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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended September 30, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number 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, 33134
Coral Gables, Florida
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (305) 569-2000
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the Class A Common Stock and Class B Common
Stock held by non-affiliates of the Registrant, based upon the average price on
December 17, 2002, was $391,302,187*. The Class A Common Stock is the only
publicly traded voting security of the Registrant.
The shares of the Registrant's common stock outstanding as of December 17,
2002 were as follows:
Number of
Class Shares
----- ------------
Class A Common Stock, $.01 par value 24,756,216
Class B Common Stock, $.01 par value 564,162
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Definitive Proxy Statement for its 2003 Annual Meeting of
Stockholders will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the fiscal year covered by this Form 10-K
pursuant to General Instruction G(3) of the Form 10-K. Information from such
Definitive Proxy Statement will be incorporated by reference into Part III,
Items 10, 11, 12 and 13 hereof.
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* Based on reported beneficial ownership of all directors and executive
officers of the Registrant; this determination does not, however, constitute
an admission of affiliated status for any of these individual stockholders.
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BANKUNITED FINANCIAL CORPORATION
Form 10-K Table of Contents
Page
----
PART I
Item 1. Business.............................................................................. 3
Employees............................................................................ 3
Market Area and Competition.......................................................... 3
Lending Activities................................................................... 4
Mortgage Loan Servicing.............................................................. 7
Investments and Mortgage-Backed Securities........................................... 8
Deposits............................................................................. 9
Activities of Subsidiaries........................................................... 9
Regulation........................................................................... 9
Taxation............................................................................. 13
Item 2. Properties............................................................................ 14
Item 3. Legal Proceedings..................................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders................................... 15
Item 4A. Executive Officers of the Registrant.................................................. 15
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.................. 17
Item 6. Selected Financial Data............................................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................ 40
Item 8. Consolidated Financial Statements and Supplementary Data.............................. 46
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 88
PART III
Item 10. Directors and Executive Officers of the Registrant.................................... 88
Item 11. Executive Compensation................................................................ 88
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters............................................................................. 88
Item 13. Certain Relationships and Related Transactions........................................ 88
PART IV
Item 14. Controls and Procedures............................................................... 89
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 89
1
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements. 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").
Words and phrases such as: "will likely result," "expect," "will continue,"
"anticipate," "estimate," "project," "believe," "intend," "should," "may,"
"can," "plan," "target" and similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements may include, but are
not necessarily limited to discussions concerning:
. Projections of revenues, expenses, income, earnings per share, margin,
asset growth, loan production, deposit growth, and other performance
measures;
. Expansion of operations, including branch openings, entrance into new
markets, development of products and services; and
. Discussions on the outlook of the economy.
BankUnited Financial Corporation, ("BankUnited"), wishes to caution readers
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made, and are not historical facts.Various factors,
including general economic conditions, changes in levels of interest rates,
deposit flows, loan demand, real estate values and competition, the issuance of
additional equity or debt; changes in accounting principals, policies or
guidelines, changes in legislation or regulation; credit risk of lending
activities, expansion strategies; and other economic governmental, regulatory
and technological facts, affecting BankUnited's financial performances, could
cause BankUnited's actual results for future periods to differ materially from
those anticipated or projected. BankUnited does not undertake, and specifically
disclaims any obligation, to publicly release the result of any updates, which
might be made to any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
2
PART I
Item 1. Business
General
BankUnited is the holding company for BankUnited, FSB (the "Bank"),
originally founded in 1984 and the largest bank headquartered in Florida. (As
used in this Form 10-K, "BankUnited," "we," "us" and "our" refers to BankUnited
Financial Corporation and its subsidiaries on a consolidated basis.)
BankUnited's primary business consists of the Bank's operations. The Bank
offers a full array of consumer and commercial banking products and services to
consumers, small businesses, and middle market companies primarily located in
Florida.
BankUnited's revenues consist mainly of interest earned on loans and
investments and fees paid for our financial services and products. BankUnited's
expenses consist primarily of interest paid on deposits and borrowings and
expenses incurred in providing services and products. At September 30, 2002,
BankUnited had assets of $6.0 billion, deposits of $3.0 billion and
stockholders' equity of $345 million. The Bank currently operates 40 full
service banking offices, an extensive wholesale network for originating loans
through mortgage broker relationships, internet banking and a call center.
Recent Developments
In August of 2002, Ramiro A. Ortiz was appointed President and Chief
Operating Officer ("COO") and a member of the Board of Directors of BankUnited.
Mr. Ortiz brings with him over 30 years of banking experience in South Florida.
Mr. Ortiz has assumed responsibility for overseeing BankUnited's operations and
will focus on strengthening relationships with the various communities that
make up BankUnited's primary market area, expanding service to international
private banking clientele, and growing BankUnited's commercial loan portfolio
and client relationships. BankUnited expects that Mr. Ortiz's efforts will
capitalize on the existing momentum created by the expansion of BankUnited's
distribution channels.
During fiscal 2002, BankUnited opened three banking offices, and a mortgage
operations center and anticipates opening six to eight additional banking
offices in fiscal 2003. BankUnited adds banking offices in strategic target
areas with family-oriented demographics and small to mid-sized businesses, and
continuously re-evaluates existing locations to ensure that its markets are
optimally served.
Employees
At September 30, 2002, BankUnited had 690 full-time equivalent employees.
Management feels that its relations with its employees are good.
Market Area and Competition
BankUnited encounters strong competition for deposits and loans mainly from
commercial banks, other savings associations and financial institutions.
Competitors include out-of-state organizations that offer premium deposit rates
to offset their lack of physical locations in our market area, as well as
regional and super-regional institutions that are substantially larger and have
more extensive operations than BankUnited. BankUnited competes for savings and
other deposits by offering a high level of personal service and a wide range of
deposit products at competitive rates. BankUnited competes for loan
originations through competitive interest rates and loan fees, products
tailored to satisfy customer needs, high quality service, and the
responsiveness afforded by local decision making. Mergers among institutions
have disrupted many customer relationships and increased BankUnited's
opportunities to acquire new customers. Larger institutions, however, are
sometimes able to achieve economies of scale, offer a broader and more
sophisticated product mix, have a reduced cost of capital and offer more
extensive electronic banking facilities.
3
Lending Activities
BankUnited's lending strategy is to increase residential mortgage loan
originations, while continuing to expand commercial real estate, real estate
construction, commercial business, and consumer loans such as our specialty
first mortgage product and home equity loans and lines of credit.
Applicable regulations permit BankUnited to engage in various categories of
secured and unsecured commercial and consumer lending, in addition to
residential real estate financing, subject to limitations on the percentage of
total assets attributable to certain categories of loans. An additional
regulatory limitation requires that certain types of loans only be made in
aggregate amounts that do not exceed specified percentages of the institution's
capital.
One-to-four Family Residential Mortgage Lending. BankUnited originates both
adjustable and fixed rate one-to-four family loans secured by first mortgages
on the borrower's primary residence. BankUnited offers an extensive array of
residential mortgage products and originates loans for both the Bank's loan
portfolio and for sale or securitization in the secondary market to
governmental agencies or other investors. Our loans are originated primarily
through a network of mortgage brokers, internal retail loan originators, and
our branch sales force. Combined, these distribution channels allow BankUnited
to cost effectively generate high levels of loan volume as well as to service
and offer additional products to loan customers through our retail banking
offices.
BankUnited's total loan portfolio at September 30, 2002 included
approximately $698 million or 18 percent of purchased one-to-four family
residential mortgage loans, serviced by others. As of September 30, 2001,
purchased loans comprised $1.3 billion or 35 percent of BankUnited's total loan
portfolio. We expect this percentage to continue to decrease since BankUnited
ceased purchasing wholesale residential mortgage loans in the secondary market
during fiscal 1999 and will continue to focus on originations.
BankUnited's first mortgage loans generally have contractual maturities of
between 15 and 30 years. However, residential loans typically remain
outstanding for shorter periods than their contractual maturities because
borrowers prepay the loans in full upon sale of the mortgaged property or upon
refinancing of the original loan.
At September 30, 2002, $3.4 billion, or 85 percent of the total loans
including held for sale, consisted of one-to-four family residential loans, of
which $1.8 billion, or 54 percent, were adjustable rate mortgage ("ARM") loans
and $1.5 billion, or 46 percent, were fixed rate mortgage loans. BankUnited's
ARMs generally have interest rates that adjust after an initial fixed-rate
term. The majority of BankUnited's ARM loans have a five year initial term.
Consumer Lending. BankUnited's consumer lending originations are generated
through our branch network, and consist of our specialty consumer mortgage
loans, home equity loans and lines, and to a lesser extent, lines of credit,
automobile and boat loans.
Our specialty consumer loans are both adjustable and fixed rate first
mortgage loans secured by owner occupied, single-family residences and have
contractual maturities of up to 25 years with the majority of these loans
having 15 years terms. However, these loans tend to prepay at a much faster
rate than their contractual terms. Origination of these consumer mortgages
totaled $264 million, or 71% of the total consumer lending production for
fiscal 2002 as compared to $104 million or 60% of the total consumer lending
production for fiscal 2001. For financial statement presentation purposes, the
consumer mortgage balances of $317 million as of September 30, 2002 and $89
million as of September 30, 2001 are combined with one-to-four residential
mortgages.
Home equity lines of credit are made with adjustable rates indexed to the
Prime rate and generally have maturities of 15 years or less with mandatory
repayment during the last 5 years. Home equity loans are fixed rate loans with
maturities up to 15 years. Automobile and boat loans, and lines of credit, are
offered on a fixed rate short-term basis.
The underwriting standards employed by BankUnited for consumer loans include
a determination of the applicant's payment history on other debts, an
assessment of the borrower's ability to make payments on the proposed loan and
other indebtedness and a review of the value of the collateral. In addition,
BankUnited utilizes an on-line application and credit scoring system to assist
in determining an applicant's creditworthiness.
4
Commercial Real Estate and Multi-Family Lending. BankUnited's commercial
real estate lending division originates or participates in commercial real
estate, and to a lessor degree, multi-family loans. BankUnited's strategy is to
promote commercial lending and seek to develop long-term relationships with
select businesses, real estate investors, and professionals. The commercial
real estate loan portfolio includes loans secured by apartment buildings,
office buildings, industrial/warehouses, retail centers and other properties
located primarily in BankUnited's market area.
Real Estate Construction Lending. BankUnited makes real estate construction
loans to builders and real estate developers for the construction of
commercial, and single and multi-family real estate. These loans are primarily
secured by single family homes, condominiums, apartments, retail centers,
industrial warehouse properties, office buildings, medical facilities or other
property. These loans are structured to be converted to permanent loans at the
end of the construction phase, which generally runs from 12 to 60 months. The
loans generally provide for the payment of interest and loan fees from loan
proceeds and are underwritten to the same standards as commercial real estate
loans. Because of the uncertainties inherent in estimating construction costs
and the market for the project upon completion, it is often difficult to
determine the total loan funds that will be required to complete a project, the
related loan-to-value ratios and the likelihood of ultimate success of a
project. Construction loans to borrowers other than owner-occupants also
involve many of the same risks applicable to commercial real estate loans and
tend to be sensitive to general economic conditions.
Land. BankUnited makes land loans to individuals for the purchase of land
for their residences, as well as to builders and real estate developers for the
purchase of land slated for future commercial development. The Bank generally
requires that land loans be developed within twelve to eighteen months.
Commercial Business Lending. BankUnited makes both secured and unsecured
commercial business loans to companies in its market area. The majority of
BankUnited's commercial business loan portfolio is secured by real estate,
accounts receivable, inventory, equipment, and/or general corporate assets of
the borrowers, as well as the personal guarantee of the principal. These loans
may have fixed or variable Prime and LIBOR-based interest rates and are
typically originated for terms ranging from 1 to 5 years. While commercial
business loans are generally made for shorter terms and at higher yields than
mortgage loans, these loans involve a higher level of risk because of the
difficulty in liquidating the underlying collateral in the event of default.
5
The following table sets forth certain information with respect to the
composition of BankUnited's loan portfolio, including mortgage loans held for
sale, as of the dates indicated.
As of September 30,
-------------------------------------------------------------------------------------------
2002 2001 2000 1999
-------------------- -------------------- --------------------- ---------------------
Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
First and second
mortgage
loans:
One-to-four
family
residential
loans(2).... $3,096,312 83.4% $2,948,290 84.3% $2,906,236 86.5% $2,606,792 89.9%
Multi-family
residential
loans........ 25,456 0.7% 20,619 0.6% 70,856 2.1% 30,057 1.0%
Commercial
real
estate...... 183,311 4.9% 158,451 4.5% 155,569 4.6% 141,090 4.9%
Construction.. 98,697 2.7% 114,790 3.3% 38,786 1.2% 15,425 0.5%
Land.......... 27,636 0.7% 33,620 1.0% 34,489 1.0% 23,659 0.8%
-------------------------------------------------------------------------------------------
Total first
mortgage
loans....... 3,431,412 92.4% 3,275,770 93.7% 3,205,936 95.4% 2,817,023 97.1%
Commercial
business
loans......... 168,679 4.5% 132,438 3.8% 83,023 2.5% 48,173 1.7%
Consumer
loans(2)....... 103,118 2.8% 84,698 2.4% 66,480 2.0% 33,878 1.2%
-------------------------------------------------------------------------------------------
Total loans
receivable.... 3,703,209 99.7% 3,492,906 99.9% 3,355,439 99.9% 2,899,074 100.0%
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Unamortized
deferred loan
fees,
premium and
discounts...... 30,449 0.8% 22,642 0.6% 15,730 0.5 12,264 0.4
Allowance for
loan
losses........ (20,293) (0.5%) (15,940) (0.5%) (13,032) (0.4) (12,107) (0.4)
-------------------------------------------------------------------------------------------
Loans held
for
investment,
net.......... $3,713,365 100.0% $3,499,608 100.0% $3,358,137 100.0% $2,899,231 100.0%
-------------------------------------------------------------------------------------------
Mortgage
loans held
for sale..... $ 278,759 250,041 312,632 403,635
-------------------------------------------------------------------------------------------
Total loans,
net.......... 3,992,124 3,749,649 3,670,769 3,302,866
===========================================================================================
1998
---------------------
Amount Percent(1)
---------- ----------
First and second
mortgage
loans:
One-to-four
family
residential
loans(2).... $2,616,428 91.2%
Multi-family
residential
loans........ 24,392 0.9%
Commercial
real
estate...... 145,819 5.0%
Construction.. 7,827 0.3%
Land.......... 5,410 0.2%
Total first
mortgage
loans....... 2,799,876 97.6%
Commercial
business
loans......... 15,550 0.5%
Consumer
loans(2)....... 30,401 1.1%
Total loans
receivable.... 2,845,827 99.2%
Unamortized
deferred loan
fees,
premium and
discounts...... 29,905 1.0
Allowance for
loan
losses........ (6,128) (0.2)
Loans held
for
investment,
net.......... $2,869,604 100.0%
Mortgage
loans held
for sale..... 172,410
Total loans,
net.......... 3,042,014
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(1) Percent is calculated using loans held for investment, net in the
denominator.
(2) Specialty consumer mortgages originated through our branch network are
included in one-to-four family residential loans in the table above.
As of September 30, 2002, approximately $3.8 billion, or 95 percent of loans
before net items were secured by real property. Of that $3.8 billion,
approximately $2.9 billion or 77 percent are secured by real properties located
in Florida. No other state comprises more than 5 percent of BankUnited's loans
receivable. Because of this concentration, regional economic circumstances in
Florida could affect the level of BankUnited's non-performing loans. BankUnited
originates first mortgage loans to non-resident aliens in a manner similar to
that for other residential loans. At September 30, 2002, approximately $970
million, or 24 percent, of BankUnited's loan portfolio were first mortgage
loans to non-resident aliens, all of which are secured by domestic property.
The vast majority of these loans were secured by single-family residences
located in Florida. Loans to non-resident aliens generally afford BankUnited an
opportunity to receive rates of interest higher than those available from other
single-family residential loans, but may involve a greater degree of risk than
conforming single-family residential mortgage loans. The ability to obtain
access to the borrower is more limited for non-resident aliens, as is the
ability to attach or verify assets located in foreign countries. BankUnited has
attempted to
6
minimize these risks through its underwriting standards for such loans,
including generally requiring more conservative loan-to-value ratios and
qualification based on verifiable assets located in the United States.
The following table sets forth, as of September 30, 2002, the amount of
loans (including mortgage loans held for sale, and excluding unamortized
deferred loan fees, premiums and discounts; and allowance for loan losses) by
category and expected principal repayments. These repayments are based on
contractual maturities adjusted for an estimated rate of prepayments based on
historical trends, current interest rates, types of loans and refinance
patterns.
Anticipated Repayments
------------------------------
After
Outstanding at One Year
September 30, One Year through After
2002 or Less Five Years Five Years
-------------- -------- ---------- ----------
(Dollars in thousands)
First and second mortgage loans:
One-to-four family residential, including loans held for
sale................................................... $3,375,071 $636,427 $2,408,234 $330,410
Multi-family............................................. 25,456 7,650 17,806 --
Commercial real estate................................... 183,311 84,414 98,897 --
Construction............................................. 98,697 37,546 61,069 82
Land..................................................... 27,636 16,741 6,856 4,039
---------------------------------------------
Total first and second mortgage loans....................... 3,710,171 782,778 2,592,862 334,531
---------------------------------------------
Commercial business loans................................ 168,679 106,210 61,440 1,029
Consumer loans........................................... 103,118 24,384 51,007 27,727
---------------------------------------------
Total Loans, including loans held for sale.................. $3,981,968 $913,372 $2,705,309 $363,287
=============================================
Please refer to Asset Quality in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion on the
underwriting and credit quality of BankUnited's loan portfolio.
Mortgage Loan Servicing
In addition to servicing the loans that it originates, BankUnited may retain
the right to service loans that it has securitized and sold to investors or
sponsoring agencies under mortgage-backed securities programs. BankUnited may
also acquire mortgage-servicing rights in the secondary market. BankUnited
receives fees for servicing loans, which are collected from investors and
generally expressed as a percentage of the unpaid principal balance. The fees
received for mortgage servicing rights arising from the securitization and sale
of loans to sponsoring agencies are either negotiated or set by the sponsoring
agencies. The fees received for mortgage servicing rights arising from the
securitization and sale of loans to independent third parties are negotiated
with those parties. At September 30, 2002, BankUnited was servicing $556
million in loans for others and had mortgage servicing rights with a carrying
amount of $6.7 million.
BankUnited is subject to certain costs and risks related to servicing
delinquent loans. Servicing agreements relating to the mortgage-backed security
programs of Federal National Mortgage Association ("FNMA") and Federal Home
Loan Mortgage Corporation ("FHLMC") require the servicer to advance funds to
make scheduled payments of interest, taxes and insurance, and in some instances
principal, even if such payments have not been received from the borrowers.
However, BankUnited recovers substantially all of the advanced funds upon cure
of default by the borrower, or through foreclosure proceedings and claims
against agencies or companies that have insured or guaranteed the loans.
Certain servicing agreements for loans sold directly to other investors require
BankUnited to remit funds to the loan purchaser only upon receipt of payments
from the borrower and, accordingly, the investor bears the risk of loss.
BankUnited, however, is subject to the risk that declines in the
7
market rates of interest for mortgage loans or other economic conditions will
result in a revaluation of its servicing assets as borrowers refinance or
otherwise prepay higher interest rate loans. See "Item 7a. Quantitative and
Qualitative Disclosure About Market Risk".
Investments and Mortgage-Backed Securities
BankUnited maintains an investment portfolio consisting of U.S. Government
and Agency securities, mortgage-backed securities, trust preferred securities
issued by others, and other investments. Federal regulations limit the
instruments in which BankUnited may invest its funds. BankUnited's current
investment policy permits purchases primarily of securities which are rated
investment grade by a nationally recognized rating agency, however,
substantially all of the investments in BankUnited's portfolio at September 30,
2002, were rated in one of the two highest grades.
The vast majority of BankUnited's investment portfolio consists of
mortgage-backed securities which are primarily acquired for their liquidity,
yield, and credit characteristics. Such securities may be used as collateral
for borrowing or pledged as collateral for certain deposits, including public
funds deposits. Mortgage-backed securities acquired include fixed and
adjustable-rate agency securities (Government National Mortgage Association
("GNMA"), FNMA and FHLMC), private issue securities and collateralized mortgage
obligations. BankUnited also securitizes residential mortgage loans with FNMA
and FHLMC. At September 30, 2002, BankUnited's investments and mortgage backed
securities totaled $1.308 billion. Of those, $568 million or 44 percent were
adjustable rate securities and the remainder were fixed rate.
The following table sets forth information regarding BankUnited's
investments and mortgage-backed securities as of the dates indicated. Amounts
shown are carrying value.
As of September 30
--------------------
2002 2001
---------- --------
(Dollars in thousands)
U.S. Government agency securities $ 52,760 $ 55,067
Mortgage-backed securities....... 1,136,634 832,728
Other............................ 118,825 80,945
---------- --------
Total investment securities... $1,308,219 $968,740
========== ========
Weighted average yield........ 6.10% 6.53%
========== ========
The following table sets forth information regarding the maturities of
BankUnited's investments and mortgage-backed securities as of September 30,
2002. Amounts shown are carrying value:
Periods to Maturity from September 30, 2002(1)
As of -------------------------------------------------
September 30, Within 1 Through 5 Through Over 10 Equity
2002 1 Year 5 Years 10 Years Years Securities
------------- ------ --------- --------- ---------- ----------
(Dollars in thousands)
U.S. Government agency securities $ 52,760 -- $ 3,146 $ -- $ 49,614 $ --
Mortgage-backed securities....... 1,136,634 -- 21,411 37,596 1,077,627 --
Other............................ 118,825 -- -- $26,850 87,817 4,158
---------- -- ------- ------- ---------- ------
Total......................... $1,308,219 -- $24,557 $64,446 $1,215,058 $4,158
========== == ======= ======= ========== ======
Weighted average yield........... 6.10% -- 5.41% 5.99% 6.12% N/A
========== == ======= ======= ========== ======
- --------
(1) Maturities are based on contractual maturities. Expected maturities are
substantially shorter than contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties. See Gap Table in Item 7a. Quantitative and
Qualitative Disclosure About Market Risk.
For additional information regarding BankUnited's investments and
mortgage-backed securities, see Note (4) Investments and Mortgage-backed
Securities to the Notes to Consolidated Financial Statements.
8
Deposits
BankUnited offers a variety of deposit products ranging from savings to
certificates of deposit with maturities of up to five years. BankUnited also
offers transaction accounts, which includes personal and commercial checking
accounts, negotiable order of withdrawal ("NOW") accounts, and insured money
market accounts. BankUnited's savings and transaction accounts make up its core
deposits, which provide BankUnited with a source of funds with a lower cost
than time deposits. For this reason, BankUnited has increased its efforts in
building core deposits through aggressive marketing and service efforts, branch
expansion, and the offering of competitive products and rates sufficient to the
Bank's customer base. For information on BankUnited's deposits, see Note (8)
Deposits to the Notes to Consolidated Financial Statements.
Activities of Subsidiaries
Bay Holdings, Inc., a Florida corporation ("Bay Holdings"), is a wholly
owned operating subsidiary of the Bank that holds title to, maintains, manages
and supervises the disposition of one-to-four family residential property
acquired through foreclosure. Bay Holdings was established for these purposes
in 1994.
BankUnited Capital, BankUnited Capital II, and BankUnited Capital III are
trusts that were created under Delaware law in 1996, 1997 and 1997,
respectively. BankUnited Statutory Trust I was formed in 2001, and BankUnited
Statutory Trust II, BankUnited Statutory Trust III, BankUnited Statutory Trust
IV and BankUnited Statutory Trust V were formed in 2002, as trusts under
Connecticut law. BankUnited Financial Corporation owns 100% of the common stock
of each of these trusts. Trust preferred securities issued by the trusts are
held by investors. Each of the trusts was formed for the purpose of issuing
trust preferred securities and investing the proceeds from the sale thereof in
junior subordinated debentures issued by BankUnited.
BankUnited Financial Services, Incorporated ("BUFC"), formerly named BUFC
Financial Services, Incorporated, is a Florida corporation and wholly owned
subsidiary of BankUnited Financial Corporation organized in 1997 for the
purpose of selling annuities, insurance and securities products to customers of
the Bank and others. BUFC representatives are licensed insurance agents and act
as registered securities representatives under the supervision of a
non-affiliated registered broker-dealer.
CRE Properties, Inc., a Florida corporation, is a wholly owned operating
subsidiary of the Bank that holds title to, and maintains, manages and
supervises the disposition of commercial real estate acquired through
foreclosure. CRE Properties, Inc. was established for these purposes in 1998.
BU Delaware, Inc. is a Delaware corporation and wholly owned subsidiary of
the Bank which was formed in 2002. Currently, BU Delaware, Inc.'s only activity
is the holding of stock of BU REIT, Inc.
BU REIT, Inc. (the "REIT") is a Florida corporation formed in 2002. It is
expected to elect to be taxed as a real estate investment trust for both
federal and Florida income tax purposes for 2002 and forward. It was formed to
enhance certain liquidity options and options for future capital needs of the
Bank. The REIT holds a 100% participation interest in certain of the Bank's
residential mortgage loans, and it provides investment services related
thereto. One hundred percent of the REIT's outstanding common stock is owned by
BU Delaware, Inc.; 100% of the REIT's outstanding non-voting preferred stock is
owned by the Bank. It is anticipated that the Bank may grant some of these
preferred shares to certain officers as compensation.
Regulation
General
BankUnited is a unitary savings and loan holding company and is subject to
Office of Thrift Supervision ("OTS") regulation and supervision pursuant to the
Home Owner's Loan Act (the "HOLA") and the Federal Deposit Insurance Act (the
"FDIA"). The Bank is a federal savings bank and subject to extensive regulation
and examination by the OTS, our primary federal regulator. The Bank's deposit
accounts are insured by the Federal Deposit Insurance Corporation (the "FDIC")
through the Savings Association Insurance Fund (the "SAIF").
9
Savings and Loan Holding Company Regulations
Activities Limitations. As a unitary savings and loan holding company that
existed before May 4, 1999 and a qualified thrift lender, BankUnited generally
has the broadest authority to engage in various types of business activities,
including nonfinancial activities. The Gramm-Leach-Bliley Act ("GLB") could
limit this authority if BankUnited were to acquire a non-OTS subsidiary or a
subsidiary institution that was not merged into the Bank. The Director of the
OTS may take enforcement action against the holding company if there is
reasonable cause to believe that a particular activity is a serious risk to the
financial safety, soundness, or stability of the Bank, and may limit any
activities of the Bank that pose a serious risk of causing the liabilities of
the holding company and its affiliates to be imposed on the Bank.
Transactions with Affiliates. Transactions between the Bank and its
affiliates are regulated under the HOLA and OTS regulations, which incorporate
Sections 23A, 23B, 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated by the Federal Reserve Board. "Affiliates" of the Bank include the
holding company and all subsidiaries other than the Bank. Under these
regulations, "covered transactions" and certain other transactions with
affiliates must be on terms and conditions that are consistent with safe and
sound banking practices and that are substantially the same, or at least as
favorable to the institution or its subsidiary, as those for comparable
transactions with non-affiliated parties. These laws and regulations limit the
amount of covered transactions in which the Bank may engage and set
collateralization requirements. "Covered transactions" generally include loans
or extensions of credit to an affiliate, purchases of securities issued by an
affiliate, purchases of assets from an affiliate, and certain other
transactions. The Bank may not extend credit to an affiliate other than a Bank
subsidiary, unless the affiliate engages only in activities permissible for
bank holding companies. Limitations are also imposed on loans and extensions of
credit from an institution to its executive officers, directors and principal
shareholders and each of their related interests.
Acquisitions. The holding company may not directly or indirectly acquire
control of a savings association or savings association holding company, or
substantially all of the assets or more than 5% of the voting shares of a
savings association or savings association holding company, without prior OTS
approval.
Reporting and Examinations. The holding company must file periodic reports
with the OTS and comply with OTS record keeping requirements. BankUnited is
also subject to examination by the OTS.
Savings Institution Regulations
The Bank is chartered by the OTS, is a member of the Federal Home Loan Bank
("FHLB") system, and insured by the SAIF. Federal laws empower the Bank to
accept deposits and pay interest on them, make real estate loans, consumer
loans and commercial loans, invest in corporate obligations, government debt
securities and other securities, offer various banking services, and, subject
to OTS notice and approval requirements, engage in activities such as trust
operations and real estate investment. FDIC approval or notice may also be
required for some activities. The Bank must file reports with the OTS and is
subject to periodic examination by the OTS.
Insurance of Accounts. The Bank's deposits are insured by the SAIF up to
$100,000 for each insured account holder, subject to applicable terms and
conditions. The FDIC examines the Bank and may terminate SAIF deposit insurance
or impose sanctions if it finds that the Bank has engaged in unsafe and unsound
practices, cannot continue operations because it is in an unsafe and unsound
condition, or has violated regulatory requirements. The Bank's management does
not know of any present condition pursuant to which the FDIC would seek to
impose sanctions on the Bank or terminate insurance of its deposits.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Institutions which the FDIC considers well
capitalized and financially sound pay the lowest premium, while institutions
that are less than adequately capitalized and of substantial supervisory
concern pay the highest premium. The FDIC is authorized to increase or decrease
assessment rates
10
on a semiannual basis, up to a maximum increase or decrease of 5 basis points
after aggregating all increases and decreases, if it determines that the
reserve ratio of the SAIF will be less than the designated reserve ratio of
1.25 percent of SAIF insured deposits. The FDIC may also impose special
assessments on SAIF members to repay amounts borrowed from the United States
Treasury or for any other reason deemed necessary by the FDIC. The Bank
qualified for the lowest rate and did not pay any deposit insurance assessment.
