compared to the same period in the prior year.
Interest Expense -- Interest expense decreased by $7.2 million, or 11.8%, to
$53.7 million for the three months ended June 30, 2002, compared to $60.9
million for the same period in the prior year. This net decrease is the result
of increases of $9.9 million due to changes in volume, offset by decreases of
$14.8 million and $2.3 million due to changes in rate and changes in
rate/volume, respectively.
The majority of the volume related changes stem from the increase in average
FHLB advances and other borrowings, savings, Trust Preferred Securities, and
NOW/Money Market accounts, which increased interest expense by $6.7 million and
$3.3 million, $0.7 million, and $0.6 million, respectively for the three months
ended June 30, 2002, compared to the same period in the prior year. Offsetting
the impact that increases in average balances of those liabilities had on
interest income are decreases in the average balance of certificates of
deposit, which decreased interest income by $1.3 million.
The rate related changes stem from the decrease in rates paid on all
liabilities, from 5.79% for the three months ended June 30, 2001 to 4.28% for
the same period in 2002. The most significant improvement came from a drop in
rates paid on certificates of deposits, which changed from 6.19% for the three
months ended June 30, 2001 to 4.35% for the same period in 2002. This
improvement of 184 basis points reduced the cost of funds by $8.6 million. The
drop in rates paid on FHLB advances and other borrowings of 102 basis points
from 5.91% for the three months ended June 30, 2001 to 4.89% for the same
period in 2002 reduced the cost of funds by $3.0 million. Additional reductions
in the cost of funds came from the drop in rates paid on NOW/ Money Market,
savings accounts, and Trust Preferred Securities of 83 basis points, 175 basis
points, and 127 basis points, respectively, in the three-month period ended
June 30, 2002 compared to the same period in 2001. The drop in rates paid
reduced the cost of funds for NOW/ Money Market, savings accounts and Trust
Preferred Securities by $3.3 million, in the aggregate, for the three months
ended June 30, 2002 compared to the same period in 2001.
Nine Months Ended June 30, 2002 and 2001
Net interest income before provision for loan losses was $82.0 million for
the nine months ended June 30, 2002, a $27.2 million, or 49.6%, increase over
$54.8 million for the same period in 2001. The majority of the total increase
of $27.1 million is due to changes in volume of average interest-earning assets
and interest-bearing liabilities resulting in an increase in net interest
income of $15.5 million, and changes in yields earned on interest-earning
assets and rates paid on interest-bearing liabilities, increasing net interest
income by $10.9 million. Collectively, these two factors contributed to an
expansion in the net interest margin of 44 basis points from 1.72% for the nine
months ended June 30, 2001 to 2.16% for the nine months ended June 30, 2002.
In addition there was an increase in the interest rate spread of 47 basis
points from 1.53% for the nine months ended June 30, 2001 to 2.00% for the nine
months ended June 30, 2002. During the nine months ended June 30, 2002,
BankUnited has been able to take advantage of the lower interest rate
environment due to the favorable gap in re-pricing frequencies of its interest
earning assets and interest bearing liabilities. The expansion in margin and
increase in interest rate spread for the nine month period ended June 30, 2002,
compared to the same period in 2001, is attributable to this favorable gap.
BankUnited monitors such interest rate gaps and seeks to manage changes in
interest rates by adjusting the re-pricing frequencies of its interest earning
assets and interest bearing liabilities.
Interest Income -- Interest income increased by $5.6 million, or 2.3%, to
$246.7 million for the nine months ended June 30, 2002, compared to $241.1
million for the same period in the prior year.
27
This net increase is the result of increases of $44.9 million due to changes in
volume, offset by decreases of $32.1 million and $7.2 million due to changes in
rate and changes in rate/volume, respectively.
The volume-related changes in interest income stem mostly from the increase
in average mortgage-backed securities, loans, and long-term investments, which
increased interest income by $29.5 million, $11.6 million, and $4.2 million,
respectively, for the nine months ended June 30, 2002 compared to the same
period in the prior year.
The rate related changes in interest income stem mostly from the decrease in
the yield on loans of 91 basis points from 7.55% for the nine months ended June
30, 2001 to 6.64% for the same period in 2002. This drop in yield on loans
reduced interest income by $24.9 million for the nine months ended June 30,
2002 compared to the same period in the prior year. The yield also dropped on
mortgage-backed securities, short-term and long-term investments, reducing
interest income by $4.2 million, $0.8 million and $2.2 million respectively,
for the nine months ended June 30, 2002 compared to the same period in the
prior year.
