10-K/A 1 file001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (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, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission File Number 5-43936 BANKUNITED FINANCIAL CORPORATION (Exact name of Registrant as specified in its charter) Florida 65-0377773 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 255 Alhambra Circle, Coral Gables, Florida 33134 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (305) 569-2000 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, $.01 par value 9% Noncumulative Perpetual Preferred Stock Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment to this Form 10-K/A. 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 April 24, 2001, was $188,243,926.* 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 April 24, 2001 were as follows: Class Number of Shares Class A Common Stock, $.01 par value 17,951,158 Class B Common Stock, $.01 par value 505,669 DOCUMENTS INCORPORATED BY REFERENCE The Registrant's Definitive Proxy Statement for its 2001 Annual Meeting of Stockholders was 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/A pursuant to General Instruction G(3) of the Form 10-K/A. Information from such Definitive Proxy Statement will be incorporated by reference into Part III, Items 10, 11, 12 and 13 hereof. ----------- * Based on reported beneficial ownership of all directors and executive officers of the Registrant; this determination does not, however, constitute an admission of affiliated status for any of these individual stockholders. BANKUNITED FINANCIAL CORPORATION Form 10-K/A Index
PART I Page Item 1. Business..................................................................... 2 Market Area and Competition.................................................. 3 Lending Activities........................................................... 4 Asset Quality................................................................ 12 Investments and Mortgage-Backed Securities................................... 14 Mortgage Loan Servicing...................................................... 16 Sources of Funds............................................................. 16 Activities of Subsidiaries................................................... 21 Employees.................................................................... 21 Regulation................................................................... 22 Taxation..................................................................... 30 Item 2. Properties................................................................... 33 Item 3. Legal Proceedings............................................................ 33 Item 4. Submission of Matters to a Vote of Security Holders.......................... 33 Item 4A. Executive Officers of the Registrant......................................... 34 PART II Item 5. Market for Registrant's Common Stock and Related Security Holder Matters.................................................................... 37 Item 6. Selected Financial Data...................................................... 38 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................... 40 Item 7A. Quantitative and Qualitative Disclosures about Market Risk................... 63 Item 8. Consolidated Financial Statements and Supplementary Data..................... 71 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................... 113 PART III Item 10. Directors and Executive Officers of the Registrant........................... 113 Item 11. Executive Compensation....................................................... 113 Item 12. Security Ownership of Certain Beneficial Owners and Management............... 113 Item 13. Certain Relationships and Related Transactions............................... 113 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............. 114
1 Forward-Looking Statements When used in this Form 10-K/A or future filings by BankUnited Financial Corporation ("BankUnited") with the Securities and Exchange Commission, in BankUnited's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the word or phrases "will likely result," "expect," "will continue," "anticipate," "estimate," "project," "believe" and similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. BankUnited wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including general economic factors and conditions, changes in levels of market interest rates, credit risks of lending activities, competitive and regulatory factors, and expansion strategies could affect BankUnited's financial performance and could cause BankUnited's actual results for future periods to differ materially from those anticipated or projected. BankUnited does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. PART I Item 1. Business BUSINESS OF BANKUNITED FINANCIAL CORPORATION General BankUnited is a Florida corporation and the savings and loan holding company for BankUnited, FSB (the "Bank"). BankUnited's principal business currently consists of the operations of the Bank. The Bank was founded in 1984 as a savings and loan association. In 1993, the Bank was converted to a federally chartered savings bank and became a wholly-owned subsidiary of BankUnited, pursuant to a plan of reorganization approved by its shareholders. The Bank's revenues are derived principally from interest earned on loans, mortgage-backed securities and investments, and its primary expenses arise from interest paid on deposits and borrowings and non-interest operating expenses incurred in operations. At September 30, 2000, BankUnited had assets of $4.6 billion, deposits of $2.6 billion and stockholders' equity of $ 0.2 billion. Prior to 1998, the primary business strategy of BankUnited was to generate stable interest-bearing deposits and use the proceeds to purchase residential mortgages in the secondary market. In 1998, BankUnited initiated several fundamental changes in its business strategy. During the first half of 1998, through the Consumers Bancorp, Inc. ("Consumers") and Central Bank ("Central") acquisitions, the Bank expanded its deposit base and product lines to include new consumer and commercial products. In December 1998, after consideration of several factors, the decision was made to reposition BankUnited. First, because of continued competition from other investors and unfavorable changes in the rate environment, the yields from purchased residential mortgages no longer provided sufficient returns to BankUnited or to other institutions 2 with similar investment strategies. Second, increased competition for certificates of deposit and other long-term savings from online brokers, mutual funds and other out of market institutions resulted in an increase in interest rates relative to earnings on assets. Third, numerous acquisitions of local banks by sizeable out-of-state institutions created a large number of dissatisfied customers who were seeking a strong, community-based bank and who were willing to move their relationships. Fourth, the increasing velocity of change and commoditization of the financial services industry made it increasingly critical that surviving participants define customer bases and core competencies and begin to deliver around them. BankUnited commenced this repositioning process by hiring a new President and executive management team, under whose direction a change in business focus was undertaken to streamline the organization, lower expenses, increase profit margins and improve the use of its deposit base was completed. As a result, BankUnited has eliminated its dependence on purchasing residential mortgage loans in the secondary market; instead the focus is on originating residential loans, and on increasing its emphasis on commercial lending, consumer lending and small business banking. New products and services were implemented to meet customer needs, and the expansion of the branch network continued. BankUnited currently has thirty-two branch offices in southeast Florida and one in southwest Florida and anticipates opening four to six additional branch offices in fiscal year 2001. BankUnited is also re-evaluating 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, 2000, had a total of approximately $86 billion in deposits at commercial banks and savings institutions (42.4% of the total $202.7 billion of deposits in Florida). BankUnited intends to continue to strategically establish or acquire branch offices in its market area and may expand into other parts of Florida. BankUnited encounters strong competition in attracting retail and business deposits and loans. BankUnited's most direct competition for deposits historically has been from commercial banks, brokerage houses, other savings associations, and credit unions located in its market area. Recently, BankUnited has also experienced competition from out-of-state organizations 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 3 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 recently increased its emphasis on commercial real estate, construction, commercial and consumer lending, as discussed more fully below. Factors that effect competition in lending include general and local economic conditions, current interest rates and volatility of the mortgage markets. Management continues to evaluate market needs and products to meet those needs that also allow BankUnited to control the 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. 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 expanding its commercial real estate, real estate construction, commercial, 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, 2000, BankUnited's loan portfolio before deferred fees and allowance for loan loss ("net items") totaled $3.7 billion, of which $3.2 billion or 87.8% consisted of one-to-four family residential mortgage loans. At the 4 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, 2000, the remainder of BankUnited's loan portfolio consisted of $155.6 million of commercial real estate loans (4.2% of total loans); $83.0 million of commercial business loans (2.3% of total loans); $73.3 million of construction and land loans (2.0% of total loans); $66.5 million of consumer loans (1.8% of total loans); and $71.0 million of multi-family (five-or-more units) residential real estate loans (1.9 % of total loans). At September 30, 2000, $1.7 billion, or 47.2% of BankUnited's total loan portfolio before net items, consisted of purchased mortgage loans and loan participations, serviced by others. These loans were primarily one-to-four family residential mortgage loans. At September 30, 2000, BankUnited's loan portfolio included $445.6 million of residential mortgage loans to non-resident aliens, which was 12.1% of total loans before net items. See "Residential Mortgage Loan Originations and Purchases" for additional information on BankUnited's loans to non-resident aliens. 5 Set forth below is a table showing BankUnited's loan origination, purchase and sale activity for the periods indicated.
Year End September 30, 2000 1999 1998 ----------------------------------------------- (in thousands) Total loans receivable, net, at beginning of period (1) ........ $ 3,302,866 $ 3,042,014 $ 1,765,723 Loans originated: Residential real estate .................................... 667,466 592,899 312,749 Commercial real estate, business and consumer .............. 256,733 130,226 73,692 ----------------------------------------------- Total loans originated (1) ..................................... 924,199 723,125 386,441 Loans acquired in acquisition(2) ............................... -- -- 111,786 Loans purchased (3) ............................................ 5,465 803,329 2,747,061 Loans sold ..................................................... (10,210) (23,564) (173,498) Loans securitized .............................................. -- -- (355,469) Principal repayments and amortization of discounts and premiums ..................................................... (543,321) (1,228,540) (1,435,075) Increase in allowance for loan losses, net ..................... (925) (5,979) (2,435) Transfers to real estate owned, net ............................ (7,305) (7,519) (2,520) ----------------------------------------------- Total loans receivable, net, at end of period (1) .............. $ 3,670,769 $ 3,302,866 $ 3,042,014 ===============================================
(1) Includes loans held for sale. (2) Loans acquired in the Central and Consumers mergers included $69.6 million of one-to-four family residential real estate loans, $15.3 million of commercial real estate loans and $26.8 million of other types of loans. See "Managements Discussion and Analysis of Financial Condition and Results of Operations-Acquisitions" for additional information regarding the acquisitions. (3) Loans purchased are primarily one-to-four family residential real estate loans. The following table sets forth certain information with respect to the composition of BankUnited's loan portfolio, including mortgage loans held for sale, as of the dates indicated.
As of September 30, -------------------------------------------------------------- 2000 1999 1998 -------------------------------------------------------------- Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- First and second mortgage loans: (dollars in thousands) One-to-four family residential loans ......... $ 3,218,868 87.8% $ 3,010,427 91.1% $ 2,788,838 91.6% Multi-family residential loans ............... 70,856 1.9% 30,057 0.9% 24,392 0.8% Commercial real estate ....................... 155,569 4.2% 141,090 4.3% 145,819 4.8% Construction ................................. 38,786 1.1% 15,425 0.5% 7,827 0.3% Land ......................................... 34,489 0.9% 23,659 0.7% 5,410 0.2% -------------------------------------------------------------- Total first and second mortgage loans ...... 3,518,568 95.9% 3,220,658 97.5% 2,972,286 97.7% Consumer loans ............................... 66,480 1.8% 33,878 1.0% 30,401 1.0% Commercial business loans .................... 83,023 2.3% 48,173 1.5% 15,550 0.5% -------------------------------------------------------------- Total loans receivable ....................... 3,668,071 100.0% 3,302,709 100.0% 3,018,237 99.2% -------------------------------------------------------------- Deferred loan fees, premium and disc ......... 15,730 0.4 12,264 0.4 29,905 1.0 Allowance for loan losses .................... (13,032) (0.4)) (12,107) (0.4)) (6,128) (0.2)) -------------------------------------------------------------- Loans receivable, net ...................... $ 3,670,769 100.0% $ 3,302,866 100.0% $ 3,042,014 100.0% ============================================================== As of September 30, -------------------------------------- 1997 1996 -------------------------------------- Amount Percent Amount Percent ------ ------- ------ ------- First and second mortgage loans: (dollars in thousands) One-to-four family residential loans ......... $ 1,565,815 88.6% $ 570,951 88.3% Multi-family residential loans ............... 32,163 1.8% 12,559 2.0% Commercial real estate ....................... 130,197 7.4% 49,318 7.6% Construction ................................. 7,477 0.4% -- -- Land ......................................... 7,997 0.5% 2,687 0.4% -------------------------------------- Total first and second mortgage loans ...... 1,743,649 98.7% 635,515 98.3% Consumer loans ............................... 1,748 0.1% 2,648 0.4% Commercial business loans .................... 10,890 0.6% 5,822 0.9% -------------------------------------- Total loans receivable ....................... 1,756,287 99.4% 643,985 99.6% -------------------------------------- Deferred loan fees, premium and disc ......... 13,129 0.8 4,558 0.7 Allowance for loan losses .................... (3,693) (0.2)) (2,158) (0.3) -------------------------------------- Loans receivable, net ...................... $ 1,765,723 100.0% $ 646,385 100.0% ======================================
6 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, 2000, the amount of loans (including mortgage loans held for sale) by category and expected principal repayments. These repayments are based on historical experience.
Outstanding at September 30, 2005- 2007- 2011 and 2000 2001 2002 2003 2004 2006 2010 Thereafter ---------------------------------------------------------------------------------------- First and second mortgage loans: (dollars in thousands) One-to-four-family residential .......... $ 3,218,868 $ 507,980 $ 453,686 $ 392,764 $ 303,299 $ 431,986 $ 516,768 $ 612,385 Multi-family residential ................ 70,856 7,703 6,702 10,647 20,710 19,855 4,888 351 Commercial real estate .................. 155,569 42,376 38,250 19,226 14,036 23,145 17,102 1,434 Construction ............................ 38,786 2,662 23,417 12,649 -- -- -- -- Land .................................... 34,489 25,869 7,858 602 57 62 41 -- ---------------------------------------------------------------------------------------- Total first and second mortgage loans ... 3,518,568 586,590 529,913 435,888 338,102 475,048 538,799 614,170 ---------------------------------------------------------------------------------------- Consumer loans .......................... 66,480 16,762 12,828 9,046 5,067 5,624 5,844 11,309 Commercial business loans ............... 83,023 52,766 19,367 3,929 1,382 5,393 134 52 ---------------------------------------------------------------------------------------- Total loans ............................. $ 3,668,071 $ 656,118 $ 562,108 $ 448,863 $ 344,551 $ 486,065 $ 544,777 $ 625,531 ========================================================================================
7 As of September 30, 2000, 45.7% of BankUnited's loans receivable before net items (36.8% of total assets) were secured by properties located in Florida and 11% of loans receivable before net items (8.8% of total assets) were secured by properties located in California. No other state comprises more than 10%. 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, 2000, 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, 2000 ----- ------------------ (dollars in thousands) Florida(l)............................ $ 1,677,336 California............................ 402,797 New York.............................. 132,423 Massachusetts......................... 113,297 Colorado.............................. 109,258 New Jersey............................ 91,948 Virginia.............................. 89,956 Texas................................. 86,157 Illinois.............................. 79,976 Maryland.............................. 79,585 Connecticut........................... 66,405 Michigan.............................. 60,315 Washington............................ 57,627 Georgia............................... 50,815 Arizona............................... 47,682 North Carolina........................ 47,582 Pennsylvania.......................... 43,114 Ohio.................................. 36,181 Utah.................................. 33,238 Oregon................................ 24,877 Tennessee............................. 20,631 Minnesota............................. 19,890 Nevada................................ 17,685 South Carolina........................ 16,842 District of Columbia.................. 12,404 Indiana............................... 11,804 New Mexico............................ 11,159 Missouri.............................. 10,401 Alabama............................... 9,484 Kansas................................ 9,244 Oklahoma.............................. 7,254 Wisconsin............................. 6,918 Idaho................................. 6,124 Arkansas.............................. 5,424 Kentucky.............................. 4,787 Louisiana............................. 4,713 Iowa.................................. 4,185 Wyoming............................... 3,983 Nebraska.............................. 3,671 Montana............................... 3,216 New Hampshire......................... 3,189 Hawaii................................ 3,107 Delaware.............................. 2,990 Maine................................. 2,570 Rhode Island.......................... 2,354 Mississippi........................... 1,817 Alaska................................ 1,638 Vermont............................... 1,411 Other................................. 860 Not secured by real estate............ 127,747 ----------- Total loans........................... $ 3,668,071 =========== (1) Does not include $ 5.7 million of tax certificates representing liens secured by properties in Florida. 8 One-to-Four Family Residential Mortgage Loan Originations and Purchases. BankUnited's lending primarily involves originating loans secured by first mortgages on real estate improved with single-family dwellings. During fiscal 2000, BankUnited continued to reduce its dependence on purchasing residential mortgage loans in the secondary market by focusing on originating these loans. BankUnited originates one-to-four family residential mortgage loans through its branches and its network of non-affiliated wholesale brokers. In fiscal 2000, the wholesale brokers generated approximately 92% of BankUnited's one-to-four family residential mortgage loan originations. Currently, BankUnited is generating these loans with approximately 200 wholesale brokers located mainly in South Florida. During fiscal year 2001, BankUnited plans to expand its wholesale broker network throughout the State of Florida and other selected states. Originations in the wholesale program, together with branch lending, reached $667.5 million, $592.9 million, and $312.7 million for the years ended September 30, 2000, 1999, and 1998, respectively. The Bank services loans that it originates and endeavors to purchase loans servicing-released when available and appropriate. At September 30, 2000, $3.2 billion or 87.7%, of BankUnited's total loan portfolio consisted of one-to-four family residential loans, of which $1.5 billion, or 46.9%, were adjustable rate mortgage ("ARM") loans and $1.7 billion, or 53.1%, were fixed rate mortgage loans. BankUnited's first mortgage loans purchased or originated are generally repayable over 15 or 30 years. Additionally, BankUnited offers 40 year ARM loans on a limited basis. Residential loans typically remain outstanding for shorter periods than their contractual maturities because borrowers prepay the loans in full upon sale of the mortgaged property or upon refinancing of the original loan. BankUnited's ARMs generally have interest rates that adjust after an initial 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 adjustment for Hybrid ARMs which are tied to the MTA index range from none to 2%, periodically, and up to 11.95% 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 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 guidelines are met or that waivers are obtained in situations where offsetting factors exist. For loan originations, upon receipt of a completed loan application from an applicant, BankUnited generally orders a credit report, confirms income, employment and other significant information of the applicant and obtains an appraisal of the property securing the loan. BankUnited obtains the appraisal of the property from an independent third party to determine the adequacy of the collateral, and such appraisal is confirmed by one of the underwriters. 9 In its loan purchases, BankUnited generally reserves the right to reject particular loans from a loan package being purchased and rejects loans in a package that do not meet its commitment criteria. In determining whether to purchase a loan, BankUnited assesses both the borrower's ability to repay the loan and the adequacy of the proposed collateral. In determining the borrower's ability to repay, BankUnited reviews information concerning the income, financial condition, employment and credit history of the applicant and generally obtains a credit report on the borrower separate from that provided by the loan seller. BankUnited reviews the appraisal obtained by the loan seller or originator and, based upon pre-determined criteria and review of the loan file, may arrange for an updated review appraisal before purchasing the loan. An appraisal will generally be ordered if the property securing the loan is located in a designated area (such as a geographic region known for fluctuating property values), if the loan size or loan-to-value ratio meets certain thresholds, or if an underwriter or other Bank officer, upon review of the loan file, determines that it is prudent to order an appraisal. With respect to a substantial percentage of loans purchased, the collateral value is confirmed by reference to a review appraisal. Otherwise, the collateral value is determined by reference to the documentation contained in the original file. A legal review of every loan file is conducted to determine the adequacy of the legal documentation. BankUnited receives various representations and warranties from the sellers of the loans regarding the quality and characteristics of the loans. BankUnited has adopted written, non-discriminatory underwriting standards for use in the underwriting and review of every loan considered for origination or purchase. These underwriting standards are reviewed and approved annually by BankUnited's Board of Directors. BankUnited's underwriting standards for residential mortgage loans generally conform to standards established by 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 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, 2000, approximately $445.6 million, or 12%, of the BankUnited's loan portfolio before net items were first mortgage loans to non-resident aliens secured by single-family residences located in Florida. 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 to $25 million for a single loan and no more than $40 million to a single borrower. 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, 2000, BankUnited had $226.4 10 million of commercial real estate loans and multi-family loans, representing a total of 6.17% of BankUnited's loan portfolio before net items. BankUnited's commercial real estate loan portfolio includes loans secured by apartment buildings, office buildings, industrial/warehouses, retail centers and other properties, which are located in BankUnited's primary market area. Commercial real estate loans generally are originated in amounts up to 75% of the appraised value of the property securing the loan. Because commercial real estate and commercial lending requests are generally more complicated and involve larger dollar amounts, evaluation of such credit requests continues to rely on traditional credit analysis, including income projection, participation by the buyer, breakeven analysis and internal and external collateral evaluations. In determining whether to originate or purchase multi-family or commercial real estate loans, BankUnited also considers such factors as the financial condition and track record of the borrower, and the debt service coverage of the property. Commercial real estate loans are made at both fixed and adjustable interest rates, typically for terms of less than 60 months, but may be up to 15 years. Loans secured by commercial real estate and multi-family properties generally involve a greater degree of risk than one-to-four family residential mortgage loans. Commercial real estate loans typically involve large loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties usually depends on the successful operation of the real estate project that secures the loans and, thus, may be subject, to a greater extent, to adverse conditions in the real estate market or in the economy, particularly the interest rate environment. Real Estate Construction Lending. BankUnited makes real estate construction loans to individuals for the construction of their residences, as well as to builders and real estate developers for the construction of one-to-four-family residences and commercial and multi-family real estate. At September 30, 2000, BankUnited had $38.8 million of construction loans representing a total of 1.1% of BankUnited's loan portfolio before net items. 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, which are higher than permanent commercial real estate loans currently offered by the Bank and the terms are generally consistent with those of permanent loans. These loans generally provide for the payment of interest and loan fees from loan proceeds. The loans are underwritten to the same standards as commercial real estate loans described above. Because of the uncertainties inherent in estimating construction costs and the market for the project upon completion, it is often difficult to determine the total loan funds that 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. 11 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, 2000, BankUnited had $34.5 million of land loans representing a total of 0.9% of BankUnited's loan portfolio before net items. Commercial Business and Small Business Lending. Commercial and small business loans totaled $83.0 million as of September 30, 2000, representing 2.3 % of total loans before net items. Commercial business loans are made to companies with annual sales revenue in excess of $5.0 million in BankUnited's market area. Small business loans are made to companies with annual sales revenue less than $5.0 million and the loans do not 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. A credit scoring approval is used, and exceptions to credit policy guidelines are discouraged, but may be available depending on all the circumstances. While these loans generally are made for shorter terms and at higher yields than one-to-four-family residential loans, such loans generally involve a higher level of risk than one-to-four-family residential loans because the risk of borrower default is greater and the collateral may be more difficult to liquidate and more likely to decline in value. Consumer Lending. Consumer loans totaled $66.5 million as of September 30, 2000, representing 1.8% of total loans before net items. 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. 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 12 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, 2000, BankUnited had $23.9 million in substandard assets of which $23.5 million are classified as non-performing assets. Substandard assets consisted of the following: As of September 30, 2000 ------------------------ (in thousands) One-to-four family residential loans ............... $13,073 Multi-family residential ........................... 557 Commercial real estate ............................. 1,579 Land ............................................... 1,104 Commercial business and consumer loans ............. 5,260 REO ................................................ 2,286 ------- Total Substandard Assets ......... $23,859 ======= In addition, $517,000 of commercial business loans for which reserves have been established were classified as loss as of September 30, 2000. 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 future conditions in order to determine the adequacy of the allowance for loan losses on these loans. For commercial real estate loans, an estimated value of the property or collateral securing the loan is determined through an appraisal, where possible. In instances where BankUnited has not taken possession of the property or does not otherwise have access to the premises and therefore cannot obtain an appraisal, a real estate broker's opinion as to the value of the property is obtained based primarily on a drive-by inspection. If the unpaid balance of the loan is greater than the estimated fair value of the property, a reserve is established for the difference between the carrying value and the estimated fair value. Other 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. 13 General valuation allowances are also established on all classes of the performing portfolio and represent loss allowances that have been established to recognize the unspecified losses inherent in the loan portfolio. In determining the adequacy of the unallocated reserves, management considers changes in the size and composition of the loan portfolio, historical loan loss experience, current and anticipated economic conditions and BankUnited's credit administration and asset management philosophies and procedures. 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'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 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. 14 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 ---------------------------------- 2000 1999 1998 -------- -------- -------- (dollars in thousands) Federal agency securities ............................ $ 5,341 $ 6,752 $ 22,188 Tax Certificates ..................................... 5,699 14,815 40,007 Mortgage-backed securities ........................... 342,355 347,224 345,756 Other (1) ............................................ 17,124 18,307 16,015 -------- -------- -------- Total investment securities ............ $370,519 $387,098 $423,966 ======== ======== ======== Weighted average yield ................. 6.93% 6.74% 6.61% ======== ======== ========
(1) Includes $14.3 million, $14.7 million and $15.5 million of trust preferred securities of other issuers as of September 30, 2000, 1999 and 1998, respectively. The following table sets forth information regarding the maturities of BankUnited's investments as of September 30, 2000. Amounts shown are carrying value:
Periods to Maturity from September 30, 2000 As of ------------------------------------------------------------ September 30, Within 1 Through 5 Through Over 10 Equity 2000 1 Year 5 Years 10 Years Years Securities -------- -------- -------- -------- -------- -------- (dollars in thousands) Federal agency securities ........... $ 5,341 $ 341 $ 5,000 $ -- $ -- $ -- Tax certificates (1) ................ 5,699 5,699 -- -- -- -- Mortgage-backed securities (1)....... 342,355 1,827 6,838 2,818 330,872 -- Other ............................... 17,124 -- 25 -- 14,309 2,790 -------- -------- -------- -------- -------- -------- Total ................. $370,519 $ 7,867 $ 11,863 $ 2,818 $345,181 $ 2,790 ======== ======== ======== ======== ======== ======== Weighted average yield .............. 6.93% 7.09% 6.19% 6.29% 6.25% N/A ======== ======== ======== ======== ======== ========
-------------- (1) Maturities are based on historical experience. 15 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 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, 2000 and 1999 BankUnited serviced mortgage loans for investors with unpaid principal balances of approximately $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, BankUnited's capital (including trust preferred securities), Senior Notes and FHLB advances. Deposits. BankUnited offers a full variety of deposit accounts ranging from passbook accounts to certificates of deposit with maturities of up to five years. BankUnited also offers transaction accounts, which include 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. BankUnited has placed increasing reliance on passbook accounts, money market accounts, short term certificates of deposit and other savings alternatives that are more responsive to market conditions than long-term, fixed-rate certificates. While market-sensitive savings instruments permit BankUnited to reduce its cost of funds during periods of declining interest rates, such savings instruments also increase BankUnited's vulnerability to periods of high interest rates. There are no regulatory interest rate ceilings on BankUnited's accounts (See "Item 7a. Quantitative and Qualitative Disclosure about Market Risk"). 16 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, ----------------------------------------------------------------------- 2000 1999 1998 -------------------- ---------------------- --------------------- Amount Rate Amount Rate Amount Rate ---------- ----- ---------- ----- ---------- ----- (dollars in thousands) Passbook accounts................................... $ 324,894 4.86% $ 379,503 4.57% $ 258,158 4.72% ---------- ---------- ---------- Checking: Non-interest bearing.............................. 72,253 - 50,075 -- 46,748 -- NOW accounts...................................... 116,032 2.73% 125,617 2.75% 71,431 3.26% Insured money market.............................. 90,531 4.79% 92,785 4.04% 115,104 4.05% ---------- ---------- ---------- Total transaction accounts..................... 278,816 268,477 233,283 ---------- ---------- ---------- Total passbook and checking accounts........... 603,710 647,980 491,441 ---------- ---------- ---------- Certificates: 30 - 89 day certificates of deposit............... 1,128 3.83% 2,260 4.40% 3,485 4.63% 3 - 5 month certificates of deposit............... 19,547 5.66% 28,943 4.63% 96,221 5.20% 6 - 8 month certificates of deposit............... 130,461 6.09% 273,090 4.92% 516,674 5.47% 9 - 11 month certificates of deposit.............. 280,019 6.45% 138,684 5.26% 104,296 5.69% 12 - 17 month certificates of deposit............. 776,084 6.33% 688,792 5.21% 618,385 5.62% 18 - 23 month certificates of deposit............. 184,924 6.18% 83,369 5.55% 9,770 5.64% 24 - 29 month certificates of deposit............. 148,593 5.85% 102,394 5.66% 35,497 5.76% 30 - 35 month certificates of deposit............. 32,493 6.09% 26,550 5.97% 15,040 5.89% 36 - 60 month certificates of deposit............. 151,279 6.18% 109,686 6.13% 72,856 6.07% Public Funds...................................... 281,300 6.02% 178,050 4.98% 86,159 5.35% Brokered certificates of deposit.................. -- -- 75,000 5.66% ---------- ---------- ---------- Total certificates............................. 2,005,828 1,631,818 1,633,383 ---------- ---------- ---------- Totals..................................... $2,609,538 $2,279,798 $2,124,824 ========== ========== ========== Weighted average rates............. 5.67% 4.83% 5.18%
17 The following table sets forth information by various categories regarding the amount of BankUnited's certificate accounts (under $100,000) as of September 30, 2000 that mature during the period indicated.