If the reserve ratio for the SAIF falls below the required level, the fund may
re-institute deposit insurance assessments for all institutions. In addition to
deposit insurance assessments, the FDIC may collect assessments against insured
deposits to service debt incurred in the 1980s. The assessment rate is adjusted
quarterly. During fiscal 2002, the annualized assessment rate was $0.01 cents
per $100 of insured deposits.
Regulatory Capital Requirements. OTS regulations incorporate a risk-based
capital requirement that is designed to be at least as stringent as the capital
standard applicable to national banks and that is similar to FDIC requirements.
Associations whose exposure to interest-rate risk is deemed to be above normal
must deduct a portion of such exposure in calculating their risk-based capital.
As of September 30, 2002, the Bank exceeded all applicable regulatory
requirements. See Note (14) Regulatory Capital to the Notes to Consolidated
Financial Statements. There are currently no regulatory capital requirements
directly applicable to holding companies.
Regulators have also established capital levels for institutions to
implement the "prompt corrective action" provisions of the Federal Deposit
Insurance Corporation Improvement Act ("FDICIA"). Insured institutions are
categorized under these levels as well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized or critically
undercapitalized. An institution's category depends upon its capital levels in
relation to relevant capital measures, which include a risk-based capital
measure, a leverage ratio capital measure, and certain other factors. A "well
capitalized" institution must have a ratio of total capital to risk-weighted
assets (a "total risk-based capital ratio") of 10 percent or more, a ratio of
core capital to risk-weighted assets ("Tier I risk-based capital ratio") of 6
percent or more and a ratio of core capital to adjusted total assets ("Tier 1
leverage ratio") of 5 percent or more, and may not be subject to any written
agreement, order, capital directive, or prompt corrective action directive
issued by the OTS. An institution will be categorized as "adequately
capitalized" if it has a total risk-based capital ratio of 8 percent or more, a
Tier 1 risk-based capital ratio of 4 percent or more, and either a leverage
ratio of 4 percent or more or a leverage ratio of 3 percent or more. Any
institution that is neither well capitalized nor adequately capitalized will be
considered undercapitalized. The OTS would be required to take prompt
corrective action to resolve the Bank's situation if the Bank failed to satisfy
these minimum capital requirements. The Bank is a well capitalized institution
under the definitions as adopted.
Risk-based capital guidelines take into account various factors, including
concentration of credit risk, risks associated with nontraditional activities,
and the actual performance and expected risk of loss of multi-family mortgages.
OTS regulations include an interest-rate risk component to the risk-based
capital requirements for savings associations such as the Bank. Management
monitors interest rate risk based on the OTS's and BankUnited's standards, and
believes that the effect of including such an interest rate risk component in
the calculation of risk-adjusted capital will not cause the Bank to cease being
well-capitalized. The FDIC also requires the OTS to review its capital
standards every two years to ensure that its standards require sufficient
capital to facilitate prompt corrective action and to minimize loss to the SAIF
and the Bank Insurance Fund ("BIF").
Restrictions on Dividends and Other Capital Distributions. The Bank must
provide the OTS with at least 30 days written notice before declaring any
dividend or approving any capital distribution. The OTS may object to any
distribution on safety and soundness grounds and prior approval, instead of
notice, may be required in some cases.
Qualified Thrift Lender Test. The qualified thrift lender test (QTL)
measures the proportion of a savings institution's assets invested in loans or
securities supporting residential construction and home ownership. A savings
institution qualifies as a QTL if its qualified thrift investments equal or
exceed 65 percent of its portfolio
11
assets on a monthly average basis in nine of every 12 months. Qualified thrift
investments include (i) housing-related loans and investments, (ii) obligations
of the FDIC, (iii) loans to purchase or construct churches, schools, nursing
homes and hospitals, (iv) consumer loans, (v) shares of stock issued by any
FHLB, and (vi) shares of stock issued by the FHLMC or the FNMA. Portfolio
assets consist of total assets minus (a) goodwill and other intangible assets,
(b) the value of properties used by the savings institution to conduct its
business, and (c) certain liquid assets in an amount not exceeding 20% of total
assets. If the Bank fails to remain a QTL, it must either convert to a national
bank charter or be subject to restrictions specified under OTS regulations. A
savings institution may re-qualify as a QTL if it thereafter complies with the
QTL test. At September 30, 2002, the Bank exceeded the QTL requirements.
General Lending Regulations
Consumer Regulations. The Bank's lending activities are subject to federal
regulations, including the Equal Credit Opportunity Act, the Truth-in-Lending
Act, the Real Estate Settlement Procedures Act and the Community Reinvestment
Act. Pursuant to OTS regulations, the Bank generally may extend credit as
authorized under federal law, without regard to state laws purporting to
regulate or affect its credit activities, other than state contract and
commercial laws, real property laws, homestead laws, tort laws, criminal laws
and other state laws designated by the OTS.
Community Reinvestment Act. Under the Community Reinvestment Act (the
"CRA"), as implemented by OTS regulations, a savings institution has a
continuing and affirmative obligation consisting with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements for financial institutions and does not limit an institutions's
discretion to develop the types of products and services that it believes are
best suited to its particular community. The CRA requires the OTS to assess the
Bank's record of meeting the community's credit needs and to take such records
into account in its evaluation of certain applications.
Under OTS regulations there are three tests for evaluating a savings
institution's performance. The lending test evaluates a savings institution's
record of helping to meet the credit needs of its assessment area through its
lending activities, by considering an institution's home mortgage, small
business, small farm, and community development lending. The investment test
evaluates a savings institution's record of helping to meet the needs of its
assessment area through qualified investments that benefit its assessment area
or a broader statewide or regional area including the assessment area, and the
service test evaluates a savings institution by analyzing both the availability
and the effectiveness of the institution's systems for delivering retail
banking services and the extent and innovativeness of its community development
services. The OTS assigns the savings institution a rating of outstanding,
satisfactory, needs to improve or substantial noncompliance. Based upon the
most recent OTS examination performed in fiscal 2000, the Bank's CRA rating is
satisfactory.
Loans-to-one-borrower Limitations. The loans-to-one borrower limitations
applicable to national banks also apply to savings institutions. Under current
limits, loans and extensions of credit outstanding at one time to a single
borrower and not fully secured generally may not exceed 15% of the savings
institution's unimpaired capital and unimpaired surplus. Loans and extensions
of credit fully secured by certain readily marketable collateral may represent
an additional 10% of unimpaired capital and unimpaired surplus. As of September
30, 2002, the Bank was in compliance with the loans-to-one-borrower limitations.
Federal Reserve System
The Bank must comply with Federal Reserve Board regulations requiring the
maintenance of reserves against its transaction accounts (primarily
interest-bearing and non-interest-bearing checking accounts) and non-personal
time deposits. As of September 30, 2002, the Bank had $22 million in cash
reserved maintained at the FHLB for this purpose. The balances maintained to
meet these requirements may be used to satisfy liquidity requirements imposed
by the OTS. Federal Reserve Board regulations also limit the periods within
which depository institutions must provide availability for and pay interest on
deposits to transaction accounts, and
12
require depository institutions to disclose their check-hold policies and any
changes to those policies in writing to customers. The Bank is in compliance
with these regulations. Other Federal Reserve Board regulations affecting
business operations include those relating to equal credit opportunity,
electronic fund transfers, collection of checks, truth in lending, truth in
savings and availability of funds.
Other Regulation
Regulation of Non-Banking Affiliates. BankUnited Financial Services,
Incorporated ("BUFC") is an insurance agency subsidiary of BankUnited that
sells fixed and variable annuities and mutual funds. BUFC's activities must
comply with Florida insurance laws and regulations, and its employees are
licensed insurance agents subject to continuing education, licensing and
oversight by the Florida Department of Insurance. BUFC's employees are also
registered representatives of Essex National Securities, Inc., a broker-dealer
regulated by the NASD. BUFC's activities are also subject to regulations
adopted by the federal banking agencies, requiring that sales of non-deposit
insurance products comply with standards for disclosures, physical separation
of activities from banking activities, due diligence, oversight, and other
functions.
Legislative and Regulatory Developments
Pursuant to the GLB, the federal banking agencies have jointly adopted a
privacy regulation with which savings institutions must have been required to
comply since July 1, 2001. Subject to certain exceptions, the privacy
regulation requires each financial institution to give a consumer notice of its
privacy policies and practices before disclosing nonpublic personal information
about the consumer to any non-affiliated third party, to give each customer
notice of its privacy policies and procedures at the time a customer
relationship is established and annually thereafter, and to give each consumer
an opt out notice and reasonable opportunity for the customer to opt out of
having his nonpublic personal information disclosed by the financial
institution to non-affiliated third parties. The Bank has implemented and
continues to develop procedures complying with the new privacy requirements.
In July 2002, federal regulators proposed rules to implement section 326 of
the USA PATRIOT Act requiring financial institutions to establish procedures
for identifying and verifying the identity of customers. Although these
regulations have not yet been finalized, the proposed rules establish minimum
standards for financial institutions to follow in identifying customers at the
time an account is opened and require that financial institutions implement
procedures to verify the identity of persons seeking to open an account,
maintain records of the information used to verify a person's identity, and
determine whether the person appears on any governmental agency list of known
or suspected terrorists or terrorist organizations. The Bank has implemented
and continues to develop procedures to comply with the new requirements.
In July 2002, the Department of Housing and Urban Development proposed rules
to reform the regulatory requirements under the Real Estate Settlement and
Procedures Act (RESPA) that would change the way compensation to mortgage
brokers is disclosed to consumers, revise the Good Faith Estimate (GFE)
settlement cost disclosure and remove regulatory barriers to permit an option
for consumers with guaranteed packages of settlement services and mortgages.
These rules have not been finalized.
Taxation
BankUnited reports its income and expenses under an accrual method of
accounting and, prior to 1994, filed federal income tax returns on a calendar
year basis. Since 1994, BankUnited and its subsidiaries have elected to file
consolidated tax returns on the basis of a fiscal year ending September 30. The
Tax Reform Act of 1986 (the "1986 Act"), which was signed into law on October
22, 1986, revised the income tax laws applicable to corporations in general and
to savings institutions, such as the Bank, in particular. Except as
specifically noted, the discussion below relates to taxable years beginning
after December 31, 1986.
13
BankUnited has not been notified of a proposed examination of its federal
income tax returns by the Internal Revenue Service (the "IRS") or of its state
income tax returns by the Florida Department of Revenue.
Bad Debt Reserves Deductions.
In August of 1996, legislation was enacted that repealed the reserve method
of accounting (including the percentage of taxable income method) used by many
thrifts, including the Bank, to calculate their bad debt deduction for federal
income tax purposes. Under Federal legislation thrifts are required to account
for bad debts for federal income tax purposes on the same basis as commercial
banks for tax years beginning after December 31, 1995. As such, thrifts like
the Bank with assets whose tax basis exceeds $500 million are required to use
the specific charge off method in computing its bad debt deduction. As a result
of this change in accounting method, the Bank must recapture the excess of its
September 30, 1996 bad debt reserve over the reserve in existence on December
31, 1987. This recapture will occur over a six-year period, commencing with the
first taxable year beginning after December 31, 1997. This legislation has not
had a material impact on BankUnited.
Alternative Minimum Tax
In addition to the income tax, corporations are generally subject to an
alternative minimum tax at a rate of 20 percent. The alternative minimum tax is
imposed on the sum of regular taxable income (with certain adjustments) and tax
preference items, less any available exemption ("AMTI"). The alternative
minimum tax is imposed to the extent that it exceeds a corporation's regular
income tax liability. The items of tax preference that constitute AMTI for 1990
and thereafter include 75 percent of the difference between the taxpayer's
adjusted current earnings and AMTI (determined without regard to this
preference and prior to any deduction for net operating loss carry forwards or
carry backs). In addition, net operating loss carry forwards cannot offset more
than 90 percent of AMTI.
State Taxation
The State of Florida imposes a corporate income tax on BankUnited, at a rate
of 5.5 percent of BankUnited's taxable income as determined for Florida income
tax purposes. Taxable income for this purpose is based on federal taxable
income with certain adjustments.
Foreclosures
As a result of enacted tax legislation, thrift foreclosures are treated as a
taxable event for federal tax purposes for property acquired after December 31,
1995. As such, a thrift may recognize gain, loss or a bad debt deduction at the
time of foreclosure depending on the method by which the property was acquired.
In addition, write downs of foreclosed property to fair market value no longer
give rise to a tax benefit. Finally, gains and losses realized upon the sale of
foreclosed property are included in taxable income of the thrift.
Item 2. Properties
Currently BankUnited operates 39 full-service banking offices located in
South Florida and one in Southwest Florida, of which 37 are leased and 3 are
owned. BankUnited's banking offices have square footage ranging from 960 square
feet to 5,000 square feet with lease terms ranging from the year 2003 to the
year 2010.
BankUnited's executive and administrative offices are located at 255
Alhambra Circle, Coral Gables, Florida 33134 where, as of September 30, 2002,
BankUnited leased approximately 18,000 square feet of space pursuant to a lease
agreement that begins to terminate with respect to portions of the premises in
2004. BankUnited also leases over 55,000 square feet of space for its operation
center, which is located at 7815 NW 148 Street, Miami Lakes, Florida 33016,
pursuant to a lease agreement that begins to terminate with respect to portions
of the premises in 2004.
BankUnited has multiple options to renew leases at all banking offices and
other locations.
14
Item 3. Legal Proceedings.
BankUnited and its subsidiaries, from time to time, are involved as
plaintiff or defendant in various legal actions arising in the normal course of
their businesses. While the ultimate outcome of any such proceedings cannot be
predicted with certainty, it is the opinion of management that no proceedings
exist, either individually or in the aggregate, which, if determined adversely
to BankUnited and its subsidiaries, would have a material effect on
BankUnited's consolidated financial condition, results of operations or cash
flows.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of BankUnited's security holders during
the fourth quarter of the fiscal year ended September 30, 2002.
Item 4a. Executive Officers of the Registrant.
The following table sets forth information concerning the executive officers
and directors of BankUnited and the Bank.
Name Age Positions with Company and Business Experience
---- --- ----------------------------------------------
Alfred R. Camner....... 58 Director, Chairman of the Board and Chief Executive Officer (1993 to
present), President (1993 to 1998, 2001 to 2002) and Chief Operating Officer
(2001 to 2002) of BankUnited; Director, Chairman of the Board and Chief
Executive Officer (1984 to present) and President (1984 to 1993, 1994 to
1998, 2001 to 2002) and Chief Operating Officer (2001 to 2002) of the Bank;
Senior Managing Director (1996 to present) of Camner, Lipsitz and Poller,
Professional Association, attorneys-at-law; General Counsel to CSF Holdings,
Inc. and its subsidiary, Citizens Federal Bank (1973 to 1996); Director,
Executive Committee member of Loan America Financial Corporation (1985
to 1994).
Ramiro A. Ortiz........ 52 Director, President and Chief Operating Officer of BankUnited and the Bank
(August 2002 to present); Director, Chairman, Chief Executive Officer and
President (July to August 2002) Director, and President (1996 to 2002)
Executive Vice President, Community Banking (1987 to 1996) of SunTrust
Bank, Miami.
Lawrence H. Blum....... 59 Director and Vice Chairman of the Board (1993 to present) of BankUnited
Director and Vice Chairman of the Board (1984 to present) and Secretary
(September 2002 to present) of the BankUnited; Managing Director (1992 to
present) and partner (1974 to present) of Rachlin, Cohen & Holtz, certified
public accountants.
Marc D. Jacobson....... 60 Director (1993 to present) and Secretary (1993 to 1997) of BankUnited;
Director (1984 to present) and Secretary (1985 to 1996) of the Bank; Senior
Vice President of Head-Beckham Ameri Insurance Agency, Inc., and its
predecessor, Head-Beckham Insurance Agency, Inc. (1990 to present).
Allen M. Bernkrant..... 72 Director of BankUnited (1993 to present) and the Bank (1985 to present);
Private investor in Miami, Florida (1990 to present).
Neil H. Messinger, M.D. 64 Director of BankUnited and the Bank (1996 to present); Radiologist; President
(1986 to present), Radiological Associates, Professional Association;
Chairman (1986 to present) of Imaging Services of Baptist Hospital.
Hardy C. Katz.......... 61 Director of BankUnited and the Bank (March 2002 to present); Vice President
of, Communications and Show Management, Inc. and Industry Publisher, Inc.
(1972 to present).
Edward L. Pinckney..... 39 Director of BankUnited and the Bank (May 2002 to present); Television and
Radio Broadcaster and Commentator for ESPN and the Miami Heat (1997 to
present); Manager and Coach of the Miami Pro Summer league, L.C. (2000 to
present); Professional Basketball Player, NBA (1985 to 1997); Private investor
in Miami, Florida (1998 to present).
15
Executive Officers of BankUnited And/or the Bank
Who Are Not Directors:
Name Age Positions with Company and Business Experience
---- --- ----------------------------------------------
Michael J. Clutter.. 55 Senior Executive Vice President (2001 to present), Executive Vice
President, Credit Policy, of the Bank (March 1999 to April 2001); Senior
Vice President Credit Administration (1984 to 1999) of Barnett Bank,
Broward County and its successor by merger, NationsBank, Inc.
Janette L. Davis.... 47 Senior Executive Vice President (2001 to present), Executive Vice
President, Retail Banking, of the Bank (1999 to 2001); Senior Vice
President/Region Executive (1998 to 1999), Group Senior Vice President,
Market Executive (1996 to 1998) and Vice President, Office Manager
(1992 to 1996) of Barnett Bank, South Florida and its successor by merger,
NationsBank, Inc.
John Kuczwanski..... 57 Senior Executive Vice President of Residential Lending of the Bank (May
2002 to present); Managing Director, Sierra Grove Associates (1995 to
2002); President, Loan America Financial Corporation (1985 to 1995);
Executive Vice President, Citizens Federal Bank (1982 to 1985).
Humberto L. Lopez... 43 Senior Executive Vice President (2001 to present), Executive Vice
President, Finance, of the Bank (1999 to 2001) and Chief Financial Officer
of BankUnited and the Bank (1999 to present); Director (1998 to 1999),
PricewaterhouseCoopers LLP; Chief Financial Officer (1997 to 1998) of
Barnett Bank, South Florida and its successor by merger, NationsBank,
Inc., Regional Finance Manager (1996 to 1997) and Regional Controller
(1993 to 1996) of Barnett Banks, Inc. and its successor by merger,
NationsBank, Inc.
Vincent F. Post, Jr. 49 Senior Executive Vice President (2001 to present), Executive Vice
President, Commercial Banking, of the Bank (1998 to 2001); Executive
Vice President (1996 to 1998) and Group Senior Vice President (1994 to
1996) of Barnett Bank, South Florida and its successor by merger,
NationsBank, Inc.
All executive officers serve at the discretion of the Board of Directors and
are elected annually by the Board.
16
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
Stock Information
BankUnited's Class A Common Stock, $.01 par value ("Class A Common Stock"),
is traded in the over-the-counter market and quoted in the Nasdaq-Amex Stock
Market, National Market ("NASDAQ") under the symbol "BKUNA". BankUnited's Class
B Common Stock, $.01 par value ("Class B Common Stock"), is not traded on any
established public market.
At December 17, 2002, there were 519 and 14 holders of record of
BankUnited's Class A Common Stock and Class B Common Stock, respectively. The
number of holders of record of the Class A Common Stock includes nominees of
various depository trust companies for an undeterminable number of individual
stockholders. Class B Common Stock is convertible into Class A Common Stock at
a ratio (subject to adjustment upon the occurrence of certain events) of one
share of Class A Common Stock for each share of Class B Common Stock
surrendered for conversion.
No dividends were declared or paid in fiscal 2002 or 2001 on Common Stock.
See Note (14) Regulatory Capital to the Notes to Consolidated Financial
Statements for a discussion of restrictions on the Bank's payment of dividends
to BankUnited.
The following tables set forth, for the periods indicated, the range of high
and low bid prices for the Class A Common Stock quoted on Nasdaq. Stock price
data reflects inter-dealer prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
Class A
Common Stock
-------------
Price
-------------
High Low
------ ------
Fiscal Year Ended September 30, 2002:
1st Quarter....................... $15.95 $12.74
2nd Quarter....................... $15.90 $12.90
3rd Quarter....................... $19.48 $14.46
4th Quarter....................... $19.35 $14.33
Fiscal Year Ended September 30, 2001:
1st Quarter....................... $ 8.50 $ 6.69
2nd Quarter....................... $11.88 $ 7.91
3rd Quarter....................... $14.95 $10.25
4th Quarter....................... $15.90 $12.00
17
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with
BankUnited's Consolidated Financial Statements and Notes thereto.
As of or for the Years Ended September 30,
----------------------------------------------------------
2002 2001 2000 1999 1998
----------- ---------- ---------- ---------- ----------
(Dollars in thousands, except statistical data
and earnings per share)
Operations Data:
Interest income...................................................... $ 327,857 $ 324,077 $ 295,315 $ 233,550 $ 207,567
Interest expense..................................................... 217,171 246,793 219,146 187,515 167,543
----------- ---------- ---------- ---------- ----------
Net interest income.................................................. 110,686 77,284 76,169 46,035 40,024
Provision for loan losses............................................ 9,200 7,100 4,645 7,939 1,700
----------- ---------- ---------- ---------- ----------
Net interest income after provision for loan losses.................. 101,486 70,184 71,524 38,096 38,324
----------- ---------- ---------- ---------- ----------
Non-interest income:
Service fees, net.................................................. 5,385 6,495 4,295 3,785 1,139
Net gain (loss) on sales of loans, investments and mortgage-backed
securities........................................................ 5,621 3,235 71 (5) 4,429
Net (loss) gain on sale of other assets............................ (214) (15) -- 1 6
Other.............................................................. 6,991 3,877 1,709 1,019 651
----------- ---------- ---------- ---------- ----------
Total non-interest income............................................ 17,783 13,592 6,075 4,800 6,225
----------- ---------- ---------- ---------- ----------
Non-interest expenses:
Employee compensation and benefits................................. 30,501 22,629 19,819 15,970 10,943
Occupancy and equipment............................................ 11,166 9,046 8,332 8,029 4,854
Insurance.......................................................... 1,089 1,000 1,221 1,683 1,185
Professional fees.................................................. 5,342 3,267 3,193 3,084 1,891
Other.............................................................. 23,465 18,455 19,959 19,627 13,310
----------- ---------- ---------- ---------- ----------
Total non-interest expense......................................... 71,563 54,397 52,524 48,393 32,183
----------- ---------- ---------- ---------- ----------
Income (loss) before income taxes, extraordinary item and
preferred stock dividends........................................... 47,706 29,379 25,075 (5,497) 12,366
Provision (benefit) for income taxes................................. 17,201 11,106 10,247 (1,903) 5,009
----------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary item and preferred stock
dividends........................................................... 30,505 18,273 14,828 (3,594) 7,357
Extraordinary item (net of tax)...................................... (184) 823 936 -- --
----------- ---------- ---------- ---------- ----------
Net income (loss) before preferred stock dividends................... 30,321 19,096 15,764 (3,594) 7,357
Preferred stock dividends............................................ 257 649 790 773 897
----------- ---------- ---------- ---------- ----------
Net income (loss) after preferred stock dividends.................... $ 30,064 $ 18,447 $ 14,974 $ (4,367) $ 6,460
=========== ========== ========== ========== ==========
Financial Condition Data:
Total assets......................................................... $ 6,028,548 $5,238,195 $4,552,069 $4,078,471 $3,738,383
Loans receivable, net, and mortgage-backed securities(1)............. 4,849,999 4,332,336 3,700,492 3,246,455 3,215,360
Investments, overnight deposits, tax certificates, reverse
repurchase agreements, certificates of deposit and other earning
assets.............................................................. 685,990 461,276 401,481 295,213 194,791
Total liabilities.................................................... 5,683,399 4,937,749 4,349,482 3,888,334 3,539,091
Deposits............................................................. 2,976,171 2,653,145 2,609,538 2,279,798 2,124,824
Long-term debt....................................................... 1,350,089 1,349,721 1,086,426 966,447 766,466
Company obligated mandatory redeemable trust preferred securities
of subsidiary trust holding solely junior subordinated deferrable
interest debentures of BankUnited................................... 253,761 203,592 212,393 218,500 218,500
Borrowings........................................................... 2,361,131 2,196,429 1,673,024 1,546,648 1,361,114
Total stockholders' equity........................................... 345,149 300,446 202,587 190,137 199,292
Common stockholders' equity.......................................... 340,910 297,620 193,241 180,984 190,627
(Continued on the next page)
18
As for the Fiscal Years Ended September 30,
-----------------------------------------------------------------
2002 2001 2000 1999 1998
----------- ----------- ----------- ------------ -----------
(Dollars in thousands, except statistical data
and earnings per share)
Per Common Share Data:
Basic earnings (loss) per
common share before
extraordinary items.......... $ 1.20 $ 0.87 $ 0.77 $ (0.24) $ 0.41
Diluted earnings (loss) per
common share before
extraordinary items.......... $ 1.13 $ 0.83 $ 0.76 $ (0.24) $ 0.39
Weighted average number of
common shares and common
equivalent shares assumed
outstanding during the
period:
Basic........................ 25,142,322 20,228,072 18,220,508 18,312,548 15,692,566
Diluted...................... 27,072,669 21,353,850 18,779,837 18,312,548 16,666,415
Book value per common share... $ 13.52 $ 11.88 $ 10.61 $ 9.88 $ 10.50
Select Financial Ratios:
Performance Ratios:
Return (loss) on average
assets(2).................... 0.57% 0.42% 0.38% (0.10)% 0.24%
Return (loss) on average
tangible common equity(2).... 10.56 9.46 9.68 (3.79) 4.94
Return (loss) on average
total equity (2)............. 9.58 8.20 8.09 (1.85) 4.53
Interest rate spread.......... 1.98 1.55 1.74 1.12 1.11
Net interest margin........... 2.14 1.76 1.91 1.27 1.32
Dividend payout ratio(3)...... 0.85 3.40 5.01 NM 12.19
Loans receivable, net, and
mortgage-backed securities
to total deposits............ 162.96 163.29 141.81 142.40 151.32
Non-interest expense to
average assets............... 1.34 1.20 1.27 1.28 1.03
Efficiency ratio(4)........... 53.47 56.97 61.07 94.70 64.86
Asset Quality Ratios:
Ratio of non-performing loans
to total loans............... 0.70% 0.76% 0.58% 0.70% 0.64%
Ratio of non-performing
assets to total loans, real
estate owned and tax
certificates................. 0.79 0.84 0.68 0.85 0.73
Ratio of non-performing
assets to total assets....... 0.53 0.60 0.55 0.69 0.61
Ratio of net charge-offs to
average total loans.......... 0.12 0.11 0.11 0.06 0.02
Ratio of loan loss allowance
to total loans............... 0.51 0.42 0.35 0.36 0.20
Ratio of loan loss allowance
to non-performing Loans...... 72.53 56.00 61.20 52.45 31.51
Capital Ratio:
Ratio of average common
equity to average Total
assets....................... 5.85% 4.94% 4.49% 4.08% 4.18%
Ratio of average total equity
to average Total assets...... 5.92 5.13 4.72 5.16 5.19
Core capital-to-assets
ratio(5)..................... 7.77 7.12 7.49 7.86 8.72
Risk-based capital-to-assets
ratio(5)..................... 16.97 14.66 14.84 15.54 17.54
- --------
(1) Does not include mortgage loans held for sale.
(2) Return is calculated before payment of preferred stock dividends and after
extraordinary items.
(3) The ratio of total dividends declared during the period (including
dividends on the Bank's and BankUnited's preferred stock and BankUnited's
Class A and Class B Common Stock) to total earnings for the period before
dividends.
(4) Efficiency ratio is calculated by dividing non-interest expenses less
non-interest income, excluding net gains on sale of assets, by net
interest income.
(5) Regulatory capital ratio of the bank.
NM = Not meaningful
19
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
The following discussion and analysis and the related financial data present
a review of the consolidated operating results and financial condition of
BankUnited for the fiscal years ended September 30, 2002, 2001 and 2000. This
discussion and analysis is presented to assist the reader in understanding and
evaluating the financial condition, results of operations and future prospects
of BankUnited, and is intended to supplement, and should be read in conjunction
with, the Consolidated Financial Statements and Notes thereto.
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. Results
of operations are also dependent on the dollar volume and asset quality of
BankUnited's loans and investments.
In addition to the foregoing, results of BankUnited's operations, like those
of other financial institution holding companies, are affected by BankUnited's
asset and liability management policies, as well as factors beyond BankUnited's
control, such as general economic conditions and the monetary and fiscal
policies of the federal government. Lending activities are affected by the
demand for mortgage financing and other types of loans, and are thus influenced
by interest rates and other factors affecting the supply of housing and the
availability of funds. Deposit flows and costs of funds are influenced by
yields available on competing investments and by general market rates of
interest.
Fiscal 2002 Highlights
During fiscal 2002, BankUnited increased assets by 15 percent to $6.0
billion and reported $31 million in net income before extraordinary item, which
is an improvement of 67 percent over 2001. Basic and diluted earnings per share
before extraordinary item for the year were $1.20 and $1.13, respectively, as
compared to $0.87 and $0.83, respectively, for fiscal 2001. Basic and diluted
earnings per share for the year after extraordinary items reach $1.20 and
$1.12, respectively, as compared to $0.91 and $0.87, respectively, for fiscal
2001.
The primary factor in the increase in BankUnited's net income was an
increase in net interest income to $111 million, up $34 million or 44 percent
above fiscal 2001's amount. The net interest margin improved from 1.76 percent
in 2001 to 2.14 percent in fiscal 2002. BankUnited benefited from an improved
interest rate environment during the year when short-term rates decreased
rapidly and long-term rates decreased at a slower pace than short-term rates.
This coupled with improved loan production and a strong increase in the amount
of lower cost core deposits, lead to the increase in net interest income.
