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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File Number 5-43936
BANKUNITED FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0377773
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
255 ALHAMBRA CIRCLE, CORAL GABLES, FLORIDA 33134
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
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
9% Noncumulative Perpetual Preferred Stock
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 10, 1999, was $131,115,244.* 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 10,
1999 were as follows:
CLASS NUMBER OF SHARES
----- ----------------
Class A Common Stock, $.01 par value 17,871,547
Class B Common Stock, $.01 par value 458,467
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Definitive Proxy Statement for its 2000 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.
- ----------
* 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.
BANKUNITED FINANCIAL CORPORATION
FORM 10-K INDEX
PART I PAGE
----
Item 1. Business............................................................................ 2
Market Area and Competition......................................................... 3
Lending Activities.................................................................. 4
Asset Quality....................................................................... 11
Investments and Mortgage-Backed Securities.......................................... 12
Mortgage Loan Servicing............................................................. 14
Sources of Funds.................................................................... 14
Activities of Subsidiaries.......................................................... 18
Employees........................................................................... 18
Regulation.......................................................................... 19
Taxation............................................................................ 26
Item 2. Properties.......................................................................... 29
Item 3. Legal Proceedings................................................................... 29
Item 4. Submission of Matters to a Vote of Security Holders................................. 29
Item 4A. Executive Officers of the Registrant................................................ 30
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder Matters............ 33
Item 6. Selected Financial Data............................................................. 34
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 36
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.......................... 53
Item 8. Consolidated Financial Statements and Supplementary Data............................ 61
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure...................................................................... 99
PART III
Item 10. Directors and Executive Officers of the Registrant.................................. 99
Item 11. Executive Compensation.............................................................. 99
Item 12. Security Ownership of Certain Beneficial Owners and Management...................... 99
Item 13. Certain Relationships and Related Transactions...................................... 99
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................... 99
1
FORWARD-LOOKING STATEMENTS
When used in this Form 10-K or future filings by BankUnited Financial
Corporation ("BankUnited") with the Securities and Exchange Commission, in
BankUnited's press releases or other public or shareholder communications, or in
oral statements made with the approval of an authorized executive officer, the
word or phrases "will likely result," "expect," "will continue," "anticipate,"
"estimate," "project," "believe" and similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. 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 to advise readers that various factors, including
general economic factors and conditions, changes in levels of market interest
rates, credit risks of lending activities, competitive and regulatory factors,
and expansion strategies could affect BankUnited's financial performance and
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
revisions which may be made to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.
PART I
ITEM 1. BUSINESS
BUSINESS OF BANKUNITED FINANCIAL CORPORATION
GENERAL
BankUnited Financial Corporation ("BankUnited") is a Florida corporation
and the savings and loan holding company for BankUnited, FSB (the "Bank").
BankUnited's principal business currently consists of the operations of the
Bank. The Bank was founded in 1984 as a savings and loan association. In 1993,
the Bank was converted to a federally chartered savings bank and became a
wholly-owned subsidiary of BankUnited, pursuant to a plan of reorganization
approved by its shareholders. The Bank's revenues are derived principally from
interest earned on loans, mortgage-backed securities and investments, and its
primary expenses arise from interest paid on deposits and borrowings and
non-interest operating expenses incurred in operations. At September 30, 1999,
BankUnited had assets of $4.1 billion, deposits of $2.3 billion and
stockholders' equity of $190.1 million.
Prior to 1998, the primary business strategy of BankUnited was to generate
stable interest-bearing deposits and use the proceeds to purchase residential
mortgages in the secondary market. In 1998, BankUnited initiated several
fundamental changes in its business strategy. During the first half of 1998,
through the Consumers and Central Bank acquisitions, the bank expanded its
deposit base and product lines to include new consumer and commercial products.
In December 1998, the decision was made to reposition BankUnited. This decision
was made for several reasons. First, because of continued competition from other
investors and unfavorable changes in the rate environment, the yields from
purchased residential mortgages no longer provided sufficient returns to
BankUnited or to other institutions with similar investment strategies. Second,
competition for certificates of deposit and other long-term savings from online
brokers, mutual funds and other institutions resulted in an increase in interest
rates relative to earnings on assets. Third, numerous acquisitions of local
banks by sizeable out-of-state institutions created a large number of
dissatisfied customers who were seeking a strong, community- based bank and who
were willing to move their relationships. Fourth, the increasing velocity of
change and commoditization of the financial services industry made it
increasingly critical that surviving participants define customer bases and core
competencies and begin to deliver around them.
BankUnited commenced this repositioning process by hiring a new President
and executive management team, under whose direction BankUnited completed a
restructuring to streamline the organization, lower expenses, increase profit
margins and improve the use of its deposit base. As a result of this
restructuring, BankUnited has reduced its dependence on purchasing residential
mortgage loans in the secondary market by focusing on originating these loans,
increased its
2
emphasis on commercial lending, consumer lending and small business banking,
implemented new products and services to meet customer needs, and continued to
expand its branch network.
BankUnited currently has twenty-seven branch offices in southeast Florida
and one in southwest Florida and anticipates opening six to eight additional
branch offices in fiscal year 2000. BankUnited is also considering using kiosks
in high density areas such as shopping malls or office parks and re-evaluating
existing branch locations to ensure that the right markets are optimally served.
BankUnited also expects to begin offering customer service by telephone and
Internet access during the fiscal year 2000.
The Bank is a member of the Federal Home Loan Bank of Atlanta (the "FHLB")
and is subject to comprehensive regulation, examination and supervision by the
Office of Thrift Supervision (the "OTS") and the Federal Deposit Insurance
Corporation (the "FDIC"). Deposits at the Bank are insured by the Savings
Association Insurance Fund to the maximum extent permitted by law.
MARKET AREA AND COMPETITION
BankUnited conducts business in Miami-Dade, Broward, Palm Beach and Collier
counties ("South Florida") which geographic region, at June 30, 1999, had a
total of approximately $82.2 billion in deposits at commercial banks and savings
institutions (41.9% of the total of $196.2 billion of deposits in Florida).
BankUnited intends to continue to establish or acquire branch offices in its
market area and may expand into other parts of Florida.
BankUnited encounters strong competition in attracting retail and business
deposits and loans. BankUnited's most direct competition for deposits
historically has been from commercial banks, brokerage houses, other savings
associations, and credit unions located in its market area. Recently, BankUnited
has also experienced competition from out-of-state organizations which offer
premium deposit rates to offset their lack of physical locations in the market
area. Many non-bank competitors also actively seek a share of deposit business
and some brokerage houses compete directly for small business loans. BankUnited
also competes in its market area with the branch offices of several
super-regional commercial banks and savings associations that are substantially
larger and have more extensive operations than BankUnited. In addition, many
financial institutions formerly independent and operating in South Florida have
recently been acquired by larger institutions headquartered out of state.
The consolidation of the financial services industry has created
opportunities and challenges for BankUnited and other small and middle sized
participants. Mergers among institutions have disrupted many customer
relationships and created opportunities for BankUnited to acquire new customers.
Larger institutions, however, have been able to achieve economies of scale in
operational processes, offer a broader and more sophisticated product mix, have
a reduced cost of capital and offer more extensive electronic banking
facilities. BankUnited's goal is to compete for savings and other deposits by
offering depositors a higher level of personal service, together with a wide
range of deposit products offered at competitive rates, and to focus its lending
activity on providing a full range of financial services to its customers by
expanding its commercial real estate, commercial business and real estate
construction lending areas, and increasing its emphasis on consumer loans.
The competition in originating real estate and other loans comes
principally from commercial banks, mortgage banking companies and other savings
associations. BankUnited competes for loan originations primarily through the
interest rates and loan fees which it charges, the types of loans which it
offers, and the efficiency and quality of service which it provides. BankUnited
purchases residential first mortgage loans in the existing secondary mortgage
market and competes with other mortgage purchasers primarily on the basis of
price. While BankUnited has been, and intends to continue to be, primarily a
residential lender, BankUnited has recently increased its emphasis on commercial
real estate, construction, commercial and consumer lending, as discussed more
fully below. Factors that effect competition in lending include general and
local economic conditions, current interest rates and volatility of the mortgage
markets. Management continues to evaluate market needs and products to meet
those needs which would also allow BankUnited to control the growth of its
assets and liabilities.
3
As with its deposit products, BankUnited's strategy is to promote a higher level
of personal service and to position itself as a community bank offering a full
range of financial services.
LENDING ACTIVITIES
Since inception in 1984, BankUnited's primary source of earning assets has
been the purchase of one-to-four family residential mortgage loans in the
secondary market. BankUnited experienced significant prepayment of these loans
over the last six months of fiscal 1998 and the first six months of fiscal 1999
and as a result discontinued purchasing one-year CMT loans ("One-Year CMT") and
altered its practice of purchasing loans in the secondary market, turning its
focus to producing assets. One-Year CMT loans are adjustable-rate mortgages with
an index tied to the yield on one-year U.S. Treasury securities adjusted to a
constant maturity published by the Federal Reserve. BankUnited's lending
strategy also includes expanding its commercial real estate, real estate
construction, commercial business, and small business lending. BankUnited also
currently offers consumer loans, such as home equity loans, automobile loans and
boat loans. The credit approval process generally involves both a credit scoring
process and traditional underwriting methodologies. BankUnited's credit approval
policies and procedures are updated as necessary to encompass new products and
services.
LOAN PORTFOLIO. BankUnited's loan portfolio primarily consists of mortgage
loans secured by one-to-four family residential and commercial real estate. As
of September 30, 1999, BankUnited's loan portfolio before net items totaled $3.3
billion, of which $3.0 billion or 91.1% consisted of one-to-four family
residential mortgages loans. At the present time, BankUnited's residential real
estate loans are primarily "conventional" loans not insured by the Federal
Housing Administration (the "FHA") or guaranteed by the Veterans Administration
(the "VA"). BankUnited is, however, approved to originate FHA and VA loans. As
of September 30, 1999, the remainder of BankUnited's loan portfolio consisted of
$141.1 million of commercial real estate loans (4.3% of total loans); $48.2
million of commercial business loans (1.5% of total loans); $39.1 million of
construction and land loans (1.2% of total loans); $33.9 million of consumer
loans (1.0% of total loans); and $30.1 million of five-or-more units residential
real estate loans (0.9% of total loans).
At September 30, 1999, $2.0 billion, or 60.5% of BankUnited's total loan
portfolio before net items, consisted of purchased mortgage loans and loan
participations, serviced by others, which consisted primarily of one-to-four
family residential mortgage loans. At September 30, 1999, BankUnited's loan
portfolio included $278.8 million of residential mortgage loans to non-resident
aliens, which was 8.4% of total loans before net items. See "Residential
Mortgage Loan Purchases and Originations" for additional information on
BankUnited's loans to non-resident aliens.
4
Set forth below is a table showing BankUnited's loan origination, purchase
and sale activity for the periods indicated.
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS)
Total loans receivable, net, at beginning of period(1) $ 3,042,014 $ 1,765,723 $ 646,385
Loans originated:
Residential real estate ............................ 592,899 312,749 159,533
Commercial real estate, business and consumer ...... 130,226 73,692 18,804
----------- ----------- -----------
Total loans originated ........................... 723,125 386,441 178,337
Loans acquired in acquisitions(2) ..................... -- 111,786 341,394
Loans purchased(3) .................................... 803,329 2,747,061 913,653
Loans sold ............................................ (23,564) (173,498) (39,934)
Loans securitized ..................................... -- (355,469) --
Principal repayments and amortization of discounts
and premiums ....................................... (1,228,540) (1,435,075) (270,281)
Increase in allowance for loan losses, net ............ (5,979) (2,435) (1,535)
Transfers to real estate owned, net ................... (7,519) (2,520) (2,296)
----------- ----------- -----------
Total loans receivable, net, at end of period(1) ... $ 3,302,866 $ 3,042,014 $ 1,765,723
=========== =========== ===========
- -------------------------
(1) Includes loans held for sale.
(2) Loans acquired in the Central and Consumers mergers included $69.6 million
of one-to-four family residential real estate loans, $15.3 million of
commercial real estate loans and $26.8 million of other types of loans. The
Suncoast merger included $230.7 million of one-to-four family residential
real estate loans, $95.8 million of commercial real estate loans and $14.9
million of other types of loans. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Acquisitions" for
additional information regarding the acquisitions.
(3) Loans purchased are primarily one-to-four family residential real estate
loans.
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,
-------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------- ------------------ ------------------- ------------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ----- ----------- ---- ----------- ----- ----------- ---- ----------- -----
(DOLLARS IN THOUSANDS)
First and second mortgage
loans:
One-to four-family
residential loans .. $ 3,010,427 91.1% $2,788,838 91.6% $ 1,565,815 88.6% $ 570,951 88.3% $ 434,884 95.9%
Multi-family
residential loans .. 30,057 0.9 24,392 0.8 32,163 1.8 12,559 2.0 1,124 0.2
Commercial real estate 141,090 4.3 145,819 4.8 130,197 7.4 49,318 7.6 10,223 2.3
Construction ......... 15,425 0.5 7,827 0.3 7,477 0.4 -- -- 200 0.1
Land ................. 23,659 0.7 5,410 0.2 7,997 0.5 2,687 0.4 450 0.1
----------- ----- ----------- ---- ----------- ----- ----------- ---- ----------- -----
Total first
and second
mortgage loans . 3,220,658 97.5 2,972,286 97.7 1,743,649 98.7 635,515 98.3 446,881 98.6
----------- ----- ----------- ---- ----------- ----- ----------- ---- ----------- -----
Consumer loans ....... 33,878 1.0 30,401 1.0 1,748 0.1 2,648 0.4 920 0.2
Commercial business
loans .............. 48,173 1.5 15,550 0.5 10,890 0.6 5,822 0.9 3,632 0.8
----------- ----- ----------- ---- ----------- ----- ----------- ---- ----------- -----
Total loans
receivable ..... 3,302,709 100.0 3,018,237 99.2 1,756,287 99.4 643,985 99.6 451,433 99.6
----------- ----- ----------- ---- ----------- ----- ----------- ---- ----------- -----
Deferred loan fees,
premiums and
(discounts) ........ 12,264 0.4 29,905 1.0 13,129 0.8 4,558 0.7 3,386 0.7
Allowance for loan
losses ............. (12,107) (0.4) (6,128) (0.2) (3,693) (0.2) (2,158) (0.3) (1,469) (0.3)
----------- ----- ----------- ---- ----------- ------ ----------- ----- ----------- -----
Loans receivable,
net ............. $ 3,302,866 100.0% $3,042,014 100.0% $ 1,765,723 100.0% $ 646,385 100.0% $ 453,350 100.0%
=========== ===== =========== ===== =========== ====== =========== ===== =========== =====
5
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
limitation imposed by regulation requires that certain types of loans only be
made in aggregate amounts that do not exceed specified percentages of the
institution's capital. The following table sets forth, as of September 30, 1999,
the amount of loans (including mortgage loans held for sale) by category and
expected principal repayments by year.
OUTSTANDING AT 2004- 2006- 2010 AND
SEPTEMBER 30, 1999 2000 2001 2002 2003 2005 2009 THEREAFTER
---------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
First and second mortgage loans:
One-to-four-family residential .. $3,010,427 $ 561,876 $ 449,082 $ 359,594 $ 373,262 $ 423,087 $ 458,313 $ 385,213
Multi-family residential ........ 30,057 11,528 5,681 3,875 3,356 3,369 1,837 411
Commercial real estate .......... 141,090 39,504 25,189 21,276 15,474 17,768 19,984 1,895
Construction .................... 15,425 11 7,699 6,739 13 29 460 474
Land ............................ 23,659 16,504 5,498 1,037 501 72 42 5
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total first and second mortgage loans 3,220,658 629,423 493,149 392,521 392,606 444,325 480,636 387,998
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Consumer loans ..................... 33,878 18,323 7,279 4,508 2,275 997 435 61
Commercial business loans .......... 48,173 31,783 6,141 9,502 507 240 -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total loans .................. $3,302,709 $ 679,529 $ 506,569 $ 406,531 $ 395,388 $ 445,562 $ 481,071 $ 388,059
========== ========== ========== ========== ========== ========== ========== ==========
6
As of September 30, 1999, 36.6% of BankUnited's loans receivable before net
items (29.7% of total assets) were secured by properties located in Florida and
13.8% of loans receivable before net items (11.2% of total assets) were secured
by properties located in California. Because of this concentration, regional
economic circumstances in those states could affect the level of BankUnited's
non-performing loans. The following table sets forth, as of September 30, 1999,
the distribution of the amount of BankUnited's loans receivable before net items
(including mortgage loans held for sale) by state.
OUTSTANDING ON
SEPTEMBER 30, 1999
------------------
(IN THOUSANDS)
Florida(l)................................................$ 1,209,620
California................................................ 456,401
New York.................................................. 137,523
Colorado.................................................. 126,670
Virginia.................................................. 101,571
New Jersey................................................ 100,658
Texas..................................................... 99,816
Illinois.................................................. 94,427
Massachusetts............................................. 80,187
Maryland.................................................. 79,807
Michigan.................................................. 72,091
Washington................................................ 68,040
Connecticut............................................... 56,572
Arizona................................................... 56,332
Georgia................................................... 55,765
North Carolina............................................ 51,897
Pennsylvania.............................................. 45,794
Ohio...................................................... 39,967
Utah...................................................... 36,419
Oregon.................................................... 29,279
Minnesota................................................. 24,561
Tennessee................................................. 23,942
South Carolina............................................ 16,519
Nevada.................................................... 15,798
New Mexico................................................ 13,833
Missouri.................................................. 12,938
Indiana................................................... 12,641
District of Columbia...................................... 12,333
Alabama................................................... 10,546
Kansas.................................................... 9,913
Wisconsin................................................. 8,262
Oklahoma.................................................. 8,146
Idaho..................................................... 7,270
Kentucky.................................................. 6,608
Louisiana................................................. 6,039
Arkansas.................................................. 5,533
Nebraska.................................................. 4,200
Wyoming................................................... 4,042
Iowa...................................................... 3,769
Montana................................................... 3,486
Delaware.................................................. 3,039
New Hampshire............................................. 2,801
Hawaii.................................................... 2,787
Rhode Island.............................................. 2,675
Mississippi............................................... 2,207
Alaska.................................................... 1,984
Maine..................................................... 1,551
Vermont................................................... 1,213
Other(2).................................................. 879
Not secured by real estate................................ 74,358
------------
Total loans......................................... $ 3,302,709
============
(1) Does not include $14.8 million of tax certificates representing liens
secured by properties in Florida.
(2) Less than $1 million in any one state.
7
ONE-TO-FOUR FAMILY RESIDENTIAL MORTGAGE LOAN PURCHASES AND ORIGINATIONS.
BankUnited's lending primarily involves purchasing loans in the secondary
mortgage market and originating loans secured by first mortgages on real estate
improved with single-family dwellings. During fiscal 1999, BankUnited began to
reduce its dependence on purchasing residential mortgage loans in the secondary
market by focusing on originating these loans. BankUnited originates one-to-four
family residential mortgage loans through its branches and its network of
wholesale brokers. In fiscal 1999, the wholesale brokers generated the majority
of BankUnited's one-to-four family residential mortgage loan originations.
Currently, BankUnited is generating these loans with wholesale brokers located
mainly in South Florida. During fiscal year 2000, BankUnited plans to expand its
wholesale broker network throughout the State of Florida and other selected
states. Originations in the wholesale program, together with branch lending,
reached $592.9 million in fiscal 1999 and $312.7 million for the year ended
September 30, 1998.
The Bank services loans which it originates and endeavors to purchase loans
servicing-released when available and appropriate. At September 30, 1999, $3.0
billion or 91.1%, of BankUnited's total loan portfolio consisted of one-to-four
family residential loans, of which $1.3 billion, or 43.3%, were adjustable rate
mortgage ("ARM") loans and $1.7 billion, or 56.7%, were fixed rate mortgage
loans. BankUnited's first mortgage loans purchased or originated are generally
repayable over 15 or 30 years. Additionally, BankUnited offers 40 year ARM loans
on a limited basis. 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.
BankUnited's ARMs generally have interest rates that adjust after an
initial 3, 5 or 7 year fixed-rate term ("hybrid" ARMs) and, to a lesser extent,
semi-annually or annually (including One-Year CMT's which BankUnited is no
longer purchasing), with subsequent interest rate adjustments at a margin over
the weekly average yield on U.S. Treasury securities adjusted to a constant
maturity of one year published by the Federal Reserve. Further, a portion of
these ARMs provide for initial rates of interest which are significantly below
the rates which would prevail were the contractual interest rate index and
margin used for repricing applied initially. Such loans are commonly referred to
as being in their teaser rate period. These loans adjust to the contractual rate
on the first scheduled interest rate adjustment date. The maximum interest rate
adjustment of BankUnited's ARMs is generally 1% semi-annually and 6% over the
life of the loan, above or below the initial rate on the loan for semi-annual
adjustables, or 2% annually and 6% over the life of the loan, above or below the
initial rate on the loan for annual adjustables and hybrid ARMs.
Applicable regulations permit BankUnited to lend up to 100% of the
appraised value of the real property securing a loan ("loan-to-value ratio").
When terms are favorable, BankUnited may purchase or originate single-family
mortgage loans with loan-to-value ratios between 80% and 95%. In most of these
cases, BankUnited will, as a matter of policy, require the borrower to obtain
private mortgage insurance which insures that portion of the loan exceeding the
80% loan-to-value ratio, thereby reducing the risk to no more than 80% of
appraised value. All loans are reviewed by the BankUnited's underwriters to
ensure that its guidelines are met or that waivers are obtained in limited
situations where offsetting factors exist.
For loan originations, upon receipt of a completed loan application from an
applicant, BankUnited generally orders a credit report, confirms income,
employment and other significant information of the applicant and obtains an
appraisal of the property securing the loan. BankUnited obtains the appraisal of
the property from an independent third party to determine the adequacy of the
collateral, and such appraisal is confirmed by one of the underwriters.
In its loan purchases, BankUnited generally reserves the right to reject
particular loans from a loan package being purchased and does reject loans in a
package that do not meet its commitment criteria. In determining whether to
purchase a loan, BankUnited assesses both the borrower's ability to repay the
loan and the adequacy of the proposed collateral. In determining the borrower's
ability to repay, BankUnited reviews information concerning the income,
financial condition, employment and credit history of the applicant and
generally obtains a credit report on the borrower separate from that provided by
the loan seller. BankUnited reviews the appraisal obtained by the loan seller or
originator and, based upon pre-determined criteria and review of the loan file,
may arrange for an updated review appraisal before purchasing the loan. An
8
appraisal will generally be ordered if the property securing the loan is located
in a designated area (such as a geographic region known for fluctuating property
values), if the loan size or loan -to-value ratio meets certain thresholds, or
if an underwriter or other Bank officer, upon review of the loan file,
determines that it is prudent to order an appraisal. With respect to a
substantial percentage of loans purchased, the collateral value is confirmed by
reference to a review appraisal. Otherwise, the collateral value is determined
by reference to the documentation contained in the original file. A legal review
of every loan file is conducted to determine the adequacy of the legal
documentation. BankUnited receives various representations and warranties from
the sellers of the loans regarding the quality and characteristics of the loans.
BankUnited has adopted written, non-discriminatory underwriting standards
for use in the underwriting and review of every loan considered for origination
or purchase. These underwriting standards are reviewed and approved annually by
BankUnited's Board of Directors. BankUnited's underwriting standards for
residential mortgage loans generally conform to standards established by Federal
National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation (the "FHLMC"), except that BankUnited's underwriting standards allow
it to make loans (i) to non-resident aliens, as discussed below, (ii) exceeding
the FNMA or FHLMC limits, and (iii) in cases where specific characteristics of
the loan or borrower may compensate for the lack of conformity with the FNMA or
FHLMC criteria.
Borrowers are required to obtain casualty insurance and, if applicable,
flood insurance in amounts at least equal to the outstanding loan balance or the
maximum amount allowed by law. BankUnited also requires that a survey be
conducted and title insurance be obtained, insuring the priority of its mortgage
lien.
At September 30, 1999, approximately $278.8 million, or 8.4%, of the
BankUnited's loan portfolio before net items were first mortgage loans to
non-resident aliens secured by single-family residences located in Florida.
These loans are primarily originated by BankUnited in a manner similar to that
described above for other residential loans. 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. Nevertheless,
certain aspects of such loans 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 minimize these risks through its underwriting standards for such
loans (including generally more conservative loan-to-value ratios and
qualification based on verifiable assets located in the United States).
COMMERCIAL REAL ESTATE AND MULTI-FAMILY LENDING. BankUnited's commercial
real estate lending division originates or participates in multi-family and
commercial real estate loans from approximately $250,000 to $30.0 million.
BankUnited sells a participating interest in the majority of the larger loans
for risk management purposes. BankUnited's strategy is to promote commercial
lending together with private banking, as both areas seek to develop long-term
relationships with select businesses, real estate investors, and professionals.
At September 30, 1999, BankUnited had $171.1 million of commercial real estate
loans and multi-family loans, representing a total of 5.2% of BankUnited's loan
portfolio before net items.
BankUnited's commercial real estate loan portfolio includes loans secured
by apartment buildings, office buildings, industrial/warehouses, retail centers
and other properties, which are located in BankUnited's primary market area.
Commercial real estate loans generally are originated in amounts up to 75% of
the appraised value of the property securing the loan. Because commercial real
estate and commercial lending requests are generally more complicated and
involve larger dollar amounts, evaluation of such credit requests continues to
rely on traditional credit analysis, including income projection, breakeven
analysis and internal and external collateral evaluations. In determining
whether to originate or purchase multi-family or commercial real estate loans,
BankUnited also considers such factors as the financial condition, and track
record of the borrower, and the debt service coverage of the property.
Commercial real estate loans are made at both fixed and adjustable interest
rates for terms of up to 15 years.
Loans secured by commercial real estate and multi-family properties
generally involve a greater degree of risk than one-to-four family residential
mortgage loans. Commercial real estate loans typically involve large loan
balances concentrated with single borrowers or groups of related borrowers. In
addition, the payment experience on loans secured by income-producing properties
usually depends on the successful operation of the real estate project that
secures the loans and, thus,
9
may be subject, to a greater extent, to adverse conditions in the real estate
market or in the economy, particularly the interest rate environment.
REAL ESTATE CONSTRUCTION LENDING. BankUnited makes real estate construction
loans to individuals for the construction of their residences, as well as to
builders and real estate developers for the construction of one-to-four-family
residences and commercial and multi-family real estate. At September 30, 1999,
BankUnited had $15.4 million of construction loans representing a total of 0.5%
of BankUnited's loan portfolio before net items. Construction loans to
individuals for their private residences typically are structured to be
converted to permanent loans with the Bank at the end of the construction phase.
Such residential construction loans are generally underwritten pursuant to the
same guidelines used for originating permanent residential mortgage loans. The
Bank's residential construction loans typically have terms of up to nine months
and have rates higher than permanent residential mortgage loans offered by the
Bank. During the construction phase, the borrower pays interest only. Generally,
the maximum loan-to-value ratio of an owner occupied single-family construction
loan is 90%.
The Bank makes construction loans on commercial real estate projects
secured by apartments, retail centers, industrial warehouse properties, office
buildings, medical facilities or other property. Such loans are generally
structured to be converted to permanent loans at the end of the construction
phase, which generally runs from 12 to 24 months. These construction loans have
rates and terms which are higher than permanent commercial real estate loans
currently offered by the Bank and the terms are generally consistent with those
of permanent loans. These loans generally provide for the payment of interest
and loan fees from loan proceeds. The loans are underwritten to the same
standards as commercial real estate loans described above. 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 would 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
discussed above regarding commercial real estate loans and tend to be more
sensitive to general economic conditions than many other types of loans.
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
purchase of land for future commercial development. Generally, the Bank requires
for all land loans that they be developed within twelve to eighteen months. As a
matter of policy the Bank does not make speculative land loans. At September 30,
1999 BankUnited had $23.7 million of land loans representing a total of 0.7% of
BankUnited's loan portfolio before net items.
COMMERCIAL BUSINESS AND SMALL BUSINESS LENDING. Commercial and small
business loans totaled $48.2 million as of September 30, 1999, representing 1.5
% of total loans before net items. Commercial business loans are made to
companies with annual sales revenue in excess of $5.0 million in BankUnited's
market area. Small business loans are made to companies with annual sales
revenue less than $5.0 million and the loans do not exceed $1.0 million.
BankUnited also provides payroll, merchant services and treasury management
services through outside vendors, and expects to introduce corporate credit
cards and lease financing during fiscal 2000. BankUnited makes both secured and
unsecured loans, although the majority of these loans are on a secured basis.
The loans are typically secured by accounts receivable, inventory, equipment,
and/or general corporate assets of the borrowers. The loans typically have fixed
and variable prime-based interest rates and are originated for terms ranging
from 1 to 5 years. In its loan underwriting, BankUnited evaluates the value of
the collateral securing the loan and assesses the borrower's creditworthiness
and ability to repay. A credit scoring approval is used, and exceptions to
credit policy guidelines are discouraged, but may be available depending on all
the circumstances. While these loans generally are made for shorter terms and at
higher yields than one-to-four-family residential loans, such loans generally
involve a higher level of risk than one-to-four-family residential loans because
the risk of borrower default is greater and the collateral may be more difficult
to liquidate and more likely to decline in value.
CONSUMER LENDING. During fiscal 1999, BankUnited originated $23.7 million
of consumer loans. Consumer loans totaled $33.9 million as of September 30,
1999, representing 1.0% of total loans before net items. Consumer loans consists
primarily of automobile loans and home equity lines of credit. During fiscal
1999 BankUnited ceased its strategy of purchasing indirect paper from auto
dealers and shifted its emphasis to primarily home equity lines and consumer
loans. Consumer loans, with the exception of home equity lines of credit, are
offered primarily on a fixed-rate, short-term basis.
10
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 security. In addition, BankUnited
utilizes an on-line application and credit scoring system to assist in
determining an applicant's creditworthiness. BankUnited's consumer loans tend to
have higher interest rates and shorter maturities than one-to-four family
residential loans because the risk of borrower default is greater and the
collateral is more likely to decline in value.
BankUnited's home equity lines of credit are originated on owner-occupied,
one-to-four family residential properties. These loans are generally limited to
aggregate outstanding indebtedness secured by up to 90% of the appraised value
of the property. Such lines are underwritten based upon guidelines established
by BankUnited in order to evaluate the borrower's ability and willingness to
repay the debt.
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. General allowances
for loan losses are required to be established for assets classified as
substandard or doubtful. For assets classified as 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 conventional mortgage 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.
As of September 30, 1999, BankUnited had $24.2 million in substandard
assets of which $23.8 million are included in non-performing assets. Substandard
assets consisted of the following:
AS OF SEPTEMBER 30, 1999
------------------------
(IN THOUSANDS)
One-to-four family residential loans . $14,107
Multi-family residential ............. 1,008
Commercial real estate ............... 3,959
Land ................................. 645
Commercial business and consumer loans 949
REO .................................. 3,516
-------
Total Substandard Assets ........... $24,184
=======
In addition, $0.4 million of commercial real estate mortgage loans, and
$1.0 million of commercial business loans for which reserves have been
established, were classified as loss as of September 30, 1999.
11
BankUnited's allowance for loan losses is established and maintained based
upon management's evaluation of the risks inherent in BankUnited's loan
portfolio including the economic trends and other conditions in specific
geographic areas as they relate to the nature of BankUnited's portfolio.
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 loss, 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 future conditions in order to determine the
adequacy of the allowance for loan losses on these loans. For 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, reduced by estimated costs to dispose of
the property, a reserve is established for the difference between the carrying
value and the estimated fair value. Other non-performing 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, reduced by estimated costs
to dispose of the property, a reserve is established for the difference between
the carrying value and the estimated fair value.
General valuation allowances are also established on all classes of the
performing portfolio and represent loss allowances that have been established to
recognize the unspecified losses inherent in the loan portfolio. Unallocated
reserves are established for loss exposure that may exist in the remainder of
the loan portfolio but has not yet been identified. In determining the adequacy
of the unallocated reserves, management considers changes in the size and
composition of the loan portfolio, historical loan loss experience, current and
anticipated economic conditions and BankUnited's credit administration and asset
management philosophies and procedures.
