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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, 2001
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 (I.R.S. Employer
jurisdiction of Identification Number)
incorporation or
organization)
255 Alhambra Circle, 33134
Coral Gables, Florida
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (305) 569-2000
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the Class A Common Stock and Class B Common
Stock held by non-affiliates of the Registrant, based upon the average price on
December 24, 2001, was $365,727,087*. 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 24,
2001 were as follows:
Number of
Class Shares
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Class A Common Stock, $.01 par value 24,576,863
Class B Common Stock, $.01 par value 500,194
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Definitive Proxy Statement for its 2002 Annual Meeting of
Stockholders will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the fiscal year covered by this Form 10-K
pursuant to General Instruction G(3) of the Form 10-K. Information from such
Definitive Proxy Statement will be incorporated by reference into Part III,
Items 10, 11, 12 and 13 hereof.
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* Based on reported beneficial ownership of all directors and executive
officers of the Registrant; this determination does not, however, constitute
an admission of affiliated status for any of these individual stockholders.
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BANKUNITED FINANCIAL CORPORATION
Form 10-K Index
Page
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PART I
Item 1. Business............................................................................. 2
Market Area and Competition.......................................................... 3
Lending Activities................................................................... 4
Asset Quality........................................................................ 11
Investments and Mortgage-Backed Securities........................................... 12
Mortgage Loan Servicing.............................................................. 13
Sources of Funds..................................................................... 14
Activities of Subsidiaries........................................................... 18
Employees............................................................................ 19
Regulation........................................................................... 19
Taxation............................................................................. 25
Item 2. Properties........................................................................... 27
Item 3. Legal Proceedings.................................................................... 27
Item 4. Submission of Matters to a Vote of Security Holders.................................. 27
Item 4A. Executive Officers of the Registrant................................................. 28
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholders Matters................ 30
Item 6. Selected Financial Data.............................................................. 31
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 33
Item 7A. Quantitative and Qualitative Disclosures about Market Risk........................... 49
Item 8. Consolidated Financial Statements and Supplementary Data............................. 56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 98
PART III
Item 10. Directors and Executive Officers of BankUnited....................................... 98
Item 11. Executive Compensation............................................................... 98
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 98
Item 13. Certain Relationships and Related Transactions....................................... 98
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 stockholder 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, a Florida based corporation, is a full-service financial
institution. BankUnited's primary business currently consists of the operations
of BankUnited FSB, (the "Bank"), its principal subsidiary. 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 stockholders.
Through the Bank's 36 full-service branches located in south Florida,
BankUnited offers various retail and business deposit products, as well as a
variety of value-added, fee-based banking services to retail customers and
businesses in its market. The Bank also offers residential, consumer and
commercial loans.
The Bank's revenues consist primarily of interest earned on loans and
investments and fees paid for our financial services and products. Our expenses
are interest paid on deposits and borrowings and expenses incurred in providing
our services and products. At September 30, 2001, BankUnited had assets of $5.2
billion, deposits of $2.7 billion and stockholders' equity of $0.3 billion.
Change in Business Focus and New Management
In fiscal 1999, we adopted a community banking strategy of expanding our
deposit base and fee-generating products, and originating and retaining
residential, consumer and commercial loans. By this change, we moved away from
our traditional savings and loan model. We hired a new management team with
extensive retail and commercial banking experience in our market area to
facilitate this change in our business focus. These executives previously
managed various operations of Barnett Bank in South Florida.
Under our new management team we embarked on a thorough review of our
business model as well as the qualifications and effectiveness of our
personnel. We changed our strategy and operations to focus on originating
residential, consumer and commercial real estate and cashflow-based commercial
loans. We also introduced new products and services to meet the needs of both
consumer and commercial customers. We now add branch locations in strategic
target areas with family-oriented demographics and small to mid-sized
businesses.
2
Since the second quarter of fiscal 1999, we have significantly increased
loan production, developed enhanced deposit products and recorded stronger
earnings. The Bank is offering loans in sectors that we did not previously
emphasize and the composition of our residential loan portfolio has shifted as
a result of increased loan originations and a decrease in purchased loans.
BankUnited currently has thirty-five banking offices in southeast Florida
and one in southwest Florida and anticipates opening two to seven additional
branch offices in fiscal year 2002. BankUnited continuously re-evaluates
existing branch locations to ensure that its markets are optimally served.
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 in 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, 2001, had a
total of approximately $94.5 billion in deposits at commercial banks and
savings institutions (43.3% of the total of $217.9 billion of deposits in
Florida). BankUnited intends to expand its retail and commercial deposit base
by providing convenient locations, competitive rates and high-quality
personalized service to consumers and businesses in its target markets. We are
improving our distribution channel by expanding our retail branch network or
acquiring existing financial institutions or their branch offices.
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
that offer premium deposit rates to offset their lack of physical locations in
the market area. Many non-bank competitors 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
regional and super-regional commercial banks and savings associations that are
substantially larger and have more extensive operations than BankUnited,
including several formerly independent entities, which 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. Mergers among institutions have
disrupted many customer relationships and created an opening 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.
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 that it charges, the types of loans that it
offers, and the efficiency and quality of service that it provides. While
BankUnited has been, and intends to continue to be, primarily a residential
lender, BankUnited has increased its emphasis on commercial real estate,
construction, commercial and consumer lending, as discussed more fully below.
Factors that affect 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
that also allow BankUnited to control profitable growth of its assets and
liabilities. 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.
3
Lending Activities
From inception in 1984 through 1998, BankUnited's primary source of earning
assets was the purchase of one-to-four family residential mortgage loans in the
secondary market. During the last six months of fiscal 1998 and the first six
months of fiscal 1999, BankUnited experienced significant prepayment of these
loans and as a result BankUnited discontinued purchasing One-Year CMT loans
which are adjustable-rate mortgages with an index tied to the weekly average
yield on one-year U.S. Treasury securities adjusted to a constant maturity
published by the Federal Reserve ("One-Year CMT"), altered its practice of
purchasing loans in the secondary market, and turned its focus to producing
assets. BankUnited's current lending strategy includes originating residential
mortgages and continuing to expand commercial real estate, real estate
construction, commercial business, and small business lending, as well as
offering consumer loans, such as home equity loans and lines, and automobile
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, 2001, BankUnited's loan portfolio totaled $3.7 billion, of
which $3.2 billion or 85.3% consisted of one-to-four family residential
mortgage 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, 2001, the remainder of BankUnited's loan portfolio consisted of
$158.5 million of commercial real estate loans (4.2% of total loans); $132.4
million of commercial business loans (3.5% of total loans); $148.4 million of
construction and land loans (4.0% of total loans); $84.7 million of consumer
loans (2.3% of total loans); and $20.6 million of multi-family (five-or-more
units) residential real estate loans (0.5 % of total loans).
At September 30, 2001, $1.3 billion, or 35.1% of BankUnited's total loan
portfolio, consisted of purchased mortgage loans and loan participations,
serviced by others. These loans were primarily one-to-four family residential
mortgage loans. We expect this percentage to decrease since BankUnited no
longer purchases wholesale residential mortgage loans in the secondary market.
At September 30, 2001, BankUnited's loan portfolio included $737.8 million of
residential mortgage loans to non-resident aliens, which was 19.7% of total
loans before net items. See "One-to-Four Family Residential Mortgage Lending"
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 End September 30,
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2001 2000 1999
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(Dollars in thousands)
Total loans receivable, net, at beginning of period(1)......... $ 3,670,769 $3,302,866 $ 3,042,014
Loans funded:
Residential real estate..................................... 934,405 667,466 592,899
Commercial real estate, business and consumer............... 658,755 256,733 130,226
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Total loans funded(1).......................................... 1,593,160 924,199 723,125
Loans purchased(2)............................................. -- 5,465 803,329
Loans sold..................................................... (35,116) (10,210) (23,564)
Loans securitized.............................................. (200,901) -- --
Principal repayments and amortization of discounts and premiums (1,268,559) (543,292) (1,228,540)
Net charge offs................................................ (4,192) (3,720) (1,960)
(Increase) decrease in allowance for loan losses, net.......... (2,908) 2,795 (4,019)
Transfers to real estate owned, net............................ (2,604) (7,334) (7,519)
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Total loans receivable, net, at end of period(1)............... $ 3,749,649 $3,670,769 $ 3,302,866
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(1) Includes loans held for sale.
(2) 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,
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2001 2000 1999 1998
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Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
First and second
mortgage
loans:
One-to-four family
residential loans.. $3,198,331 85.3% $3,218,868 87.8% $3,010,427 91.1% $2,788,838 91.6%
Multi-family
residential
loans.............. 20,619 0.5% 70,856 1.9% 30,057 0.9% 24,392 0.8%
Commercial real
estate.............. 158,451 4.2% 155,569 4.2% 141,090 4.3% 145,819 4.8%
Construction......... 114,790 3.1% 38,786 1.1% 15,425 0.5% 7,827 0.3%
Land................. 33,620 0.9% 34,489 0.9% 23,659 0.7% 5,410 0.2%
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Total first and
second
mortgage loans.... 3,525,811 94.0% 3,518,568 95.9% 3,220,658 97.5% 2,972,286 97.7%
Consumer loans........ 84,698 2.3% 66,480 1.8% 33,878 1.0% 30,401 1.0%
Commercial business
loans................ 132,438 3.5% 83,023 2.3% 48,173 1.5% 15,550 0.5%
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Total loans receivable 3,742,947 99.8% 3,668,071 100.0% 3,302,709 100.0% 3,018,237 99.2%
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Deferred loan fees,
premium and disc 22,642 0.6% 15,730 0.4% 12,264 0.4% 29,905 1.0%
Allowance for loan
losses............... (15,940) (0.4)% (13,032) (0.4)% (12,107) (0.4)% (6,128) (0.2)%
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Loans receivable, net $3,749,649 100.0% $3,670,769 100.0% $3,302,866 100.0% $3,042,014 100.0%
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1997
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Amount Percent(1)
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First and second
mortgage
loans:
One-to-four family
residential loans.. $1,565,815 88.6%
Multi-family
residential
loans.............. 32,163 1.8%
Commercial real
estate.............. 130,197 7.4%
Construction......... 7,477 0.4%
Land................. 7,997 0.5%
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Total first and
second
mortgage loans.... 1,743,649 98.7%
Consumer loans........ 1,748 0.1%
Commercial business
loans................ 10,890 0.6%
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Total loans receivable 1,756,287 99.4%
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Deferred loan fees,
premium and disc 13,129 0.8%
Allowance for loan
losses............... (3,693) (0.2)%
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Loans receivable, net $1,765,723 100.0%
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(1) Percent is calculated using loans receivable, net in the denominator.
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,
2001, the amount of loans (including mortgage loans held for sale) by category
and expected principal repayments. These repayments are based on contractual
maturities and historical experience of prepayments.
Outstanding at
September 30, 2006- 2008- 2011 and
2001 2002 2003 2004 2005 2007 2010 Thereafter
-------------- -------- -------- -------- -------- -------- -------- ----------
(Dollars in thousands)
First and second mortgage loans:
One-to-four-family residential..... $3,198,331 $582,472 $420,589 $445,910 $284,580 $678,405 $419,015 $367,360
Multi-family residential........... 20,619 5,873 6,920 5,281 1,057 1,488 -- --
Commercial real estate............. 158,451 67,177 34,405 18,167 19,899 18,803 -- --
Construction....................... 114,790 61,248 48,884 4,035 154 284 185 --
Land............................... 33,620 28,184 5,146 89 72 106 23 --
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Total first and second mortgage loans 3,525,811 744,954 515,944 473,482 305,762 699,086 419,223 367,360
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Consumer loans....................... 84,698 19,409 13,127 9,565 7,047 9,978 13,750 11,822
Commercial business loans............ 132,438 93,111 12,358 16,948 8,756 1,142 40 83
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Total loans.......................... $3,742,947 $857,474 $541,429 $499,995 $321,565 $710,206 $433,013 $379,265
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6
As of September 30, 2001, approximately $2.2 billion or 59.5% of
BankUnited's loans receivable before net items (42.3% of total assets) were
secured by properties located in Florida and approximately $0.3 billion or 8.1%
of loans receivable before net items (5.8% of total assets) were secured by
properties located in California. No other state comprises more than 5.0%.
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, 2001, the distribution of the amount of
BankUnited's loans receivable before net items (including mortgage loans held
for sale) by state.
Outstanding at
State September 30, 2001
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(Dollars in thousands)
Florida(l)............................................ $2,172,836
California............................................ 286,126
New York.............................................. 122,027
Colorado.............................................. 75,213
New Jersey............................................ 74,194
Massachusetts......................................... 73,191
Virginia.............................................. 72,074
Texas................................................. 68,939
Maryland.............................................. 61,760
Illinois.............................................. 52,968
Connecticut........................................... 49,417
Arizona............................................... 39,400
North Carolina........................................ 39,309
Michigan.............................................. 38,695
Washington............................................ 38,589
Georgia............................................... 36,733
Pennsylvania.......................................... 32,958
Ohio.................................................. 26,300
Utah.................................................. 22,734
Nevada................................................ 19,796
Oregon................................................ 17,318
Tennessee............................................. 14,020
Minnesota............................................. 13,223
South Carolina........................................ 11,472
Indiana............................................... 8,775
Missouri.............................................. 8,767
District of Columbia.................................. 8,281
New Mexico............................................ 7,642
Kansas................................................ 7,314
Alabama............................................... 7,126
Oklahoma.............................................. 5,389
Idaho................................................. 4,778
Arkansas.............................................. 4,722
Kentucky.............................................. 4,283
Wisconsin............................................. 4,154
Louisiana............................................. 4,136
Iowa.................................................. 3,377
Wyoming............................................... 3,213
New Hampshire......................................... 2,857
Delaware.............................................. 2,477
Hawaii................................................ 2,418
Maine................................................. 1,953
Nebraska.............................................. 1,935
Montana............................................... 1,786
Rhode Island.......................................... 1,586
Mississippi........................................... 1,307
Alaska................................................ 1,266
Vermont............................................... 1,231
Other................................................. 605
Not secured by real estate............................ 182,277
----------
Total loans........................................... $3,742,947
==========
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(1) Does not include $0.9 million of tax certificates representing liens
secured by properties in Florida.
7
One-to-Four Family Residential Mortgage Lending. BankUnited's lending
primarily involves originating loans secured by first mortgages on real estate
improved with single-family dwellings. During fiscal 1999, BankUnited
completely phased-out the practice of purchasing wholesale residential mortgage
loans in the secondary market and focused on originating these loans.
BankUnited originates one-to-four family residential mortgage loans through its
branches and its network of non-affiliated wholesale brokers. During fiscal
2001, approximately 73.4% of BankUnited's one-to-four family residential
mortgage loan originations came from customer relationships introduced by
brokers. We currently maintain relationships with approximately 200 wholesale
brokers located mainly in South Florida. This network allows BankUnited to
generate loan volume and cost effectively acquire new account relationships
with brokers in our market areas. We can service and cross-sell these loan
customers through our branch system. This network also generates residential
loans to non-resident aliens secured by homes in Florida. Loan fundings in the
wholesale program, together with branch lending, reached $934.4 million, $667.5
million, and $592.9 million for the years ended September 30, 2001, 2000, and
1999, respectively.
The Bank services loans that it originates and endeavors to purchase loans
servicing-released when available and appropriate. At September 30, 2001, $3.2
billion or 85.3%, of BankUnited's total loan portfolio consisted of one-to-four
family residential loans, of which $1.8 billion, or 56.2%, were adjustable-rate
mortgage ("ARM") loans and $1.4 billion, or 43.8%, were fixed-rate mortgage
loans. BankUnited's first mortgage loans purchased or originated are generally
repayable over 15 or 30 years. 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
1 month, 3 month, or 3, 5 or 7 year fixed-rate term ("hybrid" ARMs) and, to a
lesser extent, semi-annually or annually with subsequent interest rate
adjustments at a margin over the One-Year CMT or the 12 month moving average of
the monthly average yield on U.S. Treasury securities adjusted to a constant
maturity of one year published by the Federal Reserve ("MTA's"). 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 adjustable, or 2% annually and 6% over the life of
the loan, above or below the initial rate on the loan for annual adjustable and
hybrid ARMs. The maximum interest rate adjustments for Hybrid ARM's, which are
tied to the MTA index generally range from none to 2%, periodically, and up to
13.8% over the life of the loan.
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, other than wholesale 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 BankUnited's
underwriters to ensure that underwriting guidelines are met or that waivers are
obtained in situations where mitigating 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.
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
8
mortgage loans generally conform to standards established by the 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 loan amount 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.
BankUnited originates first mortgage loans to non-resident aliens in a
manner similar to that described above for other residential loans. At
September 30, 2001, approximately $737.8 million, or 19.7%, of the BankUnited's
loan portfolio were first mortgage loans to non-resident aliens. The vast
majority of these loans are secured by single-family residences located in
Florida. Loans to non-resident aliens generally afford BankUnited an
opportunity to receive rates of interest higher than those available from other
single-family residential loans. 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. BankUnited sells a participating interest in the
majority of the larger loans for risk management purposes in the normal course
of business. The lending policy limits the Bank's risk generally to $25 million
for a single loan and generally no more than $40 million to a single borrower.
We believe the rapid consolidation of the south Florida banking market has
created, and will continue to create, opportunities to originate commercial
real estate loans for multi-family and commercial real estate developments. We
have originated numerous development loans, largely by targeting top tier local
real estate developers in Miami-Dade, Broward, Palm Beach and Collier Counties,
who benefit from our market expertise, localized decision-making and rapid
response time. 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, 2001, BankUnited had $179.1 million of commercial real estate loans and
multi-family loans, representing a total of 4.8% of BankUnited's loan portfolio.
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, participation
by the buyer, breakeven analysis and internal and external collateral
evaluations. In determining whether to originate or purchase 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, typically for terms of less than 60 months, but may
be up to 15 years.
Loans secured by commercial real estate 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, may be subject, to a greater extent, to adverse conditions in the real
estate market or in the economy, particularly the interest rate environment.
9
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, 2001,
BankUnited had $114.8 million of construction loans representing a total of
3.1% of BankUnited's loan portfolio. Construction loans to individuals for
their private residences 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. These loans are 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, that
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 will be required
to complete a project, the related loan-to-value ratios and the likelihood of
ultimate success of a project. Construction loans to borrowers other than
owner-occupants also involve many of the same risks 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, 2001, BankUnited had $33.6 million of land loans representing a
total of 0.9% of BankUnited's loan portfolio.
Commercial Business and Small Business Lending. Commercial and small
business loans totaled $132.4 million as of September 30, 2001, representing
3.5% of total loans. Commercial business loans are made to companies with
annual sales revenue in excess of $10.0 million in BankUnited's market area.
Small business loans are made to companies with annual sales revenue less than
$10.0 million; the loans do not typically exceed $1.0 million. BankUnited also
offers payroll and merchant services through outside vendors, as well as
in-house treasury management services. BankUnited makes both secured and
unsecured loans, although the majority of these loans are on a secured basis.
Accounts receivable, inventory, equipment, and/or general corporate assets of
the borrowers, as well as the personal guarantee of the principal, typically
secure the loans. 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.
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. Consumer loans totaled $84.7 million as of September 30,
2001, representing 2.3% of total loans. This portfolio 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.
BankUnited cross-sells home equity lines of credit and
10
consumer loans through its retail branch network to its growing deposit
customer base. The origination and servicing of residential loans presents
BankUnited with additional opportunities to expand its lending relationships by
establishing home equity lines of credit for these customers.
Consumer loans, with the exception of home equity lines of credit, are
offered primarily on a fixed-rate, short-term basis. The underwriting standards
employed by BankUnited for consumer loans include a determination of the
applicant's payment history on other debts, an assessment of the borrower's
ability to make payments on the proposed loan and other indebtedness and a
review of the value of the 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 these loans on non-accrual status when
more than 90 days past due. When a loan is placed on non-accrual status,
BankUnited reverses all accrued and uncollected interest and also begins
appropriate legal procedures to obtain repayment of the loan or otherwise
satisfy the obligation.
As of September 30, 2001, BankUnited had $35.2 million in substandard assets
of which $31.6 million are classified as non-performing assets. Substandard
assets consisted of the following:
As of
September 30,
2001
-------------
(Dollars in
thousands)
One-to-four family residential loans.. $16,810
Multi-family residential.............. 162
Commercial real estate................ 8,540
Commercial business and consumer loans 7,831
REO................................... 1,832
-------
Total Substandard Assets........... $35,175
=======
11
In addition, $1.9 million of commercial business loans and $0.5 million of
land loans for which reserves have been established were classified as loss as
of September 30, 2001.
BankUnited's allowance for loan losses is established and maintained based
upon management's evaluation of the risks inherent in BankUnited's loan
portfolio including the economic trends and other conditions in specific
geographic areas as they relate to the nature of BankUnited's portfolio.
BankUnited's one-to four family residential loans and consumer loans are
homogeneous in nature and no single loan is individually significant in terms
of its size or potential risk of loss. Therefore, management evaluates these
loans as a group of loans. Management utilizes historical loan losses, current
trends in delinquencies and charge-offs, plans for problem loan administration
and resolution, the views of its regulators, and other relevant factors, such
as assumptions and projections of current economic and market conditions in
order to determine the adequacy of the allowance for loan losses on these
loans. For individually impaired commercial real estate loans, an estimated
value of the property or collateral securing the loan is determined through an
appraisal, where possible. In instances where BankUnited has not taken
possession of the property or does not otherwise have access to the premises
and therefore cannot obtain an appraisal, a real estate broker's opinion as to
the value of the property is obtained based primarily on a drive-by inspection.
If the unpaid balance of the loan is greater than the estimated fair value of
the property, a reserve is established for the difference between the carrying
value and the estimated fair value. Other impaired loans such as non-mortgage
commercial loans are evaluated individually as well. For these loans, a
determination is made of the value of the collateral, if any, through
examination of current financial information. If the unpaid balance of the loan
is greater than estimated fair value of the property, a reserve is established
for the difference between the carrying value and the estimated fair value.
Allowances are also established on all classes of the performing portfolio,
for loans other than one-to-four family, and represent loss allowances that
have been established to recognize the probable and inherent losses in the loan
portfolio. In determining the adequacy of the reserves, management considers
changes in the size and composition of the loan portfolio, historical loan loss
experience, current economic and market conditions and BankUnited's credit
administration and asset management philosophies and procedures.
Because of the many factors that can affect recoverability, as discussed
more fully in "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Asset Quality," the estimated loss on individual loans
or groups of loans may not be the same as the actual loss incurred, if any. As
a self-correcting mechanism, to reduce the differences between estimated and
actual losses, BankUnited's current process evaluates the actual losses that
occur on all loans to determine whether refinements are necessary to improve
procedures for estimating losses. This evaluation includes examining causes for
actual losses and determining whether all of the factors resulting in the
losses were considered in the estimation process. If not, the evaluation
process is refined to consider those factors. Applied appropriately, this
mechanism reduces, but will not eliminate, differences that occur between
estimated and actual loan losses due to events and circumstances beyond the
control of BankUnited.
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 also securitizes
residential mortgage loans with FNMA and FHLMC.
12
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 certificates have a claim superior to
most other liens. If the holder does not file for the 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 affiliates of 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 to Consolidated
Financial Statements.
As of September 30
----------------------------
2001 2000 1999
-------- -------- --------
(Dollars in thousands)
Federal agency securities...... $ 55,067 $ 5,341 $ 6,752
Tax certificates............... 876 5,699 14,815
Mortgage-backed securities..... 832,728 342,355 347,224
Other(1)....................... 80,069 17,124 18,307
-------- -------- --------
Total investment securities. $968,740 $370,519 $387,098
======== ======== ========
Weighted average yield...... 6.53% 6.93% 6.74%
======== ======== ========
- --------
(1) Includes $39.9 million, $14.3 million and $14.7 million of trust preferred
securities of other issuers as of September 30, 2001, 2000 and 1999
respectively.
The following table sets forth information regarding the maturities of
BankUnited's investments as of September 30, 2001. Amounts shown are carrying
value:
Periods to Maturity from September 30, 2001
As of ------------------------------------------------
September 30, Within 1 Through 5 Through Over 10 Equity
2001 1 Year 5 Years 10 Years Years Securities
------------- ------ --------- --------- -------- ----------
(Dollars in thousands)
Federal agency securities. $ 55,067 $ -- $5,066 $ -- $ 50,001 $ --
Tax certificates(1)....... 876 876 -- -- -- --
Mortgage-backed securities 832,728 2,296 159 2,556 827,717 --
Other..................... 80,069 4,990 -- $6,222 64,151 4,706
-------- ------ ------ ------ -------- ------
Total.................. $968,740 $8,162 $5,225 $8,778 $941,869 $4,706
======== ====== ====== ====== ======== ======
Weighted average yield.... 6.53% 6.51% 6.07% 5.91% 6.57% N/A
======== ====== ====== ====== ======== ======
- --------
(1) Maturities are based on contractual maturities.
Mortgage Loan Servicing
BankUnited's mortgage loans 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
13
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. At September 30, 2001, 2000 and 1999
BankUnited serviced mortgage loans for investors with unpaid principal balances
of approximately $348.7 million, $343.6 million and $421.8 million,
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 (see "Item 7a. Quantitative and Qualitative
Disclosure about Market Risk").