During the year, residential loan production increased 72 percent and our
consumer lending, which includes our specialty consumer mortgage products,
increased 113 percent. Core deposits increased by $329 million or 36 percent
over fiscal 2001.
As a result of the increase in loan production, particularly residential
loans conforming to governmental agency standards, BankUnited has realized
gains on sale of loans totaling $5.6 million, up 83 percent over fiscal 2001.
In total, non-interest income increased $5.2 million or 41 percent over the
prior year.
Non-interest expense increased by $18.5 million or 35 percent in fiscal 2002
due primarily to increased compensation cost as BankUnited expanded its sales
and service personnel, opened 3 new branch offices and a mortgage operations
center in fiscal 2002, continued to invest in new technology, and expanded our
marketing campaigns.
20
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) Summary of
Significant Accounting Policies to the Notes to Consolidated Financial
Statements. 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.
Estimates of the amount of the allowance for loan losses, the placement of
loans on non-accrual status, and the valuation of loans held for sale all
affect the carrying amount of the loan portfolio.
The allowance for loan losses is a difficult subjective judgment that
management must make 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 made 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, 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 affecting specific geographical areas in
which BankUnited conducts business are all considered. 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 uncertain events,
actual results may differ from these estimates. For a more detailed discussion
on the allowance for loan losses, see Asset Quality and, (e) Allowance for Loan
Losses in Note (1) Summary of Significant Accounting Policies to the Notes to
Consolidated Financial Statements.
Several estimates impact mortgage servicing rights, including the amount of
gains or losses recognized upon the securitization and sale of residential
mortgage loans, the amortization of the assets, and the periodic valuation of
the assets. The initial and ongoing valuation and amortization of mortgage
servicing rights is significantly impacted by 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
prepayments on loans serviced. See discussion contained herein, under Item 7A.
"Quantitative and Qualitative Disclosures About Market Risk."
For a more detailed discussion on mortgage servicing rights, see (k)
Mortgage Servicing Rights in Note (1) Summary of Significant Accounting
Policies to the Notes to Consolidated Financial Statements.
Accounting Pronouncements Not Yet Adopted
SFAS No. 145
In May of 2002, the Financial Accounting Standards Board ("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.
SFAS No. 145 eliminates Statement No. 4 and, thus, the exception to applying
APB No. 30 to all gains and losses related to extinguishments of debt (other
than extinguishment of debt to satisfy sinking-fund
21
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 Statement No. 4
shall be applied in fiscal years beginning after May 15, 2002. BankUnited will
apply the provisions of SFAS No. 145 related to the rescission of Statement No.
4 in its fiscal year beginning October 1, 2002, which will result in a
reclassification of any extraordinary item related to early extinguishment of
debt, to non-interest income in the consolidated statement of operations.
FASB Interpretation No. 45
In November of 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others", an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34.
This interpretation elaborates on the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required
to recognize, at the inception of a guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. This interpretation does
not prescribe a specific approach for subsequently measuring the guarantor's
recognized liability over the term of the related guarantee. This
interpretation also incorporates, without change, the guidance in FASB
Interpretation No. 34, "Disclosure of Indirect Guarantees of Indebtedness of
Others", which is being superseded.
The initial recognition and initial measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. Due to the prospective application of this
interpretation, the impact on BankUnited's financial statements has not been
determined.
Liquidity and Capital Resources
BankUnited's objective in managing liquidity is to meet short-term demands
related to obligations on debt and commitments, while funding loans and capital
expenditures in connection with expansion, minimizing the cost of borrowings,
and maximizing yields on liquid assets. In addition, the Bank maintain certain
regulatory capital requirements. See Note (14) Regulatory Capital to the Notes
to Consolidated Financial Statements. Management achieves this objective
through the implementation of its asset/liability management policy.
In managing liquidity BankUnited examines alternative sources of short-term
funding used to meet short-term demands. Operating activities alone, like many
other financial institutions, are historically not sufficient to meet all
short-term demands. For this reason BankUnited relies heavily on other sources
of funds to meet short-term demands including funds provided by financing such
as deposits, borrowings, and issuances of equity and other securities, and
investing activities.
For more information on deposits, see Note (8) Deposits to the Notes to
Consolidated Financial Statement.
Borrowings. The Bank may borrow funds from the FHLB of Atlanta and from
other sources. The FHLB system acts as an additional source of funding for
financial institutions. In addition, BankUnited uses subordinated notes,
securities sold under agreements to repurchase and trust preferred securities
in order to increase available funds. As a shareholder of the FHLB of Atlanta,
the Bank must hold shares of stock in the FHLB, which total $90 million at
September 30, 2002.
The FHLB of Atlanta offers a wide variety of borrowing plans, each with its
own maturity and interest rate. FHLB borrowings, known as "advances," are
secured by a member's share of stock in the FHLB and by certain types of
mortgages and other eligible collateral. The terms and rates charged for FHLB
advances vary in response to general economic conditions. A significant portion
of the Bank's advances have been obtained
22
through a convertible advances program that permits the FHLB to call an advance
at its discretion on a specified "call" date which generally occurs every three
months following an initial period ranging from three months to four years.
Should the FHLB elect to exercise this option, the Bank can either convert the
advance from a fixed rate basis to floating rate basis or repay it in full. See
Item 7A. "Quantitative and Qualitative Disclosure About Market Risk."
The Bank also has advances under the FHLB "knockout" advance program. In
general, a knockout advance is structured as a fixed-rate advance that the FHLB
may call at the end of any given three-month period after the non-conversion
period, the 3-month LIBOR rate equals or exceeds an agreed upon threshold rate.
Should a particular advance be called by the FHLB, the Bank can either convert
the advance from a fixed-rate basis to a floating rate basis or pay it in full.
The FHLB of Atlanta will consider various factors, including an
institution's regulatory capital position, net income, quality and composition
of assets, lending policies and practices, and level of current borrowings from
all sources, in determining the amount of credit to extend to an institution.
In addition, an institution that fails to meet the qualified thrift lender test
may have restrictions imposed on its ability to obtain FHLB advances. The Bank
currently meets the qualified thrift lender test. As of September 30, 2002, the
Bank had a credit limit of $2.3 billion with $1.8 billion outstanding. See Note
(10) Advances from Federal Home Loan Bank to Notes to Consolidated Financial
Statements.
BankUnited issues trust preferred securities through its trust subsidiaries,
which in turn invest the proceeds from the sale thereof in Junior Subordinated
Deferrable Debentures issued by BankUnited (the "Junior Subordinated
Debentures"). See Item 1. Business--Activities of Subsidiaries for a list of
the trust subsidiaries and when they were formed. 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 BankUnited's trust subsidiaries. As of September 30, 2002,
BankUnited had purchased a total of 189,749 shares of trust preferred
securities issued by its trust subsidiaries on the open market at a cost of $33
million. For a further description of the Junior Subordinated Debentures and
trust preferred securities, see Note (12) Company Obligated Mandatorily
Redeemable Trust Preferred Securities of Subsidiary Trusts Holding Soley Junior
Subordinated Deferrable Interest Debenture of BankUnited to Notes to
Consolidated Financial Statements.
During November 1998, the Bank established a medium-term note program which
permits the issuance, from time to time, of up to a total of $500 million
aggregate principal amount of the Senior Notes, with maturities from 9 months
to 10 years from the date of issuance. As a condition of issuance, interest,
principal and any redemption premium on all offered Senior Notes are supported
by an irrevocable standby letter of credit of the FHLB of Atlanta. The Senior
Notes provide an additional source of funding, potentially with longer
maturities with attractive rates. In February 1999, the Bank issued and sold
$200 million of Senior Notes that mature five years from the date of issuance
and bear interest at an annual rate of 5.40% payable semiannually. The Bank
used the net proceeds from the sale of the notes for general corporate
purposes, loan financing, and assisting in the Bank's asset/liability
management. The notes are rated "Aaa" by Moody's Investors Service, Inc. and
"AAA" by Standard and Poor's Rating Services. Any future issuances of
medium-term notes under this program will reduce the Bank's availability of
credit with the FHLB.
Securities sold under agreements to repurchase is another source of borrowed
funds which is available to BankUnited. Under this type of borrowing,
securities are pledged against borrowed funds and are released when the funds
are repaid. BankUnited uses this type of borrowing alternative on a short-term
basis maturities are usually within 30 to 90 days from inception. At September
30, 2002, BankUnited held $355 million in repurchase agreements, $33 million of
which matured overnight, $272 million which also matured in October.
As part of the repurchase program, $50 million of the $355 million
outstanding at September 30, 2002, was borrowed in the form of a convertible
advance which is callable by the counter party every three months until
maturity in 2010.
As of September 30, 2002, BankUnited had $392 million in investments and
mortgage-backed securities pledged against these agreements. See Note (9)
Securities Sold under Agreements to Repurchase to Notes to Consolidated
Financial Statements.
23
The following tables set forth information as to BankUnited's borrowings as
of the dates and for the periods indicated.
At September 30,
----------------------------------------------------------------------
2002 2001 2000
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Balance Average Rate Balance Average Rate Balance Average Rate
---------- ------------ ---------- ------------ ---------- ------------
(Dollars in thousands)
Period End Balances:
FHLB advances(1).......................... $1,806,089 4.47% $1,509,721 5.35% $1,251,426 6.28%
Company obligated mandatory
redeemable Trust Preferred
Securities of subsidiary trusts
holding solely junior subordinated
deferrable interest debentures of
BankUnited(2).......................... 253,761 8.19% 203,592 9.50% 212,393 9.53%
Senior notes (3).......................... 200,000 5.40% 200,000 5.40% 200,000 5.40%
Securities sold under agreements
to repurchase(4)....................... 355,042 2.26% 283,116 3.16% 9,205 6.42%
---------- ---- ---------- ---- ---------- ----
Total borrowings.................... $2,614,892 4.60% $2,196,429 5.51% $1,673,024 6.47%
========== ==== ========== ==== ========== ====
For the Years Ended September 30,
----------------------------------------------------------------------
2002 2001 2000
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Balance Average Rate Balance Average Rate Balance Average Rate
---------- ------------ ---------- ------------ ---------- ------------
(Dollars in thousands)
Average Balances:
FHLB advances(1).......................... $1,341,371 5.48% $1,109,337 6.08% $1,008,161 5.88%
Company obligated mandatory
redeemable Trust Preferred
Securities of subsidiary trusts holding
solely junior subordinated deferrable
interest debentures of
BankUnited(2)........................... 221,813 8.74% 206,316 9.66% 215,600 9.69%
Senior notes(3)........................... 200,000 5.67% 200,000 5.67% 200,000 5.71%
Securities sold under agreements to
repurchase(4)............................ 325,757 2.36% 112,062 4.40% 10,621 8.23%
---------- ---- ---------- ---- ---------- ----
Total borrowings....................... $2,088,941 5.36% $1,627,715 6.37% $1,434,382 6.45%
========== ==== ========== ==== ========== ====
(1) The maximum amount of FHLB advances outstanding at any month-end during the
years ended September 30, 2002, 2001 and 2000 was $1.8 billion, $1.5
billion and $1.3 billion, respectively.
(2) The maximum amount of trust preferred securities outstanding at any
month-end during the years ended September 30, 2002, 2001 and 2000 was $254
million, $210 million, and $219 million respectively. Includes the affect
of Interest Rate Swaps. For more information on interest rate swaps see
Note (13) Accounting for Derivative and hedging Activities.
(3) The maximum amount of Senior Notes outstanding at any month-end during the
years ended September 30, 2002, 2001, and 2000 was $200 million.
(4) The maximum amount of securities sold under agreements to repurchase at any
month-end during the years ended September 30, 2002, 2001 and 2000 was $370
million, $317 million, and $31 million, respectively.
Please refer to the Consolidated Statement of Cash Flows when reading the
following discussion.
Cash and cash equivalents as of September 30, 2002 were $472 million which
represents an increase of just over $177 million from September 30, 2001. This
increase is the result of net cash provided by financing activities of $748
million offset by net cash used by operating activities of $290 million, and
net cash used by investing activities of $281 million.
24
Uses of Funds During Fiscal 2002
Since the end of calendar year 2000, interest rates have been rapidly
declining inducing a significant number of homeowners to refinance their
existing residential mortgage loans. To a lesser extent, first time borrowers
are taking advantage of lower rates to purchase homes. BankUnited has
capitalized on this trend by attracting new customers, and maintaining existing
ones through competitive and innovative loan products. This is evidenced by the
sharp increase in the amount of funds used during year 2002 to fund loans. For
the year ended September 30, 2002, BankUnited funded approximately $2.6 billion
in loans compared to $1.6 billion for the fiscal years ended 2001 and 2000,
respectively.
Other significant uses of funds during the year ended September 30, 2002
have been for the purchase of investment and mortgage-backed securities in the
aggregate of approximately $821 million, and the purchase by BankUnited of
trust preferred securities issued by its trust subsidiaries of $22 million. In
connection with management's asset/liability management model, BankUnited
purchased these investments and mortgage-backed securities to enhance
liquidity. BankUnited purchased the trust preferred securities as a means of
extinguishing high rate debt. See Note (12) Company Obligated Mandatorily
Redeemable Trust Preferred Securities of Subsidiaries Trusts Holding Soley
Junior Subordinated Deferrable Interest Debentures of BankUnited to Notes to
Consolidated Financial Statements.
Sources of Funds During Fiscal 2002
The trend in declining interest rates has also provided a significant amount
of cash flow from the prepayment of existing loans and mortgage-backed
securities. For the year ended September 30, 2002, BankUnited received $1.9
billion from principal repayments, including amortization of discounts and
premiums, compared to $1.3 billion and over $500 million for the fiscal years
ended 2001, and 2000, respectively. For the year ended September 30, 2002,
BankUnited received $478 million from repayments of mortgage-backed securities
compared to $143 million and $63 million for the fiscal years ended 2001, and
2000, respectively.
BankUnited has seen an increase in deposits of $323 million to $3.0 billion
at September 30, 2002 from $2.7 billion at September 30, 2001. The vast
majority of these increases relate to core deposits, which include demand
deposits, savings, and money market accounts.
BankUnited sold $342 million of investment and mortgage-backed securities
during the year ended September 30, 2002, compared to $283 million for fiscal
year ended 2001 and none for 2000. In addition, BankUnited raised $68 million
from the issuance of trust preferred securities issued by its trust
subsidiaries during the year ended September 30, 2002, none for years 2001 and
2000. These activities were both carried out through the implementation of
Management's asset/ liability management policy.
In addition to the unused credit line of $500 million from the FHLB,
BankUnited had additional borrowing capacity of $354 million as of September
30, 2002.
Share Repurchase Program
BankUnited announced on October 24, 2002, that its Board of Directors had
authorized a stock repurchase program on its Class A Common Stock. Under the
program, BankUnited may purchase up to 1,000,000 shares of its Class A Common
Stock in open market transactions, from time to time, at such prices and on
such conditions as the Executive Committee of the Board determines to be
advantageous. BankUnited initiated this program because its believes that the
recent volatility of the financial markets, in general, have at times generated
a market price that does not adequately reflect the real value of BankUnited
stock or the level of confidence that management and the Board of Directors has
in BankUnited's ability to implement its strategy and achieve continued growth.
As of December 30, 2002, there have been no repurchases under this
authorization.
25
See Note (18) Commitments and Contingencies for a discussion of commitments
entered into by BankUnited which will require capital resources, and
contingencies which may require capital resources. BankUnited expects to have
sufficient capital resources to satisfy its commitments.
BankUnited is not aware of any events, or uncertainties, which may impede
liquidity in the short or long-term.
Discussion of Financial Condition Changes for the Years Ended September 30,
2002 and 2001
The following is a discussion of material changes from September 30, 2001 to
September 30, 2002 in the Consolidated Statement of Financial Condition.
Assets
Investments held to maturity. Investments held to maturity decreased 100
percent from $66 million at September 30, 2001 to zero at September 30, 2002.
This was the result of a strategic decision in the fourth quarter of fiscal
2002, to sell off some of the mortgage-backed securities that were being held
to maturity and re-classify the remainder into available for sale.
Investments available for sale. Investments available for sale increased by
$103 million or 149 percent from $69 million at September 30, 2001 to $172
million at September 30, 2002. This net increase is the result of several
factors including the re-classification of investments from held to maturity to
available for sale of $67 million, purchases in the amount of $55 million, and
an increase due to net unrealized gains of $2.3 million. These increases were
offset by maturities of $15 million, proceeds from the sale of securities of
$7.2 million, including gains of $1.3 million.
Mortgage-backed securities held to maturity. Mortgage-backed securities
held to maturity decreased by 100 percent, from $195 million at September 30,
2001 to zero at September 30, 2002 for the same reason mentioned above. Prior
to the re-classification of mortgage-backed securities in the amount of $57
million from held to maturity to available for sale, there were repayments
during the fiscal year ended September 30, 2002 in the amount of $87 million
and proceeds from sales of $52 million.
Mortgage-backed securities available for sale. Mortgage-backed securities
available for sale increased by $499 million, or 78 percent, from $638 million
at September 30, 2001 to $1.1 billion at September 30, 2002. This increase is
due to several factors including the re-classification of mortgage-backed
securities from held to maturity to available for sale of $57 million,
purchases of $766 million, the securitization of $329 million mortgage of
loans, and net unrealized holding gains of $15 million. These increases were
offset by decreases due to repayments of $391 million, and proceeds from sales
of $282 million.
Loans. Loans receivable, net (including loans held for sale) increased by
$243 million, or 6 percent from $3.8 billion at September 30, 2001 to $4
billion at September 30, 2002. Loan fundings of $2.6 billion were offset by
repayments of $1.9 billion (including accretion of discounts and amortization
of premiums), the securitization of $329 million of residential mortgage loans,
loan sales of $89 million, including $4.1 million in realized gains, a
provision for loan loss of $9.2 million, a transfer to real estate owned of
$9.6 million.
Other interest earning assets. Other interest earning assets increased by
$15 million or 20 percent from $76 million at September 30, 2001 to $91 million
at September 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. At the end of September 30, 2002, there
were no sales of securities pending settlement.
26
Bank-owned life insurance. Bank owned life insurance increased by $33
million, or 160 percent, from $21 million at September 30, 2001 to
approximately $53 million at September 30, 2002. During the year ended
September 30, 2002, BankUnited purchased an additional $30 million of
bank-owned life insurance and the cash value of the policies increased by $2.7
million. The additional bank-owned life insurance was purchased in order to
further offset the projected cost of the Bank's benefit plan for all employees.
Liabilities
Deposits. Deposits increased by $323 million, or 12 percent, from $2.7
billion at September 30, 2001 to $3 billion at September 30, 2002. The increase
comes almost entirely from an increase in core deposits of $329 million, offset
by a minor decrease of $5.4 million in certificates of deposit. The increase in
core deposits reflects BankUnited'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 the agreements to repurchase. Securities sold under
the agreements to repurchase increased by $72 million or 25 percent from $283
million at September 30, 2001 to $355 million at September 30, 2002.
FHLB advances. FHLB advances increased by $296 million, or 20 percent, from
$1.5 billion at September 30, 2001 to $1.8 million at September 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 $50
million, or 25 percent, from $204 million at September 30, 2001 to $254 million
at September 30, 2002. The net increase of $50 million is primarily the result
of $68 million of net proceeds received from the issuance by BankUnited
Statutory Trust I, BankUnited Statutory Trust II and BankUnited Statutory Trust
III offset by repurchases of $22 million of Trust Preferred Securities
originally issued by BankUnited Capital I.
Securities purchased pending settlement. At September 30, 2002, there were
no purchases of securities pending settlement.
Asset Quality
Federal regulations require a savings institution to review its assets on a
regular basis and, if appropriate, to classify assets as "substandard,"
"doubtful," or "loss" depending on the likelihood of loss. Allowances for loan
losses are required to be established for assets classified as substandard or
doubtful. For assets classified as a loss, the institution must either
establish specific allowances equal to the amount classified as a loss or
charge off such amount. Assets that do not require classification as
substandard but that possess credit deficiencies or potential weaknesses
deserving management's close attention are required to be designated as
"special mention." The deputy director of the appropriate OTS regional office
may approve, disapprove or modify any classifications of assets and any
allowance for loan losses established. BankUnited's Portfolio Management
Committee reviews and classifies BankUnited's assets and reports the results to
the Board of Directors monthly.
Additionally, under standard banking practices, an institution's asset
quality is also measured by the level of non-performing loans in the
institution's portfolio and real estate acquired in foreclosure ("REO").
Non-performing loans consist of (i) non-accrual loans; (ii) loans that are more
than 90 days contractually past due as to interest or principal but that are
well-secured and (iii) loans that have been renegotiated to provide a deferral
of interest or principal because of a deterioration in the financial condition
of the borrower. BankUnited issues delinquency notices to borrowers when loans
are 30 or more days past due, and places these loans on non-accrual status when
more than 90 days past due. When a loan is placed on non-accrual status,
BankUnited reverses all accrued and uncollected interest and also begins
appropriate legal procedures to obtain repayment of the loan or otherwise
satisfy the obligation.
27
As of September 30, 2002, BankUnited had $50 million in substandard assets
of which $32 million are classified as non-performing assets. Substandard
assets consisted of the following:
As of
September 30,
2002
-------------
(Dollars in
thousands)
One-to-four family residential loans.. $22,856
Multi-family residential.............. 156
Commercial real estate................ 14,052
Commercial business and consumer loans 7,017
REO................................... 5,509
-------
Total Substandard Assets........... $49,590
=======
In addition, $200 thousand of commercial business loans, $400 thousand of
consumer loans, and $500 thousand of land loans for which reserves have been
established were classified as loss as of September 30, 2002.
At September 30, 2002, non-performing assets totaled $32 million as compared
to $32 million and $25 million at September 30, 2001 and 2000, respectively.
Expressed as a percentage of total assets, non-performing assets stood at 0.53
percent as of September 30, 2002 as compared to 0.60 percent as of
September 30, 2001 and 0.55 percent as of September 30, 2000.
The following table sets forth information concerning BankUnited's
non-performing assets for the periods indicated:
September 30,
-------------------------------------------
2002 2001 2000 1999 1998
------- ------- ------- ------- -------
(Dollars in thousands)
Non-accrual loans(1)............................................. $27,664 $27,429 $19,751 $21,428 $15,999
Restructured loans(2)............................................ 315 1,034 1,283 962 1,137
Loans past due 90 days and still accruing........................ -- -- 261 693 2,313
------- ------- ------- ------- -------
Total non-performing loans(3).................................... 27,979 28,463 21,295 23,083 19,449
Non-accrual tax certificates..................................... 696 1,264 1,671 1,703 1,225
Real estate owned................................................ 3,003 1,832 2,286 3,548 1,974
------- ------- ------- ------- -------
Total non-performing assets...................................... $31,678 $31,559 $25,252 $28,334 $22,648
======= ======= ======= ======= =======
Allowance for losses on tax certificates......................... $ 771 $ 934 $ 986 $ 1,168 $ 469
Allowance for loan losses........................................ 20,293 15,940 13,032 12,107 6,128
------- ------- ------- ------- -------
Total allowance.................................................. $21,064 $16,874 $14,018 $13,275 $ 6,597
======= ======= ======= ======= =======
Non-performing assets as a percentage of total assets............ 0.53% 0.60% 0.55% 0.69% 0.61%
Non-performing loans as a percentage of total loans(4)........... 0.70% 0.76% 0.58% 0.70% 0.64%
Allowance for loan losses as a percentage of total loans(4)...... 0.51% 0.42% 0.35% 0.36% 0.20%
Allowance for loan losses as a percentage of non-performing loans 72.53% 56.00% 61.20% 52.45% 31.51%
Net charge-offs as a percentage of average total loans........... 0.12% 0.11% 0.11% 0.06% 0.02%
- --------
(1) Gross interest income that would have been recorded on non-accrual loans
had they been current in accordance with original terms was $1.3 million
for the year ended September 30, 2002. The amount of interest income on
such non-accrual loans included in net income for the year ended September
30, 2002, was $700 thousand.
(2) All restructured loans were accruing.
(3) In addition, management had concerns as to the borrower's ability to comply
with present repayment terms on $19 million of accruing loans as of
September 30, 2002. Management estimates that the loss on these loans, if
any, will not be significant.
(4) Based on balances prior to deductions for allowance for loan losses.
28
General Discussion
BankUnited's allowance for loan losses is established and maintained at
levels management deems prudent and adequate to cover probable losses on loans
based upon a periodic evaluation of current information of the risks inherent
in its loan portfolio. When evaluating loan loss allowances, management reviews
performing and non-performing loans separately. There are several elements that
management evaluates to estimate the loan loss allowance for BankUnited's loan
portfolio. BankUnited applies procedural discipline in determining the amounts
of each element of the allowance for loan losses. The elements evaluated, and
how they are applied to each portion of the portfolio, are as follows:
. Estimated losses on various pools of non-performing loans and groups of
non-performing loans. This element is evaluated for each of the
portfolios of one-to-four family residential loans, multi-family
residential loans and consumer loans due to their homogeneous nature and
the fact that no single loan is individually significant in terms of its
size and potential risk of loss. Therefore, management evaluates these
loans as separate groups of loans. Economic factors, historical loan
losses, current trends in delinquencies and charge-offs, peer group
analysis, and other relevant factors are considered in order to
determine the adequacy of the allowance for loan losses.
. Losses based upon specific evaluations of known losses on individual
loans. Non-performing commercial mortgage, construction, business, and
land loans are reviewed individually to determine the appropriate
allowance for loan loss based upon the same factors as those described
above as well as plans for problem loan administration and resolution.
Where possible, the estimated value of the property underlying
commercial mortgage loans is arrived at through an appraisal. In
instances where BankUnited has not taken possession of the property or
does not otherwise have access to the premises and therefore cannot
obtain an appraisal, a real estate broker's opinion as to the value of
the property is obtained. Construction loans, business loans, and land
loans are evaluated individually based on a thorough examination of the
current financial information of the borrower and an estimate of the
value of the collateral, if any. If the carrying value of any of these
loans is greater than the estimated net realizable value of the property
or of the collateral securing these loans, a reserve is established for
the difference. Management evaluates different factors in establishing
the necessary allowance amount including appraisals, site reviews and
financial information and statements.
. BankUnited's entire loan portfolio is also evaluated in light of facts
and circumstances such as general economic and political conditions and
economic trends and other conditions in specific geographical areas.
This procedure helps to minimize the risk related to the margin of
imprecision inherent in the estimation of the allowance for loan losses.
Due to the subjectivity involved in the determination of the unallocated
portion of the allowance for loan losses, the relationship of the
unallocated component to the total allowance for loan losses may
fluctuate from period to period.
The identification of impaired loans is conducted in conjunction with the
review of the adequacy of the allowance for loan losses. Loss allowances are
established for specifically identified impaired loans based on the fair value
of the underlying collateral in accordance with SFAS No. 114.
Impairment losses are included in the allowance for loan losses through a
charge to the provision for loan losses. Adjustments to impairment losses
resulting from changes in the fair value of an impaired loan's collateral are
included in the provision for loan losses. Upon disposition of an impaired
loan, any related valuation allowance is removed from the allowance for loan
losses. The allowance for loan losses is adjusted by additions charged to
operations as a provision for loan losses and by loan recoveries, with actual
losses charged as reductions to the allowance.
29
The following table sets forth information regarding BankUnited's allowance
for loan losses for the years ended September 30, as indicated:
2002 2001 2000 1999 1998
------- ------- ------- ------- ------
(Dollars in thousands)
Allowance for loan losses, balance (at beginning of period) $15,940 $13,032 $12,107 $ 6,128 $3,693
Provisions for loan losses................................. 9,200 7,100 4,645 7,939 1,700
Allowance from acquisitions................................ -- -- -- -- 1,262
Loans charged off:
One-to-four family residential loans.................... (443) (371) (997) (702) (508)
Commercial real estate.................................. (886) -- -- (733) --
Construction............................................ 0 -- -- (197) --
Commercial business..................................... (3,507) (3,726) (2,595) (21) (30)
Consumer................................................ (308) (160) (267) (395) (61)
------- ------- ------- ------- ------
Total............................................... (5,144) (4,257) (3,859) (2,048) (599)
------- ------- ------- ------- ------
Recoveries:
One-to-four family residential loans.................... 5 5 74 49 33
Commercial real estate.................................. 71 -- 8 1 --
Commercial business..................................... 205 46 53 -- 30
Consumer................................................ 16 14 4 38 9
------- ------- ------- ------- ------
Total............................................... 297 65 139 88 72
------- ------- ------- ------- ------
Allowance for loan losses, balance (at end of period)...... $20,293 $15,940 $13,032 $12,107 $6,128
======= ======= ======= ======= ======
Historically, recoveries of charged off loans have been minimal since
charged off loans have been primarily one-to-four family residential loans and
typically the only substantial asset available to BankUnited is the real estate
securing the loan, which is acquired through foreclosure and sold. BankUnited
is not aware of any significant liability related to REO or loans that may be
foreclosed.
The following table sets forth the allocation of the general allowance for
loan losses by loan category for the periods indicated.