The above-described method of establishing an adequate provision for the
allowance for loan losses inherently lacks precision. Because of the many
factors that can affect recoverability, the estimated loss on an individual loan
or group of loans may not be the same as the ultimate loss, if any, actually
sustained. BankUnited performs the reserve analysis on a monthly basis which
provides a mechanism for ensuring that estimated losses reasonably approximate
ultimate losses, as any differences between estimated losses and ultimate losses
will be immediately addressed in the evaluation and resulting loan loss
provision. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Asset Quality."
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
BankUnited maintains an investment portfolio consisting primarily of
federal agency securities, trust preferred securities and tax certificates.
Federal regulations limit the instruments in which BankUnited may invest its
funds. BankUnited's current investment policy permits purchases primarily of
investments rated in one of the three highest grades by a nationally recognized
rating agency.
Mortgage-backed securities 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 (GNMA, FNMA and FHLMC), private issue securities and
collateralized mortgage obligations.
BankUnited's portfolio also includes tax certificates issued by various
counties in the State of Florida. Tax certificates represent tax obligations
that are auctioned by county taxing authorities on an annual basis in order to
collect delinquent real estate taxes. Although tax certificates have no stated
maturity, the certificate holder has the right to collect the delinquent tax
amount, plus interest, and can file for a tax deed if the delinquent tax amount
is unpaid at the end of two years. Tax
12
certificates have a claim superior to most other liens. If the holder does not
file for deed within seven years, the certificate becomes null and void.
BankUnited discontinued purchasing tax certificates in fiscal 1999.
Also included in BankUnited's investment portfolio are trust preferred
securities issued by FDIC-insured financial institutions or their holding
companies. Such securities are primarily acquired for their liquidity and yield
characteristics.
The following table sets forth information regarding BankUnited's
investments and mortgage-backed securities as of the dates indicated. Amounts
shown are carrying value. For additional information regarding BankUnited's
investments and mortgage-backed securities, including the carrying values and
approximate market values of such securities, see Notes 1 and 6 of the Notes to
Consolidated Financial Statements.
AS OF SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
Federal agency securities................................. $ 6,752 $ 22,188 $ 23,283
Tax certificates.......................................... 14,815 40,007 49,283
Mortgage-backed securities................................ 347,224 345,756 120,271
Other(1)................................................. 18,307 16,015 1,377
------------- ------------- -------------
Total investment securities............................ $ 387,098 $ 423,966 $ 194,214
============= ============= =============
Weighted average yield................................. 6.74% 6.61% 7.17%
============= ============= =============
- -------------------------
(1) Includes $14.7 million, $15.5 million and $0 of trust preferred securities
as of September 30, 1999, 1998 and 1997, respectively.
The following table sets forth information regarding the maturities of
BankUnited's investments as of September 30, 1999. Amounts shown are carrying
value:
PERIODS TO MATURITY
FROM SEPTEMBER 30, 1999
------------------------------------------------------------------------
AS OF WITHIN 1 THROUGH 5 THROUGH OVER EQUITY
SEPTEMBER 30, 1999 1 YEAR 5 YEARS 10 YEARS 10 YEARS SECURITIES
------------------ ----------- ----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
Federal agency securities...... $ 6,752 $ 756 $ 5,996 $ - $ - $ -
Tax certificates(1)............ 14,815 14,815 - - - -
Mortgage-backed
securities................. 347,224 884 12,985 3,405 329,950 -
Other.......................... 18,307 496 389 - 14,716 2,706
---------- ---------- ---------- ---------- ---------- -----------
Total....................... $ 387,098 $ 16,951 $ 19,370 $ 3,405 $ 344,666 $ 2,706
=========== =========== =========== =========== =========== ===========
Weighted average yield...... 6.74% 6.75% 6.30% 6.37% 6.77% N/A
=========== ========== ========== ========== ========== ===========
- -------------------------
(1) Maturities are based on historical experience.
13
MORTGAGE LOAN SERVICING
Prior to November 1996, BankUnited primarily serviced mortgage loans only
for its portfolio. With the acquisition of Suncoast on November 15, 1996,
BankUnited acquired a servicing portfolio consisting of 19,487 loans owned by
outside investors. In addition, BankUnited retains the servicing on the
internally generated residential loans that are sold in connection with the loan
sales program.
Servicing agreements generally provide for loan servicing fees ranging from
0.25% to 0.50% per annum of the declining principal amount of the loans, plus
any late charges or other ancillary fees. Loan servicing fees for loans serviced
under mortgage-backed securities programs are either subject to negotiation with
the sponsoring agency or in certain instances set by the sponsoring agency.
Servicing fees for loans sold to private investors are determined by agreement
with the investor. Income from servicing is calculated based upon the
contractual servicing fee, net of amortization of the carrying value of the
mortgage servicing rights. BankUnited services mortgage loans for investors with
unpaid principal balances of approximately $421.8 million and $542.0 million at
September 30, 1999 and 1998, respectively, which are not reflected in the
accompanying Consolidated Statements of Financial Condition.
BankUnited is subject to certain costs and risks related to servicing
delinquent loans. 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. BankUnited,
however, is subject to the risk that declines in the 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.
SOURCES OF FUNDS
BankUnited's primary sources of funds for its investment and lending
activities are customer deposits, loan repayments, funds from operations,
BankUnited's capital (including trust preferred securities), Senior Notes and
FHLB advances.
DEPOSITS. BankUnited offers a full variety of deposit accounts ranging from
passbook accounts to certificates of deposit with maturities of up to five
years. BankUnited also offers transaction accounts, which include commercial
checking accounts, negotiable order of withdrawal ("NOW") accounts, insured
money market deposit accounts and the diamond program accounts. The diamond
program is a package account which offers a suite of financial services. The
rates paid on deposits are established periodically by management based on
BankUnited's need for funds and the rates being offered by BankUnited's
competitors with the goal of remaining competitive without offering the highest
rates in the market area.
BankUnited has placed increasing reliance on passbook accounts, money
market accounts, certificates of deposit and other savings alternatives that are
more responsive to market conditions than long-term, fixed-rate certificates.
While market-sensitive savings instruments permit BankUnited to reduce its cost
of funds during periods of declining interest rates, such savings instruments
also increase BankUnited's vulnerability to periods of high interest rates.
There are no regulatory interest rate ceilings on BankUnited's accounts.
14
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,
-----------------------------------------------------------------------
1999 1998 1997
---------------------- -------------------- --------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------------- ---- ------------- ---- ------------- ----
(DOLLARS IN THOUSANDS)
Passbook accounts................................ $ 379,503 4.57% $ 258,158 4.72% $ 160,557 4.66%
------------- ---- ------------- ---- ------------- ----
Checking:
Non-interest bearing.......................... 50,075 - 46,748 - 21,436 -
Insured money market.......................... 92,785 4.04 115,104 4.05 20,325 4.00
NOW accounts.................................. 125,617 2.75 71,431 3.26 57,471 3.12
------------ ------------ ------------
Total transaction accounts.................. 268,477 233,283 99,232
------------ ------------ ------------
Total passbook and checking accounts........ 647,980 491,441 259,789
------------ ------------ ------------
Certificates:
30-89-day certificates of deposit............. 2,260 4.40 3,485 4.63 - -
3-5-month certificates of deposit............. 28,943 4.63 96,221 5.20 18,674 4.94
6-8-month certificates of deposit............. 273,090 4.92 516,674 5.47 439,091 5.67
9-11-month certificates of deposit............ 138,684 5.26 104,296 5.69 15,721 5.66
12-17-month certificates of deposit........... 688,792 5.21 618,385 5.62 285,305 5.73
18-23-month certificates of deposit........... 83,369 5.55 9,770 5.64 20,410 5.80
24-29-month certificates of deposit........... 102,394 5.66 35,497 5.76 58,279 5.84
30-35-month certificates of deposit........... 26,550 5.97 15,040 5.89 12,517 5.85
36-60-month certificates of deposit........... 109,686 6.13 72,856 6.07 64,106 6.07
Public funds.................................. 178,050 4.98 86,159 5.35 22,000 5.78
Brokered certificates of deposit.............. - 75,000 5.66 - -
------------ ------------ ----------
Total certificates.......................... 1,631,818 1,633,383 936,103
------------ ------------ ------------
Total..................................... $ 2,279,798 $ 2,124,824 $ 1,195,892
============= ============= =============
Weighted average rate................... 4.83% 5.18% 5.32%
The following table sets forth information by various rate categories
regarding the amounts of BankUnited's certificate accounts (under $100,000) as
of September 30, 1999 that mature during the periods indicated:
PERIODS TO MATURITY
FROM SEPTEMBER 30, 1999
--------------------------------------------------------------
AS OF WITHIN 1 TO 2 TO MORE THAN
SEPTEMBER 30, 1999 1 YEAR 2 YEARS 3 YEARS 3 YEARS
------------------- ---------------- ----------- ----------- -----------
(IN THOUSANDS)
Certificate accounts:
3.00% to 3.99%................ $ 1,328 $ 1,328 $ - $ - $ -
4.00% to 4.99%................ 540,237 517,161 22,256 402 418
5.00% to 5.99%................ 571,250 379,906 155,744 14,838 20,762
6.00% to 6.99%................ 66,389 5,936 4,516 41,704 14,233
7.00% to 7.99%................ 907 851 56 - -
---------- ---------- ---------- ---------- ----------
Total certificate accounts
(under $100,000).......... $ 1,180,111 $ 905,182 $ 182,572 $ 56,944 $ 35,413
=========== =========== =========== =========== ===========
15
The following table sets forth information by various rate categories
regarding the amounts of the BankUnited's jumbo ($100,000 and over) certificate
accounts as of September 30, 1999 that mature during the periods indicated:
PERIODS TO MATURITY
FROM SEPTEMBER 30, 1999
--------------------------------------------------------------
AS OF WITHIN 1 TO 2 TO MORE THAN
SEPTEMBER 30, 1999 1 YEAR 2 YEARS 3 YEARS 3 YEARS
------------------- ---------------- ----------- ----------- -----------
(IN THOUSANDS)
Jumbo certificate accounts:
3.00% to 3.99%................ $ 227 $ 227 $ - $ - $ -
4.00% to 4.99%................ 177,477 88,251 88,705 417 104
5.00% to 5.99%................ 252,026 181,189 63,239 4,161 3,437
6.00% to 6.99%................ 21,230 2,981 4,829 9,305 4,115
7.00% to 7.99%................ 747 547 - - 200
---------- ---------- ---------- ---------- ----------
Total Jumbo certificate
amounts..................... $ 451,707 $ 273,195 $ 156,773 $ 13,883 $ 7,856
=========== =========== =========== =========== ===========
Included in the table of jumbo certificates accounts above, are $178.1
million in certificates of deposit issued to the State of Florida, referred to
as public funds, which have interest rates ranging from 4.19% to 5.93%.
Of BankUnited's total deposits, excluding public funds, at September 30,
1999, 1998, and 1997, 13.0% 12.3%, and 11.5%, respectively, were deposits of
$100,000 or more issued to the general public. Although jumbo certificates of
deposit are generally more rate sensitive than smaller size deposits, management
believes that BankUnited will retain these deposits.
In fiscal 1999, BankUnited opened two new branch offices. In fiscal 2000,
BankUnited intends to open six to eight additional branch offices including one
which opened in the first quarter of fiscal 2000.
BORROWINGS. When BankUnited's primary sources of funds are not sufficient
to meet deposit outflows, loan originations and purchases and other cash
requirements, BankUnited may borrow funds from the FHLB of Atlanta and from
other sources. The FHLB system acts as an additional source of funding for
savings institutions. In addition, BankUnited uses subordinated notes,
securities sold under agreements to repurchase and trust preferred securities in
order to increase available funds.
FHLB borrowings, known as "advances," are made on a secured basis, and the
terms and rates charged for FHLB advances vary in response to general economic
conditions. As a shareholder of the FHLB of Atlanta, the Bank is authorized to
apply for advances from this bank. A wide variety of borrowing plans are offered
by the FHLB of Atlanta, each with its own maturity and interest rate. A
significant portion of BankUnited's advances were obtained through a convertible
advances program that permits the FHLB to convert an advance from a fixed-rate
basis to a floating-rate basis at its discretion on a specified "call" date
which generally occurs every three months following an initial period ranging
from three months to two years. Should the FHLB elect to exercise this option,
BankUnited can either accept the converted advance or repay 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.
During the 1997 and 1998 fiscal years, BankUnited issued an aggregate of
$227.2 million in Junior Subordinated Deferrable Interest Debentures, which were
purchased by its Delaware trust subsidiaries primarily with proceeds from the
sale of trust preferred securities. See Note 13 of the Notes to Consolidated
Financial Statements for a description of the Junior Subordinated Deferrable
Interest Debentures and the trust preferred securities. 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 the date of filing
of this Annual Report on Form 10-K, BankUnited had purchased a total of 71,999
shares of trust preferred securities issued by its trust subsidiaries on the
open market at a cost of $1.3 million.
16
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 which mature five years from the date of issuance
and bear interest at an annual rate of 5.40% payable semiannually. The Bank
intends to use the net proceeds from the sale of the notes for general corporate
purposes that will ultimately promote home financing or other housing activity
and assist the Bank's asset/liability management. The notes have been rated
"Aaa" by Moody's Investors Service, Inc. and "AAA" by Standard and Poor's Rating
Services.
The following tables set forth information as to BankUnited's borrowings as
of the dates and for the periods indicated.
AT SEPTEMBER 30,
---------------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
---------- ------- ----------- ------ ----------- ------
(DOLLARS IN THOUSANDS)
PERIOD END BALANCES:
FHLB advances(l)...................... $ 1,096,447 5.46% $ 1,021,466 5.61% $ 671,484 5.87%
Company Obligated Mandatorily
Redeemable Trust Preferred
Securities of Subsidiary Trusts
Holding Solely Junior
Subordinated Deferrable
Interest Debentures of
BankUnited(2)...................... 218,500 9.53 218,500 9.53 116,000 10.17
Senior notes.......................... 200,000 5.40 - - - -
Securities sold under agreements
to repurchase(3)................... 31,701 5.34 121,148 5.43 30,000 5.64
---------- ------- ----------- ------ ----------- ------
Total borrowings................... $ 1,546,648 6.02% $ 1,361,114 6.22% $ 817,484 6.47%
=========== ======= =========== ====== =========== ======
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
---------- ------- ----------- ------ ----------- ------
(DOLLARS IN THOUSANDS)
AVERAGE BALANCES:
FHLB advances(l)...................... $ 917,560 5.41% $ 901,269 5.64% $ 325,580 5.77%
Company Obligated Mandatorily
Redeemable Trust Preferred
Securities of Subsidiary Trusts
Holding Solely Junior Subordinated
Deferrable Interest Debentures of
BankUnited(2)...................... 218,500 9.68 173,288 9.81 63,008 10.27
Subordinated notes.................... - - - - 704 10.53
Senior notes.......................... 132,055 5.76 - - - -
Securities sold under agreements to
repurchase(3)...................... 25,311 5.86 97,292 5.69 8,828 5.73
---------- ------- ---------- ------ ---------- ------
Total borrowings................... $ 1,293,426 6.18% $ 1,171,849 6.26% $ 398,120 6.49%
=========== ======= =========== ====== =========== ======
- -------------------------
(1) The maximum amount of FHLB advances outstanding during the years ended
September 30, 1999, 1998 and 1997 was $1.1 billion, $1.3 billion and
$671.5 million, respectively.
(2) The maximum amount of trust preferred securities outstanding during the
years ended September 30, 1999, 1998 and 1997 was $218.5 million, $218.5
million and $116.0 million, respectively.
(3) The maximum amount of securities sold under agreements to repurchase at
any month-end during the years ended September 30, 1999, 1998, and 1997
was $96.9 million, $192.6 million and $30.0 million, respectively.
17
ACTIVITIES OF SUBSIDIARIES
T&D Properties of South Florida, Inc., a Florida corporation ("T&D"), is a
wholly owned operating subsidiary of the Bank that invests in tax certificates
and holds title to, maintains, manages and supervises the disposition of real
property acquired through tax deeds. T&D was established in 1991 for the purpose
of insulating the Bank from risk of liability concerning the maintenance,
management and disposition of real property.
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 in 1994 for the
purpose of insulating the Bank from risk of liability concerning maintenance,
management and disposition of one-to-four family residential property.
BU Ventures, Inc., a Florida corporation, is a wholly owned operating
subsidiary of BankUnited organized in 1994 to assume from T&D the responsibility
for the maintenance, management and disposition of real property acquired
through tax deeds. BU Ventures, Inc. is currently inactive.
BankUnited Mortgage Corporation, a Florida corporation ("BMC"), is a wholly
owned operating subsidiary of BankUnited which was established in 1996 for the
purpose of servicing loans secured by real property. BMC is currently inactive.
BankUnited Capital, BankUnited Capital II and BankUnited Capital III (the
"Trusts") are Delaware statutory business trusts wholly owned by BankUnited.
BankUnited Capital was formed in 1996, and BankUnited Capital II and BankUnited
Capital III were formed in 1997, for the purpose of issuing Trust Preferred
Securities and investing the proceeds therefrom in Junior Subordinated
Deferrable Interest Debentures issued by BankUnited.
BUFC Financial Services, Incorporated, a Florida corporation ("BUFC"), is a
wholly owned operating subsidiary of BankUnited organized in 1997 for the
purpose of selling annuities, insurance and securities products. BUFC sells
fixed and variable annuities and mutual funds to customers of the Bank and
others. The program is conducted separate from the business of the Bank by
licensed insurance agents/registered securities representatives under the
supervision of a registered broker-dealer. BUFC is also reviewing the
feasibility of selling traditional life, health or property and casualty
insurance products.
BankUnited Financial Services, Inc., a Florida corporation, is a wholly
owned operating subsidiary of BankUnited, organized in 1997 for the purpose of
brokering loans.
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 in 1998 for the purpose of
insulating the Bank from risk of liability concerning maintenance, management
and disposition of commercial real estate.
EMPLOYEES
At September 30, 1999, BankUnited had 423 full-time equivalent employees.
BankUnited's employees are not represented by a collective bargaining group, and
BankUnited considers its relations with its employees to be excellent.
BankUnited provides employee benefits customary in the savings industry, which
include group medical and life insurance, a 401(k) profit sharing plan and paid
vacations. BankUnited also provides incentive compensation plans (including
stock bonus and stock option plans) for officers, directors and employees.
18
REGULATION
The following discussion is a summary of the significant provisions of the
banking laws and regulations which affect BankUnited and the Bank.
THE FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT OF 1989.
The FIRREA, which was enacted in response to concerns regarding the soundness of
the thrift industry limits savings institutions' business activities, and
establishes their regulatory capital requirements. The FIRREA establishes the
OTS as the primary federal regulator for savings institutions. Deposits at the
Bank are insured through the Savings Association Insurance Fund ("SAIF"), a
separate fund managed by the FDIC for institutions whose deposits were formerly
insured by the FSLIC. Regulatory functions relating to deposit insurance are
generally exercised by the FDIC and the FDIC also manages conservatorships and
receiverships of insolvent thrifts.
THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. The
FDICIA authorizes regulators to take prompt corrective action to solve the
problems of critically undercapitalized institutions. As a result, the banking
regulators are required to take certain supervisory actions against
undercapitalized institutions, the severity of which increases as an
institution's level of capitalization decreases. Pursuant to the FDICIA, the
federal banking agencies have established the levels at which an insured
institution is considered to be "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." See "--Savings Institution Regulations--Prompt Corrective
Action" below for a discussion of the applicable capital levels.
The FDICIA also requires that the federal banking agencies include
components for interest rate risk, concentration of credit risk and the risk of
non-traditional activities in their risk-based capital requirements. See
"--Savings Institution Regulations--Regulatory Capital Requirements" below for a
description of the OTS rule that incorporates an interest rate risk component in
the risk-based capital requirement. Although implementation of this rule has
been postponed indefinitely.
In addition, the FDICIA requires each federal banking agency to have
standards relating to internal controls, information systems, and internal audit
systems that are designed to assess the financial condition and management of
the institution; loan documentation; credit underwriting; interest rate
exposure; asset growth; and compensation, fees and benefits. The FDICIA also
establishes the qualified thrift lender ("QTL") investment percentage applicable
to SAIF-insured institutions, (see "-- Savings Institution
Regulations--Qualified Thrift Lender Test" below) and pursuant to the FDICIA, a
risk based assessment system for insured depository institutions (see "--Savings
Institution Regulations--Insurance of Accounts" below) has been implemented. The
FDICIA further requires annual on-site full examinations of depository
institutions, with certain exceptions, and annual reports on institutions'
financial and management controls.
THE RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Branching Act"), which was enacted in September 1994, generally does
not directly affect savings associations, except for a provision that allows an
insured savings association that was an affiliate of a bank on July 1, 1994, to
act as the bank's agent as though it were an insured bank affiliate of the bank.
GRAMM-LEACH-BLILEY ACT. The Gramm-Leach-Bliley Act (the "Act") was signed
into law in November 1999 to remove depression-era barriers that separate
banking, securities and insurance functions. The Act allows full affiliation
between banks and securities firms by permitting the creation of financial
holding companies designed to engage in a range of financial activities,
including securities underwriting and merchant banking. The Act also repeals the
SAIF special reserve; modernizes the Federal Home Loan Bank System; provides for
less frequent Community Reinvestment Act ("CRA") compliance examinations for
community banks with $250 million or less in assets, and gives customers the
right to prevent banks from sharing information with third parties, such as
telemarketers. The Act prohibits unitary savings and loan holding companies
formed after May 4, 1999 from engaging in nonfinancial activities, and also
prohibits purchase of unitary thrift holding companies by commercial firms.
Certain provisions of the Act were effective immediately upon signing; other
provisions generally take effect between 120 days and 18 months following
enactment.
19
SAVINGS AND LOAN HOLDING COMPANY REGULATIONS
TRANSACTIONS WITH AFFILIATES. BankUnited is a unitary savings and loan
holding company and is subject to OTS regulations, examination, supervision and
reporting requirements pursuant to certain provisions of the Home Owners' Loan
Act (the "HOLA") and the Federal Deposit Insurance Act. As an insured
institution and a subsidiary of a savings and loan holding company, the Bank is
subject to restrictions in its dealings with companies that are "affiliates" of
BankUnited under the HOLA, certain provisions of the Federal Reserve Act that
were made applicable to savings institutions by the FIRREA, and OTS regulations.
As a result of the FIRREA, savings institutions' transactions with their
affiliates are subject to the limitations set forth in the HOLA and the OTS
regulations, which incorporate Sections 23A, 23B, 22(g) and 22(h) of the Federal
Reserve Act and Regulation O adopted by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"). Under Section 23A, an "affiliate"
of a member institution is defined generally as (i) any company that controls
the institution and any other company that is controlled by the company that
controls the institution, (ii) a bank subsidiary of the institution, (iii) any
company that is controlled by the shareholders who control the institution or
any company that controls the institution, (iv) any company, including a real
estate investment trust, that's sponsored and advised on a contractual basis by
the institution, its subsidiary or affiliate, or (v) any company that is
determined by regulation or order to have a relationship with the institution
(or any subsidiary or affiliate of the institution) such that "covered
transactions" by the institution or its subsidiary with the company may be
affected by the relationship to the detriment of the institution. "Control" is
determined to exist if a percentage stock ownership test is met or if there is
control over the election of directors or the management or policies of the
company or institution. "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 (except as may be exempted by
order or regulation), and certain other transactions.
The OTS regulations and Sections 23A and 23B require that covered
transactions and certain other transactions with affiliates be on terms and
conditions consistent with safe and sound banking practices which are
substantially the same, or at least as favorable to the institution or its
subsidiary, as those for comparable transactions with non-affiliated parties,
and imposes quantitative restrictions on the amount of covered transactions in
which an institution may engage and collateralization requirements on covered
transactions. In addition, a savings institution is prohibited from extending
credit to an affiliate (other than a subsidiary of the institution), unless the
affiliate is engaged only in activities that the Federal Reserve Board has
determined, by regulation, to be permissible for bank holding companies.
Sections 22(g) and 22(h) of the Federal Reserve Act impose limitations on loans
and extensions of credit from an institution to its executive officers,
directors and principal shareholders and each of their related interests.
ACTIVITIES LIMITATIONS. A unitary savings and loan holding company in
existence or applied for before May 4, 1999, which includes BankUnited, whose
sole insured institution subsidiary qualifies as a QTL (described below)
generally has the broadest authority to engage in various types of business
activities, including nonfinancial activities. A holding company that acquires
another institution and maintains it as a separate subsidiary or whose sole
subsidiary fails to meet the QTL test will become subject to the activities
limitations applicable to multiple savings and loan holding companies. The
Gramm- Leach-Bliley Act prohibits companies that become unitary savings and loan
holding companies pursuant to an application filed with the OTS after May 4,
1999 from engaging in nonfinancial activities or affiliating with nonfinancial
entities.
SAVINGS INSTITUTION REGULATIONS
Federal savings institutions such as the Bank are chartered by the OTS, are
members of the FHLB system, and have their deposits insured by the SAIF. They
are subject to comprehensive OTS and FDIC regulations that are intended
primarily to protect depositors. SAIF-insured, federally chartered institutions
may not enter into certain transactions unless applicable regulatory tests are
met or they obtain necessary approvals. They are also required to file reports
with the OTS describing their activities and financial condition, and periodic
examinations by the OTS test compliance by institutions with various regulatory
requirements, some of which are described below.
20
INSURANCE OF ACCOUNTS. The Bank's deposits are insured by the SAIF up to
$100,000 for each insured account holder, the maximum amount currently permitted
by law. Under the FDIC regulations implementing risk-based insurance premiums,
institutions are divided into three groups-well capitalized, adequately
capitalized and undercapitalized-based on criteria consistent with those
established pursuant to the prompt corrective action provisions of the FDICIA.
See "--Prompt Corrective Action" below. Each of these groups is further divided
into three subgroups, based on a subjective evaluation of supervisory risk to
the insurance fund posed by the institution.
As an insurer, the FDIC issues regulations and conducts examinations of its
insured members. SAIF insurance of deposits may be terminated by the FDIC, after
notice and hearing, upon a finding that an institution has engaged in unsafe and
unsound practices, cannot continue operations because it is in an unsafe and
unsound condition, or has violated any applicable law, regulation, rule, order
or condition imposed by the OTS or FDIC. When conditions warrant, the FDIC may
impose less severe sanctions as an alternative to termination of insurance. 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. Under the system, institutions are
classified as well capitalized (i.e., a Tier 1 leverage ratio of at least 5%, a
ratio of Tier I or core capital to risk-weighted assets ("Tier I risk-based
capital ratio") of at least 6% and a total risk- based capital ratio of at least
10%) and considered financially sound pay the lowest premium while institutions
that are less than adequately capitalized (i.e., a Tier I leverage ratio or a
Tier I risk-based capital ratio of less than 4% or a total risk-based capital
ratio of less than 8%) and considered of substantial supervisory concern pay the
highest premium. Risk classification of all insured institutions is made by the
FDIC for each semi-annual assessment period.
The FDIC is authorized to increase or decrease assessment rates 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% of SAIF
insured deposits. In setting these increased assessments, the FDIC must seek to
restore the reserve ratio to that designated reserve level, or such higher
reserve ratio as is established by the FDIC. 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.
In September 1996, Congress enacted legislation to eliminate any
competitive disadvantage between BIF and SAIF member institutions, from SAIF
deposit insurance premiums, which were generally higher than BIF deposit
insurance premiums. The legislation provided for a one-time assessment to be
imposed on all deposits assessed at the SAIF rates, as of March 31, 1995, in
order to recapitalize the SAIF. It also provided for the merger of the BIF and
the SAIF on January 1, 1999 if no savings associations then existed. The special
assessment rate was established at .657% of deposits by the FDIC and the
resulting assessment of $2.6 million (exclusive of an additional $2.3 million
payment which relates to Suncoast deposits) was paid in November 1996. This
special assessment significantly increased non-interest expense and adversely
affected the Bank's results of operations for the year ended September 30, 1996.
As a result of the special assessment, the Bank's deposit insurance premiums
were initially reduced to 6.7 basis points, and as of September 30, 1999 to 6.2
basis points based upon its current risk classification and the new assessment
schedule for SAIF insured institutions. These premiums are subject to change in
future periods.
Prior to the enactment of the legislation, a portion of the SAIF assessment
imposed on savings associations was used to repay obligations issued by a
federally chartered corporation to provide financing ("FICO") for resolving the
thrift crisis in the 1980's. Although the FDIC has proposed that the SAIF
assessment be equalized with the BIF assessment schedule, SAIF-insured
institutions will continue to be subject to a FICO assessment as a result of
this continuing obligation. Although the legislation also now requires
assessments to be made on BIF-assessable deposits for this purpose, that
assessment will be limited to 20% of the rate imposed on SAIF assessable
deposits until the earlier of December 31, 1999 or when no savings association
continue to exist, thereby imposing a greater burden on SAIF member institutions
such as the Bank. Thereafter, however, assessments on BIF-member institutions
will be made on the same basis as SAIF-member institutions. The rates
21
to be established by the FDIC to implement this requirement for all FDIC-insured
institutions were 6.48 basis points assessment on SAIF deposits and 1.30 basis
points on BIF deposits until BIF insured institutions participate fully in the
assessment.
REGULATORY CAPITAL REQUIREMENTS. As mandated by the FIRREA, the OTS adopted
capital standards under which savings institutions must currently maintain (i) a
tangible capital requirement of 1.5% of adjusted total assets, (ii) a leverage
(or core capital) ratio of 3.0% of adjusted total assets, and (iii) a risk-based
capital requirement of 8.0% of risk-weighted assets. These requirements (which
cannot be less stringent than those applicable to national banks) apply to the
Bank. Under current law and regulations, there are no capital requirements
directly applicable to BankUnited.
Under the current OTS regulations, "tangible capital" includes common
shareholders' equity (including retained earnings), noncumulative perpetual
preferred stock and related earnings, certain qualifying nonwithdrawable
accounts and pledged deposits, and minority interests in fully consolidated
subsidiaries, less intangible assets (except certain servicing assets) and
specified portions of debt and equity investments in certain subsidiaries. "Core
capital" is tangible capital plus limited amounts of intangible assets meeting
marketability criteria. The "risk-based capital" requirement provides that an
institution's total capital must equal 8% of risk-weighted assets. Certain
institutions will be required to deduct an interest rate risk component from
their total capital, as described below. "Total capital" equals core capital
plus "supplementary capital" (which includes specified amounts of perpetual
cumulative preferred stock, certain limited-life preferred stock, subordinated
debt and other capital instruments) in an amount equal to not more than 100% of
core capital. "Risk-weighted assets" are determined by assigning designated risk
weights based on the credit risk associated with the particular asset. As
provided by OTS regulations, representative risk weights include: 0% for cash
and assets that are backed by the full faith and credit of the United States;
20% for cash items in the process of collection, FHLB stock, agency securities
(not including equity securities) not backed by the full faith and credit of the
United States and certain high-quality mortgage-related securities; 50% for
certain revenue bonds, qualifying mortgage loans, certain non-high-quality
mortgage-related securities and certain qualifying residential construction
loans; and 100% for consumer, commercial and other loans, repossessed assets,
assets that are 90 or more days past due, and other assets.
As of September 30, 1999, the Bank's tangible, core and risk-based capital
ratios were 7.9%, 7.9% and 15.5%, respectively.
If an institution becomes categorized as "undercapitalized" under the
definitions established by the "prompt corrective action" provisions of the
FDICIA, it will become subject to certain restrictions imposed by the FDICIA.
See "Prompt Corrective Action" below.
PROMPT CORRECTIVE ACTION. The OTS and other federal banking regulators have
established capital levels for institutions to implement the "prompt corrective
action" provisions of the FDICIA. Based on these capital levels, insured
institutions will be categorized as well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized or critically undercapitalized.
The FDICIA requires federal banking regulators, including the OTS, to take
prompt corrective action to solve the problems of those institutions that fail
to satisfy their applicable minimum capital requirements. The level of
regulatory scrutiny and restrictions imposed become increasingly severe as an
institution's capital level falls.