Interest Expense -- Interest expense decreased by $21.4 million, or 11.5%,
to $164.8 million for the nine months ended June 30, 2002, compared to $186.2
million for the same period in the prior year. This net decrease is the result
of increases of $29.5 million due to changes in volume, offset by decreases of
$43.0 million and $8.0 million due to changes in rate and changes in
rate/volume, respectively.
The majority of the volume-related changes stem from the increase in average
FHLB advances and other borrowings, and savings, which increased interest
expense by $23.4 million and $11.7 million, respectively for the nine months
ended June 30, 2002 compared to the same period in the prior year. In addition,
the increase in the average balances of NOW/Money Market and Trust Preferred
Securities increased interest expense by $2.4 million in the aggregate for the
nine months ended June 30, 2002 compared to the same period in the prior year.
The impact of the increases in average balances of those liabilities on
interest expense, was offset by decreases in the average balance of
certificates of deposit, which decreased interest expense by $8.0 million.
The rate related changes stem from the decrease in rates paid on all
liabilities, from 5.98% for the nine months ended June 30, 2001 to 4.46% for
the same period in 2002. The most significant improvement came from a drop in
rates paid on certificates of deposits, which changed from 6.33% for the nine
months ended June 30, 2001 to 4.69% for the same period in 2002. This
improvement of 164 basis points reduced the cost of funds by $23.7 million. The
drop in rates paid on FHLB advances and other borrowings of 116 basis points
from 6.01% for the nine months ended June 30, 2001 to 4.85% for the same period
in 2002 reduced the cost of funds by $9.8 million. Additional reductions in the
cost of funds came from the drop in rates paid on NOW/ Money Market, savings
accounts, and Trust Preferred Securities of 117 basis points, 205 basis points,
and 62 basis points, respectively in the nine-month period ended June 30, 2002
compared to the same period in 2001. The drop in rates paid reduced the cost of
funds for NOW/ Money Market, savings accounts and Trust Preferred Securities by
$2.6 million, $5.9 million, and $1.0 million, respectively for the nine months
ended June 30, 2002 compared to the same period in 2001.
28
Analysis of Net Interest Income
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. The
following table sets forth certain information relating to the categories of
BankUnited's interest-earning assets and interest-bearing liabilities for the
periods indicated. All yield and rate information is calculated on an
annualized basis by dividing the annualized income or expense item for the
period by the average balances during the period of the appropriate balance
sheet item. Net interest margin is calculated by dividing net interest income
by average interest-earning assets. Non-accrual loans are included in asset
balances for the appropriate period, whereas recognition of interest on such
loans is discontinued and any remaining accrued interest receivable is
reversed, in conformity with federal regulations. The yields and net interest
margins appearing in the following table have been calculated on a pre-tax
basis.
Yields Earned and Rates Paid
For the Three Months Ended June 30,
-------------------------------------------------------
2002 2001
-------------------------- ---------------------------
Daily Daily
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- -------- ------ ----------- -------- ------
(Dollars in thousands)
Interest-earning assets:
Loans receivable, net........................ $3,799,152 $61,959 6.53% $ 3,606,623 $66,917 7.42%
Mortgage-backed securities................... 1,149,776 16,796 5.84% 578,666 9,946 6.88%
Short-term investments(1).................... 20,597 169 3.25% 18,083 291 6.37%
Long-term investments and FHLB
stock, net(2).............................. 220,948 2,762 5.00% 145,588 2,554 7.02%
---------- ------- ---- ----------- ------- -----
Total interest-earning assets............ $5,190,473 $81,686 6.30% $ 4,348,960 $79,708 7.33%
---------- ------- ---- ----------- ------- -----
Interest-bearing liabilities:
NOW/Money Market(3).......................... $ 415,432 $ 1,549 1.50% $ 305,496 $ 1,774 2.33%
Savings...................................... 739,814 4,963 2.69% 447,037 4,952 4.44%
Certificate of deposits...................... 1,783,597 19,327 4.35% 1,866,911 28,806 6.19%
Trust preferred securities................... 232,628 4,879 8.39% 205,185 4,954 9.66%
Senior notes................................. 200,000 2,834 5.67% 200,000 2,834 5.67%
FHLB advances and other
borrowings(4)............................... 1,630,584 20,156 4.89% 1,179,099 17,627 5.91%
---------- ------- ---- ----------- ------- -----
Total interest-bearing liabilities....... $5,002,055 $53,708 4.28% $ 4,203,728 $60,947 5.79%
========== ======= ==== =========== ======= =====
Excess of interest-earning assets over
interest-bearing liabilities.................. $ 188,418 $ 145,232
========== ===========
Net interest income............................. $27,978 $18,761
======= =======
Interest rate spread............................ 2.02% 1.54%
==== =====
Net interest margin(5).......................... 2.17% 1.74%
==== =====
Ratio of interest-earning assets to interest-
bearing liabilities........................... 103.77% 103.45%
---------- -----------
- --------
(1) Short-term investments include FHLB overnight deposits and securities
purchased under agreements to resell.