Sources of Funds
BankUnited's primary sources of funds for its investment and lending
activities are customer deposits, loan repayments, funds from operations, the
issuance of BankUnited Capital stock (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 personal and
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 that 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. Shortly after fiscal year end 2001, the Diamond
Program was replaced by the Signature Program, which offers a similar suite of
financial services with added value at various levels.
During a high interest rate environment when rates are expected to decline,
BankUnited has placed emphasis on attracting deposits into passbook accounts,
money market accounts, short-term certificates of deposit and other short-term
savings alternatives. These short-term deposits are more sensitive to market
conditions than long-term fixed-rate certificates and reduce BankUnited's cost
of funds. 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. Conversely, during a low interest rate environment when rates
are expected to increase, more emphasis is placed on attracting deposits into
long-term, fixed-rate certificates. There are no regulatory interest rate
ceilings on BankUnited's accounts (See "Item 7a. Quantitative and Qualitative
Disclosure about Market Risk").
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,
-------------------------------------------------
2001 2000 1999
--------------- --------------- ---------------
Amount Rate Amount Rate Amount Rate
---------- ---- ---------- ---- ---------- ----
(Dollars in thousands)
Passbook accounts........................ $ 596,534 3.64% $ 324,894 4.86% $ 379,503 4.57%
---------- ---------- ----------
Checking:
Non-interest bearing................... 89,726 -- 72,253 -- 50,075 --
NOW accounts........................... 128,576 1.97% 116,032 2.73% 125,617 2.75%
Insured money market................... 92,975 3.01% 90,531 4.79% 92,785 4.04%
---------- ---------- ----------
Total transaction accounts............ 311,277 278,816 268,477
---------- ---------- ----------
Total passbook and checking accounts.. 907,811 603,710 647,980
---------- ---------- ----------
Certificates:
30-89 day certificates of deposit...... 2,258 3.31% 1,128 3.83% 2,260 4.40%
3-5 month certificates of deposit...... 211,672 4.16% 19,547 5.66% 28,943 4.63%
6-8 month certificates of deposit...... 131,364 4.28% 130,461 6.09% 273,090 4.92%
9-11 month certificates of deposit..... 111,960 5.32% 280,019 6.45% 138,684 5.26%
12-17 month certificates of deposit.... 452,012 5.51% 776,084 6.33% 688,792 5.21%
18-23 month certificates of deposit.... 155,021 6.02% 184,924 6.18% 83,369 5.55%
24-29 month certificates of deposit.... 189,096 5.23% 148,593 5.85% 102,394 5.66%
30-35 month certificates of deposit.... 40,685 5.93% 32,493 6.09% 26,550 5.97%
36-60 month certificates of deposit.... 178,266 5.99% 151,279 6.18% 109,686 6.13%
Public Funds........................... 273,000 6.31% 281,300 6.02% 178,050 4.98%
---------- ---------- ----------
Total certificates.................... 1,745,334 2,005,828 1,631,818
---------- ---------- ----------
Totals............................... $2,653,145 $2,609,538 $2,279,798
========== ========== ==========
Weighted average rates............. 4.60% 5.67% 4.83%
At September 30, 2001, 2000 and 1999, there were overdrafts of approximately
$405,000, $606,000 and $551,000, respectively.
The following table sets forth information by various categories regarding
the amount of BankUnited's certificate accounts (under $100,000) as of
September 30, 2001 that mature during the period indicated.
Periods to Maturity from September 30, 2001
-------------------------------------------
As of More
September 30, Within 1 1 to 2 2 to 3 than 3
2001 Year Years Years Years
------------- -------- -------- ------- -------
(Dollars in thousands)
Certificate accounts
2.00% to 2.99 %..................................... $ 4,305 $ 3,620 $ 632 $ 10 $ 43
3.00% to 3.99%...................................... 125,118 109,515 14,975 515 113
4.00% to 4.99%...................................... 439,932 318,877 103,511 17,217 327
5.00% to 5.99%...................................... 144,189 88,224 30,589 22,415 2,961
6.00% to 6.99%...................................... 309,315 262,558 30,656 9,135 6,966
7.00% to 7.99%...................................... 70,777 58,695 9,892 421 1,769
---------- -------- -------- ------- -------
Total certificate accounts (under $100,000)..... $1,093,636 $841,489 $190,255 $49,713 $12,179
========== ======== ======== ======= =======
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, 2001 that mature during the periods indicated.
Periods to Maturity from September 30, 2001
-------------------------------------------
As of More
September 30, Within 1 1 to 2 2 to 3 than 3
2001 Year Years Years Years
------------- -------- -------- ------- ------
(Dollars in thousands)
Jumbo certificate accounts..........
2.00% to 2.99%................... $ 1,274 $ 1,074 $ 100 $ 100 $ --
3.00% to 3.99%................... 53,610 44,796 8,713 -- 101
4.00% to 4.99%................... 164,314 118,281 26,885 19,148 --
5.00% to 5.99%................... 84,536 31,284 15,630 37,118 504
6.00% to 6.99%................... 198,740 112,637 58,799 24,487 2,817
7.00% to 7.99%................... 149,224 114,252 33,101 610 1,261
-------- -------- -------- ------- ------
Total Jumbo certificate accounts. $651,698 $422,324 $143,228 $81,463 $4,683
======== ======== ======== ======= ======
Included in the table of jumbo certificate accounts above, are $273.0
million in certificates of deposit issued to the State of Florida, referred to
as public funds, which have interest rates ranging from 3.40% to 7.23%. These
certificates are collateralized with GNMA, FNMA, and FHLMC mortgage-backed
securities with market values of approximately $138.9 million at September 30,
2001.
Of BankUnited's total deposits, excluding public funds, at September 30,
2001, 2000 and 1999, 15.9%, 16.8%, and 13.0%, respectively, were certificates
of deposit 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 many of these
deposits.
Borrowings. When BankUnited's primary sources of funds are not sufficient to
meet deposit outflows, loan originations 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 financial
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. FHLB of Atlanta offers a wide variety of
borrowing plans, 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 three years. Should the FHLB elect to exercise this option,
BankUnited can either accept the converted advance or repay it in full.
BankUnited also has advances under the FHLB "knockout" advance program. In
general, a knockout advance is structured as a fixed-rate advance that the FHLB
may convert to a floating rate indexed to the 3-month LIBOR rate if, at the end
of any given three-month period after the non-conversion period, the 3-month
LIBOR rate equals or exceeds an agreed upon threshold rate. Should a particular
advance be converted by the FHLB, its rate will reset quarterly for the
remainder of the term.
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
16
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 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 September 30, 2001, BankUnited
had purchased a total of 167,299 shares of trust preferred securities issued by
its trust subsidiaries on the open market at a cost of $11.4 million.
During November 1998, the Bank established a medium-term note program which
permits the issuance, from time to time, of up to a total of $500 million
aggregate principal amount of the Senior Notes, with maturities from 9 months
to 10 years from the date of issuance. As a condition of issuance, interest,
principal and any redemption premium on all offered Senior Notes are supported
by an irrevocable standby letter of credit of the FHLB of Atlanta. The Senior
Notes provide an additional source of funding, potentially with longer
maturities with attractive rates. In February 1999, the Bank issued and sold
$200 million of Senior Notes that mature five years from the date of issuance
and bear interest at an annual rate of 5.40% payable semiannually. The Bank
used the net proceeds from the sale of the notes for general corporate
purposes, loan financing, and assisting in the Bank's asset/liability
management. The notes are rated "Aaa" by Moody's Investors Service, Inc. and
"AAA" by Standard and Poor's Rating Services.
Securities sold under agreements to repurchase is another source of borrowed
funds which is available to BankUnited. Under this type of borrowing,
securities are pledged against borrowed funds and are released when the funds
are repaid. BankUnited uses this type of borrowing alternative on a short-term
basis maturities are usually within thirty to sixty days from inception. At
September 30, 2001, BankUnited held $283.1 million in repurchase agreements,
$16.6 million of which matured overnight, $216.5 million of which matured in
October and $50.0 million of which matured in November. As of September 30,
2001, BankUnited had $297.9 million in investments and mortgage-backed
securities pledged against these agreements.
The following tables set forth information as to BankUnited's borrowings as
of the dates and for the periods indicated.
At September 30,
----------------------------------------------------------
2001 2000 1999
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Balance Rate Balance Rate Balance Rate
---------- -------- ---------- -------- ---------- --------
(Dollars in thousands)
Period End Balances:
FHLB advances(1)................... $1,509,721 5.35% $1,251,426 6.28% $1,096,447 5.46%
company obligated mandatorily
redeemable trust preferred
securities of subsidiary trusts
holding solely junior
subordinated deferrable interest
debentures of BankUnited(2)...... 203,592 9.50% 212,393 9.53% 218,500 9.53%
Senior notes....................... 200,000 5.40% 200,000 5.40% 200,000 5.40%
Securities sold under agreements
to repurchase(3)................. 283,116 3.61% 9,205 6.42% 31,701 5.34%
---------- ---- ---------- ---- ---------- ----
Total borrowings............... $2,196,429 5.51% $1,673,024 6.47% $1,546,648 6.02%
========== ==== ========== ==== ========== ====
17
For the Year Ended September 30,
----------------------------------------------------------
2001 2000 1999
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Balance Rate Balance Rate Balance Rate
---------- -------- ---------- -------- ---------- --------
(Dollars in thousands)
Average Balances:
FHLB advances(1)................... $1,109,337 6.08% $1,008,161 5.88% $ 917,560 5.41%
Company obligated mandatorily
redeemable trust preferred
securities of subsidiary trusts
holding solely junior
subordinated deferrable interest
debentures of BankUnited(2)...... 206,316 9.66% 215,600 9.69% 218,500 9.68%
Senior notes....................... 200,000 5.67% 200,000 5.71% 132,055 5.76%
Securities sold under agreements
to repurchase(3)................. 112,062 4.40% 10,621 8.23% 25,311 5.86%
---------- ---- ---------- ---- ---------- ----
Total borrowings............... $1,627,715 6.37% $1,434,382 6.45% $1,293,426 6.18%
========== ==== ========== ==== ========== ====
- --------
(1) The maximum amount of FHLB advances outstanding during the years ended
September 30, 2001, 2000 and 1999 was $1.5 billion, $1.3 billion and $1.1
billion, respectively.
(2) The maximum amount of trust preferred securities outstanding was $218.5
million during the years ended September 30, 2001, 2000 and 1999.
(3) The maximum amount of securities sold under agreements to repurchase at any
month-end during the years ended September 30, 2001, 2000 and 1999 was
$316.7 million, $30.8 million, and $96.9 million, respectively.
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 holds 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.
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 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. Licensed insurance agents/registered securities representatives under
the supervision of a registered broker-dealer conduct the program separate from
the business of the Bank. BUFC also sells long-term care insurance products.
18
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, 2001, BankUnited had 558 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, dental 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.
Regulation
General
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 (the "FDIA"). As an insured institution and a subsidiary
of a savings and loan holding company, the Bank is subject to extensive
regulation and examination by the OTS, its primary federal regulator and its
deposit accounts are insured by the Federal Deposit Insurance Corporation (the
"FDIC") through the Savings Association Insurance Fund (the "SAIF").
Savings and Loan Holding Company Regulations
Activities Limitations. Because BankUnited is a unitary savings and loan
holding company which was in existence or applied for before May 4, 1999, and
the Bank meets the definition of a qualified thrift lender ("QTL"), as
discussed below, BankUnited generally has the broadest authority to engage in
various types of business activities, including nonfinancial activities. The
Gramm-Leach-Bliley Act ("GLB"), which became law in November 1999 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. In addition, 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 Director of the OTS has oversight authority for all holding company
affiliates, and is authorized under federal law to take enforcement action if
there is reasonable cause to believe that the continuation by a savings bank
holding company of any particular activity constitutes a serious risk to the
financial safety, soundness, or stability of the holding company's subsidiary
savings institution. The Director of the OTS may, as necessary, limit the
payment of dividends by the savings institution, limit transactions between the
savings institution, the holding company and the subsidiaries or affiliates of
either or limit any activities of the savings institution that might create a
serious risk that the liabilities of the holding company and its affiliates may
be imposed on the savings institution.
Transactions with Affiliates. Transactions between the Bank and its
affiliates are regulated under the HOLA and OTS regulations, which incorporate
Sections 23A, 23B, 22(g) and 22(h) of the Federal Reserve Act and Regulation O
adopted by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"). An "affiliate" of a savings institution generally includes
entities controlling the savings institution and entities under common control
with the institution. BankUnited and its subsidiaries, therefore, are
affiliates of the Bank under these regulations.
19
The laws and regulations governing affiliate transactions 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.
These laws and regulations also impose quantitative restrictions on the amount
of covered transactions in which an institution may engage and set
collateralization requirements on covered transactions. "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. 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.
Limitations are also imposed on loans and extensions of credit from an
institution to its executive officers, directors and principal shareholders and
each of their related interests.
Acquisitions. The HOLA prohibits a savings bank holding company from
directly or indirectly acquiring, without prior OTS approval, control of a
savings association or savings association holding company, all or
substantially all of the assets of a savings association or savings association
holding company (including through an acquisition by merger, consolidation or
purchase of assets, of any savings association), or more than 5% of the voting
shares of a non-subsidiary savings association or savings association holding
company. In determining whether to approve any such transaction, the OTS will
consider, among other things, the competitive effects of the transaction,
financial and managerial resources, future prospects of the holding company and
its bank or thrift subsidiaries following the transaction, and compliance
records of such subsidiaries with the Community Reinvestment Act.
Annual Reporting and Examinations. Under HOLA and OTS regulations, a savings
bank holding company must file periodic reports with the OTS and comply with
OTS record keeping requirements. BankUnited is also subject to holding company
examination by the OTS.
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. Federal laws empower federal savings
institutions like the Bank to accept deposits and pay interest on them, make
loans on residential and other real estate, make limited amounts of consumer
loans and commercial loans, invest in corporate obligations, government debt
securities and other securities, offer various banking services to their
customers, and engage in, directly or through subsidiaries, activities such as
trust operations and real estate investment, subject to applicable requirements
for notice to, or approval by, the institution's primary federal regulator.
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.
Insurance of Accounts. The Bank's deposits are insured by the SAIF up to
$100,000 for each insured account holder, subject to applicable terms and
conditions, the maximum amount currently permitted by law.
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.
20
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 which the
FDIC considers well capitalized and financially sound pay the lowest premium,
while institutions that are less than adequately capitalized and of substantial
supervisory concern pay the highest premium. 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 the Bank Insurance Fund (the "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. As a result of the special
assessment, the Bank's deposit insurance premiums were initially reduced to 6.7
basis points, and as of 1996 the SAIF deposits assessment was reduced to zero.
These premiums are subject to change in future periods.
In addition to deposit insurance assessments, the FDIC is authorized to
collect assessments against insured deposits to be paid to the Finance
Corporation ("FICO") to service FICO debt incurred in the 1980s. The FICO
assessment rate is adjusted quarterly. Before 2000, the FICO assessment rate
for SAIF-insured deposits was five times higher than the rate for BIF-insured
deposits. Beginning in 2000, SAIF- and BIF-insured deposits are being assessed
at the same rate by FICO. During fiscal 2001, the annualized rate was $0.02
cents per $100 of insured deposits.
Regulatory Capital Requirements. OTS regulations incorporate a risk-based
capital requirement that is designed to be no less stringent than the capital
standard applicable to national banks. It is modeled in many respects on, but
not identical to, the risk-based capital requirements adopted by the FDIC.
Associations whose exposure to interest-rate risk is deemed to be above normal
will be required to deduct a portion of such exposure in calculating their
risk-based capital. The OTS may establish, on a case-by-case basis, individual
minimum capital requirements for a savings association that vary from the
requirements that otherwise would apply under the OTS capital regulations. The
OTS has not established such individual minimum capital requirements for the
Bank, and, as of September 30, 2001, the Bank exceeded all applicable
regulatory requirements. See Notes to Consolidated Financial Statements. Under
current law and regulations, there are no capital requirements directly
applicable to BankUnited.
In addition, 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. 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. 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.
An institution's category depends upon where its capital levels are in
relation to relevant capital measures, which include a risk-based capital
measure, a leverage ratio capital measure, and certain other factors. A "well
capitalized" institution must have a ratio of total capital to risk-weighted
assets (a "total risk-based capital ratio")
21
of 10% or more, a ratio of core capital to risk-weighted assets ("Tier I
risk-based capital ratio") of 6% or more and a ratio of core capital to
adjusted total assets ("Tier 1 leverage ratio") of 5% or more, and may not be
subject to any written agreement, order, capital directive, or prompt
corrective action directive issued by the OTS. An institution will be
categorized as "adequately capitalized" if it has a total risk-based capital
ratio of 8% 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 rating of 1. Any institution that is neither well capitalized nor
adequately capitalized will be considered undercapitalized. The Bank is a well
capitalized institution under the definitions as adopted.
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.
Federal law requires that the federal banking agencies risk-based capital
guidelines take into account various factors including interest rate risk,
concentration of credit risk, risks associated with nontraditional activities,
and the actual performance and expected risk of loss of multi-family mortgages.
In 1994, the federal banking agencies jointly revised their capital standards
to specify that concentration of credit and nontraditional activities are among
the factors that the agencies will consider in evaluating capital adequacy. In
that year, the OTS and FDIC amended their risk-based capital standards with
respect to the risk weighting of loans made to finance the purchase or
construction of multi-family residences. The OTS adopted final regulations
adding an interest rate risk component to the risk-based capital requirements
for savings associations such as the Bank, although implementation of the
regulation has been delayed. Management believes that the effect of including
such an interest rate risk component in the calculation of risk-adjusted
capital will not cause the Bank to cease to be well-capitalized.
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.
22
Restrictions on Dividends and Other Capital Distributions. OTS Regulations
limit the ability of savings institutions to pay dividends and make other
capital distributions. Savings institutions, such as the Bank, which are
subsidiaries of a savings and loan holding company, must provide the OTS with
at least 30 days written notice before declaring any dividend or obtaining
board approval of any capital distribution. All such capital distributions are
also subject to the OTS' right to object on safety and soundness grounds.
In addition, a savings institution must obtain prior approval from the OTS
if (i) it fails to meet certain regulatory conditions which qualify it for
expedited treatment under OTS regulations, (ii) after giving effect to the
proposed distribution, the association's capital distributions in a calendar
year would exceed its year-to-date net income plus retained net income for the
preceding two years, (iii) the association would not be at least adequately
capitalized following the distribution, or (iv) the distribution would violate
a statute, regulation, regulatory agreement or a regulatory condition to which
the association is subject. 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.
Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan
Bank ("FHLB") system, which consists of 12 regional FHLBs governed and
regulated by the Federal Housing Finance Board. The FHLBs 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 $75.5 million investment in stock of
the FHLB of Atlanta as of September 30, 2001.
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. Eligible collateral is further limited 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, 2001, advances from the FHLB of Atlanta totaled $1.5 billion.
The Bank is also required to maintain cash reserve requirements at the
Federal Home Loan Bank. At September 30, 2001 this cash reserve requirement was
$20.8 million.
Qualified Thrift Lender Test. The qualified thrift lender test measures the
proportion of a savings institution's assets invested in loans or securities
supporting residential construction and home ownership. A savings institution
qualifies as a QTL if its qualified thrift investments equal or exceed 65% of
its portfolio assets on a monthly average basis in nine of every 12 months.
Qualified thrift investments, 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 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
23
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 will 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 re-qualify as a QTL if it thereafter complies
with the QTL test. At September 30, 2001, the Bank exceeded the QTL
requirements.
General Lending Regulations
The Bank's lending activities are subject to federal regulation, including
the Equal Credit Opportunity Act, the Truth in Lending Act, the Real Estate
Settlement Procedures Act and the Community Reinvestment Act. Because the Bank
is a federally-chartered savings bank, the Bank generally may extend credit as
authorized under federal law, without regard to state laws purporting to
regulate or affect its credit activities, other than state contract and
commercial laws, real property laws, homestead laws, tort laws, criminal laws
and other state laws designated by the OTS.
Community Reinvestment Act. Under the Community Reinvestment Act (the
"CRA"), as implemented by OTS regulations, a savings institution has a
continuing and affirmative obligation 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.
Under regulations adopted by the OTS with the other federal banking
agencies, there are 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 needs of its assessment
area through qualified investments that benefit its assessment area or a
broader statewide or regional area including the assessment area, and the
service test evaluates a savings institution by analyzing both the availability
and the effectiveness of the institution's systems for delivering retail
banking services and the extent and innovativeness of its community development
services. 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 regulations, the OTS assigns the savings institution
one of four ratings prescribed under the regulations. The four possible ratings
of meeting community credit needs are outstanding, satisfactory, needs to
improve, and substantial noncompliance. Based upon the most recent OTS
examination performed in fiscal 2000, the Bank's CRA rating is satisfactory.
Loans-to-one-borrower Limitations. The loans-to-one borrower limits
applicable to national banks also apply to savings institutions. Generally,
under current limits, loans and extensions of credit outstanding at one time to
a single borrower and not fully secured may not exceed 15% of the savings
institution's unimpaired capital and unimpaired surplus. Loans and extensions
of credit fully secured by certain readily marketable collateral may represent
an additional 10% of unimpaired capital and unimpaired surplus. As of September
30, 2001, the Bank was in compliance with the loans-to-one-borrower limitations.
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
24
interest-bearing and noninterest-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.
Numerous other regulations promulgated by the Federal Reserve Board affect
the business operations of the Bank. These include regulations relating to
equal credit opportunity, electronic fund transfers, collection of checks,
truth in lending, truth in savings and availability of funds.
Other Regulation
Regulation of Non-Banking Affiliates. BUFC Financial Services, Incorporated
("BUFC"), an insurance agency subsidiary of BankUnited doing business in the
State of Florida, sells fixed and variable annuities, mutual funds and
long-term care insurance products. BUFC's activities must comply with Florida
insurance laws and regulations, and BUFC employees are licensed insurance
agents and subject to continuing education, licensing and oversight by the
Florida Department of Insurance. In addition, BUFC's employees are also
registered representatives of Essex National Securities, Inc., a broker-dealer
regulated by the NASD. BUFC's activities are further regulated by regulations
and guidelines jointly adopted by the federal banking agencies, which specify
requirements for the sale of non-deposit insurance products, including, without
limitation, requirements pertaining to disclosures, physical separation of
activities from banking activities and due diligence and oversight functions.
Legislative and Regulatory Developments
Pursuant to the GLB, the federal banking agencies have jointly adopted a
privacy regulation with which savings institutions must comply on and after
July 1, 2001. Subject to certain exceptions, the privacy regulation requires
each financial institution to give a consumer notice of its privacy policies
and practices before disclosing nonpublic personal information about the
consumer to any non-affiliated third party, to give each customer notice of its
privacy policies and procedures at the time a customer relationship is
established and annually thereafter, and to give each consumer an opt out
notice and reasonable opportunity for the customer to opt out of having his
nonpublic personal information disclosed by the financial institution to
non-affiliated third parties. The Bank has worked diligently to make all
necessary and appropriate preparations to comply with the new privacy
requirements.
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
25
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 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 were required to adopt the specific charge off
method in computing its bad debt deduction. As such, the Bank has used 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. This
legislation has not had 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.
26
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.
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 enacted tax legislation, thrift foreclosures are treated as a
taxable event for federal tax purposes for property acquired after December 31,
1995. As such, a thrift may recognize gain, loss or a bad debt deduction at the
time of foreclosure depending on the method by which the property was acquired.
In addition, write downs of foreclosed property to fair market value no longer
give rise to a tax benefit. Finally, gains and losses realized upon the sale of
foreclosed property are included in taxable income of the thrift.
Item 2. Properties
Currently BankUnited operates 35 full-service banking offices located in
South Florida and one in West Florida, of which 33 are leased and 3 are owned.
BankUnited's banking offices have square footage ranging from 970 square feet
to 5,000 square feet with lease terms ranging from the year 2002 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, 2001,
BankUnited leased approximately 18,000 square feet of space pursuant to a lease
agreement that begins to terminate with respect to portions of the premises in
2004. BankUnited also leases 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 begins to terminate with respect to
portions of the premises in 2002. BankUnited has multiple options to renew
leases at all banking offices and other locations. BankUnited owns an office
condominium, which is currently not leased.
For further information regarding BankUnited's lease obligations, see 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, 2001.
27
Item 4a. Executive Officers of the Registrant.
The following table sets forth information concerning the executive officers
and directors of BankUnited and the Bank.
Name Age Positions with Company and Business Experience
---- --- ----------------------------------------------
Alfred R. Camner....... 57 Director, Chairman of the Board and Chief Executive Officer (1993 to
present), President (1993 to 1998, April 2001 to present) and Chief
Operating Officer (April 2001 to present) 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; General Counsel to CSF Holdings, Inc. and
its subsidiary, Citizens Federal Bank (1973 to 1996); Director, Executive
Committee member of Loan America Financial Corporation (1985 to
1994).
Mehdi Ghomeshi......... 45 Executive Vice Chairman of the Board (2001 to present) and Director,
President and Chief Operating Officer of BankUnited and the Bank
(December 1998 to 2001); 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....... 58 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.
Marc D. Jacobson....... 59 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 Ameri Insurance Agency, Inc., and its
predecessor, Head-Beckham Insurance Agency, Inc. (1990 to present).
Allen M. Bernkrant..... 71 Director of BankUnited (1993 to present) and the Bank (1985 to present);
Private investor in Miami, Florida (1990 to present).