A "well capitalized" institution must have a total risk-based capital ratio
of 10% or more, a Tier 1 leverage ratio of 5% or more and a Tier I risk-based
capital ratio (based on the ratio of Tier 1 risk-based capital to risk-weighted
assets) of 6% or more and may not be subject to any written agreement, order,
capital directive, or prompt corrective action directive issued by the OTS. The
Bank is a well capitalized institution under the definitions as adopted. An
institution will be categorized as "adequately capitalized" if it has a total
risk-based capital ratio of 8% or more, a Tier 1 risk-based capital ratio of 4%
or more, and either a leverage ratio of 4% or more or a leverage ratio of 3% or
more and a CAMEL composite rating of 1; "undercapitalized" if it has a total
risk-based capital ratio of less than 8%, a Tier I risk-based capital ratio of
less than 4%, or either a leverage ratio of less than 4% or a leverage rate of
less than 3% and a CAMEL rating of 1; "significantly undercapitalized" if it has
a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital
ratio of less than 3%,
22
or a leverage ratio of less than 3%; and "critically undercapitalized" if it has
a ratio of tangible equity to total assets that is equal to or less than 2%.
In the case of an institution that is categorized as "undercapitalized," or
worse, such an institution must submit a capital restoration plan to the OTS. An
undercapitalized depository institution generally will not be able to acquire
other banks or thrifts, establish additional branches, pay dividends, or engage
in any new lines of business unless consistent with its capital plan. A
"significantly undercapitalized" institution will be subject to additional
restrictions on its affiliate transactions, the interest rates paid by the
institution on its deposits, the institution's asset growth, compensation of
senior executive officers, and activities deemed to pose excessive risk to the
institution. Regulators may also order a significantly undercapitalized
institution to hold elections for new directors, terminate any director or
senior executive officer employed for more than 180 days prior to the time the
institution became significantly undercapitalized, or hire qualified senior
executive officers approved by the regulators.
The FDICIA provides that an institution that is "critically
undercapitalized" must be placed in conservatorship or receivership within 90
days of becoming categorized as such unless the institution's regulator and the
FDIC jointly determine that some other course of action would result in a lower
resolution cost to the institution's insurance fund. Thereafter, the
institution's regulator must periodically reassess its determination to permit a
particular critically undercapitalized institution to continue to operate. A
conservator or receiver must be appointed for the institution at the end of an
approximately one-year period following the institution's initial classification
as critically undercapitalized unless a number of stringent conditions are met,
including a determination by the regulator and the FDIC that the institution has
positive net worth and a certification by such agencies that the institution is
viable and not expected to fail.
The final rules establishing the capital levels for purposes of the FDICIA
also indicate that the federal regulators intend to lower or eliminate the core
capital requirement from the definitions of well capitalized, adequately
capitalized and undercapitalized after the requirement to deduct an IRR
component from total capital becomes effective. This action has not yet been
taken. See "Regulatory Capital Requirements" above.
In addition to the foregoing prompt corrective action provisions, the
FDICIA also sets forth requirements that the federal banking agencies, including
the OTS, review their capital standards every two years to ensure that their
standards require sufficient capital to facilitate prompt corrective action and
to minimize loss to the SAIF and the BIF.
RESTRICTIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. The current OTS
regulation applicable to the payment of dividends or other capital distributions
by savings institutions imposes limits on capital distributions based on an
institution's regulatory capital levels and net income. An institution that
meets or exceeds all of its capital requirements (both before and after giving
effect to the distribution) and is not in need of more than normal supervision
would be a "Tier 1 association." A Tier I association may make capital
distributions during a calendar year of up to the greater of (i) 100% of net
income for the current calendar year plus the amount that would reduce by 50%
its capital surplus ratio at the beginning of the calendar year or (ii) the
amount permitted for a "Tier 2 association" that meets applicable capital
standards, which is 75% of its net income over the most recent four quarters.
Any additional capital distributions would require notice and opportunity for
objection or prior regulatory approval. The Bank currently exceeds its fully
phased-in capital requirements and qualifies as a Tier I association under the
regulation. A "Tier 3 association" is defined as an institution that does not
meet all of the minimum regulatory capital requirements and therefore may not
make any capital distributions without the prior approval of the OTS.
Savings institutions must provide the OTS with at least 30 days written
notice before making any capital distributions. All such capital distributions
are also subject to the OTS' right to object to a distribution on safety and
soundness grounds.
Effective April 1, 1999, the OTS adopted regulations that conform capital
distribution restrictions to the rules of the other banking agencies. The rule
requires a savings association to file an application with the OTS prior to
making any capital distribution, if the total amount of the association's
capital distributions, including the proposed distribution, for the applicable
calendar year exceeds the association's net income for that year to date plus
the association's retained net income
23
for the preceding two years, if the association is not eligible for expedited
treatment, if the association would not be at least adequately capitalized
following the distribution or if the proposed distribution would violate an
applicable statute, regulation, agreement with the OTS or conditions imposed by
an OTS-approved application or notice. A notice would be required if an
application is not required, but the savings association would not be well
capitalized after the distribution, the proposed distribution would reduce the
amount of or retire any part of the association's common or preferred stock or
any part of debt instruments such as notes or debentures included in capital
(other than regular debt payments on approved debt instruments), or the
association is a holding company subsidiary. In all other circumstances not
listed herein, no notice or application would be required before making a
capital distribution. A savings association would qualify for expedited
treatment if it has a CAMEL rating of 1 or 2, has a CRA rating of satisfactory
or better, has a compliance rating of 1 or 2, is meeting all of its capital
requirements, and is not of supervisory concern. The OTS may disapprove a notice
or deny an application, in whole or in part, if the association would be
undercapitalized or worse after the distribution, if the OTS determines that the
distribution raises safety or soundness concerns, or if the distribution
violates any applicable statute, regulation, agreement between the OTS and the
association or condition imposed by an OTS-approved application or notice.
QUALIFIED THRIFT LENDER TEST. Pursuant to amendments effected by the
FDICIA, a savings institution will be a QTL if its qualified thrift investments
equal or exceed 65% of its portfolio assets on a monthly average basis in nine
of every 12 months. Qualified thrift investments, under the revised QTL test,
include (i) certain housing-related loans and investments, (ii) certain
obligations of the FSLIC, the FDIC, the FSLIC Resolution Fund and the RTC, (iii)
loans to purchase or construct churches, schools, nursing homes and hospitals
(subject to certain limitations), (iv) consumer loans (subject to certain
limitations), (v) shares of stock issued by any FHLB, and (vi) shares of stock
issued by the FHLMC or the FNMA (subject to certain limitations). Portfolio
assets under the revised test 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.
Any savings institution that fails to become or remain a QTL must either
convert to a national bank charter or be subject to restrictions specified in
the OTS regulations. Any such savings institution that does not become a bank
will be: (i) prohibited from making any new investment or engaging in activities
that would not be permissible for national banks; (ii) prohibited from
establishing any new branch office in a location that would not be permissible
for a national bank in the institution's home state; (iii) ineligible to obtain
new advances from any FHLB; and (iv) subject to limitations on the payment of
dividends comparable to the statutory and regulatory dividend restrictions
applicable to national banks. Also, beginning three years after the date on
which the savings association ceases to be a QTL, the savings association would
be prohibited from retaining any investment or engaging in any activity not
permissible for a national bank and would be required to repay any outstanding
advances to any FHLB. A savings institution may requalify as a QTL if it
thereafter complies with the QTL test. At September 30, 1999, the Bank exceeded
the QTL requirements.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB system,
which consists of 12 regional Federal Home Loan Banks governed and regulated by
the Federal Housing Finance Board. The Federal Home Loan Banks provide a central
credit facility for member institutions, The Bank, as a member of the FHLB of
Atlanta, is required to acquire and hold shares of capital stock in the FHLB of
Atlanta in an amount at least equal to the greater of 1% of the aggregate
principal amount of its unpaid residential mortgage loans, home purchase
contracts and similar obligations as of the close of each calendar year, or 5%
of its borrowings from the FHLB of Atlanta (including advances and letters of
credit issued by the FHLB on the Bank's behalf). The Bank is currently in
compliance with this requirement, with a $54.9 million investment in stock of
the FHLB of Atlanta as of September 30, 1999.
The FHLB of Atlanta makes advances to members in accordance with policies
and procedures periodically established by the Federal Housing Finance Board and
the Board of Directors of the FHLB of Atlanta. Currently outstanding advances
from the FHLB of Atlanta are required to be secured by a member's shares of
stock in the FHLB of Atlanta and by certain types of mortgages and other assets.
The FIRREA further limited the eligible collateral in certain respects. Interest
rates charged for advances vary depending on maturity, the cost of funds to the
FHLB of Atlanta and the purpose of the borrowing. As of September 30, 1999,
advances from the FHLB of Atlanta totaled $1.1 billion. The FIRREA restricts the
24
amount of FHLB advances that a member institution may obtain, and in some
circumstances requires repayment of outstanding advances, if the institution
does not meet the QTL test. See "--Qualified Thrift Lender Test," above.
LIQUIDITY. OTS regulations currently require member savings institutions to
maintain for each calendar quarter an average daily balance of liquid assets
(cash and certain time deposits, securities of certain mutual funds, bankers'
acceptances, corporate debt securities and commercial paper, and specified U.S.
government, state government and federal agency obligations) equal to at least
4% of either the amount of its liquidity base at the end of the preceding
calendar quarter or the average daily balance of its liquidity base during the
preceding quarter. "Liquidity base" means the institution's net withdrawable
deposits and short-term borrowings (generally borrowings having maturities of
one year or less). The Director of the OTS may vary this liquidity requirement
from time to time within a range of 4% to 10%. Monetary penalties may be imposed
for failure to meet liquidity requirements. For the month of September 1999, the
Bank's liquidity ratio was 6.96%. The Bank is also required to maintain cash
reserve requirements at the Federal Home Loan Bank. At September 30, 1999 this
cash reserve requirement was $11.3 million.
COMMUNITY REINVESTMENT ACT. Under the Community Reinvestment Act (the
"CRA"), as implemented by the OTS regulations, a savings institution has a
continuing and affirmative obligation consistent 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 or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with its examination of a financial
institution, to assess the institution's record of meeting the credit needs of
its community and to take such records into account in its evaluation of certain
applications. The FIRREA amended the CRA to require public disclosure of an
institution's CRA rating and to require that the OTS provide a written
evaluation of an institution's CRA performance utilizing a four-tiered
descriptive rating system in lieu of the existing five-tiered numerical rating
system. Based upon the last OTS examination in fiscal 1997, the Bank's CRA
rating is satisfactory.
Effective July 1, 1995, the OTS together with the other federal banking
agencies, adopted a joint rule amending each of their regulations concerning the
CRA. Subject to certain exceptions and elections, the regulations prescribe
three tests for the evaluation of 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 credit needs of its assessment area
through qualified investments that benefit its assessment area or a broader
statewide or regional area including the assessment area. Finally, 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. Based upon the savings institution's performance under the lending,
investment and service tests, and any other tests which may be applicable to the
institution under the new regulations, the OTS will assign the savings
institution one of the same four ratings prescribed under current regulations.
Additionally, under the new regulations, the OTS will continue to consider an
institution's record of performance under the CRA in the same manner and for the
same purposes as required under current regulations.
These regulations, while effective July 1, 1995, were implemented over a
two-year time frame. The revised performance tests became mandatory and were
deemed to replace the regulations described above effective July 1, 1997.
LOANS-TO-ONE-BORROWER LIMITATIONS. The FIRREA provided that loans-to-one
borrower limits applicable to national banks apply to savings institutions.
Generally, under current limits, loans and extensions of credit outstanding at
one time to a single borrower shall 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, 1999, the Bank
was in compliance with the loans-to-one-borrower limitations.
25
PORTFOLIO POLICY GUIDELINES
The Federal Financial Institutions Examination Council issued a Supervisory
Policy Statement on Securities Activities (the "Policy"), which provides
guidance to an institution in developing its portfolio policy, specifies factors
that must be considered when evaluating an institution's investment portfolio,
and provides guidance on the suitability of acquiring and holding certain
products, such as mortgage derivative products, in its investment portfolio. The
Policy, among other things, defines "high-risk mortgage securities" and provides
that such securities are not suitable investment portfolio holdings for
depository institutions and that they may only be acquired to reduce interest
rate risk. The determination of a high-risk mortgage security will be based upon
a quantitative calculation of the average life of the security, and the change
in the average life and market price sensitivity of the security based on a
300-basis-point shift in the yield curve. Currently, the Bank does not hold any
high-risk mortgage securities. The Policy, however, is applicable to all
depository institutions and will affect the Bank's ability to invest in certain
mortgage securities, primarily collateralized mortgage obligations, in the
future.
GENERAL LENDING REGULATIONS
The Bank's lending activities are subject to federal and state regulation,
including the Equal Credit Opportunity Act, the Truth in Lending Act, the Real
Estate Settlement Procedures Act, the Community Reinvestment Act and the laws of
Florida, California and other jurisdictions governing discrimination, lender
disclosure to borrowers, foreclosure procedures and anti-deficiency judgments,
among other matters.
FEDERAL RESERVE SYSTEM
The Bank is subject to certain regulations promulgated by the Federal
Reserve Board. Pursuant to such regulations, savings institutions are required
to maintain reserves against their transaction accounts (primarily
interest-bearing checking accounts) and non-personal time deposits. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy liquidity requirements imposed by the OTS. In addition,
Federal Reserve Board regulations limit the periods within which depository
institutions must provide availability for and pay interest on deposits to
transaction accounts. Depository institutions are required to disclose their
check-hold policies and any changes to those policies in writing to customers.
The Bank is in compliance with all such Federal Reserve Board regulations.
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.
BankUnited has not been notified of a proposed examination of its federal
income tax returns by the Internal Revenue Service (the "IRS").
BAD DEBT RESERVES
DEDUCTIONS. Prior to legislation enacted in August 1996, the Internal
Revenue Code (the "Code") permitted savings institutions, such as the Bank, to
establish a reserve for bad debts and to make annual additions thereto, which
additions might, within specified formula limits, be deducted in determining
taxable income. The bad debt reserve deduction was generally based upon a
savings institution's actual loss experience (the "experience method"). In
addition, provided that certain definitional tests relating to the composition
of assets and sources of income were met, a savings institution was permitted to
elect annually to compute the allowable addition to its bad debt reserve for
losses on qualifying real property
26
loans (generally loans secured by improved real estate) by reference to a
percentage of its taxable income (the "percentage of taxable income method").
Under the percentage of taxable income method, a savings institution was
permitted, in general, to claim a deduction for additions to bad debt reserves
equal to 8% of the savings institution's taxable income. Taxable income for this
purpose was defined as taxable income before the bad debt deduction, but without
regard to any deduction allowable for any addition to the reserve for bad debt.
Certain adjustments were also required for gains on the sale of corporate stock
and tax exempt obligations. For this purpose, the taxable income of a savings
institution for a taxable year was calculated after utilization of net operating
loss carry forwards.
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. The legislation required thrifts 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 with assets whose tax
basis exceeds $500,000,000 must change to the specific charge off method in
computing its bad debt deduction. As such, the Bank must use the specific charge
off method in computing its bad debt deduction for tax years beginning after
December 31, 1995.
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, provided the institution meets certain residential lending requirements.
The management of BankUnited does not believe that the legislation will have a
material impact on BankUnited or the Bank.
DISTRIBUTIONS. Under the Code, the Bank's December 31, 1987 reserve must be
recaptured into taxable income as a result of certain non-dividend
distributions. A distribution is a non-dividend distribution to the extent that,
for federal income tax purposes, (i) it is in redemption of shares, (ii) it is
pursuant to a liquidation of the institution, or (iii) in the case of a current
distribution it, together with all other such distributions during the taxable
year, exceeds the Bank's current and post-1951 accumulated earnings and profits.
The amount charged against the Bank's bad debt reserves in respect of a
distribution will be includable in its gross income and will equal the amount of
such distribution, increased by the amount of federal income tax resulting from
such inclusion.
ALTERNATIVE MINIMUM TAX
In addition to the income tax, corporations are generally subject to an
alternative minimum tax at a rate of 20%. 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% 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% of AMTI.
INTEREST ALLOCABLE TO TAX-EXEMPT OBLIGATIONS
The 1986 Act eliminates for financial institutions the deduction for
interest expense allocable to the purchase or carrying of most tax-exempt
obligations for taxable years ending after December 31, 1986, with respect to
tax-exempt obligations acquired after August 7, 1986 excluding certain financial
institution-qualified issues. For all qualified issues and for non-qualified
tax-exempt obligations acquired after 1982 and before August 7, 1986, 20% of
allocable interest expense deductions will be disallowed.
27
STATE TAXATION
The State of Florida imposes a corporate income tax on BankUnited, at a
rate of 5.5% 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. A credit against the tax, for Florida intangible taxes
paid, is allowable in an amount equal to the lesser of (i) the amount of such
intangible taxes paid or (ii) 65% of the tax liability. This credit is not
applicable in future periods because the Florida intangible tax has been
repealed.
FORECLOSURES
Tax legislation enacted in August of 1996 significantly changed the tax
treatment with respect to foreclosures for taxable years beginning after
December 31, 1995. Prior to this legislation, a thrift's acquisition of property
by means of foreclosure was not treated as a taxable event for federal tax
purposes. No gain or loss was recognized at the time of foreclosure and no
portion of the debt could be treated as worthless. In addition, prior to the
August 1996 legislation, thrift institutions were allowed a tax benefit for
write downs of foreclosed property to fair market value. Finally, for thrifts
that computed its bad debt deduction under the experience method, gains or
losses realized from the sale of foreclosed property were not taken into account
in computing taxable income, but were credited or charged to the thrift's bad
debt reserve.
As a result of the newly 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.
28
ITEM 2. PROPERTIES
As of September 30, 1999, BankUnited operated 27 full-service banking
offices located in South Florida, of which 24 were leased and three were owned.
BankUnited's banking offices have square footage ranging from 2,000 square feet
to 8,000 square feet with lease terms ranging from the year 2000 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, 1999,
BankUnited leased approximately 18,000 square feet of space pursuant to a lease
agreement that starts to terminate in 2004. BankUnited also leases approximately
40,000 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
starts to terminate in 2002. BankUnited has multiple options to renew leases at
all banking offices and other locations.
In addition, at September 30, 1999, BankUnited leased a vacant facility
totaling approximately 33,000 square feet that housed the headquarters of
Suncoast Savings and Loan Association ("Suncoast") prior to BankUnited's
acquisition of Suncoast in November 1996. BankUnited no longer subleases this
facility and the lease terminates in February 2000. Also, at September 30, 1999,
BankUnited leased the facilities of a branch obtained through the acquisition of
Suncoast which was closed in fiscal year 1997. This lease expires in the year
2002. Finally, BankUnited owns an office condominium which it leases to an
unrelated party.
For further information regarding BankUnited's lease obligations, see Note
8 "Office Properties and Equipment" of the Notes to Consolidated Financial
Statements.
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, 1999.
29
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the executive
officers and directors of BankUnited and the Bank.
POSITIONS WITH COMPANY
NAME AGE AND BUSINESS EXPERIENCE
---- --- -----------------------
Alfred R. Camner 55 Director, Chairman of the Board and Chief Executive Officer (1993 to present) and
President (1993 to 1998) of BankUnited; Director, Chairman of the Board and Chief
Executive Officer (1984 to present) and President (1984 to 1993, 1994 to 1998) of the
Bank; Senior Managing Director (1996 to present) of Camner, Lipsitz and Poller,
Professional Association, attorneys-at-law, and its predecessor, Stuzin and Camner,
Professional Association, attorneys-at-law; Managing Director (1973 to 1996) of Stuzin
and Camner, Professional Association, attorneys-at-law; General Counsel to CSF
Holdings, Inc. and its subsidiary, Citizens Federal Bank, a federal savings bank (1973
to 1996); Director and member of the Executive Committee of the Board of Directors
of Loan America Financial Corporation, a national mortgage banking company (1985
to 1994); Director of CSW Associates, Inc., an asset management firm (1990 to 1995).
Mehdi Ghomeshi 43 Director, President and Chief Operating Officer of BankUnited and the Bank
(December 1998 to present); Market President of NationsBank, South Florida (January
1998 to December 1998); President and Chief Operating Officer of Barnett Bank, South
Florida (1996 to 1998); Director of Special Assets and Risk Management, Barnett
Banks, Inc. (1995 to 1996); Executive Vice President, Commercial Real Estate, Barnett
Bank of South Florida (1993 to 1995).
Lawrence H. Blum 56 Director and Vice Chairman of the Board of BankUnited (1993 to present) and the Bank
(1984 to present); Managing Director (1992 to present) and partner (1974 to present)
of Rachlin, Cohen & Holtz, certified public accountants.
Earline G. Ford 56 Director, Executive Vice President and Treasurer of BankUnited (1993 to present);
Director (1984 to present), Executive Vice President (1990 to present), Senior Vice
President--Administration (1988 to 1990), Treasurer (1984 to present) and Vice
President-- Administration (1984 to 1988) of the Bank; Legal Administrator of Stuzin
and Camner, Professional Association, attorneys-at-law (1973 to 1996); Vice Chairman
of CSW Associates, Inc., an asset management firm (1990 to 1995).
Marc D. Jacobson 57 Director (1993 to present) and Secretary (1993 to 1997) of BankUnited; Director (1984
to present) and Secretary (1985 to 1996) of the Bank; Vice President of Head-Beckham
AmerInsurance Agency, Inc., and its predecessor, Head-Beckham Insurance Agency, Inc.
(1990 to present).
Allen M. Bernkrant 69 Director of BankUnited (1993 to present) and the Bank (1985 to present); Private
investor in Miami, Florida (1990 to present).
Bruce D. Friesner 57 Director of BankUnited and the Bank (1996 to present); Principal of F&G Associates,
a commercial real estate development company (1972 to present); Director of Loan
America Financial Corporation, a national mortgage banking company (1990 to 1994).
30
POSITIONS WITH COMPANY
NAME AGE AND BUSINESS EXPERIENCE
---- --- -----------------------
Marc Lipsitz 58 Director (1996 to present) and Secretary (1997 to present) of BankUnited; Managing
Director (1996 to present) of Camner, Lipsitz and Poller, Professional Association,
attorneys-at-law and its predecessor, Stuzin and Camner, Professional Association,
attorneys-at-law; General Counsel of Jefferson National Bank (1993 to 1996); Partner,
Stroock Stroock & Lavan, attorneys-at-law (1991 to 1993).
Neil H. Messinger, M.D. 61 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.
Anne W. Solloway 84 Director of BankUnited (1993 to present) and the Bank (1985 to present); Private
investor in Miami, Florida.
A. Frederick Schild, 67 Director of BankUnited and the Bank (July 1999 to present); Professor of
M.D., F.A.C.S. Surgery, University of Miami School of Medicine, Department of Surgery/Division of
Transplantation (1992 to present); President-Elect, American Society of General Surgery (March
1999 to present); President, Florida Chapter, American College of Surgeons (1998 to present);
Chairman, Florida Medical Association Long Range Planning Committee (1995 to 1997); President
Florida Medical Association (1991 to 1992); President, Dade County Medical Association (1984 to
1985).
Barry Shulman 50 Director of BankUnited and the Bank (April 1999 to present); President, TSF
Sportswear, Inc. (1984 to present).
EXECUTIVE OFFICERS OF BANKUNITED AND/OR THE BANK
WHO ARE NOT DIRECTORS:
Craig B. Allen 45 Executive Vice President, Human Resources, and Assistant Secretary, of the Bank (July
1999 to present); Senior Vice President, Human Resources Director, Union Planters
Bank of Florida; Corporate Employee Benefits Manager, EEO/Affirmative Action
Officer, Physician Corporation of America (1995 to 1996); Vice President/Human
Resources Director, Loan America/Barnett Mortgage Company (1993 to 1995); Vice
President/Director, American Pension Management, Inc. (1992 to 1993).
Patricia I. Chong 50 Executive Vice President, Small Business, Professional/Executive and Private Banking,
of the Bank (February 1999 to present); Senior Vice President/Retail Market
Manager/Region Executive (1997 to 1999), Senior Vice President/Market Executive
(1995 to 1997) and Vice President/Office Manager (1984 to 1995), of Barnett Bank,
Broward County and its successor by merger, NationsBank, Inc.
Michael J. Clutter 52 Executive Vice President, Credit Policy, of the Bank (March 1999 to Present); Senior Vice
President-Credit Administration (1984 to 1999) of Barnett Bank, Broward County and its
successor by merger, NationsBank, Inc.
Janette L. Davis 44 Executive Vice President, Retail Banking, of the Bank (February 1999 to present);
Senior Vice President/Region Executive (1998 to 1999), Group Senior Vice President,
Market Executive (1997 to 1997) and Vice President, Office Manager (1992 to 1996)
of Barnett Bank, South Florida and its successor by merger, NationsBank, Inc.
Diane DeLella 48 Senior Vice President and Acting Chief Financial Officer (December 1998 to December 1999)
and Controller (1995 to December 1999) of BankUnited and the Bank; Vice President and
Controller of Coral Gables Federal Savings and Loan (1986 to 1995).
31
POSITIONS WITH COMPANY
NAME AGE AND BUSINESS EXPERIENCE
---- --- -----------------------
Humberto Lopez 40 Executive Vice President, Finance, of the Bank (January 1999 to present) and Chief Financial
Officer of BankUnited and the Bank (December 1999 to present); Director (1998 to 1999),
PricewaterhouseCoopers, LLP; Chief Financia 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. 46 Executive Vice President, Commercial Real Estate Banking, of the Bank (1998 to present);
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.
32
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS
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 Stock Market
("Nasdaq"). BankUnited's Class B Common Stock, $.01 par value ("Class B Common
Stock"), is not currently traded on any established public market.
At December 10, 1999, there were 537 and 17 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 on the occurrence of certain events) of one share
of Class A Common Stock for each share of Class B Common Stock surrendered for
conversion.
There were no common stock dividends declared or paid in fiscal 1999 or
1998. See Note 14 to BankUnited's 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 in the Nasdaq 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, 1999:
1st Quarter................................... $10.06 $ 6.56
2nd Quarter................................... $ 9.94 $ 6.13
3rd Quarter................................... $11.00 $ 6.94
4th Quarter................................... $10.13 $ 7.88
Fiscal Year Ended September 30, 1998:
1st Quarter................................... $15.63 $ 12.75
2nd Quarter................................... $15.63 $ 12.25
3rd Quarter................................... $18.50 $ 13.75
4th Quarter................................... $17.00 $ 8.25
33
ITEM 6. SELECTED FINANCIAL DATA
AS OF OR FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATIONS DATA:
Interest income ............................................ $ 233,550 $ 207,567 $ 108,774 $ 52,132 $ 39,419
Interest expense ........................................... 187,515 167,543 75,960 34,622 26,305
----------- ----------- ----------- ----------- -----------
Net interest income ........................................ 46,035 40,024 32,814 17,510 13,114
Provision (credit) for loan losses ......................... 7,939 1,700 1,295 (120) 1,221
----------- ----------- ----------- ----------- -----------
Net interest income after provision (credit)
for loan losses ......................................... 38,096 38,324 31,519 17,630 11,893
----------- ----------- ----------- ----------- -----------
Non-interest income:
Service fees, net .......................................... 3,785 1,139 2,993 597 423
Net (loss) gain on sales of loans and mortgage-
backed securities ....................................... (5) 4,429 819 5 239
Net gain (loss) on sales of other assets(1) ................ 1 6 1 (6) 9,569
Other ...................................................... 1,019 651 247 53 6
----------- ----------- ----------- ----------- -----------
Total non-interest income .................................. 4,800 6,225 4,060 649 10,237
----------- ----------- ----------- ----------- -----------
Non-interest expense:
Employee compensation and benefits ......................... 15,970 10,943 8,880 4,275 3,997
Occupancy and equipment .................................... 8,029 4,854 3,568 1,801 1,727
Insurance(2) ............................................... 1,683 1,185 948 3,610 1,027
Professional fees .......................................... 3,084 1,891 1,605 929 1,269
Other ...................................................... 19,627 13,310 7,946 3,421 4,129
----------- ----------- ----------- ----------- -----------
Total non-interest expense ................................. 48,393 32,183 22,947 14,036 12,149
----------- ----------- ----------- ----------- -----------
(Loss) income before income taxes .......................... (5,497) 12,366 12,632 4,243 9,981
(Benefit) provision for income taxes ....................... (1,903) 5,009 5,033 1,657 3,741
----------- ----------- ----------- ----------- -----------
Net (loss) income before Preferred Stock
dividends .............................................. (3,594) 7,357 7,599 2,586 6,240
Preferred stock dividends .................................. 773 897 2,890 2,145 2,210
----------- ----------- ----------- ----------- -----------
Net (loss) income after Preferred Stock
dividends ............................................... $ (4,367) $ 6,460 $ 4,709 $ 441 $ 4,030
=========== =========== =========== =========== ===========
FINANCIAL CONDITION DATA:
Total assets ............................................... $ 4,078,471 $ 3,738,383 $ 2,145,406 $ 824,360 $ 608,415
Loans receivable, net, and
mortgage-backed securities(3) ........................... 3,246,455 3,215,360 1,781,652 716,550 506,132
Investments, overnight deposits, tax
certificates, reverse repurchase agreements,
certificates of deposits and other earning
assets .................................................. 295,213 194,791 186,955 87,662 88,768
Total liabilities .......................................... 3,888,334 3,539,091 2,045,761 755,249 562,670
Deposits ................................................... 2,279,798 2,124,824 1,195,892 506,106 310,074
Long-term debt ............................................. 966,447 766,466 191,484 45,000 62,000
Company obligated mandatorily redeemable
trust preferred securities of subsidiary trust
holding solely junior subordinated deferrable
interest debentures of BankUnited ....................... 218,500 218,500 116,000 -- --
Borrowings ................................................. 1,546,648 1,361,114 817,484 237,775 241,775
Total stockholders' equity ................................. 190,137 199,292 99,645 69,111 45,745
Common stockholders' equity ................................ 180,984 190,627 75,649 44,807 21,096
(Continued on next page)
34
AS OF OR FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PER COMMON SHARE DATA:
Basic (loss) earnings per common share ..................... $ (0.24) $ 0.41 $ 0.57 $ 0.10 $ 1.77
=========== =========== =========== =========== ===========
Fully diluted (loss) earnings per
common share ............................................ $ (0.24) $ 0.39 $ 0.54 $ 0.10 $ 1.26
=========== =========== =========== =========== ===========
Weighted average number of common shares and
common equivalent shares assumed
outstanding during the period:
Basic ................................................... 18,312,548 15,692,566 8,210,890 4,306,042 2,296,021
Diluted ................................................. 18,312,548 16,666,415 9,148,229 4,558,521 4,158,564
Book value per common share ................................ $ 9.88 $ 10.50 $ 7.94 $ 7.85 $ 10.20
Fully converted tangible book value per
common share ........................................... $ 8.05 $ 8.66 $ 6.88 $ 7.13 $ 8.15
SELECTED FINANCIAL RATIOS
PERFORMANCE RATIOS:
(Loss) return on average assets(4) ......................... (.10%) 0.24% 0.51% 0.36% 1.10%
(Loss) return on average common equity ..................... (3.79%) 4.94 9.34 1.30 22.60
(Loss) return on average total equity ...................... (1.85) 4.53 8.06 4.30 14.70
Interest rate spread ....................................... 1.12 1.11 2.07 2.10 2.12
Net interest margin ........................................ 1.27 1.32 2.31 2.51 2.39
Dividend payout ratio(5) ................................... NM 12.19 38.03 82.95 35.42
Ratio of earnings to combined fixed charges and
preferred stock dividends(6):
Excluding interest on deposits ........................ 0.92 1.14 1.26 1.05 1.52
Including interest on deposits ........................ 0.96 1.06 1.10 1.02 1.21
Total loans, net, and mortgage-backed
securities to total deposits ............................ 142.40 151.32 148.98 141.58 163.13
Non-interest expenses to average assets .................... 1.28 1.03 1.55 1.97 2.14
Efficiency ratio(7) ........................................ 94.70 64.86 57.56 76.45 14.58
ASSET QUALITY RATIOS:
Ratio of non-performing loans to total loans ............... 0.70% 0.64% 0.72% 0.99% 1.02%
Ratio of non-performing assets to total loans,
real estate owned and tax certificates .................. 0.85 0.73 0.79 1.14 1.35
Ratio of non-performing assets to total assets ............. 0.69 0.61 0.67 0.95 1.10
Ratio of net charge-offs to average total loans ............ 0.06 0.02 0.04 (0.12) 0.14
Ratio of loan loss allowance to total loans ................ 0.36 0.20 0.21 0.34 0.32
Ratio of loan loss allowance to non-performing
loans ................................................... 52.45 31.51 28.96 33.74 31.54
CAPITAL RATIO:
Ratio of average common equity to average
total assets ............................................ 4.08% 4.18% 3.40% 4.78% 3.14%
Ratio of average total equity to average
total assets ............................................ 5.16 5.19 6.36 8.44 7.47
Core capital-to-assets ratio(8) ............................ 7.86 8.72 8.07 7.01 7.09
Risk-based capital-to-assets ratio(8) ...................... 15.54 17.54 11.27 14.19 15.79
- -------------------------
(1) In 1995 BankUnited recorded a $9.3 million gain ($5.8 million after tax)
from the sale of its branches on the west coast of Florida.