Periods to Maturity from September 30, 2000 As of ---------------------------------------------------- September 30, Within 1 to 2 to More than 2000 1 Year 2 Years 3 Years 3 Years ---------- ---------- ---------- --------- ---------- (dollars in thousands) Certificate accounts 3.00% to 3.99% ....................... $ 1,134 $ 1,134 $ -- $ -- $ -- 4.00% to 4.99% ....................... 44,341 43,745 360 27 209 5.00% to 5.99% ....................... 401,608 360,908 23,341 4,793 12,566 6.00% to 6.99% ....................... 729,879 551,096 133,570 29,881 15,332 7.00% to 7.99% ....................... 156,660 87,102 57,825 9,795 1,938 ---------- ---------- ---------- --------- ---------- Total certificate accounts (under $100,000) ................... $1,333,622 $1,043,985 $ 215,096 $ 44,496 $ 30,045 ========== ========== ========== ========= ==========
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, 2000 that mature during the periods indicated.
Periods to Maturity from September 30, 2000 As of -------------------------------------------- September 30, Within 1 to 2 to More than 2000 1 Year 2 Years 3 Years 3 Years -------- -------- -------- -------- -------- (dollars in thousands) Jumbo certificate accounts 3.00% to 3.99% ....................... $ -- $ -- $ -- $ -- $ -- 4.00% to 4.99% ....................... 92,983 66,580 16,298 10,105 -- 5.00% to 5.99% ....................... 138,626 109,883 23,703 2,837 2,203 6.00% to 6.99% ....................... 253,314 217,939 25,760 5,200 4,415 7.00% to 7.99% ....................... 187,283 144,377 33,291 7,146 2,469 -------- -------- -------- -------- -------- Total Jumbo certificate accounts ..... $672,206 $538,779 $ 99,052 $ 25,288 $ 9,087 ======== ======== ======== ======== ========
Included in the table of jumbo certificate accounts above, are $281.3 million in certificates of deposit issued to the State of Florida, referred to as public funds, which have interest rates ranging from 4.19% to 7.21%. These certificates are collateralized with GNMA, FNMA, and FHLMC mortgage backed securities with market values of approximately $147 million at September 30, 2000. Of BankUnited's total deposits, excluding public funds, at September 30, 2000, 1999 and 1998, 16.8%, 13%, and 12.3%, respectively, were deposits of $100,000 or more issued to the general public. Although jumbo certificates of deposit are generally more rate sensitive than smaller size deposits, management believes that BankUnited will retain many of these deposits. 18 Borrowings. When BankUnited's primary sources of funds are not sufficient to meet deposit outflows, loan originations and purchases and other cash requirements, BankUnited may borrow funds from the FHLB of Atlanta and from other sources. The FHLB system acts as an additional source of funding for 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 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, 2000 BankUnited had purchased a total of 158,499 shares of trust preferred securities issued by its trust subsidiaries on the open market at a cost of $4.4 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 have been 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 short term as maturities are 19 usually within thirty to sixty days from inception. At September 30, 2000 BankUnited held $9.2 million in repurchase agreements which matured overnight and had $11.1 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, ----------------------------------------------------------------- 2000 1999 1998 ------------------- ------------------- ------------------- Weighted Weighted Weighted Average Average Average Balance Rate Balance Rate Balance Rate ---------- ----- ---------- ----- ---------- ----- (dollars in thousands) Period End Balances: FHLB advances (1) ........................... $1,251,426 6.28% $1,096,447 5.46% $1,021,466 5.61% Company obligated mandatorily redeemable Trust Preferred Securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures of BankUnited(2) ............................ 212,393 9.53% 218,500 9.53% 218,500 9.53% Senior notes ................................ 200,000 5.40% 200,000 5.40% -- -- Securities sold under agreements to repurchase(3) ......................... 9,205 6.42% 31,701 5.34% 121,148 5.43% ---------- ----- ---------- ----- ---------- ----- Total borrowings ......................... $1,673,024 6.47% $1,546,648 6.02% $1,361,114 6.22% ========== ===== ========== ===== ========== ===== For the Year Ended September 30, ----------------------------------------------------------------- 2000 1999 1998 ------------------- ------------------- ------------------- Weighted Weighted Weighted Average Average Average Balance Rate Balance Rate Balance Rate ---------- ----- ---------- ----- ---------- ----- (dollars in thousands) Average Balances: FHLB advances (1) ........................... $1,008,161 5.88% $ 917,560 5.41% $ 901,269 5.64% Company obligated mandatorily redeemable Trust Preferred Securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures of BankUnited(2) ............................ 215,600 9.69% 218,500 9.68% 173,288 9.81% Senior notes ................................ 200,000 5.71% 132,055 5.76% -- -- Securities sold under agreements to repurchase(3) ......................... 10,621 8.23% 25,311 5.86% 97,292 5.69% ---------- ----- ---------- ----- ---------- ----- Total borrowings ......................... $1,434,382 6.45% $1,293,426 6.18% $1,171,849 6.26% ========== ===== ========== ===== ========== =====
----------------- (1) The maximum amount of FHLB advances outstanding during the years ended September 30, 2000, 1999 and 1998 was $1.3 billion, $1.1 billion, $1.3 billion, respectively. (2) The maximum amount of trust preferred securities outstanding was $218.5 million during the years ended September 30, 2000, 1999, and 1998. (3) The maximum amount of securities sold under agreements to repurchase at any month-end during the years ended September 30, 2000, 1999, and 1998 was $30.8 million, $96.9 million, and $192.6 million, respectively. 20 Activities of Subsidiaries T&D Properties of South Florida, Inc., a Florida corporation ("T&D"), is a wholly owned operating subsidiary of the Bank that invests in tax certificates and holds title to, maintains, manages and supervises the disposition of real property acquired through tax deeds. T&D was established in 1991 for the purpose of insulating the Bank from risk of liability concerning the maintenance, management and disposition of real property. Bay Holdings, Inc., a Florida corporation ("Bay Holdings"), is a wholly owned operating subsidiary of the Bank that holds title to, maintains, manages and supervises the disposition of one-to-four family residential property acquired through foreclosure. Bay Holdings was established in 1994 for the purpose of insulating the Bank from risk of liability concerning maintenance, management and disposition of one-to-four family residential property. BankUnited Mortgage Corporation, a Florida corporation ("BMC"), is a wholly owned operating subsidiary of BankUnited which was established in 1996 for the purpose of servicing loans secured by real property. BMC is currently inactive. BankUnited Capital, BankUnited Capital II and BankUnited Capital III (the "Trusts") are Delaware statutory business trusts wholly owned by BankUnited. BankUnited Capital was formed in 1996, and BankUnited Capital II and BankUnited Capital III were formed in 1997, for the purpose of issuing Trust Preferred Securities and investing the proceeds 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. CRE America, Inc. formerly BankUnited Financial Services, Inc., a Florida corporation, is a wholly owned operating subsidiary of BankUnited, organized in 1997, renamed in 2000, for the purpose of brokering loans. CRE Properties, Inc., a Florida corporation, is a wholly owned operating subsidiary of the Bank that holds title to, and maintains, manages and supervises the disposition of commercial real estate acquired through foreclosure. CRE Properties, Inc. was established in 1998 for the purpose of insulating the Bank from risk of liability concerning maintenance, management and disposition of commercial real estate. Employees At September 30, 2000, BankUnited had 475 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. 21 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. 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 22 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 recordkeeping 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. 23 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. 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. 24 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 deposit 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 2000, 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, 2000, 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") 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 25 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. 26 In addition to the foregoing prompt corrective action provisions, the FDICIA also sets forth requirements that the federal banking agencies, including the OTS, review their capital standards every two years to ensure that their standards require sufficient capital to facilitate prompt corrective action and to minimize loss to the SAIF and the BIF. Restrictions on Dividends and Other Capital Distributions. 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 $62.6 million investment in stock of the FHLB of Atlanta as of September 30, 2000. 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, 2000, advances from the FHLB of Atlanta totaled $1.3 billion. 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 27 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 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 requalify as a QTL if it thereafter complies with the QTL test. At September 30, 2000, the Bank exceeded the QTL requirements. Liquidity. OTS regulations currently require member savings institutions to maintain for each calendar quarter an average daily balance of liquid assets (cash and certain time deposits, securities of certain mutual funds, bankers' acceptances, corporate debt securities and commercial paper, and specified U.S. government, state government and federal agency obligations) equal to at least 4% of either the amount of its liquidity base at the end of the preceding calendar quarter or the average daily balance of its liquidity base during the preceding quarter. "Liquidity base" means the institution's net withdrawable deposits and short-term borrowings (generally borrowings having maturities of one year or less). The Director of the OTS may vary this liquidity requirement from time to time within a range of 4% to 10%. Monetary penalties may be imposed for failure to meet liquidity requirements. For the month of September 2000, the Bank's liquidity ratio was 8.77%. The Bank is also required to maintain cash reserve requirements at the Federal Home Loan Bank. At September 30, 2000 this cash reserve requirement was $13.2 million. 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. 28 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 credit needs of its assessment area through qualified investments that benefit its assessment area or a broader statewide or regional area including the assessment area, 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 OTS examination 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, 2000, 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 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. 29 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 is in the process of making 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"). 30 Bad Debt Reserves Deductions. Prior to legislation enacted in August 1996, the Internal Revenue Code (the "Code") permitted savings institutions, such as the Bank, to establish a reserve for bad debts and to make annual additions thereto, which additions might, within specified formula limits, be deducted in determining taxable income. The bad debt reserve deduction was generally based upon a savings institution's actual loss experience (the "experience method"). In addition, provided that certain definitional tests relating to the composition of assets and sources of income were met, a savings institution was permitted to elect annually to compute the allowable addition to its bad debt reserve for losses on qualifying real property 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. The management of BankUnited does not believe that the legislation will have a material impact on BankUnited or the Bank. Distributions. Under the Code, the Bank's December 31, 1987 reserve must be recaptured into taxable income as a result of certain non-dividend distributions. A distribution is a non-dividend distribution to the extent that, for federal income tax purposes, (i) it is in redemption of shares, (ii) it is pursuant to a liquidation of the institution, or (iii) in the case of a current distribution it, together with all other such distributions during the taxable year, exceeds the Bank's current and post-1951 accumulated earnings and profits. The amount charged against the Bank's bad debt reserves in respect of a distribution will be includable in its gross income and will equal the amount of such distribution, increased by the amount of federal income tax resulting from such inclusion. 31 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. 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. 32 Item 2. Properties Currently BankUnited operates 32 full-service banking offices located in South Florida and one in West Florida, of which 30 are leased and three are owned. BankUnited's banking offices have square footage ranging from 2,000 square feet to 8,000 square feet with lease terms ranging from the year 2001 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, 2000, 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. At September 30, 2000, BankUnited leased the facilities of a branch obtained through the acquisition of Suncoast which was closed in fiscal year 1997. This lease expires in fiscal year 2002. 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, 2000. 33 Item 4a. Executive Officers of the Registrant The following table sets forth information concerning the executive officers and directors of BankUnited and the Bank. Positions with Company Name Age and Business Experience ---- --- ----------------------- Alfred R. Camner 56 Director, Chairman of the Board and Chief Executive Officer (1993 to present) and President (1993 to 1998) of BankUnited; Director, Chairman of the Board and Chief Executive Officer (1984 to present) and President (1984 to 1993, 1994 to 1998) of the Bank; Senior Managing Director (1996 to present) of Camner, Lipsitz and Poller, Professional Association, attorneys-at-law, and its predecessor, Stuzin and Camner, Professional Association, attorneys-at-law; Managing Director (1973 to 1996) of Stuzin and Camner, Professional Association, attorneys-at-law; General Counsel to CSF Holdings, Inc. and its subsidiary, Citizens Federal Bank, a federal savings bank (1973 to 1996); Director and member of the Executive Committee of the Board of Directors of Loan America Financial Corporation, a national mortgage banking company (1985 to 1994); Director of CSW Associates, Inc., an asset management firm (1990 to 1995). Mehdi Ghomeshi 44 Director, President and Chief Operating Officer of BankUnited and the Bank (December 1998 to present); Market President of NationsBank, South Florida (January 1998 to December 1998); President and Chief Operating Officer of Barnett Bank, South Florida (1996 to 1998); Director of Special Assets and Risk Management, Barnett Banks, Inc. (1995 to 1996); Executive Vice President, Commercial Real Estate, Barnett Bank of South Florida (1993 to 1995). Lawrence H. Blum 57 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 58 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). 34 Positions with Company Name Age and Business Experience ---- --- ----------------------- Allen M. Bernkrant 70 Director of BankUnited (1993 to present) and the Bank (1985 to present); Private investor in Miami, Florida (1990 to present). Marc Lipsitz 59 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. 62 Director of BankUnited and the Bank (1996 to present); Radiologist; President (1986 to present), Radiological Associates, Professional Association; Chairman (1986 to present) of Imaging Services of Baptist Hospital. Anne W. Solloway 85 Director of BankUnited (1993 to present) and the Bank (1985 to present); Private investor in Miami, Florida. Executive Officers of BankUnited And/or the Bank Who Are Not Directors: Lisa Barrera 37 Executive Vice President Production Manager (November 2000 - Present), Executive Vice President Mortgage Operations (March 2000 - November 2000), Senior Vice President Mortgage Operations (February 1999 - March 2000), of the Bank. Vice President/Regional Sales and Service Center Manager (1994 - 1999) of NationsBank Mortgage Corporation, formerly Barnett Mortgage Corporation. Senior Vice President/Corporate Operations Manager (1989 - 1994) of Loan America Financial Corporation. Iliana Castillo-Frick 45 Executive Vice President, Human Resources Director (April 2000 - present) of the Bank. Vice President/Staffing Manager (February 1998 - March 2000); Vice President /Human Resources Manager (October 1995 - January 1998); Assistant Vice President/Senior Human Resources Generalist (April 1994 - September 1995), of Bank of America formerly Barnett Banks, Inc. Michael J. Clutter 53 Executive Vice President, Credit Policy, of the Bank (March 1999 to present); Senior Vice President-Credit Administration (1984 to 1999) of Barnett Bank, Broward County and its successor by merger, NationsBank, Inc. 35 Positions with Company Name Age and Business Experience ---- --- ----------------------- Executive Officers of BankUnited And/or the Bank Who Are Not Directors: (Continued) Janette L. Davis 45 Executive Vice President, Retail Banking, of the Bank (February 1999 to present); Senior Vice President/Region Executive (1998 to 1999), Group Senior Vice President, Market Executive (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 41 Executive Vice President, Finance, of the Bank (January 1999 to present) and Chief Financial Officer of BankUnited and the Bank (December 1999 to present); Director (1998 to 1999), PricewaterhouseCoopers LLP; Chief 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. 47 Executive Vice President, Commercial Real Estate Banking, of the Bank (1998 to present); Executive Vice President (1996 to 1998) and Group Senior Vice President (1994 to 1996) of Barnett Bank, South Florida and its successor by merger, NationsBank, Inc. All executive officers serve at the discretion of the Board of Directors and are elected annually by the Board. 36 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 13, 2000, there were 517 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 2000 or 1999. 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, 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 Fiscal Year Ended September 30, 1999: 1st Quarter ............................... $ 10.06 $ 6.56 2nd Quarter ............................... $ 9.94 $ 6.13 3rd Quarter ............................... $ 11.00 $ 6.94 4th Quarter ............................... $ 10.13 $ 7.88 37 Item 6. Selected Financial Data
As of or for the Fiscal Year Ended September 30, ------------------------------------------------------------------------ 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- (dollars in thousands, except per share amounts) Operations Data: Interest income .................................. $ 295,315 $ 233,550 $ 207,567 $ 108,774 $ 52,132 Interest expense ................................. 219,146 187,515 167,543 75,960 34,622 ----------- ----------- ----------- ----------- ----------- Net interest income .............................. 76,169 46,035 40,024 32,814 17,510 Provision (credit) for loan losses ............... 4,645 7,939 1,700 1,295 (120) ----------- ----------- ----------- ----------- ----------- Net interest income after provision (credit) for loan losses ............................... 71,524 38,096 38,324 31,519 17,630 ----------- ----------- ----------- ----------- ----------- Non-interest income: Service fees, net ................................ 4,295 3,785 1,139 2,993 597 Net gain (loss) on sales of loans and mortgage- backed securities ............................. 71 (5) 4,429 819 5 Net gain (loss) on sale of other assets .......... -- 1 6 1 (6) Other ............................................ 1,709 1,019 651 247 53 ----------- ----------- ----------- ----------- ----------- Total non-interest income ........................ 6,075 4,800 6,225 4,060 649 ----------- ----------- ----------- ----------- ----------- Non-interest expenses: Employee compensation and benefits ............... 19,819 15,970 10,943 8,880 4,275 Occupancy and equipment .......................... 8,332 8,029 4,854 3,568 1,801 Insurance (1) .................................... 1,221 1,683 1,185 948 3,610 Professional fees ................................ 3,193 3,084 1,891 1,605 929 Other ............................................ 19,959 19,627 13,310 7,946 3,421 ----------- ----------- ----------- ----------- ----------- Total non-interest expense ....................... 52,524 48,393 32,183 22,947 14,036 ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes, extraordinary item and preferred stock dividends ............ 25,075 (5,497) 12,366 12,632 4,243 Provision (benefit) for income taxes ............. 10,247 (1,903) 5,009 5,033 1,657 ----------- ----------- ----------- ----------- ----------- Net income (loss) before extraordinary item and preferred stock dividends .................. 14,828 (3,594) 7,357 7,599 2,586 Extraordinary item (net of tax) .................. 936 -- -- -- -- ----------- ----------- ----------- ----------- ----------- Net income (loss) before preferred stock dividends ....................................... 15,764 (3,594) 7,357 7,599 2,586 Preferred stock dividends ........................ 790 773 897 2,890 2,145 ----------- ----------- ----------- ----------- ----------- Net income (loss) after preferred stock dividends ....................................... $ 14,974 $ (4,367) $ 6,460 $ 4,709 $ 441 =========== =========== =========== =========== =========== Financial Condition Data: Total assets ..................................... $ 4,552,069 $ 4,078,471 $ 3,738,383 $ 2,145,406 $ 824,360 Loans receivable, net, and mortgage-backed securities (2) ................... 3,700,492 3,246,455 3,215,360 1,781,652 716,550 Investments, overnight deposits, tax certificates, reverse repurchase agreements, certificates of deposit and other earning assets ................. 401,481 295,213 194,791 186,955 87,662 Total liabilities ................................ 4,349,482 3,888,334 3,539,091 2,045,761 755,249 Deposits ......................................... 2,609,538 2,279,798 2,124,824 1,195,892 506,106 Long-term debt ................................... 1,086,426 966,447 766,466 191,484 45,000 Company obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely junior subordinated deferrable interest debentures of BankUnited ............. 212,393 218,500 218,500 116,000 -- Borrowings ....................................... 1,673,024 1,546,648 1,361,114 817,484 237,775 Total stockholders' equity ....................... 202,587 190,137 199,292 99,645 69,111 Common stockholders' equity ...................... 193,241 180,984 190,627 75,649 44,807 (continued on the next page)
38