Marc Lipsitz........... 60 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. 63 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.
28
Executive Officers of BankUnited And/or the Bank
Who Are Not Directors:
Name Age Positions with Company and Business Experience
---- --- ----------------------------------------------
Lisa Barrera......... 38 Senior Executive Vice President (April 2001 to present), Executive Vice
President Production Manager (November 2000 to April 2001), Executive
Vice President Mortgage Operations (March 2000 to November 2000),
Senior Vice President Mortgage Operations (February 1999 to March
2000), of the Bank. Vice President/Regional Sales and Service Center
Manager (1994 to 1999) of NationsBank Mortgage Corporation, formerly
Barnett Mortgage Corporation. Senior Vice President/Corporate
Operations Manager (1989 to 1994) of Loan America Financial
Corporation.
Iliana Castillo-Frick 46 Senior Executive Vice President (April 2001 to present) and Executive
Vice President, Human Resources Director (April 2000 to April 2001) of
the Bank. Vice President/Staffing Manager (February 1998 to March
2000); Vice President /Human Resources Manager (October 1995 to
January 1998); Assistant Vice President/Senior Human Resources
Generalist (April 1994 to September 1995), of Bank of America formerly
Barnett Banks, Inc.
Michael J. Clutter... 54 Senior Executive Vice President (April 2001 to present), Executive Vice
President, Credit Policy, of the Bank (March 1999 to April 2001); Senior
Vice President-Credit Administration (1984 to 1999) of Barnett Bank,
Broward County and its successor by merger, NationsBank, Inc.
Janette L. Davis..... 46 Senior Executive Vice President (April 2001 to present), Executive Vice
President, Retail Banking, of the Bank (February 1999 to April 2001);
Senior Vice President/Region Executive (1998 to 1999), Group Senior
Vice President, Market Executive (1996 to 1998) and Vice President,
Office Manager (1992 to 1996) of Barnett Bank, South Florida and its
successor by merger, NationsBank, Inc.
Humberto Lopez....... 42 Senior Executive Vice President (April 2001 to present), Executive Vice
President, Finance, of the Bank (January 1999 to April 2001) and Chief
Financial Officer of BankUnited and the Bank (December 1999 to
present); Director (1998 to 1999), PricewaterhouseCoopers LLP; Chief
Financial Officer (1997 to 1998) of Barnett Bank, South Florida and its
successor by merger, NationsBank, Inc., Regional Finance Manager (1996
to 1997) and Regional Controller (1993 to 1996) of Barnett Banks, Inc. and
its successor by merger, NationsBank, Inc.
Vincent F. Post, Jr.. 48 Senior Executive Vice President (April 2001 to present) Executive Vice
President, Commercial Real Estate Banking, of the Bank (1998 to April
2001); Executive Vice President (1996 to 1998) and Group Senior Vice
President (1994 to 1996) of Barnett Bank, South Florida and its successor
by merger, NationsBank, Inc.
All executive officers serve at the discretion of the Board of Directors and
are elected annually by the Board.
29
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-Amex 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 24, 2001, there were 507 and 14 holders of record of
BankUnited's Class A Common Stock and Class B Common Stock, respectively. The
number of holders of record of the Class A Common Stock includes nominees of
various depository trust companies for an undeterminable number of individual
stockholders. Class B Common Stock is convertible into Class A Common Stock at
a ratio (subject to adjustment 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 2001 or
2000. See Notes to Consolidated Financial Statements for a discussion of
restrictions on the Bank's payment of dividends to BankUnited.
The following tables set forth, for the periods indicated, the range of high
and low bid prices for the Class A Common Stock quoted on Nasdaq. Stock price
data 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, 2001:
1st Quarter....................... $ 8.50 $ 6.69
2nd Quarter....................... $11.88 $ 7.91
3rd Quarter....................... $14.95 $10.25
4th Quarter....................... $15.90 $12.00
Fiscal Year Ended September 30, 2000:
1st Quarter....................... $ 9.07 $ 6.88
2nd Quarter....................... $ 8.00 $ 6.78
3rd Quarter....................... $ 7.38 $ 5.94
4th Quarter....................... $ 7.81 $ 6.13
30
Item 6. Selected Financial Data.
As of or for the Fiscal Year Ended September 30,
--------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except statistical data
and earnings per share)
Operations Data:
Interest income...................................................... $ 324,077 $ 295,315 $ 233,550 $ 207,567 $ 108,774
Interest expense..................................................... 246,793 219,146 187,515 167,543 75,960
---------- ---------- ---------- ---------- ----------
Net interest income.................................................. 77,284 76,169 46,035 40,024 32,814
Provision for loan losses............................................ 7,100 4,645 7,939 1,700 1,295
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan losses.................. 70,184 71,524 38,096 38,324 31,519
---------- ---------- ---------- ---------- ----------
Non-interest income:
Service fees, net.................................................. 6,495 4,295 3,785 1,139 2,993
Net gain (loss) on sales of loans, investments and mortgage-backed
securities........................................................ 3,235 71 (5) 4,429 819
Net (loss) gain on sale of other assets............................ (15) -- 1 6 1
Other.............................................................. 3,877 1,709 1,019 651 247
---------- ---------- ---------- ---------- ----------
Total non-interest income............................................ 13,592 6,075 4,800 6,225 4,060
---------- ---------- ---------- ---------- ----------
Non-interest expenses:
Employee compensation and benefits................................. 22,629 19,819 15,970 10,943 8,880
Occupancy and equipment............................................ 9,046 8,332 8,029 4,854 3,568
Insurance.......................................................... 1,000 1,221 1,683 1,185 948
Professional fees.................................................. 3,267 3,193 3,084 1,891 1,605
Other.............................................................. 18,455 19,959 19,627 13,310 7,946
---------- ---------- ---------- ---------- ----------
Total non-interest expense......................................... 54,397 52,524 48,393 32,183 22,947
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes, extraordinary item and
preferred stock dividends........................................... 29,379 25,075 (5,497) 12,366 12,632
Provision (benefit) for income taxes................................. 11,106 10,247 (1,903) 5,009 5,033
---------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary item and preferred stock
dividends........................................................... 18,273 14,828 (3,594) 7,357 7,599
Extraordinary item (net of tax)...................................... 823 936 -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) before preferred stock dividends................... 19,096 15,764 (3,594) 7,357 7,599
Preferred stock dividends............................................ 649 790 773 897 2,890
---------- ---------- ---------- ---------- ----------
Net income (loss) after preferred stock dividends.................... $ 18,447 $ 14,974 $ (4,367) $ 6,460 $ 4,709
========== ========== ========== ========== ==========
Financial Condition Data:
Total assets......................................................... $5,238,195 $4,552,069 $4,078,471 $3,738,383 $2,145,406
Loans receivable, net, and mortgage-backed securities(1)............. 4,332,336 3,700,492 3,246,455 3,215,360 1,781,652
Investments, overnight deposits, tax certificates, reverse
repurchase agreements, certificates of deposit and other earning
assets.............................................................. 461,276 401,481 295,213 194,791 186,955
Total liabilities.................................................... 4,937,749 4,349,482 3,888,334 3,539,091 2,045,761
Deposits............................................................. 2,653,145 2,609,538 2,279,798 2,124,824 1,195,892
Long-term debt....................................................... 1,349,721 1,086,426 966,447 766,466 191,484
Company obligated mandatory redeemable trust preferred securities
of subsidiary trust holding solely junior subordinated deferrable
interest debentures of BankUnited................................... 203,592 212,393 218,500 218,500 116,000
Borrowings........................................................... 2,196,429 1,673,024 1,546,648 1,361,114 817,484
Total stockholders' equity........................................... 300,446 202,587 190,137 199,292 99,645
Common stockholders' equity.......................................... 297,620 193,241 180,984 190,627 75,649
(Continued on the next page)
31
As for the Fiscal Year Ended September 30,
---------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- ----------
(Dollars in thousands, except statistical data
and earnings per share)
Per Common Share Data:
Basic earnings (loss) per
common share................. $ 0.91 $ 0.82 $ (0.24) $ 0.41 $ 0.57
Diluted earnings (loss) per
common share................. $ 0.87 $ 0.81 $ (0.24) $ 0.39 $ 0.54
Weighted average number of
common shares and common
equivalent shares assumed
outstanding during the
period:
Basic........................ 20,228,072 18,220,508 18,312,548 15,692,566 8,210,890
Diluted...................... 21,353,850 18,779,837 18,312,548 16,666,415 9,148,229
Book value per common share... $ 11.88 $ 10.61 $ 9.88 $ 10.50 $ 7.94
Fully converted tangible book
value per common share....... $ 10.32 $ 8.78 $ 8.05 $ 8.66 $ 6.88
Select Financial Ratios:
Performance Ratios:
Return (loss) on average
assets(2).................... 0.42% 0.38% (0.10)% 0.24% 0.51%
Return (loss) on average
tangible common equity....... 9.46 9.68 (3.79) 4.94 9.34
Return (loss) on average
total equity (2)............. 8.20 8.09 (1.85) 4.53 8.06
Interest rate spread.......... 1.55 1.74 1.12 1.11 2.07
Net interest margin........... 1.76 1.91 1.27 1.32 2.31
Dividend payout ratio(3)...... 3.40 5.01 NM 12.19 38.03
Ratio of earnings to combined
fixed charges and preferred
stock dividends(4):
Excluding interest on deposits 1.27 1.25 0.92 1.14 1.26
Including interest on deposits 1.11 1.11 0.96 1.06 1.10
Loans receivable, net, and
mortgage-backed securities
to total deposits............ 163.29 141.81 142.40 151.32 148.98
Non-interest expense to
average assets............... 1.20 1.27 1.28 1.03 1.55
Efficiency ratio(5)........... 56.97 61.07 94.70 64.86 57.56
Asset Quality Ratios:
Ratio of non-performing loans
to total loans............... 0.76% 0.58% 0.70% 0.64% 0.72%
Ratio of non-performing
assets to total loans, real
estate owned and tax
certificates................. 0.84 0.68 0.85 0.73 0.79
Ratio of non-performing
assets to total assets....... 0.60 0.55 0.69 0.61 0.67
Ratio of net charge-offs to
average total loans.......... 0.11 0.11 0.06 0.02 0.04
Ratio of loan loss allowance
to total loans............... 0.42 0.35 0.36 0.20 0.21
Ratio of loan loss allowance
to non-performing Loans...... 56.00 61.20 52.45 31.51 28.96
Capital Ratio:
Ratio of average common
equity to average Total
assets....................... 4.94% 4.49% 4.08% 4.18% 3.40%
Ratio of average total equity
to average Total assets...... 5.13 4.72 5.16 5.19 6.36
Core capital-to-assets
ratio(6)..................... 7.12 7.49 7.86 8.72 8.07
Risk-based capital-to-assets
ratio(6)..................... 14.66 14.84 15.54 17.54 11.27
- -
- ----------
(1) Does not include mortgage loans held for sale.
(2) Return is calculated before payment of Preferred Stock dividends and after
extraordinary items.
(3) The ratio of total dividends declared during the period (including
dividends on the Bank's and BankUnited's Preferred Stock and BankUnited's
Class A and Class B Common Stock) to total earnings for the period before
dividends.
(4) 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 expenses plus Preferred Stock dividends on a
pretax basis.
(5) Efficiency ratio is calculated by dividing non-interest expenses less
non-interest income, excluding net gains on sale of assets, by net interest
income.
(6) Regulatory capital ratio of the bank.
NM = Not meaningful
32
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, 2001, 2000 and 1999. 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 is a Florida-incorporated savings and loan holding company for
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 re-organization
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.
Fiscal 2001 Highlights
During fiscal 2001, BankUnited increased its asset size to $5.2 billion and
reported net income of $18.4 million, resulting in basic earnings of $0.91 and
diluted earnings of $0.87 per share. BankUnited completed a secondary public
offering of Class A Common Stock and was added to the Russel 2000(C) Index and
the broader Russel 3000(C) Index.
The increase in assets for the year stems mainly from a growth in loan
production of 18% over last year to reach $1.3 billion. In addition, the
secondary equity offering raised over $78 million. A portion of the proceeds
was used to redeem BankUnited's outstanding 9% Noncumulative Perpetual
Preferred Stock (the "9% Preferred Stock"). BankUnited plans to use the
remaining net proceeds from the offering for general corporate purposes, which
may include expanding operations through new branches and possible
acquisitions. During fiscal 2001, BankUnited opened four new branches bringing
the total number of banking offices to thirty-six.
33
The increase in loan production allowed BankUnited to sell assets, which
were in excess of its portfolio needs and to realize gains on loan sales and
sales of securitized assets of $2.1 million. Also, as part of BankUnited's
asset/liability management process, it sold $160 million of investment
securities, which resulted in gains of $1.1 million.
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, 2001, 2000 and 1999, principal repayments on loans and
mortgage-backed securities and proceeds from maturities of other securities
totaled $1.4 billion, $657.9 million and $1.4 billion, respectively. During
fiscal 1998 BankUnited began experiencing significant acceleration of
prepayments on certain mortgage loans and mortgage-backed securities due to the
decrease in long-term interest rates that continued through the second quarter
of fiscal 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. This
trend continued until the end of the first fiscal quarter of 2001. At the end
of the first fiscal quarter of 2001 and continuing through the end of the
fiscal year, interest rates began to decline again causing the volume of
prepayments to increase through the end of the fiscal year.
Other significant sources of funds provided by investing activities include
the sale of mortgage-backed securities. During fiscal 2001 BankUnited took
advantage of its ability to originate loans by selling off some of those
assets, which were in excess of its portfolio needs. This practice generated
proceeds of $147.0 million from the sale of securitized loans and $136.0
million from the sale of mortgage-backed securities.
BankUnited's other sources of funds are provided by financing activities,
which principally includes borrowings, deposits and proceeds received from the
issuance of stock. Net cash provided by financing activities during the fiscal
year ended September 30, 2001 increased to $642.3 million from $461.8 million,
for the fiscal year ended September 30, 2000. This increase was mainly
attributable to increases in securities sold under the agreement to repurchase,
FHLB advances and deposits of $273.9 million, $258.3 million and $43.6 million,
respectively. In addition, BankUnited raised over $74.8 million from the
issuance of stock. These increases were slightly offset by a $7.1 million
decrease from the repurchase of trust-preferred securities. The increase in
borrowings, in conjunction with the increase in outstanding stock from the
additional offering of shares, is in line with BankUnited's asset/liability
management process of efficiently utilizing borrowings and capital for the
continued expansion of the Bank's operations and increasing stockholder value.
BankUnited's primary use of funds, in its operating and investing
activities, has been the funding of loans and the purchase of mortgage-backed
securities and other securities. During the fiscal year ended September 30,
2001, BankUnited funded a total of $1.6 billion in loans, and purchased $824.2
million of mortgage-backed securities and other securities. For the same period
in 2000, BankUnited's loans fundings totaled $924.2 million, and purchases of
mortgage-backed securities and other securities totaled $59.7 million.
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, 2001 to originate loans were $83.6 million. In
addition, BankUnited had $13.5 million in standby letters of credit outstanding
at September 30, 2001 compared to commitments of $84.3 million and standby
letters of credit outstanding of $15.5 million at September 30, 2000.
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 $300.4 million at September 30,
2001, an increase of $97.8 million, or 48.3%, from $202.6 million at September
30, 2000. The increase stems primarily from an additional offering of Class A
Common stock, which raised $73.6 million, net of offering expense plus current
year net
34
income after preferred stock dividends of $18.4 million. In addition, there
were increases from accumulated other comprehensive income of $11.2 million and
stock issued from the exercise of stock options and other stock awards of $1.5
million. These increases were offset by the redemption of BankUnited's 9%
Noncumulative Perpetual Preferred Stock of $7.0 million.
In December 1998, the Executive Committee was authorized by the Board of
Directors to purchase up to 1,000,000 shares of BankUnited's Class A Common
Stock, in such circumstances, as the Committee deems advantageous, with the
intent to increase shareholder value. Various criteria are considered by the
Executive Committee, such as the market price in relation to book value, market
liquidity and whether the purchase would be the best use of BankUnited's
resources. To date, BankUnited has purchased 333,000 of its Class A Common
Stock at an average price of $8.39 per share, recorded at cost as Treasury
Stock.
In May 1999, BankUnited's Board of Directors authorized the purchase of
shares of its 9% Noncumulative Perpetual Preferred Stock (the "9% Preferred
Stock") on the open market as deemed appropriate and, if the market is
appropriate, the retirement of the 9% Preferred Stock. During fiscal 2000,
BankUnited purchased a total of 1,000 shares of its 9% Preferred Stock on the
open market at a cost of $7,250. During fiscal 2001, BankUnited redeemed all of
the remaining 697,000 shares of its outstanding 9% Preferred Stock at a price
of $10.00 per share.
Federal savings banks such as the Bank are also required to maintain capital
at levels specified by applicable minimum capital ratios. At September 30,
2001, the Bank was in compliance with all capital requirements and met the
definition of a "well capitalized" institution under applicable federal
regulations.
Asset Quality
At September 30, 2001, non-performing assets totaled $31.6 million as
compared to $25.3 million and $28.3 million at September 30, 2000 and 1999,
respectively. Expressed as a percentage of total assets, non-performing assets
stood at 0.60% as of September 30, 2001 as compared to 0.55% as of September
30, 2000 and 0.69% as of September 30, 1999. The increase in non-performing
assets in fiscal 2001 primarily resulted from increases in non-accrual loans of
$7.5 million. Non-accrual loans increased primarily due to a $4.4 million
increase in one-to-four family residential loan delinquencies and a $3.6
million increase in commercial mortgage loan delinquencies. The increase was
offset by a decrease of $0.5 million in commercial business loan delinquencies.
The following table sets forth information concerning BankUnited's
non-performing assets for the periods indicated:
September 30,
-------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(Dollars in thousands)
Non-accrual loans(1)............................................. $27,429 $19,751 $21,428 $15,999 $10,866
Restructured loans(2)............................................ 1,034 1,283 962 1,137 1,888
Loans past due 90 days and still accruing........................ -- 261 693 2,313 --
------- ------- ------- ------- -------
Total non-performing loans(3).................................... 28,463 21,295 23,083 19,449 12,754
Non-accrual tax certificates..................................... 1,264 1,671 1,703 1,225 958
Real estate owned................................................ 1,832 2,286 3,548 1,974 611
------- ------- ------- ------- -------
Total non-performing assets...................................... $31,559 $25,252 $28,334 $22,648 $14,323
======= ======= ======= ======= =======
Allowance for losses on tax certificates......................... 934 986 1,168 469 697
Allowance for loan losses........................................ 15,940 13,032 12,107 6,128 3,693
------- ------- ------- ------- -------
Total allowance.................................................. $16,874 $14,018 $13,275 $ 6,597 $ 4,390
======= ======= ======= ======= =======
Non-performing assets as a percentage of total assets............ 0.60% 0.55% 0.69% 0.61% 0.67%
Non-performing loans as a percentage of total loans(4)........... 0.76% 0.58% 0.70% 0.64% 0.72%
Allowance for loan losses as a percentage of total loans(4)...... 0.42% 0.35% 0.36% 0.20 0.21%
Allowance for loan losses as a percentage of non-performing loans 56.00% 61.20% 52.45% 31.51% 28.96%
Net charge-offs as a percentage of average total loans........... 0.11% 0.11% 0.06% 0.02% 0.04%
35
- --------
(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,
$1.1 million, $1.3 million, $1.0 million and $0.6 million for the years
ended September 30, 2001, 2000, 1999, 1998 and 1997, respectively. The
amount of interest income on such non-accrual loans included in net income
for the years ended September 30, 2001, 2000, 1999, 1998 and 1997 was $0.9
million, $0.7 million, $0.5 million, $0.4 million and $0.4 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 $1.4 million, $2.1 million and $6.5 million
of accruing loans as of September 30, 2001, 2000 and 1999, respectively.
Management estimates that on these loans the loss, if any, will not be
significant.
(4) Based on balances prior to deductions for allowance for loan losses.
General Discussion
BankUnited's allowance for loan losses is established and maintained at
levels management deems adequate to cover probable losses on loans based upon a
periodic evaluation based on current information of the risks inherent in its
loan portfolio. When evaluating loan loss allowances, management reviews
performing and non-performing loans separately. There are several elements that
management evaluates to estimate the loan loss allowance for BankUnited's loan
portfolio. BankUnited applies procedural discipline in determining the amounts
of each element of the allowance for loan losses. The elements evaluated, and
how they are applied to each portion of the portfolio, are as follows:
. Estimated losses on various pools of non-performing loans and groups of
non-performing loans. This element is evaluated for each of the
portfolios of one-to-four family residential loans, multi-family
residential loans and consumer loans due to their homogeneous nature and
the fact that no single loan is individually significant in terms of its
size and potential risk of loss. Therefore, management evaluates these
loans as separate groups of loans. Economic factors, historical loan
losses, current trends in delinquencies and charge-offs, peer group
analysis, and other relevant factors are considered in order to
determine the adequacy of the allowance for loan losses.
. Losses based upon specific evaluations of known losses on individual
loans. Non-performing commercial mortgage, construction, business, and
land loans are reviewed individually to determine the appropriate
allowance for loan loss based upon the same factors as those described
above as well as plans for problem loan administration and resolution.
Where possible, the estimated value of the property underlying
commercial mortgage loans is arrived at through an appraisal. In
instances where BankUnited has not taken possession of the property or
does not otherwise have access to the premises and therefore cannot
obtain an appraisal, a real estate broker's opinion as to the value of
the property is obtained. Construction loans, business loans, and land
loans are evaluated individually based on a thorough examination of the
current financial information of the borrower and an estimate of the
value of the collateral, if any. If the carrying value of any of these
loans is greater than the estimated net realizable value of the property
or of the collateral securing these loans, a reserve is established for
the difference. Management evaluates different factors in establishing
the necessary allowance amount including appraisals, site reviews and
financial information and statements.
. BankUnited's entire loan portfolio is also evaluated in light of facts
and circumstances such as economic trends and other conditions in
specific geographical areas.
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.
36
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,
-----------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------ ------
(Dollars in thousands)
Allowance for loan losses, balance (at beginning of period) $13,032 $12,107 $ 6,128 $3,693 $2,158
Provisions for loan losses................................. 7,100 4,645 7,939 1,700 1,295
Allowance from acquisitions................................ -- -- -- 1,262 775
Loans charged off:
One-to-four family residential loans.................... (371) (997) (702) (508) (604)
Commercial real estate.................................. -- -- (733) -- --
Construction............................................ -- -- (197) -- --
Commercial business..................................... (3,726) (2,595) (21) (30) --
Consumer................................................ (160) (267) (395) (61) --
------- ------- ------- ------ ------
Total loans charged off............................. (4,257) (3,859) (2,048) (599) (604)
------- ------- ------- ------ ------
Recoveries:
One-to-four family residential loans.................... 5 74 49 33 48
Commercial real estate.................................. -- 8 1 -- --
Commercial business..................................... 46 53 -- 30 21
Consumer................................................ 14 4 38 9 --
------- ------- ------- ------ ------
Total loans recovered............................... 65 139 88 72 69
------- ------- ------- ------ ------
Allowance for loan losses, balance (at end of period)...... $15,940 $13,032 $12,107 $6,128 $3,693
======= ======= ======= ====== ======
Historically, recoveries of charged off loans have been minimal since
charged off loans have been primarily one-to-four family residential loans and
typically the only substantial asset available to BankUnited is the real estate
securing the loan, which is acquired through foreclosure and sold. BankUnited
is not aware of any significant liability related to REO or loans that may be
foreclosed.
37
The following table sets forth the allocation of general allowance for loan
losses by loan category for the periods indicated.
As of September 30,
----------------------------------------------------------------
2001 2000 1999
-------------------- -------------------- --------------------
% 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....................... $ 3,616 85.4% $ 4,045 87.8% $ 4,200 91.1%
Multi-family residential.......... 270 0.6 927 1.9 442 0.9
Commercial real estate............ 3,131 4.2 2,163 4.2 2,873 4.3
Construction...................... 1,377 3.1 465 1.1 154 0.5
Land.............................. 867 0.9 1,166 0.9 1,171 0.7
Commercial business............... 5,298 3.5 2,435 2.3 1,798 1.5
Consumer.......................... 1,351 2.3 1,206 1.8 848 1.0
Unallocated....................... 30 N/A 625 N/A 621 N/A
------- ----- ------- ----- ------- -----
Total allowances for loan
Losses...................... $15,940 100.0% $13,032 100.0% $12,107 100.0%
======= ===== ======= ===== ======= =====
As of September 30,
----------------------------------------
1998 1997
------------------- -------------------
% 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. $1,917 92.4% $1,873 89.2%
Multi-family residential................. 98 0.8 61 1.8
Commercial real estate................... 2,081 4.8 1,486 7.4
Construction............................. 225 0.3 62 0.4
Land..................................... 265 0.2 48 0.5
Commercial business...................... 307 0.5 108 0.6
Consumer................................. 356 1.0 22 0.1
Unallocated.............................. 879 N/A 33 N/A
------ ----- ------ -----
Total allowances for loan losses..... $6,128 100.0% $3,693 100.0%
====== ===== ====== =====
Management believes that the allowance for loan losses of $15.9 million as
of September 30, 2001 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.