(2) In 1996 BankUnited recorded a one-time SAIF special assessment of $2.6
million ($1.6 million after tax).
(3) Does not include mortgage loans held for sale.
(4) Return on average assets is calculated before payment of Preferred Stock
dividends.
(5) 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.
(6) The ratio of earnings to combined fixed charges and Preferred Stock
dividends excluding interest on deposits is calculated by dividing income
before taxes and extraordinary items by interest on borrowings plus 33% of
rental expense plus Preferred Stock dividends on a pretax basis. The ratio
of earnings to combined fixed charges and Preferred Stock dividends
including interest on deposits is calculated by dividing income before
taxes and extraordinary items by interest on deposits plus interest on
borrowings plus 33% of rental expense plus Preferred Stock dividends on a
pretax basis.
(7) Efficiency ratio is calculated by dividing non-interest expenses less
non-interest income by net interest income.
(8) Regulatory capital ratio of the Bank.
NM = Not material
35
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, 1999, 1998 and 1997. 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 Financial Corporation ("BankUnited") is a Florida-incorporated
savings and loan holding company for BankUnited, FSB (the "Bank"). The Bank was
founded in 1984 as a savings and loan association. In 1993, the Bank was
converted to a federally chartered savings bank and became a wholly-owned
subsidiary of BankUnited, pursuant to a plan of reorganization approved by its
shareholders. BankUnited's principal business currently consists of the
operation of its wholly-owned subsidiary, the Bank. In addition to managing the
business activities of the Bank, BankUnited invests primarily in U.S. Government
and federal agency securities, mortgage-backed securities and other permitted
investments. The Bank's primary business has traditionally been to attract
retail deposits from the general public and to invest those deposits, together
with borrowings, principal repayments and other funds, primarily in one-to-four
family residential mortgage loans, and to a lesser extent, mortgage-backed
securities, commercial real estate mortgage loans, multi-family mortgage loans,
commercial business loans and consumer loans. The Bank has also invested in
other permitted investments. The Bank is subject to the regulations of certain
federal agencies and undergoes periodic examinations by those regulatory
authorities. References to BankUnited include the activities of all of its
subsidiaries, including the Bank and its subsidiaries, if the context so
requires.
BankUnited's results of operations are dependent primarily on its net
interest income, which is the difference between the interest earned on its
assets, primarily its loan and securities portfolios, and its cost of funds,
which consists of the interest paid on its deposits and borrowings. BankUnited's
results of operations are also affected by its provision for loan losses as well
as non-interest income, non-interest expenses and income tax expense.
Non-interest expenses consist of employee compensation and benefits, occupancy
and equipment, insurance, professional fees, telecommunications and data
processing, loan servicing expense, and other operating expenses. 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, which is in turn
affected by the interest rates at which such financings may be offered 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.
RESTRUCTURING
GENERAL
In December 1998, BankUnited hired a new President and Chief Operating
Officer and subsequently hired a new executive management team, completed a
restructuring and changed its strategy to become an asset-generating entity and
a full service banking institution. The restructuring resulted in $24.5 million
of pre-tax charges which led to a net loss for fiscal 1999. See "Second Quarter
Restructuring Charges." In the last two quarters of fiscal 1999, BankUnited
significantly increased loan production, developed enhanced deposit products and
recorded strong earnings.
36
SECOND QUARTER RESTRUCTURING CHARGES
BankUnited's restructuring resulted in a special charge of $15.1 million,
as well as a provision for loan losses of $6.3 million, a provision for tax
certificate investment losses of $1.1 million and certain other miscellaneous
charges of $2.0 million resulting in a pre-tax total of $24.5 million of charges
against income.
Included in the $15.1 million charge was a $14.8 million charge consisting
of $13.0 million of purchase premiums which was required to write down the
carrying value of the purchased One-Year CMT loan portfolio to the lower of cost
or market, and a $1.8 million charge for accelerated amortization of purchase
premiums on a related security. BankUnited's earnings had been severely hampered
during several quarters prior to the restructuring due to the high levels of
prepayments associated with one-year CMT loans ("One-Year CMT") acquired in the
secondary market. One-Year CMT loans are adjustable-rate mortgages with an index
tied to the yield on one-year U.S. Treasury securities adjusted to a constant
maturity published by the Federal Reserve. As a part of the restructuring,
BankUnited decided to reduce its dependence on the purchase of residential
mortgages in the secondary market, including ending its purchases of One-Year
CMT loans. In addition, all remaining One-Year CMT loans were transferred to
held for sale as of March 31, 1999.
The restructuring also included a rigorous review of BankUnited's loan
portfolio. This examination resulted in a provision for loan losses of $6.3
million. See "Asset Quality." BankUnited made the decision to discontinue
indirect consumer lending and investing in tax certificates because it was clear
from management's review that BankUnited could not anticipate future benefits
from continuing these lines of business. BankUnited made a $1.1 million
provision for losses on its tax certificates in connection with its decision to
discontinue this line of business and a review of the quality of the assets. The
miscellaneous charges of $2.0 million included $1.0 million in costs associated
with becoming Year 2000 compliant.
ACQUISITIONS
On June 19, 1998, BankUnited acquired Central Bank ("Central"), for
1,386,000 shares of BankUnited's Class A Common Stock, and merged Central, which
had assets of $93.9 million and deposits of $65.9 million as of June 19, 1998,
into the Bank.
On January 23, 1998, BankUnited acquired Consumers Bancorp, Inc.
("Consumers"), for approximately $12.0 million in a combination of cash and
stock, and merged its wholly-owned subsidiary, Consumers Savings Bank, which had
assets of $104.4 million and deposits of $88.3 million as of January 23, 1998,
into the Bank.
On November 15, 1996, BankUnited completed its acquisition of Suncoast
Savings and Loan Association, FSA ("Suncoast"). Suncoast had total assets of
$409.4 million, net loans of $335.0 million, deposits of $298.5 million and
shareholders' equity of $24.7 million as of September 30, 1996. The cost of the
acquisition to BankUnited was $27.8 million, representing the fair value of
consideration given to Suncoast shareholders as well as option and warrant
holders.
See Note 3 of the Notes to Consolidated Financial Statements for additional
information regarding these acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
BankUnited's primary source of funds is cash provided by investing
activities and includes principal and interest payments on loans,
mortgage-backed securities and other securities. For fiscal years ended
September 30, 1999 and 1998, principal repayments on loans and mortgage-backed
securities and proceeds from maturities of other securities totaled $1.4 billion
and $1.7 billion, respectively. BankUnited began experiencing significant
acceleration of prepayments on certain mortgage loans and mortgage backed
securities in the quarter ended June 30, 1998 due to the decrease in long-term
interest rates which continued through the quarter ended March 31, 1999. During
the quarter ended June 30, 1999, long-term interest rates rose slightly causing
the volume of mortgage loan refinancing to decrease, slowing the prepayment rate
of BankUnited's loan portfolio.
37
BankUnited's other sources of funds are provided by financing activities
and includes borrowings and deposits. Net cash provided by financing activities
during the fiscal year ended September 30, 1999 decreased to $344.9 million from
$1.4 billion, for the fiscal year ended September 30, 1998. This decrease
reflected the reduction in funds needed to purchase residential loans in the
secondary market. The decrease in securities sold under agreements to repurchase
was partially offset by the issuance of the Bank's Senior Notes (the "Senior
Notes"). During November 1998, the Bank established a medium-term note program
to issue up to $500 million aggregate principal amount of the Senior Notes, with
maturities ranging 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 stand-by letter of credit
of the FHLB of Atlanta. The Senior Notes provide an additional source of
funding, potentially with longer maturities with attractive rates. On February
2, 1999, the Bank issued and sold $200.0 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.
BankUnited's primary uses of funds in its operating and investing
activities has been the origination and purchase of loans and the purchase of
mortgage-backed securities and other securities. During the fiscal year ended
September 30, 1999, BankUnited's originations of loans totaled $723.1 million,
purchases of loans totaled $803.3 million and purchases of mortgage-backed
securities and other securities totaled $239.4 million. For the same period in
1998, BankUnited's originations of loans totaled $386.4 million, purchases of
loans totaled $2.7 billion and purchases of mortgage-backed securities and other
securities totaled $180.0 million. The decrease in purchases of loans during the
fiscal year ended September 30, 1999 is the result of BankUnited's decision to
reduce its purchases of residential loans in the secondary market and to turn
its emphasis to originating its own loans.
In the normal course of business, BankUnited routinely enters into various
commitments, primarily relating to the origination and purchase of loans, the
purchase of securities and standby letters of credit. Total commitments
outstanding at September 30, 1999 to originate loans were $56.9 million. In
addition, BankUnited had $6.3 million in standby letters of credit outstanding
at September 30, 1999. There were no commitments outstanding as of September 30,
1999 to purchase loans or securities . BankUnited anticipates that it will have
sufficient funds available to meet its current commitments in the normal course
of business.
BankUnited's total stockholders' equity was $190.1 million at September 30,
1999, a decrease of $9.2 million, or 4.6%, from $199.3 million at September 30,
1998. The decrease is due primarily to a decrease in accumulated other
comprehensive income, and a current year net loss, offset, in part, by the
issuance of common stock from stock awards and the exercise of options.
In December 1998, the Board of Directors of BankUnited authorized the
purchase from time to time in the open market, or otherwise, of up to 1,000,000
shares of BankUnited's Class A Common Stock at such prices as the Executive
Committee deems advantageous. During the fiscal year ended September 30, 1999,
BankUnited purchased 183,000 shares of its Class A Common Stock on the open
market at a cost of $1.7 million. As of the date of filing of this Annual Report
on Form 10-K, BankUnited had purchased a total of 333,000 shares of its Class A
Common Stock on the open market at a cost of $2.8 million.
The Bank is required under applicable federal regulations to maintain
specified levels of liquid investments in cash, United States government
securities and other qualifying investments. Regulations currently in effect
require the Bank to maintain liquid assets of not less than 4.0% of its net
withdrawable accounts plus short-term borrowings. As of September 30, 1999, the
Bank had liquid assets of 6.96% which was in compliance with this requirement,
and as of September 30, 1998, the Bank had liquid assets of 7.18%.
Federal savings banks such as the Bank are also required to maintain
capital at levels specified by applicable minimum capital ratios. At September
30, 1999, the Bank was in compliance with all capital requirements and met the
definition of a "well capitalized" institution under applicable federal
regulations.
38
ASSET QUALITY
At September 30, 1999, non-performing assets totaled $28.3 million as
compared to $22.6 million and $14.3 million at September 30, 1998 and 1997,
respectively. Expressed as a percentage of total assets, non-performing assets
increased to 0.69% as of September 30, 1999 as compared to 0.61% as of September
30, 1998 and 0.67% as of September 30, 1997. The increase in non-performing
assets in 1999 primarily resulted from increases in non-accrual loans and real
estate owned of $5.4 million and $1.6 million, respectively. Non-accrual loans
increased primarily due to a $1.3 million increase in one-to-four family
residential loan delinquencies and a $4.8 million increase in commercial
mortgage loan delinquencies. Included in the increase of $4.8 million in
commercial mortgage loans is one loan in the amount of $2.5 million. The
increase in real estate owned was due to an increase in one-to-four family real
estate owned.
The following table sets forth information concerning BankUnited's
non-performing assets for the periods indicated:
SEPTEMBER 30,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
Non-accrual loans(1)...............................$ 21,428 $ 15,999 $ 10,866 $ 4,939 $ 3,496
Restructured loans(2).............................. 962 1,137 1,888 1,457 1,070
Loans past due 90 days and still accruing.......... 693 2,313 - - 92
----------- ----------- ----------- ----------- -----------
Total non-performing loans(3)................... 23,083 19,449 12,754 6,396 4,658
Non-accrual tax certificates....................... 1,703 1,225 958 800 574
Real estate owned.................................. 3,548 1,974 611 632 1,453
----------- ----------- ----------- ----------- -----------
Total non-performing assets........................$ 28,334 $ 22,648 $ 14,323 $ 7,828 $ 6,685
=========== =========== =========== =========== ===========
Allowance for losses on tax certificates...........$ 1,168 $ 469 $ 697 $ 614 $ 569
Allowance for loan losses.......................... 12,107 6,128 3,693 2,158 1,469
----------- ----------- ----------- ----------- -----------
Total allowance.................................$ 13,275 $ 6,597 $ 4,390 $ 2,772 $ 2,038
=========== =========== =========== =========== ===========
Non-performing assets as a percentage of
total assets.................................... 0.69% 0.61% 0.67% 0.95% 1.10%
Non-performing loans as a percentage of
total loans(4).................................. 0.70% 0.64% 0.72% 0.99% 1.02%
Allowance for loan losses as a percentage
of total loans(4)............................... 0.36% 0.20% 0.21% 0.34% 0.32%
Allowance for loan losses as a percentage
of non-performing loans......................... 52.45% 31.51% 28.96% 33.74% 31.54%
Net charge-offs as a percentage of average
total loans..................................... 0.06% 0.02% 0.04% (0.12%) 0.14%
(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,
$1.0 million, $0.6 million, $0.2 million, and $0.1 million, for the years
ended September 30, 1999, 1998, 1997, 1996, and 1995, respectively. The
amount of interest income on such non-accrual loans included in net income
for the years ended September 30, 1999, 1998, 1997, 1996 and 1995 was $0.5
million, $0.4 million, $0.4 million, $0.1 million and $0.1 million,
respectively.
(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 $6.5 million and $2.7 million of accruing
loans as of September 30, 1999 and 1998, respectively. Management estimates
that on these loans the loss, if any, will not be significant.
39
(4) Based on balances prior to deductions for allowance for loan losses.
BankUnited's allowance for loan losses is established and maintained based
upon management's evaluation of the risks inherent in the loan portfolio. During
the second quarter of fiscal year 1999, management conducted a review of
BankUnited's interest-earning assets. In connection with the review of
interest-earning assets, management conducted a rigorous review of the loan
portfolio, which included a systematic and detailed evaluation of the estimated
loss exposure in BankUnited's loan portfolio. Management utilized historical
loan loss, 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 future conditions in
order to determine the adequacy of the allowance for loan losses. As a result of
this review, some of the loss presumptions in determining the adequacy of the
allowance for loan losses were revised. The revisions included:
o Evaluating non-performing one-to-four family residential loans as a group
of loans rather than individually. Previously, reserves were established
only on those loans where the net realizable value was greater than 90% of
the unpaid principal balance. However, since one-to-four family residential
loans are homogenous in nature and no single loan is individually
significant in terms of its size or potential risk of loss, reserves are
now being determined for the group as a whole, based on loss rates
experienced in the state in which the property is located. This change
resulted in an additional $2.1 million provision for loan losses in the
second quarter of fiscal 1999.
o Evaluating indirect consumer loans as a separate group of loans from direct
consumer loans. Industry and internal trends have shown that indirect
consumer loans have a higher loss experience than direct consumer loans. As
part of the review of interest-earning assets, management made the decision
to discontinue indirect consumer lending. In connection with this decision,
and in response to loss trends, management increased its reserves on the
indirect consumer lending portfolio. This change resulted in an additional
$0.3 million provision for loan losses in the second quarter of fiscal
1999.
o Performing a detailed re-evaluation of the non-performing commercial
mortgage and non-mortgage commercial loans. The re-evaluation included
obtaining updated market value information, site visits and a review of the
loan documentation. The re-evaluation resulted in an additional $3.9
million provision for loan losses in the second quarter of fiscal 1999.
In total, the review of interest-earning assets resulted in an additional
provision of $6.3 million. The total provision for fiscal year ended September
30, 1999 was $7.9 million.
Effective October 1, 1995, BankUnited adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan" as amended by SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan-Income Recognition and Disclosures" (collectively, "SFAS No. 114").
There was no impact on the consolidated statement of operations upon
implementation due to the composition of BankUnited's loan portfolio (primarily
residential or collateral dependent loans) and BankUnited's policy for
establishing the allowance for loan losses. The only impact to the consolidated
statement of financial condition and to non-performing assets was to reclassify
three loans totaling $522,000 previously classified as in-substance foreclosures
in real estate owned to non-accrual loans. These loans were reclassified because
BankUnited did not have possession of the collateral which, under SFAS No. 114,
is required for a loan to be classified as real estate owned. SFAS No. 114 does
not apply to large groups of smaller balance homogenous loans that are
collectively evaluated for impairment. Loans collectively reviewed by BankUnited
for impairment include all residential and consumer loans. All other loans are
reviewed based on specific criteria such as delinquency or other factors that
may come to the attention of management.
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.
40
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.
The following table sets forth information regarding BankUnited's allowance for
loan losses for the periods indicated:
FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(IN THOUSANDS)
Allowance for loan losses, balance (at beginning
of period)............................................ $ 6,128 $ 3,693 $ 2,158 $ 1,469 $ 841
Provisions (credit) for loan losses...................... 7,939 1,700 1,295 (120) 1,221
Allowance from acquisitions.............................. - 1,262 775 183 -
Loans charged off:
One-to-four family residential loans................... (702) (508) (604) (493) (535)
Commercial real estate................................. (733) - - - -
Construction........................................... (197) - - - -
Commercial business.................................... (21) (30) - - (59)
Consumer............................................... (395) (61) - - -
-------- ------- ------- -------- -------
Total................................................ (2,048) (599) (604) (493) (594)
------- ------- ------- ------- -------
Recoveries:
One-to-four family residential loans................... 49 33 48 1,119 1
Commercial real estate................................. 1 - - - -
Commercial business.................................... - 30 21 - -
Consumer............................................... 38 9 - - -
-------- -------- -------- -------- --------
Total................................................ 88 72 69 1,119 1
------- ------- ------- ------- -------
Allowance for loan losses, balance (at end of period).... $ 12,107 $ 6,128 $ 3,693 $ 2,158 $ 1,469
======== ======== ======== ======== ========
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. However, in
its fiscal year ended September 30, 1996, BankUnited received a recovery of
approximately $1.0 million as settlement of litigation BankUnited initiated
against a seller of residential mortgage loans. BankUnited is not aware of any
significant liability related to REO or loans that may be foreclosed.
41
The following table sets forth the allocation of general allowance for loan
losses by loan category for the periods indicated.
AS OF SEPTEMBER 30,
-------------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
% 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....................... $ 4,200 91.1 $ 1,917 92.4% $ 1,873 89.2%
Multi-family residential........... 442 0.9 98 0.8 61 1.8
Commercial real estate............. 2,873 4.3 2,081 4.8 1,486 7.4
Construction....................... 154 0.5 225 0.3 62 0.4
Land............................... 1,171 0.7 265 0.2 48 0.5
Commercial business................ 1,798 1.5 307 0.5 108 0.6
Consumer........................... 848 1.0 356 1.0 22 0.1
Unallocated........................ 621 N/A 879 N/A 33 N/A
------- --------- -------- --------- -------- ---------
Total allowances for loan
losses.......................... $ 12,107 100.0% $ 6,128 100.0% $ 3,693 100.0%
======== ========= ========= ========= ========= =========
AS OF SEPTEMBER 30,
-------------------------------------------------------
1996 1995
--------------------------- --------------------------
% OF LOANS IN % OF LOANS IN
EACH CATEGORY EACH CATEGORY
TO TOTAL TO TOTAL
LOANS BEFORE LOANS BEFORE
AMOUNT NET ITEMS AMOUNT NET ITEMS
----------- ------------ -------- -------------
(DOLLARS IN THOUSANDS)
Balance at end of period
applicable to:
One-to-four family residential
mortgages....................... $ 1,380 88.7% $ 1,207 96.3%
Multi-family residential........... 123 2.0 11 0.3
Commercial real estate............. 493 7.6 63 2.3
Construction....................... - - - -
Land............................... 27 0.4 4 0.1
Commercial business................ 68 0.9 56 0.8
Consumer........................... 29 0.4 34 0.2
Unallocated........................ 38 N/A 94 N/A
------- --------- -------- ---------
Total allowances for loan
losses.......................... $ 2,158 100.0% $ 1,469 100.0%
======== ========= ========= =========
Management believes that the allowance for loan losses of $12.1 million as of
September 30, 1999 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.
42
YEAR 2000
Computer programs which recognize a date using two digits (rather than
four) to define the applicable year may consider a date using "00" as the year
1900 rather than the year 2000. This is generally referred to as the "Year 2000
Issue," which may affect the performance of computer programs, hardware,
software and other products with embedded computer technology that is date
sensitive. BankUnited utilizes extensive electronic data processing hardware and
software in its banking operations, among other things, to process and record
customer transactions, determine and collect revenue to be earned and expenses
to be paid in connection with customer transactions, maintain and report
customer transaction information, record and manage BankUnited's short-term and
long-term investments, and assist with accounting and financial management and
risk management. BankUnited also relies on certain vendors to provide critical
services to BankUnited's banking operations, including telecommunications, loan
servicing and correspondent banking. Failure of the electronic data processing
hardware or software of BankUnited, its third-party service bureaus, or certain
vendors to properly recognize the Year 2000 could result in a significant
disruption of BankUnited's banking operations. Based on the measures already
taken, a significant disruption of BankUnited's banking operations due to such a
failure is not currently expected because BankUnited has been substantially
compliant since June 30, 1999.
BankUnited's customer transactions are processed through a network of
electronic data processing workstations in its branch offices and loan servicing
department and are recorded on electronic data processing hardware and software,
a substantial portion of which are maintained by two third-party service
bureaus. BankUnited has conducted Year 2000 compliance tests with the two
third-party service bureaus that handle its data processing and has received
certification that the bureaus are Year 2000 compliant. BankUnited has also
replaced its hardware and software used in its operations as necessary for Year
2000 compliance, and has received Year 2000 compliance certification from its
major telecommunications, loan servicing and correspondent banking vendors.
While a portion of BankUnited's financial assets and liabilities are with
commercial businesses and government sponsored entities, BankUnited's loans and
deposits are primarily with individuals. As a result, BankUnited does not expect
any significant disruptions resulting from customers that may not be Year 2000
compliant.
BankUnited has designated a Year 2000 task force under the direction of one
of its senior officers, which has identified and coordinated BankUnited's
efforts to become Year 2000 compliant and has developed a Year 2000 contingency
plan. The contingency plan details alternate methods for meeting BankUnited's
data processing needs and cash and liquidity requirements, as well as covering
such matters as addressing problems that arise and responding to inquiries
during the weekend of the date change and monitoring system output throughout
the Year 2000. The contingency plan was tested prior to September 30, 1999.
BankUnited has also launched an aggressive customer awareness program, which
includes an e-mail address, a toll-free hotline, a Year 2000 report card and
Year 2000 awareness material for our retail and small business customers.
Additionally, BankUnited and its banking subsidiary are subject to regulation
and supervision by the OTS which regularly conducts reviews of the safety and
soundness of BankUnited's operations, including BankUnited's progress in
becoming Year 2000 compliant. Failure by BankUnited to adequately prepare for
Year 2000 issues could negatively impact BankUnited's banking operations
resulting in restrictions on its banking operations by the OTS. No such
restrictions exist at this time, nor does BankUnited expect any such
restrictions resulting from failure to address Year 2000 issues.
BankUnited has estimated the costs associated with becoming Year 2000
compliant to be approximately $1.8 million, exclusive of internal costs, of
which approximately $1.7 million has been incurred through September 30, 1999.
The costs consist of approximately $0.7 million for the replacement of hardware
and software, $0.9 million for the write-off of non- compliant hardware and
software and $0.2 million for other incremental costs. BankUnited does not
separately track the internal costs incurred for the Year 2000 project and such
costs are principally the related payroll costs for its information systems
department.
43
DISCUSSION OF FINANCIAL CONDITION CHANGES FOR THE YEARS ENDED SEPTEMBER 30, 1999
AND 1998
Total assets remained relatively constant from September 30, 1998 to
September 30, 1999 which is consistent with BankUnited's expectations that
assets would not grow significantly during the 1999 fiscal year.
LOANS. BankUnited's loans receivable, net (including loans held for sale)
remained relatively constant from September 30, 1998 to September 30, 1999. Of
BankUnited's total net loans receivable of $3.3 billion at September 30, 1999,
$1.5 billion or 45.5% were adjustable-rate mortgages ("ARMs") and $1.8 billion
or 54.5% were fixed rate mortgages. Mortgage loan purchases of $803.3 million
and loan originations of $723.1 million were offset by repayments of $1.2
billion (net of accretion of discount and amortization of premium) and loan
sales of $23.6 million.
Mortgage loans held for sale increased $231.2 million to $403.6 million as
of September 30, 1999 as compared to $172.4 million at September 30, 1998
principally due to residential loan originations of $140.4 million and the
transfer of $288.3 million of loans from loans receivable, net in the second
quarter of fiscal 1999. This increase was partially offset by repayments of
$100.1 million, sales of $23.6 million and the transfer to loans receivable, net
of $73.8 million of loans originated in the prior fiscal year.
The transfer of the $73.8 million of loans resulted from the
discontinuation of BankUnited's policy of selling substantially all of its
internally generated residential loans. The transfer of loans from loans
receivable, net in the second quarter resulted from BankUnited's decision to
classify its One-Year CMT purchased mortgage loan portfolio as held for sale. In
the second quarter of fiscal 1999, BankUnited began to classify the majority of
its internally generated residential loans as loans receivable, net. See
"Restructuring" above.
During the fiscal year ended September 30, 1999, 1998 and the fiscal 1997
fourth quarter, residential loans totaling $23.6 million, $173.5 million and
$30.1 million, respectively, were sold for a loss of $5,000, a gain of $4.0
million and a gain of $523,000, respectively. In addition, at the initiation of
this program, BankUnited reclassified $93.5 million of its internally generated
portfolio of residential loans as held for sale in the fiscal 1997 fourth
quarter.
FEDERAL HOME LOAN BANK (FHLB) OVERNIGHT DEPOSITS. FHLB overnight deposits
decreased $14.9 million, or 22.8%, to $50.4 million at September 30, 1999 from
$65.3 million at September 30, 1998. This change is due to adjustments to
BankUnited's liquidity position in response to the growth in the balance sheet
and projected cash requirements.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL. BankUnited purchased $150
million in securities purchased under agreements to resell to invest the
unapplied proceeds of BankUnited's borrowings (primarily FHLB advances and
Senior Notes) to maximize earnings while maintaining liquidity until such time
as loans and/or securities of a price and quality in line with BankUnited's
investment strategy become available.
TAX CERTIFICATES. BankUnited's investment in tax certificates decreased
$25.2 million, or 63.0%, to $14.8 million at September 30, 1999 from $40.0
million at September 30, 1998. The decrease is as a result of certificate
redemptions and repayments and the decision to discontinue investing in this
line of business.
INVESTMENTS. Investments held to maturity decreased $9.4 million, or 64.8%,
to $5.1 million as of September 30, 1999 as compared with $14.5 million as of
September 30, 1998. Investments available for sale decreased $3.7 million, or
15.6%, to $20.0 million as of September 30, 1999 as compared to $23.7 million as
of September 30, 1998. The decrease in fiscal 1999 was primarily due to the
maturity and redemption of investment securities.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities held to maturity
increased $56.7 million, or 38.8%, to $202.8 million at September 30, 1999 from
$146.1 million at September 30, 1998. The increase was primarily due to the
reclassification of $158.9 million of securities from available for sale to held
for maturity, offset by repayments and amortization of premiums.
44
BankUnited's available for sale mortgage-backed securities portfolio
decreased $55.2 million, or 27.7%, to $144.4 million as of September 30, 1999
from $199.6 million as of September 30, 1998. In fiscal 1999, the decrease was
due to repayments and amortization of $55.0 million, a transfer to held to
maturity in the fourth quarter of $158.9 million, and a reduction of $7.5
million in the market value of the underlying securities, offset by purchases of
$166.2 million.
OTHER INTEREST EARNING ASSETS. Other interest earning assets increased $3.6
million, or 7.0%, to $54.9 million at September 30, 1999 from $51.3 million at
September 30, 1998. This category primarily represents stock in the FHLB which
BankUnited is required to purchase as FHLB advances increase.
DEPOSITS. Deposits increased by $155.0 million, or 7.3%, from $2.1 billion
at September 30, 1998 to $2.3 billion at September 30, 1999, due to an increase
in savings and checking accounts of $121.4 million and $35.2 million,
respectively. This increase was partially offset by a $1.6 million decrease in
certificates of deposit resulting from the elimination of all brokered
certificates of deposit. This change in the deposit mix resulted in a favorable
reduction in BankUnited's cost of interest-bearing deposits to 4.78% for the
twelve months ended September 30, 1999 from 5.36% for the twelve months ended
September 30, 1998.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE. BankUnited securities sold
under agreements to repurchase decreased by $89.4 million, or 73.8% to $31.7
million at September 30, 1999 from $121.1 million at September 30, 1998. This
decrease resulted from the maturity of the agreements and the decision of
BankUnited's management not to replace the agreements but to seek longer-term
sources of funds to more effectively control BankUnited's cost of funds and to
take advantage of the current low interest rate environment.
FHLB ADVANCES. FHLB advances remained relatively constant from September
30, 1998 to September 30, 1999.
SENIOR NOTES. Senior Notes increased $200.0 million as a result of the
issuance and sale of the Bank's Senior Notes during the second quarter of fiscal
1999. See Note 12 - "Senior Notes" of the Notes to the Consolidated Financial
Statements.
TRUST PREFERRED SECURITIES. Trust Preferred securities remained constant
from September 30, 1998 to September 30, 1999. 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 the date of filing of this
Annual Report on Form 10-K, BankUnited had purchased a total of 71,999 shares of
trust preferred securities issued by its trust subsidiaries on the open market
at a cost of $1.3 million.
STOCKHOLDERS' EQUITY. BankUnited's total stockholders' equity was $190.1
million at September 30, 1999, a decrease of $9.2 million, or 4.6%, from $199.3
million at September 30, 1998. The decrease is due primarily to a $5.7 million
decrease in accumulated other comprehensive income, and a current year net loss,
offset, in part, by the issuance of common stock from stock awards and the
exercise of options.
In May 1999, the Board of Directors of BankUnited authorized the purchase
of shares of the 9% Preferred Stock on the open market, as deemed appropriate,
and, if the market is appropriate, the retirement of the 9% Preferred Stock.
BankUnited did not purchase any shares of its 9% Preferred Stock during the 1999
fiscal year.
In December 1998, the Board of Directors of BankUnited authorized the
purchase from time to time in the open market, or otherwise, of up to 1,000,000
shares of BankUnited's Class A Common Stock at such prices as the Executive
Committee shall deem advantageous. This is in addition to the authority granted
to purchase shares for compensation and benefit programs. During the fiscal year
1999, BankUnited purchased a total of 183,000 shares of its Class A Common Stock
on the open market at a cost of $1.7 million. As of the date of filing of this
Annual Report on Form 10-K, BankUnited had purchased a total of 333,000 shares
of its Class A Common Stock on the open market at a cost of $2.8 million.
45
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1999
AND 1998
NET INCOME AFTER PREFERRED STOCK DIVIDENDS. Net income after preferred
stock dividends decreased to a loss of $4.4 million for the year ended September
30, 1999, compared to net income after preferred stock dividends of $6.5 million
for the year ended September 30, 1998. The primary reasons for the decline in
net income after preferred stock dividends for the year ended September 30, 1999
were (i) the accelerated amortization of purchase premiums on the One-Year CMT
loan portfolio and a related security recorded in the first quarter of fiscal
1999 due to the high level of prepayments; (ii) the write-off of purchase
premiums on the One-Year CMT loan portfolio, and the continuing acceleration of
amortization of purchase premiums on a related security in the second quarter of
fiscal 1999; (iii) the provision for loan losses in the second quarter resulting
from the re-evaluation of the loan portfolio; (iv) the provision for tax
certificate losses in the second quarter resulting from the increase in
nonperforming tax certificates and the decision to discontinue investing in this
asset; and (v) other miscellaneous charges in the second quarter including costs
associated with becoming Year 2000 compliant. See "Restructuring" above. A more
detailed discussion of each major category of income and expenses follows.