As of or for the Fiscal Year Ended September 30, --------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------ ------------- ------------ ----------- ----------- (dollars in thousands, except per share amounts) Per Common Share Data: Basic earnings (loss) per common share .......... $ 0.82 $ (0.24) $ 0.41 $ 0.57 $ 0.10 ------------ ------------- ------------ ----------- ----------- Diluted earnings (loss) per common share ........ $ 0.81 $ (0.24) $ 0.39 $ 0.54 $ 0.10 ------------ ------------- ------------ ----------- ----------- Weighted average number of common shares and common equivalent shares assumed outstanding during the period: Basic ........................................ 18,220,508 18,312,548 15,692,566 8,210,890 4,306,042 Diluted ...................................... 18,779,837 18,312,548 16,666,415 9,148,229 4,558,521 Book value per common share ..................... $ 10.61 $ 9.88 $ 10.50 $ 7.94 $ 7.85 Fully converted tangible book value per common share ................................. $ 8.78 $ 8.05 $ 8.66 $ 6.88 $ 7.13 Select Financial Ratios: Performance Ratios: Return (loss) on average assets (3) ............. 0.38% (0.10)% 0.24% 0.51% 0.36% Return (loss) on average common equity .......... 9.08 (3.79) 4.94 9.34 4.30 Return (loss) on average total equity ........... 8.09 (1.85) 4.53 8.06 1.30 Interest rate spread ............................ 1.74 1.12 1.11 2.07 2.10 Net interest margin ............................. 1.91 1.27 1.32 2.31 2.51 Dividend payout ratio (4) ....................... 5.01 NM 12.19 38.03 82.95 Ratio of earnings to combined fixed charges and preferred stock dividends (5): Excluding interest on deposits .................. 1.25 0.92 1.14 1.26 1.05 Including interest on deposits .................. 1.11 0.96 1.06 1.10 1.02 Total loans, net, and mortgage-backed securities to total deposits ................. 141.81 142.40 151.32 148.98 141.58 Non-interest expense to average assets .......... 1.27 1.28 1.03 1.55 1.97 Efficiency ratio(6) ............................. 61.07 94.70 64.86 57.56 76.45 Asset Quality Ratios: Ratio of non-performing loans to total loans .... 0.58% 0.70% 0.64% 0.72% 0.99% Ratio of non-performing assets to total loans, real estate owned and tax certificates ....... 0.68 0.85 0.73 0.79 1.14 Ratio of non-performing assets to total assets .. 0.55 0.69 0.61 0.67 0.95 Ratio of net charge-offs to average total loans . 0.11 0.06 0.02 0.04 (0.12) Ratio of loan loss allowance to total loans ..... 0.35 0.36 0.20 0.21 0.34 Ratio of loan loss allowance to non-performing loans ........................................ 61.20 52.45 31.51 28.96 33.74 Capital Ratio: Ratio of average common equity to average total assets ................................. 4.49% 4.08% 4.18% 3.40% 4.78% Ratio of average total equity to average total assets ................................. 4.72 5.16 5.19 6.36 8.44 Core capital-to-assets ratio(7) ................. 7.49 7.86 8.72 8.07 7.01 Risk-based capital-to-assets ratio(7) ........... 14.84 15.54 17.54 11.27 14.19
------------------- (1) In 1996 BankUnited recorded a one-time SAIF special assessment of $2.6 million ($1.6 million after tax). (2) Does not include mortgage loans held for sale. (3) Return on average assets is calculated before payment of Preferred Stock dividends. (4) 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. (5) 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. (6) Efficiency ratio is calculated by dividing non-interest expenses less non-interest income by net interest income. (7) Regulatory capital ratio of the bank. NM = Not meaningful 39 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, 2000, 1999 and 1998. 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. 40 Fiscal 2000 Highlights During fiscal 2000 BankUnited increased its asset size to $4.6 billion and reported record net income of $15 million, resulting in basic earnings of $0.82 and diluted of $0.81 per share. These results reflect the significant improvement in BankUnited's net interest margin which rose to 1.91% for the period ended September 30, 2000 from 1.27% for the period ended September 30, 1999. During Fiscal 2000, BankUnited opened four new branches. A fifth branch was opened shortly after year end, bringing the total branches to thirty-three. BankUnited launched its web site, www.buexpress.com to widen its reach into the community at reduced cost and offer the alternative delivery channel of Internet banking services to its customers. BankUnited also launched an aggressive branding campaign which consisted of radio, print and an award-winning thirty-second television commercial. New Management and Change in Business Focus General In December of 1998, after a period of rapid asset growth, the Board of Directors decided to change BankUnited's business focus from acquiring mortgage loans on the secondary market and to move towards an asset generating strategy. This decision included identifying and hiring a new President and Chief Operating Officer with extensive experience in commercial lending, credit, and retail banking within BankUnited's market area. The new President identified and hired a new management team with similar experience to facilitate this change in business focus, and embarked on a thorough review of all aspects of the business model as well as the qualifications and effectiveness of personnel. As a consequence of this review, BankUnited decided to cease purchasing under-performing products, specifically, One-Year CMT mortgage loans and tax certificates. BankUnited also decided to no longer offer indirect consumer automobile loans. Additionally, BankUnited notified certain employees that they were to be terminated. See "Second Quarter 1999 Charges" for a further description. During the last two quarters of fiscal 1999 and throughout fiscal 2000, BankUnited significantly increased loan production, developed enhanced deposit products and recorded strong earnings. Fiscal 2000 showed positive results from the change in focus as assets have increased by $473.6 million or 11.6%. Loans in sectors not previously emphasized by BankUnited have increased by over $105 million including commercial real estate, which increased by $14.5 million, construction loans, which increased by $23.3 million, and commercial and consumer, which increased by $67.5 million. In addition, the composition of the residential loan portfolio has shifted as a result of increased loan originations and a decrease in purchased loans. For the year ended September 30, 2000, BankUnited posted net income of $15.8 million before preferred stock dividends, versus a net loss of $3.6 million in fiscal 1999 before preferred stock dividends. Second Quarter 1999 Charges Due to a sharp decline in interest rates in late fiscal 1998 and early fiscal 1999, which precipitated an industry-wide surge in mortgage refinancings, purchased One-Year CMT loans experienced abnormally high pre-payment rates causing the market value of these loans to decline significantly. Management decided to cease purchasing this product, reclassified $273.0 million of these loans to held for sale and recorded a lower of cost or market adjustment of $13.0 million in accordance with Generally Accepted Accounting Principles (GAAP). Each quarter, management analyzes these loans to see if an adjustment is necessary to mark the carrying value to the lower of cost or market. Since March 31, 1999, BankUnited has not purchased additional One-Year CMT loans. For similar reasons, after reviewing a mortgage-backed security whose underlying collateral is also purchased loans indexed to the One-Year CMT, management determined that, due to the abnormally high rate of pre-payments and a sharply reduced estimated life, an accelerated amortization of premiums was required. This other than temporary impairment resulted in a charge in the second quarter of $1.8 million recorded in accordance with SFAS 115. 41 In addition, a loan loss provision of $6.3 million was recorded, $2.8 million of which was attributable to an increase in the volume of loans in the non-performing category. Refinements were made in the techniques used by management to estimate loan losses in the non-performing residential portfolio, which resulted in $0.9 million of additional reserve. The remaining balance of $2.6 million is derived from further deterioration of non-performing loans and management's evaluation of the remaining portfolio. See discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Asset Quality." In connection with the evaluation performed by management to assess the performance of products in the second quarter of fiscal 1999, a thorough review of all tax certificates was performed. This evaluation involved looking at the nature of the portfolio and assessing the quality of the certificates, and resulted in an additional provision of $1.1 million and a decision by management to stop purchasing tax certificates. The factors influencing management's decision and the additional provision included: o Third party independent appraisals, including site visits and photographs of the underlying properties; o Past payment performance; o The economic environment, including interest rates; o The composition of the portfolio changing from fewer large balance certificates with valuable underlying property to several small balance certificates with less desirable underlying properties; o Legislation which became effective in January 1999 restricting owners of tax certificates from sending letters to delinquent taxpayers and thereby impairing efforts to collect; and o Reduced collection efforts because of the termination of employees who had worked in this product area and lack of management attention to a discontinued product area. In the second quarter of fiscal 1999, management also identified obsolete equipment that was not compliant with Year 2000 requirements and, in connection with taking the equipment out of service, charged off $0.6 million in hardware, $0.2 million in software and $0.1 million in telephones and other equipment that had to be replaced. The Year 2000 charge also included $0.1 million of third party consulting fees. Other expenses charged in the second quarter of fiscal 1999 include $260,000 in non-collectible escrow balances, $200,000 in accrued bonus, $138,000 in reversal of accrued receivable on late charges, $113,000 in ATM losses, and $286,000 of other items, each of which do not exceed $75,000. The severance expense associated with employees notified of their termination was $0.3 million. Acquisitions On June 19, 1998, BankUnited acquired Central Bank ("Central"), for 1,386,000 shares of BankUnited's Class A Common Stock, and merged Central, which had assets of $93.9 million and deposits of $65.9 million as of June 19, 1998, into the Bank. On January 23, 1998, BankUnited acquired Consumers Bancorp, Inc. ("Consumers"), for approximately $12.0 million in a combination of cash and stock, and merged its wholly-owned subsidiary, Consumers Savings Bank, which had assets of $104.4 million and deposits of $88.3 million as of January 23, 1998, into the Bank. See Notes to Consolidated Financial Statements for additional information regarding these acquisitions. Liquidity and Capital Resources BankUnited's primary source of funds is cash provided by investing activities and includes principal and interest payments on loans, mortgage-backed securities and other securities. For fiscal years ended September 30, 2000 and 1999, principal repayments on loans and mortgage-backed securities and proceeds from maturities of other securities totaled $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. BankUnited's other sources of funds are provided by financing activities and includes borrowings and deposits. Net cash provided by financing activities during the fiscal year ended September 30, 2000 increased to $462 million from $344.9 million, for the fiscal year ended September 30, 1999. This increase was mainly attributable to increases in deposits of $330 million, and increased FHLB advances of $155 million. These increases were offset by a $22 million decrease in other borrowings. The increase in deposits is attributable to the expansion of BankUnited's branch network which increased by four new branch locations during fiscal 2000. 42 BankUnited's primary uses of funds in its operating and investing activities has been the origination of loans and the purchase of mortgage-backed securities and other securities. During the fiscal year ended September 30, 2000, BankUnited's originations of loans totaled $924.2 million, purchases of loans totaled $5.5 million and purchases of mortgage-backed securities and other securities totaled $110.1 million. For the same period in 1999, BankUnited's originations of loans totaled $723.1 million, purchases of loans totaled $803.3 million and purchases of mortgage-backed securities and other securities totaled $239.4 million. As previously noted, during the fiscal year ended September 30, 1999 BankUnited decided to reduce its purchases of residential loans in the secondary market and turned its emphasis to originating its own loans. In the normal course of business, BankUnited routinely enters into various commitments, primarily relating to the origination and purchase of loans, the purchase of securities and standby letters of credit. Total commitments outstanding at September 30, 2000 to originate loans were $84.3 million. In addition, BankUnited had $15.5 million in standby letters of credit outstanding at September 30, 2000 compared to commitments of $56.9 million and standby letters of credit outstanding of $6.3 million at September 30, 1999. 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 $202.6 million at September 30, 2000, an increase of $12.5 million, or 6.6%, from $190.1 million at September 30, 1999. The increase is due primarily to current year income after preferred stock dividends of $15 million offset by an increase in accumulated other comprehensive loss and purchases of treasury stock. 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. 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 The Bank is required under applicable federal regulations to maintain specified levels of liquid investments in cash, United States government securities and other qualifying investments. Regulations currently in effect require the Bank to maintain liquid assets of not less than 4.0% of its net demand accounts plus short-term borrowings. In compliance with this requirement the Bank has liquid assets of 8.77% as of September 30, 2000 and 6.96% as of September 30, 1999. Federal savings banks such as the Bank are also required to maintain capital at levels specified by applicable minimum capital ratios. At September 30, 2000, the Bank was in 43 compliance with all capital requirements and met the definition of a "well capitalized" institution under applicable federal regulations. Asset Quality At September 30, 2000, non-performing assets totaled $25.3 million as compared to $28.3 million and $22.6 million at September 30, 1999 and 1998, respectively. Expressed as a percentage of total assets, non-performing assets decreased to 0.55% as of September 30, 2000 as compared to 0.69% as of September 30, 1999 and 0.61% as of September 30, 1998. The decrease in non-performing assets in fiscal 2000 primarily resulted from decreases in non-accrual loans and real estate owned of $1.7 million and $1.3 million, respectively. Non-accrual loans decreased primarily due to a $0.9 million decrease in one-to-four family residential loan delinquencies and a $3.0 million decrease in commercial mortgage loan delinquencies. The decrease in real estate owned was due to a decrease in one-to-four family real estate owned. 44 The following table sets forth information concerning BankUnited's non-performing assets for the periods indicated:
September 30, ------------------------------------------------------- 2000 1999 1998 1997 1996 ------- ------- ------- ------- ------- (dollars in thousands) Non-accrual loans (1) ................................. $19,751 $21,428 $15,999 $10,866 $ 4,939 Restructured loans (2) ................................ 1,283 962 1,137 1,888 1,457 Loans past due 90 days and still accruing ............. 261 693 2,313 -- -- ------- ------- ------- ------- ------- Total non-performing loans (3) ........................ 21,295 23,083 19,449 12,754 6,396 non-accrual tax certificates .......................... 1,671 1,703 1,225 958 800 Real estate owned ..................................... 2,286 3,548 1,974 611 632 ------- ------- ------- ------- ------- Total non-performing assets ........................... $25,252 $28,334 $22,648 $14,323 $ 7,828 ======= ======= ======= ======= ======= Allowance for losses on tax certificates .............. $ 986 $ 1,168 $ 469 $ 697 $ 614 Allowance for loan losses ............................. 13,032 12,107 6,128 3,693 2,158 ------- ------- ------- ------- ------- Total allowance ....................................... $14,018 $13,275 $ 6,597 $ 4,390 $ 2,772 ======= ======= ======= ======= ======= Non-performing assets as a percentage of total assets ...................................... 0.55% 0.69% 0.61% 0.67% 0.95% Non-performing loans as a percentage of total loans (4) ................................... 0.58% 0.70% 0.64% 0.72% 0.99% Allowance for loan losses as a percentage of total loans (4) ................................... 0.35% 0.36% 0.20% 0.21% 0.34% Allowance for loan losses as a percentage of non-performing loans .............................. 61.20% 52.45% 31.51% 28.96% 33.74% Net charge-offs as a percentage of average total loans ........................................ 0.11% 0.06% 0.02% 0.04% (0.12)%
---------------- (1) Gross interest income that would have been recorded on non-accrual loans had they been current in accordance with original terms was $1.1 million, $1.3 million, $1.0 million, $0.6 million, and $0.2 million for the years ended September 30, 2000, 1999, 1998, 1997 and 1996, respectively. The amount of interest income on such non-accrual loans included in net income for the years ended September 30, 2000, 1999, 1998, 1997 and 1996 was $0.7 million, $0.5 million, $0.4 million, $0.4 million, and $0.1 million, respectively. (2) All restructured loans were accruing. (3) In addition, management had concerns as to the borrower's ability to comply with present repayment terms on $2.1 million and $6.5 million of accruing loans as of September 30, 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 estimated 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: 45 o Estimated unidentified 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. o 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. o General valuation allowances are also established on residential, commercial, construction, land and consumer loans for the performing portfolio and represent loss allowances that have been established to recognize the unspecified losses inherent in the loan portfolio. In determining the adequacy of the unallocated reserves, management considers changes in the size and composition of the loan portfolio, the type of collateral, historical loan loss experience, current and anticipated economic conditions, industry and geographic concentrations, BankUnited's credit administration and asset management philosophies and procedures and the sizes of similar reserves at comparable financial institutions. o 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. 46 Second Quarter 1999 Evaluation In connection with the change in business focus (see "New Management and Change in Business Focus"), 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. During the second fiscal quarter of 1999, the economy continued to experience the effects of a prolonged flat interest rate yield curve, which has led in the past to times of economic uncertainty. Additionally, these uncertainties, in combination with the south Florida economy's dependence on international trade and tourism, created a slowdown in various commercial sectors and a growing possibility of overbuilding in the commercial real estate sector, causing local institutions to tighten their lending standards. These factors influenced management's decision in the evaluation of the adequacy of the reserve for loan losses. In addition, BankUnited observed that reserves on performing loans, as a percentage of the outstanding loan balances, were significantly below comparable percentages for the industry as a whole and, as noted by BankUnited's regulators, also well below peer institutions. 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. The improvements made in the second quarter of 1999, and the impact of those improvements on the allowance for loan loss in each category of the loan portfolio is as follows: o BankUnited considered factors noted above as well as historical loan losses, and using new management's extensive lending experience in the geographical market in which the Company operates, decided to increase the allowance percentage applied to the performing residential loan balances from 0.07% to 0.09%. Applying the same considerations, BankUnited also increased the allowance percentage used for the performing commercial and commercial mortgage loan portfolio from 0.50% to 1.00%. The provisions in the second quarter of 1999 resulting from these percentage increases were $0.4 million and $0.5 million, respectively. o Prior to the second quarter of 1999, management reviewed the non-performing residential one- to- four family mortgage portfolio by evaluating each loan individually. An allowance for loan loss would be established for a loan to the extent that the carrying value exceeded 90% of the appraised value less selling cost. During the second quarter of fiscal 1999, management concluded that, due to the increase in volume of residential non-performing loans, the homogeneous nature of these loans, and the lack of significance of any single loan in terms of size and potential risk, it would be more appropriate to determine the allowance on the non-performing portfolio as a whole, rather than on individual loans. Cumulative historical losses by geographic distribution were computed as a percentage of the 47 delinquent principal amount for each geographical region. This percentage was then applied to current delinquent loans, by geographic distribution, to estimate the required reserves. As such, in the second quarter of fiscal 1999, the provision for loan loss was $1.7 million, $0.8 million of which was attributable to an increase in the volume of loans in the non-performing category and $0.9 million of which was due to this refinement in the evaluation process. o Management reviewed the indirect consumer automobile loans and, based on their estimate of probable loan losses, and its decision to stop offering this type of product, determined to increase the provision for this portfolio by $0.3 million. o In the second quarter of fiscal 1999, management examined each of the individual non-performing commercial mortgage, construction, business, land and direct consumer loans taking into consideration current global economic conditions, and their effect on the South Florida economy, industry and geographic concentrations, and the experience of the new management team. As a result of this examination, BankUnited recorded a provision of $3.4 million for these non-performing loans. Of the $3.4 million, $2.0 million was attributable to an increase in the volume of loans in the non-performing category. The provision by category is as follows:
Deterioration Evaluation of of Specific Other Factors Volume Related Non-Accrual Loans Described Above Total -------------- ----------------- --------------- ----- (dollars in millions) --------------------- Commercial mortgage $0.9 $0.5 $0.3 $1.7 Business 0.5 0.2 0.2 0.9 Land 0.5 0.0 0.0 0.5 Consumer direct 0.1 0.0 0.2 0.3 ---- ---- ---- ---- $2.0 $0.7 $0.7 $3.4 ==== ==== ==== ====
The total provision for fiscal years ended September 30, 2000 and 1999 was $4.6 million and $7.9 million, respectively. 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. 48 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, -------- -------- -------- -------- -------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (in thousands) Allowance for loan losses, balance (at beginning of period) .................................................... $ 12,107 $ 6,128 $ 3,693 $ 2,158 $ 1,469 Provisions (credit) for loan losses ............................ 4,645 7,939 1,700 1,295 (120) Allowance from acquisitions .................................... -- -- 1,262 775 183 Loans charged off: One-to-four family residential loans ......................... (997) (702) (508) (604) (493) Commercial real estate ....................................... -- (733) -- -- -- Construction ................................................. -- (197) -- -- -- Commercial business .......................................... (2,595) (21) (30) -- -- Consumer ..................................................... (267) (395) (61) -- -- -------- -------- -------- -------- -------- Total ...................................................... (3,859) (2,048) (599) (604) (493) -------- -------- -------- -------- -------- Recoveries: One-to-four family residential loans ......................... 74 49 33 48 1,119 Commercial real estate ....................................... 8 1 -- -- -- Commercial business .......................................... 53 -- 30 21 -- Consumer ..................................................... 4 38 9 -- -- -------- -------- -------- -------- -------- Total ...................................................... 139 88 72 69 1,119 -------- -------- -------- -------- -------- Allowance for loan losses, balance (at end of period) .......... $ 13,032 $ 12,107 $ 6,128 $ 3,693 $ 2,158 ======== ======== ======== ======== ========
Historically, recoveries of charged off loans have been minimal since charged off loans have been primarily one-to-four family residential loans and typically the only substantial asset available to BankUnited is the real estate securing the loan, which is acquired through foreclosure and sold. However, in its fiscal year ended September 30, 1996, BankUnited received a recovery of approximately $1.0 million as settlement of litigation BankUnited initiated against a seller of residential mortgage loans. BankUnited is not aware of any significant liability related to REO or loans that may be foreclosed. 49 The following table sets forth the allocation of general allowance for loan losses by loan category for the periods indicated.