September 30,
----------------------------------------------------------------
2002 2001 2000
-------------------- -------------------- --------------------
% of Loans in % of Loans in % of Loans in
Each Category Each Category Each Category
to Total to Total to Total
Loans Before Loans Before Loans Before
Amount Net Items Amount Net Items Amount Net Items
------- ------------- ------- ------------- ------- -------------
(Dollars in thousands)
Balance at end of period applicable to:
One-to-four family residential
mortgages......................... 4,096 84.5% $ 3,616 85.3% $ 4,045 87.8%
Multi-family residential............ 281 0.6 270 0.5 927 1.9
Commercial real estate.............. 3,834 4.6 3,131 4.2 2,163 4.2
Construction........................ 1,007 2.5 1,377 3.1 465 1.1
Land................................ 746 0.7 867 0.9 1,166 0.9
Commercial business................. 5,420 4.2 5,298 2.3 2,435 1.8
Consumer............................ 2,094 2.6 1,351 3.5 1,206 2.3
Unallocated......................... 2,815 N/A 30 N/A 625 N/A
------- ----- ------- ----- ------- -----
Total allowances for loan
losses......................... $20,293 100.0% $15,940 100.0% $13,032 100.0%
======= ===== ======= ===== ======= =====
30
September 30
-----------------------------------------
1999 1998
-------------------- -------------------
% of Loans in % of Loans in
Each Category Each Category
to Total to Total
Loans Before Loans Before
Amount Net Items Amount Net Items
------- ------------- ------ -------------
Balance at end of period applicable to:
One-to-four family residential mortgages. $ 4,200 91.1% $1,917 92.4%
Multi-family residential................. 442 0.9 98 0.8
Commercial real estate................... 2,873 4.3 2,081 4.8
Construction............................. 154 0.5 225 0.3
Land..................................... 1,171 0.7 265 0.2
Commercial business...................... 1,798 1.5 307 0.5
Consumer................................. 848 1.0 356 1.0
Unallocated.............................. 621 N/A 879 N/A
------- ----- ------ -----
Total allowances for loan losses..... $12,107 100.0% $6,128 100.0%
======= ===== ====== =====
Management believes that the allowance for loan losses of $20 million as of
September 30, 2002 is adequate given the strength of BankUnited's collateral
position and the attention given to loan review and classifications. There can
be no assurance that additional provisions for loan losses will not be required
in future periods.
For more information on BankUnited's Allowance for Loan Losses, see Note (1)
Summary of Significant Accounting Policies (e) Allowance for Loan Losses and
Note (5) Loans Receivable to the Notes to Consolidated Financial Statements.
Comparison of Operating Results for the Fiscal Years Ended September 30, 2002
and 2001
General
Net income, after extraordinary item, reached $30 million for the year ended
September 30, 2002, an increase of $11 million, or 59 percent, compared to $19
million for the year ended September 30, 2001. The net increase of $11 million
for the year includes an increase in net interest income of $33 million before
provision for loan loss, and an increase in non-interest income of $4.2
million. These increases in income were offset by an increase in the provision
for loan loss of $2.1 million, an increase in non-interest expense of $17
million, an increase in the provision for income taxes of $6.1 million and a
decrease in extraordinary gains of $1 million.
Below is a more detailed discussion of each major category of income and
expenses for the year ending September 30, 2002 compared to 2001.
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
Net interest income before provision for loan losses was $111 million for
the year ended September 30, 2002, a $33 million, or 43 percent, increase over
$77 million for the same period in 2001. The total increase of $33 million is
due to three factors: an increase of $18 million due to increases in volume of
average interest-earning assets and interest-bearing liabilities, an increase
of $14 million due to changes in yields earned on interest-earning assets and
rates paid on interest-bearing liabilities, and an increase of $1.3 million
related the changes in Rate/Volume (see the definition of changes in
Rate/Volume provided in the Rate/Volume Analysis table).
31
The average balance of interest-earning assets increased by $767 million for
the year ended September 30, 2002, compared to the prior year. The average
balance of interest-bearing liabilities increased by $728 million, for the year
ended September 30, 2002, compared to the prior year. The increase in average
interest-earning assets generated $53.7 million of additional interest income
while the increase in average interest-bearing liabilities generated only $36
million of additional interest expense, resulting in an increase of $17.7
million of net interest income due to changes in volume. In addition, the ratio
of average interest-earning assets over average interest-bearing liabilities
for the year ended September 30, 2002 was 103.95 percent, an improvement from
103.71 percent for the same period in the prior year. This increase in this
ratio contributed to the 38 basis point expansion in our net interest margin
from 1.76 percent for the year ended September 30, 2001 to 2.14 percent for
2002.
Another factor, which contributed to the improvement of our net interest
margin, was the increase in interest rate spread of 43 basis points from 1.55
percent for the year ended September 30, 2001 to 1.98 percent for the same
period in 2002. This increase in interest rate spread resulted in an increase
in net interest income of $14.4 million due to changes in rates.
Interest Income. Interest income increased by $3.8 million, or 1.2 percent,
to $327.9 million for the year ended September 30, 2002, compared to $324.1
million for the same period in 2001. This net increase is the result of
increases of $53.7 million due to changes in volume, offset by decreases of
$42.2 million and $7.7 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 $34.7 million, $15.0 million, and $5.1 million,
respectively for the year ended September 30, 2002 compared to 2001.
The rate related changes in interest income stem mostly from the decrease in
yield on loans of 88 basis points from 7.45 percent for the year ended
September 30, 2001 to 6.57 percent for the same period in 2002. This drop in
yield on loans reduced interest income by $32.3 million for the year ended
September 30, 2002 compared to the prior year. The decrease in yields includes
the effect of the amortization of deferred loan fees which accelerated due to
higher loan prepayments in the lower interest rate environment. Yields also
dropped on mortgage-backed securities, long-term and short-term investments,
reducing interest income by $6.0 million, $2.4 million and $1.5 million
respectively, for the year ended September 30, 2002 compared to the prior year.
Interest Expense. Interest expense decreased by $29.6 million, or 12.0
percent, to $217.2 million for the year ended September 30, 2002, compared to
$246.8 million for the prior year. This net decrease is the result of increases
of $36.0 million due to changes in volume, offset by decreases of $56.7 million
and $9.0 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, savings, trust preferred securities, and
NOW/money market accounts, which increased interest expense by $26.4 million,
$13.3 million, $1.5 million, and $2.3 million, respectively for the year ended
September 30, 2002, compared to the prior year. Offsetting the impact increases
in average balances of those liabilities had on interest income, are decreases
in the average balance of certificates of deposit, which decreased interest
expense by $7.5 million.
The rate related changes stem from the decrease in rates paid on all
liabilities, from 5.82 percent for the year ended September 30, 2001 to 4.37
percent for 2002. The most significant improvement came from a drop in rates
paid on certificates of deposits, which changed from 6.19 percent for the year
ended September 30, 2001 to 4.54 percent for 2002. This improvement of 165
basis points reduced the cost of funds by $31.1 million. The drop in rates paid
on FHLB advances and other borrowings of 106 basis points from 5.93 percent for
the year ended September 30, 2001 to 4.87 percent for 2002 reduced the cost of
funds by $12.9 million. Additional reductions in the cost of funds came from
the drop in rates paid on NOW/money market, savings accounts, and trust
preferred
32
securities of 99 basis points, 182 basis points, and 92 basis points,
respectively during year ended September 30, 2002 compared to 2001. The drop in
rates paid reduced the cost of funds for NOW/money market, savings accounts and
trust preferred securities by $3.0 million, $7.8 million, and $1.9 million,
respectively for the year ended September 30, 2002 compared to 2001.
Yields Earned and Rates Paid. 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 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 for the appropriate periods, whereas recognition of interest on such
loans is discontinued and any remaining accrued interest receivable is
reversed, in conformity with generally accepted accounting principles and
federal regulations. The yields and net interest margins appearing in the
following table have been calculated on a pre-tax basis.
For the Year Ended September 30,
----------------------------------------------------------------------------------------
2002 2001 2000
---------------------------- ---------------------------- ----------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate/(2)/ Balance Interest Rate/(2)/ Balance Interest Rate/(2)/
---------- -------- -------- ---------- -------- -------- ---------- -------- --------
(Dollars in thousands)
Interest-earning assets:
Loans receivable, net (2)..... $3,867,704 $254,035 6.57% $3,666,749 $273,174 7.45% $3,515,652 $260,690 7.42%
Mortgage-backed securities.... 1,056,680 61,685 5.84 555,745 38,473 6.92 354,271 24,866 7.02
Short-term investments (3).... 18,420 617 3.35 26,732 2,339 8.75 53,916 4,013 7.44
Long-term investments and
FHLB stock, net............. 218,384 11,520 5.28 145,145 10,091 6.95 73,816 5,746 7.78
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Total interest-earning
assets..................... 5,161,188 327,857 6.35% 4,394,371 324,077 7.37% 3,997,655 295,315 7.39%
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Interest-bearing liabilities:
NOW/money market.............. 392,405 5,638 1.44% 299,123 7,277 2.43% 264,577 6,777 2.56%
Savings....................... 721,206 19,531 2.71 427,095 19,349 4.53 355,320 16,825 4.74
Certificates of deposit....... 1,762,399 80,043 4.54 1,883,395 116,508 6.19 1,823,606 103,027 5.65
Trust preferred securities(4). 221,813 19,384 8.74 206,316 19,929 9.66 215,600 20,899 9.69
Senior notes.................. 200,000 11,332 5.67 200,000 11,333 5.67 200,000 11,429 5.71
FHLB advances and other
borrowings.................. 1,667,128 81,243 4.87 1,221,398 72,397 5.93 1,018,782 60,189 5.91
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Total interest-bearing
liabilities................ $4,964,951 $217,171 4.37% $4,237,327 $246,793 5.82% $3,877,885 $219,146 5.65%
========== ======== ==== ========== ======== ==== ========== ======== ====
Excess of interest-earning
assets over interest-bearing
liabilities................... $ 196,237 $ 157,044 $ 119,770
========== ========== ==========
Net interest income............ $110,686 $ 77,284 $ 76,169
======== ======== ========
Interest rate spread........... 1.98% 1.55% 1.74%
==== ==== ====
Net interest margin............ 2.14% 1.76% 1.91%
==== ==== ====
Ratio of interest-earning
assets to interest- bearing
liabilities................... 103.95% 103.71% 103.09%
========== ========== ==========
- --------
(1) The yields and rates along with the corresponding interest rate spread and
net interest margin represent the yields earned and rates paid on
BankUnited's interest-earning assets and interest-bearing liabilities,
respectively, as of the close of business on September 30, 2002 and do not
include any estimates of the effect accelerated amortization of purchased
premiums would have on the yields earned.
(2) Includes non-accruing loans of $27.3 million, $24.7 million and $18.4
million for the years ended September 30, 2002, 2001 and 2000, respectively.
(3) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold certificates of
deposit, and tax certificates.
(4) Includes the affect of interest rate swaps. For more information see Note
(13) Accounting for Derivatives and Hedging Activities.
33
Rate/Volume Analysis. The following table presents, 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 changes attributable to: (i) changes in volume (change in volume
multiplied by prior year 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 changes.
Year Ended September 30, Year Ended September 30,
2002 v 2001 2001 v 2000
------------------------------------- ------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
Changes Changes
Changes Changes in Total Changes Changes in Total
in in Rate/ Increase in in Rate/ Increase
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
------- -------- ------- ---------- ------- ------- ------- ----------
(Dollars in thousands)
Interest income attributable to: Loans.. $14,971 $(32,267) $(1,843) $(19,139) $11,211 $ 1,055 $ 218 $12,484
Mortgage-backed securities and
collateralized mortgage
obligations.......................... 34,665 (6,002) (5,451) 23,212 14,143 (354) (182) 13,607
Short-term investments(1)............. (1,027) (1,539) 844 (1,722) (2,022) 1,425 (1,077) (1,674)
Long-term investments and FHLB
stock................................ 5,090 (2,424) (1,237) 1,429 5,549 (613) (591) 4,345
------- -------- ------- -------- ------- ------- ------- -------
Total interest-earning assets........ 53,699 (42,232) (7,687) 3,780 28,881 1,513 (1,632) 28,762
------- -------- ------- -------- ------- ------- ------- -------
Interest expense attributable to:
NOW/money market...................... 2,267 (2,961) (945) (1,639) 884 (344) (40) 500
Savings............................... 13,323 (7,773) (5,368) 182 3,402 (746) (132) 2,524
Certificates of deposit............... (7,490) (31,076) 2,101 (36,465) 3,378 9,847 256 13,481
Trust preferred securities............ 1,497 (1,898) (144) (545) (900) (65) (5) (970)
Senior notes.......................... -- -- -- -- -- (80) (16) (96)
FHLB advances and other
borrowings........................... 26,431 (12,947) (4,639) 8,845 11,975 204 29 12,208
------- -------- ------- -------- ------- ------- ------- -------
Total interest-bearing liabilities... 36,028 (56,655) (8,995) (29,622) 18,739 8,816 92 27,647
------- -------- ------- -------- ------- ------- ------- -------
Increase (decrease) in net interest
income.............................. $17,671 $ 14,423 $ 1,308 $ 33,402 $10,142 $(7,303) $(1,724) $ 1,115
======= ======== ======= ======== ======= ======= ======= =======
- --------
(1) Short term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold certificates of
deposit, and tax certificates.
Provision for Loan Losses. BankUnited records provisions for loan losses as
a charge to income in amounts necessary to adjust the allowance for loan losses
as determined by management through its review of asset quality in relation to
BankUnited's loans receivable portfolio. See Asset Quality for a full
discussion on BankUnited's allowance for loan losses. Factors giving rise to
the increase in the provision of $2 million, for the year ended September 30,
2002 to $9 million include, an increase in the rate loans charged-off, a
general increase in loans as well as consideration of the impact of
environmental factors including general economic and political conditions and
economic trends and other conditions in specific geographical areas. See the
table with information concerning non-performing assets in Asset Quality.
Non-interest Income
BankUnited generates non-interest income in connection with servicing loans,
fees charged on deposits and other products, sales of assets through the
implementation of management's asset/liability policy, insurance and investment
services, increases in the cash surrender value of bank-owned life insurance,
and rental income it generates from properties it owns. In addition, BankUnited
intends to, among other things, expand upon its ability to generate additional
non-interest income by exploring opportunities with international clientele in
the area of private banking.
34
The following table provides a comparison for each of the categories of
non-interest income for the years ended September 30, 2002 and 2001.
For the Years Ended
September 30,
-------------------
2002 2001 Change
------- ------- --------------
Non-interest income:
Service fees on loans........................................... $ 1,034 $ 2,947 $(1,913) (64.9)%
Service fees on deposits........................................ 3,348 2,803 545 19.4%
Service fees other.............................................. 1,003 745 258 34.6%
Net gain on sale of investments and mortgage-backed securities.. 1,557 1,837 (280) (15.2)%
Net gain on sale of loans and other assets...................... 3,850 1,383 2,467 178.4%
Insurance and investment services income........................ 3,929 3,169 760 24.0%
Other........................................................... 3,062 708 2,354 332.5%
------- ------- ------- -----
Total non-interest income...................................... $17,783 $13,592 $ 4,191 30.8%
======= ======= ======= =====
The decrease in service fees on loans for the year ended September 30, 2002
of $1.9 million or 65 percent, compared to fiscal 2001, is due mostly to an
increase in amortization of, and an impairment charge of $800 thousand against
mortgage servicing rights resulting primarily from an increase in prepayments.
The increase in service fees on deposits of 19 percent is consistent with
the increase in core deposits during the fiscal year, which reflects
BankUnited's aggressive marketing and service efforts, branch expansion, and
the offering of competitive products and rates.
Insurance and investment services income increased by 24 percent, due mostly
to an increase in income of $705 thousand generated from the sale of annuity
products. BankUnited intends to increase fees generated from investment
services in the private banking arena by increasing licensed professionals.
During the year ended September 30, 2002, there were net gains of $1.6
million on the sale of investment and mortgage-backed securities, compared to
net gains of $1.8 million for the same period in 2001. The net gains of
$1.6 million in 2002, stem from the gains on sale of equity investment
securities of $1.3 million, gains on the sale of mortgage-backed securities
originally purchased by BankUnited of $1.4 million, and losses of $1.2 million
on the sale of mortgage-backed securities arising from the sale of securitized
loans. The net gains of $1.8 million in 2001 is the net result of a gain of
$724 thousand from the sale of mortgage-backed securities arising from the
securitization of loans, and a gain of $1.1 million from the sale of
mortgage-backed securities originally purchased by BankUnited.
During the year ended September 30, 2002, BankUnited generated $3.9 million
in net gains from the sale of loans and other assets primarily from loan sales.
The $3.9 million also includes a loss of $214 thousand from the property plant
and equipment. The majority of the assets disposed of were obsolete computer
equipment. During the year ended September 30, 2001, BankUnited generated
$1.4 million in net gains from the sale of loans and other assets.
The remaining items in non-interest income of $3.1 million for the year
ended September 30, 2002, included in Other, are the increase in the cash
surrender value of bank-owned life insurance of $2.7 million and rental income
of $156 thousand. Other non-interest income for the year ended September 30,
2001 of $708 thousand was primarily the result of an increase in the cash
surrender value of bank-owned life insurance of $516 thousand.
35
Non-interest Expense
The following table provides a comparison for each of the categories of
non-interest expenses for the years ended September 30, 2002 and 2001:
For the Years
Ended
September 30,
- ---------------
2002 2001 Change
- ------- ------- --------------
Non-interest expenses:
Employee compensation and benefits....... $30,501 $22,629 $ 7,872 34.8%
Occupancy and equipment.................. 11,166 9,046 2,120 23.4%
Insurance................................ 1,089 1,000 89 8.9%
Professional fees--legal and accounting.. 5,342 3,267 2,075 63.5%
Telecommunications and data processing... 4,427 3,388 1,039 30.7%
Loan servicing expense................... 2,963 4,623 (1,660) (35.9)%
Advertising and promotion expense........ 5,767 2,356 3,411 144.8%
Amortization of goodwill................. -- 1,554 (1,554) --
Other operating expenses................. 10,308 6,534 3,774 57.8%
------- ------- ------- -----
Total non-interest expenses............. $71,563 $54,397 $17,166 31.6%
======= ======= ======= =====
The increases in the majority of categories included in non-interest
expenses, 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 to increase brand recognition and market share. Goodwill is no longer
amortized as the result of adopting a newly issued accounting pronouncement
adopted by BankUnited on October 1, 2001. While expenses increased this year,
BankUnited was able to improve its efficiency ratio to 53.5 percent for fiscal
2002 versus 57 percent for fiscal 2001.
Comparison of Operating Results for the Fiscal Years Ended September 30, 2001
and 2000
General
Net income after preferred stock dividends increased by $3.4 million, or
22.7 percent, to $18.4 million for the year ended September 30, 2001, compared
to $15.0 million for the year ended September 30, 2000. The increase in fiscal
2001 is mainly attributed to increases in non-interest income of $7.5 million
and net interest income before provision for loan loss of $1.1 million, offset
by increases in provision for loan loss of $2.5 million and non-interest
expense of $1.9 million.
Net Interest Income. Net interest income before provision for loan losses
increased $1.1 million, or 1.4 percent, to $77.3 million for the year ended
September 30, 2001 from $76.2 million for the year ended September 30, 2000.
This marginal increase is the net result of volume related increases in the
excess of interest earning assets over interest bearing liabilities, which
generated an additional $10.1 million in net interest income offset by
decreases attributable to a decline in interest rates and rate/volume (change
in rate multiplied by the change in volume), reducing net interest income by
$7.3 million and $1.7 million, respectively.
Interest Income. Interest income increased by $28.8 million or 9.8 percent,
to $324.1 million for the year ended September 30, 2001, compared to $295.3
million for the year ended September 30, 2000. This increase is predominantly
volume related and reflects increases in the average balances of loans
receivable, net, mortgage- backed securities and collateralized mortgage
obligations, and long-term investments and FHLB stock of $151.1 million, $201.5
million and $71.3 million, respectively. These increases in average balances
resulted in an increase in interest income due to volume of $11.2 million,
$14.1 million and $5.5 million generated from loans receivable, net, mortgage
backed securities and collateralized mortgage obligations, and long-term
investments
36
and FHLB stock, respectively. In addition, there was a reduction in the average
balance of short-term investments of $19.5 million, which resulted in a
decrease in interest income of $2.0 million due to volume, slightly offsetting
the increases discussed above.
While prepayments precipitated from the decline in interest rates during the
last three quarters of fiscal 2001, BankUnited sufficiently increased loan
production to raise the average balance in the loan portfolio and thus increase
interest income by $11.2 million in the year ended September 30, 2001 compared
to the year ended September 30, 2000.
The secondary offering of stock during fiscal 2001, which raised $73.6
million in net proceeds, allowed BankUnited to increase its borrowing capacity.
The increase in the average balance of mortgage-backed securities and
collateralized mortgage obligations, and long-term investments and FHLB stock
stems from BankUnited's effort to maximize interest earned until such time that
BankUnited utilizes this capital for expansion. The increase in those
investments resulted in increases in interest income of $14.1 million and
$5.5 million, respectively.
Interest Expense. Interest expense increased by $27.7 million or 12.6
percent, to $246.8 million for the year ended September 30, 2001, compared to
$219.1 million for the year ended September 30, 2000. This increase has a
volume related component of $18.7 million and a rate related component of $8.8
million.
For the reasons indicated in the interest income portion of this discussion,
BankUnited increased its average FHLB advances and other borrowings by $202.6
million to $1.2 billion for the year ended September 30, 2001 from $1.0 billion
for the year ended September 30, 2000. This increase of 20.3 percent in the
average balance resulted in additional interest expense due to volume of $12.0
million for the year ended September 30, 2001 compared to the prior year.
The average balance of trust preferred securities for the year ended
September 30, 2001 was $206.3 million, which represents a decrease from the
prior year of $9.3 million. (See Trust Preferred Securities in the Discussion
of Financial Condition Changes for the Years Ended September 30, 2001 and
2000). This decrease in the average balance caused a reduction in interest
expense of $0.9 million for the year ended September 30, 2001 compared to the
prior year.
The average balances of savings and certificates of deposit increased for
the year ended September 30, 2001, compared to the year ended September 30,
2000 from $355.3 million to $427.1 million and from $1.8 billion to $1.9
billion, respectively. The increase in average balances resulted in an increase
in interest expense due to volume of $3.4 million for savings and $3.4 million
for certificates of deposit.
BankUnited's net interest margin for the year ended September 30, 2001 was
1.76 percent versus 1.91 percent for the same period in the prior year, a drop
of 15 basis points. The decrease in the interest margin can be largely
attributed to the re-pricing characteristics of certificates of deposit. These
certificates of deposit, which comprise a major portion of our deposit base, do
not react as quickly to interest rate changes as these deposits that are longer
in term. This lag in re-pricing allowed certificates that were renewing in the
first half of the year to renew at rates above their original rate. As a
result, the rates paid on certificates increased by 54 basis points, from 5.65
percent in fiscal 2000 to 6.19 percent in fiscal 2001. Conversely, as interest
rates remain low for an extended period, this lag reverses and the overall
costs of certificates decreases. This was the case in the second half of fiscal
2001.
Provision for Loan Losses. The provision for loan losses increased $2.5
million to $7.1 million for the year ended September 30, 2001 compared to $4.6
million for the year ended September 30, 2000. This increase was necessary due
to an increase in non-accrual loans which increased from $19.8 million at
September 30, 2000 to
37
$27.4 million at September 30, 2001, as well as an increase in outstanding
loans. The increase in non-accruals as well as loan activity was primarily in
consumer and commercial loans.
Non-interest Income. Non-interest income increased $7.5 million for the year
ended September 30, 2001, compared to $6.1 million for the year ended September
30, 2000. The increase includes gains on the sale of investments, loans and
mortgage-backed securities in the aggregate of $3.2 million for the year ended
September 30, 2001, compared to $71,000 for the prior year. Included in the
$3.2 million gain for fiscal 2001, is a gain of $2.0 million from the
securitization and sale of residential mortgage loans. This activity is the
result of BankUnited's asset/liability management process and the practice of
selling assets, which are in excess of portfolio needs.
The increase in non-interest income of $7.5 million also includes an
increase in service fees on deposits of approximately $2.5 million, partially
offset by a decrease of approximately $277,000 in loan servicing income, net.
Finally, non-interest income increased by $2.2 million from the sale of
specialized financial products sold through our affiliate organization BUFC
Financial Services.
Non-interest Expense. Operating expenses increased $1.9 million to $54.4
million for the year ended September 30, 2001 compared to $52.5 million for the
prior year. The increase in expenses is primarily attributable to additional
staff and facilities necessitated by BankUnited's growth levels increasing
compensation by $2.8 million, occupancy and equipment by $0.7 million, and
telecommunications and data processing of $0.4 million. These increases are
partially offset by the decreases in loan servicing expenses of $1.1 million
and advertising and promotion expense of $0.9 million.
Related Party Transactions
See Note (19) Related Party Transactions to the Notes to Consolidated
Financial Statements.
38
Selected Quarterly Financial Data
Set forth below is selected quarterly data for the fiscal years ended
September 30, 2002 and 2001.
2002
----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands,
except for per share data)
Net interest income........................ $25,560 $28,435 $27,978 $28,713
Provision for loan losses.................. 2,950 2,450 1,900 1,900
Non-interest income........................ 4,508 4,445 4,287 4,543
Non-interest expense....................... 16,475 18,317 18,095 18,676
------- ------- ------- -------
Income before taxes, extraordinary item and
Preferred stock dividends................. 10,643 12,113 12,270 12,680
Income taxes............................... 3,709 4,628 4,429 4,435
------- ------- ------- -------
Net income before extraordinary item
and preferred stock dividends............. 6,934 7,485 7,841 8,245
Extraordinary item (net of taxes).......... 3 (20) -- (167)
------- ------- ------- -------
Net income before preferred stock dividends 6,937 7,465 7,841 8,078
Preferred stock dividends.................. 50 51 77 79
------- ------- ------- -------
Net income applicable to common stock...... $ 6,887 $ 7,414 $ 7,764 $ 7,999
======= ======= ======= =======
Basic:
Net income before extraordinary item.... $ 0.27 $ 0.30 $ 0.31 $ 0.32
------- ------- ------- -------
Net income after extraordinary item..... $ 0.27 $ 0.29 $ 0.31 $ 0.32
======= ======= ======= =======
Diluted:
Net income before extraordinary item.... $ 0.26 $ 0.28 $ 0.29 $ 0.30
------- ------- ------- -------
Net income after extraordinary item..... $ 0.26 $ 0.28 $ 0.29 $ 0.30
======= ======= ======= =======
2001
----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands,
except for per share data)
Net interest income........................ $17,938 $18,145 $18,761 $22,440
Provision for loan losses.................. 1,200 1,600 1,650 2,650
Non-interest income........................ 2,063 2,936 3,876 4,717
Non-interest expense....................... 12,931 12,781 13,737 14,949
------- ------- ------- -------
Income before taxes, extraordinary item and
Preferred stock dividends................. 5,870 6,700 7,250 9,558
Income taxes............................... 2,408 2,528 2,663 3,506
------- ------- ------- -------
Net income before extraordinary item
and preferred stock dividends............. 3,462 4,172 4,587 6,052
Extraordinary item (net of taxes).......... 550 211 61 1
------- ------- ------- -------
Net income before preferred stock dividends 4,012 4,383 4,648 6,053
Preferred stock dividends.................. 198 198 205 49
------- ------- ------- -------
Net income applicable to common stock...... $ 3,814 $ 4,185 $ 4,443 $ 6,004
======= ======= ======= =======
Basic:
Net income before extraordinary item.... $ 0.18 $ 0.22 $ 0.23 $ 0.24
------- ------- ------- -------
Net income after extraordinary item..... $ 0.21 $ 0.23 $ 0.23 $ 0.24
======= ======= ======= =======
Diluted:
Net income before extraordinary item.... $ 0.18 $ 0.21 $ 0.22 $ 0.23
------- ------- ------- -------
Net income after extraordinary item..... $ 0.21 $ 0.22 $ 0.22 $ 0.23
======= ======= ======= =======
39
Item 7a. Quantitative and Qualitative Disclosure About Market Risk.
Interest Rate Sensitivity
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, and trust preferred securities). None of
these financial instruments are entered into for trading purposes. Such
financial instruments have varying levels of sensitivity to changes in market
interest rates that creates interest rate risk for the Bank. Accordingly,
BankUnited's net interest income, the most significant component of its net
income, is impacted by changes in market interest rates and yield curves,
particularly if there are differences, or gaps, in the repricing 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 repricing frequencies of its
interest-earning assets and interest-bearing liabilities. In addition to
reviewing reports which summarize BankUnited's various interest sensitivity
gaps, management utilizes a simulation model which measures the financial
impact certain interest rate scenarios are likely to have on the Bank. As
discussed more fully below, a variety of factors influence the repricing
characteristics and the market values of BankUnited's interest-earning assets
and interest-bearing liabilities, but many of these factors are difficult to
quantify.
The matching of the repricing characteristics of assets and liabilities may
be analyzed by examining the extent to which such assets and liabilities are
"interest rate sensitive" and by monitoring an institution's interest rate
sensitivity gap. An asset or liability is said to be interest rate sensitive
within a specific time period if it will contractually mature or reprice, or if
by management assumption, it is likely to be impacted by prepayments, run-off,
early withdrawal, or other such forces which can impact the timing and amount
of a given financial instrument's cash flows. An interest rate sensitivity gap
is the difference between the amount of interest-earning assets anticipated to
mature or reprice within a specific time period and the amount of
interest-bearing liabilities anticipated to mature or reprice within that same
period. A gap is considered to be positive when the amount of interest rate
sensitive assets maturing or repricing within a specific time frame exceeds the
amount of interest rate sensitive liabilities maturing or repricing within that
same time frame. Conversely, a gap is considered to be negative when, within a
given period of time, the amount of interest rate sensitive liabilities exceeds
the amount of interest rate sensitive assets. During a period where the general
level of interest rates is rising, a bank with a negative gap over that period
is likely to experience a decline in net interest income. Alternatively, a bank
with a positive gap will typically experience an increase in net interest
income.
Significant Assumptions Utilized in Managing Interest Rate Risk
Assessing and managing BankUnited's exposure to interest rate risk involves
significant assumptions concerning the exercise of options which are considered
to be imbedded in many of the financial instruments on BankUnited's balance
sheet, the expected movement and relationship of various interest rate indices,
the impact of lag and cap risk, and the general availability of mortgages.