Discussion of Financial Condition Changes for the Years Ended September 30,
2001 and 2000
Total assets increased 13.0% from $4.6 billion at September 30, 2000 to $5.2
billion at September 30, 2001. The overall increase of $0.6 million in assets
was principally made up of increases in investments, mortgage-
38
backed securities and lending of $112.7 million, $490.4 million and $78.9
million, respectively. These increases were funded in part by $18.4 million of
net income, $73.6 million in net proceeds from the additional secondary
offering of stock, and increased borrowings of $273.9 million from securities
sold under the agreements to repurchase and $258.3 million from FHLB advances.
The increase in borrowings, in conjunction with the increase in outstanding
stock from the additional offering of shares, is in line with BankUnited's
asset/liability management process of efficiently utilizing borrowings and
capital for the continued expansion of the Bank's operations and increasing
shareholder value.
The following is a discussion of material changes from September 30, 2000 to
September 30, 2001 in the Statement of Financial Condition.
Tax Certificates. BankUnited's investment in tax certificates decreased $4.8
million, or 84.2%, to $0.9 million at September 30, 2001 from $5.7 million at
September 30, 2000. The decrease is a result of certificate redemptions,
repayments and is consistent with the decision in fiscal 1999 to discontinue
investing in this line of business.
Investments. Investments held to maturity increased by $61.3 million to
$66.4 million at September 30, 2001 from $5.1 million at September 30, 2000.
The increase is primarily due to purchases of $66.2 million, partially offset
by repayments of $5.0 million.
Investments available for sale increased $51.3 million to $68.7 million as
of September 30, 2001, as compared to $17.4 million as of September 30, 2000.
The increase is primarily due to purchases of $49.3 and net unrealized gains of
$2.4 million, which were slightly offset by repayments of $0.4 million.
Mortgage-Backed Securities. Mortgage-backed securities held to maturity
decreased $27.6 million, or 12.4%, to $195.0 million at September 30, 2001 from
$222.6 million at September 30, 2000. The decrease was due to repayments of
$78.4 million offset by purchases of $50.3 million and amortization of premiums
and discounts of $0.5 million.
BankUnited's available for sale mortgage-backed securities portfolio
increased $517.9 million to $637.7 million as of September 30, 2001 from $119.8
million as of September 30, 2000. This increase was due to purchases of $673.6
million, including $15.2 million of purchases settling in October 2001, the
securitization of $200.9 million of loans, and unrealized gains on the
underlying securities of $15.7 million. Decreases to mortgage-backed securities
available for sale include proceeds from the sale of mortgage-backed securities
including securitized loans of $306.6 million, which includes $25.5 million of
sales settling in October 2001 and is net of $1.8 million of realized gains.
Other decreases include repayments of $65.1 million and amortization of
discounts and premiums of $.04 million.
Loans. BankUnited's loans receivable, net (including loans held for sale)
increased $78.9 million from September 30, 2000 to September 30, 2001. Loan
fundings of $1,593.2 million, were offset by repayments of $1,268.6 million
(net of accretion of discount and amortization of premium), securitizations of
$200.9 million, loan sales of $35.1 million, net of realized gains of $1.4
million, a provision for loan loss of $7.1 million, and transfers to real
estate owned of $2.6 million.
Mortgage loans held for sale decreased $62.6 million to $250.0 million as of
September 30, 2001 as compared to $312.6 million at September 30, 1999
principally due to residential loan repayments of $78.6 million, the
securitization of $63.1 million from the loans held for sale portfolio, and
sales of $17.5 million, net of realized gain of $1.4 million. These decreases
were partially offset by transfers from the loan portfolio of $63.1 million and
originations of loans held for sale of $33.5 million.
39
Other Interest Earning Assets. Other interest earning assets increased $12.9
million, or 20.6%, to $75.6 million at September 30, 2001 from $62.7 million at
September 30, 2000. This category primarily represents stock in the FHLB, which
BankUnited is required to purchase in proportion to FHLB advances.
Bank Owned Life Insurance. In third quarter of fiscal 2001, the Bank
purchased $20.0 million of life insurance, which represents life insurance
policies on the lives of certain Bank officers, which will be used to offset
the projected cost of the Bank's benefit plans for all employees. Through
September 30, 2001, the cash value of the life insurance policies increased by
$0.5 million. The Bank did not own such life insurance policies at September
30, 2000.
Due from Broker. Due from broker of $25.5 million represents the amount of
securities sold at the end of September of 2001, which settle in October 2001.
At the end of September 30, 2000, there were no amounts due from broker.
Deposits. Deposits increased by $43.6 million, or 1.7%, to $2.7 billion at
September 30, 2001, due to an increases in passbook savings of $271.6 million,
non-interest bearing checking accounts of $17.5 million, NOW accounts of $12.5
million and insured money market accounts of $2.4 million. These increases were
offset by a decrease in certificates of deposit of $260.4 million.
Securities Sold Under Agreements To Repurchase. Securities sold under
agreements to repurchase increased by $273.9 million to $283.1 million at
September 30, 2001 from $9.2 million at September 30, 2000. The increase was
used to fund the purchase of securities.
FHLB Advances. FHLB advances increased approximately $258.3 million, or
19.9% to $1.5 billion at September 30, 2001 from $1.3 billion at September 30,
2000. The increase was used to fund the purchase of securities.
Trust Preferred Securities. Trust Preferred securities decreased by $8.8
million or 4.1% from $212.4 million at September 30, 2000 to $203.6 million at
September 30, 2001. In November 1999, the Board of Directors of BankUnited
authorized the purchase from time to time in the open market, or otherwise, of
up to 300,000 shares of trust preferred securities issued by BankUnited's trust
subsidiaries. As of September 30, 2001, BankUnited had purchased a total of
167,299 shares of trust preferred securities issued by its trust subsidiaries
on the open market at a cost of $11.4 million, 8,800 shares were purchased
during fiscal 2001.
Stockholders' Equity. BankUnited's total stockholders' equity was $300.4
million at September 30, 2001, an increase of $97.8 million, or 48.3%, from
$202.6 million at September 30, 2000. The increase stems primarily from an
additional offering of Class A Common stock, which raised $73.6 million, net of
offering expense plus current year net income after preferred stock dividends
of $18.4 million. In addition, there were increases from accumulated other
comprehensive income of $11.2 million and stock issued from the exercise of
stock options and other stock awards of $1.5 million. These increases were
offset by the repurchase and retirement of BankUnited's 9% Noncumulative
Perpetual Preferred Stock of $6.9 million. The proceeds from the additional
offering of Class A Common Stock will be used for general corporate purposes
consistent with our business strategy for growth and expansion.
In May 1999, BankUnited's Board of Directors authorized the purchase of
shares of its 9% Noncumulative Perpetual Preferred Stock (the "9% Preferred
Stock") on the open market as deemed appropriate and, if the market is
appropriate, the retirement of the 9% Preferred Stock. During fiscal 2000,
BankUnited purchased a total of 1,000 shares of its 9% Preferred Stock on the
open market at a cost of $7,250. During fiscal 2001, BankUnited redeemed and
retired all 697,000 shares of its outstanding 9% Preferred Stock at a price of
$10.00 per share.
40
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. Through September 30,
2001, BankUnited purchased a total of 333,000 shares of its Class A Common
Stock on the open market at a cost of $2.8 million, which was purchased prior
to fiscal 2001. As of the date of filing of this Annual Report on Form 10-K, no
additional purchases have been made.
Comparison of Operating Results for the Fiscal Years Ended September 30, 2001
and 2000
General
Net income after preferred stock dividends increased by $3.4 million, or
22.7%, to $18.4 million for the year ended September 30, 2001, compared to
$15.0 million for the year ended September 30, 2000. The increase in fiscal
2001 is mainly attributed to increases in non-interest income of $7.5 million
and net interest income before provision for loan loss of $1.1 million, offset
by increases in provision for loan loss of $2.5 million and non-interest
expense of $1.9 million.
Net Interest Income. Net interest income before provision for loan losses
increased $1.1 million, or 1.4%, to $77.3 million for the year ended September
30, 2001 from $76.2 million for the year ended September 30, 2000. This
marginal increase is the net result of volume related increases in the excess
of interest earning assets over interest bearing liabilities, which generated
an additional $10.1 million in net interest income offset by decreases
attributable to a decline in interest rates and rate/volume (change in rate
multiplied by the change in volume), reducing net interest income by $7.3
million and $1.7 million, respectively.
Interest Income. Interest income increased by $28.8 million or 9.8%, to
$324.1 million for the year ended September 30, 2001, compared to $295.3
million for the year ended September 30, 2000. This increase is predominantly
volume related and reflects increases in the average balances of loans
receivable, net, mortgage-backed securities and collateralized mortgage
obligations, and long-term investments and FHLB stock of $151.1 million, $201.5
million and $71.3 million, respectively. These increases in average balances
resulted in an increase in interest income due to volume of $11.2 million,
$14.1 million and $5.5 million generated from loans receivable, net, mortgage
backed securities and collateralized mortgage obligations, and long-term
investments and FHLB stock, respectively. In addition, there was a reduction in
the average balance of short-term investments of $19.5 million, which resulted
in a decrease in interest income of $1.5 million due to volume, slightly
offsetting the increases discussed above.
While prepayments precipitated from the decline in interest rates during the
last three quarters of fiscal 2001, BankUnited sufficiently increased loan
production to raise the average balance in the loan portfolio and thus increase
interest income by $11.2 million in the year ended September 30, 2001 compared
to the year ended September 30, 2000.
The secondary offering of stock during fiscal 2001, which raised $73.6
million in net proceeds, allowed BankUnited to increase its borrowing capacity.
While maintaining its regulatory capital ratios, BankUnited will use this
increase in capital to expand its operations. The increase in the average
balance of mortgage-backed securities and collateralized mortgage obligations,
and long-term investments and FHLB stock stems from BankUnited's effort to
maximize interest earned until such time that BankUnited utilizes this capital
for expansion. The increase in those investments resulted in increases in
interest income of $14.1 million and $5.5 million, respectively.
Interest Expense. Interest expense increased by $27.7 million or 12.6%, to
$246.8 million for the year ended September 30, 2001, compared to $219.1
million for the year ended September 30, 2000. This increase has a volume
related component of $18.7 million and a rate related component of $8.8 million.
41
For the reasons indicated in the interest income portion of this discussion,
BankUnited increased its average FHLB advances and other borrowings by $202.6
million to $1.2 billion for the year ended September 30, 2001 from $1.0 billion
for the year ended September 30, 2000. This increase of 20.3% in the average
balance resulted in additional interest expense due to volume of $12.0 million
for the year ended September 30, 2001 compared to the prior year.
The average balance of trust-preferred securities for the year ended
September 30, 2001 was $206.3 million, which represents a decrease from the
prior year of $9.3 million. (See Trust Preferred Securities in the Discussion
of Financial Condition Changes for the Years Ended September 30, 2001 and
2000). This decrease in the average balance caused a reduction in interest
expense of $0.9 million for the year ended September 30, 2001 compared to the
prior year.
The average balances of savings and certificates of deposit increased for
the year ended September 30, 2001, compared to the year ended September 30,
2000 from $355.3 million to $427.1 million and from $1.8 billion to $1.9
billion, respectively. The increase in average balances resulted in an increase
in interest expense due to volume of $3.4 million for savings and $3.4 million
for certificates of deposit.
BankUnited's net interest margin for the year ended September 30, 2001 was
1.76% versus 1.91% for the same period in the prior year, a drop of 15 basis
points. The decrease in the interest margin can be largely attributed to the
re-pricing characteristics of Certificates of Deposits. These Certificates of
Deposits, which comprise a major portion of our deposits base, do not react as
quickly to interest rate changes as these deposits are longer in term. This lag
in re-pricing allowed certificates that were renewing in the first half of the
year to renew at rates above their original rate. As a result, the rates paid
on certificates increased by 54 basis points, from 5.65% in fiscal 2000 to
6.19% in fiscal 2001. Conversely, as interest rates remain low for an extended
period, this lag reverses and the overall costs of Certificates decreases. This
was the case in the second half of fiscal 2001.
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.
42
For the Year Ended September 30,
------------------------------------------------------------------------------------------------
2001 2000 1999
As of -------------------------- -------------------------- --------------------------
09/30/01 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)... 7.40% $3,666,749 $273,174 7.45% $3,515,652 $260,690 7.42% $3,038,086 $199,704 6.57%
Mortgage-backed securities
(2)....................... 6.58 555,745 38,473 6.92 354,271 24,866 7.02 337,333 18,493 5.48
Short-term investments (3).. 3.29 23,853 1,699 7.12 43,331 3,229 7.45 144,842 7,590 5.24
Tax certificates............ 0.14 2,879 640 22.22 10,585 784 7.41 26,666 1,882 7.06
Long-term investments and
FHLB stock, net........... 6.07 145,145 10,091 6.95 73,816 5,746 7.78 80,042 5,881 7.35
---- ---------- -------- ----- ---------- -------- ---- ---------- -------- ----
Total interest- earning
assets................... 7.00% 4,394,371 324,077 7.37% 3,997,655 295,315 7.39% 3,626,969 233,550 6.44%
---- ---------- -------- ----- ---------- -------- ---- ---------- -------- ----
Interest-bearing liabilities:
NOW/Money Market............ 1.67% 299,123 7,277 2.43% 264,577 6,777 2.56% 272,922 7,820 2.87%
Savings..................... 3.64 427,095 19,349 4.53 355,320 16,825 4.74 360,019 16,010 4.45
Certificate of deposits..... 5.44 1,883,395 116,508 6.19 1,823,606 103,027 5.65 1,599,661 82,825 5.18
Trust preferred securities.. 9.50 206,316 19,929 9.66 215,600 20,899 9.69 218,500 21,154 9.68
Senior notes................ 5.4 200,000 11,333 5.67 200,000 11,429 5.71 132,055 7,612 5.76
FHLB advances and other
Borrowings................ 4.96 1,221,398 72,397 5.93 1,018,782 60,189 5.91 942,871 52,094 5.52
---- ---------- -------- ----- ---------- -------- ---- ---------- -------- ----
Total interest-bearing
liabilities.............. 4.97% $4,237,327 $246,793 5.82% $3,877,885 $219,146 5.65% $3,526,028 $187,515 5.32%
==== ========== ======== ===== ========== ======== ==== ========== ======== ====
Excess of interest- earning
assets over interest-bearing
liabilities................. $ 157,044 $ 119,770 $ 100,941
========== ========== ==========
Net interest income.......... $ 77,284 $ 76,169 $ 46,035
======== ======== ========
Interest rate spread......... 2.03% 1.55% 1.74% 1.12%
==== ===== ==== ====
Net interest margin.......... 2.23% 1.76% 1.91% 1.27%
==== ===== ==== ====
Ratio of interest- earning
assets to interest-bearing
liabilities................. 103.71% 103.09% 102.86%
========== ========== ==========
- --------
(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, 2001 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.
43
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,
2001 v 2000 2000 v 1999
------------------------------------ ------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
Changes Changes
Changes Changes in Total Changes Changes in Total
in in Rate/ Increase in in Rate/ Increase
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
------- ------- ------- ---------- ------- ------- ------- ----------
(Dollars in thousands)
Interest income attributable to:
Loans............................ $11,211 $ 1,055 $ 218 $12,484 $31,392 $25,574 $ 4,020 $60,986
Mortgage-backed securities
and collateralized mortgage
obligations.................... 14,143 (354) (182) 13,607 929 5,184 260 6,373
Short-term investments(1)....... (1,451) (143) 64 (1,530) (5,320) 3,204 (2,245) (4,361)
Tax Certificates................ (571) 1,568 (1,141) (144) (1,135) 92 (56) (1,099)
Long-term investments and
FHLB stock..................... 5,549 (613) (591) 4,345 (457) 351 (29) (135)
------- ------- ------- ------- ------- ------- ------- -------
Total interest-earning assets.. 28,881 1,513 (1,632) 28,762 25,409 34,405 1,950 61,764
------- ------- ------- ------- ------- ------- ------- -------
Interest expense attributable to:
NOW/Money Market................ 884 (344) (40) 500 (239) (828) 24 (1,043)
Savings......................... 3,402 (746) (132) 2,524 (209) 1,044 (20) 815
Certificates of Deposit......... 3,378 9,847 256 13,481 11,595 7,549 1,058 20,202
Trust preferred securities...... (900) (65) (5) (970) (281) 27 (1) (255)
Senior Notes.................... -- (80) (16) (96) 3,917 (66) (34) 3,817
FHLB advances and other
borrowings..................... 11,975 204 29 12,208 4,194 3,610 290 8,094
------- ------- ------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities................... 18,739 8,816 92 27,647 18,977 11,336 1,317 31,630
------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in net
interest income............... $10,142 $(7,303) $(1,724) $ 1,115 $ 6,432 $23,069 $ 633 $30,134
======= ======= ======= ======= ======= ======= ======= =======
- --------
(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 $2.5
million to $7.1 million for the year ended September 30, 2001 compared to $4.6
million for the year ended September 30, 2000. This increase was necessary due
to an increase in non-accrual loans which increased from $19.8 million at
September 30, 2000 to $27.4 million at September 30, 2001, as well as an
increase in outstanding loans. The increase in non-accruals as well as loan
activity was primarily in consumer and commercial loans.
Non-interest Income. Non-interest income increased $7.5 million to $13.6
million for the year ended September 30, 2001, compared to $6.1 million for the
year ended September 30, 2000. The increase includes gains on the sale of
investments, loans and mortgage-backed securities in the aggregate of $3.2
million for the year ended September 30, 2001, compared to $71,000 for the
prior year. Included in the $3.2 million gain for fiscal 2001, is a gain of
$2.0 million from the securitization and sale of residential mortgage loans.
This activity is the result of BankUnited's asset/liability management process
and the practice of selling assets, which are in excess of portfolio needs.
The increase in non-interest income of $7.5 million also includes an
increase in service fees on deposits of approximately $2.5 million, partially
offset by a decrease of approximately $277,000 in loan servicing income, net.
44
Finally, non-interest income increased by $2.2 million from the sale of
specialized financial products sold through our affiliate organization BUFC
Financial Services.
Non-interest Expenses. Operating expenses increased $1.9 million to $54.4
million for the year ended September 30, 2001 compared to $52.5 million for the
year ended September 30, 2000. The increase in expenses is primarily
attributable to additional staff and facilities necessitated by BankUnited's
growth levels increasing compensation expense by $2.8 million, occupancy and
equipment by $0.7 million, and telecommunications and data processing of $0.4
million. These increases are partially offset by the decreases in loan
servicing expenses of $1.1 million and advertising and promotion expense of
$0.9 million.
Comparison of Operating Results for the Fiscal Years Ended September 30, 2000
and 1999
General
Net income after preferred stock dividends increased to $15 million for the
year ended September 30, 2000, compared to a loss of $4.4 million for the year
ended September 30, 1999. The loss in fiscal 1999 was attributed to the charges
related to the change in business focus. See "New Management and Change in
Business Focus" above. The increase in net income after preferred stock
dividends for the year ended September 30, 2000 consisted of an increase in
interest and fees on loans of $61 million, a reduction in provision for loan
losses of $3.3 million, offset by an increase in interest expense of $31.6
million and an increase in tax expense of $12.2 million.
Net Interest Income. Net interest income before provision for loan losses
increased $30.1 million, or 65.4%, to $76.2 million for the year ended
September 30, 2000 from $46.0 million for the year ended September 30, 1999.
Net interest margin increased to 1.91% for the year ended September 30, 2000,
compared to 1.27% for the same prior year period. For the year ended September
30, 2000, the increase in the net interest margin was due to an increase in the
yield on interest-earning assets to 7.39% from 6.44% in 1999, primarily
attributable to the increased yields on total loans, partially offset by a 33
basis point increase in the cost of interest-bearing liabilities to 5.65% from
5.32% in 1999.
Interest income increased $61.7 million, or 26.4%, to $295.3 million for the
year ended September 30, 2000 from $233.6 million for the year ended September
30, 1999. Interest income for fiscal year 2000 was affected by the increase in
outstanding commercial and commercial real estate loans combined with an
increased annual interest rate yield of 9.19% as compared to 8.45% at September
30, 2000 and 1999, respectively, for commercial loans and 9.08% as compared to
8.72% at September 30, 2000 and 1999, respectively, for commercial real estate
loans.
Interest expense for the year ended September 30, 2000, increased $31.6
million, or 16.9%, to $219.1 million from $187.5 million for the year ended
September 30, 1999, primarily due to increases in interest expense on
interest-bearing deposits. Interest expense on interest-bearing deposits
increased $19.9 million, or 18.7%, to $126.6 million for the year ended
September 30, 2000, from $106.7 million for the prior year as a result of an
increase in the average balance of interest-bearing deposits to $2.4 billion
for the year ended September 30, 2000, from $2.2 billion for the prior year,
and a 40 basis point increase in the average cost of interest-bearing deposits
to 5.18% for the year ended September 30, 2000, from 4.78% for the prior year.
Interest expense on the trust preferred securities decreased $255,000, or 1.2%
to $20.9 million for the year ended September 30, 2000, from $21.2 million for
the prior year, as a result of a decrease in the average balance of the trust
preferred securities to $215.6 million for the year ended September 30, 2000
from $218.5 million for the prior year due to the acquisition of 158,499 shares
of these securities by BankUnited during fiscal 2000.
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 as compared to $11.4 million for the year ended September 30, 2000, at a
weighted average cost of 5.71%; and a $8.1 million increase in interest expense
on FHLB advances and other borrowings to $60.2 million for the year ended
September 30, 2000 from $52.1 million for the prior year, resulting from an
increase in the average balance of FHLB advances and other borrowings to $1.0
billion for the year ended September 30,
45
2000, from $942.9 million for the prior year. Overall, the average rate paid on
interest-bearing liabilities increased 33 basis points to 5.65% on an average
balance of $3.9 billion for the year ended September 30, 2000, from 5.32% on an
average balance of $3.5 billion for the year ended September 30, 1999.
Provision for Loan Losses. The provision for loan losses decreased $3.3
million to $4.6 million for the year ended September 30, 2000 compared to $7.9
million for the year ended September 30, 1999. Included in the $7.9 million
provision is a $6.3 million provision recorded in the second quarter of 1999 as
a result of management's review of interest earning assets.
Second Quarter 1999 Evaluation
In connection with the change in business focus (see "Change in Business
Focus and New Management"), management performed a rigorous review of the loan
portfolio in the second quarter of fiscal 1999, using its extensive workout
experience, peer group data, industry data, economic information and regulatory
guidance. As part of this review, management refined the techniques used to
evaluate non-performing residential mortgage loans. This review differed from
prior reviews in that BankUnited's new management reviewed every single
performing loan, in the commercial and commercial mortgage loan portfolio. In
prior quarters performing loans had been reviewed on a cycle basis.
As a result of this review, BankUnited recorded a provision for loan loss
allowance of $6.3 million, $2.8 million of which was attributed to an increase
in the volume of loans in the non-performing category and $0.9 million of which
resulted from a refinement in the technique used by management to estimate loan
losses in the non-performing residential portfolio. The remaining balance of
$2.6 million is derived from further deterioration of non-performing loans and
management's evaluation of the remaining portfolio.
Non-interest Income. Non-interest income increased $1.3 million to $6.1
million for the year ended September 30, 2000 compared to $4.8 million for the
year ended September 30, 1999. The increase is mainly attributed to an increase
in service charges on deposits of approximately $276,000, an increase in
service charges and fees on loans of approximately $744,000, and a $656,000
increase in sale of investment products through BUFC. These increases were
partially offset by a decrease of approximately $400,000 of loan servicing
income, net of the amortization of loan mortgage servicing rights.
Non-interest Expenses. Operating expenses increased $4.1 million to $52.5
million for the year ended September 30, 2000 compared to $48.4 million for the
year ended September 30, 1999. The increase in expenses is primarily
attributable to the increased staff levels necessitated by BankUnited's growth.
Income Taxes. The income tax provision increased to a net expense of $10.2
million, for the year ended September 30, 2000, compared to a net benefit of
$1.9 million for the year ended September 30, 1999. This increase was due to
BankUnited's strategic changes which increased income before taxes,
extraordinary item and preferred stock dividends to $25.1 million for the
period ended September 30, 2000 versus a loss of $5.5 million for the same
period in 1999.
Extraordinary Item. In November 1999, the Board of Directors of BankUnited
authorized the purchase, from time to time, in the open market, or otherwise,
of up to 300,000 shares of the Trust Preferred Securities. During fiscal 2000,
BankUnited purchased 158,499 shares of the Trust Preferred Securities, at a
cost of $4.4 million, resulting in an extraordinary gain as a result of their
early extinguishment in the amount of $0.9 million, net of $0.6 million in
taxes.
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.
46
As a financial institution, 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 are affected by actions of Federal
Reserve designed to control inflation.
47
Selected Quarterly Financial Data
Set forth below is selected quarterly data for the fiscal years ended
September 30, 2001 and 2000.