As of September 30, ------------------------------------------------------------ 2000 1999 1998 ------------------ ------------------ ------------------ % of Loans in % of Loans in % of Loans in Each Category Each Category Each Category to Total to Total to Total Loans Before Loans Before Loans Before Amount Net Items Amount Net Items Amount Net Items ------------------ ------------------ ------------------ (dollars in thousands) Balance at end of period applicable to: One-to-four family residential mortgages .............................................. $ 4,045 87.8% $ 4,200 91.1% $ 1,917 92.4% Multi-family residential ................................. 927 1.9 442 0.9 98 0.8 Commercial real estate ................................... 2,163 4.2 2,873 4.3 2,081 4.8 Construction ............................................. 465 1.1 154 0.5 225 0.3 Land ..................................................... 1,166 0.9 1,171 0.7 265 0.2 Commercial business ...................................... 2,435 2.3 1,798 1.5 307 0.5 Consumer ................................................. 1,206 1.8 848 1.0 356 1.0 Unallocated .............................................. 625 N/A 621 N/A 879 N/A ------------------ ------------------ ------------------ Total allowances for loan losses ................................................. $13,032 100.0% $12,107 100.0% $ 6,128 100.0% ================== ================== ================== As of September 30, -------------------------------------- 1997 1996 ------------------ ------------------ % 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 .............................................. $1,873 89.2% $1,380 88.7% Multi-family residential ................................. 61 1.8 123 2.0 Commercial real estate ................................... 1,486 7.4 493 7.6 Construction ............................................. 62 0.4 -- 0.0 Land ..................................................... 48 0.5 27 0.4 Commercial business ...................................... 108 0.6 68 0.9 Consumer ................................................. 22 0.1 29 0.4 Unallocated .............................................. 33 N/A 38 N/A ------------------ ------------------ Total allowances for loan losses ................................................. $3,693 100.0% $2,158 100.0% ================== ==================
Management believes that the allowance for loan losses of $13.0 million as of September 30, 2000 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. 50 Year 2000 Computer programs which recognize a date using two digits (rather than four) to define the applicable year may consider a date using "00" as the year 1900 rather than the year 2000, or fail to recognize the year 2000 as a leap year. This is generally referred to as the "Year 2000 Issue," which may affect the performance of computer programs, hardware, software and other products with embedded computer technology that is date sensitive. In preparation for the Year 2000, BankUnited extensively reviewed, modified and tested its systems prior to the Year 2000, and has been substantially Year 2000 compliant since June 30, 1999. On and after January 1, 2000 and February 29, 2000 BankUnited conducted extensive tests of its information systems to verify that the systems correctly recognized the Year 2000 and treated it as a leap year. Additionally, BankUnited associates have closely monitored computer output for accuracy subsequent to January 1, 2000 and February 29, 2000. These tests and reviews have not resulted in any incidents that would materially impact the operation or financial condition of BankUnited, and BankUnited has not, as of this date, experienced any significant disruption due to a Year 2000 failure. BankUnited incurred approximately $1.9 million in costs associated with becoming Year 2000 compliant, excluding internal costs. The costs consisted of approximately $0.7 million for the replacement of hardware and software, $0.9 million for the write-off of non-compliant hardware and software and $0.3 million for other incremental costs. BankUnited does not separately track the internal costs incurred for the Year 2000 project and such costs are principally the related payroll costs for its information systems department. Discussion of Financial Condition Changes for the Years Ended September 30, 2000 and 1999 Total assets increased 12.2% from $4.1 billion at September 30, 1999 to $4.6 billion at September 30, 2000. The increase is mostly due to the increase in loans. Loans. BankUnited's loans receivable, net (including loans held for sale) increased $367.9 million from September 30, 1999 to September 30, 2000. Of BankUnited's total net loans receivable of $3.7 billion at September 30, 2000, $1.9 billion or 51.4% were adjustable-rate mortgages ("ARMs") and $1.8 billion or 48.6% were fixed rate mortgages. Mortgage loan purchases of $5.5 million and loan originations of $924 million were offset by repayments of $554.6 million (net of accretion of discount and amortization of premium) and loan sales of $10.2 million. Mortgage loans held for sale decreased $91 million to $312.6 million as of September 30, 2000 as compared to $403.6 million at September 30, 1999 principally due to residential loan repayments of $95.1 million and sales of $10.2 million. This decrease was partially offset by originations of loans held for sale of $9.3 million. 51 During the fiscal years ended September 30, 2000, 1999, and 1998, residential loans totaling $10.2 million, $23.6 million, and $173.5 million, respectively, were sold for a gain of $71,000, a loss of $5,000, and a gain of $4.0 million, respectively. Federal Home Loan Bank (FHLB) Overnight Deposits. FHLB overnight deposits increased $197.2 million to $247.6 million at September 30, 2000 from $50.4 million at September 30, 1999. This change is due to adjustments to BankUnited's liquidity position in response to the growth in the balance sheet and projected cash requirements. Securities Purchased Under Agreements To Resell. BankUnited had $63 million in securities purchased under agreements to resell at September 30, 2000 . BankUnited invest the unapplied proceeds of borrowings to maximize earnings while maintaining liquidity until such time as loans and/or securities of a price and quality in line with BankUnited's investment strategy become available. Tax Certificates. BankUnited's investment in tax certificates decreased $9.1 million, or 61.5%, to $5.7 million at September 30, 2000 from $14.8 million at September 30, 1999. The decrease is a result of certificate redemptions and repayments and the decision to discontinue investing in this line of business. Investments. Investments held to maturity remained consistent at $5.1 million as of September 30, 2000 and 1999. Investments available for sale decreased $2.6 million, or 13%, to $17.4 million as of September 30, 2000 as compared to $20.0 million as of September 30, 1999. The decrease in fiscal 2000 was primarily due to the maturity and redemption of investment securities. Mortgage-Backed Securities. Mortgage-backed securities held to maturity increased $19.8 million, or 9.8%, to $222.6 million at September 30, 2000 from $202.8 million at September 30, 1999. The increase was due to purchases of GNMA, FNMA, and FHLMC mortgage backed securities. BankUnited's available for sale mortgage-backed securities portfolio decreased $24.6 million, or 17%, to $119.8 million as of September 30, 2000 from $144.4 million as of September 30, 1999. This decrease was due to repayments and amortization of $23.1 million, and a reduction of $1.5 million in the market value of the underlying securities. Other Interest Earning Assets. Other interest earning assets increased $7.8 million, or 14.2%, to $62.7 million at September 30, 2000 from $54.9 million at September 30, 1999. This category primarily represents stock in the FHLB which BankUnited is required to purchase in proportion to FHLB advances. Deposits. Deposits increased by $329.7 million, or 14.5%, from $2.3 billion at September 30, 1999 to $2.6 billion at September 30, 2000, due to an increase in certificates of deposit accounts of $374 million and non-interest bearing checking accounts of $22.2 million. The increases were offset by decreases in passbook savings of $54.6 million, insured money market accounts of $2.3 million and NOW accounts of $9.6 million. 52 Securities Sold Under Agreements To Repurchase. Securities sold under agreements to repurchase decreased by $22.5 million, or 71% to $9.2 million at September 30, 2000 from $31.7 million at September 30, 1999 mainly due to maturity of outstanding repurchase agreements which were not renewed. FHLB Advances. FHLB advances increased approximately $200 million, or 18.2% to $1.3 billion at September 30, 2000 from $1.1 billion at September 30, 1999 mainly due to increased funding needs at the Bank. Senior Notes. Senior Notes remained at $200 million. These Senior Notes were issued and sold during the second quarter of fiscal 1999. See Notes to the Consolidated Financial Statements. Trust Preferred Securities. Trust Preferred securities decreased by $6.1 million or 2.8% from $218.5 million at September 30, 1999 to $212.4 million at September 30, 2000. 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. At September 30, 2000, BankUnited had purchased a total of 158,499 shares of trust preferred securities issued by its trust subsidiaries on the open market at a cost of $4.4 million. A gain of $1.5 million, before taxes, was recorded upon acquisition of these securities. Stockholders' Equity. BankUnited's total stockholders' equity was $202.6 million at September 30, 2000, an increase of $12.5 million, or 6.6%, from $190.1 million at September 30, 1999. The increase is due primarily to current year income after preferred stock dividends of $15 million and increase in additional paid in capital of $357,000 offset by an increase in accumulated other comprehensive loss of $1.8 million and $1.1 million in treasury stock. In May 1999, the Board of Directors of BankUnited authorized the purchase of shares of the 9% Preferred Stock on the open market, as deemed appropriate, and, if the market is appropriate, the retirement of the 9% Preferred Stock. 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. 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, 2000, 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. As of the date of filing of this Annual Report on Form 10-K/A, no additional purchases have been made. 53 Comparison of Operating Results for the Fiscal Years Ended September 30, 2000 and 1999 Net Income after Preferred Stock Dividends. 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. 54 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, offset by 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, 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. 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. 55
At September 30, ---------------------------------------------------------------------- 2000 1999 As of ------------------------------ ----------------------------- 09/30/00 Yield/ Average Yield/ Average Yield/ Rate(1) Balance Interest Rate Balance Interest Rate ----- ---------- --------- ----- ---------- --------- ----- (dollar amounts in thousands) Interest-earning assets: Loans receivable, net (2) ...................... 7.77% $3,515,652 $ 260,690 7.42% $3,038,086 $ 199,704 6.57% Mortgage-backed securities (2) ................. 7.01% 354,271 24,866 7.02% 337,333 18,493 5.48 Short-term investments (3) ..................... 6.99% 43,331 3,229 7.45% 144,842 7,590 5.24 Tax certificates ............................... 0.87% 10,585 784 7.41% 26,666 1,882 7.06 Long-term investments and FHLB stock, net .................................. 7.73% 73,816 5,746 7.78% 80,042 5,881 7.35 ----- ---------- --------- ----- ---------- --------- ----- Total interest-earning assets .................... 7.65% 3,997,655 295,315 7.39% 3,626,969 233,550 6.44 ----- ---------- --------- ----- ---------- --------- ----- Interest-bearing liabilities: NOW/Money Market ............................... 2.67% 264,577 6,777 2.56% 272,922 7,820 2.87 Savings ........................................ 4.88% 355,320 16,825 4.74% 360,019 16,010 4.45 Certificate of deposits ........................ 6.23% 1,823,606 103,027 5.65% 1,599,661 82,825 5.18 Trust preferred securities ..................... 9.69% 215,600 20,899 9.69% 218,500 21,154 9.68 Senior notes ................................... 5.71% 200,000 11,429 5.71% 132,055 7,612 5.76 FHLB advances and other borrowings ............. 6.24% 1,018,782 60,189 5.91% 942,871 52,094 5.52 ----- ---------- --------- ----- ---------- --------- ----- Total interest-bearing liabilities ............... 6.05% $3,877,885 $ 219,146 5.65% $3,526,028 $ 187,515 5.32 ===== ========== ========= ===== ========== ========= ===== Excess of interest-earning assets over interest-bearing liabilities .............. $ 119,770 $ 100,941 ========== ========== Net interest income .............................. $ 76,169 $ 46,035 ========= ========= Interest rate spread ............................. 1.60% 1.74% 1.12% ===== ===== ===== Net interest margin .............................. 1.78% 1.91% 1.27% ===== ===== ===== Ratio of interest-earning assets to interest-bearing liabilities ................... 103.09% 102.86% ========== ========== At September 30, ------------------------------- 1998 ------------------------------- Average Yield/ Balance Interest Rate ---------- --------- ----- (dollar amounts in thousands) Interest-earning assets: Loans receivable, net (2) ...................... $2,529,219 $ 177,252 7.01% Mortgage-backed securities (2) ................. 288,832 16,588 5.74 Short-term investments (3) ..................... 86,642 5,013 5.79 Tax certificates ............................... 38,978 2,952 7.57 Long-term investments and FHLB stock, net .................................. 81,600 5,762 7.06 ---------- --------- ----- Total interest-earning assets .................... 3,025,271 207,567 6.86 ---------- --------- ----- Interest-bearing liabilities: NOW/Money Market ............................... 163,513 5,083 3.11 Savings ........................................ 193,564 8,983 4.64 Certificate of deposits ........................ 1,384,710 79,365 5.73 Trust preferred securities ..................... 173,288 16,952 9.78 Senior notes ................................... -- -- 0.00 FHLB advances and other borrowings ............. 998,562 57,160 5.72 ---------- --------- ----- Total interest-bearing liabilities ............... $2,913,637 $ 167,543 5.75 ========== ========= ===== Excess of interest-earning assets over interest-bearing liabilities .............. $ 111,634 ========== Net interest income .............................. $ 40,024 ========= Interest rate spread ............................. 1.11% ===== Net interest margin .............................. 1.32% ===== Ratio of interest-earning assets to interest-bearing liabilities ................... 103.83% ==========
---------------- (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, 2000 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. 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. 56
Year Ended September 30, Year Ended September 30, 2000 v. 1999 1999 v. 1998 ----------------------------------------- ------------------------------------------ Increase (Decrease) Increase (Decrease) Due to Due to Changes Changes Changes Changes in Total Changes Changes in Total in in Rate/ Increase in in Rate/ Increase Volume Rate Volume (Decrease) Volume Rate Volume (Decrease) -------- -------- -------- --------- ---------- -------- -------- -------- (Dollars in thousands) Interest income attributable to: Loans ....................................... $ 31,392 $ 25,574 $ 4,020 $ 60,986 $ 35,662 $(10,997) $ (2,213) $ 22,452 Mortgage-backed securities and collateralized mortgage obligations ....... 929 5,184 260 6,373 2,785.0 (753) (127) 1,905 Short-term investments (1) .................. (5,320) 3,204 (2,245) (4,361) 3,367.0 (473) (317) 2,577 Tax Certificates ............................ (1,135) 92 (56) (1,099) (932.0) (201) 63 (1,070) Long-term investments and FHLB stock ........ (457) 351 (29) (135) (110.0) 233 (4) 119 -------- -------- -------- --------- ---------- -------- -------- -------- Total interest-earning assets ............... 25,409 34,405 1,950 61,764 40,772 (12,191) (2,598) 25,983 -------- -------- -------- --------- ---------- -------- -------- -------- Interest expense attributable to: NOW/Money Market ............................ (239) (828) 24 (1,043) 3,401.0 (398) (266) 2,737 Savings ..................................... (209) 1,044 (20) 815 7,725.0 (375) (323) 7,027 Certificates of Deposit ..................... 11,595 7,549 1,058 20,202 12,320.0 (7,669) (1,191) 3,460 Trust preferred securities .................. (281) 27 (1) (255) 4,423.0 (175) (46) 4,202 Senior Notes ................................ 3,917 (66) (34) 3,817 -- -- 7,612 7,612 FHLB advances and other borrowings .......... 4,194 3,610 290 8,094 (3,188.0) (1,989) 111 (5,066) -------- -------- -------- --------- ---------- -------- -------- -------- Total interest-bearing liabilities .......... 18,977 11,336 1,317 31,630 24,681 (10,606) 5,897 19,972 -------- -------- -------- --------- ---------- -------- -------- -------- Increase (decrease) in net interest income ............................ $ 6,432 $ 23,069 $ 633 $ 30,134 $ 16,091 $ (1,585) $ (8,495) $ 6,011 ======== ======== ======== ========= ========== ======== ======== ========
(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 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. For a detailed discussion of BankUnited's asset quality and allowance for loan losses, see "Asset Quality." 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 and 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. 57 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. Comparison of Operating Results for the Fiscal Years Ended September 30, 1999 and 1998 Net Income after Preferred Stock Dividends. Net income after preferred stock dividends decreased to a loss of $4.4 million for the year ended September 30, 1999, compared to net income after preferred stock dividends of $6.5 million for the year ended September 30, 1998. The primary reasons for the decline in net income after preferred stock dividends for the year ended September 30, 1999 were (i) the accelerated amortization of purchase premiums on the One-Year CMT loan portfolio and a related security recorded in the first quarter of fiscal 1999 due to the high level of prepayments; (ii) the write-off of purchase premiums on the One-Year CMT loan portfolio, and the continuing acceleration of amortization of purchase premiums on a related security in the second quarter of fiscal 1999; (iii) the provision for loan losses in the second quarter resulting from the re-evaluation of the loan portfolio; (iv) the provision for tax certificate losses in the second quarter resulting from the increase in nonperforming tax certificates and the decision to discontinue investing in this asset; and (v) other miscellaneous charges in the second quarter including costs associated with becoming Year 2000 compliant. See "New Management and Change in Business Focus" above. A more detailed discussion of each major category of income and expenses follows. Net Interest Income. Net interest income before provision for loan losses increased $6.0 million, or 15.0%, to $46.0 million for the year ended September 30, 1999 from $40.0 million for the year ended September 30, 1998. This increase was reduced as a result of the accelerated amortization of purchase premiums on the One-Year CMT loan portfolio and a related security recorded in the first quarter of fiscal 1999 and the $14.8 million charge in the second quarter of fiscal 1999 related to the One-Year CMT loan portfolio and a related security. This charge contributed to the reduction of the net interest margin to 1.27% for the year ended September 30, 1999, compared to 1.32% for the same prior year period. For the year ended September 30, 1999, the decrease in the net interest margin was due to a decrease in the yield on interest-earning assets to 6.44% from 6.86% for the same period in 1998, primarily attributable to the lower yields on the loans purchased, partially offset by 43 basis point decrease in the cost of interest-bearing liabilities to 5.32% from 5.75% for the same period in 1998. Interest income increased $26.0 million, or 12.5%, to $233.6 million for the year ended September 30, 1999 from $207.6 million for the year ended September 30, 1998. Interest income for the fiscal year 1999 was affected by the following: 58 The results of operations for the three months ended December 31, 1998 reflect the accelerated amortization of premiums on purchased loans and mortgage-backed securities. The amortization of premiums, net of discounts and deferred origination costs, increased from $1.0 million for the three months ended December 31, 1997 to $6.1 million for the same period in fiscal 1999. The increase in premium amortization was a result of the high level of loan prepayments experienced in the first quarter of fiscal 1999. The results of operations for the three months ended March 31, 1999 include the $14.8 million charge and $0.2 million of other amortization for a total reduction to interest income of $15.0 million. The results of operations for the six months ended September 30, 1999 include $2.8 million of amortization compared to $9.5 million for the same period in fiscal 1998. The decrease is the result of the reduction in the level of prepayments and the charge in the second quarter of fiscal 1999 to reduce the carrying value of the purchased One-Year CMT portfolio to the lower of cost or market. The decrease in interest income due to these net reductions was offset by an increase in the average balance of loans receivable, which increased $0.5 billion or 20.1%, for the year ended September 30, 1999, as compared to the same prior year period. Interest expense for the year ended September 30, 1999, increased $20.0 million, or 11.9%, to $187.5 million from $167.5 million for the year ended September 30, 1998, primarily due to increases in interest expense on interest-bearing deposits and the trust preferred securities. Interest expense on interest-bearing deposits increased $13.3 million, or 14.2%, to $106.7 million for the year ended September 30, 1999, from $93.4 million for the prior year as a result of an increase in the average balance of interest-bearing deposits to $2.2 billion for the year ended September 30, 1999, from $1.7 billion for the year before, offset by a 58 basis point decrease in the average cost of interest-bearing deposits to 4.78% for the year ended September 30, 1999, from 5.36% for the prior year. Interest expense on the trust preferred securities increased $4.2 million, or 24.7% to $21.2 million for the year ended September 30, 1999, from $17.0 million for the prior year, as a result of an increase in the average balance of the trust preferred securities to $218.5 million for the year ended September 30, 1999 from $173.3 million for the prior year. Other factors influencing the level of interest expense include the issuance of the Bank's Senior Notes during the second quarter of fiscal 1999, which generated interest expense of $7.6 million for the year ended September 30, 1999, at a weighted average cost of 5.76%; and a $5.1 million decrease in interest expense on FHLB advances and other borrowings to $52.1 million for the year ended September 30, 1999 from $57.1 million for the prior year, resulting from a decrease in the average balance of FHLB advances and other borrowings to $942.9 million for the year ended September 30, 1999, from $998.6 million for the prior year. Overall, the average rate paid on interest-bearing liabilities decreased 43 basis points to 5.32% on an average balance of $3.5 billion for the year ended September 30, 1999, from 5.75% on an average balance of $2.9 billion for the year ended September 30, 1998. Provision for Loan Losses. The provision for loan losses increased $6.2 million to $7.9 million for the year ended September 30, 1999 compared to $1.7 million for the year ended September 30, 1998. Included in the $7.9 million provision is a $6.3 million provision recorded in the second quarter as a result of management's review of interest earning assets. The provision recorded in the second quarter of fiscal 1999 relates to one-to-four family residential mortgage loans ($2.1 million), indirect consumer loans ($0.3 million) and commercial loans ($3.9 million). The provision for loan losses represents management's estimate of the charge to operations after reviewing the nature, 59 volume, delinquency status, and inherent risk in the loan portfolio in relation to the allowance for loan losses. For a detailed discussion of BankUnited's asset quality and allowance for loan losses, see "Asset Quality." Non-interest Income. Non-interest income decreased $1.4 million to $4.8 million for the year ended September 30, 1999 compared to $6.2 million for the year ended September 30, 1998. The results reflect a $4.4 million decrease in gains on sales of assets related to a reduction in the sales of loans and mortgage-backed securities. Core income, comprised of net service fee income, service charges and other fees on deposits and other non-interest income increased $3.0 million reflecting BankUnited's increased emphasis on implementing new products and services to meet customer needs. Non-interest Expenses. Operating expenses increased $16.2 million to $48.4 million for the year ended September 30, 1999 compared to $32.2 million for the year ended September 30, 1998. Included in the increase in non-interest expenses are the expenses incurred in the second quarter of fiscal 1999 for the additional provision for tax certificate losses of $1.1 million, $1.0 million of expenses related to Year 2000 compliance and $1.0 million of miscellaneous other charges. The remaining increase in expenses is attributable to the growth BankUnited has experienced, including the additional costs relating to the acquisitions of Consumers Bancorp, Inc. and Central Bank during the second and third quarters, respectively, of the 1998 fiscal year and the opening of two additional branches in the 1999 fiscal year. Total non-interest expenses, as a percentage of average assets, increased from 1.03% for the year ended September 30, 1998, to 1.28% for the same period in 1999 as a result of the additional charges. Income Taxes. The income tax provision decreased to a net benefit of $1.9 million for the year ended September 30, 1999, compared to a net expense of $5.0 million for the year ended September 30, 1998. This decrease was due to BankUnited's pre-tax loss during the year ended September 30, 1999, partially offset by the increase in the effective income tax rate due to the effect of non-deductible goodwill. Preferred Stock Dividends. Preferred stock dividends decreased $124,000 to $773,000 for the year ended September 30, 1999 as compared to $897,000 for the year ended September 30, 1998. This decrease is the result of the retirement in January 1998 of the 8% Noncumulative Convertible Preferred Stock, Series 1993, partially offset by the issuance of additional shares of Noncumulative Convertible Preferred Stock, Series B. 60 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. 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. 61 Selected Quarterly Financial Data Set forth below is selected quarterly data for the fiscal years ended September 30, 2000 and 1999. The quarterly financial data for the fourth quarter of fiscal 1999 was not reviewed by BankUnited's independent certified public accountants in accordance with standards established for such reviews.