NET INTEREST INCOME. Net interest income before provision for loan losses
increased $6.0 million, or 15.0%, to $46.0 million for the year ended September
30, 1999 from $40.0 million for the year ended September 30, 1998. This increase
was reduced as a result of the accelerated amortization of purchase premiums on
the One-Year CMT loan portfolio and a related security recorded in the first
quarter of fiscal 1999 and the $14.8 million charge in the second quarter of
fiscal 1999 related to the One-Year CMT loan portfolio and a related security.
This charge contributed to the reduction of the net interest margin to 1.27% for
the year ended September 30, 1999, compared to 1.32% for the same prior year
period. For the year ended September 30, 1999, the decrease in the net interest
margin was due to a decrease in the yield on interest-earning assets to 6.44%
from 6.86% for the same period in 1998, primarily attributable to the lower
yields on the loans purchased, partially offset by 43 basis point decrease in
the cost of interest-bearing liabilities to 5.32% from 5.75% for the same period
in 1998.
Interest income increased $26.0 million, or 12.5%, to $233.6 million for
the year ended September 30, 1999 from $207.6 million for the year ended
September 30, 1998. Interest income for the fiscal year 1999 was affected by the
following:
The results of operations for the three months ended December 31, 1998
reflect the accelerated amortization of premiums on purchased loans and
mortgage-backed securities. The amortization of premiums, net of discounts and
deferred origination costs, increased from $1.0 million for the three months
ended December 31, 1997 to $6.1 million for the same period in fiscal 1999. The
increase in premium amortization was a result of the high level of loan
prepayments experienced in the first quarter of fiscal 1999. The results of
operations for the three months ended March 31, 1999 include the $14.8 million
charge and $0.2 million of other amortization for a total reduction to interest
income of $15.0 million. The results of operations for the six months ended
September 30, 1999 include $2.8 million of amortization compared to $9.5 million
for the same period in fiscal 1998. The decrease is the result of the reduction
in the level of prepayments and the charge in the second quarter of fiscal 1999
to reduce the carrying value of the purchased One-Year CMT portfolio to the
lower of cost or market. The decrease in interest income due to these net
reductions was offset by an increase in the average balance of loans receivable,
which increased $0.5 billion or 20.1%, for the year ended September 30, 1999, as
compared to the same prior year period.
Interest expense for the year ended September 30, 1999, increased $20.0
million, or 11.9%, to $187.5 million from $167.5 million for the year ended
September 30, 1998, primarily due to increases in interest expense on
interest-bearing deposits and the trust preferred securities. Interest expense
on interest-bearing deposits increased $13.3 million, or 14.2%, to $106.7
million for the year ended September 30, 1999, from $93.4 million for the prior
year as a result of an increase in the average balance of interest-bearing
deposits to $2.2 billion for the year ended September 30, 1999, from $1.7
billion for the year before, offset by a 58 basis point decrease in the average
cost of interest-bearing deposits to 4.78% for the year ended September 30,
1999, from 5.36% for the prior year. Interest expense on the trust preferred
securities increased $4.2 million, or 24.7% to $21.2 million for the year ended
September 30, 1999, from $17.0 million for the prior year, as a result of an
increase in the average balance of the trust preferred securities to $218.5
million for the year ended September 30, 1999 from $173.3 million for the prior
year.
46
Other factors influencing the level of interest expense include the
issuance of the Bank's Senior Notes during the second quarter of fiscal 1999,
which generated interest expense of $7.6 million for the year ended September
30, 1999, at a weighted average cost of 5.76%; and a $5.1 million decrease in
interest expense on FHLB advances and other borrowings to $52.1 million for the
year ended September 30, 1999 from $57.1 million for the prior year, resulting
from a decrease in the average balance of FHLB advances and other borrowings to
$942.9 million for the year ended September 30, 1999, from $998.6 million for
the prior year. Overall, the average rate paid on interest-bearing liabilities
decreased 43 basis points to 5.32% on an average balance of $3.5 billion for the
year ended September 30, 1999, from 5.75% on an average balance of $2.9 billion
for the year ended September 30, 1998.
47
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, including the effect on
yields of the accelerated amortization of purchase premiums on the One-Year CMT
loan portfolio and a related security recorded in the first quarter of fiscal
1999 and the third and fourth quarter of fiscal 1998 due to the high level of
prepayments, the $14.8 million charge in the second quarter of fiscal 1999
related to the write-off of purchase premiums on the One-Year CMT loan portfolio
and the continuing accelerated amortization of purchase premiums on a related
security . 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,
----------------------------------------------------------------------------------------
1999 1998 1997
AS OF ----------------------------- ---------------------------- -------------------------
9/30/99 AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
YIELD/RATE(1) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- --------- -------- ----- -------- -------- ---- --------- ------- -----
(Dollars in thousands)
Interest-earning assets:
Loans receivable, net(2).......... 7.38% $3,038,086 $ 199,704 6.57% $2,529,219 $ 177,252 7.01% $1,217,181 $94,655 7.78%
Mortgage-backed securities(2)..... 6.78 337,333 18,493 5.48 288,832 16,588 5.74 103,389 7,035 6.80
Short-term investments(3)......... 5.41 144,842 7,590 5.24 86,642 5,013 5.79 27,612 1,613 5.84
Tax certificates.................. 7.95 26,666 1,882 7.06 38,978 2,952 7.57 41,162 3,171 7.70
Long-term investments and
FHLB stock, net .................. 7.49 80,042 5,881 7.35 81,600 5,762 7.06 33,161 2,300 6.94
---- --------- -------- ----- --------- -------- ---- --------- ------- -----
Total interest-earning assets... 7.23 3,626,969 233,550 6.44 3,025,271 207,567 6.86 1,422,505 108,774 7.65
---- --------- -------- ----- --------- -------- ---- --------- ------- -----
Interest-bearing liabilities:
NOW/Money Market.................. 2.63 272,922 7,820 2.87 163,513 5,083 3.11 91,515 2,236 2.44
Savings........................... 4.57 360,019 16,010 4.45 193,564 8,983 4.64 137,912 6,342 4.60
Certificate of deposits........... 5.14 1,599,661 82,825 5.18 1,384,710 79,365 5.73 735,008 41,558 5.65
Trust preferred securities........ 9.53 218,500 21,154 9.68 173,288 16,952 9.78 63,008 6,473 10.27
Senior notes...................... 5.40 132,055 7,612 5.76 - - - - - -
FHLB advances and other borrowings 5.47 942,871 52,094 5.52 998,562 57,160 5.72 335,112 19,351 5.77
---- --------- -------- ----- --------- -------- ---- --------- ------- -----
Total interest-bearing liabilities 5.26 3,526,028 187,515 5.32 2,913,637 167,543 5.75 1,362,555 75,960 5.58
---- --------- -------- ----- --------- -------- ---- --------- ------- -----
Excess of interest-earning assets over
interest-bearing liabilities...... $ 100,941 $ 111,634 $ 59,950
========= ========= =========
Net interest income.................. $ 46,035 $ 40,024 $32,814
======== ========= =======
Interest rate spread................. 1.97% 1.12% 1.11% 2.07%
==== ====== ===== =====
Net interest margin.................. 2.13% 1.27% 1.32% 2.31%
==== ====== ===== =====
Ratio of interest-earning assets to
interest-bearing liabilities...... 102.86% 103.83% 104.40%
========== ========= =======
- ----------
(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, 1999 and do not
include any estimates of the effect accelerated amortization of purchased
premiums would have on the yields earned.
(2) The yields and rates along with the corresponding interest rate spread and
net interest margin for the fiscal year ended September 30, 1999 reflect
the accelerated amortization of purchase premiums on the One-Year CMT loan
portfolio and a related security in the first quarter of fiscal 1999 and
the $14.8 million charge in the second quarter of fiscal 1999 related to
the write-off of purchase premiums on the One-Year CMT loan portfolio and
the continuing accelerated amortization of purchase premiums on a related
security.
The yields and rates along with the corresponding interest rate spread and
net interest margin for the fiscal year ended September 30, 1998 reflect
the accelerated amortization of purchase premiums on the one-year CMT loan
portfolio in the third and fourth quarter of fiscal 1998.
(3) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
48
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,
---------------------------------------- ----------------------------------------
1999 V. 1998 1998 V. 1997
---------------------------------------- ----------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO 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................................$ 35,662 $(10,997) $ (2,213) $ 22,452 $102,032 $ (9,353) $(10,082) $ 82,597
Mortgage-backed securities and
collateralized mortgage obligations 2,785 (753) (127) 1,905 12,619 (1,098) (1,968) 9,553
Short-term investments(1)........... 3,367 (473) (317) 2,577 3,447 (15) (32) 3,400
Tax Certificates..................... (932) (201) 63 (1,070) (168) (53) 2 (219)
Long-term investments and FHLB stock (110) 233 (4) 119 3,360 42 60 3,462
------- ------- ------- ------- ------- ------- ------- -------
Total interest-earning assets...... 40,772 (12,191) (2,598) 25,983 121,290 (10,477) (12,020) 98,793
------- ------- ------- ------- ------- ------- ------- -------
Interest expense attributable to:
NOW/Money Market..................... 3,401 (398) (266) 2,737 1,760 608 479 2,847
Savings.............................. 7,725 (375) (323) 7,027 2,559 58 24 2,641
Certificates of Deposit.............. 12,320 (7,669) (1,191) 3,460 36,735 569 503 37,807
Trust preferred securities........... 4,423 (175) (46) 4,202 11,330 (309) (542) 10,479
Senior Notes......................... - - 7,612 7,612 - - - -
FHLB advances and other borrowings... (3,188) (1,989) 111 (5,066) 38,310 (168) (333) 37,809
------- ------- ------- ------- ------- ------- ------- -------
Total interest-bearing liabilities. 24,681 (10,606) 5,897 19,972 90,694 758 131 91,583
------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in net
interest income..............$ 16,091 $ (1,585) $ (8,495) $ 6,011 $ 30,596 $(11,235) $(12,151) $ 7,210
======== ======== ======== ======== ======== ======== ======== ========
- ------------------------------------
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased $6.2
million to $7.9 million for the year ended September 30, 1999 compared to $1.7
million for the year ended September 30, 1998. Included in the $7.9 million
provision is a $6.3 million provision recorded in the second quarter as a result
of management's review of interest earning assets. The provision recorded in the
second quarter of fiscal 1999 relates to one-to-four family residential mortgage
loans ($2.1 million), indirect consumer loans ($0.3 million) and commercial
loans ($3.9 million). The provision for loan losses represents management's
estimate of the charge to operations after reviewing the nature, volume,
delinquency status, and inherent risk in the loan portfolio in relation to the
allowance for loan losses. For a detailed discussion of BankUnited's asset
quality and allowance for loan losses, see "-Asset Quality."
NON-INTEREST INCOME. Non-interest income decreased $1.4 million to $4.8
million for the year ended September 30, 1999 compared to $6.2 million for the
year ended September 30, 1998. The results reflect a $4.4 million decrease in
gains on sales of assets related to a reduction in the sales of loans and
mortgage-backed securities. Core income, comprised of net service fee income,
service charges and other fees on deposits and other non-interest income
increased $3.0 million reflecting BankUnited's increased emphasis on
implementing new products and services to meet customer needs.
NON-INTEREST EXPENSES. Operating expenses increased $16.2 million to $48.4
million for the year ended September 30, 1999 compared to $32.2 million for the
year ended September 30, 1998. Included in the increase in non-interest expenses
are the expenses incurred in the second quarter of fiscal 1999 for the
additional provision for tax certificate losses of $1.1 million, $1.0 million of
expenses related to Year 2000 compliance and $1.0 million of miscellaneous other
charges. The remaining increase in expenses is attributable to the growth
BankUnited has experienced, including the additional costs relating to the
acquisitions of Consumers Bancorp,
49
Inc. and Central Bank during the second and third quarters, respectively, of the
1998 fiscal year and the opening of two additional branches in the 1999 fiscal
year. Total non-interest expenses, as a percentage of average assets, increased
from 1.03% for the year ended September 30, 1998, to 1.28% for the same period
in 1999 as a result of the additional charges.
INCOME TAXES. The income tax provision decreased to a net benefit of $1.9
million for the year ended September 30, 1999, compared to a net expense of $5.0
million for the year ended September 30, 1998. This decrease was due to
BankUnited's pre-tax loss during the year ended September 30, 1999, partially
offset by the increase in the effective income tax rate due to the effect of
non-deductible goodwill.
PREFERRED STOCK DIVIDENDS. Preferred stock dividends decreased $124,000 to
$773,000 for the year ended September 30, 1999 as compared to $897,000 for the
year ended September 30, 1998. This decrease is the result of the retirement in
January 1998 of the 8% Noncumulative Convertible Preferred Stock, Series 1993,
partially offset by the issuance of additional shares of Noncumulative
Convertible Preferred Stock, Series B.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1998
AND 1997
NET INCOME AFTER PREFERRED STOCK DIVIDENDS. BankUnited had net income after
preferred stock dividends of $6.5 million for the year ended September 30, 1998,
compared to net income after preferred stock dividends of $4.7 million for the
year ended September 30, 1997. All major categories of income and expense
increased significantly in the year ended September 30, 1998 as compared to the
year ended September 30, 1997 and reflect the significant growth BankUnited
experienced in fiscal 1998. Significant factors in such growth were the
acquisitions of Consumers and Central, which were completed on January 23, 1998
and June 19, 1998, respectively. BankUnited's Consolidated Statement of
Operations for the year ended September 30, 1998 reflects Consumers' and
Central's operations from the date of acquisition. Below is a more detailed
discussion of each major category of income and expenses.
NET INTEREST INCOME. Net interest income increased $7.2 million, or 22.0%,
to $40.0 million for the year ended September 30, 1998 from $32.8 million for
the year ended September 30, 1997. This increase was attributable to an increase
in average interest-earning assets of $1.6 billion, or 114.3%, to $3.0 billion
for the year ended September 30, 1998 from $1.4 billion for the year ended
September 30,1997, partially offset by a decrease in the net interest margin to
1.32% for the year ended September 30, 1998 from 2.31% for the year ended
September 30, 1997. The increase in average interest-earning assets was
primarily due to the purchase of $2.7 billion of residential mortgage loans
during the 1998 fiscal year. The decrease in the net interest margin was due to
a decrease in the yield on interest-earning assets to 6.86% for the year ended
September 30, 1998 from 7.65% for the year ended September 30, 1997, primarily
attributable to the lower yields on the loans purchased, and a 17 basis point
increase in the cost of interest-bearing liabilities to 5.75% for the year ended
September 30, 1998 from 5.58% for the year ended September 30, 1997.
The increase in interest income of $98.8 million, or 90.8%, to $207.6
million for the year ended September 30, 1998 from $108.8 million for the year
ended September 30, 1997, primarily reflects increases in interest and fees on
loans of $82.6 million and a $9.6 million increase in interest on
mortgage-backed securities. This increase in interest and fees on loans was due
to an increase in average loans outstanding of $1.3 billion, or 108.3%, to $2.5
billion for the year ended September 30, 1998 from $1.2 billion for the year
ended September 30, 1997, which resulted primarily from purchases of residential
loans in the secondary mortgage market. The results of operations for the year
ended September 30, 1998 reflect an acceleration in the amortization of purchase
premiums on loans and mortgage-backed securities which increased from $1.1
million for the year ended September 30, 1997 to $11.4 million for the year
ended September 30, 1998. The increase in premium amortization was largely the
result of increased prepayments on purchased mortgage loans. Prepayments on
purchased mortgage loans also negatively affect interest income since such loans
are generally serviced by other entities who only remit funds received from
prepayments on a monthly basis, which results in a loss of interest income from
the delay in remittance and use of funds from such prepayments. As a result of
prepayments and because many of the loans purchased are adjustable-rate
mortgages in the "teaser" period, the yield on loans declined from 7.78% for the
year ended September 30, 1997 to 7.01% for the year ended September 30, 1998.
This 77 basis point drop in the yield earned on loans was a significant factor
in the decline of the yield on interest earning assets.
The increase in interest expense of $91.5 million, or 120.4%, to $167.5
million for the year ended September 30, 1998 from $76.0 million for the year
ended September 30, 1997 primarily reflects an increase in interest expense on
interest-bearing deposits of $43.3 million, or 86.4%, to $93.4 million for the
year ended September 30, 1998, from $50.1 million for the year ended September
30, 1997, an increase in interest expense on FHLB advances of $32.9 million to
$51.6 million for the year ended September 30, 1998, from $18.7
50
million for the year ended September 30, 1997, an increase in preferred
dividends of the trust subsidiaries of $10.5 million to $17.0 million for the
year ended September 30, 1998, from $6.5 million for the year ended September
30, 1997, and an increase in interest expense on securities sold under
agreements to repurchase of $5.0 million to $5.5 million for the year ended
September 30, 1998 from $0.5 million for the year ended September 30, 1997. This
was due to an increase in average interest-bearing deposits of $777.4 million,
or 80.6%,to $1.7 billion for the year ended September 30, 1998, from $964.4
million for the year ended September 30, 1997. Approximately $79.1 million of
this increase represents deposits acquired with Consumers and Central. The
average rate paid on interest-bearing deposits increased 16 basis points to
5.36% for the year ended September 30, 1998 from 5.20% for the year ended
September 30, 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased $0.4
million to $1.7 million for the year ended September 30, 1998 as compared to a
provision for loan losses of $1.3 million for the year ended September 30, 1997.
The provision for loan losses represents management's estimate of the charge to
operations after reviewing the nature, volume, delinquency status, and inherent
risk in the loan portfolio in relation to the allowance for loan losses. For a
detailed discussion of BankUnited's asset quality and allowance for loan losses,
see "Asset Quality."
NON-INTEREST INCOME. Non-interest income increased $2.1 million to $6.2
million for the year ended September 30, 1998 as compared to $4.1 million for
the year ended September 30, 1997. Of this increase, $3.6 million represents
gains on the sale of loans and mortgage backed securities, partially offset by a
$2.3 million decrease in loan servicing fee income, net, primarily due to the
acceleration of amortization of mortgage servicing rights resulting from an
increase in prepayments. The remaining increase was primarily attributable to
service fees on deposits reflecting the increase in the amount of deposits
outstanding.
NON-INTEREST EXPENSES. Operating expenses increased $9.3 million to $32.2
million for the year ended September 30, 1998 as compared to $22.9 million for
the year ended September 30, 1997. The increase in expenses was attributable to
the growth experienced by BankUnited including the expenses of Consumers' and
Central's operations.
INCOME TAXES. The income tax provision was $5.0 million for each of the
years ended September 30, 1998 and 1997.
PREFERRED STOCK DIVIDENDS. Preferred stock dividends decreased $2.0 million
to $0.9 million for the year ended September 30, 1998 as compared to $2.9
million for the year ended September 30, 1997. This decrease is the result of
the retirement, in October 1997, of the 8% Noncumulative Convertible Preferred
Stock, Series 1996, issued in connection with the acquisition of Suncoast and,
in January 1998, of the 8% Noncumulative Convertible Preferred Stock, Series
1993, partially offset by the issuance of the Series B Preferred Stock in April
1998.
IMPACT OF INFLATION AND CHANGING PRICES.
The financial statements and related financial data and notes presented
herein have been prepared in accordance with Generally Accepted Accounting
Principles (GAAP), which require the measurements of financial position and
operating results in terms of historical dollars, without considering changes in
the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, virtually all of BankUnited's assets
and liabilities are monetary in nature. As a result, BankUnited is not
significantly affected by the general levels of inflation. BankUnited's net
income is mainly dependent on the spread between the average yield earned on its
interest-earning assets and the average cost incurred on its interest-bearing
liabilities. Therefore, BankUnited's net income is more significantly impacted
by changes in interest rates (see Item 7a. "Quantitative and Qualitative
Disclosures about Market Risk"). Although interest rates do not necessarily move
in the same direction or in the same magnitude as the prices of goods and
services, interest rates may be affected by actions of Federal Reserve designed
to control inflation.
51
SELECTED QUARTERLY FINANCIAL DATA
Set forth below is selected quarterly data for the fiscal years ended
September 30, 1999 and 1998.
The quarterly financial data for the fourth quarter of fiscal 1999 and
1998 was not reviewed by BankUnited's independent certified public accountants
in accordance with standards established for such reviews.
1999
---------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER(1) QUARTER QUARTER
----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
Net interest income............................................. $ 10,089 $ 1,555 $ 15,891 $ 18,500
Provision for loan losses....................................... 400 6,336 450 753
Non-interest income............................................. 1,293 1,209 1,189 1,109
Non-interest expense............................................ 10,222 13,936 11,135 13,100
----------- ----------- ----------- -----------
Income (loss) before taxes and preferred stock dividends........ 760 (17,508) 5,495 5,756
Income taxes (benefit).......................................... 364 (6,578) 2,164 2,147
----------- ----------- ----------- -----------
Net income (loss) before preferred stock dividends.............. 396 (10,930) 3,331 3,609
Preferred stock dividends....................................... 188 196 192 197
----------- ----------- ----------- -----------
Net income (loss) applicable to common stock.................... $ 208 $ (11,126) $ 3,139 $ 3,412
=========== =========== =========== ===========
Basic earnings (loss) per share................................. $ 0.01 $ (0.61) $ 0.17 $ 0.19
=========== =========== =========== ===========
Diluted earnings (loss) per share............................... $ 0.01 $ (0.61) $ 0.17 $ 0.18
=========== =========== =========== ===========
(1) Includes restructuring charges.
1998
---------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
Net interest income............................................. $ 9,367 $ 11,360 $ 8,151 $ 11,146
Provision for loan losses....................................... 650 400 300 350
Non-interest income............................................. 1,644 1,015 2,503 1,063
Non-interest expense............................................ 7,025 8,170 8,054 8,934
----------- ----------- ----------- -----------
Income before taxes and preferred stock dividends............... 3,336 3,805 2,300 2,925
Income taxes.................................................... 1,361 1,513 949 1,186
----------- ----------- ----------- -----------
Net income before preferred stock dividends..................... 1,975 2,292 1,351 1,739
Preferred stock dividends....................................... 332 182 185 198
----------- ----------- ----------- -----------
Net income applicable to common stock........................... $ 1,643 $ 2,110 $ 1,166 $ 1,541
=========== =========== =========== ===========
Basic earnings per share........................................ $ 0.13 $ 0.14 $ 0.07 $ 0.09
=========== =========== =========== ===========
Diluted earnings per share...................................... $ 0.12 $ 0.13 $ 0.07 $ 0.08
=========== =========== =========== ===========
In the fourth quarter of 1998, as a result of increased prepayments,
BankUnited recorded amortization expense of approximately $6.8 million relating
to premiums on loans and mortgage-backed securities. In addition, during the
fourth quarter, BankUnited adjusted normal recurring accruals of certain
non-interest and operating expenses, deferred loan costs and estimates of
required reserves based upon management's determination of amounts so required,
in an aggregate of approximately $1.0 million resulting in an increase to net
income before taxes.
52
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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). Such
financial instruments have varying levels of sensitivity to changes in market
interest rates which creates interest rate risk for the Bank. Accordingly,
BankUnited's net interest income, the most significant component of its net
income, is subject to substantial volatility due to changes in interest rates or
market yield curves, particularly if there are differences, or gaps, in the
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 computer model which attempts to simulate the
financial impact certain interest rate scenarios, or environments, 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. A substantial portion of BankUnited's loans and
mortgage-backed securities are residential mortgage loans which contain an
imbedded option allowing borrowers to repay all, or a portion, of their loan
prior to maturity without penalty. The existence of this imbedded prepayment
option can adversely impact BankUnited's financial performance. In general,
marketable 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.
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 residential 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.
53
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.
With respect to ARM loans, a borrower's incentive to prepay or refinance
his loan is typically influenced by the interest rate index to which the
interest rate on his loan is tied, the amount by which the loan rate is to
differ from its associated index (the margin), the extent to which interest rate
caps (if any) are expected to limit future interest rate adjustments, the extent
to which payment caps (if any) are expected to limit future payment obligations,
and other less quantifiable factors.
A significant portion of BankUnited's loans are ARM loans which typically
experience higher prepayment rates when long-term interest rates are falling, or
are at historically low levels. BankUnited has purchased a substantial portion
of these loans in the secondary market at a premium.
In an interest rate environment where long-term interest rates are
declining and related mortgage refinancing opportunities are readily available,
prepayments of ARMs and higher rate, fixed-rate mortgages tend to accelerate.
This was the case during the last half of fiscal 1998 and the first half of
fiscal 1999. BankUnited's results of operations for the first quarter of fiscal
year 1999 reflect the accelerated amortization of premiums on purchased loans
and mortgage-backed securities due to such refinancings. As a result of the
increase in prepayments, the amortization of premiums, net of discounts and
deferred origination costs, increased from $1.0 million for the three months
ended December 31, 1997 to $6.1 million for the three months ended December 31,
1998. BankUnited continued to experience high levels of prepayments in the
second quarter of fiscal 1999, the effects of which are included in the $14.8
million charge to write-off the remaining purchase premiums on the One-Year CMT
loan portfolio and to record the continuing accelerated amortization of purchase
premiums on a similar security. In addition, $0.2 million of other amortization
was recorded for a total reduction to income of $15.0 million. During the third
quarter of fiscal 1999, long-term interest rates rose slightly resulting in a
significant decrease in the level of prepayments. As a result of this decline in
prepayments and the reduction in the balance of premiums to amortize in the
second half of fiscal 1999, the amortization of premiums, net of discounts and
deferred origination costs, decreased from $9.5 million for the six months ended
September 30, 1998 to $2.8 million for the six months ended September 30, 1999.
As of September 30, 1999, BankUnited's purchased premiums, net of discounts,
were $3.5 million.
BankUnited has reviewed its practice of purchasing mortgage loans in the
secondary market, particularly ARM loans, and has put increased emphasis on
originating its own loans. Over time, management expects this to mitigate
BankUnited's exposure to the adverse impact accelerated premium amortization can
have on its net interest income. However, with the exception of One-Year CMT ARM
loans, BankUnited continues to purchase residential mortgage loans in the
secondary market.
Investment securities, other than those with early call provisions,
generally do not contain significant imbedded options which results in greater
degree of repayment predictability. While savings and checking deposits
generally may be withdrawn upon customer request without prior notice, 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 varying times and $70
million of these securities may be redeemed through 2016 at a premium. (See Note
13 of 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 BankUnited's advances were obtained through
a convertible advances program that permits the FHLB to convert an advance from
a fixed-rate basis to a floating-rate basis at its discretion. Should the FHLB
elect to exercise this option, BankUnited's cost of funds may be affected
adversely.
INTEREST RATE INDICES. BankUnited's ARM loans and mortgage-backed
securities are primarily indexed to the One Year Constant Maturity Treasury
Index (see "Business--Lending Activities"). 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
54
with the One Year Constant Maturity Treasury Index, 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. Each index is unique, and as such, is
uniquely influenced by various economic and non-economic forces. Therefore,
historical relationships between various indices may not necessarily be
indicative of future relationships.
CAP RISKS AND LAG RISKS. At September 30, 1999 BankUnited's residential
loan portfolio included $1.3 billion of ARMs (43.3% of BankUnited's total loan
portfolio). The ARMs purchased by BankUnited typically have annual interest rate
adjustment caps that limit rate changes to 2% per year. Further, a portion of
these ARMs provide for initial rates of interest which are significantly below
the rates which would prevail were the contractual interest rate index and
margin used for repricing applied initially. Such loans are commonly referred to
as being in their teaser rate period.
In times of rising interest rates, these caps may serve to limit the
increase in interest income generated from certain interest-earning assets.
Conversely, in an environment of falling interest rates, they may reduce the
decline in the Bank'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.
AVAILABILITY OF MORTGAGE LOANS. BankUnited's net income depends
significantly on its ability to acquire mortgage loan assets on acceptable terms
and at favorable spreads over the its borrowing costs. Should BankUnited be
unable to acquire such mortgage loans, its results of operations will be
adversely affected.
In 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 acquisition of eligible
mortgage loans or a diminution in the supply could result in BankUnited having
to pay higher prices 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.
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 acquire a sufficient volume of mortgage loans meeting its criteria,
BankUnited's operating results could be adversely affected.
BankUnited's rate-sensitive liabilities maturing or subject to repricing
within one year exceed its rate-sensitive assets maturing or repricing within
the same period. As of September 30, 1999, this circumstance results in a
negative cumulative one-year gap position of 7.09% of total assets. This
mismatch, when coupled with the deregulation of the restrictions previously
imposed on the types of savings products that financial institutions are
permitted to offer, subjects BankUnited's earnings to change based on
fluctuations in interest rates. In terms of managing interest rate risk, one
method available to management is to attempt to more closely match the repricing
frequencies of the Bank's interest-earning assets to that of its
interest-bearing liabilities.
55
GAP TABLE. The following table sets forth the amount of interest-earning
assets and interest-bearing liabilities outstanding at September 30, 1999, which
are expected to reprice or mature in each of the future time periods shown.
AT SEPTEMBER 30, 1999
----------------------------------------------------------------------------
INTEREST SENSITIVITY PERIOD(1)
----------------------------------------------------------------------------
6 MONTHS 6 MONTHS - OVER 1- OVER 5 - OVER 10-
OR LESS 1 YEAR 5 YEARS 10 YEARS YEARS TOTAL
---------- ------ -------------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Investments, tax certificates,
Federal funds sold, FHLB
overnight deposits and other
interest earning assets, at cost.... $ 237,626 $ 11,486 $ 28,727 $ 2,637 $ 14,737 $ 295,213
Mortgage-backed securities........... 64,837 25,809 112,935 69,675 73,968 347,224
--------- ---------- ---------- ---------- ---------- ----------
Loans:
Adjustable-rate mortgages............ 477,522 325,282 589,606 37,773 798 1,430,981
Fixed-rate mortgages................. 113,867 108,209 737,210 467,650 355,823 1,782,759
Commercial and consumer loans........ 54,160 10,180 14,758 646 61 79,805
--------- ---------- ---------- ---------- ---------- ----------
Total loans........................ 645,549 443,671 1,341,574 506,069 356,682 3,293,545
--------- ---------- ---------- ---------- ---------- ----------
Total interest-earning assets...... $ 948,012 $ 480,966 $1,483,236 $ 578,381 $ 445,387 $3,935,982
========== ========== ========== ========== ========== ==========
Interest-bearing liabilities:
Customer deposits:
Money market and NOW accounts...... $ 25,095 $ 25,095 $ 149,728 $ 18,906 $ - $ 218,824
Passbook accounts.................. 26,566 26,566 212,528 113,843 - 379,503
Certificate accounts............... 557,898 620,479 453,082 360 - 1,631,819
--------- ---------- ---------- ---------- ---------- ----------
Total customer deposits............ 609,559 672,140 815,338 133,109 - 2,230,146
--------- ---------- ---------- ---------- ---------- ----------
Borrowings:
FHLB advances........................ 505,000 125,000 440,000 26,447 - 1,096,447
Senior Notes......................... - - 200,000 - - 200,000
Trust Preferred...................... - - - - 218,500 218,500
Other borrowings..................... 31,701 - - - - 31,701
--------- ---------- ---------- ---------- ---------- ----------
Total borrowings................... 536,701 125,000 640,000 26,447 218,500 1,546,648
--------- ---------- ---------- ---------- ---------- ---------
Total interest-bearing liabilities. $1,146,260 $ 797,140 $1,455,338 $ 159,556 $ 218,500 $3,776,794
========== ========== ========== ========== ========== =========
Derivative instruments affecting
interest rate sensitivity............ $ 225,000 $ - $ - $ - $ - $ 225,000
========= ========== ========== ========== ========== ==========
Total interest-earning assets less
interest-bearing liabilities ("GAP"). $ 26,752 $ (316,174) $ 27,898 $ 418,825 $ 226,887 $ 384,188
========= ========== ========== ========== ========== ==========
Ratio of GAP to total assets............ 0.66% (7.75)% 0.68% 10.27% 5.56% 9.42%
======== ========= ========== ========== ========= ==========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities.................. $ 26,752 $ (289,422) $ (261,524) $ 157,301 $ 384,188
========= ========== ========== ========== ==========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities, as a percentage
of total assets...................... 0.66% (7.09)% (6.41)% 3.86% 9.42%
========= ========== ========== ========== ==========
(1) In preparing the table above, certain assumptions have been made with
regard to the repricing or maturity of certain assets and liabilities.