Imbedded Options. As of September 30, 2002, a substantial portion of
BankUnited's loans and mortgage-backed securities are mortgage loans that
contain an imbedded option allowing borrowers to repay all, or a portion of,
their loan prior to maturity, frequently without penalty. The existence of this
imbedded prepayment option can adversely impact BankUnited's financial
performance. In general, fixed rate securities tend to exhibit an increase in
market value when the level of interest rates falls, and they tend to exhibit a
decrease in market value when the level of interest rates rises. Mortgage loans
having imbedded prepayment options, and the securities which contain them, do
tend to decrease in market value as interest rates rise. However increases in
market value due to a decrease in interest rates are typically suppressed since
in a lower rate environment borrowers are more likely to prepay, or refinance,
their mortgage loans. Consequently, the adverse impact an investment in
mortgage loans or mortgage securities may have on BankUnited's market value of
equity, should interest rates rise, may exceed the beneficial impact should
interest rates fall by a like amount.
40
Additionally, in an increasing interest rate environment BankUnited's
funding costs may be expected to increase more quickly than would BankUnited's
earnings from its mortgage loan assets. This could result in a deterioration in
BankUnited's net interest margin. However, due to the asymmetry discussed
previously, improvement in BankUnited's net interest margin due to a general
decrease in interest rates, may be less than the deterioration in BankUnited's
net interest margin given a similar increase in the general level of interest
rates.
A borrower's propensity for prepayment is dependent upon a number of
factors, some of which are: the loan's current interest rate versus the rate at
which the borrower would be able to refinance, the economic benefit expected to
be obtained from refinancing, the borrower's financial ability to refinance,
the availability of mortgage loans in general, and numerous other economic and
non-economic factors, some of which may vary by geographic region.
Savings and checking deposits generally may be withdrawn upon customer
request without prior notice. However, on an overall basis, one customer's
withdrawal is likely to be offset by another customer's deposit resulting in a
dependable source of funds. Time deposits are generally subject to early
withdrawal penalties, which results in the large majority of these deposits
being maintained until maturity. Similarly, term FHLB advances have prepayment
penalties, which discourage early repayment by the Bank.
BankUnited's trust preferred securities may be redeemed at par plus accrued
interest receivable after five years from the issuance date, except for
BankUnited Capital which has a ten year call provision.
. BankUnited Capital was issued on December 31, 1996 and is callable on
December 31, 2006 at 105.125%. This premium reduces ratably over ten years
to par plus accrued interest, thereafter.
. BankUnited Capital II is currently callable at par plus accrued interest.
. BankUnited Capital III was issued March 31, 1998 and is callable on March
31, 2003 at par plus accrued interest.
. BankUnited Statutory Trusts (I, II, III) were issued from December 2001 to
September 2002 and are callable from December 2006 to September 2007 at
par plus accrued interest receivable.
See Note (12) Company Obligated Mandatorily Redeemable Trust Preferred
Securities of Subsidiary Trusts Holding Solely Junior Subordinated Deferrable
Interest Debentures of BankUnited to the Notes to Consolidated Financial
Statements for further discussion of the trust preferred securities.
BankUnited borrows from the FHLB in the form of advances to fund operations.
These advances have a variety of terms, rates and repayment provisions. A
significant portion of the Bank's advances have been obtained through a
convertible advances program that permits the FHLB to call an advance at its
discretion on a specified "call" date which generally occurs every three months
following an initial period ranging from three months to four years. Should the
FHLB elect to exercise this option, the Bank can either convert the advance
from a fixed rate basis to floating rate basis or repay it in full. It is
highly probable that the advances will be converted in a rising interest rate
environment. Should the FHLB elect to exercise this option, BankUnited's cost
of funds may be affected adversely.
The Bank also has advances under the FHLB "knockout" advance program. In
general, a knockout advance is structured as a fixed-rate advance that the FHLB
may call at the end of any given three-month period after the non-conversion
period, the 3-month LIBOR rate equals or exceeds an agreed upon threshold rate.
Should a particular advance be called by the FHLB, the Bank can either convert
the advance from a fixed-rate basis to a floating rate basis or pay it in full.
41
During fiscal year 2000, BankUnited borrowed a total of $250 million in
knockout advances, each with a 10-year term and a one year non-callable period.
The initial rates on these advances range from 5.92 percent to 6.94 percent
while the threshold rates range from 8.50 percent to 9.75 percent. BankUnited
has chosen to borrow under the knockout advance program because, as long as
these advances remain unconverted by the FHLB, the stability of BankUnited's
net interest margin will be enhanced. However, if the 3-month LIBOR rate were
to rise to these threshold rates so as to allow the FHLB to call one or more of
BankUnited's knockout advances, the funding cost associated with the advance
would become higher and more volatile, negatively impacting BankUnited's net
interest margin. These same knockout advances were outstanding at September 30,
2002.
Interest Rate Indices. BankUnited's ARM loans and mortgage-backed
securities are primarily indexed to the One-Year Constant Maturity Treasury
("CMT") or Monthly Treasury Average ("MTA") indices. BankUnited commercial and
consumer Loans may be indexed to Prime or LIBOR. To the extent such loans and
mortgage-backed securities are funded by deposits, FHLB advances, and other
interest-bearing liabilities whose interest costs are influenced by indices not
highly correlated with the above indices, an environment of changing interest
rates may impact the various indices differently which may lead to significant
changes in the value of, and the net earnings generated from, BankUnited's
financial instruments. Historical relationships between various indices may not
necessarily be indicative of future relationships. BankUnited in its normal
course of business uses liabilities which are correlated with these indices.
Lag Risk. Lag risk results from timing differences between repricing of
adjustable-rate assets and liabilities. The effect of this timing difference,
or "lag", would be favorable in a falling interest rate environment and
negative during periods of rising interest rates. This lag risk can produce
short-term volatility in the net interest margin during periods of interest
rate movements even though over time the lag effect will balance out. As an
illustration we have loans indexed to the MTA. The MTA Index is based on a 12
month moving average of the prior twelve months of treasury rates. In periods
of rapidly moving interest rates loans tied to this index will not reprice to
the current level of rates for 12 months while liabilities generally reprice to
current market interest rates immediately.
Cap Risk. In times of sharply rising interest rates, caps may serve to
limit the increase in interest income generated from certain interest-earning
assets. Conversely, in an environment of sharply falling interest rates, they
may reduce the decline in BankUnited's interest income. Over periods of time
where the general level of interest rates has had time to fluctuate, the
alternating positive and negative effects generated by such interest rate caps
will be largely offsetting. Over shorter periods, however, and to the extent
any caps are actually limiting the interest rate adjustment of any assets, they
can increase the volatility of BankUnited's net interest income, and to a
lesser extent, its market value of equity.
BankUnited has mitigated its cap risk by currently originating loans that do
not have caps and certain Hybrid ARM loans that will adjust up to 500 basis
points at the first adjustment period. This first adjustment period can range
from 3 years to 7 years. BankUnited anticipates the majority of these Hybrid
ARM loans will prepay prior to the first adjustment.
Availability of Mortgage Loans. The availability of mortgage loans meeting
BankUnited's criteria is dependent upon, among other things, the size and level
of activity in the residential real estate lending market, which in turn
depends on other factors including the level of interest rates, regional and
national economic conditions and changes in residential real estate values. To
the extent the BankUnited is unable to originate or acquire a sufficient volume
of mortgage loans meeting its criteria, BankUnited's operating results could be
adversely affected.
In originating or acquiring mortgage loans, BankUnited competes with REITs,
investment banking firms, savings and loan associations, banks, mortgage
bankers, insurance companies, mutual funds, competing lenders, FNMA, FHLMC,
GNMA, and other entities which purchase mortgage loans, some of which have
greater financial resources than BankUnited. Increased competition for the
origination or acquisition of eligible mortgage loans or a diminution in the
supply could result in BankUnited having to incur higher costs and accept lower
yields. This, in turn, would reduce the amount by which BankUnited's yield on
earning assets would exceeds its cost of funding those assets.
42
Gap Table. The following table sets forth the amount of interest-earning
assets and interest-bearing liabilities outstanding at September 30, 2002,
expected to reprice or mature in each of the future time periods shown.
At September 30, 2002
Interest Sensitivity Period
---------------------------------------------------------------------------------
6 Months 6 Months- 13 Months- 25 Months- 37 Months- Over
or Less 1 Year 24 Months 36 Months 60 Months 60 Months Total
---------- --------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Interest-earning assets:
FHLB overnight deposits, federal
funds sold and securities
purchased under agreements to
resell, investments, and other
interest earning assets............... $ 595,880 $ -- $ 28,793 $ 4,742 $ 60 $ 56,515 $ 685,990
Mortgage-backed securities............. 275,892 150,112 198,057 139,946 183,145 189,482 1,136,634
Loans:
Adjustable-rate mortgages.............. 796,873 267,593 317,486 303,075 415,939 5,462 2,106,428
Fixed-rate mortgages................... 358,534 162,100 221,892 175,246 239,386 456,741 1,613,899
Commercial and consumer loans.......... 228,439 9,628 9,414 5,797 6,266 12,253 271,797
---------- -------- ---------- -------- -------- ---------- ----------
Total loans........................... 1,383,846 439,321 548,792 484,118 661,591 474,456 3,992,124
---------- -------- ---------- -------- -------- ---------- ----------
Total interest-earning assets......... $2,255,618 $589,433 $ 775,642 $628,806 $844,796 $ 720,453 $5,814,748
========== ======== ========== ======== ======== ========== ==========
Interest-bearing liabilities:
Customer deposits:
Money market and NOW accounts.......... $ 51,739 $ 51,743 $ 103,485 $103,485 $103,197 $ 39,705 $ 453,354
Passbook accounts...................... 54,787 54,809 109,618 109,618 219,236 234,896 782,964
Certificate accounts................... 415,629 490,126 578,681 129,326 125,882 209 1,739,853
---------- -------- ---------- -------- -------- ---------- ----------
Total customer deposits............... 522,155 596,678 791,784 342,429 448,315 274,810 2,976,171
---------- -------- ---------- -------- -------- ---------- ----------
Borrowings:
FHLB advances.......................... 681,000 75,000 180,000 125,000 51,089 694,000 1,806,089
Trust Preferred........................ 70,000 -- -- -- -- 183,761 253,761
Other borrowings....................... 305,042 -- 200,000 -- -- 50,000 555,042
---------- -------- ---------- -------- -------- ---------- ----------
Total borrowings...................... 1,056,042 75,000 380,000 125,000 51,089 927,761 2,614,892
---------- -------- ---------- -------- -------- ---------- ----------
Total interest-bearing liabilities.... $1,578,197 $671,678 $1,171,784 $467,429 $499,404 $1,202,571 $5,591,063
========== ======== ========== ======== ======== ========== ==========
Derivative instruments affecting interest
rate sensitivity........................ $ (26,000) $ -- $ -- $ -- $(45,000) $ 71,000 $ 0
========== ======== ========== ======== ======== ========== ==========
Total interest-earning assets less
interest-bearing liabilities ("GAP").... $ 651,421 $(82,245) $ (396,142) $161,377 $300,392 $ (411,118) $ 223,685
========== ======== ========== ======== ======== ========== ==========
Ratio of GAP to total assets........... 10.8% (1.4)% (6.6)% 2.7% 5.0% (6.8)% 3.7%
========== ======== ========== ======== ======== ========== ==========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities..................... $ 651,421 $569,176 $ 173,034 $334,411 $634,803 $ 223,685
========== ======== ========== ======== ======== ==========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities, as a percentage of
total assets............................ 10.8% 9.4% 2.8% 5.5% 10.5% 3.7%
========== ======== ========== ======== ======== ==========
43
In preparing the table above, certain assumptions have been made with regard
to the repricing of maturities of certain assets and liabilities. Assumptions
as to prepayments on first and second mortgages loans and mortgage-backed
securities were based upon assumptions corresponding to recent actual repricing
experienced in the marketplace. Money market, NOW accounts and passbook
accounts are assumed to decay based on duration estimates determined by
management. The rates paid in these accounts are determined by management,
based on market conditions and other factors, and may reprice more slowly than
assumed. All other assets and liabilities have been repriced based on the
earlier of repricing or contractual maturity. These assumptions should not be
regarded as indicative of the actual repricing that may be experienced by
BankUnited.
In addition to preparing and reviewing periodic gap reports which help
identify repricing mismatches, management uses simulation models which estimate
the impact on net interest income of various interest rate scenarios, balance
sheet trends and strategies. These simulations incorporate assumptions about
balance sheet dynamics, such as loan and deposit growth and pricing, changes in
funding mix and asset and liability repricing and maturity characteristics.
Simulations are run under various interest rate scenarios to determine the
impact on net income and capital. From these scenarios, interest rate risk is
quantified and appropriate strategies are developed and implemented. The
overall interest rate risk position and strategies are reviewed on an ongoing
basis by senior management. Based on the information and assumptions in effect
on September 30, 2002, management estimates the impact of a gradual and
parallel 100 basis-point rise or fall in interest rates over the next 12 months
to be between (5%) and 4% of net interest income.
BankUnited recognizes that there are numerous assumptions and estimates
associated with the simulations described above which may not reflect the
manner in which actual yields and costs respond to changes in market interest
rates. In this regard, the simulation model assumes that the composition of
BankUnited's interest sensitive assets and liabilities existing at the
beginning of a period remains relatively constant over the period being
measured and also assumes that the change in interest rates is reflected
uniformly across the yield curve regardless of the duration to maturity or
repricing of specific assets and liabilities. In addition, prepayment estimates
and other assumptions within the model are subjective in nature, involve
uncertainties and, therefore, cannot be determined with precision.
Accordingly, although the simulation model may provide an indication of
BankUnited's interest rate risk exposure at a particular point in time, such
measurements are not intended to provide for a precise forecast of the effect
of changes in market interest rates on BankUnited's net interest income and
will differ from actual results.
BankUnited's operations are affected by many factors beyond its control such
as the overall condition of the economy, monetary and fiscal policies of the
federal government, and regulations specific to the banking industry. Revenues
generated from lending activities are impacted by loan demand, which in turn
impacts the interest rates at which such loans may be made, the supply of
housing, the availability of funds to lend, and the cost of obtaining such
funds.
Derivative and Hedging Activities. BankUnited uses derivative instruments
as part of its interest rate risk management activities to reduce risks
associated with its borrowing activities. Derivatives used for interest rate
risk management include various interest rate swaps that relate to the pricing
of specific on-balance sheet instruments and forecasted transactions. In
connection with SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"), we recognize all derivatives as either assets
or liabilities on the consolidated balance sheet and report them at fair value
with realized and unrealized gains and losses included in either earnings or in
other comprehensive income, depending on the purpose for which the derivative
is held and whether the derivative qualifies for hedge accounting.
44
BankUnited has interest rate swap agreements that qualify as fair value
hedges and those that qualify as cash flow hedges. Fair value hedges are used
to hedge fixed rate debt. BankUnited uses cash flow hedges to hedge interest
rate risk associated with variable rate debt.
In connection with its interest rate management activities, BankUnited may
use other derivatives as economic hedges of on-balance sheet assets and
liabilities or forecasted transactions which do not qualify for hedge
accounting under SFAS 133. Accordingly, these derivatives are reported at fair
value on the consolidated balance sheet with realized gains and losses included
in earnings.
By using derivative instruments, BankUnited is exposed to credit and market
risk. Credit risk, which is the risk that a counterparty to a derivative
instrument will fail to perform, is equal to the extent of the fair value gain
in a derivative. Credit risk is created when the fair value of a derivative
contract is positive, since this generally indicates that the counterparty owes
us. When the fair value of a derivative is negative, no credit risk exists
since BankUnited would owe the counterparty. BankUnited minimizes the credit
risk in derivative instruments by entering into transactions with high-quality
counterparties as evaluated by management. Market risk is the adverse effect on
the value of a financial instrument from a change in interest rates or implied
volatility of rates. We manage the market risk associated with interest rate
contracts by establishing and monitoring limits as to the types and degree of
risk that may be undertaken. The market risk associated with derivatives used
for interest rate risk management activity is fully incorporated into our
market risk sensitivity analysis.
See Note (21) Estimated Fair Value of Financial Instruments for the fair
value of derivatives as of September 30, 2002.
45
BANKUNITED FINANCIAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants................................................... 47
Consolidated Statements of Financial Condition as of September 30, 2002 and September 30, 2001....... 48
Consolidated Statements of Operations for the Years Ended September 30, 2002, 2001 and 2000.......... 49
Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 2002, 2001 and 2000 50
Consolidated Statements of Cash Flows for the Years Ended September 30, 2002, 2001 and 2000.......... 53
Notes to Consolidated Financial Statements........................................................... 55
46
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
BankUnited Financial Corporation
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of operations, of
stockholders' equity and of cash flows present fairly, in all material
respects, the financial position of BankUnited Financial Corporation and its
subsidiaries at September 30, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2002, in conformity with accounting principles generally accepted
in the United States of America. These consolidated financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
PricewaterhouseCoopers LLP
Miami, Florida
October 28, 2002
47
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30,
----------------------
2002 2001
---------- ----------
(Dollars in thousands,
except per share data)
Assets:
Cash.......................................................................... $ 48,609 $ 45,113
Federal Home Loan Bank overnight deposits..................................... 419,946 246,902
Federal funds sold and securities purchased under agreements to resell........ 3,735 2,738
Investments available for sale, at fair value................................. 171,585 68,719
Investments held to maturity (fair value of approximately $66,495 at
September 30, 2001).......................................................... -- 66,417
Mortgage-backed securities available for sale, at fair value.................. 1,136,634 637,749
Mortgage-backed securities, held to maturity (fair value of approximately
$203,864 at September 30,2001; there were no Mortgage Backed Securities in
this category at September 30, 2002)......................................... -- 194,979
Mortgage loans held for sale (fair value of approximately $284,239 and
$253,490 at September 30, 2002 and 2001, respectively)....................... 278,759 250,041
Loans held for investment..................................................... 3,703,209 3,492,906
Add: Unearned discounts, premiums and deferred fees, net..................... 30,449 22,642
Less: Allowance for loan losses.............................................. (20,293) (15,940)
---------- ----------
Loans held for investment, net.............................................. 3,713,365 3,499,608
---------- ----------
Other earning assets.......................................................... 90,724 75,625
Office properties and equipment, net.......................................... 17,744 16,054
Real estate owned............................................................. 3,003 1,832
Accrued interest receivable................................................... 28,861 30,157
Mortgage servicing rights..................................................... 6,746 5,837
Goodwill...................................................................... 28,353 28,353
Securities sold pending settlement............................................ -- 25,469
Bank owned life insurance..................................................... 53,180 20,516
Prepaid expenses and other assets............................................. 27,304 22,086
---------- ----------
Total assets................................................................ $6,028,548 $5,238,195
========== ==========
Liabilities and Stockholders' Equity:
Liabilities:
Deposits...................................................................... $2,976,171 $2,653,145
Securities sold under agreements to repurchase................................ 355,042 283,116
Advances from Federal Home Loan Bank.......................................... 1,806,089 1,509,721
Senior notes.................................................................. 200,000 200,000
Company obligated mandatorily redeemable trust preferred securities of
subsidiary trusts holding solely junior subordinated deferrable interest
debentures of BankUnited..................................................... 253,761 203,592
Interest payable (primarily on deposits and advances from Federal Home Loan
Bank) 13,938 14,265
Advance payments by borrowers for taxes and insurance......................... 40,593 31,999
Securities purchased pending settlement....................................... -- 15,178
Accrued expenses and other liabilities........................................ 37,805 26,733
---------- ----------
Total liabilities................................................................ 5,683,399 4,937,749
---------- ----------
Commitments and Contingencies (See notes (7) & (18))
Stockholders' Equity:
Preferred stock, Series B, $0.01 par value. Authorized shares-10,000,000.
Issued shares--574,007 and 355,821 at September 30, 2002 and 2001,
respectively. Outstanding shares--547,287 and 355,821 at September 30, 2002
and 2001, respectively....................................................... 6 4
Class A Common Stock, $0.01 par value. Authorized shares--60,000,000 at
September 30, 2002 and 30,000,000 at September 30, 2001. Issued
shares--25,008,515 and 24,871,219 at September 30, 2002 and 2001,
respectively. Outstanding shares--24,675,515 and 24,538,219 at September
30, 2002 and 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 September 30, 2002 and 2001,
respectively................................................................. 5 5
Additional paid-in capital.................................................... 253,511 249,788
Retained earnings............................................................. 77,566 47,502
Treasury stock, 333,000 shares of class A Common Stock at September 30,
2002, and 2001............................................................... (2,794) (2,794)
Treasury stock, 26,720 shares of Series B Preferred at September 30, 2002..... (528) --
Deferred compensation......................................................... 528 --
Accumulated other comprehensive income........................................ 16,605 5,692
---------- ----------
Total stockholders' equity.................................................. 345,149 300,446
---------- ----------
Total liabilities and stockholders' equity.................................. $6,028,548 $5,238,195
========== ==========
See accompanying notes to consolidated financial statements
48
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30,
-------------------------------------------
2002 2001 2000
-------- -------- --------
(Dollars and shares in thousands, except earnings
per share)
Interest income:
Interest and fees on loans............................................... $254,035 $273,174 $260,690
Interest on mortgage-backed securities................................... 61,685 38,473 24,866
Interest on short-term investments....................................... 617 1,699 3,229
Interest and dividends on long-term investments and
other interest-earning assets........................................... 11,520 10,731 6,530
-------- -------- --------
Total interest income.................................................. 327,857 324,077 295,315
-------- -------- --------
Interest expense:
Interest on deposits..................................................... 105,212 143,134 126,629
Interest on borrowings................................................... 92,575 83,730 71,618
Preferred dividends of subsidiary trust.................................. 19,384 19,929 20,899
-------- -------- --------
Total interest expense................................................. 217,171 246,793 219,146
-------- -------- --------
Net interest income before provision for loan losses..................... 110,686 77,284 76,169
Provision for loan losses................................................... 9,200 7,100 4,645
-------- -------- --------
Net interest income after provision for loan losses...................... 101,486 70,184 71,524
-------- -------- --------
Non-interest income:
Service fees on loans.................................................... 1,034 2,947 1,560
Service fees on deposits................................................. 3,348 2,803 2,193
Service fees other....................................................... 1,003 745 542
Net gain on sale of investments and mortgage-backed securities........... 1,557 1,837 --
Net gain on sale of loans and other assets............................... 3,850 1,383 71
Insurance and investment services income................................. 3,929 3,169 1,597
Other.................................................................... 3,062 708 112
-------- -------- --------
Total non-interest income.............................................. 17,783 13,592 6,075
-------- -------- --------
Non-interest expenses:
Employee compensation and benefits....................................... 30,501 22,629 19,819
Occupancy and equipment.................................................. 11,166 9,046 8,332
Advertising and promotion expense........................................ 5,767 2,356 3,289
Professional fees-legal and accounting................................... 5,342 3,267 3,193
Telecommunications and data processing................................... 4,427 3,388 3,025
Loan servicing expense................................................... 2,963 4,623 5,699
Insurance................................................................ 1,089 1,000 1,221
Amortization of goodwill................................................. -- 1,554 1,565
Other operating expenses................................................. 10,308 6,534 6,381
-------- -------- --------
Total non-interest expenses............................................ 71,563 54,397 52,524
-------- -------- --------
Income before income taxes and extraordinary item........................ 47,706 29,379 25,075
Provision for income taxes.................................................. 17,201 11,106 10,247
-------- -------- --------
Income before extraordinary item......................................... 30,505 18,273 14,828
Extraordinary item (net of tax (benefit) expense of $(115), $514 and
$586 for the years ended 2002, 2001 and 2002, respectively)............. (184) 823 936
-------- -------- --------
Net income............................................................... 30,321 19,096 15,764
-------- -------- --------
Earnings Per Share:
Basic:
Net income available to common stock before extraordinary item......... $ 1.20 $ 0.87 $ 0.77
Extraordinary item (net of tax)........................................ -- 0.04 0.05
-------- -------- --------
Net income available to common stock................................... $ 1.20 $ 0.91 $ 0.82
======== ======== ========
Diluted:
Net income available to common stock before extraordinary item......... $ 1.13 $ 0.83 $ 0.76
Extraordinary item (net of tax)........................................ (0.01) 0.04 0.05
-------- -------- --------
Net income available to common stock................................... $ 1.12 $ 0.87 $ 0.81
======== ======== ========
Weighted average number of common shares outstanding:
Basic.................................................................... 25,142 20,228 18,220
Diluted.................................................................. 27,073 21,354 18,780
See accompanying notes to consolidated financial statements
49
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 2002, 2001 and 2000
---------------------------------------------------
Class A Class B
Preferred Stock Common Stock Common Stock
--------------- ----------------- ---------------
Shares Amount Shares Amount Shares Amount
-------- ------ ---------- ------ ------- ------
(Dollars in thousands)
Balance at September 30, 1999........................ 992,938 $10 17,866,430 $180 458,467 $ 5
Comprehensive income:
Net income for the year ended September 30,
2000........................................... -- -- -- -- -- --
Payment of dividends on preferred stock......... -- -- -- -- -- --
Other comprehensive loss, net of tax............ -- -- -- -- -- --
Total comprehensive...........................
income....................................... -- -- -- -- -- --
Dividend on Series B Preferred paid in Class A
Common.......................................... -- -- 4,244 -- -- --
Conversion of Class B to Class A Common Stock.... -- -- 20,205 -- (20,205) --
Purchase of Class A Common Stock................. -- -- (150,000) -- -- --
Purchase of Preferred Stock...................... (1,000) -- -- -- -- --
Stock options and other awards................... -- -- 19,696 -- 8,000 --
-------- --- ---------- ---- ------- ---
Balance at September 30, 2000........................ 991,938 10 17,760,575 180 446,262 5
-------- --- ---------- ---- ------- ---
Comprehensive income:
Net income for the year ended September 30,
2001........................................... -- -- -- -- -- --
Payment of dividends on preferred stock......... -- -- -- -- -- --
Other comprehensive income, net of tax.......... -- -- -- -- -- --
Total comprehensive...........................
income....................................... -- -- -- -- -- --
Stock Offering-Class A Common Stock.............. -- -- 6,555,000 66 -- --
Conversion of Class B to Class A Common Stock.... -- -- 238 -- (238) --
Redemption of preferred stock.................... (696,117) (7) -- -- -- --
Stock options and other awards................... 60,000 1 222,406 3 59,645 --
-------- --- ---------- ---- ------- ---
Balance at September 30, 2001........................ 355,821 4 24,538,219 249 505,669 5
-------- --- ---------- ---- ------- ---
Comprehensive income:
Net income for the year ended September 30,
2002........................................... -- -- -- -- -- --
Payments of dividends on preferred stock........
Other comprehensive income, net of tax.......... -- -- -- -- -- --
Total comprehensive...........................
income....................................... -- -- -- -- -- --
Deferred compensation obligation................. 26,720 -- -- -- -- --
Issuance of stock................................ 191,466 2 43,552 -- -- --
Purchase of Series B Preferred Stock............. (26,720) -- -- -- -- --
Conversion of Class B to Class A Common Stock.... -- -- 5,475 -- (5,475) --
Stock options and other awards................... -- -- 274,551 3 36,368 --
Forfeited restricted stock and other awards...... -- -- (186,282) (2) -- --
-------- --- ---------- ---- ------- ---
Balance at September 30, 2002........................ 547,287 $ 6 24,675,515 $250 536,562 $ 5
======== === ========== ==== ======= ===
(Continued on next page)
See accompanying notes to consolidated financial statements
50
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(Continued)
For the Years ended September 30, 2002, 2001, and 2000
-----------------------------------------------------------------------------
Accumulated
Treasury Other
Stock Deferred Comprehensive Total
Paid-in Retained Treasury Series B Compensation Income (Loss) Stockholders'
Capital Earnings Stock Preferred Obligation Net of Tax Equity
-------- -------- -------- --------- ------------ ------------- -------------
(Dollars in thousands)
Balance at September 30, 1999 $181,335 $14,081 $(1,684) -- -- $(3,790) $190,137
Comprehensive income:
Net income for the year ended
September 30, 2000 -- 15,764 -- -- -- -- 15,764
Payment of dividends on the
preferred stock -- (790) -- -- -- -- (790)
Other comprehensive loss, net of
tax -- -- -- -- -- (1,764) (1,764)
--------
Total comprehensive
income 13,210
Dividend on B Preferred paid in
Class A Common 33 -- -- -- -- -- 33
Conversion of Class B to Class A
Common Stock -- -- -- -- -- -- --
Purchase of Class A Common
Stock -- -- (1,110) -- -- -- (1,110)
Purchase of preferred stock -- -- (7) -- (7)
Stock options and other awards 324 -- -- -- -- -- 324
-------- ------- ------- ----- ---- ------- --------
Balance at September 30, 2000 181,692 29,055 (2,801) -- -- (5,554) 202,587
-------- ------- ------- ----- ---- ------- --------
Comprehensive income:
Net income for the year ended
September 30, 2001 -- 19,096 -- -- -- -- 19,096
Payment of dividends on the
preferred stock -- (649) -- -- -- -- (649)
Other comprehensive income,
net of tax -- -- -- -- -- 11,246 11,246
--------
Total comprehensive
income 29,693
Stock Offering-Class A Common
Stock 73,568 -- -- -- -- -- 73,634
Conversion of Class B to Class A
Common Stock -- -- -- -- -- --
Redemption of preferred stock (6,961) -- 7 -- (6,961)
Stock options and other awards 1,489 -- -- -- -- -- 1,493
-------- ------- ------- ----- ---- ------- --------
Balance at September 30, 2001 249,788 47,502 (2,794) -- -- 5,692 300,446
-------- ------- ------- ----- ---- ------- --------
Comprehensive Income:
Net income for the year
ended September 30, 2002 -- 30,321 -- -- -- -- 30,321
Payments of dividends on
preferred
stock -- (257) -- -- -- -- (257)
Other comprehensive income,
net of tax -- -- -- -- -- 10,913 10,913
--------
Total comprehensive
income 40,977
Deferred compensation obligation -- -- -- -- 528 -- 528
Issuance of stock 1,135 -- -- -- -- -- 1,137
Purchase of Series B Preferred
Stock -- -- -- (528) -- -- (528)
Conversion of Class B to Class A
Common Stock -- -- -- -- -- -- --
Stock options and other awards 2,588 -- -- -- -- -- 2,591
Forfeited restricted stock and other
awards -- -- -- -- -- -- (2)
-------- ------- ------- ----- ---- ------- --------
Balance at September 30, 2002 $253,511 $77,566 $(2,794) $(528) $528 $16,605 $345,149
======== ======= ======= ===== ==== ======= ========
See accompanying notes to consolidated financial statements
51
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(Continued)
For the Years Ended September 30, 2002, 2001 and 2000
The following table presents additional information concerning BankUnited's
other comprehensive income (loss):
For the Years Ended
September 30,
------------------------
2002 2001 2000
------- ------- -------
(Dollars in thousands)
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities available for sale arising during the
period, net of tax expense (benefit)of $4,609, $6,889 and, $(1,185) for
2002, 2001 and 2000, respectively............................................. $ 7,362 $11,004 $(1,893)
Unrealized gains on securities transferred from held to maturity to available
for sale, net of tax of $1,355 for 2002....................................... 2,165 -- --
Unrealized losses on cash flow hedges, net of tax benefit of $271 for 2002...... (433) -- --
Less reclassification adjustment for:
Amortization of unrealized losses on transferred securities, net of tax
expense of $515, $86 and $80 for 2002, 2001 and 2000,
respectively.............................................................. 823 138 129
Realized gains on securities sold included in net income, net of tax
expense of $1,124 and $64 for 2002 and 2001, respectively................. 996 104 --
------- ------- -------
Total other comprehensive income (loss), net of tax................................ $10,913 $11,246 $(1,764)
======= ======= =======
See accompanying notes to consolidated financial statements.