(2) Long-term investments include agency securities, trust preferred securities
of other issuers and tax certificates.
(3) Includes non-interest bearing deposits of $107,326.
(4) Other borrowings is comprised of securities sold under agreements to
repurchase.
(5) Net interest margin is calculated based on actual days outstanding for each
category of interest-earning assets and interest-bearing liabilities.
29
Yields Earned and Rates Paid
For the Nine Months Ended June 30,
----------------------------------------------------------
2002 2001
-------------------------- ------------------------------
Daily Daily
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- -------- ------ ---------- ---------- -------
(Dollars in thousands)
Interest-earning assets:
Loans receivable, net................... $3,858,299 $192,207 6.64% $3,654,112 $ 206,821 7.55%
Mortgage-backed securities.............. 1,007,113 45,429 6.01% 462,470 25,082 7.23%
Short-term investments(1)............... 19,237 483 3.31% 25,195 1,414 7.40%
Long-term investments and FHLB
stock, net(2)......................... 211,951 8,605 5.42% 137,620 7,764 7.53%
---------- -------- ---- ---------- ---------- -------
Total interest-earning assets....... $5,096,600 $246,724 6.46% $4,279,397 $ 241,081 7.33%
---------- -------- ---- ---------- ---------- -------
Interest-bearing liabilities:
NOW/Money Market(3)..................... $ 372,202 $ 4,043 1.45% $ 292,842 $ 5,746 2.62%
Savings................................. 702,885 14,767 2.81% 381,406 13,853 4.86%
Certificate of deposits................. 1,763,043 61,832 4.69% 1,931,675 91,458 6.33%
Trust preferred securities.............. 217,569 14,753 9.04% 206,933 14,996 9.66%
Senior notes............................ 200,000 8,498 5.67% 200,000 8,500 5.67%
FHLB advances and other
borrowings(4)......................... 1,653,230 60,858 4.85% 1,133,150 51,684 6.01%
---------- -------- ---- ---------- ---------- -------
Total interest-bearing
liabilities....................... $4,908,929 $164,751 4.46% $4,146,006 $ 186,237 5.98%
========== ======== ==== ========== ========== =======
Excess of interest-earning assets over
interest-bearing liabilities............. $ 187,671 $ 133,391
========== ==========
Net interest income........................ $ 81,973 $ 54,844
======== ==========
Interest rate spread....................... 2.00% 1.53%
==== =======
Net interest margin(5)..................... 2.16% 1.72%
==== =======
Ratio of interest-earning assets to
interest-bearing liabilities............. 103.82% 103.22%
---------- ----------
- --------
(1) Short-term investments include FHLB overnight deposits and securities
purchased under agreements to resell.
(2) Long-term investments include agency securities, trust preferred securities
of other issuers and tax certificates.
(3) Includes non-interest bearing liabilities of $99,585.
(4) Other borrowings is comprised of securities sold under agreements to
repurchase.
(5) Net interest margin is calculated based on actual days outstanding for each
category of interest-earning assets and interest-bearing liabilities.
30
Rate/Volume Analysis
The following tables present, for the periods indicated, the changes in
interest income and the changes in interest expense attributable to the changes
in interest rates and the changes in the volume of interest-earning assets and
interest-bearing liabilities. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on the changes
attributable to: (i) changes in average balances ("volume") (change in volume
multiplied by prior year yields earned or rates paid ("rate"); (ii) changes in
rate (change in rate multiplied by prior year volume); (iii) changes in
rate/volume (change in rate multiplied by change in volume); and (iv) total
increase or decrease resulting from changes in rate and volume.