Assumptions as to prepayments on first and second mortgage loans and
mortgage-backed securities were obtained from prepayment rate tables that
provide assumptions corresponding to recent actual repricing experienced in
the marketplace. Assumptions have also been made with regard to payments on
tax certificates based on historical experience. Money market, NOW and
passbook accounts are assumed to decay based upon duration estimates
determined by management. The rates paid in these accounts, however, 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.
The mortgage prepayment rate tables, deposit decay rates and the historical
assumptions used regarding payments on tax certificates should not be
regarded as indicative of the actual repricing that may be experienced by
BankUnited.
56
In addition to preparing and reviewing periodic gap reports which help
identify repricing mismatches, management uses computer simulations which
estimate the impact on net interest income of various interest rate scenarios,
balance sheet trends and strategies. These simulations cover the following
financial instruments: short-term financial instruments, securities, loans,
deposits, borrowing and off-balance sheet financial instruments. 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. Additionally,
duration and market value sensitivity measures are selectively utilized where
they provide added value to the overall interest rate risk management process.
Based on the information and assumptions in effect on September 30, 1999,
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 4% and 10% 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. For example, the unanticipated prolonged flatness of
the yield curve as well as the volatility in interest rates experienced over the
last six months of fiscal 1998 and the first six months of fiscal 1999 resulted
in accelerated prepayments of loans and a significant reduction in interest
income. This led BankUnited, as part of its restructuring strategy, to
discontinue purchasing in the secondary market One-Year CMT loans to reduce its
exposure to such interest rate risks in future periods. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Restructuring."
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.
57
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.
BankUnited currently utilizes, on a limited basis, derivative financial
instruments designed to reduce the interest rate risks associated with certain
other financial instruments. Specifically, Interest Rate Cap contracts have been
acquired by BankUnited to reduce its exposure to the increased funding costs
that would likely result in an increasing interest rate environment. As was
discussed previously, increased funding costs are not likely to be fully
counterbalanced by an offsetting increase in BankUnited's yield on interest
earning assets. (Refer to Note 18 "Commitments and Contingencies" of the Notes
to Consolidated Financial Statements for further discussion of the Interest Rate
Cap contracts.) The Interest Rate Cap contracts are treated as cash flow hedges
and it is anticipated that any change in their fair value will be substantially
offset by an opposite change in the fair value of the financial instruments
intended to hedge. There can be no assurance, however, of the degree to which
BankUnited will be able to match its short-term, interest-earning assets to its
short-term, interest-bearing liabilities. Neither can there be any assurances of
BankUnited's ability to manage related liquidity risks.
58
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BANKUNITED FINANCIAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants.......................... 60
Consolidated Statements of Financial Condition as of September 30, 1999
and September 30, 1998............................................... 61
Consolidated Statements of Operations for the Years Ended
September 30, 1999, 1998 and 1997.................................... 62
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 1999, 1998 and 1997.................................... 63
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1999, 1998 and 1997.................................... 66
Notes to Consolidated Financial Statements.................................. 68
59
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, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 1999,
in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of BankUnited's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
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 the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Miami, Florida
October 21, 1999
60
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30,
-------------------------------
1999 1998
------------ -------------
(dollars in thousands)
ASSETS:
Cash.................................................................................... $ 26,123 $ 26,243
Federal Home Loan Bank overnight deposits............................................... 50,412 65,268
Securities purchased under agreements to resell......................................... 150,000 -
Tax certificates (net of reserves of $1,168 and $469 at September 30, 1999 and 1998,
respectively)......................................................................... 14,815 40,007
Investments held to maturity (market value of approximately $4,984 and $14,699 at
September 30, 1999 and 1998, respectively)............................................ 5,058 14,542
Investments available for sale, at market............................................... 20,001 23,661
Mortgage-backed securities, held to maturity (market value of approximately $198,785
and $143,505 at September 30, 1999 and 1998, respectively)............................ 202,839 146,146
Mortgage-backed securities available for sale, at market................................ 144,385 199,610
Loans receivable, net................................................................... 2,899,231 2,869,604
Mortgage loans held for sale (market value of approximately $403,785 and $179,503
at September 30, 1999 and 1998, respectively)........................................ 403,635 172,410
Other interest earning assets........................................................... 54,927 51,313
Office properties and equipment, net.................................................... 15,644 14,198
Real estate owned....................................................................... 3,548 1,974
Accrued interest receivable............................................................. 24,768 32,864
Mortgage servicing rights............................................................... 7,820 8,917
Goodwill................................................................................ 31,465 32,106
Prepaid expenses and other assets....................................................... 23,800 39,520
------------ -------------
TOTAL ASSETS.......................................................................... $ 4,078,471 $ 3,738,383
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Deposits................................................................................ $ 2,279,798 $ 2,124,824
Securities sold under agreements to repurchase.......................................... 31,701 121,148
Advances from Federal Home Loan Bank.................................................... 1,096,447 1,021,466
Senior notes............................................................................ 200,000 -
Company obligated mandatorily redeemable trust preferred securities of subsidiary trust
holding solely junior subordinated deferrable interest debentures of BankUnited....... 218,500 218,500
Interest payable (primarily on deposits and advances from Federal Home Loan Bank)....... 10,205 7,825
Advance payments by borrowers for taxes and insurance................................... 19,616 12,645
Accrued expenses and other liabilities.................................................. 32,067 32,683
------------ -------------
TOTAL LIABILITIES..................................................................... 3,888,334 3,539,091
------------ -------------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 18)
STOCKHOLDERS' EQUITY:
Preferred stock, Series B and Series 9%, $0.01 par value.
Authorized shares--10,000,000; issued and outstanding shares - 992,938 and
926,697 at September 30, 1999 and 1998, respectively.................................. 10 9
Class A Common Stock, $0.01 par value. Authorized shares--30,000,000 at
September 30, 1999 and 1998; issued shares - 18,049,430 and 17,816,213
at September 30, 1999 and 1998, respectively; outstanding shares - 17,866,430
and 17,816,213 at September 30, 1999 and 1998, respectively........................... 180 178
Class B Common Stock, $0.01 par value. Authorized shares--3,000,000; issued and
outstanding shares - 458,467 and 331,743 at September 30, 1999 and 1998,
respectively......................................................................... 5 3
Additional paid-in capital.............................................................. 181,335 178,777
Retained earnings....................................................................... 14,081 18,448
Treasury stock, 183,000 shares of Class A Common Stock, at cost......................... (1,684) -
Accumulated other comprehensive (loss) income, net of tax............................... (3,790) 1,877
------------- ------------
TOTAL STOCKHOLDERS' EQUITY............................................................ 190,137 199,292
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..........................................$ 4,078,471 $ 3,738,383
============== =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
61
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30:
----------------------------------------------
1999 1998 1997
---------- ---------- ----------
(dollars in thousands, except per share data)
Interest income:
Interest and fees on loans................................................ $ 199,704 $ 177,252 $ 94,655
Interest on mortgage-backed securities.................................... 18,493 16,588 7,035
Interest on short-term investments........................................ 7,590 5,013 1,613
Interest and dividends on long-term investments and other
interest-earning assets................................................. 7,763 8,714 5,471
-------- -------- --------
Total interest income................................................... 233,550 207,567 108,774
-------- -------- --------
Interest expense:
Interest on deposits...................................................... 106,655 93,431 50,136
Interest on borrowings.................................................... 59,706 57,160 19,351
Preferred dividends of Trust Subsidiary................................... 21,154 16,952 6,473
-------- -------- ---------
Total interest expense.................................................. 187,515 167,543 75,960
-------- -------- --------
Net interest income before provision for loan losses.................... 46,035 40,024 32,814
Provision for loan losses........................................................ 7,939 1,700 1,295
-------- -------- --------
Net interest income after provision for loan losses..................... 38,096 38,324 31,519
-------- -------- --------
Non-interest income:
Service fees, net......................................................... 3,785 1,139 2,993
Net (loss) gain on sale of loans, mortgage-backed securities
and other assets........................................................ (4) 4,435 820
Other ................................................................... 1,019 651 247
-------- -------- --------
Total non-interest income............................................... 4,800 6,225 4,060
-------- -------- --------
Non-interest expenses:
Employee compensation and benefits........................................ 15,970 10,943 8,880
Occupancy and equipment................................................... 8,029 4,854 3,568
Insurance................................................................. 1,683 1,185 948
Professional fees--legal and accounting................................... 3,084 1,891 1,605
Telecommunications and data processing.................................... 2,688 1,997 1,536
Loan servicing expense.................................................... 6,433 5,313 1,796
Real estate owned operations.............................................. 152 82 301
Advertising and promotion expense......................................... 1,430 1,486 814
Amortization of goodwill.................................................. 1,555 1,070 683
Other operating expenses.................................................. 7,369 3,362 2,816
-------- -------- --------
Total non-interest expenses............................................. 48,393 32,183 22,947
-------- -------- --------
(Loss) income before income taxes and preferred stock dividends......... (5,497) 12,366 12,632
(Benefit) provision for income taxes............................................. (1,903) 5,009 5,033
-------- -------- --------
Net (loss) income before preferred stock dividends...................... (3,594) 7,357 7,599
Preferred stock dividends........................................................ 773 897 2,890
-------- -------- --------
Net (loss) income after preferred stock dividends....................... $ (4,367) $ 6,460 $ 4,709
========= ========= ==========
Basic (loss) earnings per share.................................................. $ (0.24) $ 0.41 $ 0.57
========= ========= ==========
Diluted (loss) earnings per share................................................ $ (0.24) $ 0.39 $ 0.54
========= ========= ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
62
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
--------------------------------------------------------------------------
CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK
----------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- ------- -----------
(dollars in thousands)
BALANCE AT SEPTEMBER 30, 1996.............. 2,664,547 $ 27 5,454,201 $ 54 251,515 $ 3
Comprehensive income:
Net income for the year ended
September 30, 1997.................. - - - - - -
Payments of dividends on the
BankUnited's Preferred Stock........ - - - - - -
Other comprehensive income, net of tax - - - - - -
Total comprehensive income..........
Issuance of Class A and Class B
Common Stock.......................... - - 40,357 - 24,423 -
Conversion of Preferred Stock
to Common Class A..................... (973,568) (10) 1,470,359 13 - -
Conversion of Common Class B
to Common Class A..................... - - 253 - (253) -
Preferred Stock, Series 9%
tender offer.......................... (448,583) (4) - - - -
Issuance of Stock in connection
with the Suncoast acquisition......... 920,000 9 2,199,730 22 - -
Stock options and warrants exercised.... 12,900 - 89,004 - - -
Common stock issued through
preferred stock dividends............. - - 3,194 3 - -
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1997.............. 2,175,296 22 9,257,098 92 275,685 3
Comprehensive income:
Net income for the year ended
September 30, 1998.................. - - - - - -
Payments of dividends on the
BankUnited's Preferred Stock........ - - - - - -
Other comprehensive income, net of tax - - - - - -
Total comprehensive income..........
Issuance of Class A and Class B
Common Stock.......................... - - 35,477 - 3,541 -
Conversion of Preferred Stock
to Common Class A..................... (1,290,061) (13) 1,614,104 16 - -
Issuance of Series B Preferred Stock.... 20,762 - - - - -
Preferred Stock, Series 9%
tender offer.......................... (4,300) - - - - -
Underwritten public offering and direct
offering of BankUnited's Class A
and Class B Common Stock and
Series B Preferred Stock, net......... 25,000 - 4,761,500 48 30,000 -
Issuance of Stock in connection with the
Consumers Bancorp acquisition......... - - 562,508 6 - -
Issuance of Stock in connection with the
Central Bank acquisition.............. - - 1,386,000 14 - -
Stock options and warrants exercised.... - - 195,584 2 22,517 -
Common stock issued through
preferred stock dividends............. - - 3,942 - - -
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1998.............. 926,697 9 17,816,213 178 331,743 3
Comprehensive loss:
Net loss for the year ended
September 30, 1999.................. - - - - - -
Payments of dividends on the
BankUnited's Preferred Stock........ - - - - - -
Other comprehensive loss, net of tax.. - - - - - -
Total comprehensive loss............
Issuance of Series B Preferred Stock.... 26,241 - - - - -
Issuance of Class A and Class B
Common Stock.......................... - - 64,176 1 811 -
Conversion of Class B to Class A
Common Stock.......................... - - 97,048 1 (97,048) (1)
Purchase of Class A Common Stock........ - - (183,000) - - -
Stock options and warrants exercised.... 40,000 1 58,984 - 222,961 3
Common stock issued through
preferred stock dividends............. - - 13,009 - - -
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1999.............. 992,938 $ 10 17,866,430 $ 180 458,467 $ 5
=========== ========= =========== ========= =========== ===========
(CONTINUED ON NEXT PAGE)
63
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (CONTINUED)
ACCUMULATED OTHER
COMPREHENSIVE TOTAL
PAID-IN RETAINED TREASURY INCOME (LOSS), STOCKHOLDERS'
CAPITAL EARNINGS STOCK NET OF TAX EQUITY
-------------- ------------- ------------- -------------- -------------
(dollars in thousands)
BALANCE AT SEPTEMBER 30, 1996.............. $ 62,055 $ 7,279 $ - $ (307) $ 69,111
Comprehensive income:
Net income for the year ended
September 30, 1997.................. - 7,599 - - 7,599
Payments of dividends on the
BankUnited's Preferred Stock........ - (2,890) - - (2,890)
Other comprehensive income, net of tax - - - 1,168 1,168
-------------
Total comprehensive income.......... 5,877
Issuance of Class A and Class B
Common Stock.......................... 501 - - - 501
Conversion of Preferred Stock
to Common Class A..................... (3) - - - -
Conversion of Common Class B
to Common Class A..................... - - - - -
Preferred Stock, Series 9%
tender offer.......................... (4,481) - - - (4,485)
Issuance of Stock in connection
with the Suncoast acquisition......... 27,781 - - - 27,812
Stock options and warrants exercised.... 794 - - - 794
Common stock issued through
preferred stock dividends............. 32 - - - 35
-------------- ------------- ------------- ------------- -------------
BALANCE AT SEPTEMBER 30, 1997.............. 86,679 11,988 - 861 99,645
Comprehensive income:
Net income for the year ended
September 30, 1998.................. - 7,357 - - 7,357
Payments of dividends on the
BankUnited's Preferred Stock........ - (897) - - (897)
Other comprehensive income, net of tax - - - 1,016 1,016
-------------
Total comprehensive income.......... 7,476
Issuance of Class A and Class B
Common Stock.......................... 237 - - - 237
Conversion of Preferred Stock
to Common Class A..................... (463) - - - (460)
Issuance of Series B Preferred Stock.... 398 - - 398
Preferred Stock, Series 9%
tender offer.......................... (43) - - - (43)
Underwritten public offering and direct
offering of BankUnited's Class A
and Class B Common Stock and Series B
Preferred Stock, net.................. 59,055 - - - 59,103
Issuance of Stock in connection
with the Consumers Bancorp
acquisition........................... 7,647 - - - 7,653
Issuance of Stock in connection
with the Central Bank acquisition..... 22,769 - - - 22,783
Stock options and warrants exercised.... 2,438 - - - 2,440
Common stock issued through
preferred stock dividends............. 60 - - - 60
-------------- ------------- ------------- ------------- -------------
BALANCE AT SEPTEMBER 30, 1998.............. 178,777 18,448 - 1,877 199,292
Comprehensive loss:
Net loss for the year ended
September 30, 1999.................. - (3,594) - - (3,594)
Payments of dividends on the
BankUnited's Preferred Stock........ - (773) - - (773)
Other comprehensive loss, net of tax.. - - - (5,667) (5,667)
-------------
Total comprehensive loss............ (10,034)
Issuance of Series B Preferred Stock.. 111 - - - 111
Issuance of Class A and Class B
Common Stock........................ 325 - - - 326
Conversion of Class B to Class A
Common Stock........................ - - - - -
Purchase of Class A Common Stock...... - - (1,684) - (1,684)
Stock options and warrants exercised.. 2,007 - - - 2,011
Common stock issued through
preferred stock dividends........... 115 - - - 115
------------- ------------ ------------ ------------ -------------
BALANCE AT SEPTEMBER 30, 1999.............. $ 181,335 $ 14,081 $ (1,684) $ (3,790) $ 190,137
============= ============ ============= ============= =============
(CONTINUED ON NEXT PAGE)
64
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
The beginning balance at September 30, 1996 of each series of BankUnited's
preferred stock was as follows:
SHARES AMOUNT
------------- ------------
(dollars in thousands)
Series B........................................................................... 183,818 $ 2
Series C........................................................................... 363,636 4
Series C-II........................................................................ 222,223 2
Series 1993........................................................................ 744,870 7
Series 9%.......................................................................... 1,150,000 12
------------- -------------
Total.............................................................................. 2,664,547 $ 27
============= =============
The ending balance at September 30, 1999 of each series of BankUnited's
preferred stock was as follows:
SHARES AMOUNT
------------- ------------
(dollars in thousands)
Series B........................................................................... 295,821 $ 3
Series 9%.......................................................................... 697,117 7
------------- -------------
Total.............................................................................. 992,938 $ 10
============= =============
The following table presents additional information concerning BankUnited's
other comprehensive (loss) income:
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1999 1998 1997
------------- ------------- -------------
(dollars in thousands)
Other comprehensive (loss) income, net of tax:
Unrealized holding (losses) gains arising during the period......... $ (5,698) $ 1,278 $ 1,341
Less reclassification adjustments for:
Amortization of unrealized losses on transferred securities....... 31 - -
Realized gains on securities sold included in net (loss) income .. - (262) (173)
----------- ----------- -----------
Total other comprehensive (loss) income, net of tax................... $ (5,667) $ 1,016 $ 1,168
============ ============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
65
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1999 1998 1997
------------- ------------- -------------
(in thousands)
Cash flows from operating activities:
Net (loss) income..................................................... $ (3,594) $ 7,357 $ 7,599
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Provision for loan losses......................................... 7,939 1,700 1,295
Provision (credit) for losses on tax certificates................. 1,147 (166) 84
Depreciation and amortization..................................... 3,243 1,633 1,320
Amortization (accretion) of fees, discounts and premiums.......... 24,358 11,449 (431)
Amortization of mortgage servicing rights......................... 1,471 2,236 931
Amortization of goodwill.......................................... 1,555 1,070 683
Amortization of unrealized losses on transferred
mortgage-backed securities..................................... 50 - -
Net (gain) loss on sale of loans and mortgage-backed securities..... 5 (4,429) (819)
Net (gain) loss on sale of real estate owned........................ (154) (39) 236
Loans originated for sale........................................... (140,399) (312,749) (28,467)
Proceeds from sale of loans......................................... 23,559 177,504 39,890
Decrease (increase) in accrued interest receivable.................. 8,096 (15,506) (6,285)
Increase in interest payable on deposits and FHLB advances.......... 2,380 3,523 1,142
Decrease in accrued taxes........................................... (1,224) (9,418) (1,062)
Increase (decrease) in other liabilities............................ 3,359 20,228 (18,818)
Decrease (increase) in prepaid expenses and other assets............ 16,442 (17,475) (1,635)
Proceeds from sale of mortgage servicing rights..................... - - 4,215
Purchase of mortgage servicing rights............................... - (678) -
Other, net.......................................................... 2,628 (2,523) 712
------------- ------------- -------------
Net cash (used in) provided by operating activities............... (49,139) (136,283) 590
------------- ------------- -------------
Cash flows from investing activities:
Net increase in loans................................................. (180,260) (1,392,617) (792,501)
Purchase of investment securities..................................... (3,915) (15,363) (22,144)
Purchase of mortgage-backed securities................................ (185,786) (118,336) (56,499)
Purchase of other earning assets...................................... (49,649) (46,325) (32,300)
Proceeds from repayments of investment securities..................... 15,300 22,323 4,051
Proceeds from repayments of mortgage-backed securities................ 173,653 264,164 19,345
Proceeds from repayments of other earning assets...................... 46,035 29,423 14,176
Proceeds from sale of investment securities........................... - - 126
Proceeds from sale of mortgage-backed securities...................... - 15,572 7,653
Proceeds from sale of real estate owned............................... 4,542 1,225 2,257
Purchase of office properties and equipment........................... (4,689) (8,140) (1,980)
Sale of office properties and equipment............................... - 23 1,364
Capitalized cost for loan securities.................................. - (581) -
Net decrease (increase) in tax certificates........................... 24,045 9,276 (9,278)
Cash and cash equivalents of Suncoast at date of acquisition.......... - - 32,803
Purchase of Consumers, net of acquired cash equivalents............... - 8,098 -
Cash and cash equivalents of Central at date of acquisition........... - 18,170 -
------------- ------------- -------------
Net cash used in investing activities............................... $ (160,724) $ (1,213,088) $ (832,927)
------------- ------------- -------------
(CONTINUED ON NEXT PAGE)
66
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1999 1998 1997
------------- ------------- -------------
(in thousands)
Cash flows from financing activities:
Net increase in deposits.............................................. $ 154,974 $ 774,720 $ 366,049
Net increase in Federal Home Loan Bank advances....................... 74,981 341,982 382,984
Net increase in other borrowings...................................... 110,553 74,199 30,000
Capitalized costs for senior notes.................................... (2,261) - -
Decrease in subordinated notes........................................ - - (775)
Net proceeds from issuance of trust preferred securities.............. - 98,913 111,456
Net proceeds from issuance (redemption) of stock...................... 2,011 60,523 (3,157)
Purchase of BankUnited's Class A Common Stock......................... (1,684) - -
Dividends paid on BankUnited's preferred stock........................ (658) (837) (2,855)
Increase in advances from borrowers for taxes and insurance........... 6,971 1,398 4,483
------------- ------------- -------------
Net cash provided by financing activities........................... 344,887 1,350,898 888,185
------------- ------------- -------------
Increase in cash and cash equivalents........................................ 135,024 1,527 55,848
Cash and cash equivalents at beginning of year............................... 91,511 89,984 34,136
------------- ------------- -------------
Cash and cash equivalents at end of year..................................... $ 226,535 $ 91,511 $ 89,984
============= ============= =============
Supplemental disclosure of non-cash investing and financing activities:
Interest paid on deposits and borrowings.............................. $ 185,136 $ 163,561 $ 73,385
Income taxes paid..................................................... $ - $ 3,884 $ 3,390
Transfers from loans to real estate owned............................. $ 7,519 $ 2,226 $ 2,296
Securitization of loans receivable.................................... $ - $ 355,469 $ -
Transfer of loans from a mortgage-backed security .................... $ 14,600 $ - $ -
Transfer of loans from held for sale to portfolio..................... $ 73,825 $ - $ -
Transfer of loans from portfolio to held for sale..................... $ 288,319 $ - $ -
Transfer of mortgage-backed securities from available for sale to
held to maturity.................................................... $ 156,370 $ - $ -
Issuance of Class A Common Stock upon conversion of
preferred stock..................................................... $ - $ 460 $ -
Issuance of Class A Common Stock in connection with bank
acquisitions........................................................ $ - $ 30,436 $ 27,812
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
67
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of BankUnited Financial Corporation
("BankUnited") and subsidiaries conform to generally accepted accounting
principles and to general practices within the savings and loan industry.
Presented below is a description of BankUnited and its 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 West Florida. The Bank is subject to the regulations
of certain federal agencies and undergoes periodic examinations by those
regulatory authorities. All significant intercompany transactions and balances
have been eliminated.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. 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.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance for loan
losses and the allowance for losses on tax certificates, 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. Premiums on purchased loans are
amortized based, in part, on management's estimate of future prepayment rates.
If actual prepayments exceed these estimates, premium amortization is increased
through charges to interest income in the period the excess prepayments occur.
In connection with real estate owned, management obtains independent appraisals
for properties.
(B) CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, cash and cash equivalents
include cash, Federal Home Loan Bank overnight deposits, and securities
purchased under agreement to resell with original maturities of three months or
less.
(C) MORTGAGE-BACKED SECURITIES AND INVESTMENTS
Mortgage-backed securities and other investments available for sale are
carried at fair value (market 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
(loss) income net of applicable deferred 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.
Tax certificates are considered investments held to maturity and,
accordingly, are carried at cost less a valuation allowance. Interest is accrued
on tax certificates until payoff or until deemed uncollectible. When deemed
uncollectible, accrued but uncollected interest is reversed. Applicable law
permits application for tax deeds to be applied for two years after the
effective date of the acquisition of the tax certificate. Tax deeds applied for
are carried at the cost of the tax certificates, adjusted for accrued interest.
Tax deeds applied for carry an annual interest rate of 18%.
(D) ALLOWANCE FOR LOAN LOSSES
A provision for losses on loans is charged to operations when, in
management's opinion, the collectibility of the balances is doubtful and the
carrying value is greater than the fair value, net of selling costs, of
collateral dependent loans or the estimated
68
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
net realizable value of other loans. The provision is based upon a review of the
nature, volume, delinquency status and inherent risk of the loan portfolio in
relation to the allowance for loan losses.
Management believes that the allowance for loan losses is adequate. While
management uses 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 additions to the allowance based on their judgments
about information available to them at the time of their examination.
BankUnited's non-accrual policy provides that all loans are placed on
non-accrual status when they are more than 90 days past due as to either
principal or interest. Loans are returned to accrual status when they become
less than 90 days delinquent.
(E) 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.
(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 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
amortization is increased 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 in the Community Reinvestment Group. 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 nonaccrual status, previously accrued and uncollected
interest is reversed against interest income in the current period.
69
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
(J) REAL ESTATE OWNED
Property acquired through foreclosure or deed in lieu of foreclosure is
recorded 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 when the property is classified as
real estate owned. 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.
(K) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, assets to be disposed of and certain identifiable
intangibles, such as mortgage servicing rights, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. In performing the review for recoverability,
BankUnited estimates the future cash flows expected to result from the use of
the asset and its eventual disposition. If the sum of the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment is recognized.
(L) GOODWILL
Goodwill is amortized on a straight-line basis over its estimated
beneficial life of 10 to 25 years. Goodwill is evaluated by management for
impairment on an annual basis based upon undiscounted cash flows of the related
net assets acquired.
(M) 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.
(N) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share is computed on the weighted
average number of common shares outstanding during the year. Earnings (loss) 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.
(O) STOCK OPTIONS
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. (See Note 16.)
70
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
(P) IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" ("SFAS No. 130"), which
requires that an enterprise report, by major components and as a single total,
the change in its net assets during the period from non-owner sources.
BankUnited adopted the provisions of SFAS No. 130 during the first quarter of
fiscal 1999. As the requirements of SFAS No. 130 are disclosure-related, its
implementation had no impact on BankUnited's financial position or results of
operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which requires public companies 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. BankUnited adopted the provisions of SFAS No. 131 during the first
quarter of fiscal 1999. As the requirements of SFAS No. 131 are
disclosure-related, its implementation has no impact on BankUnited's financial
position or results of operations. 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.
In October 1998, the FASB issued Statement of Financial Accounting
Standards No. 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise"
("SFAS No. 134") which applies to mortgage banking enterprises and other
entities conducting similar operations. SFAS No. 134 requires that securities
retained after a securitization of loans held for sale be accounted for in
accordance with SFAS No. 115, unless the entity has entered into a commitment to
sell the retained securities before or during the securitization process. Such
securities would be classified as trading. SFAS No. 134 is effective for the
first fiscal quarter beginning after December 15, 1998. The adoption of SFAS No.
134 is reflected in the financial statements and has not had, and is not
expected to have, a material impact on BankUnited's financial position or
results of operations.
In June 1999, the FASB issued Statement of Financial Accounting Standards
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133." This statement delays
the effective date of FASB Statement No. 133," Accounting for Derivative
Instruments and Hedging Activities" to all fiscal quarters of all fiscal years
beginning after June 15, 2000. Management does not expect the adoption of this
Statement for its current derivative instruments to have any material effect on
BankUnited's financial position or results of operations.
(Q) FINANCIAL STATEMENT RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
September 30, 1999 consolidated financial statements.
71
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(2) EARNINGS (LOSS) PER SHARE
Earnings (loss) per common share is calculated as follows:
FOR THE YEARS ENDED
SEPTEMBER 30,
-------------------------------
1999 1998 1997
-------- --------- ---------
(in thousands, except
per share amounts)
BASIC (LOSS) EARNINGS PER SHARE:
Numerator:
Net (loss) income after preferred stock dividends................................... $ (4,367) $ 6,460 $ 4,709
======== ========= =========
Denominator:
Weighted average common shares outstanding.......................................... 18,313 15,693 8,211
======== ========= =========
Basic (loss) earnings per share....................................................... $ (0.24) $ 0.41 $ 0.57
======== ========= =========
DILUTED (LOSS) EARNINGS PER SHARE:
Numerator:
Net (loss) income after preferred stock dividends................................... $ (4,367) $ 6,460 $ 4,709
Plus:
Reduction of preferred stock dividends............................................ - 111 217
-------- --------- ---------
Diluted net (loss) income available to common stock................................. $ (4,367) $ 6,571 $ 4,926
======== ========= =========
Denominator:
Weighted average common shares outstanding.......................................... 18,313 15,693 8,211
Plus:
Number of common shares from the conversion of options and warrants(1)............ - 655 468
Number of common shares from the conversion of dilutive preferred stock(2)........ - 319 469
-------- --------- ---------
Diluted weighted average shares outstanding......................................... 18,313 16,667 9,148
======== ========= =========
Diluted (loss) earnings per share..................................................... $ (0.24) $ 0.39 $ 0.54
======== ========= =========
(1) For the year ended September 30, 1999 there were 345,000 common stock
equivalent shares of dilutive options that were not included in the
computation of diluted earnings per share because of their
antidilutive effect.
(2) For the years ended September 30, 1999, 1998 and 1997 there were
378,000, 233,000 and 2,040,000, respectively, of common stock
equivalent shares of convertible preferred stock that were not
included in the computation of diluted earnings per share because of
their antidilutive effect.
72
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(3) ACQUISITIONS
On November 15, 1996, BankUnited acquired Suncoast Savings & Loan
Association, FSA ("Suncoast"). BankUnited issued one share of its Class A Common
Stock for each share of Suncoast common stock of which 2,199,930 were
outstanding and one share of newly created 8% Noncumulative Convertible
Preferred Stock, Series 1996 for each share of Suncoast preferred stock of which
920,000 shares were outstanding. The 8% Noncumulative Convertible Preferred
Stock, Series 1996 had substantially the same terms and conditions as the
Suncoast preferred stock. The cost of the acquisition, which was accounted for
as a purchase, was $27.8 million, representing the fair value of the
consideration given to the Suncoast common and preferred stockholders as well as
the option and warrant holders. In addition, BankUnited incurred approximately
$1.3 million of costs directly related to the merger. The balance sheet and
results of operations of Suncoast have been included with those of BankUnited as
of and for periods subsequent to November 15, 1996.
As part of the purchase of Suncoast, BankUnited issued warrants to
Suncoast's warrant holders to purchase 80,000 shares of 8% Noncumulative
Convertible Preferred Stock, Series 1996, and assumed Suncoast's outstanding
stock options. The warrants were exercisable to purchase one share of the 8%
Noncumulative Convertible Preferred Stock, Series 1996 at a per share price of
$18.00, or to purchase 1.68595 shares, subject to adjustment, of Class A Common
Stock at a per share price of $10.68, also subject to adjustment under certain
conditions. A total of 42,655 warrants were converted into 71,259 shares of
Class A Common Stock during June 1998. The 5,545 warrants which remained
unexercised after July 9, 1998 expired pursuant to the terms of the warrant
agreements.
At the date of acquisition, the fair value of the assets and liabilities
acquired from Suncoast were as follows (in thousands):
Cash and cash equivalents...........................................................................$ 32,804
Loans receivable, net............................................................................... 341,394
Mortgage-backed securities.......................................................................... 18,672
Goodwill............................................................................................ 11,643
Other assets........................................................................................ 34,930
Deposits............................................................................................ (323,737)
FHLB advances....................................................................................... (51,500)
Other liabilities................................................................................... (36,394)
------------
Net purchase price..................................................................................$ 27,812
============
The unaudited proforma combined condensed statement of operations for the
year ended September 30, 1997 after giving effect to certain proforma
adjustments, is as follows (in thousands, except per share data):
Interest income..................................................................$ 112,642
Interest expense................................................................. 78,268
Provision for loan losses........................................................ 1,401
Non-interest income.............................................................. 4,714
Non-interest expense............................................................. 24,770
Income tax expense............................................................... 5,166
-------------
Net income before preferred stock dividends...................................... 7,751
Preferred stock dividends........................................................ 3,028
-------------
Net income after preferred stock dividends.......................................$ 4,723
=============
Earnings per share
Basic............................................................................$ 0.53
Diluted..........................................................................$ 0.52
The proforma combined condensed statement of operations assumes the
acquisition occurred as of October 1, 1996.