52
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
September 30,
-------------------------------
2002 2001 2000
--------- --------- ---------
(Dollars in thousands)
Cash flows from operating activities:
Net income...................................................................................... $ 30,321 $ 19,096 $ 15,764
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for loan losses................................................................. 9,200 7,100 4,645
Depreciation and amortization............................................................. 3,474 3,080 3,026
Adjustments to the carrying value of real estate owned.................................... 1,422 396 966
Amortization of fees, discounts and premiums, net......................................... 15,839 5,820 3,649
Amortization of mortgage servicing rights................................................. 4,130 1,675 1,593
Amortization of goodwill.................................................................. -- 1,554 1,565
Amortization of restricted stock and other awards......................................... 490 316 316
Amortization of unrealized losses on transferred mortgage-backed securities............... 1,338 224 209
Amortization of issuance cost of Senior Notes............................................. 532 533 629
Increase in bank owned life insurance cash surrender value................................ (2,664) (516) --
Net gain on sale of investments and mortgage-backed securities available for sale......... (1,557) (1,837) --
Net gain on sale of loans and other assets................................................ (3,850) (1,383) (71)
Net gain on sale of real estate owned..................................................... (593) (332) (647)
Extraordinary loss (gain) on repurchase of trust preferred securities..................... 299 (1,337) (1,522)
Loans originated for sale....................................................................... (438,356) (33,491) (9,287)
Proceeds from sale of loans..................................................................... 92,216 36,514 10,210
Decrease (increase) in accrued interest receivable.............................................. 1,296 (3,509) (1,880)
(Decrease) increase in interest payable on deposits and FHLB advances........................... (327) 2,224 1,836
(Decrease) increase in accrued taxes............................................................ (2,406) (1,868) 3,480
Increase (decrease) in other liabilities........................................................ 6,924 (7,672) (5,440)
Increase in deferred compensation obligation.................................................... 528 -- --
(Increase) decrease in prepaid expenses and other assets........................................ (3,161) 5,674 (4,300)
Other, net...................................................................................... (5,039) (1,204) (188)
--------- --------- ---------
Net cash (used in) provided by operating activities.................................... (289,944) 31,057 24,553
--------- --------- ---------
Cash flows from investing activities:
Net increase in loans........................................................................... (252,649) (297,065) (385,007)
Purchase of investment securities held to maturity.............................................. -- (66,227) --
Purchase of investment securities available for sale............................................ (55,147) (49,263) (1,000)
Purchase of mortgage-backed securities held to maturity......................................... -- (50,320) (49,824)
Purchase of mortgage-backed securities available for sale....................................... (765,992) (658,406) (8,883)
Purchase of other earning assets................................................................ (87,749) (84,949) (50,399)
Purchase of office properties and equipment..................................................... (5,410) (3,072) (3,418)
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............................ 15,105 350 2,250
Proceeds from repayments of mortgage-backed securities held to maturity......................... 87,390 78,374 30,510
Proceeds from repayments of mortgage-backed securities available for sale....................... 390,947 65,116 31,999
Proceeds from repayments of other earning assets................................................ 72,650 72,000 42,650
Proceeds from sale of investment securities available for sale.................................. 7,230 -- --
Proceeds from sale of mortgage-backed securities held to maturity............................... 52,326 21 --
Proceeds from sale of mortgage-backed securities available for sale............................. 281,966 282,960 --
Proceeds from sale of real estate owned......................................................... 7,610 2,994 8,398
Net decrease in tax certificates................................................................ 876 4,823 9,116
--------- --------- ---------
Net cash used in investing activities.................................................. (280,847) (717,664) (373,608)
--------- --------- ---------
(Continued on next page)
See accompanying notes to consolidated financial statements.
53
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS --(Continued)
For the Years Ended
September 30,
----------------------------
2002 2001 2000
-------- -------- --------
(Dollars in thousands)
Cash flows from financing activities:
Net increase in deposits............................................................ 323,026 43,607 329,740
Net increase in Federal Home Loan Bank advances..................................... 296,368 258,295 154,979
Net increase (decrease) in other borrowings......................................... 71,926 273,911 (22,496)
Guarantee fees for senior notes..................................................... (164) (263) (300)
Increase in advances from borrowers for taxes and insurance......................... 8,594 6,348 6,035
Repurchase of trust preferred securities............................................ (21,769) (7,060) (4,368)
Net proceeds from issuance of trust preferred securities............................ 67,896 -- --
Net proceeds from issuance of stock................................................. 3,236 74,811 125
Purchase of BankUnited's Class A Common Stock....................................... -- -- (1,117)
Purchase of BankUnited's Series B Preferred Stock................................... (528) -- --
Redemption of Preferred Stock....................................................... -- (6,961) --
Dividends paid on preferred stock................................................... (257) (649) (757)
-------- -------- --------
Net cash provided by financing activities........................................ 748,328 642,039 461,841
-------- -------- --------
Increase (decrease) in cash and cash equivalents....................................... 177,537 (44,568) 112,786
Cash and cash equivalents at beginning of period....................................... 294,753 339,321 226,535
-------- -------- --------
Cash and cash equivalents at end of period............................................. $472,290 $294,753 $339,321
======== ======== ========
Supplemental disclosure of non-cash investing and financing activities:
Interest paid on deposits and borrowings............................................ $217,498 $244,569 $217,310
Income taxes paid................................................................... $ 18,241 $ 11,395 $ 8,615
Securitization of loans receivable and mortgage loans held for sale................. $328,964 $200,901 --
Transfers from loans to real estate owned........................................... $ 9,610 $ 2,604 $ 7,334
Transfer of loans from portfolio to held for sale................................... $421,653 $ 63,060 --
Transfer of investment securities from held to maturity to available for sale....... $ 66,476 -- --
Transfer of mortgage-backed securities from held to maturity to available for sale.. $ 57,253 -- --
See accompanying notes to consolidated financial statements.
54
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of BankUnited Financial Corporation
("BankUnited") and subsidiaries conform to accounting principles generally
accepted in the United States of America and to general practices within the
savings and loan industry. Presented below is a description of BankUnited's
principal accounting policies.
(a) Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of BankUnited and
its subsidiaries, including BankUnited, FSB (the "Bank"). The Bank provides a
full range of banking services to individual and corporate customers through
its branches in South and Southwest Florida. The Bank is subject to the
regulations of certain federal agencies and undergoes periodic examinations by
those regulatory authorities. All significant inter-company transactions and
balances have been eliminated.
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America. In
preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the consolidated statements of financial condition and operations for the
period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan losses,
the effect of prepayments on premiums on purchased loans, the valuation of
mortgage servicing rights, and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans.
(b) Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents include
cash, Federal Home Loan Bank overnight deposits, federal funds sold and
securities purchased under agreement to resell with original maturities of
three months or less. The collateral held by the bank for securities purchased
under the agreements to resell is the securities underlying those agreements.
(c) Investments and Mortgage-backed Securities
Mortgage-backed securities and other investments available for sale are
carried at fair value, inclusive of unrealized gains and losses, and net of
discount accretion and premium amortization computed using the level yield
method. Net unrealized gains and losses are included in comprehensive income
(loss) net of applicable income taxes.
Mortgage-backed securities and investments held-to-maturity are carried at
amortized cost. Mortgage-backed securities and investment securities that
BankUnited has the positive intent and ability to hold to maturity are
designated as held-to-maturity securities.
Gains or losses on sales of mortgage securities and investments are
recognized on the specific identification basis.
55
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
(d) Loans Receivable
Loans receivable are considered long-term investments and, accordingly, are
carried at historical cost. Loans held for sale are recorded at the lower of
cost or market, determined in the aggregate. In determining cost, deferred loan
origination fees and costs are adjusted to the principal balances of the
related loans.
(e) Allowance for Loan Losses
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.
BankUnited's one-to four family residential loans and consumer loans are
homogeneous in nature and no single loan is individually significant in terms
of its size or potential risk of loss. Therefore, management evaluates these
loans as a group of loans. Management utilizes historical loan losses, current
trends in delinquencies and charge-offs, plans for problem loan administration
and resolution, the views of its regulators, and other relevant factors, such
as assumptions and projections of current economic and market conditions in
order to determine the adequacy of the allowance for loan losses on these
loans. For individually impaired commercial real estate loans, an estimated
value of the property or collateral securing the loan is determined through an
appraisal, where possible. In instances where BankUnited has not taken
possession of the property or does not otherwise have access to the premises
and therefore cannot obtain an appraisal, a real estate broker's opinion as to
the value of the property is obtained based primarily on a drive-by inspection.
If the unpaid balance of the loan is greater than the estimated fair value of
the property, a reserve is established for the difference between the carrying
value and the estimated fair value. Other impaired loans such as non-mortgage
commercial loans are evaluated individually as well. For these loans, a
determination is made of the value of the collateral, if any, through
examination of current financial information. If the unpaid balance of the loan
is greater than estimated fair value of the property, a reserve is established
for the difference between the carrying value and the estimated fair value.
Allowances are also established on all classes of the performing portfolio
and represent loss allowances that have been established to recognize the
probable losses inherent in the loan portfolio. In determining the adequacy of
the reserves, management considers changes in the size and composition of the
loan portfolio, historical loan loss experience, current economic and market
conditions and BankUnited's credit administration and asset management
philosophies and procedures.
Because of the many factors that can affect recoverability, the estimated
loss on individual loans or groups of loans may not be the same as the actual
loss incurred, if any. As a self-correcting mechanism, to reduce the
differences between estimated and actual losses, BankUnited's current process
evaluates the actual losses that occur on all loans to determine whether
refinements are necessary to improve procedures for estimating losses. This
evaluation includes examining causes for actual losses and determining whether
all of the factors resulting in the losses were considered in the estimation
process. If not, the evaluation process is refined to consider those factors.
Applied appropriately, this mechanism reduces, but will not eliminate,
differences that occur between estimated and actual loan losses due to events
and circumstances beyond the control of BankUnited.
Management believes that the allowance for loan losses is adequate. While
management uses historical and current available information to recognize
losses on loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the allowance
for loan losses. Such agencies may require changes to the allowance based on
their judgments about information available to them at the time of their
examination.
56
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
(f) Loan Origination Fees, Commitment Fees, Loan Premiums and Related Costs
Loan origination fees and certain direct loan origination costs are
deferred, and the net fee or cost is recognized as an adjustment to interest
income using the interest method over the contractual life of the loans,
adjusted for estimated prepayments based on BankUnited's historical prepayment
experience. Commitment fees and costs relating to commitments are recognized
over the commitment period on a straight-line basis. If the commitment is
subsequently exercised during the commitment period, the remaining unamortized
commitment fee at the time of exercise is recognized over the life of the loan
as an adjustment of yield.
Premiums (discounts) paid on purchased loans are capitalized and recognized
as an adjustment to interest income over the contractual life of the loans,
adjusted for estimated prepayments based on BankUnited's historical prepayment
experience. If actual prepayments exceed those estimated by BankUnited, premium
(discount) amortization (accretion) is increased (decreased) through charges to
interest income in the period the excess prepayments occur.
(g) Other Interest-Earning Assets
Other interest-earning assets includes Federal Home Loan Bank of Atlanta
(FHLB) stock and an equity investment under the Community Reinvestment Act. The
fair value is estimated to be the carrying value which is par.
(h) Office Properties and Equipment
Office properties and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation is provided using the estimated
service lives of the assets for furniture, fixtures and equipment (7 to 10
years), and computer equipment and software (3 to 5 years), or with leasehold
improvements, the term of the lease or the useful life of the improvement,
whichever is shorter. Repair and maintenance costs are charged to operations as
incurred, and improvements are capitalized.
(i) Accrued Interest Receivable
Recognition of interest on the accrual method is discontinued when interest
or principal payments are greater than 90 days in arrears. At the time a loan
is placed on non-accrual status, previously accrued and uncollected interest is
reversed against interest income in the current period. Loans are returned to
accrual status when they become less than 90 days delinquent.
(j) Real Estate Owned
Property acquired through foreclosure or deed in lieu of foreclosure is
carried at the lower of the related principal balance at foreclosure or
estimated fair value less estimated costs to sell the property. Any excess of
the loan balance over the fair value less estimated costs to sell the property
is charged to the allowance for loan losses at the time of foreclosure. The
carrying value is reviewed periodically and, when necessary, any decline in the
value of the real estate is charged to operations. Significant property
improvements which enhance the salability of the property are capitalized to
the extent that the carrying values do not exceed their estimated realizable
values. Maintenance and carrying costs on the property are charged to
operations as incurred. In connection with real estate owned, management
obtains independent appraisals for properties.
(k) Mortgage Servicing Rights
In connection with the securitization and sale of loans, BankUnited may
retain the rights to service such loans for investors. Servicing assets or
liabilities and other retained interests in connection with the securitization
57
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
and sale of loans are recognized as an allocation of the carrying amount of the
assets sold between the asset sold and the servicing obligation and other
retained interests based on the relative fair value of the assets sold to the
interests retained. Gains on the securitization and sale of loans are deferred
and recognized when the retained securities are ultimately sold. BankUnited may
also acquire mortgage servicing rights, which are recorded at cost. BankUnited
receives fees for servicing mortgage loans. Servicing fees, generally expressed
as a percent of the unpaid principal balance, are collected from the borrowers'
payments. Late charge income and other ancillary fees, net of amortization of
servicing assets, are also included in servicing income.
Mortgage servicing assets are amortized in proportion to and over the period
of estimated net servicing income. Estimated net servicing income is determined
using the estimated future balance of the underlying mortgage loan portfolio
which, absent new purchases, declines over time from prepayments and cash
flows. BankUnited evaluates the mortgage servicing assets for impairment based
on the fair value of the servicing assets by strata. BankUnited stratifies the
servicing assets by product and interest rates. Management obtains from an
independent third party, on a semi-annual basis, a valuation of the mortgage
servicing rights. Management reviews the assumptions in calculating the fair
value, which is then compared to BankUnited's carrying value. If necessary,
mortgage servicing rights are adjusted to the lower of cost or fair value.
Servicing agreements relating to the mortgage-backed security programs of
FNMA and FHLMC require the servicer to advance funds to make scheduled payments
of interest, taxes and insurance, and in some instances principal, if such
payments have not been received from the borrowers. However, BankUnited
recovers substantially all of the advanced funds upon cure of default by the
borrower, or through foreclosure proceedings and claims against agencies or
companies that have insured or guaranteed the loans. Certain servicing
agreements for loans sold directly to other investors require BankUnited to
remit funds to the loan purchaser only upon receipt of payments from the
borrower and, accordingly, the investor bears the risk of loss.
(l) Goodwill
Goodwill represents the excess of purchase price over the fair value of net
assets acquired by BankUnited. On October 1, 2001, BankUnited adopted Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142") for the accounting for goodwill and other intangible
assets. The provisions of SFAS No. 142 no longer allow the amortization of
goodwill and requires that impairment of goodwill be tested annually. See (r)
Impact of New Accounting Pronouncements.
(m) Bank Owned Life Insurance
Bank owned life insurance is carried at an amount that could be realized
under the insurance contract as of the date of the consolidated statement of
financial condition. The change in contract value is recorded as an adjustment
of the premiums paid in determining the expense or income to be recognized
under the contract.
(n) Income Taxes
BankUnited and its subsidiaries file consolidated income tax returns.
Deferred income taxes have been provided for elements of income and expense
which are recognized for financial reporting purposes in periods different than
such items are recognized for income tax purposes. BankUnited accounts for
income taxes utilizing the liability method, which applies the enacted
statutory rates in effect at the statement of financial condition date to
differences between the book and tax bases of assets and liabilities. The
resulting deferred tax liabilities and assets are adjusted to reflect changes
in tax laws.
58
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
(o) Earnings per Share
Basic earnings per common share is computed on the weighted average number
of common shares outstanding during the year. Earnings per common share,
assuming dilution, assume the maximum dilutive effect of the average number of
shares from stock options and the conversion equivalents of preferred stocks
and certain warrants.
(p) Stock Options and Restricted Stock
Stock options are granted to employees and directors at the fair market
value of the underlying stock on the date of the grant. The proceeds from the
exercise of options are credited to common stock for the par value of the
shares issued, and the excess, adjusted for any tax benefit, is credited to
paid-in capital.
Restricted stock is issued to employees and directors from time to time.
Restricted stock is recorded on the books of BankUnited based on the market
price of the stock on the date of issuance. Equity is credited with the par
value of the stock and paid in capital is credited with the balance of the
market value at the date of issuance. Also at the date of issuance, the value
of the stock is debited to paid-in-capital as contra equity. Restricted stock
vests ratably over the period assigned by the Compensation Committee. The value
of restricted stock is amortized out of contra equity over the twelve-month
period preceding the vest date of the stock by a charge to compensation and a
credit to the contra equity paid-in-capital account.
(q) Segment Reporting
Public companies are required to report certain financial information about
significant revenue-producing segments of the business for which such
information is available and utilized by the chief operating decision maker.
Specific information to be reported for individual operating segments includes
a measure of profit and loss, certain revenue and expense items, and total
assets. As a community-oriented financial institution, substantially all of
BankUnited's operations involve the delivery of loan and deposit products to
customers. Management makes operation decisions and assesses performance based
on an ongoing review of these community-banking operations, which constitute
BankUnited's only operating segment for financial reporting purposes.
(r) Derivative Instruments Held for Purposes Other Than Trading
BankUnited enters into derivative contracts as a means of reducing its
interest rate exposures. No derivatives are held for trading purposes. At
inception these contracts, i.e., hedging instruments, are evaluated in order to
determine if they qualify for hedge accounting. With the adoption of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," on October
1, 2000, the hedging instrument must be highly effective in achieving
offsetting changes in the hedge instrument and hedged item attributable to the
risk being hedged. Any ineffectiveness which arises during the hedging
relationship is recognized in noninterest expense in the period in which it
arises. All qualifying hedges are valued at fair value and included in other
assets or other liabilities. The changes in the fair value of the hedged item
and changes in fair value of the derivative are recognized in noninterest
income. For cash flow hedges, the unrealized changes in fair value to the
extent effective are recognized in other comprehensive income. The fair value
of cash flow hedges related to forecasted transactions is recognized in
noninterest expense in the period when the forecasted transaction occurs.
Residential mortgage loan commitments related to loans to be sold are
required to be accounted for as derivatives at fair value, along with all
forward sales contracts for loans to be sold. The commitments and forward sales
contracts are recorded as either assets or liabilities in the consolidated
statement of financial condition with the changes in fair value recorded in the
consolidated statement of operations.
59
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
(s) Impact of New Accounting Pronouncements
SFAS No. 142
In June of 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This statement addresses how intangible assets that are
acquired individually or with a group of other assets (but not those acquired
in a business combination) should be accounted for in financial statements upon
their acquisition. This statement also addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements.
Except for goodwill and intangible assets acquired after June 30, 2001,
which were immediately subject to its provisions, SFAS No. 142 was effective
starting with fiscal years beginning after December 15, 2001. Early adoption
was permitted for entities with fiscal years beginning after March 15, 2001,
provided that the first interim financial statements have not previously been
issued.
The provisions of SFAS No. 142 no longer allow the amortization of goodwill,
and certain intangible assets that have indefinite useful lives, and requires
that impairment of goodwill on those assets be tested annually. In addition,
SFAS No. 142 requires the following additional disclosures for goodwill and
other intangible assets:
. Changes in the carrying amount of goodwill from period-to-period;
. The carrying amount of goodwill by major intangible asset class, and
. The estimated intangible amortization for the next five years.
BankUnited adopted SFAS No. 142 effective October 1, 2001. Upon initial
application of SFAS No. 142, BankUnited did not incur impairment losses for
goodwill resulting from a transitional impairment test. The elimination of
goodwill amortization has positively impacted pretax net income by
approximately $1.5 million in fiscal year 2002. The following table provides
pro-forma information on net income and earnings per share, had amortization of
goodwill not been expensed in all three years ended September 30, 2002, 2001
and 2000:
For the Years Ended September 30,
---------------------------------
2002 2001 2000
------- ------- -------
(Dollars in thousands)
Reported net income available to common stockholders. $30,064 $18,447 $14,974
Add back: Goodwill amortization...................... -- 1,554 1,565
------- ------- -------
Pro-forma net income available to common stockholders $30,064 $20,001 $16,539
======= ======= =======
Basic earnings per share:
Net income as reported............................... $ 1.20 $ 0.91 $ 0.82
Goodwill amortization................................ -- 0.08 0.09
------- ------- -------
Pro-forma............................................ $ 1.20 $ 0.99 $ 0.91
======= ======= =======
Diluted earnings per share:
Net income as reported............................... $ 1.12 $ 0.87 $ 0.81
Goodwill amortization................................ -- 0.07 0.08
------- ------- -------
Pro-forma............................................ $ 1.12 $ 0.94 $ 0.89
======= ======= =======
60
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
SFAS No. 144
In October of 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001 and was written to provide a
single model for the disposal of long-lived assets. SFAS No. 144 supersedes
SFAS No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" and the accounting and reporting provisions of
Accounting Principles 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."
BankUnited adopted the provision of SFAS No. 144 effective October 1, 2002.
Adoption of SFAS No. 144 did not have a material impact on BankUnited's
financial position, results of operations or cash flows upon adoption.
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.
SFAS No. 145 eliminates Statement No. 4 and, thus, the exception to applying
APB No. 30 to all gains and losses related to extinguishments of debt (other
than extinguishment 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 Statement 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 Statement No. 4 in its fiscal year beginning October 1, 2002, which will
result in a reclassification of extraordinary item to non-interest income in
the consolidated statement of operations.
61
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
FASB Interpretation No. 45
In November of 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others", an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34.
This interpretation elaborates on the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required
to recognize, at the inception of a guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. This interpretation does
not prescribe a specific approach for subsequently measuring the guarantor's
recognized liability over the term of the related guarantee. This
interpretation also incorporates, without change, the guidance in FASB
Interpretation No. 34, "Disclosure of Indirect Guarantees of Indebtedness of
Others", which is being superseded.
The initial recognition and initial measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. Due to the prospective application of this
interpretation, the impact on BankUnited's financial statements has not been
determined.
(t) Financial Statement Reclassifications
Certain prior period amounts have been reclassified to conform to the
September 30, 2002 consolidated financial statements.
62
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
(2) Earnings per Share
Earnings per share is calculated as follows:
For the Years Ended September 30,
---------------------------------
2002 2001 2000
---------- ------- -------
(In thousands, except per
share amounts)
Basic earnings per share:
Numerator:
Net income before extraordinary item..................................... $30,505 $18,273 $14,828
Preferred stock dividends.............................................. 257 649 790
------- ------- -------
Net income............................................................... 30,248 17,624 14,038
Extraordinary item..................................................... (184) 823 936
------- ------- -------
Net income available to common stockholders.............................. $30,064 $18,447 $14,974
======= ======= =======
Denominator:
Weighted average common shares outstanding............................... 25,142 20,228 18,220
======= ======= =======
Basic earnings per share before extraordinary item.......................... $ 1.20 $ 0.87 $ 0.77
Basic earnings per share from extraordinary item........................... -- 0.04 0.05
------- ------- -------
Basic earnings per share.................................................... $ 1.20 $ 0.91 $ 0.82
======= ======= =======
Diluted earnings per share:
Numerator:
Net income available to common stockholders before extraordinary item.... $30,248 $17,624 $14,038
Plus:
Preferred stock dividends.............................................. 257 179 163
------- ------- -------
Diluted net income available to common stockholders before extraordinary
item................................................................... 30,505 17,803 14,201
Extraordinary item..................................................... (184) 823 936
------- ------- -------
Diluted net income available to common stockholders...................... $30,321 $18,626 $15,137
======= ======= =======
Denominator:
Weighted average common shares outstanding............................... 25,142 20,228 18,220
Plus:
Number of common shares from the conversion of options................. 1,220 657 117
Number of common shares from the conversion of preferred stock......... 711 469 443
------- ------- -------
Diluted weighted average shares outstanding.............................. 27,073 21,354 18,780
======= ======= =======
Diluted earnings per share before extraordinary item........................ $ 1.13 $ 0.83 $ 0.76
Diluted earnings per share from extraordinary item......................... (0.01) 0.04 0.05
------- ------- -------
Diluted earnings per share.................................................. $ 1.12 $ 0.87 $ 0.81
======= ======= =======
63
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
(3) Securities Purchased under Agreements to Resell
Interest income from securities purchased under agreements to resell
aggregated approximately $0.2 million and $1.9 million for the years ended
September 30, 2001 and 2000, respectively, none for 2002.
The following sets forth information concerning BankUnited's securities
purchased under agreements to resell for the periods indicated:
As of or for the years ended
September 30,
---------------------------
2002 2001
------ ------------------
(Dollars in thousands)
Maximum amount of outstanding agreements at any month end
during the period...................................... -- $ 9,682
Average amount outstanding during the period............. -- $ 3,850
Weighted average interest rate for the period............ -- 6.35%
Maturity................................................. less than 30 days
(4) Investments and Mortgage-backed Securities
Investments
Presented below is an analysis of investments designated as available for
sale.
September 30, 2002
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
(Dollars in thousands)
U.S. government agency securities.......... $ 53,082 $ 65 $ (387) $ 52,760
Equity securities.......................... 4,242 132 (216) 4,158
Trust preferred securities of other issuers 58,875 2,621 (1,386) 60,110
Other(1)................................... 53,829 801 (73) 54,557
-------- ------ ------- --------
Total............................... $170,028 $3,619 $(2,062) $171,585
======== ====== ======= ========
September 30, 2001
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
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(1)................................... 19,000 -- 19,000
-------- ------ ------- --------
Total............................... $ 69,467 $1,557 $(2,305) $ 68,719
======== ====== ======= ========
- --------
(1) Other includes mutual funds, preferred stock of FHLMC, and bonds.
64
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
Investments securities at September 30, 2002, by contractual maturity, are
shown below.
Available for Sale
-------------------------
Amortized Cost Fair Value
-------------- ----------
(Dollars in thousands)
Due in one year or less............... $ -- $ --
Due after one year through five years. 3,081 3,146
Due after five years through ten years 52,830 26,850
Due after ten years................... 109,875 137,431
Equity securities (maturity n/a)...... 4,242 4,158
-------- --------
Total.......................... $170,028 $171,585
======== ========
Presented below is an analysis of investments held to maturity at September
30, 2001. There were no investments held to maturity at September 30, 2002.
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
Other...................................... 61 -- -- 61
------- ---- ----- -------
Total............................... $66,417 $683 $(605) $66,495
======= ==== ===== =======
Mortgage-backed securities
Presented below is an analysis of mortgage-backed securities designated as
available for sale:
September 30, 2002
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
(Dollars in thousands)
GNMA mortgage-backed securities.... $ 61,804 $ 3,311 $ -- $ 65,115
FNMA mortgage-backed securities.... 335,755 10,887 -- 346,642
FHLMC mortgage-backed securities... 176,426 4,951 -- 181,377
Collateralized mortgage obligations 91,819 1,618 -- 93,437
Mortgage pass-through certificates. 444,022 6,041 -- 450,063
---------- ------- ---- ----------
Total....................... $1,109,826 $26,808 $ -- $1,136,634
========== ======= ==== ==========
65
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
September 30, 2001
-----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
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 September 30, 2002, by contractual maturity,
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Available for Sale
-------------------------
Amortized Cost Fair Value
-------------- ----------
(Dollars in thousands)
Due in one year or less............... $ -- $ --
Due after one year through five years. 21,037 21,411
Due after five years through ten years 36,455 37,596
Due after ten years................... 1,052,334 1,077,627
---------- ----------
Total.......................... $1,109,826 $1,136,634
========== ==========
Presented below is an analysis of mortgage-backed securities held to
maturity at September 30, 2001. There were no mortgage-backed securities held
to maturity at September 30, 2002.
September 30, 2001
----------------------------------------
Gross Gross
Carrying Unrealized Unrealized Fair
Value Gains Losses 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
========= ====== ==== ========
Management at BankUnited made a strategic decision in the fourth quarter of
fiscal 2002, to sell off some of the mortgage-backed securities that were being
held to maturity. In doing so, the remainder of the entire investment
portfolio, including investment securities, were re-classified to investments
available for sale with a resulting net unrealized gain of $2.1 million, after
taxes of $1.4 million.