2000 --------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- (Dollars in thousands, except 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 $ 0.2 $ 0.2 $ 0.18 ------- ------ ------- ------- Net income after extraordinary item .......................... $ 0.22 $ 0.21 $ 0.2 $ 0.19 ======= ====== ======= ======= Diluted: Net income before extraordinary item ......................... $ 0.19 $ 0.2 $ 0.2 $ 0.18 ------- ------ ------- ------- Net income after extraordinary item .......................... $ 0.21 $ 0.21 $ 0.2 $ 0.19 ======= ====== ======= ======= 1999 --------------------------------------------- First Second Third Fourth Quarter Quarter(1) Quarter Quarter -------- -------- -------- -------- (Dollars in thousands, except per share data) Net interest income ............................................ $ 10,089 $ 1,555 $ 15,891 $ 18,500 Provision for loan losses ...................................... 400 6,336 450 753 Non-interest income ............................................ 1,293 1,209 1,189 1,109 Non-interest expense ........................................... 10,222 13,936 11,135 13,100 -------- -------- -------- -------- Income (loss) before taxes and preferred stock dividends ....... 760 (17,508) 5,495 5,756 Income taxes (benefit) ......................................... 364 (6,578) 2,164 2,147 -------- -------- -------- -------- Net income (loss) before preferred stock dividends ............ 396 (10,930) 3,331 3,609 Preferred stock dividends ...................................... 188 196 192 197 -------- -------- -------- -------- Net income (loss) applicable to common stock ................... $ 208 $(11,126) $ 3,139 $ 3,412 ======== ======== ======== ======== Basic earnings (loss) per share ................................ $ 0.01 $ (0.61) $ 0.17 $ 0.19 ======== ======== ======== ======== Diluted earnings (loss) per share .............................. $ 0.01 $ (0.61) $ 0.17 $ 0.18 ======== ======== ======== ======== (1) Includes restructuring charges
62 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. 63 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. 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. 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. In an interest rate environment where long-term interest rates are declining and related mortgage refinancing opportunities are readily available, prepayments of ARMs and higher rate, fixed-rate mortgages tend to accelerate. This was the case the first half of fiscal 1999. BankUnited's results of operations for the first quarter of fiscal year 1999 reflect the accelerated amortization of premiums on purchased loans and mortgage-backed securities due to such refinancings. BankUnited continued to experience high levels of prepayments in the second quarter of fiscal 1999, the effects of which are included in the $14.8 million charge to write-off the remaining purchase premiums on the One-Year CMT loan portfolio and to record the continuing accelerated amortization of purchase premiums on a similar security. In addition, $0.2 million of other amortization was recorded for a total reduction to income of $15.0 million. During the third quarter of fiscal 1999, long-term interest rates rose slightly resulting in a significant decrease in the level of prepayments. As a result of this decline in prepayments and the reduction in the balance of premiums to amortize in the second half 64 of fiscal 1999, the amortization of premiums, net of discounts and deferred origination costs, decreased to $2.8 million for the six months ended September 30, 1999. As of September 30, 1999, BankUnited's purchased premiums, net of discounts, were $3.5 million as compared to $866,000 at September 30, 2000. BankUnited has reviewed its practice of purchasing mortgage loans in the secondary market, particularly ARM loans, and has put increased emphasis on originating its own loans. Over time, management expects this to mitigate BankUnited's exposure to the adverse impact accelerated premium amortization can have on its net interest income. 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 $70 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 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 Consolidated Financial Statements for further discussion of interest rate caps). 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 65 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 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. 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, 2000 BankUnited's residential loan portfolio included $1.5 billion of ARMs (40.5% 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. 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 eand 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. 66 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. BankUnited's rate-sensitive liabilities maturing or subject to repricing within one year exceed its rate-sensitive assets maturing or repricing within the same period. As of September 30, 2000, this circumstance results in a negative cumulative one-year gap position of 4.59% of total assets. This mismatch, when coupled with the deregulation of the restrictions previously imposed on the types of savings products that financial institutions are permitted to offer, subjects BankUnited's earnings to change based on fluctuations in interest rates. In terms of managing interest rate risk, one method available to management is to attempt to more closely match the repricing frequencies of the Bank's interest-earning assets to that of its interest-bearing liabilities. 67 Gap Table. The following table sets forth the amount of interest-earning assets and interest-bearing liabilities outstanding at September 30, 2000, expected to reprice or mature in each of the future time periods shown.
At September 30, 2000 Interest Sensitivity Period (1) -------------------------------------------- 6 Months 6 Months - Over 1- or Less 1 Year 5 Years ----------- ----------- ----------- (dollars in thousands) Interest-earning assets: Investments, tax certificates, Federal funds sold, FHLB overnight deposits and other interest earning assets, at cost ................... $ 375,516 $ 1,157 $ 7,717 Mortgage-backed securities ......................... 58,034 21,327 95,935 Loans: Adjustable-rate mortgages .......................... 706,032 301,784 721,181 Fixed-rate mortgages ............................... 86,764 82,838 593,705 Commercial and consumer loans ...................... 103,727 12,547 24,724 ----------- ----------- ----------- Total loans ...................................... 896,523 397,169 1,339,610 ----------- ----------- ----------- Total interest-earning assets .................... $ 1,330,073 $ 419,653 $ 1,443,262 =========== =========== =========== Interest-bearing liabilities: Customer deposits: Money market and NOW accounts ...................... $ 23,752 $ 23,754 $ 141,350 Passbook accounts .................................. 22,734 22,743 181,946 Certificate accounts ............................... 758,685 730,014 646,000 ----------- ----------- ----------- Total customer deposits .......................... 805,171 776,511 969,296 ----------- ----------- ----------- Borrowings: FHLB advances ...................................... 265,000 100,000 530,000 Senior Notes ....................................... -- -- 200,000 Trust Preferred .................................... 2,800 -- -- Other borrowings ................................... 9,205 -- -- ----------- ----------- ----------- Total borrowings ................................. 277,005 100,000 730,000 ----------- ----------- ----------- Total interest-bearing liabilities ............... $ 1,082,176 $ 876,511 $ 1,699,296 =========== =========== =========== Derivative instruments affecting interest rate sensitivity .......................... $ -- $ -- $ 800,000 =========== =========== =========== Total interest-earning assets less interest-bearing liabilities ("GAP") ............... $ 247,897 $ (456,858) $ 543,966 =========== =========== =========== Ratio of GAP to total assets ..................... 5.45% (10.04)% 14.78% =========== =========== =========== Cumulative excess (deficiency) of interest-earning assets over interest- bearing liabilities ................................ $ 247,897 $ (208,961) $ 464,005 =========== =========== =========== Cumulative excess (deficiency) of interest-earning assets over interest- bearing liabilities, as a percentage of total assets .................................. 5.45% (4.59)% 10.19% =========== =========== =========== At September 30, 2000 Interest Sensitivity Period (1) -------------------------------------------- Over 5 - Over 10 Years 10 Years Total ----------- ----------- ----------- (dollars in thousands) Interest-earning assets: Investments, tax certificates, Federal funds sold, FHLB overnight deposits and other interest earning assets, at cost ................... $ 340 $ 16,750 $ 401,480 Mortgage-backed securities ......................... 72,854 94,205 342,355 Loans: Adjustable-rate mortgages .......................... 21,044 818 1,750,859 Fixed-rate mortgages ............................... 468,858 534,200 1,766,365 Commercial and consumer loans ...................... 4,021 558 145,577 ----------- ----------- ----------- Total loans ...................................... 493,923 535,576 3,662,801 ----------- ----------- ----------- Total interest-earning assets .................... $ 567,117 $ 646,531 $ 4,406,636 =========== =========== =========== Interest-bearing liabilities: Customer deposits: Money market and NOW accounts ...................... $ 17,708 $ -- $ 206,564 Passbook accounts .................................. 97,471 -- 324,894 Certificate accounts ............................... -- -- 2,005,828 ----------- ----------- ----------- Total customer deposits .......................... 115,179 -- 2,537,286 ----------- ----------- ----------- Borrowings: FHLB advances ...................................... 356,426 -- 1,251,426 Senior Notes ....................................... -- -- 200,000 Trust Preferred .................................... -- 209,593 212,393 Other borrowings ................................... -- -- 9,205 ----------- ----------- ----------- Total borrowings ................................. 356,426 209,593 1,673,024 ----------- ----------- ----------- Total interest-bearing liabilities ............... $ 471,605 $ 209,593 $ 4,210,310 =========== =========== =========== Derivative instruments affecting interest rate sensitivity .......................... $ -- $ -- $ 800,000 =========== =========== =========== Total interest-earning assets less interest-bearing liabilities ("GAP") ............... $ 95,512 $ 436,938 $ 996,326 =========== =========== =========== Ratio of GAP to total assets ..................... 2.10% 9.60% 21.89% =========== =========== =========== Cumulative excess (deficiency) of interest-earning assets over interest- bearing liabilities ................................ $ (368,622) $ 68,316 =========== =========== Cumulative excess (deficiency) of interest-earning assets over interest- bearing liabilities, as a percentage of total assets .................................. (8.10)% 1.50% =========== ===========
(1) In preparing the table above, certain, assumptions have been made with regard to the repricing or maturity of certain assets and liabilities. Assumptions as to prepayments on first and second mortgage loans and mortgage-backed securities were obtained from prepayment rate tables that provide assumptions corresponding to recent actual repricing experienced in the marketplace. Assumptions have also been made with regard to payments on tax certificates based on historical experience. Money market, NOW and passbook accounts are assumed to decay based upon duration estimates determined by management. The rates paid in these accounts, however, are determined by management based on market conditions and other factors and may reprice more slowly than assumed. All other assets and liabilities have been repriced based on the earlier of repricing or contractual maturity. The mortgage prepayment rate tables, deposit decay rates and the historical assumptions used regarding payments on tax certificates should not be regarded as indicative of the actual repricing that may be experienced by BankUnited. 68 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, 2000, management estimates the impact of a gradual and parallel 100 basis-point rise or fall in interest rates over the next 12 months to be between 4% and 8% of net interest income. BankUnited recognizes that there are numerous assumptions and estimates associated with the simulations described above which may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the simulation model assumes that the composition of BankUnited's interest sensitive assets and liabilities existing at the beginning of a period remains relatively constant over the period being measured and also assumes that the change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. In addition, prepayment estimates and other assumptions within the model are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision. For example, the unanticipated prolonged flatness of the yield curve as well as the volatility in interest rates experienced over the first six months of fiscal 1999 resulted in accelerated prepayments of loans and a significant reduction in interest income. This led BankUnited, as part of its restructuring strategy, to discontinue purchasing in the secondary market One-Year CMT loans to reduce its exposure to such interest rate risks in future periods. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - New Management and Changes in Business Focus." 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 69 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"). The following table sets forth information concerning the interest rate cap contracts. Notional Cap Termination Amount Index Rate 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, 2000, the 5-Year CMT rate was 5.82%, the 10-Year CMT rate was 5.77%, the 5-Year CMS rate was 6.75% and the 10-Year CMS rate was 6.88%. 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. 70 Financial Statements and Supplementary Data BankUnited Financial Corporation INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Certified Public Accountants....................... 72 Consolidated Statements of Financial Condition as of September 30, 2000 and September 30, 1999 ............................................... 73 Consolidated Statements of Operations for the Years Ended September 30, 2000, 1999 and 1998. ................................... 74 Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 2000, 1999 and 1998. ................................... 75 Consolidated Statements of Cash Flows for the Years Ended September 30, 2000, 1999 and 1998 .................................... 78 Notes to Consolidated Financial Statements. ............................. 80 71 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, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000, 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 30, 2000 72 BankUnited Financial Corporation and Subsidiaries Consolidated Statements of Financial Condition
September 30, ------------------------ 2000 1999 ----------- ---------- (dollars in thousands) Assets: Cash ................................................................................................ $ 28,681 $ 26,123 Federal Home Loan Bank overnight deposits ........................................................... 247,640 50,412 Securities purchased under agreements to resell ..................................................... 63,000 150,000 Tax certificates (net of reserves of $986 and $1,168 at September 30, 2000 and 1999, respectively) ......................................................................... 5,699 14,815 Investments held to maturity (market value of approximately $4,985 and $4,984 at September 30, 2000 and 1999, respectively) .......................................................................... 5,062 5,058 Investments available for sale, at market ........................................................... 17,403 20,001 Mortgage-backed securities, held to maturity (market value of approximately $220,484 and $198,785 at September 30, 2000 and 1999, respectively) ...................................................... 222,592 202,839 Mortgage-backed securities available for sale, at market ............................................ 119,763 144,385 Loans receivable, net ............................................................................... 3,358,137 2,899,231 Mortgage loans held for sale (market value of approximately $313,840 and $403,785 at September 30, 2000 and 1999, respectively) ...................................................... 312,632 403,635 Other interest-earning assets........................................................................ 62,676 54,927 Office properties and equipment, net ................................................................ 16,158 15,644 Real estate owned.................................................................................... 2,286 3,548 Accrued interest receivable.......................................................................... 26,648 24,768 Mortgage servicing rights............................................................................ 6,227 7,820 Goodwill ............................................................................................ 29,911 31,465 Prepaid expenses and other assets.................................................................... 27,554 23,800 ----------- ----------- Total assets ..................................................................................... $ 4,552,069 $ 4,078,471 =========== =========== Liabilities and Stockholders' Equity Liabilities: Deposits ............................................................................................ $ 2,609,538 2,279,798 Securities sold under agreements to repurchase....................................................... 9,205 31,701 Advances from Federal Home Loan Bank ................................................................ 1,251,426 1,096,447 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 .................. 212,393 218,500 Interest payable (primarily on deposits and advances from Federal Home Loan Bank).................... 12,041 10,205 Advance payments by borrowers for taxes and insurance................................................ 25,651 19,616 Accrued expenses and other liabilities............................................................... 29,228 32,067 ----------- ----------- Total liabilities ................................................................................ 4,349,482 3,888,334 ----------- ----------- Commitments and contingencies (Notes 8 and 18) Stockholders' equity: Preferred stock, Series B and Series 9% , $0.01 par value Authorized shares-- 10,000,000; issued shares - 992,938 at September 30, 2000 and 1999; outstanding shares - 991,938 and 992,938 at September 30, 2000 and 1999, respectively............. 10 10 Class A Common Stock, $0.01 par value. Authorized shares -- 30,000,000 Issued shares - 18,093,575 and 18,049,430 at September 30, 2000 and 1999 respectively; Outstanding shares - 17,760,575 and 17,866,430 at September 30, 2000 and 1999, respectively ..... 180 180 Class B Common Stock, $0.01 par value. Authorized shares -- 3,000,000; issued and outstanding shares - 446,262 and 458,467 at September 30, 2000 and 1999, respectively ........................ 5 5 Additional paid-in capital .......................................................................... 181,692 181,335 Retained earnings ................................................................................... 29,055 14,081 Treasury stock, 333,000 shares and 183,000 shares of class A Common Stock at September 30, 2000 and 1999, respectively; 1,000 shares (none in 1999) Preferred 9%, at cost... (2,801) (1,684) Accumulated other comprehensive loss................................................................. (5,554) (3,790) ----------- ----------- Total stockholders' equity ....................................................................... 202,587 190,137 ----------- ----------- Total liabilities and stockholders' equity ....................................................... $ 4,552,069 $ 4,078,471 =========== ===========
See accompanying notes to consolidated financial statements 73 BankUnited Financial Corporation and Subsidiaries Consolidated Statements of Operations
For the Years Ended September 30, ----------------------------------------------------- 2000 1999 1998 ------------------ ------------- --------------- (dollars in thousands, except earnings per share) Interest income: Interest and fees on loans ......................................... $ 260,690 $ 199,704 $ 177,252 Interest on mortgage-backed securities ............................. 24,866 18,493 16,588 Interest on short-term investments ................................. 3,229 7,590 5,013 Interest and dividends on long-term investments and other interest-earning assets ................................... 6,530 7,763 8,714 ------------------ ------------- --------------- Total interest income ........................................... 295,315 233,550 207,567 ------------------ ------------- --------------- Interest expense: Interest on deposits ............................................... 126,629 106,655 93,431 Interest on borrowings ............................................. 71,618 59,706 57,160 Preferred dividends of Trust Subsidiary ............................ 20,899 21,154 16,952 ------------------ ------------- --------------- Total interest expense .......................................... 219,146 187,515 167,543 ------------------ ------------- --------------- Net interest income before provision for loan losses ............... 76,169 46,035 40,024 Provision for loan losses ............................................... 4,645 7,939 1,700 ------------------ ------------- --------------- Net interest income after provision for loan losses ................ 71,524 38,096 38,324 ------------------ ------------- --------------- Non-interest income: Service fees, net .................................................. 4,295 3,785 1,139 Net gain (loss) on sale of loans, mortgage-backed securities and other assets................................................. 71 (4) 4,435 Other .............................................................. 1,709 1,019 651 ------------------ ------------- --------------- Total non-interest income ....................................... 6,075 4,800 6,225 ------------------ ------------- --------------- Non-interest expenses: Employee compensation and benefits ................................. 19,819 15,970 10,943 Occupancy and equipment ............................................ 8,332 8,029 4,854 Insurance .......................................................... 1,221 1,683 1,185 Professional fees-legal and accounting ............................. 3,193 3,084 1,891 Telecommunications and data processing ............................. 3,025 2,688 1,997 Loan servicing expense ............................................. 5,699 6,433 5,313 Real estate owned operations ....................................... (307) 152 82 Advertising and promotion expense .................................. 3,289 1,430 1,486 Amortization of goodwill ........................................... 1,565 1,555 1,070 Other operating expenses ........................................... 6,688 7,369 3,362 ------------------ ------------- --------------- Total non-interest expenses ..................................... 52,524 48,393 32,183 ------------------ ------------- --------------- Income (loss) before income taxes, extraordinary items and preferred stock dividends .................................. 25,075 (5,497) 12,366 Income taxes ............................................................ 10,247 (1,903) 5,009 ------------------ ------------- --------------- Income (loss) before extraordinary items and preferred stock dividends ................................................. 14,828 (3,594) 7,357 Extraordinary items (net of tax of $586) ................................ 936 - - ------------------ ------------- --------------- Net income (loss) before preferred stock dividends ................ 15,764 (3,594) 7,357 Preferred stock dividends ............................................... 790 773 897 ------------------ ------------- --------------- Net income (loss) after preferred stock dividends .................. $ 14,974 $ (4,367) $ 6,460 ================== ============= =============== Basic earnings (loss) per share.......................................... $ 0.82 $ (0.24) $ 0.41 ================== ============= =============== Diluted earnings (loss) per share........................................ $ 0.81 $ (0.24) $ 0.39 ================== ============= ===============
See accompanying notes to consolidated financial statements 74 BankUnited Financial Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 2000, 1999 and 1998 ---------------------------------------------------------------- Class A Class B Preferred Stock Common Stock Common Stock -------------------- ------------------ ------------------ Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ (dollars in thousands) Balance at September 30, 1997..................................... 2,175,296 $ 22 9,257,098 $ 92 275,685 $ 3 Comprehensive income: Net income for the year ended September 30, 1998............. - - - - - - Payments of dividends on the BankUnited Preferred Stock..... - - - - - - Other comprehensive income, net of tax........................ - - - - - - Total comprehensive income.................................. - - - - - - Issuance of Class A and Class B common stock.................... - - 35,477 - 3,541 - Conversion of Preferred Stock to Common Class A................. (1,290,061) (13) 1,614,104 16 - - Issuance of Class B preferred stock............................. 20,762 - - - - - Preferred stock 9% tender offer................................. (4,300) - - - - - Underwritten public offering and direct offering of BankUnited's Class A and Class B Common stock and preferred Stock, net..... 25,000 - 4,761,500 48 30,000 - Issuance of Stock in connection with acquisitions............... - - 1,948,508 20 - - Stock options and warrants exercised............................ - - 195,584 2 22,517 - Common stock issued through preferred stock dividends........... - - 3,942 - - - ---------- ------- ----------- ------- -------- ------- Balance at September 30, 1998..................................... 926,697 9 7,816,213 178 331,743 3 Comprehensive loss: Net loss for the year ended September 30, 1999................ - - - - - - Payments of dividends on BankUnited 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 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 BankUnited's Preferred Stock.......... - - - - - - Other comprehensive loss, net of tax.......................... - - - - - - Total comprehensive loss.................................... - - - - - - Dividend on B Preferred paid in Class A Common................ - - 4,244 - Conversion of Class B to Class A Common Stock................. - - 20,205 - (20,205) - Purchase of Class A Common Stock.............................. - - (150,000) - - - Purchase of Preferred Stock................................... (1,000) - - - - - Stock options and other awards................................ - - 19,696 - 8,000 - ---------- ------- ----------- ------- -------- ------- Balance at September 30, 2000..................................... 991,938 $ 10 17,760,575 $ 180 446,262 $ 5 ========== ======= =========== ======== ======== ======= (continued on next page)
75 BankUnited Financial Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
Accumulated Other Total Comprehensive Stock- Paid-in Retained Treasury Income (Loss) holders Capital Earnings Stock Net of Tax Equity --------- --------- --------- --------- ------- (dollars in thousands) Balance at September 30, 1997 .......................................... 86,679 $ 11,988 $ -- $ 861 $ 99,645 Comprehensive income: Net income for the year ended September 30, 1998 .................. -- 7,357 -- -- 7,357 Payments of dividends on the BankUnited Preferred Stock .......... -- (897) -- -- (897) Other comprehensive income, net of tax ............................. -- -- -- 1,016 1,016 ------- Total comprehensive income ....................................... 7,476 Issuance of Class A and Class B common stock ......................... 237 -- -- -- 237 Conversion of Preferred Stock to Common Class A ...................... (463) -- -- -- (460) Issuance of Class B preferred stock .................................. 398 -- -- -- 398 Preferred stock 9% tender offer ...................................... (43) -- -- -- (43) Underwritten public offering and direct offering of BankUnited's Class A and Class B Common stock and preferred Stock, net .......... 59,055 -- -- -- 59,103 Issuance of Stock in connection with acquisitions .................... 30,416 -- -- -- 30,436 Stock options and warrants exercised ................................. 2,438 -- -- -- 2,440 Common stock issued through preferred stock dividends ................ 60 -- -- -- 60 --------- --------- --------- --------- ------- Balance at September 30, 1998 .......................................... 178,777 18,448 -- 1,877 199,292 Comprehensive loss: Net loss for the year ended September 30, 1999 ..................... (3,594) -- -- (3,594) Payments of dividends on BankUnited 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 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 the BankUnited's Preferred Stock ........... -- (790) -- -- (790) Other comprehensive loss, net of tax ............................... -- -- -- (1,764) (1,764) ------- Total comprehensive loss ......................................... 13,210 Dividend on B Preferred paid in Class A Common ..................... 33 -- -- -- 33 Conversion of Class B to Class A Common Stock ...................... -- -- -- -- -- Purchase of Class A Common Stock ................................... -- -- (1,110) -- (1,110) Purchase of Preferred Stock ........................................ -- -- (7) -- (7) Stock options and other awards ..................................... 324 -- -- -- 324 --------- --------- --------- --------- ------- Balance at September 30, 2000 .......................................... $ 181,692 $ 29,055 $ (2,801) $ (5,554) 202,587 ========= ========= ========= ========= ======= (continued on next page)
76 BankUnited Financial Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (continued) For the Years Ended September 30, 2000, 1999, and 1998 The beginning balance at September 30, 1997 of each series of BankUnited's preferred stock was as follows: Shares Amount --------- --------- (dollars in thousands) Series B .................................. 183,818 $ 2 Series 1993 ............................... 744,870 7 Series 9% ................................. 701,417 8 Series 1996 ............................... 545,191 5 --------- --------- Total ..................................... 2,175,296 $ 22 ========= ========= The ending balance at September 30, 2000 of each series of BankUnited's preferred stock was as follows: Shares Amount --------- --------- (dollars in thousands) Series B .................................. 295,821 $ 3 Series 9% ................................. 696,117 7 --------- --------- Total ..................................... 991,938 $ 10 ========= ========= The following table presents additional information concerning BankUnited's other comprehensive (loss) income:
For the Years Ended September 30, ----------------------------------- 2000 1999 1998 ------- ------- ------- (dollars in thousands) Other comprehensive (loss) income, net of tax: Unrealized holding (losses) gains arising during the period ......................... $(1,893) $(5,698) $ 1,278 Less reclassification adjustments for: Amortization of unrealized losses on transferred securities, net of tax ........... 129 31 -- Realized gains on securities sold included in net income .......................... -- -- (262) ------- ------- ------- Total other comprehensive (loss) income, net of tax ................................... $(1,764) $(5,667) $ 1,016 ======= ======= =======
See accompanying notes to consolidated financial statements. 77 BankUnited Financial Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, ------------------------------------------ 2000 1999 1998 ---- ---- ---- (dollars in thousands) Cash flows from operating activities: Net income (loss)................................................................$ 15,764 $ (3,594) $ 7,357 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Provision for loan losses......................................................... 4,645 7,939 1,700 Provision (credit) for losses on tax certificates................................. - 1,147 (166) Depreciation and amortization..................................................... 3,026 3,243 1,633 Amortization of fees, discounts and premiums, net................................. 3,649 24,358 11,449 Amortization of mortgage servicing rights......................................... 1,593 1,471 2,236 Amortization of goodwill.......................................................... 1,565 1,555 1,070 Amortization of unrealized losses on transferred mortgage-backed securities........................................................ 209 50 - Amortization of issuance cost of Senior Notes..................................... 629 508 - Net (gain) loss on sale of loans, mortgage-backed securities and other assets............................................................. (71) 4 (4,435) Net gain on sale of real estate owned...................................... (647) (154) (39) Extraordinary gain on repurchase of trust preferred securities.................... (1,522) - - Loans originated for sale......................................................... (9,287) (140,399) (312,749) Proceeds from sale of loans....................................................... 10,210 23,559 177,504 (Increase) decrease in accrued interest receivable............................... (1,880) 8,096 (15,506) Increase in interest payable on deposits and FHLB advances........................ 1,836 2,380 3,523 Increase (decrease) in accrued taxes.............................................. 3,480 (1,224) (9,418) (Decrease) increase in other liabilities.......................................... (5,440) 3,359 20,228 Decrease (increase) in prepaid expenses and other assets.......................... (4,300) 16,442 (17,475) Purchase of mortgage servicing rights............................................. - - (678) Other, net........................................................................ 1,094 2,121 (2,517) ------------ ----------- ---------- Net cash provided by (used in) operating activities............................... 24,553 (49,139) (136,283) ------------ ----------- ---------- Cash flows from investing activities: Net increase in loans............................................................. (385,007) (180,260) (1,392,617) Purchase of investment securities held to maturity................................ - - (50) Purchase of investment securities available for sale.............................. (1,000) (3,915) (15,313) Purchase of mortgage-backed securities held to maturity........................... (49,824) (19,581) - Purchase of mortgage-backed securities available for sale......................... (8,883) (166,205) (118,336) Purchase of other earning assets.................................................. (50,399) (49,649) (46,325) Proceeds from repayments of investment securities held to maturity................ - 9,500 4,754 Proceeds from repayments of investment securities available for sale.............. 2,250 5,800 17,569 Proceeds from repayments of mortgage-backed securities held to maturity........... 30,510 115,990 223,765 Proceeds from repayments of mortgage-backed securities available for sale......... 31,999 57,663 40,399 Proceeds from repayments of other earning assets.................................. 42,650 46,035 29,423 Proceeds from sale of mortgage-backed securities available for sale............... - - 15,572 Proceeds from sale of real estate owned........................................... 8,398 4,542 1,225 Purchase of office properties and equipment....................................... (3,418) (4,689) (8,140) Sale of office properties and equipment........................................... - - 23 Capitalized cost for loan securities.............................................. - - (581) Net decrease in tax certificates.................................................. 9,116 24,045 9,276 Cash equivalents of acquisitions.................................................. - - 26,268 ------------ ----------- ---------- Net cash used in investing activities............................................. (373,608) (160,724) (1,213,088) ------------ ----------- ---------- (continued on next page)
78 BankUnited Financial Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended September 30, ------------------------------------------ 2000 1999 1998 ---- ---- ---- (dollars in thousands) Cash flows from financing activities: Net increase in deposits..................................................... 329,740 154,974 774,720 Net increase in Federal Home Loan Bank advances.............................. 154,979 74,981 341,982 Net (decrease) increase in other borrowings.................................. (22,496) 110,553 74,199 Increase in Capitalized costs for senior notes............................... (300) (2,261) - Repurchase of trust preferred securities..................................... (4,368) - - Net proceeds from issuance of trust preferred securities..................... - - 98,913 Net proceeds from issuance of stock.......................................... 125 2,011 60,523 Purchase of BankUnited's Class A Common and Preferrred Stock............................................................. (1,117) (1,684) - Dividends paid on BankUnited's preferred stock............................... (757) (658) (837) Increase in advances from borrowers for taxes and insurance.................. 6,035 6,971 1,398 ------------ ----------- ---------- Net cash provided by financing activities 461,841 344,887 1,350,898 ------------ ----------- ---------- Increase in cash and cash equivalents........................................ 112,786 135,024 1,527 Cash and cash equivalents at beginning of year............................... 226,535 91,511 89,984 ------------ ----------- ---------- Cash and cash equivalents at end of year....................................$ 339,321 $ 226,535 $ 91,511 ============ =========== ========== Supplemental disclosure of non-cash investing and financing activities: Interest paid on deposits and borrowings....................................$ 217,310 $ 185,136 $ 163,561 Income taxes paid...........................................................$ 8,615 $ - $ 3,884 Transfers from loans to real estate owned...................................$ 7,517 $ 7,519 $ 2,226 Securitization of loans receivable..........................................$ - $ - $ 355,469 Transfer of loans from a mortgage-backed security...........................$ - $ 14,600 $ - Transfer of loans from held for sale to portfolio...........................$ - $ 73,825 $ - Transfer of loans from portfolio to held for sale...........................$ - $ 288,319 $ - Transfer of mortgage-backed securities from available for sale to held to maturity............................................................$ - $ 156,370 $ - Issuance of Class A Common Stock upon conversion of preferred stock.............................................................$ - $ - $ 460 Issuance of Class A Common Stock in connection with bank acquisitions................................................................$ - $ - $ 30,436 See accompanying notes to consolidated financial statements.