Fiscal Year 2001
-------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands, except for per share data)
Net interest income.................................................. $17,938 $18,145 $18,761 $22,440
Provision for loan losses............................................ 1,200 1,600 1,650 2,650
Non-interest income.................................................. 2,063 2,936 3,876 4,717
Non-interest expense................................................. 12,931 12,781 13,737 14,948
------- ------- ------- -------
Income before taxes, extraordinary item and preferred stock dividends 5,870 6,700 7,250 9,559
Income taxes......................................................... 2,408 2,528 2,663 3,507
------- ------- ------- -------
Net income before extraordinary item and preferred stock dividends... 3,462 4,172 4,587 6,052
Extraordinary item (net of taxes).................................... 550 211 61 1
------- ------- ------- -------
Net income before preferred stock dividends.......................... 4,012 4,383 4,648 6,053
Preferred stock dividends............................................ 198 198 205 48
------- ------- ------- -------
Net income applicable to common stock................................ $ 3,814 $ 4,185 $ 4,443 $ 6,005
======= ======= ======= =======
Basic:
Net income before extraordinary item.............................. $ 0.18 $ 0.22 $ 0.23 $ 0.24
------- ------- ------- -------
Net income after extraordinary item............................... $ 0.21 $ 0.23 $ 0.23 $ 0.24
======= ======= ======= =======
Diluted:
Net income before extraordinary item.............................. $ 0.18 $ 0.21 $ 0.22 $ 0.23
------- ------- ------- -------
Net income after extraordinary item............................... $ 0.21 $ 0.22 $ 0.22 $ 0.23
======= ======= ======= =======
Fiscal Year 2000
-------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands, except for per share data)
Net interest income.................................................. $19,189 $19,638 $19,634 $17,708
Provision for loan losses............................................ 1,200 1,000 1,000 1,445
Non-interest income.................................................. 1,307 1,570 1,602 1,596
Non-interest expense................................................. 12,988 13,753 13,777 12,006
------- ------- ------- -------
Income before taxes, extraordinary item and preferred stock dividends 6,308 6,455 6,459 5,853
Income taxes......................................................... 2,579 2,635 2,631 2,402
------- ------- ------- -------
Net income before extraordinary item and preferred stock dividends... 3,729 3,820 3,828 3,451
Extraordinary item (net of taxes).................................... 431 261 9 235
------- ------- ------- -------
Net income before preferred stock dividends.......................... 4,160 4,081 3,837 3,686
Preferred stock dividends............................................ 197 198 198 197
------- ------- ------- -------
Net income applicable to common stock................................ $ 3,963 $ 3,883 $ 3,639 $ 3,489
======= ======= ======= =======
Basic:
Net income before extraordinary item.............................. $ 0.19 $ 0.20 $ 0.20 $ 0.18
------- ------- ------- -------
Net income after extraordinary item............................... $ 0.22 $ 0.21 $ 0.20 $ 0.19
======= ======= ======= =======
Diluted:
Net income before extraordinary item.............................. $ 0.19 $ 0.20 $ 0.20 $ 0.18
------- ------- ------- -------
Net income after extraordinary item............................... $ 0.21 $ 0.21 $ 0.20 $ 0.19
======= ======= ======= =======
48
Item 7a. Quantitative and Qualitative Disclosure about Market Risk.
Interest Rate Sensitivity
As a financial intermediary BankUnited invests in various types of
interest-earning assets (primarily loans, mortgage-backed securities, and
investment securities) which are funded largely by interest-bearing liabilities
(primarily deposits, FHLB advances, and trust preferred securities). Such
financial instruments have varying levels of sensitivity to changes in market
interest rates that creates interest rate risk for the Bank. Accordingly,
BankUnited's net interest income, the most significant component of its net
income, is 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. The Bank also
uses interest rate caps to limit its interest rate risk. In addition to
reviewing reports which summarize BankUnited's various interest sensitivity
gaps, management utilizes a simulation model which measures the financial
impact certain interest rate scenarios are likely to have on the Bank. As
discussed more fully below, a variety of factors influence the repricing
characteristics and the market values of BankUnited's interest-earning assets
and interest-bearing liabilities, but many of these factors are difficult to
quantify.
The matching of the repricing characteristics of assets and liabilities may
be analyzed by examining the extent to which such assets and liabilities are
"interest rate sensitive" and by monitoring an institution's interest rate
sensitivity gap. An asset or liability is said to be interest rate sensitive
within a specific time period if it will contractually mature or reprice, or if
by management assumption, it is likely to be impacted by prepayments, run-off,
early withdrawal, or other such forces which can impact the timing and amount
of a given financial instrument's cash flows. An interest rate sensitivity gap
is the difference between the amount of interest-earning assets anticipated to
mature or reprice within a specific time period and the amount of
interest-bearing liabilities anticipated to mature or reprice within that same
period. A gap is considered to be positive when the amount of interest rate
sensitive assets maturing or repricing within a specific time frame exceeds the
amount of interest rate sensitive liabilities maturing or repricing within that
same time frame. Conversely, a gap is considered to be negative when, within a
given period of time, the amount of interest rate sensitive liabilities exceeds
the amount of interest rate sensitive assets. During a period where the general
level of interest rates is rising, a bank with a negative gap over that period
is likely to experience a decline in net interest income. Alternatively, a bank
with a positive gap will typically experience an increase in net interest
income.
Significant Assumptions Utilized in Managing Interest Rate Risk
Assessing and managing BankUnited's exposure to interest rate risk involves
significant assumptions concerning the exercise of options which are considered
to be imbedded in many of the financial instruments on BankUnited's balance
sheet, the expected movement and relationship of various interest rate indices,
the impact of lag and cap risk, and the general availability of mortgages.
Imbedded Options. A substantial portion of BankUnited's loans and
mortgage-backed securities are residential mortgage loans that 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.
49
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.
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.
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.
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.
BankUnited has phased out 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, this has mitigated BankUnited's exposure
to the adverse impact accelerated premium amortization has on its net interest
income.
Investment securities, other than those with early call provisions,
generally do not contain significant imbedded options that 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 $59 million of these securities may be redeemed through 2016 at a
premium. (See 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
50
floating-rate basis at its discretion. It is highly probable that the advances
will be converted in a rising interest rate environment. Should the FHLB elect
to exercise this option, BankUnited's cost of funds may be affected adversely.
BankUnited also borrows under the "knockout" advance program offered by the
FHLB. In general, a knockout advance is structured as a fixed rate advance that
the FHLB may convert to a floating rate indexed to the 3-month LIBOR rate if,
at the end of any three month period after the non-conversion period, the
3-month LIBOR rate equals or exceeds an agreed upon threshold rate. In general
BankUnited seeks to set the threshold at a rate that is higher than current
market interest rates. Should a particular advance be converted by the FHLB,
its rate will reset quarterly for the remainder of its term.
BankUnited also limits its interest rate risk by purchasing interest rate
caps. At present BankUnited holds five interest rate cap contracts totaling
$800 million. The contracts require the counter-party to pay the BankUnited
quarterly interest payments based on the notional amount and the difference
between the index and the cap rate, if and when the index exceeds the cap rate,
in return for a one time fee paid by the BankUnited (See Notes to the
Consolidated Financial Statements for further discussion of interest rate
caps). Management does not include the caps in its assessment of interest rate
risk of the Bank due to the extreme level of interest rates that would need to
occur for the Bank to receive a benefit.
During fiscal year 2000, BankUnited borrowed a total of $250 million in
knockout advances, each with a 10-year term and a one year non-callable period.
The initial rates on these advances range from 5.92% to 6.94% while the
threshold rates range from 8.50% to 9.75%. BankUnited has chosen to borrow
under the knockout advance program because, as long as these advances remain
unconverted by the FHLB, the stability of BankUnited's net interest margin will
be enhanced. However, if the 3-month LIBOR rate were to rise to these threshold
rates so as to allow the FHLB to convert one or more of BankUnited's knockout
advances, the funding cost associated with the converted advance would become
higher and more volatile, negatively impacting BankUnited's net interest
margin. These same knockout advances were outstanding at September 30, 2001.
Interest Rate Indices. BankUnited's ARM loans and mortgage-backed securities
are primarily indexed to the One-Year CMT or MTA indices (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 with the One-Year CMT or MTA indices, an environment of changing
interest rates may impact the various indices differently which may lead to
significant changes in the value of, and the net earnings generated from,
BankUnited's financial instruments. 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, 2001 BankUnited's residential loan
portfolio included $1.8 billion of ARMs (48.6% 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 sharply 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 sharply falling interest rates, they may
reduce the decline in BankUnited's interest income. Over periods of time where
the general level of interest rates has had time to fluctuate, the alternating
positive and negative effects generated by such interest rate caps will be
largely offsetting. Over shorter periods, however, and to the extent any caps
are actually limiting the interest rate adjustment of any assets, they can
increase the volatility of BankUnited's net interest income, and to a lesser
extent, its market value of equity.
51
Availability of Mortgage Loans. BankUnited's net income depends
significantly on its ability to originate or acquire mortgage loan assets on
acceptable terms and at favorable spreads over the its borrowing costs. Should
BankUnited be unable to originate or acquire such mortgage loans, its results
of operations will be adversely affected.
In originating or acquiring mortgage loans, BankUnited competes with REITs,
investment banking firms, savings and loan associations, banks, mortgage
bankers, insurance companies, mutual funds, competing lenders, FNMA, FHLMC,
GNMA, and other entities which purchase mortgage loans, some of which have
greater financial resources than BankUnited. Increased competition for the
origination or acquisition of eligible mortgage loans or a diminution in the
supply could result in BankUnited having to incur higher costs and accept lower
yields. This, in turn, would reduce the amount by which BankUnited's yield on
earning assets would exceeds its cost of funding those assets.
The availability of mortgage loans meeting BankUnited's criteria is
dependent upon, among other things, the size and level of activity in the
residential real estate lending market, which in turn depends on other factors
including the level of interest rates, regional and national economic
conditions and changes in residential real estate values. To the extent the
BankUnited is unable to originate or acquire a sufficient volume of mortgage
loans meeting its criteria, BankUnited's operating results could be adversely
affected.
52
Gap Table. The following table sets forth the amount of interest-earning
assets and interest-bearing liabilities outstanding at September 30, 2001,
expected to reprice or mature in each of the future time periods shown.
At September 30, 2001
Interest Sensitivity Period (1)
----------------------------------------------------------
6 Months 6 Months- Over 1- Over 5- Over
or Less 1 Year 5 Years 10 Years 10 Years
---------- --------- ---------- --------- ----------
(Dollars in thousands)
Interest-earning assets:
Investments, tax certificates, Federal funds sold,
FHLB overnight deposits and other interest earning
assets, at cost.......................................... $ 393,578 $ 5,257 $ 15,097 $ 4,661 $ 42,683
Mortgage-backed securities................................ 99,181 69,298 306,968 200,062 157,219
Loans:
Adjustable-rate mortgages................................. 676,614 264,854 899,659 9,415 1,436
Fixed-rate mortgages...................................... 161,660 130,664 656,765 407,741 313,790
Commercial and consumer loans............................. 168,865 9,201 23,568 9,695 4,234
---------- -------- ---------- --------- ----------
Total loans.............................................. 1,007,139 404,719 1,579,992 426,851 319,460
---------- -------- ---------- --------- ----------
Total interest-earning assets............................ $1,499,898 $479,274 $1,902,057 $ 631,574 $ 519,362
========== ======== ========== ========= ==========
Interest-bearing liabilities:
Customer deposits:
Money market and NOW accounts............................. $ 25,240 $ 25,242 $ 151,586 $ 19,483 $ --
Passbook accounts......................................... 41,740 41,757 334,057 178,980 --
Certificate accounts...................................... 860,623 403,242 481,469 -- --
---------- -------- ---------- --------- ----------
Total customer deposits.................................. 927,603 470,241 967,112 198,463 --
---------- -------- ---------- --------- ----------
Borrowings:
FHLB advances............................................. 385,000 75,000 355,721 694,000 --
Senior Notes.............................................. -- -- -- -- --
Trust Preferred........................................... -- -- -- -- 203,592
Other borrowings.......................................... 233,116 -- 200,000 50,000 --
---------- -------- ---------- --------- ----------
Total borrowings......................................... 618,116 75,000 555,721 744,000 203,592
---------- -------- ---------- --------- ----------
Total interest-bearing liabilities....................... $1,545,719 $545,241 $1,522,833 $ 942,463 $ 203,592
========== ======== ========== ========= ==========
Derivative instruments affecting interest rate sensitivity.. $ 200,000 $ -- $ 600,000 $ -- $ --
========== ======== ========== ========= ==========
Total interest-earning assets less interest-bearing
liabilities ("GAP")........................................ $ 154,179 $(65,967) $ 979,224 $(310,889) $ 315,770
========== ======== ========== ========= ==========
Ratio of GAP to total assets.............................. 2.94% (1.26)% 18.69% (5.94)% 6.03%
========== ======== ========== ========= ==========
Cumulative excess (deficiency) of interest-earning assets
over interest-bearing liabilities.......................... $ 154,179 $ 88,212 $1,067,436 $ 756,547 $1,072,317
========== ======== ========== ========= ==========
Cumulative excess (deficiency) of interest-earning assets
over interest-bearing liabilities, as a percentage of total
assets..................................................... 2.94% 1.68% 20.37% 14.43% 20.46%
========== ======== ========== ========= ==========
Total
----------
Interest-earning assets:
Investments, tax certificates, Federal funds sold,
FHLB overnight deposits and other interest earning
assets, at cost.......................................... $ 461,276
Mortgage-backed securities................................ 832,728
Loans:
Adjustable-rate mortgages................................. 1,851,978
Fixed-rate mortgages...................................... 1,670,620
Commercial and consumer loans............................. 215,563
----------
Total loans.............................................. 3,738,161
----------
Total interest-earning assets............................ $5,032,165
==========
Interest-bearing liabilities:
Customer deposits:
Money market and NOW accounts............................. $ 221,551
Passbook accounts......................................... 596,534
Certificate accounts...................................... 1,745,334
----------
Total customer deposits.................................. 2,563,419
----------
Borrowings:
FHLB advances............................................. 1,509,721
Senior Notes.............................................. --
Trust Preferred........................................... 203,592
Other borrowings.......................................... 483,116
----------
Total borrowings......................................... 2,196,429
----------
Total interest-bearing liabilities....................... $4,759,848
==========
Derivative instruments affecting interest rate sensitivity.. $ 800,000
==========
Total interest-earning assets less interest-bearing
liabilities ("GAP")........................................ $1,072,317
==========
Ratio of GAP to total assets.............................. 20.46%
==========
Cumulative excess (deficiency) of interest-earning assets
over interest-bearing liabilities..........................
Cumulative excess (deficiency) of interest-earning assets
over interest-bearing liabilities, as a percentage of total
assets.....................................................
In preparing the table above, certain assumptions have been made with regard
to the reprising of maturities of certain assets and liabilities. Assumptions
as to prepayments on first and second mortgages loans and mortgage-backed
securities were obtained from prepayment rate tables and provide assumptions
corresponding to recent actual reprising experienced in the marketplace.
Assumptions have also been made with regard to payments on tax certificates
based on historical experience. Money market, NOW accounts and passbook
accounts are assumed to decay based on duration estimates determined by
management. The rates paid in these accounts are determined by management,
based on market conditions and other factors, and may reprice more slowly than
assumed. All other assets and liabilities have been repriced based on the
earlier of repricing or contractual maturity. The mortgage prepayments rate
table, deposit decay rates and the historical assumptions used regarding
payments on tax certificates should not be regarded as indicative of the actual
reprising that may be experienced by BankUnited.
53
In addition to preparing and reviewing periodic gap reports which help
identify repricing mismatches, management uses simulation models which estimate
the impact on net interest income of various interest rate scenarios, balance
sheet trends and strategies. These simulations cover the following financial
instruments: short-term financial instruments, securities, loans, deposits,
borrowings 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. Based on the
information and assumptions in effect on September 30, 2001, 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 1% and 4% of net interest
income.
BankUnited recognizes that there are numerous assumptions and estimates
associated with the simulations described above which may not reflect the
manner in which actual yields and costs respond to changes in market interest
rates. In this regard, the simulation model assumes that the composition of
BankUnited's interest sensitive assets and liabilities existing at the
beginning of a period remains relatively constant over the period being
measured and also assumes that the change in interest rates is reflected
uniformly across the yield curve regardless of the duration to maturity or
repricing of specific assets and liabilities. In addition, prepayment estimates
and other assumptions within the model are subjective in nature, involve
uncertainties and, therefore, cannot be determined with precision.
Accordingly, although the simulation model may provide an indication of
BankUnited's interest rate risk exposure at a particular point in time, such
measurements are not intended to provide for a precise forecast of the effect
of changes in market interest rates on BankUnited's net interest income and
will differ from actual results.
BankUnited's operations are affected by many factors beyond its control such
as the overall condition of the economy, monetary and fiscal policies of the
federal government, and regulations specific to the banking industry. Revenues
generated from lending activities are impacted by loan demand, which in turn
impacts the interest rates at which such loans may be made, the supply of
housing, the availability of funds to lend, and the cost of obtaining such
funds.
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. (See Notes to Consolidated Financial Statements for further
discussion of the Interest Rate Cap contracts.) The Interest Rate Cap contracts
are treated as fair-value 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.
The indices used in these contracts are the Constant Maturity Treasury
("CMT") and the Constant Maturity Swap ("CMS").
54
The following table sets forth information concerning the interest rate cap
contracts.
Notional Amount Index Cap Rate Termination Date
--------------- ----------- -------- ----------------
(dollars in thousands)
$100,000 5-Year CMT 7.50% March 23, 2002
100,000 10-Year CMT 7.25% March 23, 2002
100,000 5-Year CMS 8.85% March 23, 2003
400,000 10-Year CMS 9.35% March 23, 2003
100,000 10-Year CMS 8.85% March 23, 2003
--------
$800,000
========
BankUnited entered into these contracts for the purpose of hedging a portion
of BankUnited's interest rate risk against rising interest rates on certain
borrowings from the Federal Home Loan Bank. As of September 30, 2001, the
5-Year CMT rate was 3.79%, the 10-Year CMT rate was 4.58%, the 5-Year CMS rate
was 4.54% and the 10-Year CMS rate was 5.25%.
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.
55
BANKUNITED FINANCIAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants............................................ 57
Consolidated Statements of Financial Condition as of September 30, 2001 and September 30, 2000 58
Consolidated Statements of Operations for the Years Ended September 30, 2001, 2000 and 1999... 59
Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 2001, 2000
and 1999.................................................................................... 60
Consolidated Statements of Cash Flows for the Years Ended September 30, 2001, 2000 and 1999... 63
Notes to Consolidated Financial Statements.................................................... 65
56
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, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2001, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company'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 of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
PRICEWATERHOUSECOOPERS LLP
Miami, Florida
October 29, 2001
57
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30,
----------------------
2001 2000
---------- ----------
(Dollars in thousands,
except per share data)
Assets:
Cash........................................................... $ 45,113 $ 28,681
Federal Home Loan Bank overnight deposits...................... 246,902 247,640
Federal funds sold and securities purchased under agreements to
resell....................................................... 2,738 63,000
Tax certificates (net of reserves of $934 and $986 at September
30, 2001 and 2000, respectively)............................. 876 5,699
Investments held to maturity (fair value of approximately
$66,495 and $4,985 at September 30, 2001 and 2000,
respectively)................................................ 66,417 5,062
Investments available for sale, at fair value.................. 68,719 17,403
Mortgage-backed securities, held to maturity (fair value of
approximately $203,864 and $220,484 at September 30, 2001 and
2000, respectively).......................................... 194,979 222,592
Mortgage-backed securities available for sale, at fair value... 637,749 119,763
Loans receivable, net.......................................... 3,499,608 3,358,137
Mortgage loans held for sale (fair value of approximately
$253,490 and $313,840 at September 30, 2001 and 2000,
respectively)................................................ 250,041 312,632
Other interest-earning assets.................................. 75,625 62,676
Office properties and equipment, net........................... 16,054 16,158
Real estate owned.............................................. 1,832 2,286
Accrued interest receivable.................................... 30,157 26,648
Mortgage servicing rights...................................... 5,837 6,227
Goodwill....................................................... 28,357 29,911
Due from broker................................................ 25,469 --
Bank owned life insurance...................................... 20,516 --
Prepaid expenses and other assets.............................. 21,206 27,554
---------- ----------
Total assets................................................. $5,238,195 $4,552,069
========== ==========
Liabilities and Stockholders' Equity:
Liabilities:
Deposits....................................................... $2,653,145 $2,609,538
Securities sold under agreements to repurchase................. 283,116 9,205
Advances from Federal Home Loan Bank........................... 1,509,721 1,251,426
Senior notes................................................... 200,000 200,000
Company obligated mandatorily redeemable trust preferred
securities of subsidiary trust holding solely junior
subordinated deferrable interest debentures of BankUnited.... 203,592 212,393
Interest payable (primarily on deposits and advances from
Federal Home Loan Bank)...................................... 14,265 12,041
Advance payments by borrowers for taxes and insurance.......... 31,999 25,651
Due to broker.................................................. 15,178 --
Accrued expenses and other liabilities......................... 26,733 29,228
---------- ----------
Total liabilities............................................ 4,937,749 4,349,482
---------- ----------
Commitments and contingencies (Notes 7 and 17)
Stockholders' equity:
Preferred stock, Series B and Series 9%, $0.01 par value.
Authorized shares--10,000,000; issued shares--355,821 and
992,938 at September 30, 2001 and 2000, respectively.
Outstanding shares--355,821 and 991,938 at September 30, 2001
and 2000, respectively....................................... 4 10
Class A Common Stock, $0.01 par value. Authorized
shares--30,000,000. Issued shares--24,871,219 and 18,093,575
at September 30, 2001 and 2000, respectively; Outstanding
shares--24,538,219 and 17,760,575 at September 30, 2001 and
2000, respectively........................................... 249 180
Class B Common Stock, $0.01 par value. Authorized
shares--3,000,000; issued and outstanding shares-- 505,669
and 446,262 at September 30, 2001 and 2000, respectively..... 5 5
Additional paid-in capital..................................... 249,788 181,692
Retained earnings.............................................. 47,502 29,055
Treasury stock, 333,000 shares of class A Common Stock at
September 30, 2001 and 2000, and 1,000 shares of Preferred 9%
at September 30, 2000, at cost (none at September 30, 2001).. (2,794) (2,801)
Accumulated other comprehensive income (loss).................. 5,692 (5,554)
---------- ----------
Total stockholders' equity................................... 300,446 202,587
---------- ----------
Total liabilities and stockholders' equity................... $5,238,195 $4,552,069
========== ==========
See accompanying notes to consolidated financial statements
58
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
September 30,
----------------------------
2001 2000 1999
-------- -------- --------
(Dollars in thousands,
except earnings per share)
Interest income:
Interest and fees on loans.......................................................... $273,174 $260,690 $199,704
Interest on mortgage-backed securities.............................................. 38,473 24,866 18,493
Interest on short-term investments.................................................. 1,699 3,229 7,590
Interest and dividends on long-term investments and other interest-earning assets... 10,731 6,530 7,763
-------- -------- --------
Total interest income.............................................................. 324,077 295,315 233,550
-------- -------- --------
Interest expense:
Interest on deposits................................................................ 143,134 126,629 106,655
Interest on borrowings.............................................................. 83,730 71,618 59,706
Preferred dividends of subsidiary trust............................................. 19,929 20,899 21,154
-------- -------- --------
Total interest expense............................................................. 246,793 219,146 187,515
-------- -------- --------
Net interest income before provision for loan losses................................ 77,284 76,169 46,035
Provision for loan losses............................................................. 7,100 4,645 7,939
-------- -------- --------
Net interest income after provision for loan losses................................. 70,184 71,524 38,096
-------- -------- --------
Non-interest income:
Service fees, net................................................................... 6,495 4,295 3,785
Insurance commission................................................................ 2,733 1,503 847
Gain on sale of investments and mortgaged-backed securities......................... 1,837 -- --
Net gain on sale of loans and other assets.......................................... 1,383 71 (4)
Other............................................................................... 1,144 206 172
-------- -------- --------
Total non-interest income.......................................................... 13,592 6,075 4,800
-------- -------- --------
Non-interest expenses:
Employee compensation and benefits.................................................. 22,629 19,819 15,970
Occupancy and equipment............................................................. 9,046 8,332 8,029
Loan servicing expense.............................................................. 4,623 5,699 6,433
Telecommunications and data processing.............................................. 3,388 3,025 2,688
Professional fees--legal and accounting............................................. 3,267 3,193 3,084
Advertising and promotion expense................................................... 2,356 3,289 1,430
Amortization of goodwill............................................................ 1,554 1,565 1,555
Insurance........................................................................... 1,000 1,221 1,683
Real estate owned operations........................................................ (168) (307) 152
Other operating expenses............................................................ 6,702 6,688 7,369
-------- -------- --------
Total non-interest expenses........................................................ 54,397 52,524 48,393
-------- -------- --------
Income (loss) before income taxes, extraordinary item and preferred stock dividends. 29,379 25,075 (5,497)
Provision (benefit) for income taxes.................................................. 11,106 10,247 (1,903)
-------- -------- --------
Income (loss) before extraordinary item and preferred stock dividends.............. 18,273 14,828 (3,594)
Extraordinary item (net of tax of $514 and $586 for 2001 and 2000, respectively)...... 823 936 --
-------- -------- --------
Net income (loss) before preferred stock dividends.................................. 19,096 15,764 (3,594)
Preferred stock dividends............................................................. 649 790 773
-------- -------- --------
Net income (loss) after preferred stock dividends................................... $ 18,447 $ 14,974 $ (4,367)
======== ======== ========
Earnings (loss) per share:
Basic:
Net income (loss) before extraordinary item........................................ $ 0.87 $ 0.77 $ (0.24)
Extraordinary item................................................................. 0.04 0.05 --
-------- -------- --------
Net income (loss).................................................................. $ 0.91 $ 0.82 $ (0.24)
======== ======== ========
Diluted:
Net income (loss) before extraordinary item........................................ $ 0.83 $ 0.76 $ (0.24)
Extraordinary item................................................................. 0.04 0.05 --
-------- -------- --------
Net income (loss).................................................................. $ 0.87 $ 0.81 $ (0.24)
======== ======== ========
Weighted average common shares outstanding:
Basic............................................................................... 20,228 18,220 18,313
Diluted............................................................................. 21,354 18,780 18,313
See accompanying notes to consolidated financial statements.