66
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
Gross proceeds on sales of mortgage-backed securities and collateralized
mortgage obligations were $334.3 million and $283.0 million for the years ended
September 30, 2002 and 2001, respectively. Net realized gains were $236
thousand, and $1.8 million on sales of mortgage-backed securities and
collateralized mortgage obligations during the year ended September 30, 2002
and 2001, respectively. There were no sales of mortgage-backed securities and
collateralized mortgage obligations during the years ended September 30, 2000.
At September 30, 2002, GNMA, FNMA and FHLMC mortgage-backed securities with
market values of approximately $146.5 million were pledged as collateral for
public funds on deposit. At September 30, 2002, investment and mortgage-backed
securities with an aggregate carrying value of approximately $392.3 million
were pledged as collateral for repurchase agreements.
When BankUnited sells receivables in securitizations of residential mortgage
loans, it retains servicing rights and securities, which are retained interests
in the securitized receivables. Gain or loss on the sale of the receivables
depends in part on the previous carrying amount of the financial assets
involved in the transfer, allocated between the assets sold and the retained
interest based on their relative fair value at the date of the transfer. Fair
value is derived from current market information and assumptions for similar
products.
During fiscal year ended September 30, 2002, BankUnited securitized $329.0
million of residential mortgage loans. These loans were securitized with FNMA
and FHLMC and transferred into BankUnited's mortgage-backed securities
available for sale portfolio. During the fiscal year ended September 30, 2002,
BankUnited sold $236.4 million of the resulting securities, recognizing gains
of $1.9 million which includes the recognition of mortgage servicing rights of
$4.0 million. The remaining securities at September 30, 2002 had a fair value
of $95.7 million.
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 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 investors' interests. The value of the retained
interest is subject to prepayment risk on the transferred financial assets, and
the general level of interest rates.
At September 30, 2002, key economic assumptions and the sensitivity of the
current fair value of securities remaining from securitizations to immediate 10
percent and 20 percent adverse changes in those assumptions are as follows:
Retained Securities
-------------------
(Dollars in
thousands)
Carrying amount (fair value) of retained securities.. $95,673
Weighted average life in years....................... 2.0
Annual prepayment assumption......................... 31.60%
Impact on fair value of 10 percent adverse change. $ (366)
Impact on fair value of 20 percent adverse change. $ (690)
Annual cash flow discount rate....................... 4.22%
Impact on fair value of 10 percent adverse change. $ (705)
Impact on fair value of 20 percent adverse change. $(1,401)
67
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
Credit losses do not affect the valuation 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
September 30, 2002 was $92.1 million, none of which was 60 days or more past
due. There were no credit losses during the year ended September 30, 2002 from
the loans underlying the retained securities outstanding at September 30, 2002.
(5) Loans Receivable
Loans receivable held for investment consist of the following:
September 30, 2002 September 30, 2001
--------------------- ---------------------
Percent of Percent of
Amount Total Amount Total
---------- ---------- ---------- ----------
Mortgage loans: (Dollars in thousands)
One-to-four family loans............................. $3,096,312 83.4% $2,948,290 84.2%
Multi-family loans................................... 25,456 0.7 20,619 0.6
Commercial real estate............................... 183,311 4.9 158,451 4.5
Construction......................................... 98,697 2.7 114,790 3.3
Land................................................. 27,636 0.7 33,620 1.0
---------- ----- ---------- -----
Total mortgage loans............................. 3,431,412 92.4 3,275,770 93.6
---------- ----- ---------- -----
Other loans:
Commercial business loans............................ 168,679 4.5 132,438 3.8
Consumer loans....................................... 103,118 2.8 84,698 2.4
---------- ----- ---------- -----
Total other loans................................ 271,797 7.3 217,136 6.2
---------- ----- ---------- -----
Total loans...................................... 3,703,209 99.7 3,492,906 99.8
Unearned discounts, premiums and deferred loan fees, net 30,449 0.8 22,642 0.6
Allowance for loan losses............................... (20,293) (0.5) (15,940) (0.4)
---------- ----- ---------- -----
Loans receivable held for investment, net............... $3,713,365 100.0% $3,499,608 100.0%
========== ===== ========== =====
Approximately $2.9 billion or 77 percent of loans secured by real estate,
including loans held for sale of $279 million, were secured by properties in
Florida. No other state represented more than 5% of BankUnited's loan portfolio.
At September 30, 2002, the Bank had pledged approximately $2.5 billion of
mortgage loans as collateral for advances from the Federal Home Loan Bank of
Atlanta.
68
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
Changes in the allowance for loan losses are as follows:
For the Years Ended September 30,
--------------------------------
2002 2001 2000
------- ------- -------
(In thousands)
Balance at beginning of period $15,940 $13,032 $12,107
Provision.................. 9,200 7,100 4,645
Loans charged-off.......... (5,144) (4,257) (3,859)
Recoveries................. 297 65 139
------- ------- -------
Balance at end of period...... $20,293 $15,940 $13,032
======= ======= =======
As of September 30, 2002 and 2001, BankUnited had non-accrual loans of $27.7
million and $27.4 million respectively. For the years ended September 30, 2002,
2001 and 2000 the average amounts of non-accrual loans were $27.3 million,
$24.7 million and $18.4 million respectively. Gross interest income that would
have been recorded on non-accrual loans had they been current in accordance
with original terms was $1.3 million, $1.3 million and $1.1 million for the
years ended September 30, 2002, 2001 and 2000 respectively.
The amount of interest income on such non-accrual loans included in
operations, prior to their non-accrual status, for the years ended September
30, 2002, 2001 and 2000 was $0.7 million, $0.9 million, and $0.7 million,
respectively. No income is recognized on loans while in non-accrual status.
The following table sets forth information concerning specific impaired
loans:
As of September 30, 2002 As of September 30, 2001
---------------------------- ----------------------------
Allowance Allowance
No. of Outstanding for loan No. of Outstanding for loan
loans Principal losses loans Principal losses
------ ----------- --------- ------ ----------- ---------
(Dollars in thousands) (Dollars in thousands)
Land............... 1 $ 469 $ 469 1 $ 469 $ 469
Commercial business 6 1,084 651 59 7,872 3,387
Consumer........... 15 901 658 -- -- --
-- ------ ------ -- ------ ------
Total........... 22 $2,454 $1,778 60 $8,341 $3,856
== ====== ====== == ====== ======
(6) Other earning assets
Other earning assets are summarized as follows:
As of September 30,
-------------------
2002 2001
------- -------
(In thousands)
FHLB stock......................................... $90,319 $75,520
Equity investments under Community Reinvestment Act 405 105
------- -------
Total....................................... $90,724 $75,625
======= =======
69
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
(7) Office Properties and Equipment
Office properties and equipment are summarized as follows:
As of September 30,
------------------
2002 2001
-------- --------
(In thousands)
Office buildings.......................................... $ 2,750 $ 2,694
Leasehold improvements.................................... 12,097 9,577
Furniture, fixtures and equipment......................... 10,523 10,350
Computer equipment and software........................... 7,246 6,360
-------- --------
Total.................................................. 32,616 28,981
Less: accumulated depreciation............................ (14,872) (12,927)
-------- --------
Office properties and equipment, net...................... $ 17,744 $ 16,054
======== ========
Depreciation expense was $3.5 million, $3.1 million, and $3.0 million, for
the years ended September 30, 2002, 2001 and 2000, respectively.
BankUnited has entered into non-cancelable leases with approximate minimum
future rentals as follows:
Years Ending September 30, Amount
-------------------------- --------------
(In thousands)
2003..................................................... $ 4,467
2004..................................................... 4,691
2005..................................................... 4,028
2006..................................................... 3,827
2007..................................................... 3,600
Thereafter............................................... 14,527
-------
Total................................................. $35,140
=======
Rent expense for the years ended September 30, 2002, 2001, and 2000 was $4.8
million, $4.0 million, and $3.5 million, respectively. For the year ended
September 30, 2000, rent expense was net of sublease income of approximately
$22,300 (none for the years ended September 30, 2002 and 2001).
70
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
(8) Deposits
The following table sets forth information concerning BankUnited's deposits
by account type and the weighted average nominal rates at which interest is
paid thereon as of the dates indicated:
As of September 30,
--------------------------------
2002 2001
--------------- ---------------
Amount Rate Amount Rate
---------- ---- ---------- ----
(Dollars in thousands)
Savings accounts....................... $782,964 2.31% $ 596,534 3.64%
---------- ----------
Checking:
Non-interest bearing.................. 117,062 -- 89,726 --
NOW accounts.......................... 147,611 1.44% 128,576 1.97%
Insured money market.................. 188,681 2.00% 92,975 3.01%
---------- ----------
Total transaction accounts.......... 453,354 311,277
---------- ----------
Total savings and checking accounts. 1,236,318 907,811
---------- ----------
Certificates:
30-89 day certificates of deposit..... 3,422 2.06% 2,258 3.31%
3-5 month certificates of deposit..... 40,649 2.06% 211,672 4.16%
6-8 month certificates of deposit..... 131,079 2.45% 131,364 4.28%
9-11 month certificates of deposit.... 77,165 2.91% 111,960 5.32%
12-17 month certificates of deposit... 304,888 2.99% 452,013 5.51%
18-23 month certificates of deposit... 251,010 3.81% 155,021 6.02%
24-29 month certificates of deposit... 202,399 4.36% 189,096 5.23%
30-35 month certificates of deposit... 121,935 4.32% 40,684 5.93%
36-60 month certificates of deposit... 328,306 5.28% 178,266 5.99%
Public Funds.......................... 279,000 4.74% 273,000 6.31%
---------- ----------
Total certificates.................. 1,739,853 1,745,334
---------- ----------
Totals............................ $2,976,171 $2,653,145
========== ==========
Weighted average rates.......... 3.15% 4.60%
At September 30, 2002 and 2001, there were overdrafts of approximately $600
thousand and $405 thousand, respectively. Deposit accounts with balances of
$100 thousand or more totaled approximately $1.3 billion and $1 billion at
September 30, 2002 and 2001, respectively.
Interest expense on deposits for the years ended September 30, 2002, 2001
and 2000 was as follows:
September 30,
--------------------------
2002 2001 2000
-------- -------- --------
(In thousands)
NOW and insured money market deposits............... $ 5,638 $ 7,277 $ 6,777
Savings accounts.................................... 19,531 19,349 16,825
Certificates of deposit............................. 80,043 116,508 103,027
-------- -------- --------
$105,212 $143,134 $126,629
======== ======== ========
71
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
Early withdrawal penalties on deposits are recognized as a reduction of
interest on deposits. For the years ended September 30, 2002, 2001 and 2000,
early withdrawal penalties totaled $197 thousand, $301 thousand and $336
thousand, respectively.
The following table sets forth maturities of certificates of deposit equal
to or greater than $100 thousand as of September 30, 2002.
As of
September 30,
2002(1)
-------------
(Dollars in
thousands)
Three months or less................. $ 79,273
Over three months through six months. 54,002
Over six months through twelve months 158,264
Over twelve months................... 314,815
--------
$606,354
========
- --------
(1) Included in the table above are $279 million of certificates of deposit
issued to the State of Florida, referred to as public funds with interest
rates ranging from 2.43% to 7.17%. These certificates are collateralized
with GNMA, FNMA, and FHLMC mortgage-backed securities with market values of
approximately $146 million at September 30, 2002.
(9) Securities Sold under Agreements to Repurchase
Interest expense on securities sold under an agreement to repurchase
aggregated $7.7 million, $4.9 million and $0.9 million for the years ended
September 30, 2002, 2001 and 2000, respectively.
The following sets forth information concerning repurchase agreements for
the periods indicated:
As of and for the Years
Ended September 30,
----------------------
2002 2001
-------- --------
(Dollars in thousands)
Maximum amount of outstanding agreements at any month end during the
period............................................................ $425,233 $316,738
Average amount outstanding during the period........................ $325,757 $112,062
Weighted average interest rate for the period....................... 2.36% 4.40%
All except $50 million of the $355 million of repurchase agreements
outstanding at September 30, 2002 mature in October 2002. The remaining $50
million of repurchase agreements outstanding at September 30, 2002 was borrowed
in the form of a convertible advance which is callable by the counter party
every three months until maturity in 2010.
72
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
(10) Advances from Federal Home Loan Bank
Advances from the Federal Home Loan Bank of Atlanta incur interest and have
contractual repayments as follows:
September 30,
-----------------------
Repayable During Year Ending September 30, Interest Rate 2002 2001
- ------------------------------------------ ------------- ----------- ----------
(Dollars in thousands)
2002........................ 3.59% - 7.33% $ -- $ 360,000
2003........................ 2.10% - 7.24% 656,000 175,000
2004(1)..................... 1.43% - 7.17% 280,000 180,000
2005........................ 3.90% - 7.43% 125,000 100,000
2006........................ 6.65% 1,377 1,403
2008(2)..................... 5.50% 25,000 25,000
2009(3)..................... 4.43% - 5.48% 125,000 125,000
2010(4)(5)(6)............... 5.44% - 6.94% 480,000 480,000
2011(7)..................... 4.70% - 5.67% 64,000 64,000
2012(8)..................... 4.01% 50,000 --
----------- ----------
Total contractual outstandings (9)................. $1,806,377 $1,510,403
----------- ----------
Fair value adjustments............................. (288) (682)
----------- ----------
Total carrying amount...................... $1,806,089 $1,509,721
=========== ==========
- --------
(1) Advances for $25 million are callable by the FHLB in 2003.
(2) Advances for $25 million are callable by the FHLB in 2003.
(3) Advances for $125 million callable by the FHLB in 2002 were never converted
by BankUnited.
(4) Advances for $30 million are callable by FHLB in 2002 were never converted
by BankUnited.
(5) Advances for $125 million are callable by FHLB in 2003.
(6) Knock-out convertible advances for $250 million callable by the FHLB in
2001 never converted by BankUnited.
(7) Advances for $20 million callable by FHLB in 2002 were never converted by
BankUnited. Advances of $25 million are callable by FHLB in 2003
and advances for $19 million are callable by FHLB in 2004.
(8) Advances for $50 million are callable by FHLB in 2006.
(9) The contractual repayments above do not reflect fair value adjustments
made in accordance with FAS No. 133 which are reflected in the
Consolidated Statement of Financial Condition. These amounts were $288
thousand and $682 thousand at September 30, 2002 and 2001,
respectively.
The terms of a security agreement with the FHLB of Atlanta include a
specific assignment of collateral that requires the maintenance of qualifying
first mortgage loans as pledged collateral with unpaid principal amounts at
least equal to 100% of the FHLB advances, when discounted at 85% of the unpaid
principal balance. The FHLB of Atlanta stock, which is recorded at cost of
$90.3 million, is also pledged as collateral for these advances.
(11) Senior Notes
During November 1998, the Bank established a program to issue up to $500
million aggregate principal amount of its Senior Notes backed by an irrevocable
standby letter of credit of the FHLB of Atlanta. These notes may have either a
fixed or floating rate of interest determined at the time of issuance and will
mature no sooner than 9 months and no more than 10 years from the date of
issue. On February 2, 1999, the Bank issued and sold $200 million of Senior
Notes which mature five years from the date of issuance and bear interest at an
annual rate of 5.40%, payable semiannually.
73
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
(12) Company Obligated Mandatorily Redeemable Trust Preferred Securities of
Subsidiary Trusts Holding Solely Junior Subordinated Deferrable
Interest Debentures of BankUnited
BankUnited operates wholly-owned trust subsidiaries ("Trust Subsidiaries")
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"). All of
the proceeds of the trust preferred securities plus common securities issued by
the Trust Subsidiaries are invested in Junior Subordinated Debentures, which
represent the sole assets of the Trusts Subsidiaries. The Trust Preferred
Securities pay preferential cumulative cash distributions at the same rate as
the Junior Subordinated Debentures held by the Trust Subsidiaries. Considered
together, back-up undertakings made by BankUnited with respect to the Trust
Preferred Securities constitute a full and unconditional guarantee by
BankUnited of the obligations of the Trust Preferred Securities.
The following table provides information for each of BankUnited's Trust
Subsidiaries as of September 30, 2002:
Original
------------------------------------
Trust Junior
Preferred Common Subordinated Annual Rate of
Securities Securities Debentures Preferrential Cash Maturity
Issued Issued Held Distribution Date
---------- ---------- ------------ ------------------ ----------
(Dollars in thousands)
BankUnited Capital............ $ 70,000(1) $ 2,800 $ 72,800 10.25% 12/31/2026
BankUnited Capital II......... 46,000(1) 1,840 47,840 9.60% 6/30/2027
BankUnited Capital III........ 102,500 4,100 106,600 9.00% 3/31/2028
BankUnited Statutory Trust I.. 20,000(1) 619 20,619 3-MonthLibor+3.60%(2) 12/18/2031
BankUnited Statutory Trust II. 25,000(1) 774 25,774 3-MonthLibor+3.60%(3) 3/26/2032
BankUnited Statutory Trust III 25,000 774 25,774 3-MonthLibor+3.40%(4) 9/26/2032
-------- ------- --------
$288,500(5) $10,907 $299,407
======== ======= ========
(1) BankUnited uses interest rate swaps as hedging instruments against these
Trust Preferred Securities. See Note (13) Accounting for Derivatives and
Hedging Activities.
(2) Not to exceed 12.50% prior to December 18, 2006.
(3) Not to exceed 11.00% prior to March 26, 2007.
(4) Not to exceed 11.90% prior to September 26, 2007. The annual rate will be
fixed at 5.22% until December 26, 2002.
(5) The Board of Directors of BankUnited authorized the purchase, from time to
time, in the open market, or otherwise, of up to 300 thousand shares of
Trust Preferred Securities issued by the Trust Subsidiaries. Through
September 30, 2002, BankUnited has purchased a total of 189,749 shares of
Trust Preferred Securities issued by the Trust Subsidiaries at a cost of
$33.2 million. During the year ended September 30, 2002, BankUnited
purchased 22,450 shares of Trust Preferred Securities issued by the Trust
Subsidiaries at a cost of $21.8 million resulting in extraordinary losses,
net of tax, of $184 thousand from the early extinguishment of debt.
(13) Accounting for Derivatives and Hedging Activities
Loan Commitments
BankUnited commits to make one-to-four family residential mortgage loans
with potential borrowers at specified interest rates for short periods of time,
usually thirty days. If potential borrowers meet underwriting standards, these
loan commitments obligate BankUnited to fund the loans, but do not obligate the
potential borrower to take the loans. If the borrowers do not allow the
commitments to expire, the loans are funded, placed
74
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
into loans held for sale, and ultimately sold in the secondary market. Based on
historical experience, and the underlying loan characteristics, BankUnited
estimates the amount of commitments that will ultimately become loans and
treats those as derivatives during the commitment period. As derivatives, the
changes in the fair value of the commitments are recorded in current earnings
under other non-interest income with an offset to the balance sheet in other
assets. Fair values are based on observable market prices from third parties.
During the year ended September 30, 2002, BankUnited recorded $0.8 million in
net gains from fair value adjustments on loan commitments. At September 30,
2002, the estimated notional amount of loan commitments BankUnited expected to
be funded was $110 million.
Forward Sales Commitments
To economically hedge to the fair value exposure on loan commitments to a
change in interest rates during the commitment period, BankUnited enters into
forward sales contracts with similar terms. Since both the loan commitments and
the forward sales contracts are derivatives, this economic hedging relationship
does not qualify for hedge accounting. Accordingly, the fair value adjustments
on the forward contracts are also recorded in earnings under other non-interest
expense with an offset to the balance sheet in other liabilities. These forward
contracts may also extend beyond the commitment period and therefore are also
used to offset the fair value exposure of loans held for sale to a change in
interest rates. This relationship exists until either the loan is sold or until
the forward contract expires. During the year ended September 30, 2002,
BankUnited recorded $1.2 million in net losses from fair value adjustments on
these forward contracts.
Interest Rate Swaps
BankUnited enters into interest rate swap contracts ("hedge") for the
purpose of hedging long-term fixed and variable interest costs on Trust
Preferred Securities ("hedged item") issued by its wholly-owned trust
subsidiaries. All terms of the interest rate swap contracts, with the exception
of the right to defer interest payments, are the same as those of the Trust
Preferred Securities. BankUnited expects these interest rate swap contracts to
be highly effective in offsetting interest costs of its long-term debt, and
therefore applies hedge accounting treatment.
Interest rate swap contracts used by BankUnited to offset interest costs
from fixed long-term debt are treated as qualifying fair value hedges. The
accounting treatment for fair value hedges is to record the change in fair
value during the period of both the hedge and the hedged item into current
earnings with an offset to the hedged item. During the year ended September 30,
2002, BankUnited recorded a total of $2.6 million in non-interest income from a
change in fair value of its fair value interest rate swap hedges with and
offsetting amount to non-interest income for a change in fair value of the
hedged item. There was no ineffectiveness during the period ended September 30,
2002.
Interest rate swap contracts used by BankUnited to offset interest costs
from variable long-term debt are treated as qualifying cash flow hedges. The
accounting treatment for cash flow hedges is to record the effective portion of
the gain or loss on the hedge as a component of other comprehensive income, net
of tax, with an offsetting amount recorded in either other assets or other
liabilities. The amounts recorded in other accumulated comprehensive income
will be reclassified into current earnings in the same period in which the
hedged item affects earnings. During the year ended September 30, 2002,
BankUnited recorded a total of $0.4 million, net of taxes, in other
comprehensive losses resulting from the effective portion of its cash flow
hedges. There was no ineffectiveness during the period ended September 30,
2002. BankUnited expects $190 thousand of the amounts currently reported in
other comprehensive income to be reclassified into earnings within the next
twelve months.
75
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
(14) Regulatory Capital
The Bank's required, actual and excess regulatory capital levels as of
September 30, 2002 and 2001 are as follows:
Regulatory Capital
----------------------------------------------------------
Required Actual Excess
------------------ ------------------ ------------------
2002 2001 2002 2001 2002 2001
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
Core capital...... $178,337 $154,858 $461,998 $367,604 $283,661 $212,746
3.0% 3.0% 7.8% 7.1% 4.8% 4.1%
Risk based capital $227,072 $208,053 $481,546 $381,160 $254,474 $173,107
8.0% 8.0% 17.0% 14.7% 9.0% 6.7%
Under the Office of Thrift Supervision (OTS) regulations adopted to
implement the "prompt corrective action" provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (the "FDICIA"), a "well
capitalized" institution must have a risk-based capital ratio of at least 10%,
a core capital ratio of at least 5% and a Tier 1 risk-based capital ratio of at
least 6%. (The "Tier 1 risk-based capital" ratio is the ratio of core capital
to risk-weighted assets.) The Bank is a well capitalized institution under the
definitions as adopted. Regulatory capital and net income amounts as of and for
the years ended September 30, 2002, 2001 and 2000 did not differ from
regulatory capital and net income amounts reported to the OTS.
Payment of dividends by the Bank is limited by federal regulations, which
provide for certain levels of permissible dividend payments depending on the
Bank's regulatory capital and other relevant factors.
(15) Stockholders' Equity
BankUnited has a capital structure with the following characteristics:
Preferred Stock:
Issued in series with rights and preferences to be designated by the
Board of Directors. As of September 30, 2002, 10,000,000 shares of Preferred
Stock were authorized, 2,000,000 of which are designated to a particular series
and 8,000,000 of which are not designated.
Noncumulative Convertible Preferred Stock, Series B ("Series B Preferred")--
. Dividends - Quarterly noncumulative cash dividends are paid at an annual
rate of $0.55 per share.
. Redemptions - Not redeemable until October 1, 2007 or later unless
approved by the holders of at least 50 percent of the Series B Preferred
shares.
. Voting Rights - Two and one half votes per share.
. Preference on Liquidation - Voluntary liquidation at the applicable
redemption price per share and involuntary at $7.375 per share.
. Convertibility - Convertible into 1.4959 shares (adjusted for all stock
dividends) of Class B Common Stock for each share of Series B Preferred
surrendered for conversion, subject to adjustment on the occurrence of
certain events.
76
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
Common Stock:
Issued in series with rights and preferences to be designated by the
Board of Directors. As of September 30, 2002, 60,000,000 shares of Class A
Common Stock and 3,000,000 shares of Class B Common Stock were authorized. The
Board has designated 30,000,000 shares of Class A Common Stock to a series.
Class A Common Stock
. Dividends - As declared by the Board of Directors in the case of a
dividend alone or not less than 110% of the amount per share of any
dividend declared on the Class B Common Stock.
. Voting Rights - One tenth of one vote per share.
Class B Common Stock
. Dividends - As declared by the Board of Directors.
. Voting Rights - One vote per share.
. Convertibility - Each share of Class B Common Stock is convertible into
one share of Class A Common Stock.
In March 2002, BankUnited and its Chief Executive Officer ("CEO") agreed
to restructure the CEO's compensation. In connection with the compensation
restructuring, the CEO agreed to defer receipt of his fiscal 2001 bonus, which
has been invested in Series B Preferred Stock and held in a trust established
by BankUnited to, among other things, satisfy BankUnited's obligation to the
CEO under a nonqualified benefit plan. These shares are reflected in treasury
stock in the equity section of BankUnited's Consolidated Statement of Financial
Condition. BankUnited accrued for and reflected the deferred bonus in fiscal
year 2001 earnings. The deferred obligation is also classified in the
stockholders' equity section of BankUnited's Consolidated Statement of
Financial Condition.
BankUnited announced on October 24, 2002, that its Board of Directors had
authorized a stock repurchase program on its Class A Common Stock. Under the
program, BankUnited may purchase up to 1,000,000 shares of its Class A Common
Stock in open market transactions, from time to time, at such prices and on
such conditions as the Executive Committee of the Board determines to be
advantageous. BankUnited initiated this program because its believes that the
recent volatility of the financial markets, in general, have at times generated
a market price that does not adequately reflect the real value of BankUnited
stock or the level of confidence that management and the Board of Directors
have in BankUnited's ability to implement its strategy and achieve continued
growth.
(16) Stock Bonus Plan, Option Agreements and Other Benefit Plans
At September 30, 2002, BankUnited had certain stock-based compensation plans
designed to provide incentives to current and prospective officers, directors
and employees of BankUnited and its subsidiaries. Under the plans, BankUnited
may award stock options, stock appreciation rights, restricted stock, deferred
stock, bonus stock and awards in lieu of obligations, dividend equivalents,
other stock-based awards and performance awards.
77
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
The following table summarizes terms of BankUnited's stock-based incentive
compensation plans as of September 30, 2002:
Stock Compensation Plans
-----------------------------------------------------------
Maximum Shares Vesting Type of
Term Authorized Class of Stock Requirements Options
-------- ---------- ------------------ ------------ -------
2002 Stock Award and Incentive Plan. 10 Years 2,000,000 Common A & B; 0-10 Years ISO, NQ
Series B Preferred
1996 Incentive and Stock Award Plan. 10 Years 3,150,000 Common A & B; 0-10 Years ISO, NQ
1996 Incentive and Stock Award Plan. 10 Years 650,000 Series B Preferred 0-10 Years ISO, NQ
1994 Incentive Stock Option Plan.... 10 Years 250,000 Common A & B 0-10 Years ISO, NQ
1992 Stock Option Plan Non-Statutory 10 Years 825,000 Common A & B 0-10 Years NQ
Options granted under BankUnited's stock option plans expire ten years after
the date of grant and are exercisable at the fair market value of the stock on
the date of grant. The vesting and exercisability of options is determined by
the Compensation Committee of BankUnited's Board of Directors at the time of
the grant, and an option may be immediately vested and exercisable or become so
over a period of years. If an option vests over a period of years, it is
subject to forfeiture as to any portion which is not exercisable upon
termination of employment unless otherwise provided by the option agreement or
Compensation Committee.
The following table presents additional data concerning activity of
BankUnited's outstanding stock options for the three years ended September 30,
2002:
Number of Option Price Aggregate Weighted
Shares per Share Option Price Average Price
--------- --------------- ------------ -------------
Options outstanding, September 30, 1999 2,290,525 $ 3.11 - $13.18 $17,913,100 $ 7.82
Options granted........................ 668,610 6.13 - 8.63 5,613,991 8.40
Options exercised...................... (26,020) 3.75 - 6.60 (127,394) 4.90
Options expired........................ (338,717) 3.32 - 11.00 (2,611,064) 7.71
--------- --------------- ----------- ------
Options outstanding, September 30, 2000 2,594,398 3.11 - 13.18 20,788,633 8.01
Options granted........................ 728,818 6.75 - 14.85 6,531,415 8.96
Options exercised...................... (167,458) 3.11 - 10.85 (1,156,731) 6.91
Options expired........................ (73,291) 3.11 - 13.11 (598,142) 8.16
--------- --------------- ----------- ------
Options outstanding, September 30, 2001 3,082,467 3.23 - 14.85 25,565,175 8.29
Options granted........................ 680,476 12.93 - 20.20 10,058,852 14.78
Options exercised...................... (310,396) 3.54 - 14.09 (2,231,408) 7.19
Options expired........................ (105,159) 3.23 - 14.09 (1,130,676) 10.75
--------- --------------- ----------- ------
Options outstanding, September 30, 2002 3,347,388 $ 4.95 - $20.20 $32,261,943 $ 9.64
========= =============== =========== ======
The weighted-average grant date fair value of options granted during the
years ended September 30, 2002, 2001, and 2000 was $3.9 million, $2.3 million
and $2.9 million, respectively.
78
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
Summarized below is information about stock options outstanding and
exercisable at September 30, 2002.
Outstanding Exercisable
-------------------------- ------------------
Exercise Price Number of Average Average Number of Average
Range Shares Life(1) Price(2) Shares Price(2)
-------------- --------- ------- -------- --------- --------
$ 4.95- 7.25 1,165,828 4.45 $ 6.95 1,104,624 $ 6.95
$ 7.44-11.16 1,003,500 7.50 $ 8.22 335,894 $ 8.52
$12.15-17.81 1,078,581 7.40 $12.53 468,382 $13.60
$20.20 99,479 9.10 $20.20 -- $ --
--------- ---------
3,347,388 1,908,900
========= =========
- --------
(1) Weighted average contractual life remaining in years.