73
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(3) ACQUISITIONS - (CONTINUTED)
On January 23, 1998, BankUnited acquired Consumers Bancorp, Inc.
("Consumers") for approximately $12 million in a combination of cash and stock
and merged its wholly-owned subsidiary, Consumers Savings Bank, which had assets
of $104.4 million and deposits of $88.3 million as of January 23, 1998, into the
Bank. The acquisition was accounted for as a purchase and resulted in goodwill
of approximately $5.6 million. This acquisition did not have a material impact
on the financial condition or results of operations of BankUnited.
On June 19, 1998, BankUnited acquired Central Bank ("Central"), for
1,386,000 shares of BankUnited's Class A Common Stock, and merged Central, which
had assets of $93.9 million and deposits of $65.9 million as of June 19, 1998
into the Bank. The acquisition was accounted for as a purchase and resulted in
goodwill of approximately $12.8 million. This acquisition did not have a
material impact on the financial condition or results of operations of
BankUnited.
(4) TAX CERTIFICATES
Tax certificates are certificates representing delinquent real estate taxes
owed to the respective counties. A substantial percentage of tax certificates
are for properties located in southeast Florida. BankUnited's policy was to
purchase tax certificates only for properties located in Florida. As a result of
the review of interest earning assets in the second quarter of fiscal 1999, the
decision was made to discontinue purchasing tax certificates.
The net carrying value of tax certificates was $14.8 million and $40.0
million at September 30, 1999 and 1998, respectively. Included in these amounts
at September 30, 1999 and 1998 were $2.6 million and $0.2 million, respectively,
of tax certificates for which BankUnited had made application for tax deeds.
BankUnited maintains loss reserves for tax certificates which were $1.2 million
and $469,000 at September 30, 1999 and 1998, respectively.
(5) SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Interest income from securities purchased under agreements to resell
aggregated approximately $6.1 million and $2.5 million for the years ended
September 30, 1999 and 1998, respectively.
The following sets forth information concerning BankUnited's securities
purchased under agreements to resell for the periods indicated:
AS OF AND FOR
THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1999 1998 1997
------------- ------------ ------------
(dollars in thousands)
Maximum amount of outstanding agreements at any month end
during the period......................................................$ 370,000 $ 95,032 $ -
Average amount outstanding during the period.............................$ 122,879 $ 44,009 $ -
Weighted average interest rate for the period............................ 5.08% 5.56% -
Maturity................................................................. less than or - -
equal to
30 days
74
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(6) INVESTMENTS AND MORTGAGE-BACKED SECURITIES
INVESTMENTS
Presented below is an analysis of the carrying values and approximate
market values of investments held to maturity.
SEPTEMBER 30, 1999
---------------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
----------- ----------- ---------- -----------
(dollars in thousands)
U.S. government agency securities............................. $ 4,997 $ - $ (74) $ 4,923
State of Israel Bonds......................................... 61 - - 61
----------- ----------- ---------- -----------
Total....................................................... $ 5,058 $ - $ (74) $ 4,984
=========== =========== ========== ===========
SEPTEMBER 30, 1998
---------------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
----------- ------------ ---------- -----------
(dollars in thousands)
U.S. government agency securities............................. $ 14,481 $ 157 $ - $ 14,638
State of Israel Bonds......................................... 61 - - 61
----------- ----------- ----------- -----------
Total....................................................... $ 14,542 $ 157 $ - $ 14,699
=========== =========== =========== ===========
All investments held to maturity at September 30, 1999 and 1998 had
maturities between one and five years.
Presented below is analysis of the investments designated as available for
sale.
SEPTEMBER 30, 1999
---------------------------------------------------------
GROSS GROSS
HISTORICAL UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
(dollars in thousands)
U.S. Treasury notes........................................... $ 503 $ 1 $ - $ 504
U.S. government agency securities............................. 2,104 15 (8) 2,111
Equity securities............................................. 2,905 - (199) 2,706
Trust preferred securities of other issuers................... 16,327 - (1,647) 14,680
----------- ----------- ---------- -----------
Total....................................................... $ 21,839 $ 16 $ (1,854) $ 20,001
=========== =========== ========== ===========
75
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(6) INVESTMENTS AND MORTGAGE-BACKED SECURITIES - (CONTINUED)
SEPTEMBER 30, 1998
---------------------------------------------------------
GROSS GROSS
HISTORICAL UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
(dollars in thousands)
U.S. Treasury notes........................................... $ 2,821 $ 18 $ - $ 2,839
U.S. government agency securities............................. 5,316 45 - 5,361
Trust preferred securities of other issuers................... 15,681 183 (403) 15,461
----------- ----------- ---------- -----------
Total....................................................... $ 23,818 $ 246 $ (403) $ 23,661
=========== =========== ========== ===========
MORTGAGE-BACKED SECURITIES
The carrying value and market value of mortgage-backed securities held to
maturity are summarized as follows:
SEPTEMBER 30, 1999
---------------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
(dollars in thousands)
GNMA mortgage-backed securities............................... $ 39,244 $ 59 $ (168) $ 39,135
FNMA mortgage-backed securities............................... 1,915 - (23) 1,892
FHLMC mortgage-backed securities.............................. 72,566 2 (1,202) 71,366
Collateralized mortgage obligations........................... 63,189 - (2,740) 60,449
Mortgage pass-through certificates............................ 25,925 45 (27) 25,943
----------- ----------- ---------- -----------
Total....................................................... $ 202,839 $ 106 $ (4,160) $ 198,785
=========== =========== ========== ===========
SEPTEMBER 30, 1998
---------------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
(dollars in thousands)
GNMA mortgage-backed securities............................... $ 59 $ 4 $ - $ 63
FHLMC mortgage-backed securities.............................. 1,731 - (13) 1,718
Collateralized mortgage obligations........................... 6,165 193 - 6,358
Mortgage pass-through certificates............................ 138,191 - (2,825) 135,366
----------- ----------- ---------- -----------
Total....................................................... $ 146,146 $ 197 $ (2,838) $ 143,505
=========== =========== ========== ===========
The carrying value and historical cost of mortgage-backed securities
available for sale are summarized as follows:
SEPTEMBER 30, 1999
---------------------------------------------------------
GROSS GROSS
HISTORICAL UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
(dollars in thousands)
GNMA mortgage-backed securities............................... $ 32,543 $ 179 $ (391) $ 32,331
FNMA mortgage-backed securities............................... 5,396 40 (116) 5,320
FHLMC mortgage-backed securities.............................. 16,949 11 (110) 16,850
Collateralized mortgage obligations........................... 88,268 92 (1,552) 86,808
Mortgage pass-through certificates............................ 3,072 4 - 3,076
----------- ----------- ---------- -----------
Total....................................................... $ 146,228 $ 326 $ (2,169) $ 144,385
=========== =========== ========== ===========
76
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(6) INVESTMENTS AND MORTGAGE-BACKED SECURITIES - (CONTINUED)
SEPTEMBER 30, 1998
---------------------------------------------------------
GROSS GROSS
HISTORICAL UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
(dollars in thousands)
GNMA mortgage-backed securities............................... $ 56,168 $ 1,288 $ (91) $ 57,365
FNMA mortgage-backed securities............................... 26,618 213 (262) 26,569
FHLMC mortgage-backed securities.............................. 78,236 1,183 (209) 79,210
Collateralized mortgage obligations........................... 30,770 1,044 - 31,814
Mortgage pass-through certificates............................ 4,634 18 - 4,652
----------- ----------- ---------- -----------
Total....................................................... $ 196,426 $ 3,746 $ (562) $ 199,610
=========== =========== ========== ===========
The mortgage-backed securities have contractual maturities which range from
the years 1999 to 2029, however, expected maturities will differ from
contractual maturities as borrowers have the right to prepay obligations.
During the fourth quarter of fiscal 1999, BankUnited transferred $158.9
million in mortgage-backed securities, with an aggregate market value of $156.4
million at the date of transfer, from available-for-sale to held-to-maturity.
The resulting $2.5 million unrealized loss was recorded as a discount and as a
component of other comprehensive income to be amortized over the life of the
related security in a manner consistent with premiums and discounts.
Gross proceeds on sales of mortgage-backed securities and collateralized
mortgage obligations were $15.6 million for the year ended September 30, 1998
and $7.7 million for the year ended September 30, 1997. There were no sales of
mortgage-backed securities and collateralized mortgage obligations during the
year ended September 30, 1999. Gross realized gains were $423,000 and $250,000
on sales of mortgage-backed securities and collateralized mortgage obligations
during the years ended September 30, 1998 and 1997, respectively. There were no
gross realized gains or losses during the year ended September 30, 1999 and
there were no realized losses during the years ended September 30, 1998 and
1997.
At September 30, 1999 , GNMA, FNMA and FHLMC mortgage-backed securities
with carrying values of approximately $78.3 million were pledged as collateral
for public funds on deposit. At September 30, 1999, investment and
mortgage-backed securities with an aggregate carrying value of approximately
$34.4 million were pledged as collateral for repurchase agreements.
77
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(7) LOANS RECEIVABLE
Loans receivable (including loans held for sale) consist of the following:
AS OF SEPTEMBER 30,
----------------------------------------------------------
1999 1998
--------------------------- ----------------------------
PERCENT PERCENT
OF OF
AMOUNT TOTAL AMOUNT TOTAL
-------------- ---------- ------------ -------
(dollars in thousands)
Mortgage loans:
One-to-four family................................ $ 3,010,427 91.1% $ 2,788,838 91.6%
Multi-family...................................... 30,057 0.9 24,392 0.8
Commercial real estate............................ 141,090 4.3 145,819 4.8
Construction...................................... 15,425 0.5 7,827 0.3
Land.............................................. 23,659 0.7 5,410 0.2
------------- ----------- ------------ -----------
Total mortgage loans............................ 3,220,658 97.5 2,972,286 97.7
------------- ----------- ------------ -----------
Other loans:
Commercial........................................ 48,173 1.5 15,550 0.5
Consumer.......................................... 33,878 1.0 30,401 1.0
------------- ----------- ------------- -----------
Total other loans............................... 82,051 2.5 45,951 1.5
------------- ----------- ------------ -----------
Total loans................................... 3,302,709 100.0 3,018,237 99.2
Unearned discounts, premiums and
deferred loan fees, net......................... 12,264 0.4 29,905 1.0
Allowance for loan losses......................... (12,107) (0.4) (6,128) (0.2)
------------- ----------- ------------ -----------
Total loan portfolio................................. $ 3,302,866 100.0% $ 3,042,014 100.0%
============= =========== ============ ===========
Of the total loan portfolio of $3.3 billion at September 30, 1999,
approximately $1.2 billion, or 36.6%, represented loans secured by properties in
Florida and $0.5 billion, or 13.8%, represented loans secured by properties in
California. No other state represented more than 10% of BankUnited's loan
portfolio.
At September 30, 1999, the Bank had pledged approximately $1.6 billion of
mortgage loans as collateral for advances from the Federal Home Loan Bank of
Atlanta (see Note 11).
Changes in the allowance for loan losses are as follows:
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------
1999 1998 1997
-------------- ------------- --------------
(dollars in thousands)
Balance at beginning of the period....................... $ 6,128 $ 3,693 $ 2,158
Provision ............................................. 7,939 1,700 1,295
Allowance from acquisitions............................ - 1,262 775
Loans charged-off...................................... (2,048) (599) (604)
Recoveries............................................. 88 72 69
-------------- ------------- --------------
Balance at end of the period........................... $ 12,107 $ 6,128 $ 3,693
============== ============= ==============
78
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(7) LOANS RECEIVABLE - (CONTINUED)
As of September 30, 1999 and 1998, BankUnited had non-accrual loans of
$21.4 million and $16.0 million, respectively. For the years ended September 30,
1999, 1998 and 1997 the average amounts of nonaccrual loans were $20.7 million,
$12.1 million and $8.0 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, $1.0 million and $0.6 million, for the years
ended September 30, 1999, 1998 and 1997, respectively. The amount of interest
income on such non-accrual loans included in operations for the years ended
September 30, 1999, 1998, and 1997 was $0.5 million, $0.4 million, and $0.4
million, respectively. No income is recognized on loans while in non-accrual
status.
(8) OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows:
AS OF SEPTEMBER 30,
-----------------------
1999 1998
----------- ----------
(dollars in thousands)
Office buildings....................................................................... $ 2,605 $ 2,599
Leasehold improvements................................................................. 7,916 6,568
Furniture, fixtures and equipment...................................................... 8,415 7,331
Computer equipment and software........................................................ 3,727 5,388
----------- ----------
Total ............................................................................ 22,663 21,886
Less: accumulated depreciation......................................................... (7,019) (7,688)
----------- ----------
Office properties and equipment, net................................................... $ 15,644 $ 14,198
=========== ==========
Depreciation expense was $2.4 million, $1.6 million, and $1.2 million, for
the years ended September 30, 1999, 1998, and 1997, respectively.
BankUnited has entered into non-cancelable leases with approximate minimum
future rentals as follows:
YEARS ENDING SEPTEMBER 30, AMOUNT
-------------------------- ------------
(dollars in thousands)
2000...................................................................................... $ 3,556
2001...................................................................................... 3,059
2002...................................................................................... 2,341
2003...................................................................................... 1,653
2004...................................................................................... 1,011
Thereafter................................................................................ 565
-------------
Total................................................................................... $ 12,185
=============
Rent expense for the years ended September 30, 1999, 1998, and 1997 was
$3.2 million, $2.2 million, and $1.6 million, respectively, net of sublease
income of $0.3 million, $0.1 million and $0, respectively.
79
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(9) 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,
----------------------------------------------------
1999 1998
------------------------ ------------------------
AMOUNT RATE AMOUNT RATE
------------- ---- ------------- ----
(DOLLARS IN THOUSANDS)
Passbook accounts.................................... $ 379,503 4.57% $ 258,158 4.72%
------------- -------------
Checking:
Non-interest-bearing.......................... 50,075 - 46,748 -
NOW accounts.................................. 125,617 2.75 71,431 3.26
Insured money market.......................... 92,785 4.04 115,104 4.05
------------ ------------
Total transaction accounts.................. 268,477 233,283
------------ ------------
Total passbook and checking accounts........ 647,980 491,441
------------ ------------
Certificates of deposit:
Less than 3-month certificates of deposit..... 2,260 4.40 3,485 4.63
3-5-month certificates of deposit............. 28,943 4.63 96,221 5.20
6-11-month certificates of deposit............ 411,774 5.03 620,970 5.51
12-month or more certificates of deposit...... 1,010,791 5.41 751,548 5.68
Public funds.................................. 178,050 4.98 86,159 5.35
Brokered certificates of deposit.............. - - 75,000 5.66
------------ ------------
Total certificates of deposit............... 1,631,818 1,633,383
------------ ------------
Total..................................... $ 2,279,798 $ 2,124,824
============= =============
Weighted average rate.................. 4.83% 5.18%
Deposit accounts with balances of $100,000 or more totaled approximately
$597.8 million and $469.1 million at September 30, 1999 and 1998, respectively.
Included in balances of $100,000 or more are $178.1 million in public funds at
September 30, 1999 and $161.2 million in public and brokered funds at September
30, 1998.
Interest expense on deposits for the years ended September 30, 1999, 1998
and 1997 was as follows:
1999 1998 1997
------------- ------------- -------------
(dollars in thousands)
NOW and insured money market deposits.......................... $ 7,820 $ 5,083 $ 2,236
Passbook accounts.............................................. 16,010 8,983 6,342
Certificates of deposit........................................ 82,825 79,365 41,558
------------- ------------- -------------
Total...................................................... $ 106,655 $ 93,431 $ 50,136
============= ============= =============
80
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(9) DEPOSITS - (CONTINUED)
Early withdrawal penalties on deposits are recognized as a reduction of interest
on deposits. For the years ended September 30, 1999, 1998 and 1997, early
withdrawal penalties totaled $221,000, $217,000, and $101,000, respectively.
The amounts and scheduled maturities of certificate accounts at September
30, 1999 are as follows:
YEARS ENDING SEPTEMBER 30, AMOUNT
-------------------------- -------
(dollars in thousands)
2000................................................................................ $ 1,178,377
2001................................................................................ 339,345
2002................................................................................ 70,827
2003................................................................................ 14,340
2004................................................................................ 28,570
Thereafter.......................................................................... 359
-----------
Total............................................................................... $ 1,631,818
============
(10) SECURITIES SOLD UNDER AN AGREEMENT TO REPURCHASE
Interest expense on securities sold under an agreement to repurchase
aggregated $1.4 million, $5.5 million and $0.5 million for the years ended
September 30, 1999, 1998 and 1997, respectively.
The following sets forth information concerning repurchase agreements
for the periods indicated:
AS OF AND FOR THE YEARS ENDED
SEPTEMBER 30,
-----------------------------------------
1999 1998 1997
----------- ----------- ----------
(dollars in thousands)
Maximum amount of outstanding agreements at any month
end during the period........................................... $ 96,862 $ 192,610 $ 30,000
Average amount outstanding during the period.................... $ 25,311 $ 97,292 $ 8,828
Weighted average interest rate for the period................... 5.46% 5.77% 5.73%
Of the $31.7 million of repurchase agreements outstanding at September
30, 1999, $31.1 million matures in October 1999, $0.4 million matures in
November 1999, and $0.2 million matures in December 1999.
At September 30, 1999, 1998 and 1997, BankUnited had $34.4 million,
$126.3 million and $34.0 million, respectively, of investment and
mortgage-backed securities pledged under repurchase agreements.
81
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(11) ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank of Atlanta (FHLB) incur interest
and are repayable as follows:
SEPTEMBER 30,
------------------------------------------------
REPAYABLE DURING YEAR ENDING SEPTEMBER 30, INTEREST RATE 1999 1998
- ------------------------------------------ --------------- ------------- -------------
(Dollars in thousands)
1999........................................... 5.28% - 5.80% $ - $ 255,000
2000........................................... 5.13% - 5.85% 330,000 125,000
2001(1)........................................ 5.54% - 5.92% 140,000 140,000
2002(2)........................................ 5.43% - 6.24% 125,000 150,000
2003(3)........................................ 4.70% - 5.94% 125,000 125,000
2004........................................... 6.47% 25,000 -
2006........................................... 6.65% 1,447 1,466
2007........................................... 4.99% - 5.06% - 75,000
2008(4)........................................ 4.75% - 5.50% 225,000 150,000
2008(5)........................................ 4.43% - 5.48% 125,000 -
------------- -------------
Total.......................................... $ 1,096,447 $ 1,021,466
============= =============
- -------------------------
(1) Advances for $40 million are callable by the FHLB in 1999.
(2) Advances for $125 million are callable by the FHLB in 1999.
(3) Advances for $50 million are callable by the FHLB in 1999 and $25 million in
2000.
(4) Advances for $125 million are callable by the FHLB in 1999, $75 million in
2000 and $25 million in 2003.
(5) Advances for $75 million are callable by the FHLB in 2001 and $50 million
in 2002.
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, is also
pledged as collateral for these advances.
(12) 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 $200.0 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.
(13) COMPANY OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE INTEREST
DEBENTURES OF BANKUNITED
BankUnited Capital, BankUnited Capital II and BankUnited Capital III are
wholly-owned trust subsidiaries of BankUnited which were created under Delaware
law for the purpose of issuing Trust Preferred Securities and investing the
proceeds from the sale thereof in Junior Subordinated Deferrable Interest
Debentures issued by BankUnited (the "Junior Subordinated Debentures").
BankUnited Capital, BankUnited Capital II and BankUnited Capital III issued
trust preferred securities in the aggregate amounts of $70.0 million, $46.0
million and $102.5 million, respectively, and issued common securities in the
aggregate amounts of $2.8 million, $1.8 million and $4.1 million, respectively.
All of the proceeds of the trust preferred securities and the common securities
were invested in the Junior Subordinated Debentures. The sole assets of each
trust are the Junior Subordinated Debentures.
82
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(13) COMPANY OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE INTEREST
DEBENTURES OF BANKUNITED - (CONTINUED)
BankUnited Capital holds $72.8 million of Junior Subordinated Debentures
which pay a preferential cumulative cash distribution at an annual rate of
10.25% and mature December 31, 2026. BankUnited Capital II holds $47.8 million
of Junior Subordinated Debentures which pay a preferential cumulative cash
distribution at an annual rate of 9.60% and mature on June 30, 2027. BankUnited
Capital III holds $106.6 million of Junior Subordinated Debentures which pay a
preferential cumulative cash distribution at an annual rate of 9% and mature
March 31, 2028.
The Trust Preferred Securities pay preferential cumulative cash
distributions at the same annual rate as the Junior Subordinated Debentures held
by the trust subsidiary issuer. 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.
(14) REGULATORY CAPITAL
The Bank's required, actual and excess regulatory capital levels as of
September 30, 1999 and 1998 are as follows:
REGULATORY CAPITAL
------------------------------------------------------------------------------------------
REQUIRED ACTUAL EXCESS
---------------------------- ---------------------------- -----------------------------
1999 1998 1999 1998 1999 1998
------------- ------------- ------------- ------------- ------------- -------------
(dollars in thousands)
Core Capital................. $ 119,919 $ 108,958 $ 314,355 $ 316,586 $ 194,436 $ 207,628
3.0% 3.0% 7.9% 8.7% 4.9% 5.7%
Risk-based capital........... $ 167,362 $ 146,972 $ 325,079 $ 322,238 $ 157,717 $ 175,266
8.0% 8.0% 15.5% 17.5% 7.5% 9.5%
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 10%, a core
capital ratio of 5% and a Tier 1 risk-based capital ratio of 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, 1999, 1998 and 1997 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.
83
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(15) STOCKHOLDERS' EQUITY
BankUnited has the following capital structure:
PREFERRED STOCK-Issuable in series with rights and preferences to be designated
by the Board of Directors. As of September 30, 1999, 10,000,000 shares of
Preferred Stock were authorized, of which 7,152,883 shares were not
designated to a particular series.
NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A:
Effective September 30, 1995, pursuant to an Offer to Exchange Preferred
Stock, the holders of the Noncumulative Convertible Preferred Stock,
Series A, agreed to exchange each of the 55,000 shares of the Series A
Preferred Stock for one share of BankUnited's Noncumulative Convertible
Preferred Stock, Series B. Because the dividend rate, redemption price,
and the liquidation preference for the Series B Preferred Stock are
lower than those for the Series A Preferred Stock, BankUnited agreed
not to redeem the shares of Series B Preferred Stock issued pursuant to
the exchange offer for a period of three years, and for three years
thereafter, such Series B Preferred Stock will only be redeemed at a
50% premium, or $11.0625 per share.
NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES B:
Authorized shares- 1,000,000 shares as of September 30, 1999 and 500,000
shares as of September 30, 1998.
Issued and outstanding shares- 295,821 as of September 30, 1999 and 229,580
as of September 30, 1998.
Dividends-noncumulative cash dividends payable quarterly in cash or shares
of Class A Common Stock at the option of the holder, at the fixed
annual rate of $0.55 per share beginning October 1, 1997 and $0.7375
per share prior to that date.
Preference on liquidation--voluntary liquidation at the applicable
redemption price per share and involuntary liquidation at $7.375 per
share.
Redemption-Prior to October 1, 1997- except for the shares converted from
Series A Preferred Stock in 1995, for which the redemption price is
$11.0625 until September 30, 2001, the redemption price is $7.375 per
share. Effective October 1, 1997, BankUnited agreed, in exchange for
the reduction in the dividend rate described above, not to redeem the
Series B Preferred Stock until October 1, 2007 or later unless earlier
redemption is approved by the holders of at least 50 percent of the
Series B Preferred shares.
Voting rights-two-and-one-half votes per share.
Convertibility-convertible into 1.4959 shares (adjusted for all stock
dividends) of Class B Common Stock for each share of Noncumulative
Convertible Preferred Stock, Series B, surrendered for conversion,
subject to adjustment on the occurrence of certain events.
Issuances-During the fiscal year ended September 30, 1999, BankUnited
awarded 26,241 shares to the Chairman of the Board of BankUnited and
40,000 shares were issued pursuant to the exercise of options.
84
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(15) STOCKHOLDERS' EQUITY -(CONTINUED)
9% NONCUMULATIVE PERPETUAL PREFERRED STOCK:
Authorized shares- 1,847,117 shares as of September 30, 1999 and 1998.
Issued and outstanding- 697,117 as of September 30, 1999 and 1998.
Dividends- noncumulative cash dividends payable quarterly at the fixed
annual rate of $0.90 per share.
Preference on liquidation-voluntary liquidation at the applicable
redemption price per share and involuntary liquidation at $10.00 per
share.
Redemption- at the option of BankUnited at a redemption price of $10.00 per
share.
Voting rights- nonvoting, except under certain circumstances.
CLASS A COMMON STOCK- Issuable in series with rights and preferences to be
designated by the Board of Directors. As of September 30, 1999, 30,000,000
shares of Class A Common Stock were authorized, of which all shares were
designated to a series. As of September 30, 1998, 30,000,000 shares of
Class A common stock were authorized, of which 10,000,000 shares were not
designated to a series.
SERIES I CLASS A COMMON STOCK:
Authorized shares - 30,000,000 at September 30, 1999 and 20,000,000 at
September 30, 1998.
Issued- 18,049,430 shares as of September 30, 1999 and 17,816,213 shares as
of September 30, 1998.
Outstanding- 17,866,430 shares as of September 30, 1999 and 17,816,213
shares as of September 30, 1998.
Dividends-as declared by the Board in the case of a dividend on the Class A
Common Stock 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.
Issuances-During the fiscal year ended September 30, 1999, BankUnited
issued 58,984 shares with the exercise of options and warrants, 64,176
shares in awards and issuances to directors, officers and employees of
BankUnited, 13,009 shares in dividends on BankUnited's Series B
Preferred Stock and 97,048 shares upon the conversion of Class B Common
Stock into Class A Common Stock. Additionally, during the fourth
quarter of fiscal 1999, BankUnited acquired on the open market 183,000
shares of its Class A Common Stock at prices ranging from $8.05 to
$9.88 per share recorded at cost as Treasury Stock.
85
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(15) STOCKHOLDERS' EQUITY - (CONTINUED)
CLASS B COMMON STOCK:
Authorized shares- 3,000,000.
Issued and outstanding- 458,467 shares as of September 30, 1999 and 331,743
shares as of September 30, 1998.
Dividends-as declared by the Board of Directors.
Voting rights-one vote per share.
Convertibility-convertible into one share of Class A Common Stock for each
share of Class B Common Stock surrendered for conversion, subject to
adjustment on the occurrence of certain events.
Issuances-During the fiscal year ended September 1999, BankUnited issued
222,961 shares in connection with the exercise of stock options and
awarded 811 shares to directors and officers of BankUnited.
Additionally, 97,048 shares of Class B Common Stock was converted into
Class A Common Stock during the fiscal year ended September 30, 1999.
(16) STOCK BONUS PLAN, OPTION AGREEMENTS AND OTHER BENEFIT PLANS
BankUnited maintains the 1992 Stock Bonus Plan whereby it is authorized to
issue up to 125,000 shares of Class A and Class B Common Stock to provide
long-term incentives and rewards to officers, directors and employees of
BankUnited. As of September 30, 1999, 70,221 shares of Class A Common Stock and
54,779 shares of Class B Common Stock had been issued under the 1992 Stock Bonus
Plan. As of September 30, 1999, there were 13,168 shares available for grant
under the 1992 Stock Bonus Plan, due to stock awards which had been forfeited by
officers and employees who terminated service with BankUnited prior to full
vesting of such awards.
BankUnited also maintains a non-statutory stock option plan under which
options for up to 825,000 shares of Class A and Class B Common Stock have been
granted. As of September 30, 1999, no shares were available for the grant of
options under this plan, and 295,130 options had been exercised.
86
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(16) STOCK BONUS PLAN, OPTION AGREEMENTS AND OTHER BENEFIT PLANS - (CONTINUED)
BankUnited also maintains the 1994 Incentive Stock Option Plan under which
options for up to 250,000 shares of Class A and Class B Common Stock have been
granted. As of September 30, 1999, 52,357 shares were available for the grant of
options under this plan (due to options which had been forfeited by officers and
employees who terminated service with BankUnited prior to full vesting of these
options), and options for 31,410 shares had been exercised.
In October 1994, BankUnited's Board of Directors approved several
non-qualified stock option agreements (the "Agreements") under which options to
purchase shares of Class B Common Stock were granted at the fair market price of
the Class B Common Stock on the date of the grant. The Agreements, which
originally expired on October 23, 1994, had been extended pursuant to
Stockholders' approval to October 23, 1999. As of September 30, 1999, all
options granted pursuant to the Agreements had been exercised at the exercise
price of $4.64 per share.
BankUnited maintains the 1996 Incentive Compensation and Stock Award Plan.
Under this plan, the Compensation Committee of the Board of Directors may grant
options to purchase, or may issue in connection with stock awards, stock bonuses
and restricted stock, up to (as amended in January 1999) 2,050,000 shares of
Class A and Class B Common Stock and up to 650,000 shares of Series B Preferred.
As of September 30, 1999, options to purchase 1,049,759 shares of Class A Common
Stock, 312,500 shares of Class B Common Stock and 497,000 shares of Series B
Preferred Stock had been granted. Options for 261,448 shares of Class A Common
Stock had been forfeited by officers and employees who terminated service with
BankUnited prior to full vesting of these options. Options for 52,685 shares of
Class A Common Stock and options for 40,000 shares of Series B Preferred Stock
had been exercised. In addition, 90,634 shares of Class A Common Stock, 3,000
shares of Class B Common Stock and 47,003 shares of Series B Preferred Stock had
been issued pursuant to other awards under this plan of which 13,802 shares of
Class A Common Stock had been forfeited by officers and employees who terminated
service with BankUnited prior to the full vesting of these awards. As of
September 30, 1998, 869,357 shares of Class A Common Stock and Class B Common
Stock and 105,997 shares of Series B Preferred Stock were available for grant
under this plan.
Options granted under BankUnited's stock option plans expire ten years
after the date of grant unless extended by the Board of Directors, and are
exercisable at the fair market value of the stock on the date of grant or at a
subsequently adjusted exercise price. The vesting and exercisability of options
granted under the 1994 Incentive Stock Option Plan and the 1996 Incentive
Compensation and Stock Award Plan 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.
87
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(16) STOCK BONUS PLAN, OPTION AGREEMENTS AND OTHER BENEFIT PLANS - (CONTINUED)
The following table presents additional data concerning BankUnited's
outstanding stock options:
NUMBER OPTION PRICE AGGREGATE
OF SHARES PER SHARE OPTION PRICE
----------- ---------------- -------------
Options outstanding, September 30, 1996.............. 941,148 $ 3.11 -$ 10.98 $ 5,410,580
Options granted (including Suncoast options)......... 729,381 3.00 - 10.74 5,839,961
Options exercised.................................... (83,004) 3.00 - 8.80 (490,932)
------------ ----------------- -------------
Options outstanding, September 30, 1997.............. 1,587,525 3.00 - 10.98 10,759,609
Options granted...................................... 665,705 9.63 - 21.07 10,726,793
Options exercised.................................... (120,991) 3.00 - 13.25 (646,547)
Options expired...................................... (106,924) 5.73 - 13.24 (1,069,860)
Reduction of option price(1)......................... - 9.30 - 13.91 (2,999,259)
------------ ----------------- -------------
Options outstanding, September 30, 1998.............. 2,025,315 3.11 - 13.91 16,770,736
Options granted...................................... 796,534 6.56 - 13.18 6,872,153
Options exercised.................................... (321,959) 3.11 - 10.85 (1,808,462)
Options expired...................................... (209,365) 5.73 - 8.00 (1,517,153)
Reduction of option price(2)......................... - 7.28 - 13.91 (2,404,174)
------------ ----------------- -------------
Options outstanding, September 30, 1999(3)........... 2,290,525 $ 3.11 - $13.18 $ 17,913,100
============ ================ ============
(1) On September 3, 1998, BankUnited repriced options to purchase Class A
Common Stock, Class B Common Stock and Series B Preferred Stock which
had exercise prices which exceeded the fair market value of the
underlying stock on that date. As a result of this repricing the
exercise price of options to purchase 302,850 shares of Class A Common
Stock and 77,500 shares of Class B Common Stock was reduced to $9.298
per share, and the exercise price of options to purchase 315,000 shares
of Series B Preferred Stock was reduced to $13.909 per share.