79 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 (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 and its principal accounting policies. (a) Basis of Presentation and Principles of Consolidation The consolidated financial statements include the accounts of BankUnited and its subsidiaries, including BankUnited, FSB (the "Bank"). The Bank provides a full range of banking services to individual and corporate customers through its branches in South and West Florida. The Bank is subject to the regulations of certain federal agencies and undergoes periodic examinations by those regulatory authorities. All significant 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. Premiums (discounts) on purchased loans are amortized (accreted) based, in part, on management's estimate of future prepayment rates. If actual prepayments exceed these estimates, premium (discounts) amortization (accretion) is increased (decreased) through charges to interest income in the period the excess prepayments occur. In connection with real estate owned, management obtains independent appraisals for properties. (b) Cash and Cash Equivalents For the purpose of reporting cash flows, cash and cash equivalents include cash, Federal Home Loan Bank overnight deposits, and securities purchased under agreement to resell with original maturities of three months or less. (c) Mortgage-backed Securities and Investments Mortgage-backed securities and other investments available for sale are carried at fair value, 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 deferred income taxes. Mortgage-backed securities and investments held to maturity are carried at amortized cost. Mortgage-backed securities and investment securities that BankUnited has the positive intent and ability to hold to maturity are designated as held-to-maturity securities. Gains or losses on sales of mortgage securities and investments are recognized on the specific identification basis. Tax certificates are considered investments held to maturity and, accordingly, are carried at cost less a valuation allowance. Interest is accrued on tax certificates until payoff or until deemed uncollectible. When deemed uncollectible, accrued but uncollected interest is reversed. 80 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (1) Summary of Significant Accounting Policies - (Continued) (d) Allowance for Loan Losses A provision for losses on loans is charged to operations when, in management's opinion, the collectibility of the balances is doubtful and the carrying value is greater than the fair value, net of selling costs, of collateral dependent loans or the estimated net realizable value of other loans. The provision is based upon a review of the nature, volume, delinquency status and inherent risk of the loan portfolio in relation to the allowance for loan losses. Management believes that the allowance for loan losses is adequate. While management uses 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. BankUnited's non-accrual policy provides that loans are placed on non-accrual status when they are more than 90 days past due as to either principal or interest. Loans are returned to accrual status when they become less than 90 days delinquent. (e) Loans Receivable Loans receivable are considered long-term investments and, accordingly, are carried at historical cost. Loans held for sale are recorded at the lower of cost or market, determined in the aggregate. In determining cost, deferred loan origination fees and costs are adjusted to the principal balances of the related loans. (f) Loan Origination Fees, Commitment Fees, Loan Premiums and Related Costs Loan origination fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the interest method over the contractual life of the loans, adjusted for estimated prepayments based on BankUnited's historical prepayment experience. Commitment fees and costs relating to commitments are recognized over the commitment period on a straight-line basis. If the commitment is subsequently exercised during the commitment period, the remaining unamortized commitment fee at the time of exercise is recognized over the life of the loan as an adjustment of yield. Premiums (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. 81 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (1) Summary of Significant Accounting Policies - (Continued) (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. (j) Real Estate Owned Property acquired through foreclosure or deed in lieu of foreclosure is recorded at the lower of the related principal balance at foreclosure or estimated fair value less estimated costs to sell the property. Any excess of the loan balance over the fair value less estimated costs to sell the property is charged to the allowance for loan losses when the property is classified as real estate owned. The carrying value is reviewed periodically and, when necessary, any decline in the value of the real estate is charged to operations. Significant property improvements which enhance the salability of the property are capitalized to the extent that the carrying values do not exceed their estimated realizable values. Maintenance and carrying costs on the property are charged to operations as incurred. (k) Impairment of Long-lived Assets 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. (l) Goodwill 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. (m) Income Taxes BankUnited and its subsidiaries file consolidated income tax returns. Deferred income taxes have been provided for elements of income and expense which are recognized for financial reporting purposes in periods different than such items are recognized for income tax purposes. BankUnited accounts for income taxes utilizing the liability method, which applies the enacted statutory rates in effect at the statement of financial condition date to differences between the book and tax bases of assets and liabilities. The resulting deferred tax liabilities and assets are adjusted to reflect changes in tax laws. (n) Earnings (Loss) per Share Basic earnings (loss) per common share is computed on the weighted average number of common shares outstanding during the year. Earnings (loss) per common share, assuming dilution, assume the maximum dilutive effect of the average number of shares from stock options and the conversion equivalents of preferred stocks and certain warrants. (o) Stock Options Stock options are granted to employees and directors at the fair market value of the underlying stock on the date of the grant. The proceeds from the exercise of options are credited to common stock for the par value of the shares issued, and the excess, adjusted for any tax benefit, is credited to paid-in capital. 82 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (1) Summary of Significant Accounting Policies - (Continued) (p) Impact of New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"), which requires public companies to report certain financial information about significant revenue-producing segments of the business for which such information is available and utilized by the chief operating decision maker. Specific information to be reported for individual operating segments includes a measure of profit and loss, certain revenue and expense items, and total assets. BankUnited adopted the provisions of SFAS No. 131 during the first quarter of fiscal 1999. As the requirements of SFAS No. 131 are disclosure-related, its implementation has no impact on BankUnited's financial position or results of operations. As a community-oriented financial institution, substantially all of BankUnited's operations involve the delivery of loan and deposit products to customers. Management makes operation decisions and assesses performance based on an ongoing review of these community banking operations, which constitute BankUnited's only operating segment for financial reporting purposes. In October 1998, the FASB issued Statement of Financial Accounting Standards No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" ("SFAS No. 134") which applies to mortgage banking enterprises and other entities conducting similar operations. SFAS No. 134 requires that securities retained after a securitization of loans held for sale be accounted for in accordance with SFAS No. 115, unless the entity has entered into a commitment to sell the retained securities before or during the securitization process. Such securities would be classified as trading. SFAS No. 134 is effective for the first fiscal quarter beginning after December 15, 1998. The adoption of SFAS No. 134 is reflected in the financial statements and has not had, and is not expected to have, a material impact on BankUnited's financial position or results of operations. The FASB has issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS 137 and SFAS 138 (collectively, "SFAS 133"). SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000; accordingly, BankUnited adopted SFAS 133 on October 1, 2000. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction. o For fair-value hedge transactions in which the Bank is hedging changes in the fair value of an asset, liability, or firm commitment, changes in the fair value of the derivative instrument are generally offset in the income statement by changes in the hedged item's fair value. o For cash-flow hedge transactions in which the Bank is hedging the variability of cash flows related to a variable-rate asset, liability, or a forecasted transaction, changes in the fair value of the derivative instrument are reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income are reclassified to earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges is recognized in current period earnings. Certain other derivative instruments used for risk management purposes do not meet the hedge accounting criteria and, therefore, do not qualify for hedge accounting. These derivative instruments are accounted for at fair value with changes in fair value recorded in the income statement. The Bank does not utilize other derivative instruments for risk management purposes. 83 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (1) Summary of Significant Accounting Policies - (Continued) (p) Impact of New Accounting Pronouncements (Continued) During fiscal 2000, BankUnited purchased interest rate caps with a notional amount of $800 million. These caps are used to hedge the interest rate risk relating to the callable options of the FHLB advances (see Note 11). On October 1, 2000, in conjunction with SFAS No. 133, BankUnited accounted for the interest rate caps as fair-value hedges and recorded a net of tax, cumulative effect adjustment of $453,255 (gain) in earnings to recognize at fair value all derivative instruments that are designated as fair-value hedging instruments, offset by an adjustment of $453,255 (loss) in earnings to recognize the difference (attributable to the interest rate risks) between the carrying values and fair values of related imbedded call options in the FHLB advances. In September 2000, the FASB issued Statement of Financial Accounting Standards No. 140 ("Statement No. 140") "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB No. 125" . Statement No. 140 revises the standards for accounting and reporting of securitizations, other transfers of financial assets and extinguishments of liabilities. The standards are based on a consistent application of a financial components approach which focuses on control. Under that approach, after a transfer of financial assets, an entity recognizes financial and servicing assets it controls and the liabilities it has incurred. Derecognition of financial assets occurs when control has been surrendered and liabilities are derecognized when extinguished. Statement No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. Other provisions of Statement No. 140 relating to recognition and reclassification of collateral and disclosures of securitization transactions are effective for fiscal years ending after December 15, 2000. The implementation of this statement is not expected to have a material effect on BankUnited's consolidated financial position, results of operations or cash flows. (q) Financial Statement Reclassifications Certain prior period amounts have been reclassified to conform to the September 30, 2000 consolidated financial statements. 84 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (2) Earnings (Loss) per Share Earnings (loss) per common share is calculated as follows:
For the Years Ended September 30, ------------------------------------- 2000 1999 1998 -------- -------- -------- (dollars in thousands, except per share amounts) Basic earnings (loss) per share: Numerator: Net income (loss) after preferred stock dividends ..... $ 14,974 $ (4,367) $ 6,460 ======== ======== ======== Denominator: Weighted average common shares outstanding ............ 18,220 18,313 15,693 ======== ======== ======== Basic earnings (loss) per share ......................... $ 0.82 $ (0.24) $ 0.41 ======== ======== ======== Diluted earnings (loss) per share: Numerator: Net income (loss) after preferred stock dividends ..... $ 14,974 $ (4,367) $ 6,460 Plus: Reduction of preferred stock dividends .............. 163 -- 111 -------- -------- -------- Diluted net income (loss) available to common stock ..... $ 15,137 $ (4,367) $ 6,571 ======== ======== ======== Denominator: Weighted average common shares outstanding ............ 18,220 18,313 15,693 Plus: Number of common shares from the conversion of options and warrants(1) ........................... 117 -- 655 Number of common shares from the conversion of dilutive preferred stock(2) ....................... 443 -- 319 -------- -------- -------- Diluted weighted average shares outstanding ........... 18,780 18,313 16,667 ======== ======== ======== Diluted earnings (loss) per share ....................... $ 0.81 $ (0.24) $ 0.39 ======== ======== ========
(1) For the year ended September 30, 1999 there were 345,000, of 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 years ended September 30, 2000 and 1998). (2) For the years ended September 30, 1999 and 1998 there were 378,000, and 233,000, respectively (none in 2000), 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. 85 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (3) Acquisitions On January 23, 1998, BankUnited acquired Consumers Bancorp, Inc. ("Consumers") for approximately $12 million in a combination of cash and stock and merged its wholly-owned subsidiary, Consumers Savings Bank, which had assets of $104.4 million and deposits of $88.3 million as of January 23, 1998, into the Bank. The acquisition was accounted for as a purchase and resulted in goodwill of approximately $5.6 million. This acquisition did not have a material impact on the financial condition or results of operations of BankUnited. On June 19, 1998, BankUnited acquired Central Bank ("Central"), for 1,386,000 shares of BankUnited's Class A Common Stock, and merged Central, which had assets of $93.9 million and deposits of $65.9 million as of June 19, 1998 into the Bank. The acquisition was accounted for as a purchase and resulted in goodwill of approximately $12.8 million. This acquisition did not have a material impact on the financial condition or results of operations of BankUnited. (4) Tax Certificates Tax certificates are certificates representing delinquent real estate taxes owed to the respective counties. A substantial percentage of tax certificates are for properties located in southeast Florida. BankUnited's policy was to purchase tax certificates only for properties located in Florida. As a result of the review of interest earning assets in the second quarter of fiscal 1999, the decision was made to discontinue purchasing tax certificates. The net carrying value of tax certificates was $5.7 million and $14.8 million at September 30, 2000 and 1999, respectively. Included in these amounts at September 30, 2000 and 1999 were $4.1 million and $2.6 million, respectively, of tax certificates for which BankUnited had made application for tax deeds. BankUnited maintains loss reserves for tax certificates that were $1.0 million and $1.2 million at September 30, 2000 and 1999, respectively. (5) Securities Purchased under Agreements to Resell Interest income from securities purchased under agreements to resell aggregated approximately $1.9 million, $6.1 million and $2.5 million for the years ended September 30, 2000, 1999 and 1998, respectively. The following sets forth information concerning BankUnited's securities purchased under agreements to resell for the periods indicated:
As of and for the Years Ended September 30, -------------------------------------- 2000 1999 1998 --------- --------- -------- (dollars in thousands) Maximum amount of outstanding agreements at any month end during the period ............................................. $113,000 $370,000 $ 95,032 Average amount outstanding during the period .................... $ 29,426 $122,879 $ 44,009 Weighted average interest rate for the period ................... 6.53% 5.08% 5.56% Maturity ........................................................ less than 30 days
86 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (6) Investments and Mortgage-backed Securities Investments Presented below is an analysis of the carrying values and approximate market values of investments held to maturity.
September 30, 2000 ------------------------------------------ Gross Gross Carrying Unrealized Unrealized Market 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 ====== ===== ====== ====== September 30, 1999 ------------------------------------------ Gross Gross Carrying Unrealized Unrealized Market Value Gains Losses Value ----- ----- ------ ----- (dollars in thousands) U.S. Government agency securities ...... $4,997 $ - $ (74) $4,923 State of Israel Bonds .................. 61 - - 61 ------ ----- ------ ------ Total .................................. $5,058 $ - $ (74) $4,984 ====== ===== ====== ======
All investments held to maturity at September 30, 2000 and 1999 had maturities between one and five years. Presented below is an analysis of the investments designated as available for sale.