(2) Weighted average exercise price.
BankUnited has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" and as permitted by SFAS No. 123, continues to follow the
measurement provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, BankUnited does not
recognize compensation expense for stock options awarded under its stock-based
compensation plans. Had compensation cost for BankUnited's stock-based
compensation plans been determined based on the fair value at the grant dates
for stock option awards consistent with the methodology prescribed by SFAS No.
123, BankUnited's net income and earnings per share for fiscal 2002, 2001 and
2000 would have been reduced to the pro forma amounts indicated below:
For the Years Ended September 30,
---------------------------------
2002 2001 2000
------- ------- -------
(Dollars in thousands, except per
share amounts)
Net income available to common stockholder:
As Reported............................. $30,064 $18,447 $14,974
Pro Forma............................... $28,648 $17,590 $14,301
Basic earnings per share:
As Reported............................. $ 1.20 $ 0.91 $ 0.82
Pro Forma............................... $ 1.14 $ 0.87 $ 0.78
Diluted earnings per share:
As Reported............................. $ 1.12 $ 0.87 $ 0.81
Pro Forma............................... $ 1.07 $ 0.83 $ 0.77
The pro forma results of operations reported above are not likely to be
representative of the effects on reported income of future years due to vesting
arrangements and additional option grants. The fair value of each option has
been estimated on the date of the grant using the Black Scholes option pricing
model, with the following historical weighted average assumptions applied to
grants in fiscal 2002, 2001 and 2000:
For the Years Ended September 30,
--------------------------------
2002 2001 2000
------ ------ ------
Dividend yields......... -- -- --
Expected volatility..... 38.0% 38.0% 38.0%
Risk-free interest rates 4.37% 5.62% 6.21%
Expected life (in years) 7.0 7.0 7.0
79
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
During the year ended September 30, 2002, BankUnited granted 113,749 shares
of restricted stock having a weighted average grant date fair value of $18.56
per share. During the year ended September 30, 2001, BankUnited granted 171,433
shares of restricted stock having a weighted average grant date fair value of
$7.04 per share.
BankUnited sponsors a 401(k) profit sharing plan for its eligible employees.
Under the terms of the combined plan, eligible employees are permitted to
contribute up to 15% of their annual salary to the Plan. BankUnited currently
makes quarterly matching contributions at a rate of 75% of employee
contributions, up to a maximum of 6% of an employees' salary, in BankUnited's
Class A Common Stock. Employees are eligible to participate in the plan after
six months of service and begin vesting in BankUnited's contribution after two
years of service at the rate of 25% per year up to 100%. For fiscal 2002, 2001
and 2000, the Bank made total matching contributions of approximately,
$659,000, $529,000 and $371,000, respectively.
(17) Income Taxes
The components of the provision for income taxes for the years ended
September 30, 2002, 2001 and 2000 are as follows:
For the Years Ended September 30,
---------------------------------
2002 2001 2000
------- ------- -------
(Dollars in thousands)
Current-federal. $16,037 $11,534 $ 8,538
Current-state... 1,578 1,154 842
Deferred-federal (386) (1,503) 796
Deferred-state.. (28) (79) 71
------- ------- -------
Total........ $17,201 $11,106 $10,247
======= ======= =======
BankUnited's effective tax (benefit) rate differs from the statutory federal
income tax (benefit) rate as follows:
Years Ended September 30,
-------------------------------------------
2002 2001 2000
-------------- ------------ ------------
Amount % Amount % Amount %
- - -------- ---- ------- ---- ------- ----
(Dollars in thousands)
Tax at federal income tax rate $16,697 35.0% $10,283 35.0% $ 8,776 35.0%
Increase resulting from:
State tax.................... 1,002 2.1% 699 2.4% 594 2.4%
Other, net................... (498) (1.1)% 124 0.4% 877 3.5%
-------- ---- ------- ---- ------- ----
Total...................... $ 17,201 36.0% $11,106 37.8% $10,247 40.9%
======== ==== ======= ==== ======= ====
80
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
The tax effects of significant temporary differences included in the
deferred tax asset as of September 30, 2002 and 2001 were:
September 30,
----------------------
2002 2001
------- ------
(Dollars in thousands)
Deferred tax asset:
Non-accrual interest.................................................... $ 732 $ 680
Loan loss and other reserves............................................ 7,757 6,168
Unrealized holding losses on securities transferred to held to maturity. -- 770
Other................................................................... 618 106
------- ------
Gross deferred tax asset............................................ 9,107 7,724
------- ------
Deferred tax liability:
FHLB stock dividends.................................................... 30 30
Deferrals and amortizations............................................. 2,039 1,356
Fixed assets............................................................ 718 363
Unrealized holding gain on securities available for sale................ 10,665 4,333
Other................................................................... 701 --
------- ------
Gross deferred tax liability........................................ 14,153 6,082
------- ------
Net deferred tax (liability) asset.................................. $(5,046) $1,642
======= ======
At September 30, 2002, BankUnited had $409,000 in tax bad debt reserves
originating before December 31, 1987 for which deferred taxes have not been
provided. The amount becomes taxable under the Internal Revenue Code upon the
occurrence of certain events, including certain non-dividend distributions.
BankUnited does not anticipate any actions that would ultimately result in the
recapture of this amount for income tax purposes.
The components of deferred income tax provision (benefit) relate to the
following:
Years Ended September 30,
------------------------
2002 2001 2000
------- ------- ------
(Dollars in thousands)
Differences in book/tax depreciation $ 355 $ 377 $ (584)
Delinquent interest................. (52) (30) (33)
FHLB stock dividends................ -- (1) (3)
Loan fees........................... -- 81 (81)
Loan loss and other reserves........ (1,589) (1,127) (286)
Deferrals and amortization.......... 683 7 (480)
Purchase accounting and other....... 189 (889) 2,334
------- ------- ------
Total deferred taxes............. $ (414) $(1,582) $ 867
======= ======= ======
(18) Commitments and Contingencies
In the normal course of business, BankUnited enters into instruments that
are not recorded in the consolidated financial statements, but are required to
meet the financing needs of its customers. These financial instruments include
commitments to extend credit, purchase whole loans and securities, standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount
81
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
recognized in the consolidated statements of financial condition. The contract
or notional amounts of those instruments reflect the extent of involvement
BankUnited has in particular classes of financial instruments.
BankUnited's exposure to credit loss in the event of nonperformance by the
other party on the financial instrument is represented by the contractual
amount and collateral value, if any, of those instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Total commitments to extend credit at September 30,
2002 were as follows:
September 30, 2002
-----------------------
Fixed Variable
Rate Rate Total
------ -------- -------
Commitments to fund loans and available lines of credit 15,417 245,638 261,055
Domestic letters of credit............................. 30,287 -- 30,287
International letters of credit........................ 1,086 -- 1,086
------ ------- -------
Total........................................... 46,790 245,638 292,428
====== ======= =======
BankUnited evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by BankUnited,
upon extension of credit is based on management's credit evaluation of the
customer. Collateral varies but may include accounts receivable, property,
plant and equipment, residential real estate, and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by BankUnited
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. BankUnited requires
collateral to support those commitments.
In addition to the commitments to extend credit, BankUnited enters into
interest rate commitments on both loans it intends to hold for investment in
its loan portfolio and loans it intends to sell. The interest rate commitments
on loans it intends to sell, as well as forward sales commitments are
derivatives with fair values recognized in the consolidated statement of
financial condition. See Note (13) Accounting for Derivatives and Hedging
Activities for more information on loan commitments and forward sales
commitments on loans. The notional amount of interest rate commitments on loans
BankUnited intends to sell was $175 million as of September 30, 2002. Based on
historical experience, BankUnited expects $110 million of those loans to close.
The notional amount of interest rate commitments on loans BankUnited intends to
hold in its portfolio for investment was $104 million as of September 30, 2002.
Based on historical experience, BankUnited expects $66 million of those loans
to close. In addition, BankUnited entered into forward sales commitments on
loans with a notional amount of $105 million as of September 30, 2002.
BankUnited and the Bank have employment agreements with certain members of
senior management. The employment agreements, which establish the duties and
compensation of the executives, have terms ranging from one year to five years,
and include specific provisions for salary, bonus and other benefits.
82
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
BankUnited and its subsidiaries, from time to time, are involved as
plaintiff or defendant in various legal actions arising in the normal course of
their businesses. While the ultimate outcome of any such proceedings cannot be
predicted with certainty, it is the opinion of management that no proceedings
exist, either individually or in the aggregate, which, if determined adversely
to BankUnited and its subsidiaries, would have a material effect on
BankUnited's consolidated financial condition, results of operations or cash
flows.
(19) Related Party Transactions
The Chairman of the Board and Chief Executive Officer of BankUnited is the
senior managing director of a law firm retained by BankUnited. For the years
ended September 30, 2002, 2001, and 2000, fees paid to the law firm were $2.3
million, $2.1 million and $2.5 million, respectively.
A director of BankUnited is a senior vice president of an insurance agency
whose services are employed by BankUnited in connection with BankUnited's
general corporate insurance policies. For the years ended September 30, 2002,
2001 and 2000, BankUnited paid premiums to the insurance agency of
approximately $604 thousand, $543 thousand, $523 thousand, respectively. The
spouse of the same director is president and owner of another insurance agency
whose services are employed in connection with health and dental insurance
policies obtained by BankUnited. For the years ended September 30, 2002, the
agency earned approximately $111 thousand, $61 thousand and $46 thousand in
commissions in connection with those policies.
BankUnited leases property from a partnership, which is 25 percent owned by
the Chairman of the Board and Chief Executive Officer of BankUnited, for one of
its branches. The lease expires in June of 2012, and rental fees for the
property were approximately $131 thousand for fiscal 2002.
BankUnited extends loans to entities in which its directors have significant
interests. As of September 30, 2002, there were approximately $1 million in
loans receivable from entities in which two directors had interests. As of
September 30, 2001, there were approximately $145 thousand in loans receivable
from entities in which one director had interests. As of September 30, 2002,
BankUnited had loans receivable from four of BankUnited's executive officers in
the aggregate amount of $986 thousand. These loans are secured by each
executive's primary residence.
83
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
(20) BankUnited Financial Corporation
The following summarizes the major categories of BankUnited's (holding
company only) financial statements:
Condensed Statements of Financial Condition
As of September 30,
---------------------
2002 2001
-------- --------
(Dollars in thousands)
Assets:
Cash.......................................................................... $ 45,281 $ 55,441
FHLB overnight deposits....................................................... 103 415
Tax certificates.............................................................. -- 282
Investments, net (market value of approximately $60 at September 30, 2001 and
2000)....................................................................... -- 60
Investments available for sale, at market..................................... 23,177 20,896
Mortgage-backed securities available for sale, at market...................... 1,536 10,723
Accrued interest receivable................................................... 730 828
Investment in the Bank........................................................ 507,371 402,799
Investment in subsidiaries.................................................... 10,289 8,218
Other assets.................................................................. 22,349 14,267
-------- --------
Total assets.............................................................. $610,836 $513,929
======== ========
Liabilities and Capital:
Liabilities................................................................... $ 1,019 $ 1,151
Junior subordinated deferrable interest debentures............................ 264,668 212,332
-------- --------
Total liabilities......................................................... 265,687 213,483
-------- --------
Stockholders' equity:
Preferred stock............................................................... 6 4
Common stock.................................................................. 255 254
Additional paid-in capital.................................................... 253,511 249,788
Retained earnings............................................................. 77,566 47,502
Deferred compensation obligation.............................................. 528 --
Treasury stock -- Common...................................................... (2,794) (2,794)
Treasury stock -- Preferred................................................... (528) --
Accumulated other comprehensive income, net of tax............................ 16,605 5,692
-------- --------
Total stockholders' equity................................................ 345,149 300,446
-------- --------
Total liabilities and stockholders' equity................................ $610,836 $513,929
======== ========
84
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
Condensed Statements of Operations
For the Years Ended
September 30,
-------------------------
2002 2001 2000
------- ------- -------
(Dollars in thousands)
Interest income................................................................... $ 2,213 $ 4,534 $ 4,225
Interest expense.................................................................. 20,201 21,967 22,121
Equity income of the subsidiaries and other income................................ 45,768 30,078 26,858
Operating expenses................................................................ 2,143 1,762 1,665
------- ------- -------
Income before income taxes, extraordinary item and preferred stock
dividends....................................................................... 25,637 10,883 7,297
Income tax benefit................................................................ (4,868) (7,390) (7,531)
------- ------- -------
Net income before extraordinary item and preferred stock dividends................ 30,505 18,273 14,828
Extraordinary item (net of tax (benefit) expense of $(115), $515 and $586 in 2002,
2001 and 2000, respectively).................................................... (184) 823 936
------- ------- -------
Net income before preferred stock dividends....................................... 30,321 19,096 15,764
Preferred stock dividends......................................................... 257 649 790
------- ------- -------
Net income after preferred stock dividends........................................ $30,064 $18,447 $14,974
======= ======= =======
Condensed Schedule of Other Comprehensive Income (Loss)
For the Years Ended
September 30,
------------------------
2002 2001 2000
------- ------- -------
(Dollars in thousands)
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities available for sale arising during
the period, net of tax expense (benefit) of $4,609, $6,889 and $(1,185) for
2002, 2001 and 2000, respectively.............................................. $ 7,362 $11,004 $(1,893)
Unrealized gains on securities transferred from held to maturity to available for
sale, net of tax of $1,355 for 2002............................................ 2,165 -- --
Unrealized losses on cash flow hedges, net of tax benefit of $271 for 2002....... (433) -- --
Less reclassification adjustment for:
Amortization of unrealized losses on transferred securities, net of tax
expense of $515, $86, and $80 for 2002, 2001 and 2000, respectively......... 823 138 129
Realized gains on securities sold included in net income, net of tax expense
of $1,124 and $64 for 2002 and 2001, respectively........................... 996 104 --
------- ------- -------
Total other comprehensive income (loss), net of tax....................... $10,913 $11,246 $(1,764)
======= ======= =======
85
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
Condensed Statements of Cash Flows
For the Years Ended September 30,
--------------------------------
2002 2001 2000
-------- -------- --------
(Dollars in thousands)
Cash flows from operating activities:
Net income............................................................ $ 30,505 $ 19,096 $ 15,764
Less: Undistributed income of the subsidiaries........................ (47,346) (30,079) (26,857)
Extraordinary gain on repurchase of trust preferred securities........ (184) (1,337) (1,522)
Deferred Compensation................................................. 528 -- --
Other................................................................. (3,361) 2,065 2,848
-------- -------- --------
Net cash used in operating activities............................. (19,858) (10,255) (9,767)
-------- -------- --------
Cash flows from investing activities:
Equity contributions to the Bank...................................... (47,000) -- --
Equity contributions to subsidiaries.................................. (2,167) -- --
Purchase of investment securities available for sale.................. (4,287) -- --
Sale of investment securities available for sale...................... 2,905 -- --
Purchase of mortgage-backed securities available for sale............. -- (2,565) --
Proceeds from repayments of mortgage-backed securities available for
sale................................................................ 9,189 661 2,771
Proceeds from sales of mortgage-backed securities available for sale.. -- 67 9,091
-------- -------- --------
Net cash provided by (used in) investing activities............... (41,360) (1,837) 11,862
-------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of junior subordinated deferrable interest
debentures.......................................................... 70,064 -- --
Repurchase of trust preferred securities.............................. (21,769) (7,060) (4,368)
Dividend from Bank.................................................... -- -- 7,300
Net proceeds from issuance of stock................................... 3,236 74,811 125
Purchase of Class A Common Stock...................................... -- -- (1,117)
Purchase of Class B Preferred Stock................................... (528) -- --
Dividends paid on preferred stock..................................... (257) (649) (757)
Redemption -- Preferred Stock 9%...................................... -- (6,961) --
-------- -------- --------
Net cash provided by financing activities......................... 50,746 60,141 1,183
-------- -------- --------
(Decrease) increase in cash and cash equivalents......................... (10,472) 48,049 3,278
Cash and cash equivalents at beginning of year........................... 55,856 7,807 4,529
-------- -------- --------
Cash and cash equivalents at end of year................................. $ 45,384 $ 55,856 $ 7,807
======== ======== ========
(21) Estimated Fair Value of Financial Instruments
The information set forth below provides disclosure of the estimated fair
value of BankUnited's financial instruments. Management has made estimates of
fair value discount rates that it believes to be reasonable. However, because
there is no readily available market for some of these financial instruments,
management has no basis to determine whether the fair value presented would be
indicative of the value negotiated in an actual sale. The fair value estimates
do not consider the tax effect that would be associated with the disposition of
the assets or liabilities at their fair value estimates.
86
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2002
Fair values are estimated for loan portfolios with similar financial
characteristics. Loans are segregated by category, such as commercial,
commercial real estate, residential mortgage, second mortgages, and other
installment. Each loan category is further segmented into fixed and adjustable
rate interest terms and by performing and non-performing status. The fair value
of loans is calculated by discounting scheduled cash flows through the
estimated maturity using estimated market discount rates that reflect the
credit risk inherent in the loan. The estimate of average maturity is based on
historical experience with prepayments for each loan classification modified,
as required, by an estimate of the effect of current economic and lending
conditions.
The fair value of deposits with no stated maturity, such as
non-interest-bearing demand deposits, savings and NOW accounts, and money
market accounts, is equal to the amount payable on demand. The fair value of
certificates of deposit is based on the discounted value of contractual cash
flows.
The fair value of the 9.60% and 9.00% Trust Preferred Securities is
estimated based on quoted market prices. The fair value of the remaining Trust
Preferred Securities is estimated at book value.
The fair value of borrowings, which include FHLB advances, securities sold
under agreements to repurchase and senior notes is determined by discounting
the scheduled cash flows through maturity using estimated market discount rates
that reflect the interest rate currently available in the market.
The carrying value of other interest earning assets, which is primarily FHLB
stock, approximates their fair value.
As of September 30, 2002 As of September 30, 2001
------------------------- -------------------------
Carrying Value Fair Value Carrying Value Fair Value
-------------- ---------- -------------- ----------
(Dollars in thousands)
Financial assets:
Cash and cash equivalents..... $ 472,290 $ 472,290 $ 294,753 $ 294,753
Investments................... 171,585 171,585 136,012 136,148
Mortgage-backed securities.... 1,136,634 1,136,634 832,728 841,613
Loans receivable.............. 3,992,124 4,039,230 3,749,649 3,807,464
Other interest-earning assets. 90,724 90,724 75,625 75,625
Financial liabilities:
Deposits...................... $2,976,171 3,029,899 $2,653,145 $2,681,435
Borrowings.................... 2,361,131 2,515,700 1,992,837 2,101,729
Trust Preferred Securities.... 253,761 255,695 203,592 196,091
Derivative instruments........ 1,544 1,544 -- 161
87
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information contained under the caption "Election of Directors" to
appear in BankUnited's definitive proxy statement relating to BankUnited's 2003
Annual Meeting of Stockholders, which definitive proxy statement will be filed
with the Securities and Exchange Commission not later than 120 days after the
end of BankUnited's fiscal year covered by this report on Form 10-K
(hereinafter referred to as the "Annual Meeting Proxy Statement"), is
incorporated herein by reference. Information concerning the executive officers
and directors of BankUnited is included in Part I of this Report on Form 10-K.
Item 11. Executive Compensation.
The information contained under the caption "Executive Compensation" to
appear in the Annual Meeting Proxy Statement is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" to appear in the Annual Meeting Proxy
Statement is incorporated herein by reference.
Stock Compensation Plan Information
The following table sets forth information as of September 30, 2002, with
respect to stock compensation plans under which equity securities are
authorized for issuance.
Number of Securities to Weighted Average Number of Securities
be Issued Upon Exercise Exercise Price of Remaining Available
of Outstanding Options Outstanding Options for Future Issues
----------------------- ------------------- --------------------
Stock based compensation plans approved by
stockholders................................ 3,347,388 $9.64 2,254,355
Stock based compensation plans not approved by
stockholders................................ -- -- --
Item 13. Certain Relationships and Related Transactions.
The information contained under the captions "Compensation Committee
Interlocks and Insider Participation" and "Certain Relationships and Related
Transactions" to appear in the Annual Meeting Proxy Statement is incorporated
herein by reference.
88
PART IV
Item 14. Controls and Procedures
An evaluation of the effectiveness of the design and operation of
BankUnited's disclosure controls and procedures was carried out by BankUnited,
within 90 days prior to the filing date of this report, under the supervision
and with the participation of BankUnited's management, including the Chief
Executive Officer and Chief Financial Officer. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that BankUnited's
disclosure controls and procedures have been designed and are being operated in
a manner that provides reasonable assurance that the information required to be
disclosed by BankUnited in reports filed under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. A controls system, no matter how well
designed and operated, cannot provide absolute assurance that the objectives of
the controls system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected. Subsequent to the date of the most recent
evaluation of BankUnited's internal controls, there were no significant changes
in BankUnited's internal controls or in other factors that could significantly
affect the internal controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The Following Documents Are Filed as Part of this Report:
(1) Financial Statements.
The following consolidated financial statements of BankUnited and the report of the independent
certified public accountants thereon filed with this report:
Report of Independent Certified Public Accountants (PricewaterhouseCoopers LLP).
Consolidated Statements of Financial Condition as of September 30, 2002 and 2001.
Consolidated Statement of Operations for the years ended September 30, 2002, 2001, and 2000.
Consolidated Statement of Stockholders' Equity for the years ended September 30, 2002, 2001, and
2000.
Consolidated Statements of Cash Flows for the years ended September 30, 2002, 2001 and 2000.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules.
Schedules are omitted because the conditions requiring their filing are not applicable or because the
required information is provided in the Consolidated Financial statements, including the Notes
thereto.
(3) Exhibits.*
3.1 Articles of Incorporation of BankUnited, as amended (Exhibit 3.1 to BankUnited's Form 10-Q Report
for the quarter ended June 30, 2002, as filed with the Commission on August 14, 2002).
3.2 Bylaws of BankUnited, as amended.
4.1 Statement of Designation of series 1 Class A Common Stock and Class B Common Stock of
BankUnited (included as an appendix to Exhibit 3.1).
4.2 Statement of Designation of Noncumulative Convertible Preferred Stock, Series A of BankUnited
(included as appendix to Exhibit 3.1).
4.3 Statement of Designation of Noncumulative Convertible Preferred Stock, Series B of BankUnited
(included as appendix to Exhibit 3.1).
4.4 Statement of Designation of Noncumulative Convertible Preferred Stock, Series C of BankUnited
(included as appendix to Exhibit 3.1).
89
4.5 Statement of Designation of Noncumulative Convertible Preferred Stock, Series C-II of BankUnited
(included as appendix to Exhibit 3.1).
4.6 Statement of Designation of 8% Noncumulative Convertible Preferred Stock, Series 1993 of
BankUnited (included as appendix to Exhibit 3.1).
4.7 Statement of Designation of 9% Noncumulative Perpetual Preferred Stock of BankUnited (included
as appendix to Exhibit 3.1).
4.8 Statement of Designation of 8% Noncumulative Convertible Preferred Stock, Series 1996 of
BankUnited (included as appendix to Exhibit 3.1).
4.9 Form of Letter Agreement between BankUnited and the holders of shares of BankUnited's
Noncumulative Convertible Preferred Stock, Series B (Exhibit 4.7 to BankUnited's Form 10-K
Report for the year ended September 30, 1998, as filed with the Commission on December 29,
1998 [the "1998 10-K"]).
4.10 BankUnited and its subsidiaries have certain long-term debt outstanding. None of the instruments
evidencing such debt authorizes an amount of securities in excess of 10% of the total assets of
BankUnited and its subsidiaries on a consolidated basis; therefore, copies of such instruments are
not included as exhibits to this Annual Report of Form 10-K. BankUnited agrees to furnish copies
to the Commission upon request.
10.1 Non-statutory Stock Option Plan, as amended, (Exhibit 4.9 to BankUnited's Form S-8 Registration
Statement, File No. 33-76882, as filed with the Commission on March 24, 1994).**
10.2 1992 Stock Bonus Plan, as amended (Exhibit 10.2 to BankUnited's Form 10-K Report for the year
ended September 30, 1994 [the "1994 10-K"]).**
10.3 1994 Incentive Stock Option Plan. (Exhibit 10.3 to the 1994 10-K).**
10.4 1996 Incentive Compensation and Stock Award Plan. (Exhibit 10.2 to BankUnited's Report on Form
10-Q for the quarter ended December 31, 1999, as filed with the Commission on February 14,
2000).**
10.5 2002 Stock Award and Incentive Plan (Exhibit 10.1 to BankUnited's Report on Form 10-Q for the
quarter ended December 31, 2001, as filed with the Commission on February 14, 2002).**
10.6 BankUnited 401(k)/Profit Sharing Plan.**
10.7 Employment Agreement between BankUnited and Alfred R. Camner (included in Exhibit 4 to Alfred
R. Camner's Schedule 13D/A, as filed with the Commission on April 25, 2002).***
10.8 Amendment to Employment Agreement between BankUnited and Alfred R. Camner (Exhibit 2 to
Alfred R. Camner's Schedule 13D/A, as filed with the Commission on December 17, 2002).***
10.9 Employment Agreement between the Bank and Alfred R. Camner (included in Exhibit 4 to Alfred R.
Camner's Schedule 13 D/A, as filed with the Commission on April 25, 2002).***
10.10 Employment Agreement between BankUnited and Ramiro Ortiz, as amended.***
10.11 Employment Agreement between the Bank and Ramiro Ortiz, as amended.***
10.12 Form of Change of Control Agreement between BankUnited and Vincent F. Post, Jr., Janette L.
Davis, Humberto L. Lopez and Michael J. Clutter (Exhibit 10.10 to BankUnited's Report on form
10-K for the year ended September 30, 1999 [the "1999 10-K"]).***
10.13 Change in Control Agreement between the Bank and Lawrence H. Blum.***
10.14 Settlement Agreement between BankUnited and Mehdi Ghomeshi.***
10.15 Underwriting Agreement (Exhibit 1.1 to BankUnited's Amendment No. 1 to Form S-3 Registration
Statement, File No. 333-60892, as filed with the Commission on May 25, 2001).
90
12.1 Statement regarding calculation of ratio of earnings to combined fixed charges and preferred stock
dividends.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Power of attorney (set forth on the signature page in Part IV of this Report on Form 10-K for the year
ended September 30, 2002).
99.1 Certification of Chief Executive Officer and Chief Financial Officer.
- --------
* Exhibits followed by a parenthetical reference are incorporated herein by
reference from the documents described therein. All references to the
"Commission" shall signify the Securities and Exchange Commission.
** Compensatory plans or arrangements.
*** Contracts with Management.
(b) Reports on Form 8-K.
During the quarter ended September 30, 2002, no Current Reports on Form 8-K
were filed by BankUnited.
91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized on
December 30, 2002.
BANKUNITED FINANCIAL CORPORATION
/s/ ALFRED R. CAMNER
By: __________________________________
Alfred R. Camner
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Alfred R. Camner , Ramiro A. Ortiz and Lawrence
H. Blum and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments to
this report on Form 10-K and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or his substitutes, may lawfully do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on December 30, 2002 on behalf of the Registrant by the
following persons and in the capacities indicated.
/S/ ALFRED R. CAMNER Chairman of the Board, Chief Executive Officer, and
- ----------------------------- Director (Principal Executive Officer)
Alfred R. Camner
/s/ RAMIRO A. ORTIZ President, Chief Operating Officer, and Director
- -----------------------------
Ramiro A. Ortiz
/S/ LAWRENCE H. BLUM Vice Chairman of the Board, Secretary and Director
- -----------------------------
Lawrence H. Blum
/s/ MARC D. JACOBSON Director
- -----------------------------
Marc D. Jacobson
/s/ ALLEN M. BERNKRANT Director
- -----------------------------
Allen M. Bernkrant
/s/ NEIL H. MESSINGER, M. D. Director
- -----------------------------
Neil H. Messinger, M. D.
/s/ HARDY C. KATZ Director
- -----------------------------
Hardy C. Katz
/s/ EDWARD L. PINCKNEY Director
- -----------------------------
Edward L. Pinckney
/S/ HUMBERTO L. LOPEZ Senior Executive Vice President and Chief Financial Officer
- ----------------------------- (Principal Financial Officer)
Humberto L. Lopez
92
I, Alfred R. Camner, certify that:
1. I have reviewed this annual report on Form 10-K of BankUnited Financial
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: December 30, 2002 /s/ ALFRED R. CAMNER
------------------------
Alfred R. Camner
Chairman of the Board and
Chief Executive Officer
93
I, Ramiro A. Ortiz, certify that:
1. I have reviewed this annual report on Form 10-K of BankUnited Financial
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: December 30, 2002 /s/ Ramiro A. Ortiz
-----------------------
Ramiro A. Ortiz
President and
Chief Operating Officer
94
I, Humberto L. Lopez, certify that:
1. I have reviewed this annual report on Form 10-K of BankUnited Financial
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: December 30, 2002 /s/ Humberto L. Lopez
-----------------------------------
Humberto L. Lopez
Senior Executive Vice President and
Chief Financial Officer
95
Exhibit Index
Exhibit
Number Exhibit Description
-------- -------------------
3.2 Bylaws of BankUnited, as amended.
10.6 BankUnited 401(k)/Profit Sharing Plan.
10.10 Employment Agreement between BankUnited and Ramiro Ortiz, as amended.
10.11 Employment Agreement between the Bank and Ramiro Ortiz, as amended.
10.13 Change in Control Agreement between the Bank and Lawrence H. Blum.
10.14 Settlement Agreement between BankUnited and Mehdi Ghomeshi.
12.1 Statement regarding calculation of ratio of earnings to combined fixed
charges and preferred stock dividends.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
99.1 Certification of Chief Executive Officer and Chief Financial Officer.