Three Months Ended June 30,
2002 vs. 2001
-------------------------------------
Increase (Decrease) Due to
--------------------------
Changes Changes Total
in Changes in Rate/ Increase
Volume in Rate Volume (Decrease)
------- -------- -------- ----------
(Dollars in thousands)
Interest income attributable to:
Loans.................................................. $ 3,571 $ (8,025) $ (505) $(4,959)
Mortgage-backed securities and collateralized mortgage
obligations.......................................... 9,823 (1,505) (1,468) 6,850
Short-term investments(1).............................. 40 (141) (21) (122)
Long-term investments and FHLB stock(2)................ 1,323 (735) (379) 209
------- -------- ------- -------
Total interest-earning assets...................... 14,757 (10,406) (2,373) 1,978
------- -------- ------- -------
Interest expense attributable to:
NOW/Money Market....................................... 640 (634) (231) (225)
Savings................................................ 3,250 (1,956) (1,283) 11
Certificates of deposit................................ (1,289) (8,588) 398 (9,479)
Trust preferred securities............................. 663 (652) (86) (75)
Senior notes........................................... --
FHLB advances and other borrowings..................... 6,671 (3,007) (1,135) 2,529
------- -------- ------- -------
Total interest-bearing liabilities................. 9,935 (14,837) (2,337) (7,239)
------- -------- ------- -------
Increase (decrease) in net interest income......... $ 4,822 $ 4,431 $ (36) $ 9,217
======= ======== ======= =======
- --------
(1) Short-term investments include FHLB overnight deposits and securities
purchased under agreements to resell.
(2) Long-term investments include agency securities, trust preferred securities
of other issuers and tax certificates.
31
Nine Months Ended June 30,
2002 vs. 2001
-------------------------------------
Increase (Decrease) Due to
--------------------------
Changes Changes Total
in Changes in Rate/ Increase
Volume in Rate Volume (Decrease)
------- -------- -------- ----------
(Dollars in thousands)
Interest income attributable to:
Loans.................................................. $11,562 $(24,939) $(1,237) $(14,614)
Mortgage-backed securities and collateralized mortgage
obligations.......................................... 29,553 (4,231) (4,955) 20,347
Short-term investments(1).............................. (331) (773) 173 (931)
Long-term investments and FHLB stock(2)................ 4,198 (2,178) (1,179) 841
------- -------- ------- --------
Total interest-earning assets...................... 44,962 (32,121) (7,198) 5,643
------- -------- ------- --------
Interest expense attributable to:
NOW/Money Market....................................... 1,559 (2,569) (693) (1,703)
Savings................................................ 11,718 (5,864) (4,940) 914
Certificates of deposit................................ (8,006) (23,759) 2,139 (29,626)
Trust preferred securities............................. 770 (962) (51) (243)
Senior notes........................................... -- -- --
FHLB advances and other borrowings..................... 23,442 (9,858) (4,412) 9,172
------- -------- ------- --------
Total interest-bearing liabilities................. 29,483 (43,012) (7,957) (21,486)
------- -------- ------- --------
Increase in net interest income.................... $15,479 $ 10,891 $ 759 $ 27,129
======= ======== ======= ========
- --------
(1) Short-term investments include FHLB overnight deposits and securities
purchased under agreements to resell.
(2) Long-term investments include agency securities, trust preferred securities
of other issuers and tax certificates.
The following is a discussion of non-interest income and non-interest
expense for the three and nine months ended June 30, 2002 and 2001.
Three Months Ended June 30, 2002 and 2001
Provision for loan losses - The provision for loan losses was $1.9 million
for the three months ended June 30, 2002, an increase of $0.2 million, or
11.8%, from $1.7 million for the same period in the prior year.
The following table provides a comparison for each of the categories of
non-interest income for the three-month periods ended June 30, 2002 and 2001:
Three months ended
----------------------
June 30, June 30,
2002 2001 Change
-------- -------- --------------
(Dollars in thousands)
Non-interest income:
Service fees, net.......................................... $1,345 $1,843 $ (498) -27.0%
Insurance and investment services income................... 844 929 (85) -9.1%
Net (loss) gain on sale of investments and mortgage-backed
securities............................................... (295) 433 (728) 168.1%
Net gain on sale of loans and other assets................. 1,442 428 1,014 236.9%
Other...................................................... 951 243 708 291.4%
------ ------ ------ ------
Total non-interest income.............................. $4,287 $3,876 $ 411 10.6%
====== ====== ====== ======
32
The net decrease in net servicing fees of 27.0% is due mostly to an increase
in amortization of mortgage servicing right resulting from an increase in
prepayments.