59
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 2001, 2000 and 1999
----------------------------------------------------
Class A Class B
Preferred Stock Common Stock Common Stock
----------------- ------------------ --------------
Shares Amount Shares Amount Shares Amount
-------- ------ ---------- ------ ------- ------
(Dollars in thousands)
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....... -- -- -- -- -- --
Payment of dividends on 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
Comprehensive income:
Net income for the year ended September 30, 2000..... -- -- -- -- -- --
Payment of dividends on preferred stock.............. -- -- -- -- -- --
Other comprehensive loss, net of tax................. -- -- -- -- -- --
Total comprehensive income.......................... -- -- -- -- -- --
Dividend on B Preferred paid in Class A Common Stock.. -- -- 4,244 -- -- --
Conversion of Class B to Class A Common Stock......... -- -- 20,205 -- (20,205) --
Purchase of Class A Common Stock...................... -- -- (150,000) -- -- --
Purchase of preferred stock........................... (1,000) -- -- -- -- --
Stock options and other awards........................ -- -- 19,696 -- 8,000 --
-------- --- ---------- ---- ------- ---
Balance at September 30, 2000........................... 991,938 10 17,760,575 180 446,262 5
Comprehensive income:
Net income for the year ended September 30, 2001..... -- -- -- -- -- --
Payment of dividends on preferred stock.............. -- -- -- -- -- --
Other comprehensive income, net of tax............... -- -- -- -- -- --
Total comprehensive income.......................... -- -- -- -- -- --
Stock Offering--Class A Common stock.................. -- -- 6,555,000 66 -- --
Conversion of Class B to Class A Common Stock......... -- -- 238 -- (238) --
Redemption of preferred stock......................... (696,117) (7) -- -- -- --
Stock options and other awards........................ 60,000 1 222,406 3 59,645 --
-------- --- ---------- ---- ------- ---
Balance at September 30, 2001........................... 355,821 $ 4 24,538,219 $249 505,669 $ 5
======== === ========== ==== ======= ===
(Continued on next page)
60
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, 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 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
Comprehensive income:
Net income for the year ended September 30, 2000..... -- 15,764 -- -- 15,764
Payment of dividends on preferred stock.............. -- (790) -- -- (790)
Other comprehensive loss, net of tax................. -- -- -- (1,764) (1,764)
--------
Total comprehensive income.......................... 13,210
Dividend on B Preferred paid in Class A Common Stock.. 33 -- -- -- 33
Conversion of Class B to Class A Common Stock......... -- -- -- -- --
Purchase of Class A Common Stock...................... -- -- (1,110) -- (1,110)
Purchase of preferred stock........................... -- -- (7) -- (7)
Stock options and other awards........................ 324 -- -- -- 324
-------- ------- ------- ------- --------
Balance at September 30, 2000........................... 181,692 29,055 (2,801) (5,554) 202,587
Comprehensive income:
Net income for the year ended September 30, 2001..... -- 19,096 -- -- 19,096
Payment of dividends on preferred stock.............. -- (649) -- -- (649)
Other comprehensive income, net of tax............... -- -- -- 11,246 11,246
--------
Total comprehensive income.......................... -- -- -- -- 29,693
Stock Offering-Class A Common Stock................... 73,568 -- -- -- 73,634
Conversion of Class B to Class A Common Stock......... -- -- -- -- --
Redemption of preferred stock......................... (6,961) -- 7 -- (6,961)
Stock options and other awards........................ 1,489 -- -- -- 1,493
-------- ------- ------- ------- --------
Balance at September 30, 2001........................... $249,788 $47,502 $(2,794) $ 5,692 $300,446
======== ======= ======= ======= ========
(Continued on next page)
61
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(Continued)
For the Years Ended September 30, 2001, 2000 and 1999
The beginning balance at September 30, 1998 of each series of BankUnited's
preferred stock was as follows:
Shares Amount
------- ------
(Dollars in thousands)
Series B. 229,580 $2
Series 9% 697,117 7
------- --
Total.... 926,697 $9
======= ==
The ending balance at September 30, 2001 of each series of BankUnited's
preferred stock was as follows:
Shares Amount
------- ------
(Dollars in thousands)
Series B 355,821 $4
======= ==
The following table presents additional information concerning BankUnited's
other comprehensive income (loss):
For the Years Ended September 30,
--------------------------------
2001 2000 1999
------- ------- -------
(Dollars in thousands)
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during the period, net of tax
expense (benefit) of $6,889, $(1,185) and $(3,567) for 2001, 2000 and
1999, respectively............................................................ $11,004 $(1,893) $(5,698)
Less reclassification adjustments for:
Amortization of unrealized losses on transferred securities, net of tax
expense of $86, $80 and $19 for 2001, 2000 and 1999, respectively......... 138 129 31
Realized gains on securities sold included in net income, net of tax
expense of $64............................................................ 104 -- --
------- ------- -------
Total other comprehensive income (loss), net of tax................................ $11,246 $(1,764) $(5,667)
======= ======= =======
See accompanying notes to consolidated financial statements.
62
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30,
--------------------------------
2001 2000 1999
--------- --------- ---------
(Dollars in thousands)
Cash flows from operating
activities:
Net income (loss)............... $ 19,096 $ 15,764 $ (3,594)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Provision for loan losses.... 7,100 4,645 7,939
Provision for losses on
tax certificates............ -- -- 1,147
Depreciation and
amortization................ 3,080 3,026 3,243
Adjustments to the
carrying value of real
estate owned................ 396 966 1,582
Amortization of fees,
discounts and premiums,
net......................... 5,820 3,649 24,358
Amortization of mortgage
servicing rights............ 1,675 1,593 1,471
Amortization of goodwill..... 1,554 1,565 1,555
Amortization of unrealized
losses on transferred
mortgage-backed securities.. 224 209 50
Amortization of restricted
stock and other awards...... 316 316 210
Amortization of issuance
cost of Senior Notes........ 533 629 508
Net (gain) loss on sale of
loans, mortgage-backed
securities and other
assets...................... (3,220) (71) 4
Increase in bank owned
life insurance cash
surrender value............. (516) -- --
Net gain on sale of real
estate owned................ (332) (647) (154)
Extraordinary gain on
repurchase of trust
preferred securities........ (1,337) (1,522) --
Loans originated for sale...... (33,491) (9,287) (140,399)
Proceeds from sale of loans.... 36,514 10,210 23,559
(Increase) decrease in
accrued interest receivable.. (3,509) (1,880) 8,096
Increase in interest payable
on deposits and FHLB
advances..................... 2,224 1,836 2,380
(Decrease) increase in
accrued taxes................ (1,868) 3,480 (1,224)
(Decrease) increase in other
liabilities.................. (7,672) (5,440) 3,359
Decrease (increase) in
prepaid expenses and other
assets....................... 5,411 (4,300) 16,442
Other, net..................... (1,204) (188) 329
--------- --------- ---------
Net cash provided by
(used in) operating
activities................. 30,794 24,553 (49,139)
--------- --------- ---------
Cash flows from investing
activities:
Net increase in loans.......... (297,065) (385,007) (180,260)
Purchase of investment
securities held to maturity.. (66,227) -- --
Purchase of investment
securities available for
sale......................... (49,263) (1,000) (3,915)
Purchase of mortgage-backed
securities held to maturity.. (50,320) (49,824) (19,581)
Purchase of mortgage-backed
securities available for
sale......................... (658,406) (8,883) (166,205)
Purchase of other earning
assets....................... (84,949) (50,399) (49,649)
Purchase of bank owned life
insurance.................... (20,000) -- --
Proceeds from repayments of
investment securities held
to maturity.................. 5,000 -- 9,500
Proceeds from repayments of
investment securities
available for sale........... 350 2,250 5,800
Proceeds from repayments of
mortgage-backed securities
held to maturity............. 78,374 30,510 115,990
Proceeds from repayments of
mortgage-backed securities
available for sale........... 65,116 31,999 57,663
Proceeds from repayments of
other earning assets......... 72,000 42,650 46,035
Proceeds from sale of
mortgage-backed securities
held to maturity............. 21 -- --
Proceeds from sale of
mortgage-backed securities
available for sale........... 282,960 -- --
Proceeds from sale of real
estate owned................. 2,994 8,398 4,542
Purchase of office
properties and equipment..... (3,072) (3,418) (4,689)
Net decrease in tax
certificates................. 4,823 9,116 24,045
--------- --------- ---------
Net cash used in
investing activities....... (717,664) (373,608) (160,724)
--------- --------- ---------
(Continued on next page)
63
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
For the Years Ended September 30,
--------------------------------
2001 2000 1999
-------- -------- --------
(Dollars in thousands)
Cash flows from financing activities:
Net increase in deposits........................................................... 43,607 329,740 154,974
Net increase in Federal Home Loan Bank advances.................................... 258,295 154,979 74,981
Net increase (decrease) in other borrowings........................................ 273,911 (22,496) 110,553
Increase in capitalized costs for senior notes..................................... -- (300) (2,261)
Repurchase of trust preferred securities........................................... (7,060) (4,368) --
Net proceeds from issuance of stock................................................ 74,811 125 2,011
Purchase of BankUnited's Class A Common Stock...................................... -- (1,117) (1,684)
Redemption of preferred stock...................................................... (6,961) -- --
Dividends paid on preferred stock.................................................. (649) (757) (658)
Increase in advances from borrowers for taxes and insurance........................ 6,348 6,035 6,971
-------- -------- --------
Net cash provided by financing activities........................................ 642,302 461,841 344,887
-------- -------- --------
(Decrease) increase in cash and cash equivalents..................................... (44,568) 112,786 135,024
Cash and cash equivalents at beginning of year....................................... 339,321 226,535 91,511
-------- -------- --------
Cash and cash equivalents at end of year............................................. $294,753 $339,321 $226,535
======== ======== ========
Supplemental disclosure of non-cash investing and financing activities:
Interest paid on deposits and borrowings........................................... $244,569 $217,310 $185,136
Income taxes paid.................................................................. $ 11,395 $ 8,615 $ --
Purchase of mortgage-backed securities settling in October, 2001................... $ 15,178 $ -- $ --
Sales of mortgage-backed securities settling in October, 2001...................... $ 25,469 $ -- $ --
Securitization of loans receivable................................................. $200,901 $ -- $ --
Transfers from loans to real estate owned.......................................... $ 2,604 $ 7,334 $ 7,519
Transfer of loans from a mortgage-backed securities................................ $ -- $ -- $ 14,600
Transfer of loans from held for sale to portfolio.................................. $ -- $ -- $ 73,825
Transfer of loans from portfolio to held for sale.................................. $ 63,060 $ -- $288,319
Transfer of mortgage-backed securities from available for sale to held to maturity. $ -- $ -- $156,370
See accompanying notes to consolidated financial statements.
64
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of BankUnited Financial Corporation
("BankUnited") and subsidiaries conform to accounting principles generally
accepted in the United States of America and to general practices within the
savings and loan industry. Presented below is a description of BankUnited's
principal accounting policies.
(a) Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of BankUnited and
its subsidiaries, including BankUnited, FSB (the "Bank"). The Bank provides a
full range of banking services to individual and corporate customers through
its branches in South and West Florida. The Bank is subject to the regulations
of certain federal agencies and undergoes periodic examinations by those
regulatory authorities. All significant inter-company transactions and balances
have been eliminated.
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America. In
preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the consolidated statements of financial condition and operations for the
period.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan losses,
the effect of prepayments on premiums on purchased loans, the valuation of
mortgage servicing rights, and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans.
(b) Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents include
cash, Federal Home Loan Bank overnight deposits, and securities purchased under
agreement to resell with original maturities of three months or less. The
collateral held by the bank for securities purchased under the agreements to
resell is the securities underlying those agreements.
(c) Investments and Mortgage-backed Securities
Mortgage-backed securities and other investments available for sale are
carried at fair value, inclusive of unrealized gains and losses, and net of
discount accretion and premium amortization computed using the level yield
method. Net unrealized gains and losses are included in comprehensive income
(loss) net of applicable income taxes.
Mortgage-backed securities and investments held-to-maturity are carried at
amortized cost. Mortgage-backed securities and investment securities that
BankUnited has the positive intent and ability to hold to maturity are
designated as held-to-maturity securities.
Gains or losses on sales of mortgage securities and investments are
recognized on the specific identification basis.
65
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
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.
(d) Allowance for Loan Losses
BankUnited's allowance for loan losses is established and maintained based
upon management's evaluation of the risks inherent in BankUnited's loan
portfolio including the economic trends and other conditions in specific
geographic areas as they relate to the nature of BankUnited's portfolio.
BankUnited's one-to four family residential loans and consumer loans are
homogeneous in nature and no single loan is individually significant in terms
of its size or potential risk of loss. Therefore, management evaluates these
loans as a group of loans. Management utilizes historical loan losses, current
trends in delinquencies and charge-offs, plans for problem loan administration
and resolution, the views of its regulators, and other relevant factors, such
as assumptions and projections of current economic and market conditions in
order to determine the adequacy of the allowance for loan losses on these
loans. For individually impaired commercial real estate loans, an estimated
value of the property or collateral securing the loan is determined through an
appraisal, where possible. In instances where BankUnited has not taken
possession of the property or does not otherwise have access to the premises
and therefore cannot obtain an appraisal, a real estate broker's opinion as to
the value of the property is obtained based primarily on a drive-by inspection.
If the unpaid balance of the loan is greater than the estimated fair value of
the property, a reserve is established for the difference between the carrying
value and the estimated fair value. Other impaired loans such as non-mortgage
commercial loans are evaluated individually as well. For these loans, a
determination is made of the value of the collateral, if any, through
examination of current financial information. If the unpaid balance of the loan
is greater than estimated fair value of the property, a reserve is established
for the difference between the carrying value and the estimated fair value.
Allowances are also established on all classes of the performing portfolio
and represent loss allowances that have been established to recognize the
probable losses inherent in the loan portfolio. In determining the adequacy of
the reserves, management considers changes in the size and composition of the
loan portfolio, historical loan loss experience, current economic and market
conditions and BankUnited's credit administration and asset management
philosophies and procedures.
Because of the many factors that can affect recoverability, the estimated
loss on individual loans or groups of loans may not be the same as the actual
loss incurred, if any. As a self-correcting mechanism, to reduce the
differences between estimated and actual losses, BankUnited's current process
evaluates the actual losses that occur on all loans to determine whether
refinements are necessary to improve procedures for estimating losses. This
evaluation includes examining causes for actual losses and determining whether
all of the factors resulting in the losses were considered in the estimation
process. If not, the evaluation process is refined to consider those factors.
Applied appropriately, this mechanism reduces, but will not eliminate,
differences that occur between estimated and actual loan losses due to events
and circumstances beyond the control of BankUnited.
Management believes that the allowance for loan losses is adequate. While
management uses historical and current available information to recognize
losses on loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the allowance
for loan losses. Such agencies may require changes to the allowance based on
their judgments about information available to them at the time of their
examination.
(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.
66
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
(f) Loan Origination Fees, Commitment Fees, Loan Premiums and Related Costs
Loan origination fees and certain direct loan origination costs are
deferred, and the net fee or cost is recognized as an adjustment to interest
income using the interest method over the contractual life of the loans,
adjusted for estimated prepayments based on BankUnited's historical prepayment
experience. Commitment fees and costs relating to commitments are recognized
over the commitment period on a straight-line basis. If the commitment is
subsequently exercised during the commitment period, the remaining unamortized
commitment fee at the time of exercise is recognized over the life of the loan
as an adjustment of yield.
Premiums (discounts) paid on purchased loans are capitalized and recognized
as an adjustment to interest income over the contractual life of the loans,
adjusted for estimated prepayments based on BankUnited's historical prepayment
experience. If actual prepayments exceed those estimated by BankUnited, premium
(discount) amortization (accretion) is increased (decreased) through charges to
interest income in the period the excess prepayments occur.
(g) Other Interest-Earning Assets
Other interest-earning assets includes Federal Home Loan Bank of Atlanta
(FHLB) stock and an equity investment 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 non-accrual status, previously accrued and uncollected interest is
reversed against interest income in the current period. Loans are returned to
accrual status when they become less than 90 days delinquent.
(j) Real Estate Owned
Property acquired through foreclosure or deed in lieu of foreclosure is
carried at the lower of the related principal balance at foreclosure or
estimated fair value less estimated costs to sell the property. Any excess of
the loan balance over the fair value less estimated costs to sell the property
is charged to the allowance for loan losses. The carrying value is reviewed
periodically and, when necessary, any decline in the value of the real estate
is charged to operations. Significant property improvements which enhance the
salability of the property are capitalized to the extent that the carrying
values do not exceed their estimated realizable values. Maintenance and
carrying costs on the property are charged to operations as incurred. In
connection with real estate owned, management obtains independent appraisals
for properties.
67
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
(k) Mortgage Servicing Rights
In connection with the securitization and sale of loans, BankUnited may
retain the rights to service such loans for investors. A servicing asset or
liability and other retained interests are recognized as an allocation of the
carrying amount of the assets sold between the asset sold and the servicing
obligation and other retained interests based on the relative fair value of the
assets sold to the interests retained. BankUnited may also acquire mortgage
servicing rights, which are recorded at cost.
Mortgage servicing assets are amortized in proportion to and over the period
of estimated net servicing income. Estimated net servicing income is determined
using the estimated future balance of the underlying mortgage loan portfolio
which, absent new purchases, declines over time from prepayments and cash
flows. BankUnited evaluates the mortgage servicing assets for impairment based
on the fair value of the servicing assets by strata. BankUnited stratifies the
servicing assets by product and interest rates. Management obtains from an
independent third party, on an annual basis, a market valuation of the mortgage
servicing rights. Management reviews the assumptions in calculating the market
value, which is then compared to BankUnited's carrying value. If necessary,
mortgage servicing rights are adjusted to the lower of cost or market.
BankUnited receives fees from investors for servicing mortgage loans.
Servicing fees, generally expressed as a percent of the unpaid principal
balance, are collected from the borrowers' payments. Late charge income and
other ancillary fees, net of amortization of servicing assets, are also
included in servicing income.
(l) Goodwill
Goodwill is amortized on a straight-line basis over its estimated beneficial
life of 10 to 25 years. BankUnited reviews the carrying value of goodwill if
and when economic events occur which may affect its remaining life, by
estimating discounted and undiscounted cash flows as a means of determining and
recognizing impairments. To date, no known economic events have occurred which
were detrimental to the carrying value of goodwill. (See (r) Impact of New
Accounting Pronouncements for a discussion on Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets.")
(m) Bank Owned Life Insurance
Bank owned life insurance is carried at an amount that could be realized
under the insurance contract as of the date of the consolidated statement of
financial condition. The change in contract value is recorded as an adjustment
of the premiums paid in determining the expense or income to be recognized
under the contract.
(n) Income Taxes
BankUnited and its subsidiaries file consolidated income tax returns.
Deferred income taxes have been provided for elements of income and expense
which are recognized for financial reporting purposes in periods different than
such items are recognized for income tax purposes. BankUnited accounts for
income taxes utilizing the liability method, which applies the enacted
statutory rates in effect at the statement of financial condition date to
differences between the book and tax bases of assets and liabilities. The
resulting deferred tax liabilities and assets are adjusted to reflect changes
in tax laws.
(o) 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.
68
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
(p) 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.
(q) Segment Reporting
Public companies are required to report certain financial information about
significant revenue-producing segments of the business for which such
information is available and utilized by the chief operating decision maker.
Specific information to be reported for individual operating segments includes
a measure of profit and loss, certain revenue and expense items, and total
assets. As a community-oriented financial institution, substantially all of
BankUnited's operations involve the delivery of loan and deposit products to
customers. Management makes operation decisions and assesses performance based
on an ongoing review of these community-banking operations, which constitute
BankUnited's only operating segment for financial reporting purposes.
(r) Impact of New Accounting Pronouncements
BankUnited adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended by SFAS No. 137 and SFAS No. 138 (collectively,
"SFAS No. 133"), on October 1, 2000. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives designated as part of a hedge transaction are recorded
each period in current earnings for fair value hedges or other comprehensive
income for cash flow hedges. At October 1, 2000, BankUnited was party to
interest rate caps with a notional face value of $800.0 million. These caps are
used to hedge the interest rate risk relating to the callable options of the
FHLB advances.
In conjunction with the adoption of SFAS No. 133 on October 1, 2000,
BankUnited accounted for the interest rate caps as fair value hedges, and in
accordance with the transition provisions of SFAS No. 133, recorded a
cumulative effect adjustment loss of approximately $453,000, net of tax, which
was reflected in earnings. This was done in order to recognize, at fair value,
all derivative instruments that are designated as fair value hedging
instruments. The loss of $453,000 was offset by a corresponding gain of
approximately $453,000, net of tax, which was also reflected in earnings. The
gain was to recognize the difference, attributable to the interest rate risks,
between the carrying values and fair values of the related embedded call
options in the FHLB advances.
During fiscal year 2001, BankUnited recorded fair value adjustments of
approximately $404,000 as losses in earnings to recognize the change in the
fair value of existing derivative instruments. Fair value adjustments of
$391,000 were recorded as gains in earnings to recognize the change in the fair
value of the related embedded call options in the FHLB advances. Both gains and
losses are recorded as a component of interest on borrowings in the Statement
of Operations.
Effective April 1, 2001, BankUnited adopted SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it
69
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. SFAS No. 140 also provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings.
In June of 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This statement addresses how intangible assets that are
acquired individually or with a group of other assets (but not those acquired
in a business combination) should be accounted for in financial statements upon
their acquisition. This statement also addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements.
Except for goodwill and intangible assets acquired after June 30, 2001,
which are immediately subject to its provisions, SFAS No. 142 is effective
starting with fiscal years beginning after December 15, 2001. Early adoption is
permitted for entities with fiscal years beginning after March 15, 2001,
provided that the first interim financial statements have not previously been
issued.
The provisions of SFAS No. 142 no longer allow the amortization of goodwill,
and certain intangible assets that have indefinite useful lives, and requires
that impairment of goodwill on those assets be tested annually. In addition,
SFAS No. 142 requires the following additional disclosures for goodwill and
other intangible assets:
. Changes in the carrying amount of goodwill from period-to-period;
. The carrying amount of goodwill by major intangible asset class, and
. The estimated intangible amortization for the next five years.
BankUnited adopted SFAS No. 142 effective October 1, 2001. Upon initial
application of SFAS No. 142, BankUnited does not anticipate impairment losses
for goodwill resulting from a transitional impairment test. However, BankUnited
has not yet fully determined the impact that the adoption of other elements of
SFAS No. 142, including the possible future impairment charges on goodwill, may
have on its financial position or results of operations. BankUnited expects
that the elimination of goodwill amortization will positively impact pretax net
income by approximately $1.5 million in fiscal year 2002.
In October of 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001 and was written to provide a
single model for the disposal of long-lived assets. SFAS No. 144 supersedes
SFAS No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" and the accounting and reporting provisions of
Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
BankUnited will adopt the provision of SFAS No. 144 effective October 1,
2002. Adoption of SFAS No. 144 is not expected to have a material impact on
BankUnited's financial position, results of operations or cash flows.
(s) Financial Statement Reclassifications
Certain prior period amounts have been reclassified to conform to the
September 30, 2001 consolidated financial statements.
70
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
(2) Earnings (Loss) per Share
Earnings (loss) per common share is calculated as follows:
For Years Ended September 30,
--------------------------------
2001 2000 1999
------- ------- -------
(Dollars in thousands, except per
share amounts)
Basic earnings (loss) per share:
Numerator:
Net income (loss) after preferred stock dividends.......... $18,447 $14,974 $(4,367)
======= ======= =======
Denominator:
Weighted average common shares outstanding................. 20,228 18,220 18,313
======= ======= =======
Basic earnings (loss) per share............................... $ 0.91 $ 0.82 $ (0.24)
======= ======= =======
Diluted earnings (loss) per share:
Numerator:
Net income (loss) after preferred stock dividends.......... $18,447 $14,974 $(4,367)
Plus:
Reduction of preferred stock dividends..................... 179 163 --
------- ------- -------
Diluted net income (loss) available to common stock........... $18,626 $15,137 $(4,367)
======= ======= =======
Denominator:
Weighted average common shares outstanding................. 20,228 18,220 18,313
Plus:
Number of common shares from the conversion of options and
warrants(1).............................................. 657 117 --
Number of common shares from the conversion of dilutive
preferred stock(2)....................................... 469 443 --
------- ------- -------
Diluted weighted average shares outstanding................... 21,354 18,780 18,313
======= ======= =======
Diluted earnings (loss) per share............................. $ 0.87 $ 0.81 $ (0.24)
======= ======= =======
- --------
(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 (none for the years ended September 30, 2001 and 2000).
(2) For the year ended September 30, 1999, there were 378,000 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 (none for the years ended September 30, 2001 and 2000).