September 30, 2000 --------------------------------------------- Gross Gross Historical 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 ======= ======= ======= =======
87 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (6) Investments and Mortgage-backed Securities (Continued)
September 30, 1999 ------------------------------------------------- Gross Gross Historical Unrealized Unrealized Carrying Cost Gains Losses Value ------- ------- ------- ------- (dollars in thousands) U.S. Treasury notes ................................ $ 503 $ 1 $ - $ 504 U.S. government agency securities .................. 2,104 15 (8) 2,111 Equity securities .................................. 2,905 - (199) 2,706 Trust preferred securities of other issuers ........ 16,327 - (1,647) 14,680 ------- ------- ------- ------- Total ......................................... $21,839 $ 16 $(1,854) $20,001 ======= ======= ======= =======
The carrying value and market value of mortgage-backed securities held to maturity are summarized as follows:
September 30, 2000 --------------------------------------------------- Gross Gross Carrying Unrealized Unrealized Market 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 ======== ======== ======== ======== September 30, 1999 --------------------------------------------------- Gross Gross Carrying Unrealized Unrealized Market Value Gains Losses Value -------- -------- -------- -------- (dollars in thousands) GNMA mortgage-backed securities ........ $ 39,244 $ 59 $ (168) $ 39,135 FNMA mortgage-backed securities ........ 1,915 - (23) 1,892 FHLMC mortgage-backed securities ....... 72,566 2 (1,202) 71,366 Collateralized mortgage obligations .... 63,189 - (2,740) 60,449 Mortgage pass-through certificates ..... 25,925 45 (27) 25,943 -------- -------- -------- -------- Total .............................. $202,839 $ 106 $ (4,160) $198,785 ======== ======== ======== ========
88 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (6) Investments and Mortgage-backed Securities (Continued) The carrying value and historical cost of mortgage-backed securities available for sale are summarized as follows:
September 30, 2000 -------------------------------------------------- Gross Gross Historical 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 ======== ======== ======== ======== September 30, 1999 -------------------------------------------------- Gross Gross Historical Unrealized Unrealized Carrying Cost Gains Losses Value -------- -------- -------- -------- (dollars in thousands) GNMA mortgage-backed securities ........ $ 32,543 $ 179 $ (391) $ 32,331 FNMA mortgage-backed securities ........ 5,396 40 (116) 5,320 FHLMC mortgage-backed securities ....... 16,949 11 (110) 16,850 Collateralized mortgage obligations .... 88,268 92 (1,552) 86,808 Mortgage pass-through certificates ..... 3,072 4 -- 3,076 -------- -------- -------- -------- Total .............................. $146,228 $ 326 $ (2,169) $144,385 ======== ======== ======== ========
The mortgage-backed securities have contractual maturities which range from the years 2001 to 2031, however, expected maturities will differ from contractual maturities as borrowers have the right to prepay obligations. During the fourth quarter of fiscal 1999, BankUnited transferred $158.9 million in mortgage-backed securities, with an aggregate market value of $156.4 million at the date of transfer, from available-for-sale to held-to-maturity. The resulting $2.5 million unrealized loss was recorded as a discount and as a component of other comprehensive income (loss) to be amortized over the life of the related security in a manner consistent with premiums and discounts. There were no sales of mortgage-backed securities and collateralized mortgage obligations during the years ended September 30, 2000 and 1999. Gross proceeds on sales of mortgage-backed securities and collateralized mortgage obligations were $15.6 million for the year ended September 30, 1998. Gross realized gains were $423,000 on sales of mortgage-backed securities and collateralized mortgage obligations during the year ended September 30, 1998. At September 30, 2000, GNMA, FNMA and FHLMC mortgage-backed securities with market values of approximately $147 million were pledged as collateral for public funds on deposit. At September 30, 2000, investment and mortgage-backed securities with an aggregate carrying value of approximately $11.1 million were pledged as collateral for repurchase agreements. 89 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (7) Loans Receivable Loans receivable (including loans held for sale) consist of the following:
As of September 30, ------------------------------------------------------------ 2000 1999 ----------------------------- --------------------------- Percent Percent of of Amount Total Amount Total ------ ----- ------ ----- (dollars in thousands) Mortgage loans: One-to-four family .................. $ 3,218,868 87.8% $ 3,010,427 91.1% Multi-family ........................ 70,856 1.9 30,057 0.9 Commercial real estate .............. 155,569 4.2 141,090 4.3 Construction ........................ 38,786 1.1 15,425 0.5 Land ................................ 34,489 0.9 23,659 0.7 ----------- ----- ----------- ------ Total mortgage loans ............. 3,518,568 95.9 3,220,658 97.5 ----------- ----- ----------- ------ Other loans: Commercial .......................... 83,023 2.3 48,173 1.5 Consumer ............................ 66,480 1.8 33,878 1.0 ----------- ----- ----------- ------ Total other loans ................ 149,503 4.1 82,051 2.5 ----------- ----- ----------- ------ Total loans ................ 3,668,071 100.0 3,302,709 100.0 Unearned discounts, premiums and deferred loan fees, net ............. 15,730 0.4 12,264 0.4 Allowance for loan losses .............. (13,032) (0.4) (12,107) (0.4) ----------- ----- ----------- ------ Total loan portfolio ................... $ 3,670,769 100.0% $ 3,302,866 100.00% =========== ===== =========== ======
Of the total loan portfolio of $3.7 billion at September 30, 2000, approximately $1.7 billion, or 45.7%, represented loans secured by properties in Florida and $ 0.4 billion, or 11%, represented loans secured by properties in California. No other state represented more than 10% of BankUnited's loan portfolio. At September 30, 2000, 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:
Years Ended September 30, -------------------------------------- 2000 1999 1998 -------- -------- -------- (dollars in thousands) Balance at beginning of the period ..... $ 12,107 $ 6,128 $ 3,693 Provision ........................... 4,645 7,939 1,700 Allowance from acquisitions ......... - - 1,262 Loan charge-off ..................... (3,859) (2,048) (599) Recoveries .......................... 139 88 72 -------- -------- -------- Balance at end of period ............ $ 13,032 $ 12,107 $ 6,128 ======== ======== ========
90 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (7) Loans Receivable - (Continued) As of September 30, 2000, and 1999 BankUnited had non-accrual loans of $19.8 million, and $21.4 million, respectively. For the years ended September 30, 2000, 1999 and 1998 the average amounts of non-accrual loans were $18.4 million, $20.7 million, and $12.1 million, respectively. Gross interest income that would have been recorded on non-accrual loans had they been current in accordance with original terms was $1.1 million, $1.3 million, and $1.0 million, for the years ended September 30, 2000, 1999, and 1998 respectively. The amount of interest income on such non-accrual loans included in operations for the years ended September 30, 2000, 1999 and 1998 was $0.7 million, $0.5 million, and $0.4 million, respectively. No income is recognized on loans while in non-accrual status. (8) Office Properties and Equipment Office properties and equipment are summarized as follows: As of September 30, ----------------------- 2000 1999 -------- -------- (dollars in thousands) Office buildings .......................... $ 2,642 $ 2,605 Leasehold improvements .................... 9,025 7,916 Furniture, fixtures and equipment ......... 9,431 8,415 Computer equipment and software ........... 4,947 3,727 -------- -------- Total ........................ 26,045 22,663 Less: accumulated depreciation ............ (9,887) (7,019) -------- -------- Office properties and equipment, net ...... $ 16,158 $ 15,644 ======== ======== Depreciation expense was $3.0 million, $2.4 million, and $1.6 million, for the years ended September 30, 2000, 1999 and 1998, respectively. BankUnited has entered into non-cancelable leases with approximate minimum future rentals as follows: Years Ending September 30, Amount -------------------------- ------ (dollars in thousands) 2001 ..................................... $ 4,464 2002 ..................................... 4,115 2003 ..................................... 3,297 2004 ..................................... 2,828 2005 ..................................... 2,072 Thereafter ............................... 9,814 -------- Total ................................. $ 26,590 -------- Rent expense for the years ended September 30, 2000, 1999, and 1998 was $3.5 million, $3.2 million, and $2.2 million, respectively, net of sublease income of approximately $22,300, $0.3 million and $0.1 million, respectively. 91 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (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, --------------------------------------------------- 2000 1999 ---------------------- ------------------------ Amount Rate Amount Rate ---------------------- ------------------------ (dollars in thousands) Passbook accounts .................................. $ 324,894 4.86% $ 379,503 4.57% ---------- ----------- Checking: Non-interest-bearing ............................. 72,253 -- 50,075 -- NOW accounts ..................................... 116,032 2.73% 125,617 2.75% Insured money market ............................. 90,531 4.79% 92,785 4.04% ---------- ----------- Total checking accounts ........................ 278,816 268,477 ---------- ----------- Total passbook and checking accounts ........... 603,710 647,980 ---------- ----------- Certificates of deposit: Less than 3-month certificates of deposit ........ 1,128 3.83% 2,260 4.40% 3-5-month certificates of deposit ................ 19,547 5.66% 28,943 4.63% 6-11-month certificates of deposit ............... 410,480 6.34% 411,774 5.03% 12-month or more certificates of deposit ......... 1,293,373 6.23% 1,010,791 5.41% Public funds ..................................... 281,300 6.02% 178,050 4.98% ---------- ----------- Total certificates of deposit .................. 2,005,828 1,631,818 ---------- ----------- Total ........................................ $2,609,538 $ 2,279,798 ========== =========== Weighted average rate ...................... 5.67% 4.83%
Deposit accounts with balances of $100,000 or more totaled approximately $821.3 million and $597.8 million at September 30, 2000 and 1999, respectively. Included in balances of $100,000 or more are $281.3 million in public funds at September 30, 2000 and $178.1 million in public funds at September 30, 1999. 92 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (9) Deposits - (Continued) Interest expense on deposits for the years ended September 30, 2000, 1999, and 1998 was as follows:
2000 1999 1998 -------- -------- -------- (dollars in thousands) NOW and insured money market deposits .............. $ 6,777 $ 7,820 $ 5,083 Passbook accounts .................................. 16,825 16,010 8,983 Certificates of deposit ............................ 103,027 82,825 79,365 -------- -------- -------- $126,629 $106,655 $ 93,431 ======== ======== ========
Early withdrawal penalties on deposits are recognized as a reduction of interest on deposits. For the years ended September 30, 2000, 1999 and 1998, early withdrawal penalties totaled $336,000, $221,000 and $217,000, respectively. The amounts and scheduled maturities of certificate accounts at September 30, 2000 are as follows: Year Ending September 30, Amount ------------------------- ------ (dollars in thousands) 2001 ................................. $ 1,488,700 2002 ................................. 374,168 2003 ................................. 104,669 2004 ................................. 26,650 2005 ................................. 11,641 Thereafter ........................... -- ----------- Total ................................ $ 2,005,828 =========== 93 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (10) Securities Sold under Agreements to Repurchase Interest expense on securities sold under an agreement to repurchase aggregated $0.9 million, $1.4 million and $5.5 million for the years ended September 30, 2000, 1999 and 1998, respectively. The following sets forth information concerning repurchase agreements for the periods indicated:
As of and for the Years Ended September 30, --------------------------------------- 2000 1999 1998 -------- -------- --------- (dollars in thousands) Maximum amount of outstanding agreements at any month end during the period ....................................... $ 30,806 $ 96,862 $192,610 Average amount outstanding during the period .................. $ 10,621 $ 25,311 $ 97,292 Weighted average interest rate for the period ................. 8.23% 5.46% 5.77%
The $9.2 million of repurchase agreements outstanding at September 30, 2000 mature in October 2000. At September 30, 2000, 1999 and 1998, BankUnited had $11.1 million, $34.4 million and $126.3 million, respectively, of investment and mortgage-backed securities pledged under repurchase agreements. (11) Advances from Federal Home Loan Bank Advances from the Federal Home Loan Bank of Atlanta incur interest and are repayable as follows:
September 30, Repayable During Year -------------------------- Ending September 30, Interest Rate 2000 1999 -------------------- -------------------------- ---------- ---------- (dollars in thousands) 2000 .............. 5.13% -- 5.85% $ -- $ 330,000 2001 .............. 5.54% -- 6.94% 365,000 140,000 2002 .............. 5.43% -- 7.33% 25,000 125,000 2003 .............. 4.70% -- 7.24% 75,000 125,000 2004 .............. 6.47% -- 7.17% 55,000 25,000 2005 .............. 7.43% 100,000 -- 2006 .............. 6.65% 1,426 1,447 2008(4) ........... 4.75% -- 5.50% 25,000 225,000 2009(1) ........... 4.43% -- 5.48% 125,000 125,000 2010(2)(3) ........ 5.44% -- 6.94% 480,000 -- ---------- ---------- Total ............................................. $1,251,426 $1,096,447 ========== ==========
------------------ (1) Advances for $75 million are callable by the FHLB in 2001 and $50 million are callable by FHLB in 2002. (2) Advances for $75 million are callable by the FHLB in 2001 and $155 million are callable by FHLB in 2002. (3) Advances for $250 million are callable by FHLB in 2001. (4) Advances for $25 million are callable by the FHLB in 2003. 94 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (11) Advances from Federal Home Loan Bank (Continued) The terms of a security agreement with the FHLB of Atlanta include a specific assignment of collateral that requires the maintenance of qualifying first mortgage loans as pledged collateral with unpaid principal amounts at least equal to 100% of the FHLB advances, when discounted at 85% of the unpaid principal balance. The FHLB of Atlanta stock, which is recorded at cost, is also pledged as collateral for these advances. (12) Senior Notes During November 1998, the Bank established a program to issue up to $500 million aggregate principal amount of its Senior Notes backed by an irrevocable standby letter of credit of the FHLB of Atlanta. These notes may have either a fixed or floating rate of interest determined at the time of issuance and will mature no sooner than 9 months and no more than 10 years from the date of issue. On February 2, 1999, the Bank issued and sold $200 million of Senior Notes which mature five years from the date of issuance and bear interest at an annual rate of 5.40%, payable semiannually. (13) Company Obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Deferrable Interest Debentures of BankUnited BankUnited Capital, BankUnited Capital II and BankUnited Capital III are wholly-owned trust subsidiaries of BankUnited which were created under Delaware law for the purpose of issuing Trust Preferred Securities and investing the proceeds from the sale thereof in Junior Subordinated Deferrable Interest Debentures issued by BankUnited (the "Junior Subordinated Debentures"). BankUnited Capital, BankUnited Capital II and BankUnited Capital III issued trust preferred securities in the aggregate amounts of $70.0 million, $46.0 million and $102.5 million, respectively, and issued common securities in the aggregate amounts of $2.8 million, $1.8 million and $4.1 million, respectively. All of the proceeds of the trust preferred securities and the common securities were invested in the Junior Subordinated Debentures. The sole assets of each trust are the Junior Subordinated Debentures. BankUnited Capital holds $70.6 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 $6.1 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 158,499 shares of Trust Preferred Securities at a cost of $4.4 million during the year ended September 30, 2000. As a result of the early extinguishment of the Trust Preferred Securities which were acquired, the purchases resulted in extraordinary gains of $0.9 million, net of $0.6 million in taxes, for the year ended September 30, 2000. 95 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (14) Regulatory Capital Bank's required actual and excess regulatory levels as of September 30, 2000 and the 1999 are as follows:
Regulatory Capital -------------------------------------------------------------------------------------- Required Actual Excess -------------------------- -------------------------- -------------------------- 2000 1999 2000 1999 2000 1999 ---------- ---------- ---------- ---------- ---------- ---------- (dollars in thousands) Core capital ......... $ 134,512 $ 119,919 $ 335,761 $ 314,355 $ 201,249 $ 194,436 3.00% 3.00% 7.49% 7.90% 4.49% 4.90% Risk based capital ... $ 187,794 $ 167,362 $ 348,283 $ 325,079 $ 160,489 $ 157,717 8.00% 8.00% 14.84% 15.50% 6.84% 7.50%
Under the Office of Thrift Supervision (OTS) regulations adopted to implement the "prompt corrective action" provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDICIA"), a "well capitalized" institution must have a risk-based capital ratio of 10%, a core capital ratio of 5% and a Tier 1 risk-based capital ratio of 6%. (The "Tier 1 risk-based capital" ratio is the ratio of core capital to risk-weighted assets.) The Bank is a well capitalized institution under the definitions as adopted. Regulatory capital and net income amounts as of and for the years ended September 30, 2000, 1999 and 1998 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. 96 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (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, 2000, 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, 2000 and September 30, 1999. Issued and outstanding shares - 295,821 as of September 30, 2000 and 1999. 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 the fiscal year ended September 30, 2000 no Series B Preferred Stock was issued. During fiscal year 1999, BankUnited awarded 26,241 shares under the 1996 Incentive and Stock Award plan and 40,000 shares were issued pursuant to the exercise of options. 9% Noncumulative Perpetual Preferred Stock: Authorized shares - 1,847,117 shares as of September 30, 2000 and 1999. Issued - 697,117 as of September 30, 2000 and 1999 respectively. Outstanding - 696,117 as of September 30, 2000 and 697,117 as of September 30, 1999. 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. Voting rights - nonvoting, except under certain circumstances. 97 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (15) Stockholders' Equity (Continued) 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, 2000 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, 2000 and 1999, 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, 2000 and 1999. Issued - 18,093,575 shares as of September 30, 2000 and 18,049,430 shares as of September 30, 1999. Outstanding - 17,760,575 shares as of September 30, 2000 and 17,866,430 shares as of September 30, 1999. 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, 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. During the fiscal year ended September 30, 1999, BankUnited issued 58,984 shares with the exercise of options and warrants, 64,176 shares in awards and issuances to directors, officers and employees of BankUnited, 13,009 shares in dividends on BankUnited's Series B Preferred Stock and 97,048 shares upon the conversion of Class B Common Stock into Class A Common Stock. Class B Common Stock: Authorized shares - 3,000,000. Issued and outstanding - 446,262 shares as of September 30, 2000 and 458,467 shares as of September 30, 1999. 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, 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. 98 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (15) Stockholders' Equity (Continued) During the fiscal year ended September 1999, BankUnited issued 222,961 shares in connection with the exercise of stock options, awarded 811 shares to directors and officers of BankUnited and 97,048 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, 2000, 71,942 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, 2000, 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, 2000, 15,952 shares were available for the grant of options under this 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 and 304,717 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, 2000, 92,819 shares were available for the grant of options under this plan, due to options which have been forfeited by officers and employees who terminated service with BankUnited prior to full vesting of these options, and options for 46,110 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, was extended pursuant to Stockholders' approval to October 23, 1999. As of September 30, 1999, all options granted pursuant to the Agreements had been exercised at the exercise price of $4.64 per share. BankUnited maintains the 1996 Incentive Compensation and Stock Award Plan ("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 2000) 2,300,000 shares of Class A and Class B Common Stock and up to 650,000 shares of Series B Preferred. Since inception to September 30, 2000, options to purchase 1,719,669 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 535,311 shares of Class A Common Stock. Options for 52,685 shares of Class A common Stock and options for 40,000 B Preferred Stock have been exercised. In addition, under the 1996 Special Awards Program - 92,294 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 14,830 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, 2000, 722,678 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 unless extended by the Board of Directors, and are exercisable at the fair market value of the stock on the date of grant or at a 99 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (16) Stock Bonus Plan, Option Agreements and Other Benefit Plans - (Continued) subsequently adjusted exercise price. The vesting and exercisability of options granted under the 1994 Incentive Stock Option Plan and the 1996 Incentive Compensation and Stock Award Plan is determined by the Compensation Committee of BankUnited's Board of Directors at the time of the grant, and an option may be immediately vested and exercisable or become so over a period of years. If an option vests over a period of years, it is subject to forfeiture as to any portion which is not exercisable upon termination of employment. The following table presents additional data concerning BankUnited's outstanding stock options:
Number Option Price Aggregate of Shares per Share Option Price --------- --------------------- ------------ Options outstanding, September 30, 1997 ................. 1,587,525 $ 3.00 - $ 10.98 $ 10,759,609 Options granted ......................................... 665,705 9.63 - 21.07 10,726,793 Options exercised ....................................... (120,991) 3.00 - 13.25 (646,547) Options expired ......................................... (106,924) 5.73 - 13.24 (1,069,860) Reduction of option price(1) ............................ -- 9.30 - 13.91 (2,999,259) --------- -------------------- ------------ Options outstanding, September 30, 1998 ................. 2,025,315 3.11 - 13.91 16,770,736 Options granted ......................................... 796,534 6.56 - 13.18 6,872,153 Options exercised ....................................... (321,959) 3.11 - 10.85 (1,808,462) Options expired ......................................... (209,365) 5.73 - 8.00 (1,517,153) Reduction of option price(2) ............................ -- 7.28 - 13.91 (2,404,174) --------- -------------------- ------------ Options outstanding, September 30, 1999 ................. 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(3) .............. 2,594,398 $ 3.11 - $ 13.18 $ 20,788,633 ========= ====== ========= ============
(1) On September 3, 1998, BankUnited repriced options to purchase Class A Common Stock, Class B Common Stock and Series B Preferred Stock which had exercise prices which exceeded the fair market value of the underlying stock on that date. As a result of this repricing the exercise price of options to purchase 302,850 shares of Class A Common Stock and 77,500 shares of Class B Common Stock was reduced to $9.298 per share, and the exercise price of options to purchase 315,000 shares of Series B Preferred Stock was reduced to $13.909 per share. (2) On October 14, 1998, BankUnited repriced options to purchase Class A Common Stock, Class B Common Stock and Series B Preferred Stock which had exercise prices which exceeded the fair market value of the underlying stock on that date. As a result of this repricing the exercise price of options to purchase 456,368 shares of Class A Common Stock and 595,800 shares of Class B Common Stock was reduced to $7.25 per share, and the exercise price of options to purchase 315,000 shares of Series B Preferred Stock was reduced to $10.8452 per share. (3) As of September 30, 2000, the 2.6 million options outstanding had a remaining contractual life of approximately 7.1 years. Additionally, approximately 1.6 million of these options were exercisable at September 30, 2000, at exercise prices ranging from $3.11 to $13.18 with a weighted average exercise price of $7.75. 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 100 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (16) Stock Bonus Plan, Option Agreements and Other Benefit Plans - (Continued) 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 2000, 1999 and 1998 would have been reduced to the pro forma amounts indicated below:
2000 1999 1998 ---- ---- ---- (dollars in thousands, except per share amounts) Net income (loss): As Reported ...................................... $ 14,974 $ (4,367) $ 6,460 Pro Forma ........................................ $ 14,301 $ (5,935) $ 4,011 Basic earnings (loss) per share: As Reported ...................................... $ 0.82 $ (0.24) $ 0.41 Pro Forma ........................................ $ 0.78 $ (0.32) $ 0.26 Diluted earnings (loss) per share: As Reported ...................................... $ 0.81 $ (0.24) $ 0.39 Pro Forma ........................................ $ 0.77 $ (0.32) $ 0.26
The pro forma results of operations reported above are not likely to be representative of the effects on reported income of future years due to vesting arrangements and additional option grants. The fair value of each option has been estimated on the date of the grant using the Black Scholes option pricing model, with the following historical weighted average assumptions applied to grants in fiscal 2000, 1999 and 1998: 2000 1999 1998 ---- ---- ---- Dividend yields.......................... -- -- -- Expected volatility...................... 38% 40.00% 33.70% Risk-free interest rates................. 6.21% 4.76% 5.55% Expected life (in years)................. 7.00 6.96 7.00 Based upon the above assumptions, the weighted average fair value of options granted during 2000, 1999 and 1998 was $2,917,000, $3,993,000 and $5,565,000, respectively. On September 7, 1999, the trustee of the 401(k) Plan and the trustees of the Profit Sharing Plan approved a merger and transfer agreement between the plans effective September 30, 1999. Under the terms of this agreement, the net assets of the Profit Sharing Plan were transferred and assigned to the 401(k) Plan as of September 30, 1999. The 401(k) Plan was then renamed the BankUnited 401(k) Profit Sharing Plan (the "Plan"). Under the terms of the combined plan, eligible employees are permitted to contribute up to 15% of their annual salary to the Plan. BankUnited currently intends to make quarterly matching contributions at a rate of 75% of employee contributions, up to a maximum of 6% of an 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 101 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (16) Stock Bonus Plan, Option Agreements and Other Benefit Plans - (Continued) of service at the rate of 25% per year up to 100%. For fiscal 2000, the Bank made total matching contributions of approximately $438,000. Prior to September 7, 1999, BankUnited had a 401(k) savings plan (the "401(k) Plan") and a separate Profit Sharing Plan. For the years ended September 30, 1999 and 1998 BankUnited made total matching contributions of approximately $159,500 and $71,900, respectively. (17) Income Taxes The components of the provision (benefit) for income taxes for the years ended September 30, 2000, 1999 and 1998 are as follows: For the Years Ended September 30, ---------------------------------- 2000 1999 1998 ------- -------- ------- (dollars in thousands) Current-federal ............. $ 8,538 $ 192 $ 3,874 Current-state ............... 842 7 663 Deferred-federal ............ 796 (1,941) 407 Deferred-state .............. 71 (161) 65 ------- -------- ------- Total ..................... $10,247 $(1,903) $ 5,009 ======= ======== ======= BankUnited's effective tax (benefit) rate differs from the statutory federal income tax (benefit) rate as follows:
Years Ended September 30, ------------------------------------------------------------------------ 2000 1999 1998 -------------------- ---------------------- ---------------------- Amount % Amount % Amount % ------- ----- -------- ------- ------- ------ (dollars in thousands) Tax (benefit) at federal income tax rate ............................. $ 8,776 35.0% $(1,868) (34.0)% $ 4,229 34.20% Increase resulting from: State tax .............................. 594 2.4% (192) (3.5) 480 3.9 Other, net ............................. 877 3.5% 157 2.9 300 2.4 ------- ----- -------- ------- ------- ------ Total .............................. $10,247 40.9% $(1,903) (34.6)% $ 5,009 40.50% ------- ----- -------- ------- ------- ------
102 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (17) Income Taxes (Continued) The tax effects of significant temporary differences included in the deferred tax asset as of September 30, 2000 and 1999 were:
September 30, ------------------ 2000 1999 ------ ------ (dollars in thousands) Deferred tax asset: Non-accrual interest ................................. $ 650 $ 617 Loan loss and other reserves ......................... 5,041 4,755 Fixed assets ......................................... 14 -- Unrealized holding losses on securities available for sale ................................. 2,624 1,398 Unrealized holding losses on securities transferred to held to maturity .................... 856 924 Purchase accounting .................................. -- 1,154 Loan fees ............................................ 81 -- Other ................................................ 316 514 ------ ------ Gross deferred tax asset ........................... 9,582 9,362 ------ ------ Deferred tax liability: FHLB stock dividends ................................. 31 34 Deferrals and amortizations .......................... 1,349 1,829 Fixed assets ......................................... -- 570 Other ................................................ 1,099 117 ------ ------ Gross deferred tax liability ....................... 2,479 2,550 ------ ------ Net deferred tax asset ........................... $7,103 $6,812 ====== ======
At September 30, 2000, 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. 103 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (17) Income Taxes - (Continued) The components of deferred income tax (benefit) provision relates to the following:
Years Ended September 30, ----------------------------------- 2000 1999 1998 ------- ------- ------- (dollars in thousands) Differences in book/tax depreciation ............. $ (584) $ 702 $ 15 Delinquent interest .............................. (33) (292) (71) FHLB stock dividends ............................. (3) (72) (19) Loan fees ........................................ (81) 0 0 Loan loss and other reserves ..................... (286) (3,044) (494) Deferrals and amortization ....................... (480) 610 (76) Purchase accounting and other .................... 2,334 (6) 1,117 ------- ------- ------- Total deferred taxes ......................... $ 867 $(2,102) $ 472 ======= ======= =======
In connection with the acquisition of Suncoast, BankUnited recorded deferred tax assets and liabilities for the differences between values assigned in purchase accounting and the tax bases of acquired assets and liabilities. Approximately $911,000, $911,000, and $540,000 for years ended September 30, 2000, 1999, and 1998, respectively, of this deferred tax asset was recognized as deferred tax expense and $911,000 represented the tax effect at September 30, 1999 (none in 2000), of amounts deductible for tax purposes in future periods. BankUnited also acquired net deferred tax assets of approximately $1,140,000 in conjunction with its acquisition of Suncoast. In connection with the acquisition of Consumers, BankUnited recorded deferred tax assets and liabilities for the differences between values assigned in purchase accounting and the tax bases of acquired assets and liabilities. Approximately $294,000, $300,000 and $19,000 of net deferred tax assets have been recognized as net deferred tax expense during the years ended September 30, 2000, 1999 and 1998, respectively, and $294,000 represented the tax effect at September 30, 1999 (none in 2000), of amounts deductible for tax purposes in future periods. In connection with the acquisition of Central, BankUnited recorded deferred tax assets and liabilities for the differences between values assigned in purchase accounting and the tax bases of acquired assets and liabilities. With respect to the Central acquisition, approximately $(51,000), $(2,800) and $7,000 of net deferred tax assets have been recognized as net deferred tax (benefit) expense during the years ended September 30, 2000, 1999 and 1998, respectively, and $51,000 represent the tax effect at September 30, 1999 (none in 2000) of amounts taxable in future periods. BankUnited also acquired net deferred tax liabilities of approximately $189,000 in connection with its acquisition of Consumers and net deferred tax assets of approximately $332,000 in connection with its acquisition of Central. 104 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (18) Commitments and Contingencies In the normal course of business, BankUnited enters into instruments that are not recorded in the consolidated financial statements, but are required to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, purchase whole loans and securities, standby letters of credit and derivative financial instruments. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The contract or notional amounts of those instruments reflect the extent of involvement BankUnited has in particular classes of financial instruments. BankUnited's exposure to credit loss in the event of nonperformance by the other party on the financial instrument is represented by the contractual amount and collateral value, if any, of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Total commitments to extend credit at September 30, 2000 were as follows:
September 30, 2000 --------------------------------- Fixed Variable Rate Rate Total ------- ------- ------- (dollars in thousands) Commitments to fund loans ...................... $ 3,931 $80,387 $84,318 Domestic letters of credit ..................... 12,889 -- 12,889 International letters of credit ................ 2,609 -- 2,609 ------- ------- ------- Total .......................................... $19,429 $80,387 $99,816 ======= ======= =======
BankUnited evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by BankUnited, upon extension of credit is based on management's credit evaluation of the customer. Collateral varies but may include accounts receivable, property, plant and equipment, residential real estate, and income-producing commercial properties. Standby letters of credit are conditional commitments issued by BankUnited to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. BankUnited requires collateral to support those commitments. 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"). 105 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (18) Commitments and Contingencies (Continued) The following table sets forth information concerning the interest rate cap contracts. Notional Cap Termination Amount Index Rate 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, 2000, the 5-Year CMT rate was 5.82%, the 10-Year CMT rate was 5.77%, the 5-Year CMS rate was 6.75% and the 10-Year CMS rate was 6.88%. The following table provides additional information regarding the interest rate caps: As of September 30, 2000 ---------------------- (dollars in thousands) Aggregate notional amount .................. $ 800,000 Amortized costs ............................ $ 386 Aggregate market value ..................... $ 430 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. 106 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (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, and the services of an insurance agency, of which a member of the Board of Directors is a vice president. For the years ended September 30, 2000, 1999 and 1998, total fees, a portion of which were capitalized, paid to this law firm totaled approximately $2.5 million, $2.5 million and $2.2 million, respectively, and premiums paid to this insurance agency totaled approximately $523,000, $428,000 and $445,000, respectively. Commissions are less than 15% of the premiums paid. In fiscal 1997, BankUnited leased property for a new branch, which is 25% owned by BankUnited's Chairman of the Board. The lease is for a term of 3 years with four, three year options to renew. The annual rent for the property is approximately $121,000. Lease terms are comparable to those prevailing in the area for similar transactions involving non-affiliated parties at the time that the lease was signed. 107 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (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, ------------------------- 2000 1999 --------- --------- (dollars in thousands) Assets: Cash ................................................................ $ 228 $ 1,698 FHLB overnight deposits ............................................. 7,579 2,831 Tax certificates .................................................... 632 545 Investments, net (market value of approximately $60 at September 30, 2000 and 1999) ...................................... 60 60 Investments available for sale, at market ........................... 16,039 17,361 Mortgage-backed securities available for sale, at market ............ 11,261 22,908 Accrued interest receivable ......................................... 939 952 Investment in the Bank .............................................. 362,827 344,093 Investment in subsidiaries .......................................... 8,385 8,527 Other assets ........................................................ 20,381 20,718 --------- --------- Total assets ...................................................... $ 428,331 $ 419,693 ========= ========= Liabilities ............................................................. $ 4,611 $ 2,316 --------- --------- Junior subordinated deferrable interest debentures ...................... 221,133 227,240 --------- --------- Stockholders' equity: Preferred stock ..................................................... 10 10 Common stock ........................................................ 185 185 Paid-in capital ..................................................... 181,692 181,335 Retained earnings ................................................... 29,055 14,081 Treasury stock ...................................................... (2,801) (1,684) Accumulated other comprehensive loss, net of tax .................... (5,554) (3,790) --------- --------- Total stockholders' equity .............................................. 202,587 190,137 --------- --------- Total liabilities and stockholders' equity .............................. $ 428,331 $ 419,693 ========= =========
108 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (20) BankUnited Financial Corporation (Continued) Condensed Statements of Operations ----------------------------------
For the Years Ended September 30, -------------------------------------- 2000 1999 1998 -------- -------- -------- (dollars in thousands) Interest income ........................................................ $ 4,225 $ 4,563 $ 4,808 Interest expense ....................................................... 22,121 21,990 17,621 Equity income of the subsidiaries ...................................... 26,858 9,036 16,227 Operating expenses ..................................................... 1,665 2,943 1,495 -------- -------- -------- Income (loss) before income taxes, extraordinary item and preferred stock dividends ........................................ 7,297 (11,334) 1,919 Income tax benefit ..................................................... (7,531) (7,740) (5,438) -------- -------- -------- Net income (loss) before extraordinary item and preferred stock dividends ............................................ 14,828 (3,594) 7,357 Extraordinary item (net of tax of $586) ................................ 936 -- -- -------- -------- -------- Net income (loss) before preferred stock dividends ..................... 15,764 (3,594) 7,357 Preferred stock dividends .............................................. 790 773 897 -------- -------- -------- Net income (loss) after preferred stock dividends ...................... $ 14,974 $ (4,367) $ 6,460 ======== ======== ========
Condensed Schedule of Other Comprehensive (Loss) Income -------------------------------------------------------
For the Years Ended September 30, ----------------------------------- 2000 1999 1998 ------- ------- ------- (dollars in thousands) Other comprehensive (loss) income, net of tax: Unrealized holding (losses) gains arising during the period .................................................... $(1,893) $(5,698) $ 1,278 Less reclassification adjustment for: Amortization of unrealized losses on transferred securities (net of tax) .............................................. 129 31 -- Realized gains on securities sold included in net income ........................................................... -- -- (262) ------- ------- ------- Total other comprehensive (loss) income, net of tax .................... $(1,764) $(5,667) $ 1,016 ======= ======= =======
109 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (20) BankUnited Financial Corporation (Continued) Condensed Statements of Cash Flows ----------------------------------
For the Year Ended September 30, ----------------------------------- 2000 1999 1998 --------- --------- --------- (dollars in thousands) Cash flows from operating activities: Net income (loss) ........................................................... $ 15,764 $ (3594) $ 7,357 Less: Undistributed income of the subsidiaries .............................. (26,857) (9036) (16,227) Extraordinary gain on repurchase of trust preferred securities ............................................. (1,522) 0 -- Other ....................................................................... 2,935 (10229) (2,508) --------- --------- --------- Net cash used in operating activities ..................................... (9,680) (22,859) (11,378) --------- --------- --------- Cash flows from investing activities: Equity contributions to the Bank ............................................ -- -- (110,000) Equity contributions to subsidiaries ........................................ -- -- (4,100) Purchase of investment securities held to maturity .......................... -- (3,915) (15,363) Purchase of mortgage-backed securities available for sale ................... -- -- (30,734) Proceeds from repayments of mortgage-backed securities available for sale ... 2,771 7,770 18,821 Proceeds from sales of mortgage-backed securities available for sale ........ 9,091 -- -- Net increase in tax certificates .......................................... (87) (8) (1,654) --------- --------- --------- Net cash provided by (used in) investing activities ..................... 11,775 3,847 (143,030) --------- --------- --------- Cash flows from financing activities: Net proceeds from issuance of Junior subordinated deferrable interest debentures ............................................ -- -- 103,013 Repurchase of trust preferred securities .................................... (4,368) -- -- Dividend from Bank .......................................................... 7,300 12,137 -- Net proceeds from issuance of common stock .................................. 125 2,010 60,502 Net proceeds from issuance of preferred stock ............................... -- -- 488 Purchase of treasury shares ................................................. (1,117) (1,684) -- Dividends paid on preferred stock ........................................... (757) (658) (837) Preferred Stock, Series 9% tender offer ..................................... -- -- (43) Preferred Stock redemption .................................................. -- -- (424) --------- --------- --------- Net cash provided by financing activities ................................. 1,183 11,805 162,699 --------- --------- --------- Increase (decrease) in cash and cash equivalents .............................. 3,278 (7,207) 8,291 Cash and cash equivalents at beginning of year ................................ 4,529 11,736 3,445 --------- --------- --------- Cash and cash equivalents at end of year ...................................... $ 7,807 $ 4,529 $ 11,736 ========= ========= =========
110 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (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, 2000. 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. The fair value of servicing rights is received from a third party provider which determines the valuation of the asset in the market. 111 BankUnited Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2000 (21) Estimated Fair Value of Financial Instruments - (Continued) The fair value of the off-balance sheet financial instruments is estimated based on the OTS's valuation as contained in its September 30, 2000 "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. The following table presents information for BankUnited's financial instruments at September 30, 2000 and 1999:
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 Off-balance sheet financial instruments ................................... - 636 As of September 30, 1999 ----------------------------- Carrying Value Fair Value -------------- ---------- (dollars in thousands) Financial assets: Cash and cash equivalents ................................................. $ 226,535 $ 226,535 Tax certificates and other investments .................................... 39,874 39,800 Mortgage-backed securities ................................................ 347,224 343,170 Loans receivable .......................................................... 3,302,866 3,291,502 Mortgage servicing rights ................................................. 7,820 7,925 Other interest-earning assets ............................................. 54,927 54,927 Financial liabilities: Deposits .................................................................. $2,279,798 $2,287,119 Borrowings ................................................................ 1,328,148 1,312,964 Trust Preferred Securities ................................................ 218,500 199,459 Off-balance sheet financial instruments ................................... - 1,227
112 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 2001 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. 113 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, 2000 and 1999. Consolidated Statements of Operations for the years ended September 30, 2000, 1999 and 1998. Consolidated Statements of Stockholders' Equity for the years ended September 30, 2000, 1999 and 1998. Consolidated Statements of Cash Flows for the years ended September 30, 2000, 1999 and 1998. 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). 114 4.2 Statement of Designation of Noncumulative Convertible Preferred Stock, Series A of BankUnited (included as appendix to Exhibit 3.1). 4.3 Statement of Designation of Noncumulative Convertible Preferred Stock, Series B of BankUnited (included as appendix to Exhibit 3.1). 4.4 Statement of Designation of Noncumulative Convertible Preferred Stock, Series C of BankUnited (included as appendix to Exhibit 3.1). 4.5 Statement of Designation of Noncumulative Convertible Preferred Stock, Series C-II of BankUnited (included as appendix to Exhibit 3.1). 4.6 Statement of Designation of 8% Noncumulative Convertible Preferred Stock, Series 1993 of BankUnited (included as appendix to Exhibit 3.1). 4.7 Statement of Designation of 9% Noncumulative Perpetual Preferred Stock of BankUnited (included as an appendix to Exhibit 3.1). 4.8 Statement of Designation of 8% Noncumulative Convertible Preferred Stock, Series 1996 of BankUnited (included as appendix to Exhibit 3.1). 4.9 Form of Letter Agreement between BankUnited and the holders of shares of BankUnited's Noncumulative Convertible Preferred Stock, Series B (Exhibit 4.7 to BankUnited's Form 10-K Report for the year ended September 30, 1998, as filed with the Securities and Exchange Commission on December 29, 1998 [the "1998 10-K"]). 4.10 Forms of Series 15A-F, Series 18E and Series 20A-F of Subordinated Notes of the Bank (Exhibit 4.3 to BankUnited's Form S-4 Registration Statement, File No. 33-55232, as filed with the Securities and Exchange Commission on December 2, 1992). 4.11 The Advances, Specific Collateral Pledge and Security Agreement dated March 30, 1998 between the Bank and the Federal Home Loan Bank of Atlanta (Exhibit 4.9 to the 1998 10-K). 4.12 Indenture dated November 4, 1998 between the Bank and the Bank of New York to which the Federal Home Loan Bank of Atlanta has joined as a consenting party (the "Indenture") (Exhibit 4.91 to the 1998 10-K). 4.13 Form of the Bank's Senior Note (Fixed Rate) issuable pursuant to the Indenture (Exhibit 4.92 to the 1998 10-K). 4.14 Form of the Bank's Senior Note (Floating Rate) issuable pursuant to the Indenture (Exhibit 4.93 to the 1998 10-K). 4.15 The Letter of Credit Reimbursement Agreement dated November 14, 1998 between the Bank and the Federal Home Loan Bank of Atlanta (Exhibit 4.94 to the 1998 10-K). 10.1 Non-Statutory Stock Option Plan, as amended, (Exhibit 4.9 to BankUnited's Form S-8 Registration Statement, File No. 33-76882, as filed with the Securities and Exchange Commission on March 24, 1994). ** 10.2 1992 Stock Bonus Plan, as amended (Exhibit 10.2 to BankUnited's Form 10-K Report for the year ended September 30, 1994 [the "1994 10-K"]).** 10.3 1994 Incentive Stock Option Plan. (Exhibit 10.3 to the 1994 10-K).** 115 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 10.8 to the 1998 10-K).*** 10.8.1 First Amendment to Employment Agreement between BankUnited, the Bank and Mehdi Ghomeshi (Exhibit 10.1 to BankUnited's Report on Form 10-Q for the quarter ended March 31, 1999, as filed with the Securities and Exchange Commission on May 17, 1999). 10.9 Form of Change of Control Agreement between the Bank and Earline G. Ford (Exhibit 10.11 to BankUnited's Form 10-K for the year ended September 20, 1996, as filed with the Securities and Exchange Commission on December 23, 1996). 10.10 Form of Change of Control Agreement between the Bank and executive officers (Exhibit 10.10 to BankUnited's Report on Form 10-K for the year ended September 30, 1999 [the "1999 10-K"]) 10.11 Junior Subordinated Indenture with respect to BankUnited's 10 1/4% Junior Subordinated Debentures. (Exhibit 4.1A to BankUnited's Registration Statement on Form S-4, File No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.12 Supplemental Indenture (Exhibit 4.1B to BankUnited's Registration Statement on Form S-4, File No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.13 Form of Amended and Restated Trust Agreement of BankUnited Capital. (Exhibit 4.3 to BankUnited's Registration Statement on Form S-4, No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.14 Form of Amended and Restated Guarantee Agreement for BankUnited Capital. (Exhibit 4.5 to BankUnited's Registration Statement on Form S-4, No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.15 Form of Agreement as to Expenses and Liabilities (included as an exhibit to Exhibit 99.6 to BankUnited's Registration Statement on Form S-4, No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.16 Registration Rights Agreement (Exhibit 4.6 to BankUnited's Registration Statement on Form S-4, No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.17 Registration Rights Agreement (Exhibit 4.7 to BankUnited's Registration Statement on Form S-4, No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 116 10.18 Purchase Agreement (Exhibit 99.4 to BankUnited's Registration Statement on Form S-4, No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.19 Purchase Agreement (Exhibit 99.5 to BankUnited's Registration Statement on Form S-4, No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.20 Underwriting Agreement dated June 1997 between BankUnited and BankUnited Capital II and Raymond James and Associates, Inc. and Ryan, Beck and Co. (Exhibit 1 to Amendment No. 1 to Form S-2, No. 333-27397, as filed with the Securities and Exchange Commission on May 30, 1997). 10.21 Form of Indenture with respect to BankUnited's 9.60% Junior Subordinated Debentures. (Exhibit 4.3 to BankUnited's Registration Statement on Form S-2, File No. 333-27597, as filed with the Securities and Exchange Commission on May 22, 1997). 10.22 Trust Agreement of BankUnited Capital II. (Exhibit 4.6 to BankUnited's Registration Statement on Form S-2, File No. 333-27597, as filed with the Securities and Exchange Commission on May 22, 1997). 10.23 Form of Amended and Restated Trust Agreement of BankUnited Capital II. (Exhibit 4.7 to BankUnited's Registration Statement on Form S-2, No. 333-27597, as filed with the Securities and Exchange Commission on May 22, 1997). 10.24 Form of Guarantee Agreement for BankUnited Capital II. (Exhibit 4.9 to BankUnited's Registration Statement on Form S-2, No. 333-27597, as filed with the Securities and Exchange Commission on May 22, 1997). 10.25 Form of Agreement as to Expenses and Liabilities (included as an exhibit to Exhibit 4.7) (Exhibit 4.10 to BankUnited's Registration Statement on Form S-2, No. 333-27597, as filed with the Securities and Exchange Commission on May 22, 1997). 10.26 Purchase Agreement between BankUnited and BankUnited Capital III and PaineWebber Incorporated (Exhibit 1.1 to BankUnited's Amendment No. 3 to Form S-3, No. 333-28677, as filed with the Securities and Exchange Commission on March 6, 1998). 10.27 Form of Indenture with respect to BankUnited's 9% Junior Subordinated Debentures (Exhibit 4.3 to Amendment No. 3 to BankUnited's Registration Statement on Form S-3, No. 333-28677, as filed with the Securities and Exchange Commission on March 6, 1998). 10.28 Trust Agreement of BankUnited Capital III. (Exhibit 4.6 to BankUnited's Registration Statement on Form S-3, No. 333-28677, as filed with the Securities and Exchange Commission on June 6, 1997). 10.29 Form of Amended and Restated Trust Agreement of BankUnited Capital III. (Exhibit 4.3 to Amendment No. 3 to BankUnited's Registration Statement on Form S-3, No. 333-28677, as filed with the Securities and Exchange Commission on March 6, 1998). 10.30 Form of Guarantee Agreement for BankUnited Capital III. (Exhibit 4.3 to Amendment No. 3 to BankUnited's Registration Statement on Form S-3, No. 333-28677, as filed with the Securities and Exchange Commission on March 6, 1998). 10.31 Form of Agreement as to Expenses and Liabilities (Exhibit 4.3 to Amendment No. 3 to BankUnited's Registration Statement on Form S-3, No. 333-28677, as filed with the Securities and Exchange Commission on March 6, 1998). 117 10.32 Form of Underwriting Agreement dated April 2, 1998 between BankUnited and Friedman, Billings, Ramsey & Co., Inc. and PaineWebber Incorporated (Exhibit 1.1 to Amendment No. 1 to Form S-3, No. 333-48249, as filed with the Securities and Exchange Commission on April 2, 1998). 11.1 Statement regarding calculation of earnings per common share (set forth in Footnote (2) to the Notes to Consolidated Financial Statements contained in Part II, Item 8 of this report on Form 10-K/A for the year ended September 30, 2000). 12.1 Statement regarding calculation of ratio of earnings to combined fixed charges and preferred stock dividends. 21.1 Subsidiaries of the Registrant. 23.1 Consent of PricewaterhouseCoopers LLP. 24.1 Power of attorney (set forth on the signature page in Part IV of this Report on Form 10-K for the year ended September 30, 2000). 27.1 Financial Data Schedule. * Exhibits followed by a parenthetical reference are incorporated herein by reference from the documents described therein. ** Exhibits 10.1--10.5 are compensatory plans or arrangements. *** Contracts with Management. (b) Reports on Form 8-K. During the quarter ended September 30, 2000, no Current Reports on Form 8-K were filed by BankUnited. 118 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/A to be signed on its behalf by the undersigned, thereunto duly authorized on April 27, 2001. BANKUNITED FINANCIAL CORPORATION By: /s/ ALFRED R. CAMNER ------------------------------- Alfred R. Camner Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on April 27, 2001 on behalf of the Registrant by the following persons and in the capacities indicated. /s/ ALFRED R. CAMNER Chairman of the Board, Chief Executive -----------------------------------------Officer, and Director ALFRED R. CAMNER (Principal Executive Officer) * President and Chief Operating Officer -----------------------------------------and Director MEHDI GHOMESHI * Vice Chairman of the Board and Director ----------------------------------------- LAWRENCE H. BLUM * Director and Corporate Secretary ----------------------------------------- MARC LIPSITZ * Director ----------------------------------------- MARC D. JACOBSON 119 * Director ----------------------------------------- ALLEN M. BERNKRANT * Director ----------------------------------------- ANNE W. SOLLOWAY * Director ----------------------------------------- NEIL MESSINGER /s/ HUMBERTO LOPEZ Executive Vice President and -----------------------------------------Chief Financial Officer HUMBERTO LOPEZ *By: /s/ ALFRED R. CAMNER ------------------------------------ as Attorney-in-Fact 120 EXHIBIT INDEX EXHIBIT DESCRIPTION ------- ----------- 3.2 Bylaws of BankUnited 12.1 Statement regarding calculation of ratio of earnings to Combined fixed charges and preferred stock dividends. 21.1 Subsidiaries of the Registrant. 23.1 Consent of PricewaterhouseCoopers LLP. 27.1 Financial Data Schedule 121