During the three months ended June 30, 2002, there were net losses of $0.3
million on the sale of investment and mortgage-backed securities, compared to
net gains of $0.4 million for the same period in 2001. The net losses of $0.3
million in 2002, stem from the sale of mortgage-backed securities resulting
from the securitization of loans. The net gains of $0.4 million in 2001 is the
net result of a loss of $0.1 million from the sale of mortgage-backed
securities resulting from the securitization of loans, and a gain of $0.5 from
the sale of mortgage-backed securities originally purchased by BankUnited.
The 236.9% increase in gains on the sale of loans and other assets stems
from the sale of loans and activity related to the securitization of loans.
Additional loans were securitized for the three months ended June 30, 2002 as a
result of an increase in residential loan originations.
The following table provides a comparison for each of the categories of
non-interest expense for the three-month periods ended June 30, 2002 and 2001:
Three months ended
---------------------------
June 30, 2002 June 30, 2001 Change
------------- ------------- --------------
(Dollars in thousands)
Non-interest expenses:
Employee compensation and benefits..... $ 7,891 $ 5,772 $2,119 36.7%
Occupancy and equipment................ 2,863 2,280 583 25.6%
Insurance.............................. 261 244 17 7.0%
Professional fees-legal and accounting. 1,851 1,041 810 77.8%
Telecommunications and data processing. 1,106 884 222 25.1%
Loan servicing expense................. 652 1,093 (441) -40.3%
Advertising and promotion expense...... 1,256 505 751 148.7%
Amortization of goodwill............... -- 388 (388) 100.0%
Other operating expenses............... 2,215 1,530 685 44.8%
------- ------- ------ ------
Total non-interest expenses........ $18,095 $13,737 $4,358 31.7%
======= ======= ====== ======
The increases in the majority of categories included in non-interest
expense, including employee compensation, occupancy and equipment, insurance,
professional fees, telecommunications and data processing and other operating
expenses, reflect the continuing expansion of BankUnited's operations. In
addition, the increase in advertising and promotion reflects BankUnited's
efforts for increasing brand recognition and market share.
The decrease in amortization of goodwill is the result of adopting a newly
issued accounting pronouncement adopted by BankUnited on October 1, 2001, which
no longer allows amortization of goodwill. See Note 9. "Impact of New
Accounting Pronouncements."
BankUnited's ability to increase net interest income and non-interest income
in greater proportion to non-interest expense has reduced the efficiency ratio
to 53.5% for the three-month period ended June 30, 2002, compared to 57.2% for
the same period in the prior year.
Nine Months Ended June 30, 2002 and 2001
Provision for loan losses - The provision for loan losses was $7.3 million
for the nine months ended June 30, 2002, an increase of $2.8 million, or 62.2%,
from $4.5 million for the same period in the prior year.
33
The following table provides a comparison for each of the categories of
non-interest income for the nine- month periods ended June 30, 2002 and 2001:
Nine months ended
---------------------------
June 30, 2002 June 30, 2002 Change
------------- ------------- --------------
(Dollars in thousands)
Non-interest income:
Service fees, net................................... $ 4,476 $4,987 $ (511) -10.2%
Insurance and investment services income............ 3,024 2,011 1,013 50.4%
Net gain on sale of investments and mortgage-backed
securities........................................ 587 722 (135) -18.7%
Net gain on sale of loans and other assets.......... 2,954 874 2,080 238.0%
Other............................................... 2,199 281 1,918 682.6%
------- ------ ------ ------
Total non-interest income....................... $13,240 $8,875 $4,365 49.2%
======= ====== ====== ======
Net servicing fees include; loan servicing income, service charges on
deposits and loans, and the amortization of loan servicing rights. The net
decrease in net servicing fees of 10.2% is due mostly from an increase in
amortization of mortgage servicing rights resulting from an increase in
prepayments. The increase in insurance and investment services income of 50.4%,
is due to an increase in income generated from the sale of annuity products of
$1.0 million. The 238.0% increase in gains on the sale of loans and other
assets stems from the sale of loans and activity related to the securitization
of loans. The increase in other non-interest income of 682.6% is due to the
increase in the cash surrender value of bank owned life insurance of $1.9
million.