71
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
(3) 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 $0.9 million and $5.7 million
at September 30, 2001 and 2000, respectively. Included in these amounts at
September 30, 2001 and 2000, were $0.8 million and $4.1 million, respectively,
of tax certificates for which BankUnited had made application for tax deeds.
BankUnited maintains loss reserves for tax certificates that were $0.9 million
and $1.0 million at September 30, 2001 and 2000, respectively.
(4) Securities Purchased under Agreements to Resell
Interest income from securities purchased under agreements to resell
aggregated approximately $0.2 million, $1.9 million and $6.1 million for the
years ended September 30, 2001, 2000 and 1999, respectively.
The following sets forth information concerning BankUnited's securities
purchased under agreements to resell for the periods indicated:
As of or for the years ended September 30,
-----------------------------------------
2001 2000 1999
------ -------- --------
(Dollars in thousands)
Maximum amount of outstanding agreements at any month
end during the period.............................. $9,682 $113,000 $370,000
Average amount outstanding during the period......... $3,850 $ 29,426 $122,879
Weighted average interest rate for the period........ 6.35% 6.53% 5.08%
Maturity............................................. less than 30 days
(5) Investments and Mortgage-backed Securities
Investments
Presented below is an analysis of the carrying values and approximate fair
value of investments held to maturity.
September 30, 2001
--------------------------------------
Gross Gross
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-------- ---------- ---------- -------
(Dollars in thousands)
U.S. Government agency securities.......... $50,001 $ -- $(362) $49,639
Trust preferred securities of other issuers 16,355 683 (243) 16,795
State of Israel bonds...................... 61 -- -- 61
------- ---- ----- -------
Total................................... $66,417 $683 $(605) $66,495
======= ==== ===== =======
September 30, 2000
-------------------------------------
Gross Gross
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-------- ---------- ---------- ------
(Dollars in thousands)
U.S. Government agency securities $5,001 $-- $(77) $4,924
State of Israel bonds............ 61 -- -- 61
------ --- ---- ------
Total......................... $5,062 $ $(77) $4,985
====== === ==== ======
72
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
Presented below is an analysis of the investments designated as available
for sale.
September 30, 2001
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
--------- ---------- ---------- --------
(Dollars in thousands)
U.S. government agency securities.......... $ 4,999 $ 67 $ -- $ 5,066
Equity securities.......................... 3,359 1,347 -- 4,706
Trust preferred securities of other issuers 42,109 143 (2,305) 39,947
Other...................................... 19,000 -- -- 19,000
------- ------ ------- -------
Total................................... $69,467 $1,557 $(2,305) $68,719
======= ====== ======= =======
September 30, 2000
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
--------- ---------- ---------- --------
(Dollars in thousands)
U.S. government agency securities.......... $ 350 $ -- $ (10) $ 340
Equity securities.......................... 2,905 -- (115) 2,790
Trust preferred securities of other issuers 17,313 -- (3,040) 14,273
------- ------ ------- -------
Total................................... $20,568 $ -- $(3,165) $17,403
======= ====== ======= =======
Investments securities at September 30, 2001, by contractual maturity, are
shown below.
Held to Maturity Available for Sale
- - ---------------- ------------------
Carrying Fair Amortized Carrying
Value Value Cost Value
-------- ------- --------- --------
(Dollars in thousands)
Due in one year or less............... $ -- $ -- $ 4,960 $ 4,990
Due after one year through five years. -- -- 4,999 5,066
Due after five years through ten years -- -- 6,222 6,222
Due after ten years................... 66,417 66,495 49,927 47,735
Equity securities (maturity n/a)...... -- -- 3,359 4,706
------- ------- -------- -------
$66,417 $66,495 $ 69,467 $68,719
======= ======= ======== =======
Mortgage-backed securities
The carrying value and approximate fair value of mortgage-backed securities
held to maturity are summarized as follows:
September 30, 2001
---------------------------------------
Gross Gross
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-------- ---------- ---------- --------
(Dollars in thousands)
GNMA mortgage-backed securities.... $ 57,423 $3,326 $-- $ 60,749
FNMA mortgage-backed securities.... 32,071 1,252 -- 33,323
FHLMC mortgage-backed securities... 55,965 2,534 -- 58,499
Collateralized mortgage obligations 38,646 1,492 -- 40,138
Mortgage pass-through certificates. 10,874 281 -- 11,155
-------- ------ --- --------
Total........................... $194,979 $8,885 $-- $203,864
======== ====== === ========
73
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
September 30, 2000
---------------------------------------
Gross Gross
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-------- ---------- ---------- --------
(Dollars in thousands)
GNMA mortgage-backed securities.... $ 85,201 $1,006 $ (88) $ 86,119
FNMA mortgage-backed securities.... 1,741 -- (16) 1,725
FHLMC mortgage-backed securities... 66,947 -- (1,099) 65,848
Collateralized mortgage obligations 51,772 -- (2,484) 49,288
Mortgage pass-through certificates. 16,931 594 (21) 17,504
-------- ------ ------- --------
Total........................... $222,592 $1,600 $(3,708) $220,484
======== ====== ======= ========
The carrying value and amortized cost of mortgage-backed securities
available for sale are summarized as follows:
September 30, 2001
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
--------- ---------- ---------- --------
(Dollars in thousands)
GNMA mortgage-backed securities.... $ 56,068 $ 1,482 $-- $ 57,550
FNMA mortgage-backed securities.... 217,449 4,175 -- 221,624
FHLMC mortgage-backed securities... 105,080 2,182 -- 107,262
Collateralized mortgage obligations 116,397 2,613 (3) 119,007
Mortgage pass-through certificates. 130,471 1,835 -- 132,306
-------- ------- --- --------
Total........................... $625,465 $12,287 $(3) $637,749
======== ======= === ========
September 30, 2000
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
--------- ---------- ---------- --------
(Dollars in thousands)
GNMA mortgage-backed securities.... $ 27,486 $167 $ (101) $ 27,552
FNMA mortgage-backed securities.... 4,539 24 (110) 4,453
FHLMC mortgage-backed securities... 12,835 8 (167) 12,676
Collateralized mortgage obligations 75,679 60 (3,284) 72,455
Mortgage pass-through certificates. 2,592 41 (6) 2,627
-------- ---- ------- --------
Total........................... $123,131 $300 $(3,668) $119,763
======== ==== ======= ========
Mortgage-backed securities at September 30, 2001, by contractual maturity,
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Held to Maturity Available for Sale
- - --------------------- --------------------
Carrying Amortized Carrying
Value Fair Value Cost Value
--------- ----------- ---------- ---------
(Dollars in thousands)
Due in one year or less............... $ -- $ -- $ 2,264 $ 2,296
Due after one year through five years. -- -- 155 159
Due after five years through ten years -- -- 2,465 2,556
Due after ten years................... 194,979 203,864 620,581 632,738
--------- ----------- ---------- ---------
$194,979 $ 203,864 $ 625,465 $ 637,749
========= =========== ========== =========
74
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
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 (loss) 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 $283.0 million for the year ended September 30, 2001.
Gross realized gains were $1.8 million on sales of mortgage-backed securities
and collateralized mortgage obligations during the year ended September 30,
2001. There were no sales of mortgage-backed securities and collateralized
mortgage obligations during the years ended September 30, 2000 and 1999.
During fiscal 2001, BankUnited sold mortgage-backed securities with a
carrying value of approximately $21,000 from the held to maturity portfolio.
The sale did not call into question BankUnited's intent to hold other
securities to maturity because one of the following criteria was met with each
sale: (1) BankUnited had collected in excess of 85% of the principal
outstanding, or (2) the security was within 90 days of maturity. The net loss
on sale of these securities was approximately $1,200.
At September 30, 2001, GNMA, FNMA and FHLMC mortgage-backed securities with
market values of approximately $138.9 million were pledged as collateral for
public funds on deposit. At September 30, 2001, investment and mortgage-backed
securities with an aggregate carrying value of approximately $297.9 million
were pledged as collateral for repurchase agreements.
When BankUnited sells receivables in securitizations of residential mortgage
loans, it retains servicing rights and securities, which are retained interests
in the securitized receivables. Gain or loss on the sale of the receivables
depends in part on the previous carrying amount of the financial assets
involved in the transfer, allocated between the assets sold and the retained
interest based on their relative fair value at the date of the transfer. Fair
value is derived from current market information and assumptions for similar
products.
During fiscal year ended September 30, 2001, BankUnited securitized $200.9
million of residential mortgage loans, $121.9 million of which are loans
serviced by others. These loans were securitized with FNMA and FHLMC and
transferred into BankUnited's mortgage-backed securities available for sale
portfolio, which is carried at fair value. BankUnited subsequently sold $146.2
million of the resulting securities, recognizing gains of $0.7 million. The
remaining securities at September 30, 2001 were FNMA's serviced by others and
had a carrying value of $48.5 million. BankUnited utilizes current market
information for similar products to determine the weighted-average life in
years, annual prepayments and discount rates, which are key economic
assumptions used in determining fair value of the securities.
In these securitization transactions, with the exception of loans serviced
by others, BankUnited retains servicing responsibilities. BankUnited receives
annual servicing fees approximating 0.25% of the outstanding receivable
balance. The fair value of servicing assets retained upon the securitization of
residential mortgage loans and the sale of the resulting securities during the
fiscal year ended September 30, 2001, is $1.3 million.
75
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
The investors in the securitized assets have no recourse to BankUnited's
other assets for failure of debtors to pay when due. BankUnited's retained
interests are subordinate to investors' interests. The value of the retained
interest is subject to prepayment risk on the transferred financial assets, and
the general level of interest rates.
At September 30, 2001, key economic assumptions and the sensitivity of the
current fair value of residual securities to immediate 10 percent and 20
percent adverse changes in those assumptions are as follows:
Retained FNMA securities
------------------------
(Dollars in thousands)
Carrying amount (fair value) of retained securities.. $48,532
Weighted average life in years....................... 3.7
Annual prepayment assumption......................... 21.3%
Impact on fair value of 10 percent adverse change. $ (142)
Impact on fair value of 20 percent adverse change. $ (671)
Annual cash flow discount rate....................... 5.83%
Impact on fair value of 10 percent adverse change. $ (832)
Impact on fair value of 20 percent adverse change. $(1,642)
Credit losses do not affect the valuation due to FNMA's full guarantee to
BankUnited for losses on loans collateralizing the securities.
The sensitivities presented above are hypothetical and are presented for
informational purposes only. As the amounts indicate, the fair values due to a
variation in any assumption generally cannot be extrapolated because the
relationship of the change in any assumption to the change in fair value may
not be linear. The effect of a change in a particular assumption on the fair
value of the retained securities is calculated without considering the changes
in other assumptions. However, changes in one assumption may result in changes
in another.
The following table represents quantitative information about delinquencies,
net credit losses, and components of securitized financial assets and other
assets managed together with them:
Principal
Amount of
Total Principal Loans 60 Days
Amount of or More Past Net Credit
Loans Due(1) Losses during
--------------- ------------- the year ended
At September 30, 2001 September 30, 2001(2)
----------------------------- ---------------------
(Dollars in thousands)
Securitized residential mortgage loans.... $46,747 -- --
- --------
(1) Loans 60 days or more past due are based on end of period total loans.
(2) Net credit losses are charge-offs and are based on total loans outstanding.
76
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
(6) Loans Receivable
Loans receivable (including loans held for sale) consist of the following:
As of September 30,
------------------------------------------
2001 2000
-------------------- --------------------
Percent Percent
of of
Amount Total (1) Amount Total (1)
---------- --------- ---------- ---------
(Dollars in thousands)
Mortgage loans:
One-to-four family........................... $3,198,331 85.3% $3,218,868 87.8%
Multi-family................................. 20,619 0.5 70,856 1.9
Commercial real estate....................... 158,451 4.2 155,569 4.2
Construction................................. 114,790 3.1 38,786 1.1
Land......................................... 33,620 0.9 34,489 0.9
---------- ----- ---------- -----
Total mortgage loans...................... 3,525,811 94.0 3,518,568 95.9
---------- ----- ---------- -----
Other loans:
Commercial................................... 132,438 3.5 83,023 2.3
Consumer..................................... 84,698 2.3 66,480 1.8
---------- ----- ---------- -----
Total other loans......................... 217,136 5.8 149,503 4.1
---------- ----- ---------- -----
Total loans............................... 3,742,947 99.8 3,668,071 100.0
Unearned discounts, premiums and deferred loan fees,
net............................................... 22,642 0.6 15,730 0.4
Allowance for loan losses........................... (15,940) (0.4) (13,032) (0.4)
---------- ----- ---------- -----
Loans receivable, net............................... $3,749,649 100.0% $3,670,769 100.0%
========== ===== ========== =====
- --------
(1) Percent of total is calculated using loans receivable, net in the
denominator.
Of the total loan portfolio of $3.7 billion at September 30, 2001,
approximately $2.2 billion, or 59.5%, represented loans secured by properties
in Florida and $0.3 billion, or 8.1%, represented loans secured by properties
in California. No other state represented more than 5% of BankUnited's loan
portfolio.
At September 30, 2001, the Bank had pledged approximately $2.0 billion of
mortgage loans as collateral for advances from the Federal Home Loan Bank of
Atlanta.
Changes in the allowance for loan losses are as follows:
For Years Ended September 30,
----------------------------
2001 2000 1999
------- ------- -------
(Dollars in thousands)
Balance at beginning of the period............... $13,032 $12,107 $ 6,128
Provision..................................... 7,100 4,645 7,939
Loan charge-off............................... (4,257) (3,859) (2,048)
Recoveries.................................... 65 139 88
------- ------- -------
Balance at end of period...................... $15,940 $13,032 $12,107
======= ======= =======
As of September 30, 2001, and 2000 BankUnited had non-accrual loans of $27.4
million, and $19.8 million, respectively. For the years ended September 30,
2001, 2000 and 1999 the average amounts of non-accrual loans were $24.7
million, $18.4 million, and $20.7 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, $1.1 million, and $1.3
million, for the years ended September 30, 2001, 2000, and 1999, respectively.
The
77
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
amount of interest income on such non-accrual loans included in operations,
prior to their non-accrual status, for the years ended September 30, 2001, 2000
and 1999 was $0.9 million, $0.7 million, and $0.5 million, respectively. No
income is recognized on loans while in non-accrual status.
The following table sets forth information concerning specific impaired
loans:
As of September 30, 2001 As of September 30, 2000
------------------------ ------------------------
No. Allowance No. Allowance
of Carrying for loan of Carrying for loan
loans amount losses loans amount losses
----- -------- --------- ----- -------- ---------
(Dollars in thousands) (Dollars in thousands)
Land............... 1 $ 469 $ 469 1 $ 999 $ 749
Commercial business 59 7,872 3,387 8 517 517
-- ------ ------ - ------ ------
60 $8,341 $3,856 9 $1,516 $1,266
== ====== ====== = ====== ======
(7) Other interest earning assets
Other interest earning assets include FHLB stock and an equity investment in
the Community Reinvestment Group of $75.5 million and $105,000 as of September
30, 2001 and $62.6 million and $105,000, respectively as of September 30, 2000.
(8) Office Properties and Equipment
Office properties and equipment are summarized as follows:
As of September 30,
---------------------
2001 2000
-------- -------
(Dollars in thousands
Office buildings......................................... $ 2,694 $ 2,642
Leasehold improvements................................... 9,577 9,025
Furniture, fixtures and equipment........................ 10,350 9,431
Computer equipment and software.......................... 6,360 4,947
-------- -------
Total................................................. 28,981 26,045
Less: accumulated depreciation........................... (12,927) (9,887)
-------- -------
Office properties and equipment, net..................... $ 16,054 $16,158
======== =======
Depreciation expense was $3.1 million, $3.0 million, and $2.4 million, for
the years ended September 30, 2001, 2000 and 1999, respectively.
BankUnited has entered into non-cancelable leases with approximate minimum
future rentals as follows:
Years Ending September 30, Amount
- -------------------------- ----------------------
(Dollars in thousands)
2002.................................................... $ 4,934,834
2003.................................................... 4,639,463
2004.................................................... 3,916,589
2005.................................................... 3,348,202
2006.................................................... 3,331,839
Thereafter.............................................. 10,923,043
-----------
Total................................................ $31,093,970
===========
78
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
Rent expense for the years ended September 30, 2001, 2000, and 1999 was $4.0
million, $3.5 million, and $3.2 million, respectively. For the years ended
September 30, 2000 and 1999, rent expense was net of sublease income of
approximately $22,300 and $0.3 million, respectively (none for the year ended
September 30, 2001).
(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,
--------------------------------
2001 2000
--------------- ---------------
Amount Rate Amount Rate
---------- ---- ---------- ----
(Dollars in thousands)
Passbook accounts............................... $ 596,534 3.64% $ 324,894 4.86%
---------- ----------
Checking:
Non-interest-bearing......................... 89,726 -- 72,253 --
NOW accounts................................. 128,576 1.97% 116,032 2.73%
Insured money market......................... 92,975 3.01% 90,531 4.79%
---------- ----------
Total checking accounts.................. 311,277 278,816
---------- ----------
Total passbook and checking accounts..... 907,811 603,710
---------- ----------
Certificates of deposit:
Less than 3-month certificates of deposit.... 2,258 3.31% 1,128 3.83%
3-5-month certificates of deposit............ 211,672 4.16% 19,547 5.66%
6-11-month certificates of deposit........... 243,324 4.76% 410,480 6.34%
12-month or more certificates of deposit..... 1,015,080 5.64% 1,293,373 6.23%
Public funds................................. 273,000 6.31% 281,300 6.02%
---------- ----------
Total certificates of deposit............ 1,745,334 2,005,828
---------- ----------
Total................................. $2,653,145 $2,609,538
========== ==========
Weighted average rate........................... 4.60% 5.67%
==== ====
Deposit accounts with balances of $100,000 or more totaled approximately
$1.0 billion and $821.3 million at September 30, 2001 and 2000, respectively.
Included in balances of $100,000 or more are $273.0 million in public funds at
September 30, 2001 and $281.3 million in public funds at September 30, 2000.
At September 30, 2001, 2000 and 1999, there were overdrafts of approximately
$405,000, $606,000 and $551,000, respectively.
Interest expense on deposits for the years ended September 30, 2001, 2000
and 1999 was as follows:
September 30,
--------------------------
2001 2000 1999
-------- -------- --------
(Dollars in thousands)
NOW and insured money market deposits.............. $ 7,277 $ 6,777 $ 7,820
Passbook accounts.................................. 19,349 16,825 16,010
Certificates of deposit............................ 116,508 103,027 82,825
-------- -------- --------
$143,134 $126,629 $106,655
======== ======== ========
79
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
The amounts and scheduled maturities of certificate accounts at September
30, are as follows:
Year Ending September 30, Amount
- ------------------------- ----------------------
(Dollars in thousands)
2002................................................... $1,263,813
2003................................................... 333,483
2004................................................... 131,176
2005................................................... 12,409
2006................................................... 4,353
Thereafter............................................. 100
----------
Total............................................... $1,745,334
==========
Early withdrawal penalties on deposits are recognized as a reduction of
interest on deposits. For the years ended September 30, 2001, 2000 and 1999,
early withdrawal penalties totaled $301,000, $336,000 and $221,000,
respectively.
(10) Securities Sold under Agreements to Repurchase
Interest expense on securities sold under an agreement to repurchase
aggregated $4.9 million, $0.9 million and $1.4 million for the years ended
September 30, 2001, 2000 and 1999, respectively.
The following sets forth information concerning repurchase agreements for
the periods indicated:
As of and for the Years Ended
September 30,
----------------------------
2001 2000 1999
-------- ------- -------
(Dollars in thousands)
Maximum amount of outstanding agreements at any month end
during the period...................................... $316,738 $30,806 $96,862
Average amount outstanding during the period............. $112,062 $10,621 $25,311
Weighted average interest rate for the period............ 4.40% 8.23% 5.46%
All except $50.0 million of the $283.1 million of repurchase agreements
outstanding at September 30, 2001 mature in October 2001. The remaining $50.0
million of repurchase agreements outstanding at September 30, 2001 mature in
November 2001. At September 30, 2001, 2000 and 1999, BankUnited had $297.9
million, $11.1 million and $34.4 million, respectively, of investment and
mortgage-backed securities pledged under repurchase agreements.
80
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
(11) Advances from Federal Home Loan Bank
Advances from the Federal Home Loan Bank of Atlanta incur interest and have
contractual repayments as follows:
September 30,
----------------------
Repayable During Year Ending September 30, Interest Rate 2001(6) 2000
- ------------------------------------------ ------------- ---------- ----------
(Dollars in thousands)
2001....................... 5.54% - 6.94% $ -- $ 365,000
2002....................... 3.59% - 7.33% 360,000 25,000
2003....................... 4.26% - 7.24% 175,000 75,000
2004....................... 4.49% - 7.17% 180,000 55,000
2005....................... 7.43% 100,000 100,000
2006....................... 6.65% 1,403 1,426
2008(4).................... 5.50% 25,000 25,000
2009(1).................... 4.43% - 5.48% 125,000 125,000
2010(2),(3)................ 5.44% - 6.94% 480,000 480,000
2011(5).................... 4.70% - 5.67% 64,000 --
---------- ----------
Total............................................. $1,510,403 $1,251,426
========== ==========
- --------
(1) Advances for $125 million are callable by the FHLB in 2002.
(2) Advances for $105 million are callable by the FHLB in 2002 and $125 million
are callable by FHLB in 2003.
(3) Knock-out convertible advances for $250 million convertable by the FHLB in
2001 were never converted.
(4) Advances for $25 million are callable by FHLB in 2003.
(5) Advances for $45 million are callable by the FHLB in 2003 and $19 million
are callable by the FHLB in 2004.
(6) The contractual repayments at September 30, 2001 above do not reflect fair
value adjustments made in accordance with FAS No. 133 which are reflected
in the Consolidated Statement of Financial Condition.
The terms of a security agreement with the FHLB of Atlanta include a
specific assignment of collateral that requires the maintenance of qualifying
first mortgage loans as pledged collateral with unpaid principal amounts at
least equal to 100% of the FHLB advances, when discounted at 85% of the unpaid
principal balance. The FHLB of Atlanta stock, which is recorded at cost of
$75.5 million, 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 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
81
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
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.
BankUnited Capital holds $61.8 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 $47.6 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 $102.9 million of Junior Subordinated Debentures which pay a
preferential cumulative cash distribution at an annual rate of 9% and mature
March 31, 2028. In conjunction with the purchase and extinguishments of trust
preferred securities, Junior Subordinated Debentures totaling $14.9 million
were also extinguished.
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.
In November 1999, the Board of Directors of BankUnited authorized the
purchase, from time to time, in the open market, or otherwise, of up to 300,000
shares of trust preferred securities issued by its trust subsidiaries (the
"trust preferred securities").
BankUnited purchased 8,800 shares of Trust Preferred Securities at a cost of
$7.1 million during the year ended September 30, 2001. As a result of the early
extinguishment of the Trust Preferred Securities which were acquired, the
purchases resulted in extraordinary gains of $0.8 million, net of $0.5 million
in taxes, for the year ended September 30, 2001.
(14) Regulatory Capital
The Bank's required, actual and excess regulatory capital levels as of
September 30, 2001 and 2000 are as follows:
Regulatory Capital
----------------------------------------------------------
Required Actual Excess
------------------ ------------------ ------------------
2001 2000 2001 2000 2001 2000
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
Core capital............ $154,858 $134,512 $367,604 $335,761 $212,746 $201,249
3.00% 3.00% 7.12% 7.49% 4.12% 4.49%
Risk based capital...... $208,053 $187,794 $381,160 $348,283 $173,107 $160,489
8.00% 8.00% 14.66% 14.84% 6.66% 6.84%
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
82
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
income amounts as of and for the years ended September 30, 2001, 2000 and 1999
did not differ from regulatory capital and net income amounts reported to the
OTS.
Payment of dividends by the Bank is limited by federal regulations, which
provide for certain levels of permissible dividend payments depending on the
Bank's regulatory capital and other relevant factors.
(15) Stockholders' Equity
BankUnited has the following capital structure:
Preferred Stock--Issued in series with rights and preferences to be
designated by the Board of Directors. As of September 30, 2001, 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 B:
Authorized shares--1,000,000 shares as of September 30, 2001 and September
30, 2000.
Issued and outstanding shares--355,821 as of September 30, 2001 and 295,821
as of September 30, 2000.
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--Not redeemable 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 fiscal year ended September 30, 2001, 60,000 shares were
issued pursuant to the exercise of options. During the fiscal year ended
September 30, 2000, no Series B Preferred Stock was issued.
9% Noncumulative Perpetual Preferred Stock:
Authorized shares--1,847,117 shares as of September 30, 2001 and 2000.
Issued--697,117 as of September 30, 2000 (none at September 30, 2001).
83
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
Outstanding--696,117 as of September 30, 2000 (none at September 30, 2001).
Dividends--non-cumulative 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. For fiscal year ended September 30, 2001 BankUnited redeemed all of
its outstanding shares of its 9% Noncumulative Perpetual Preferred Stock
at a price of $10.00 per share.
Voting rights--nonvoting, except under certain circumstances.
Issuances--For fiscal year ended September 30, 2000 BankUnited acquired
1,000 shares of its 9% Noncumulative Perpetual Preferred Stock at a price
of $7.25 per share recorded at cost as Treasury Stock. There were no
issuance of shares during fiscal years ended September 30, 2001 and 1999.