(2) On October 14, 1998, BankUnited repriced options to purchase Class A
Common Stock, Class B Common Stock and Series B Preferred Stock which
had exercise prices which exceeded the fair market value of the
underlying stock on that date. As a result of this repricing the
exercise price of options to purchase 456,368 shares of Class A Common
Stock and 595,800 shares of Class B Common Stock was reduced to $7.25
per share, and the exercise price of options to purchase 315,000 shares
of Series B Preferred Stock was reduced to $10.8452 per share.
(3) As of September 30, 1999, the 2.3 million options outstanding had a
remaining contractual life of approximately 7 years. Additionally,
approximately 1.6 million of these options were exercisable at
September 30, 1999, at exercise prices ranging from $3.11 to $10.85
with a weighted average exercise price of $7.69.
BankUnited has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" and as permitted by SFAS No. 123, BankUnited continues to follow
the measurement provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees, " and, accordingly, does not
recognize compensation expense for its stock-based incentive plans. Had
compensation cost for BankUnited's stock based incentive compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the methodology prescribed by SFAS No. 123, BankUnited's
net income (loss) and earnings (loss) per share for fiscal 1999, 1998 and 1997
would have been reduced to the pro forma amounts indicated below:
1999 1998 1997
------------ ------------- ------------
(dollars in thousands, except per share amounts)
As Reported..................................... $ (4,367) $ 6,460 $ 4,709
Pro forma....................................... $ (5,935) $ 4,011 $ 3,328
Basic (loss) earnings per common share:
As reported..................................... $ (0.24) $ 0.41 $ 0.57
Pro forma....................................... $ (0.32) $ 0.26 $ 0.41
Diluted (loss) earnings per common share:
As reported..................................... $ (0.24) $ 0.39 $ 0.54
Pro forma....................................... $ (0.32) $ 0.26 $ 0.38
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.
88
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(16) STOCK BONUS PLAN, OPTION AGREEMENTS AND OTHER BENEFIT PLANS - (CONTINUED)
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 1999, 1998 and 1997:
1999 1998 1997
------------- ------------- -------------
Dividend yields................................. - - -
Expected volatility............................. 40.0% 33.7% 30.1%
Risk-free interest rates........................ 4.76% 5.55% 6.30%
Expected life (in years)........................ 6.96 7.00 9.52
Based upon the above assumptions, the weighted average fair value of
options granted during 1999, 1998 and 1997 was $3,993,000, $5,565,000 and
$2,484,000, respectively.
On September 7, 1999, the trustee of the 401(k) Plan and the trustees of
the Profit Sharing Plan approved a merger and transfer agreement between the
plans effective September 30, 1999. Under the terms of this agreement, the net
assets of the Profit Sharing Plan were transferred and assigned to the 401(k)
Plan as of September 30, 1999. The 401(k) Plan was then renamed the BankUnited
401(k) Profit Sharing Plan (the "Plan"). 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 intends to make quarterly matching
contributions at a rate of 75% of employee contributions, up to a maximum of 6%
of an employee's 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%.
Prior to September 7, 1999, BankUnited had a 401(k) savings plan (the
"401(k) Plan") and a separate Profit Sharing Plan. For the years ended September
30, 1999, 1998, and 1997 BankUnited made total matching contributions of
approximately $159,500, $71,900, and $34,600, respectively, to the 401(k) Plan.
BankUnited's Board of Directors also authorized contributions of $0, $0 and
$170,000 to the Profit Sharing Plan in 1999, 1998 and 1997, respectively.
89
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(17) INCOME TAXES
BankUnited's effective tax (benefit) rate differs from the statutory
federal income tax (benefit) rate as follows:
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- ----------------------
AMOUNT % AMOUNT % AMOUNT %
---------- -------- ----------- ------- ----------- -------
(dollars in thousands)
(Benefit) tax at federal income
(benefit) tax rate................. $ (1,868) (34.0)% $ 4,229 34.2% $ 4,295 34.0%
Increase resulting from:
State tax............................ (192) (3.5) 480 3.9 314 2.5
Other, net........................... 157 2.9 300 2.4 424 3.3
---------- ----- ----------- ---- ----------- -----
Total.............................. $ (1,903) (34.6)% $ 5,009 40.5% $ 5,033 39.8%
========== ===== =========== ==== =========== =====
The components of the (benefit) provision for income taxes for the years
ended September 30, 1999, 1998 and 1997 are as follows:
FOR THE YEARS ENDED
SEPTEMBER 30,
-------------------------------------------------
1999 1998 1997
-------------- ------------- -------------
(Dollars in Thousands)
Current-federal.................... $ 192 $ 3,874 $ 1,150
Current-state...................... 7 663 125
Deferred-federal................... (1,941) 407 3,391
Deferred-state..................... (161) 65 367
------------- ------------- -------------
Total............................ $ (1,903) $ 5,009 $ 5,033
============= ============= =============
90
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(17) INCOME TAXES - (CONTINUED)
The tax effects of significant temporary differences included in the deferred
tax asset as of September 30, 1999 and 1998 were:
SEPTEMBER 30,
---------------------
1999 1998
--------- --------
(Dollars in thousands)
Deferred tax asset:
Non-accrual interest................................. $ 617 $ 325
Loan loss and other reserves......................... 4,755 1,711
Fixed assets......................................... - 132
Unrealized holding losses on securities
available for sale................................. 1,398 -
Unrealized holding losses on securities
transferred to held to maturity.................... 924 -
Purchase accounting.................................. 1,154 1,088
Other................................................ 514 771
-------- ---------
Gross deferred tax asset........................... 9,362 4,027
-------- ---------
Deferred tax liability:
FHLB Atlanta stock dividends......................... 34 106
Deferrals and amortizations.......................... 1,829 1,219
Fixed assets......................................... 570 -
Unrealized gains on securities available for sale.... - 1,150
Other................................................ 117 314
-------- ---------
Gross deferred tax liability....................... 2,550 2,789
-------- ---------
Net deferred tax asset............................. $ 6,812 $ 1,238
======== ========
At September 30, 1999, BankUnited had $565,000 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 which would ultimately result in the
recapture of this amount for income tax purposes.
The components of deferred income tax (benefit) provision relate to the
following:
YEARS ENDED SEPTEMBER 30,
-----------------------------------
1999 1998 1997
--------- --------- ---------
(Dollars in thousands)
Differences in book/tax depreciation.............................. $ 702 $ 15 $ -
Delinquent interest............................................... (292) (71) (18)
FHLB Stock dividends.............................................. (72) (19) -
Loan fees......................................................... - - 15
Loan loss and other reserves...................................... (3,044) (494) (294)
Deferrals and amortization........................................ 610 (76) (145)
SAIF special assessment........................................... - - 758
Other............................................................. (6) 1,117 3,442
-------- --------- ---------
Total deferred taxes............................................ $ (2,102) $ 472 $ 3,758
======== ========= =========
91
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(17) INCOME TAXES - (CONTINUED)
In connection with the acquisition of Suncoast, BankUnited recorded
deferred tax assets and liabilities for the differences between values assigned
in purchase accounting and the tax bases of acquired assets and liabilities.
Approximately $911,000, $540,000 and $2,635,000 of this deferred tax asset was
recognized as deferred tax expense during the years ended September 30, 1999 and
1998, respectively, and $911,000 and $1,088,000 represents the tax effect at
September 30, 1999 and 1998, respectively, of amounts deductible for tax
purposes in future periods.
BankUnited also acquired net deferred tax assets of approximately
$1,140,000 in conjunction with its acquisition of Suncoast.
In connection with the acquisition of Consumers, BankUnited recorded
deferred tax assets and liabilities for the differences between values assigned
in purchase accounting and the tax bases of acquired assets and liabilities.
With respect to the Consumers acquisition, approximately $300,000 and $19,000 of
net deferred tax assets have been recognized as net deferred tax benefit during
the years ended September 30, 1999 and 1998, respectively, and $294,000 and
$287,000 represent the tax effect at September 30, 1999 and 1998, respectively,
of amounts deductible for tax purposes in future periods.
In connection with the acquisition of Central, BankUnited recorded deferred
tax assets and liabilities for the differences between values assigned in
purchase accounting and the tax bases of acquired assets and liabilities. With
respect to the Central acquisition, approximately $(2,800) and $7,000 of net
deferred tax assets have been recognized as net deferred tax benefit during the
years ended September 30, 1999 and 1998, respectively, and $51,000 and $16,000
represent the tax effect at September 30, 1999 and 1998, respectively, of
amounts deductible for tax purposes in future periods.
BankUnited also acquired net deferred tax liabilities of approximately
$189,000 in connection with its acquisition of Consumers and net deferred tax
assets of approximately $332,000 in connection with its acquisition of Central.
(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 and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include commitments
to extend credit, purchase whole loans and securities, standby letters of credit
and derivative financial instruments. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
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, 1999 were as follows:
SEPTEMBER 30, 1999
------------------------------------------------
FIXED VARIABLE
RATE RATE TOTAL
------------- ------------- -------------
(in thousands)
Commitments to fund loans..................................... $ 16,027 $ 40,889 $ 56,916
Domestic letters of credit.................................... 6,108 - 6,108
International letters of credit............................... 220 - 220
------------- ------------- -------------
Total....................................................... $ 22,355 $ 40,889 $ 63,244
============= ============= =============
92
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(18) COMMITMENTS AND CONTINGENCIES - (CONTINUED)
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.
During April 1998, the Bank entered into two interest rate cap contracts
with a major Wall Street firm, in notional amounts of $90.0 million and $60.0
million, terminating on October 23, 1999 and April 23, 2000, respectively. The
contracts require the counter-party to pay the Bank quarterly interest payments
based on the notional amounts and the difference between the "London Inter Bank
Offering Rate" ( the "LIBOR rate") and 5.90%, if and when the LIBOR rate exceeds
5.90%, in return for a one-time payment by the Bank.
During May 1998, the Bank entered into a third interest rate cap contract
with another major Wall Street firm in a notional amount of $75.0 million
terminating on May 30, 2000. The contract requires the counter-party to pay the
Bank quarterly interest payments based on the notional amount and the difference
between the LIBOR rate and 6.10%, if and when the LIBOR rate exceeds 6.10%, in
return for a one-time payment by the Bank.
The Bank entered into these contracts for the purpose of hedging a portion of
BankUnited's interest rate risk for rising interest rates. As of September 30,
1999, the 3-month LIBOR rate was 6.08%.
The following table provides additional information regarding the interest
rate caps:
AS OF SEPTEMBER 30,
1999
--------------
(Dollars in thousands)
Aggregate notional amount....................................................................... $ 225,000
Amortized costs................................................................................. $ 420
Aggregate market value.......................................................................... $ 881
The interest rate caps are accounted for as a non-trading hedge for rising
interest rates against certain short-term borrowings.
BankUnited is a party to certain other claims and litigation arising in the
ordinary course of business. In the opinion of management, the resolution of
such claims and litigation will not materially affect BankUnited's consolidated
financial position or results of operations.
(19) RELATED PARTY TRANSACTIONS
BankUnited employs the services of a law firm, of which BankUnited's
Chairman of the Board and President is senior managing director and of which
another director of BankUnited is managing director, and the services of an
insurance agency, of which a member of the Board of Directors is a vice
president. For the years ended September 30, 1999, 1998 and 1997, total fees (a
portion of which were capitalized) paid to this law firm totaled approximately
$2.5 million, $2.2 million, and $2.2 million, respectively, and amounts paid to
this insurance agency totaled approximately $428,000, $445,000, and $373,000,
respectively.
93
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(19) RELATED PARTY TRANSACTIONS - (CONTINUED)
In fiscal 1997, BankUnited leased property for a new branch, which is 25%
owned by BankUnited's Chairman of the Board. The lease is for a term of 3 years
with four, three year options to renew. The annual rent for the property is
approximately $135,000.
(20) BANKUNITED FINANCIAL CORPORATION
The following summarizes the major categories of BankUnited's (parent
company only) financial statements:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 30,
------------------------------
1999 1998
------------ --------------
(in thousands)
Assets:
Cash........................................................................... $ 1,698 $ 1,128
FHLB overnight deposits........................................................ 2,831 10,608
Tax certificates............................................................... 545 1,694
Investments, net (market value of approximately $60 at
September 30, 1999 and 1998)................................................. 60 60
Investments available for sale................................................. 17,361 15,073
Mortgage-backed securities, available for sale................................. 22,908 31,642
Accrued interest receivable.................................................... 952 885
Investment in the Bank......................................................... 344,093 350,904
Investment in subsidiaries..................................................... 8,527 8,644
Other assets................................................................... 20,718 9,445
---------- ------------
Total........................................................................ $ 419,693 $ 430,083
=========== =============
Liabilities....................................................................... $ 2,316 $ 3,551
----------- -------------
Junior subordinated deferrable interest debentures................................ 227,240 227,240
---------- ------------
Stockholders' equity:
Preferred stock................................................................ 10 9
Common stock................................................................... 185 181
Paid-in capital................................................................ 181,335 178,777
Retained earnings.............................................................. 14,081 18,448
Treasury stock................................................................. (1,684) -
Accumulated other comprehensive (loss) income, net of tax...................... (3,790) 1,877
---------- ------------
Total stockholders' equity................................................... 190,137 199,292
---------- ------------
Total liabilities and stockholders' equity................................... $ 419,693 $ 430,083
=========== =============
94
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(20) BANKUNITED FINANCIAL CORPORATION - (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1999 1998 1997
------------- ------------ -------------
(in thousands)
Interest income.......................................... $ 4,563 $ 4,808 $ 2,626
Interest expense......................................... 21,990 17,621 6,726
Equity income of the subsidiaries........................ 9,036 16,227 10,927
Operating expenses....................................... 2,943 1,495 1,166
----------- ---------- -----------
(Loss) income before income taxes...................... (11,334) 1,919 5,661
Income tax (benefit) expense............................. (7,740) (5,438) (1,938)
----------- ----------- -----------
Net (loss) income before preferred stock dividends..... (3,594) 7,357 7,599
Preferred stock dividends................................ 773 897 2,890
----------- ---------- -----------
Net (loss) income after preferred stock dividends...... $ (4,367) $ 6,460 $ 4,709
============ =========== ============
CONDENSED SCHEDULE OF OTHER COMPREHENSIVE (LOSS) INCOME
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1999 1998 1997
------------- ------------ -------------
(in thousands)
Other comprehensive (loss) income, net of tax:
Unrealized holding (losses) gains arising
during the period................................... $ (5,698) 1,278 1,341
Less reclassification adjustment for:
Amortization of unrealized losses on transferred
securities........................................ 31 - -
Realized gains on securities sold included in
net (loss) income................................ - (262) (173)
----------- ---------- -----------
Total other comprehensive (loss) income, net of tax...... $ (5,667) $ 1,016 $ 1,168
============ ============ =============
95
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(20) BANKUNITED FINANCIAL CORPORATION - (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1999 1998 1997
------------- ------------ -------------
(in thousands)
Cash flow from operating activities:
Net (loss) income...................................... $ (3,594) $ 7,357 $ 7,599
Less: Undistributed income of the subsidiaries......... (9,036) (16,227) (11,551)
Other.................................................. (10,229) (2,508) (2,792)
----------- ---------- -----------
Net cash used in operating activities................ (22,859) (11,378) (6,744)
----------- ---------- -----------
Cash from investing activities:
Equity contributions to the Bank....................... - (110,000) (85,000)
Equity contributions to subsidiaries................... - (4,100) (4,640)
Purchase of investment securities...................... (3,915) (15,363) -
Proceeds from sale of investments...................... - - 155
Purchase of mortgage-backed securities................. - (30,734) (27,411)
Proceeds from repayments of mortgage-backed
securities........................................... 7,770 18,821 5,054
Proceeds from sales of mortgage-backed securities...... - - 5,021
Net (increase) decrease in tax certificates............ (8) (1,654) 269
----------- ---------- -----------
Net cash provided by (used in) investing activities.. 3,847 (143,030) (106,552)
----------- ---------- -----------
Cash flow from financing activities:
Net proceeds from issuance of Junior subordinated
deferrable interest debentures....................... - 103,013 114,776
Dividend from Bank..................................... 12,137 - -
Net proceeds from issuance of common stock............. 2,010 60,502 1,329
Net proceeds from issuance of preferred stock.......... - 488 -
Purchase of treasury shares............................ (1,684) - -
Dividends paid on preferred stock...................... (658) (837) (2,855)
Preferred Stock, Series 9% tender offer................ - (43) (4,486)
Preferred Stock redemption............................. - (424) -
----------- ---------- -----------
Net cash provided by financing activities............ 11,805 162,699 108,764
----------- ---------- -----------
(Decrease) increase in cash and cash equivalents......... (7,207) 8,291 (4,532)
Cash and cash equivalents at beginning of year........... 11,736 3,445 7,977
----------- ---------- -----------
Cash and cash equivalents at end of year............. $ 4,529 $ 11,736 $ 3,445
============ =========== ============
(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 market for many 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.
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
96
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(21) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
further segmented into fixed and adjustable rate interest terms and by
performing and non-performing status. The fair value of loans, except
residential mortgage 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.
For residential mortgage loans, fair value is estimated by discounting
contractual cash flows adjusted for national historical prepayment estimates
using discount rates based on a compilation of secondary market sources
published by the OTS in their "Asset and Liability Price Tables" for September
30, 1999.
The fair value of the tax certificates is estimated at book value as these
investments historically have had relatively short lives and their yields
approximate market rates. The fair value of mortgage-backed securities and
investment securities is estimated based on bid prices available from securities
dealers.
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 10-1/4% Trust Preferred Securities is estimated at
book value as these securities are privately-placed and have no active market.
The fair value of the 9.60% and 9% Trust Preferred Securities is estimated based
on quoted market prices.
The fair value of the off-balance sheet financial instruments is estimated
based on the OTS's valuation as contained in its September 30, 1999 "Interest
Rate Risk Exposure Report" prepared for the Bank by the OTS from information
provided by the Bank.
The following table presents information for BankUnited's financial
instruments at September 30, 1999 and 1998:
AS OF SEPTEMBER 30, 1999
-----------------------------------
CARRYING VALUE FAIR VALUE
------------- -------------
(in thousands)
Financial assets:
Cash and overnight investments........................................... $ 76,535 $ 76,535
Tax certificates and other investments................................... 189,874 189,800
Mortgage-backed securities............................................... 347,224 343,170
Loans receivable......................................................... 3,302,866 3,291,502
Mortgage servicing rights................................................ 7,820 7,925
Other interest-earning assets............................................ 54,927 54,927
Financial liabilities:
Deposits................................................................. $ 2,279,798 $ 2,287,119
Borrowings............................................................... 1,328,148 1,312,964
Trust Preferred Securities............................................... 218,500 199,459
Off-balance sheet financial instruments.................................... - 1,227
97
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30, 1999
(21) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
AS OF SEPTEMBER 30, 1998
-----------------------------------
CARRYING VALUE FAIR VALUE
-------------- ------------
(in thousands)
Financial assets:
Cash and overnight investments........................................... $ 91,511 $ 91,511
Tax certificates and other investments................................... 78,210 78,367
Mortgage-backed securities............................................... 345,756 343,115
Loans receivable......................................................... 3,042,014 3,253,845
Mortgage servicing rights................................................ 8,917 8,917
Other interest-earning assets............................................ 51,313 51,313
Financial liabilities:
Deposits................................................................. $ 2,124,824 $ 2,133,186
Borrowings............................................................... 1,142,614 1,147,283
Trust Preferred Securities............................................... 218,500 212,915
Off-balance sheet financial instruments.................................... - -
98
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF BANKUNITED.
The information contained under the caption "Election of Directors" to
appear in BankUnited's definitive proxy statement relating to BankUnited's 2000
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 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.
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.
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.
PART IV
ITEM 14. 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,
1999 and 1998.
Consolidated Statements of Operations for the years ended September
30, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended September
30, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
99
(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.*
2.1 Agreement and Plan of Merger, dated July 15, 1996, between BankUnited
and Suncoast Savings and Loan Association, FSA. (Exhibit 2.1 to
BankUnited's Form S-4 Registration Statement, File No. 333- 13211, as
filed with the Securities and Exchange Commission on October 1,
1996).
2.2 Agreement and Plan of Merger between BankUnited and Consumers
Bancorp, Inc. dated September 19, 1997 (Exhibit 2.2 to BankUnited's
Form S-4 Registration Statement, File No. 333-39921, as filed with
the Securities and Exchange Commission on November 10, 1997).
2.3 Agreement and Plan of Merger between BankUnited and Central Bank
dated December 30, 1997 (Exhibit 20.1 to BankUnited's Form 8-K dated
December 30, 1997, as filed with the Securities and Exchange
Commission on January 2, 1998).
3.1 Articles of Incorporation of BankUnited (Exhibit 3.1 to BankUnited's
Form 10-Q Report for the quarter ended December 31, 1998, as filed
with the Securities and Exchange Commission on February 16, 1999).
3.2 Bylaws of BankUnited.
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).
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 an 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 Securities and Exchange
Commission on December 29, 1998 [the "1998 10-K"]).
4.10 Forms of Series 15A-F, Series 18E and Series 20A-F of Subordinated
Notes of the Bank (Exhibit 4.3 to BankUnited's Form S-4 Registration
Statement, File No. 33-55232, as filed with the Securities and
Exchange Commission on December 2, 1992).
100
4.11 The Advances, Specific Collateral Pledge and Security Agreement dated
March 30, 1998 between the Bank and the Federal Home Loan Bank of
Atlanta (Exhibit 4.9 to the 1998 10-K).
4.12 Indenture dated November 4, 1998 between the Bank and the Bank of New
York to which the Federal Home Loan Bank of Atlanta has joined as a
consenting party (the "Indenture") (Exhibit 4.91 to the 1998 10-K).
4.13 Form of the Bank's Senior Note (Fixed Rate) issuable pursuant to the
Indenture (Exhibit 4.92 to the 1998 10-K).
4.14 Form of the Bank's Senior Note (Floating Rate) issuable pursuant to
the Indenture (Exhibit 4.93 to the 1998 10-K).
4.15 The Letter of Credit Reimbursement Agreement dated November 14, 1998
between the Bank and the Federal Home Loan Bank of Atlanta (Exhibit
4.94 to the 1998 10-K).
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 Securities and Exchange 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 The Bank's Profit Sharing Plan. (Exhibit 10.4 to BankUnited's Form
S-2 Registration Statement, File No. 33-80791, as filed with the
Securities and Exchange Commission on December 22, 1995).**
10.5 1996 Incentive Compensation and Stock Award Plan, as amended by
approval of BankUnited's stockholders on January 28, 1999 (Exhibit
10.2 to BankUnited's Report on Form 10-Q for the quarter ended March
31, 1999, as filed with the Securities and Exchange Commission on May
17, 1999).**
10.6 Form of Employment Agreement between BankUnited and Alfred R. Camner
(Exhibit 10.6 to the 1998 10-K).***
10.7 Form of Employment Agreement between the Bank and Alfred R. Camner
(Exhibit 10.7 to the 1998 10-K).***
10.8 Form of Employment Agreement between the Bank and Mehdi Ghomeshi
(Exhibit 10.8 to the 1998 10-K).***
10.8.1 First Amendment to Employment Agreement between BankUnited, the Bank
and Mehdi Ghomeshi (Exhibit 10.1 to BankUnited's Report on Form 10-Q
for the quarter ended March 31, 1999, as filed with the Securities
and Exchange Commission on May 17, 1999).
10.9 Form of Change of Control Agreement between the Bank and Earline G.
Ford (Exhibit 10.11 to BankUnited's Form 10-K for the year ended
September 20, 1996, as filed with the Securities and Exchange
Commission on December 23, 1996).
10.10 Form of Change of Control Agreement between the Bank and executive
officers.
10.11 Junior Subordinated Indenture with respect to BankUnited's 10 1/4%
Junior Subordinated Debentures. (Exhibit 4.1A to BankUnited's
Registration Statement on Form S-4, File No. 333-24025, as filed with
the Securities and Exchange Commission on March 27, 1997).
10.12 Supplemental Indenture (Exhibit 4.1B to BankUnited's Registration
Statement on Form S-4, File No. 333-24025, as filed with the
Securities and Exchange Commission on March 27, 1997).
10.13 Form of Amended and Restated Trust Agreement of BankUnited Capital.
(Exhibit 4.3 to BankUnited's Registration Statement on Form S-4, No.
333-24025, as filed with the Securities and Exchange Commission on
March 27, 1997).
101
10.14 Form of Amended and Restated Guarantee Agreement for BankUnited
Capital. (Exhibit 4.5 to BankUnited's Registration Statement on Form
S-4, No. 333-24025, as filed with the Securities and Exchange
Commission on March 27, 1997).
10.15 Form of Agreement as to Expenses and Liabilities (included as an
exhibit to Exhibit 99.6 to BankUnited's Registration Statement on
Form S-4, No. 333-24025, as filed with the Securities and Exchange
Commission on March 27, 1997).
10.16 Registration Rights Agreement (Exhibit 4.6 to BankUnited's
Registration Statement on Form S-4, No. 333-24025, as filed with the
Securities and Exchange Commission on March 27, 1997).
10.17 Registration Rights Agreement (Exhibit 4.7 to BankUnited's
Registration Statement on Form S-4, No. 333-24025, as filed with the
Securities and Exchange Commission on March 27, 1997).
10.18 Purchase Agreement (Exhibit 99.4 to BankUnited's Registration
Statement on Form S-4, No. 333- 24025, as filed with the Securities
and Exchange Commission on March 27, 1997).
10.19 Purchase Agreement (Exhibit 99.5 to BankUnited's Registration
Statement on Form S-4, No. 333- 24025, as filed with the Securities
and Exchange Commission on March 27, 1997).
10.20 Underwriting Agreement dated June 1997 between BankUnited and
BankUnited Capital II and Raymond James and Associates, Inc. and
Ryan, Beck and Co. (Exhibit 1 to Amendment No. 1 to Form S-2,
No. 333-27397, as filed with the Securities and Exchange Commission
on May 30, 1997).
10.21 Form of Indenture with respect to BankUnited's 9.60% Junior
Subordinated Debentures. (Exhibit 4.3 to BankUnited's Registration
Statement on Form S-2, File No. 333-27597, as filed with the
Securities and Exchange Commission on May 22, 1997).
10.22 Trust Agreement of BankUnited Capital II. (Exhibit 4.6 to
BankUnited's Registration Statement on Form S-2, File No. 333-27597,
as filed with the Securities and Exchange Commission on May 22,
1997).
10.23 Form of Amended and Restated Trust Agreement of BankUnited Capital
II. (Exhibit 4.7 to BankUnited's Registration Statement on Form S-2,
No. 333-27597, as filed with the Securities and Exchange Commission
on May 22, 1997).
10.24 Form of Guarantee Agreement for BankUnited Capital II. (Exhibit 4.9
to BankUnited's Registration Statement on Form S-2, No. 333-27597, as
filed with the Securities and Exchange Commission on May 22, 1997).
10.25 Form of Agreement as to Expenses and Liabilities (included as an
exhibit to Exhibit 4.7) (Exhibit 4.10 to BankUnited's Registration
Statement on Form S-2, No. 333-27597, as filed with the Securities
and Exchange Commission on May 22, 1997).
10.26 Purchase Agreement between BankUnited and BankUnited Capital III and
PaineWebber Incorporated (Exhibit 1.1 to BankUnited's Amendment No. 3
to Form S-3, No. 333-28677, as filed with the Securities and Exchange
Commission on March 6, 1998).
10.27 Form of Indenture with respect to BankUnited's 9% Junior
Subordinated Debentures (Exhibit 4.3 to Amendment No. 3 to
BankUnited's Registration Statement on Form S-3, No. 333-28677, as
filed with the Securities and Exchange Commission on March 6, 1998).
10.28 Trust Agreement of BankUnited Capital III. (Exhibit 4.6 to
BankUnited's Registration Statement on Form S-3, No. 333-28677, as
filed with the Securities and Exchange Commission on June 6, 1997).
102
10.29 Form of Amended and Restated Trust Agreement of BankUnited Capital
III. (Exhibit 4.3 to Amendment No. 3 to BankUnited's Registration
Statement on Form S-3, No. 333-28677, as filed with the Securities
and Exchange Commission on March 6, 1998).
10.30 Form of Guarantee Agreement for BankUnited Capital III. (Exhibit 4.3
to Amendment No. 3 to BankUnited's Registration Statement on Form
S-3, No. 333-28677, as filed with the Securities and Exchange
Commission on March 6, 1998).
10.31 Form of Agreement as to Expenses and Liabilities (Exhibit 4.3 to
Amendment No. 3 to BankUnited's Registration Statement on Form S-3,
No. 333-28677, as filed with the Securities and Exchange Commission
on March 6, 1998).
10.32 Form of Underwriting Agreement dated April 2, 1998 between BankUnited
and Friedman, Billings, Ramsey & Co., Inc. and PaineWebber
Incorporated (Exhibit 1.1 to Amendment No. 1 to Form S-3, No.
333-48249, as filed with the Securities and Exchange Commission on
April 2, 1998).
11.1 Statement regarding calculation of earnings per common share (set
forth in Footnote (2) to the Notes to Consolidated Financial
Statements contained in Part II, Item 8 of this report on Form 10-K
for the year ended September 30, 1999).
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, 1999).
27.1 Financial Data Schedule.
- -------------------------
* Exhibits followed by a parenthetical reference are incorporated herein by
reference from the documents described therein.
** Exhibits 10.1--10.5 are compensatory plans or arrangements.
*** Contracts with Management.
(B) REPORTS ON FORM 8-K.
During the quarter ended September 30, 1999, no Current Reports on Form 8-K
were filed by BankUnited.
SUPPLEMENTAL INFORMATION
As of the date of filing of this report on Form 10-K no annual report or proxy
material has been sent to security holders. Such material will be furnished to
security holders and the Securities and Exchange Commission subsequent to the
filing of this report on Form 10-K.
103
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
28, 1999.
BANKUNITED FINANCIAL CORPORATION
BY: /S/ ALFRED R. CAMNER
---------------------------
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, Mehdi Ghomeshi and Marc Lipsitz
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 28, 1999 on behalf of the Registrant by the
following persons and in the capacities indicated.
/s/ ALFRED R. CAMNER
- ------------------- Chairman of the Board, Chief Executive
ALFRED R. CAMNER Officer, and Director
(Principal Executive Officer)
/s/ MEHDI GHOMESHI
- ------------------- President and Chief Operating Officer
MEHDI GHOMESHI and Director
/s/ LAWRENCE H. BLUM
- ------------------- Vice Chairman of the Board and Director
LAWRENCE H. BLUM
/s/ MARC LIPSITZ
- ------------------- Director and Corporate Secretary
MARC LIPSITZ
/s/ EARLINE G. FORD
- ------------------- Executive Vice President, Treasurer and
EARLINE G. FORD Director
- ------------------- Director
MARC D. JACOBSON
104
/s/ ALLEN M. BERNKRANT Director
- -------------------
ALLEN M. BERNKRANT
/s/ ANNE W. SOLLOWAY
- ------------------- Director
ANNE W. SOLLOWAY
/s/ NEIL MESSINGER
- ------------------- Director
NEIL MESSINGER
/s/ BRUCE FRIESNER
- ------------------- Director
BRUCE FRIESNER
/s/ HUMBERTO LOPEZ
- ------------------- Executive Vice President and Chief Financial Officer
HUMBERTO LOPEZ
/s/ BARRY SHULMAN
- ------------------- Director
BARRY SHULMAN
/s/ A. FREDERICK SCHILD
- ------------------- Director
A. FREDERICK SCHILD
105
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
3.2 Bylaws of BankUnited.
10.10 Form of Change of Control Agreement between the Bank and
executive officers.
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.
27.1 Financial Data Schedule
- ----------
* Compensatory plan or arrange.