The following table provides a comparison for each of the categories of
non-interest expense for the nine-month periods ended June 30, 2002 and 2001:
Nine months ended
---------------------------
June 30, 2002 June 30, 2002 Change
------------- ------------- ---------------
(Dollars in thousands)
Non-interest expenses:
Employee compensation and benefits..... $22,304 $16,122 $ 6,182 38.3%
Occupancy and equipment................ 8,179 6,630 1,549 23.4%
Insurance.............................. 778 754 24 3.2%
Professional fees-legal and accounting. 4,107 2,609 1,498 57.4%
Telecommunications and data processing. 3,267 2,453 814 33.2%
Loan servicing expense................. 2,384 3,611 (1,227) -34.0%
Advertising and promotion expense...... 4,536 1,816 2,720 149.8%
Amortization of goodwill............... -- 1,165 (1,165) 100.0%
Other operating expenses............... 7,332 4,288 3,044 71.0%
------- ------- ------- ------
Total non-interest expenses........ $52,887 $39,448 $13,439 34.1%
======= ======= ======= ======
The increases in the majority of categories included in non-interest
expense, including employee compensation, occupancy and equipment, insurance,
professional fees, telecommunications and data processing and other operating
expenses, reflect the continuing expansion of BankUnited's operations. In
addition, the increase in advertising and promotion reflects BankUnited's
efforts for increasing brand recognition and market share.
The decrease in amortization of goodwill is the result of adopting a newly
issued accounting pronouncement adopted by BankUnited on October 1, 2001, which
no longer allows amortization of goodwill. See Note 9. "Impact of New
Accounting Pronouncements."
BankUnited's ability to increase net interest income and non-interest income
in greater proportion to non-interest expense has reduced the efficiency ratio
to 52.7% for the nine-month period ended June 30, 2002, compared to 58.7% for
the same period in the prior year.
34
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The discussion contained in BankUnited's Annual Report on Form 10-K for the
year ended September 30, 2001, under Item 7a, "Quantitative and Qualitative
Disclosures about Market Risk," provides detailed quantitative and qualitative
disclosures about market risk and should be referenced for information thereon.
In addition, the following discussion addresses the sources and effects of
developments during the nine months ended June 30, 2002 which related to risks
associated with investments and mortgage-backed securities.
Risks Associated with Changing Interest Rates. As a financial intermediary,
BankUnited invests in various types of interest-earning assets (primarily
loans, mortgage-backed securities, and investment securities), which are funded
largely by interest-bearing liabilities (primarily deposits, FHLB advances,
senior notes, and Trust Preferred Securities). Such financial instruments have
varying levels of sensitivity to changes in market interest rates, which
creates interest rate risk for the Bank. Accordingly, BankUnited's net interest
income, the most significant component of its net income, is subject to
substantial volatility due to changes in interest rates or market yield curves,
particularly if there are differences, or gaps, in the re-pricing frequencies
of its interest-earning assets and the interest-bearing liabilities which fund
them. BankUnited monitors such interest rate gaps and seeks to manage its
interest rate risk by adjusting the re-pricing frequencies of its
interest-earning assets and interest-bearing liabilities. Additionally,
BankUnited utilizes, on a limited basis, derivative financial instruments
designed to reduce the interest rate risks associated with its interest-earning
assets and interest-bearing liabilities.
Risks Associated with Investments and Mortgage-Backed
Securities. BankUnited purchases fixed and adjustable rate mortgage-backed
securities and other securities for liquidity, yield and risk management
purposes. Changes in market interest rates associated with BankUnited's
investments and mortgage-backed securities could have a material adverse effect
on BankUnited's carrying value of its securities. Such changes in the carrying
value of mortgage-backed securities and other securities classified as
available-for-sale would be reflected, net of taxes, as a component of
stockholder's equity. See Note 6--"Comprehensive Income" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Securities Portfolio."
35
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation of BankUnited Financial Corporation
99.1 Certification of CEO and CFO
(b) Reports on Form 8-K.
BankUnited filed no reports on Form 8-K during the quarter for which this
report is filed.
36
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
BANKUNITED FINANCIAL CORPORATION
By: /s/ HUMBERTO L. LOPEZ
-----------------------------
Humberto L. Lopez
Senior Executive Vice
President and
Chief Financial Officer
Date: August 14, 2002
37
BANKUNITED FINANCIAL CORPORATION
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Articles of Incorporation of BankUnited.
99.1 Certification of CEO and CFO.