Class A Common Stock
Issued in series with rights and preferences to be designated by the Board
of Directors. As of September 30, 2001 and 2000, 30,000,000 shares of Class A
Common Stock were authorized, of which all shares were designated to a series.
Series I Class A Common Stock:
Authorized shares--30,000,000 at September 30, 2001 and 2000.
Issued--24,871,219 shares as of September 30, 2001 and 18,093,575 shares as
of September 30, 2000.
Outstanding--24,538,219 shares as of September 30, 2001 and 17,760,575
shares as of September 30, 2000.
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, 2001, BankUnited
issued 6,555,000 shares in an additional stock offering, 222,406 shares with
the exercise of options, awards, and issuances to directors and officers of
BankUnited, and 238 shares upon the conversion of Class B Common Stock into
Class A Common Stock.
During the fiscal year ended September 30, 2000, BankUnited issued 19,696
shares with the exercise of options, awards, and issuances to directors and
officers of BankUnited, 4,244 shares in dividends on BankUnited's Series B
Preferred Stock paid in Class A Common and 20,205 shares upon the conversion of
Class B Common Stock into Class A Common Stock. Additionally, BankUnited
acquired 150,000 shares of its Class A Common Stock at a price of $7.40 per
share recorded at cost as Treasury Stock.
84
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
Class B Common Stock:
Authorized shares--3,000,000 at September 30, 2001 and 2000.
Issued and outstanding--505,669 shares as of September 30, 2001 and 446,262
shares as of September 30, 2000.
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 30, 2001, BankUnited
issued 59,645 shares in connection with the exercise of stock options and 238
shares of Class B Common Stock were converted into Class A Common Stock.
During the fiscal year ended September 30, 2000, BankUnited issued 8,000
shares in connection with the exercise of stock options and 20,205 shares of
Class B Common Stock were converted into Class A Common Stock.
(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, 2001, 72,042 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, 2001, there were 21,637 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, 2001, 15,952 shares were available for the grant
of options under this plan due to stock awards, that had been forfeited by
officers and employees who terminated service with BankUnited prior to full
vesting of such awards, and 304,817 options had been exercised.
BankUnited also maintains the 1994 Incentive Stock Option Plan ("1994 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, 2001, 95,819 shares were available
for the grant of options under this plan, due to options, that have been
forfeited by officers and employees who terminated service with BankUnited
prior to full vesting of these options, and options for 46,410 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 terms of the
agreements, which originally expired on October 23, 1994, were extended
pursuant to Stockholders' approval to October 23, 1999.
85
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
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
("1996 plan"). Under the 1996 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 2001)
3,150,000 shares of Class A and Class B Common Stock and up to 650,000 shares
of Series B Preferred. Since inception to September 30, 2001, options to
purchase 2,422,969 shares of Class A Common Stock, 312,500 shares of Class B
Common Stock and 497,000 shares of Series B Preferred Stock have been granted.
Officers and employees who terminated service with BankUnited prior to full
vesting of these options have forfeited options for 605,585 shares of Class A
Common Stock. Under the 1996 plan, 95,346 shares of Class A Common stock and
100,000 shares of Series B Preferred have been exercised.
In addition, under the 1996 Special Awards Program, 266,277 shares of Common
A Stock, 3,000 shares of Common B Stock and 47,003 of Series B Preferred Stock
have been issued pursuant to other awards under the Plan of which 15,130 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, 2001, 765,969 shares of Class A 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 and are exercisable at the fair market value of the stock on
the date of grant. 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.
The following table presents additional data concerning BankUnited's
outstanding stock options:
Number of Option Price Aggregate
Shares per Share Option Price
--------- -------------- ------------
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(1)........... -- 7.28 - 13.91 (2,404,174)
--------- -------------- -----------
Options outstanding, September 30, 1999 2,290,525 3.11 - 13.18 17,913,100
Options granted........................ 668,610 6.13 - 8.63 5,613,991
Options exercised...................... (26,020) 3.75 - 6.60 (127,394)
Options expired........................ (338,717) 3.32 - 11.00 (2,611,064)
--------- -------------- -----------
Options outstanding, September 30, 2000 2,594,398 3.11 - 13.18 20,788,633
Options granted........................ 728,818 6.75 - 14.85 6,531,415
Options exercised...................... (167,458) 3.11 - 10.85 (1,156,731)
Options expired........................ (73,291) 3.11 - 13.11 (598,142)
--------- -------------- -----------
Options outstanding, September 30, 2001 3,082,467 $3.23 - $14.85 $25,565,175
========= ============== ===========
86
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
- --------
(1) 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.
Summarized below is information about stock options outstanding and
exercisable at September 30, 2001.
Outstanding Exercisable
-------------------------- ------------------
Exercise Price Number of Average Average Number of Average
Range Shares Life(1) Price(2) Shares Price(2)
-------------- --------- ------- -------- --------- --------
3.23 - 4.16 38,320 0.3 $ 3.55 38,320 $ 3.55
4.95 - 7.28.. 1,306,549 5.0 $ 6.96 1,160,457 $ 6.94
7.44 - 11.00. 1,533,048 8.0 $ 8.82 562,094 $10.03
12.15 - 14.85. 204,550 9.5 $13.81 67,550 $13.27
--------- ---------
3,082,467 1,828,421
========= =========
- --------
(1) Weighted average contractual life remaining in years.
(2) Weighted average exercise price.
BankUnited has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" and as permitted by SFAS No. 123, 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 2001,
2000 and 1999 would have been reduced to the pro forma amounts indicated below:
For the Years Ended September 30,
--------------------------------
2001 2000 1999
------- ------- -------
(Dollars in thousands, except per
share amounts)
Net income (loss):
As Reported.................... $18,447 $14,974 $(4,367)
Pro Forma...................... $17,590 $14,301 $(5,935)
Basic earnings (loss) per share:
As Reported.................... $ 0.91 $ 0.82 $ (0.24)
Pro Forma...................... $ 0.87 $ 0.78 $ (0.32)
Diluted earnings (loss) per share:
As Reported.................... $ 0.87 $ 0.81 $ (0.24)
Pro Forma...................... $ 0.83 $ 0.77 $ (0.32)
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.
87
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
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 2001, 2000 and 1999:
For the Years Ended
September 30,
------------------
2001 2000 1999
---- ---- -----
Dividend yields......... -- -- --
Expected volatility..... 38.0% 38.0% 40.00%
Risk-free interest rates 5.62% 6.21% 4.76%
Expected life (in years) 7.00 7.00 6.96
Based upon the above assumptions, the weighted average fair value of options
granted during the years ended September 2001, 2000 and 1999 was $2,299,708,
$2,917,000 and $3,993,000, 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 makes quarterly matching contributions at a
rate of 75% of employee contributions, up to a maximum of 6% of an employees'
salary, in BankUnited's Class A Common Stock. Employees are eligible to
participate in the plan after six months of service and begin vesting in
BankUnited's contribution after two years of service at the rate of 25% per
year up to 100%. For fiscal 2001 and 2000, the Bank made total matching
contributions of approximately $529,000 and $371,000, respectively.
Prior to September 7, 1999, BankUnited had a 401(k) savings plan (the
"401(k) Plan") and a separate Profit Sharing Plan. For the year ended September
30, 1999, BankUnited made total matching contributions of approximately
$159,500.
(17) Income Taxes
The components of the provision (benefit) for income taxes for the years
ended September 30, 2001, 2000 and 1999 are as follows:
For the Years Ended September 30,
--------------------------------
2001 2000 1999
------- ------- -------
(Dollars in thousands)
Current-federal. $11,534 $ 8,538 $ 192
Current-state... 1,154 842 7
Deferred-federal (1,503) 796 (1,941)
Deferred-state.. (79) 71 (161)
------- ------- -------
Total........ $11,106 $10,247 $(1,903)
======= ======= =======
88
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
BankUnited's effective tax (benefit) rate differs from the statutory federal
income tax (benefit) rate as follows:
Years Ended September 30,
------------------------------------------
2001 2000 1999
------------ ------------ --------------
Amount % Amount % Amount %
------- ---- ------- ---- ------- -----
(Dollars in thousands)
Tax (benefit) at federal income tax rate $10,283 35.0% $ 8,776 35.0% $(1,868) (34.0)%
Increase resulting from:
State tax.............................. 699 2.4% 594 2.4% (192) (3.5)
Other, net............................. 124 0.4% 877 3.5% 157 2.9
------- ---- ------- ---- ------- -----
Total................................ $11,106 37.8% $10,247 40.9% $(1,903) (34.6)%
======= ==== ======= ==== ======= =====
The tax effects of significant temporary differences included in the
deferred tax asset as of September 30, 2001 and 2000 were:
September 30,
----------------------
2001 2000
------ ------
(Dollars in thousands)
Deferred tax asset:
Non-accrual interest.................................................... $ 680 $ 650
Loan loss and other reserves............................................ 6,168 5,041
Fixed assets............................................................ -- 14
Unrealized holding losses on securities available for sale.............. -- 2,624
Unrealized holding losses on securities transferred to held to maturity. 770 856
Loan fees............................................................... -- 81
Other................................................................... 106 316
------ ------
Gross deferred tax asset............................................ 7,724 9,582
------ ------
Deferred tax liability:
FHLB stock dividends.................................................... 30 31
Deferrals and amortizations............................................. 1,356 1,349
Fixed assets............................................................ 363 --
Unrealized holding gain on securities available for sale................ 4,333 --
Other................................................................... -- 1,099
------ ------
Gross deferred tax liability........................................ 6,082 2,479
------ ------
Net deferred tax asset.............................................. $1,642 $7,103
====== ======
At September 30, 2001, BankUnited had $409,000 in tax bad debt reserves
originating before December 31, 1987 for which deferred taxes have not been
provided. The amount becomes taxable under the Internal Revenue Code upon the
occurrence of certain events, including certain non-dividend distributions.
BankUnited does not anticipate any actions that would ultimately result in the
recapture of this amount for income tax purposes.
89
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
The components of deferred income tax (benefit) provision relate to the
following:
Years Ended September 30,
------------------------
2001 2000 1999
------- ------ -------
(Dollars in thousands)
Differences in book/tax depreciation $ 377 $ (584) $ 702
Delinquent interest................. (30) (33) (292)
FHLB stock dividends................ (1) (3) (72)
Loan fees........................... 81 (81) --
Loan loss and other reserves........ (1,127) (286) (3,044)
Deferrals and amortization.......... 7 (480) 610
Purchase accounting and other....... (889) 2,334 (6)
------- ------ -------
Total deferred taxes............. $(1,582) $ 867 $(2,102)
======= ====== =======
(18) Commitments and Contingencies
In the normal course of business, BankUnited enters into instruments that
are not recorded in the consolidated financial statements, but are required to
meet the financing needs of its customers. These financial instruments include
commitments to extend credit, purchase whole loans and securities, standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount 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,
2001 were as follows:
September 30, 2001
------------------------
Fixed Variable
Rate Rate Total
------- -------- -------
(Dollars in thousands)
Commitments to fund loans...... $ 1,875 $81,746 $83,621
Domestic letters of credit..... 13,011 -- 13,011
International letters of credit 446 -- 446
------- ------- -------
Total....................... $15,332 $81,746 $97,078
======= ======= =======
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.
90
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
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.
BankUnited currently holds five interest rate cap contracts with a major
Wall Street firm, having an aggregate notional amount of $800.0 million. Each
contract requires the counter-party to pay BankUnited quarterly interest
payments based on the notional amount and the difference between the index and
the cap rate, if and when the index exceeds the cap rate, in return for a
one-time payment by BankUnited. The indices used in these contracts are the
5-Year Treasury rate adjusted to a constant maturity (the "5-Year CMT rate"),
the 10-Year Treasury rate adjusted to a constant maturity (the "10-Year CMT
rate"), the 5-Year Constant Maturity Swap rate (the "5-Year CMS rate") and the
10-Year Constant Maturity Swap rate (the "10-Year CMS rate").
The following table sets forth information concerning the interest rate cap
contracts:
Notional Amount Index Cap Rate Termination Date
--------------- ----------- -------- ----------------
(Dollars in thousands)
$100,000 5-Year CMT 7.50% March 23, 2002
100,000 10-Year CMT 7.25% March 23, 2002
100,000 5-Year CMS 8.85% March 23, 2003
400,000 10-Year CMS 9.35% March 23, 2003
100,000 10-Year CMS 8.85% March 23, 2003
--------
$800,000
========
BankUnited entered into these contracts for the purpose of hedging a portion
of BankUnited's interest rate risk against rising interest rates on certain
borrowings from the Federal Home Loan Bank. As of September 30, 2001, the
5-Year CMT rate was 3.79%, the 10-Year CMT rate was 4.58%, the 5-Year CMS rate
was 4.54% and the 10-Year CMS rate was 5.25%.
The following table provides additional information regarding the interest
rate caps contracts:
As of
September 30, 2001
----------------------
(Dollars in thousands)
Aggregate notional amount....................................... $800,000
Aggregate fair value............................................ $ 26
BankUnited and the Bank have employment agreements with certain members of
senior management. The employment agreements, which establish the duties and
compensation of the executives, have terms ranging from two and one-half years
to five years.
BankUnited is a party to certain claims and litigation arising in the
ordinary course of business. In the opinion of management, the resolution of
such claims and litigation will not materially affect BankUnited's consolidated
financial position or results of operations.
91
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
(19) Related Party Transactions
BankUnited employs the services of a law firm, of which BankUnited's
Chairman of the Board and Chief Executive Office is senior managing director
and of which another director of BankUnited is managing director. For the years
ended September 30, 2001, 2000 and 1999, total fees, a portion of which were
capitalized, paid to this law firm totaled approximately $2.1 million, $2.5
million and $2.5 million, respectively.
BankUnited employs the services of an insurance agency, of which a director
of BankUnited is a senior vice president. For the years ended September 30,
2001, 2000 and 1999, total premiums paid to this agency totaled approximately
$543,000, $523,000 and $428,000, respectively. Commissions are less than 15% of
the premiums paid. The spouse of the same director is president and owner of an
insurance agency, which received approximately $60,966 and $46,300 in
commissions on premium paid for health and dental insurance policies obtained
by BankUnited through that agency for the years ended September 30, 2001 and
2000, respectively, none in 1999.
In fiscal 1997, BankUnited leased property for a new branch, which is 25%
owned by BankUnited's Chairman of the Board. The lease expires in June 2009.
The annual rent for the property is approximately $131,000. Lease terms are
comparable to those prevailing in the area for similar transactions involving
non-affiliated parties at the time the lease was signed.
At September 30, 2001, one of the board of directors had an outstanding loan
balance with BankUnited of approximately $145,210, none outstanding as of
September 30, 2000.
92
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
(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,
---------------------
2001 2000
-------- --------
(Dollars in thousands
Assets:
Cash.......................................................................... $ 55,441 $ 228
FHLB overnight deposits....................................................... 415 7,579
Tax certificates.............................................................. 282 632
Investments, net (market value of approximately $60 at September 30, 2001 and
2000)....................................................................... 60 60
Investments available for sale, at market..................................... 20,896 16,039
Mortgage-backed securities available for sale, at market...................... 10,723 11,261
Accrued interest receivable................................................... 828 939
Investment in the Bank........................................................ 402,799 362,827
Investment in subsidiaries.................................................... 8,218 8,385
Other assets.................................................................. 14,267 20,381
-------- --------
Total assets.............................................................. $513,929 $428,331
======== ========
Liabilities and Capital:
Liabilities................................................................... $ 1,151 $ 4,611
Junior subordinated deferrable interest debentures............................ 212,332 221,133
-------- --------
Total liabilities......................................................... 213,483 225,744
-------- --------
Stockholders' equity:
Preferred stock............................................................... 4 10
Common stock.................................................................. 254 185
Paid-in capital............................................................... 249,788 181,692
Retained earnings............................................................. 47,502 29,055
Treasury stock................................................................ (2,794) (2,801)
Accumulated other comprehensive income (loss), net of tax..................... 5,692 (5,554)
-------- --------
Total stockholders' equity................................................ 300,446 202,587
-------- --------
Total liabilities and stockholders' equity................................ $513,929 $428,331
======== ========
93
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
Condensed Statements of Operations
For the Years Ended
September 30,
--------------------------
2001 2000 1999
------- ------- --------
(Dollars in thousands)
Interest income................................................................ $ 4,534 $ 4,225 $ 4,563
Interest expense............................................................... 21,967 22,121 21,990
Equity income of the subsidiaries.............................................. 30,078 26,858 9,036
Operating expenses............................................................. 1,762 1,665 2,943
------- ------- --------
Income (loss) before income taxes, extraordinary item and preferred stock
dividends.................................................................... 10,883 7,297 (11,334)
Income tax benefit............................................................. (7,390) (7,531) (7,740)
------- ------- --------
Net income (loss) before extraordinary item and preferred stock dividends...... 18,273 14,828 (3,594)
Extraordinary item (net of tax of $514 and $586 in 2001 and 2000, respectively) 823 936 --
------- ------- --------
Net income (loss) before preferred stock dividends............................. 19,096 15,764 (3,594)
Preferred stock dividends...................................................... 649 790 773
------- ------- --------
Net income (loss) after preferred stock dividends.............................. $18,447 $14,974 $ (4,367)
======= ======= ========
Condensed Schedule of Other Comprehensive Income (Loss)
For the Years Ended
September 30,
------------------------
2001 2000 1999
------- ------- -------
(Dollars in thousands)
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during the period, net of tax expense
(benefit) of $6,889, $(1,185) and $(3,567) for 2001, 2000 and 1999,
respectively..................................................................... $11,004 $(1,893) $(5,698)
Less reclassification adjustment for:
Amortization of unrealized losses on transferred securities, net of tax expense of
$86, $80, and $19 for 2001, 2000 and 1999, respectively.......................... 138 129 31
Realized gains on securities sold included in net income, net of tax expense of $64 104 -- --
------- ------- -------
Total other comprehensive income (loss), net of tax............................. $11,246 $(1,764) $(5,667)
======= ======= =======
94
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
Condensed Statements of Cash Flows
For the Years Ended September 30,
--------------------------------
2001 2000 1999
-------- -------- --------
(Dollars in thousands)
Cash flows from operating activities:
Net income (loss).................................................... $ 19,096 $ 15,764 $ (3,594)
Less: Undistributed income of the subsidiaries....................... (30,078) (26,857) (9,036)
Extraordinary gain on repurchase of trust preferred securities....... (1,337) (1,522) --
Other................................................................ 1,714 2,935 (10,229)
-------- -------- --------
Net cash used in operating activities.............................. (10,605) (9,680) (22,859)
-------- -------- --------
Cash flows from investing activities:
Purchase of investment securities available for sale................. (2,565) -- (3,915)
Proceeds from repayments of mortgage-backed securities available for
sale............................................................... 661 2,771 7,770
Proceeds from sales of mortgage-backed securities available for sale. 67 9,091 --
Net decrease (increase) in tax certificates.......................... 350 (87) (8)
-------- -------- --------
Net cash (used in) provided by investing activities.............. (1,487) 11,775 3,847
-------- -------- --------
Cash flows from financing activities:
Repurchase of trust preferred securities............................. (7,060) (4,368) --
Dividend from Bank................................................... -- 7,300 12,137
Net proceeds from issuance of stock.................................. 74,811 125 2,010
Purchase of treasury shares.......................................... -- (1,117) (1,684)
Dividends paid on preferred stock.................................... (649) (757) (658)
Redemption of preferred stock........................................ (6,961) -- --
-------- -------- --------
Net cash provided by financing activities........................ 60,141 1,183 11,805
-------- -------- --------
Increase (decrease) in cash and cash equivalents........................ 48,049 3,278 (7,207)
Cash and cash equivalents at beginning of year.......................... 7,807 4,529 11,736
-------- -------- --------
Cash and cash equivalents at end of year................................ $ 55,856 $ 7,807 $ 4,529
======== ======== ========
95
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
(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 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, 2001.
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 borrowings, which include FHLB advances, securities sold
under agreements to repurchase and senior notes is determined by discounting
the scheduled cash flows through maturity using estimated market discount rates
that reflect the interest rate currently available in the market.
Other interest earning assets, which is primarily FHLB stock, is carried at
par, which is its fair value.
The carrying value of other interest earning assets, which is primarily FHLB
stock, approximates their fair value.
96
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2001
The fair value of the off-balance sheet financial instruments is estimated
based on the OTS's valuation as contained in its September 30, 2001 "Interest
Rate Risk Exposure Report" prepared for the Bank by the OTS from information
provided by the Bank. The fair value of interest rate caps is determined
through a third party valuation analysis.
As of September 30, 2001
-------------------------
Carrying Value Fair Value
-------------- ----------
(Dollars in thousands)
Financial assets:
Cash and cash equivalents............... $ 294,753 $ 294,753
Tax certificates and other investments.. 136,012 136,148
Mortgage-backed securities.............. 832,728 841,613
Loans receivable........................ 3,749,649 3,807,464
Other interest-earning assets........... 75,625 75,625
Financial liabilities:
Deposits................................ $2,653,145 $2,681,435
Borrowings.............................. 1,992,837 2,101,729
Trust Preferred Securities.............. 203,592 196,091
Interest rate cap contracts............. 26 26
Off-balance sheet financial instruments. -- 161
As of September 30, 2000
-------------------------
Carrying Value Fair Value
-------------- ----------
(Dollars in thousands)
Financial assets:
Cash and cash equivalents............... $ 339,321 $ 339,321
Tax certificates and other investments.. 28,164 28,087
Mortgage-backed securities.............. 342,355 340,247
Loans receivable........................ 3,670,769 3,634,638
Mortgage servicing rights............... 6,227 6,895
Other interest-earning assets........... 62,676 62,676
Financial liabilities:
Deposits................................ $2,609,538 $2,622,965
Borrowings.............................. 1,460,631 1,464,637
Trust Preferred Securities.............. 212,393 204,465
Interest rate cap contracts............. 1,167 430
Off-balance sheet financial instruments. -- 636
97
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 2002
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.
98
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, 2001 and 2000.
Consolidated Statements of Operations for the years ended September 30, 2001, 2000 and 1999.
Consolidated Statements of Stockholders' Equity for the years ended September 30, 2001, 2000 and
1999.
Consolidated Statements of Cash Flows for the years ended September 30, 2001, 2000 and 1999.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules.
Schedules are omitted because the conditions requiring their filing are not applicable or because the
required information is provided in the Consolidated Financial Statements, including the Notes
thereto.
(3) Exhibits.*
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).
99
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 BankUnited and its subsidiaries have certain long-term debt outstanding. None of the instruments
evidencing such debt authorizes an amount of securities in excess of 10% of the total assets of
BankUnited and its subsidiaries on a consolidated basis; therefore, copies of such instruments are not
included as exhibits to this Annual Report on Form 10-K. BankUnited agrees to furnish copies to the
Securities and Exchange Commission upon request.
10.1 Non-Statutory Stock Option Plan, as amended, (Exhibit 4.9 to BankUnited's Form S-8 Registration
Statement, File No. 33-76882, as filed with the 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 26, 2000 (Exhibit 10.2 to BankUnited's Report on Form 10-Q for the quarter
ended December 31, 1999, as filed with the Securities and Exchange Commission on February 14,
2000).**
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 99.2 to
BankUnited's Amendment No. 1 to Form S-3 Registration Statement, File No. 333-60892, as filed
with the Securities and Exchange Commission on May 25, 2001).***
10.8.1 Form of Employment Agreement between BankUnited and Mehdi Ghomeshi (Exhibit 99.1 to
Amendment No. 1 to BankUnited's Form S-3 Registration Statement, File No. 333-60892, as filed
with the Securities and Exchange Commission on May 25, 2001).***
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 (Exhibit 10.10 to
BankUnited's Report on form 10-K for the year ended September 30, 1999[the "1999 10-K']).***
10.11 Underwriting Agreement (Exhibit 1.1 to BankUnited's Amendment No. 1 to Form S-3 Registration
Statement, File No. 333-60892, as filed with the Securities and Exchange Commission on May 25,
2001).
12.1 Statement regarding calculation of ratio of earnings to combined fixed charges and preferred stock
dividends.
100
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, 2001).
- --------
* 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, 2001, no Current Reports on Form 8-K
were filed by BankUnited.
101
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, 2001.
BANKUNITED FINANCIAL CORPORATION
/S/ ALFRED R. CAMNER
By: _________________________________
Alfred R. Camner
Chairman of the Board, President,
Chief Executive Officer and Chief
Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on December 28, 2001 on behalf of the Registrant by the
following persons and in the capacities indicated.
/S/ ALFRED R. CAMNER Chairman of the Board, President, Chief Executive Officer,
- ---------------------- Chief Operating Officer and Director (Principal Executive
Alfred R. Camner Officer)
- ---------------------- Executive Vice Chairman of the Board
Mehdi Ghomeshi
/S/ LAWRENCE H. BLUM Vice Chairman of the Board and Director
- ----------------------
Lawrence H. Blum
/S/ MARC LIPSITZ Director and Corporate Secretary
- ----------------------
Marc Lipsitz
- ---------------------- Director
Marc D. Jacobson
/S/ ALLEN M. BERNKRANT Director
- ----------------------
Allen M. Bernkrant
/S/ NEIL MESSINGER Director
- ----------------------
Neil Messinger
/S/ HUMBERTO L. LOPEZ Senior Executive Vice President and Chief Financial Officer
- ----------------------
Humberto L. Lopez
102
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
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.