-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EUFBqWKunS+5pnskZhVOKe7vCKQV9SK5lgE1xPLJ8EeHp7BImBC+Owl8g01WYTaE /b+0EBzs6iDBjD8AkKO8kA== 0000950170-98-002420.txt : 19981230 0000950170-98-002420.hdr.sgml : 19981230 ACCESSION NUMBER: 0000950170-98-002420 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANKUNITED FINANCIAL CORP CENTRAL INDEX KEY: 0000894490 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 650377773 STATE OF INCORPORATION: FL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13921 FILM NUMBER: 98777042 BUSINESS ADDRESS: STREET 1: 255 ALHAMBRA CIRCLE CITY: CORAL GABLES STATE: FL ZIP: 33134 BUSINESS PHONE: 3055692000 MAIL ADDRESS: STREET 1: 255 ALHAMBRA CIRCLE CITY: CORAL GABLES STATE: FL ZIP: 33134 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended September 30, 1998 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 65-037773 - ------------------------------- ---------------------- (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 8% Noncumulative Convertible Preferred Stock, Series 1996 8% Noncumulative Convertible Preferred Stock, Series 1993 9% Noncumulative Perpetual Preferred Stock Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. --- The aggregate market value of the Class A Common Stock and Class B Common Stock held by non-affiliates of the Registrant, based upon the average price on December 23, 1998, was $118,495,647.* The Class A Common Stock is the only publicly traded voting security of the Registrant. The shares of the Registrant's common stock outstanding as of December 23, 1998 were as follows: CLASS NUMBER OF SHARES ----- ---------------- Class A Common Stock, $.01 par value 17,829,675 Class B Common Stock, $.01 par value 376,392 DOCUMENTS INCORPORATED BY REFERENCE The Registrant's Definitive Proxy Statement for its 1999 Annual Meeting of Stockholders will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Rule G(3) of the General Instructions for Form 10-K. Information from such Definitive Proxy Statement will be incorporated by reference into Part III, Items 10, 11, 12 and 13 hereof. - ---------------- * Based on reported beneficial ownership of all directors and executive officers of the Registrant; this determination does not, however, constitute an admission of affiliated status for any of these individual stockholders. PART I ITEM 1. BUSINESS BUSINESS OF BANKUNITED FINANCIAL CORPORATION GENERAL BankUnited Financial Corporation (the "Company" or "BankUnited") is a Florida corporation and the savings and loan holding company for BankUnited, FSB (the "Bank"). The Company currently has twenty-five branch offices, twenty-four in southeast and one in southwest Florida and anticipates opening additional branch offices in 1999 in its market area. The Company's business has traditionally consisted of attracting deposits from the general public and using those deposits, together with borrowings and other funds, to purchase nationwide and to originate in Florida single-family residential mortgage loans, and to a lesser extent, to purchase and originate commercial real estate, commercial business and consumer loans. The Company also invests in other permitted investments. The Company's revenues are derived principally from interest earned on loans, mortgage-backed securities and investments. The Company's primary expenses arise from interest paid on deposits and borrowings and non-interest operating expenses incurred in operations. During fiscal 1999, the Company expects to place increased emphasis on retail and commercial branches and retail and correspondent lending, with a view towards increasing the Company's margins and generating increased non-interest income. It is also anticipated that the rapid expansion experienced during the 1998 fiscal year will be moderated during the 1999 fiscal year. In connection with its emphasis on retail and commercial banking, as of December 1, 1998, the Company and the Bank appointed a new President and Chief Operating Officer who was formerly responsible for the Miami-Dade and Monroe County operations of the largest commercial bank operating in South Florida. The Bank is a member of the Federal Home Loan Bank of Atlanta (the "FHLB") and is subject to comprehensive regulation, examination and supervision by the Office of Thrift Supervision (the "OTS") and the Federal Deposit Insurance Corporation (the "FDIC"). Deposits at the Bank are insured by the Savings Association Insurance Fund to the maximum extent permitted by law. FORWARD-LOOKING STATEMENTS When used in this Form 10-K or future filings by the Company with the Securities and Exchange Commission, in the Company'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. The Company 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 the Company's financial performance and could cause the Company's actual results for future periods to differ materially from those anticipated or projected. The Company 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. MARKET AREA AND COMPETITION The Company conducts operations in Dade, Broward, Palm Beach and Collier counties ("South Florida") which geographic region, at June 30, 1998, had a total of approximately $79.7 billion in deposits at commercial banks and savings institutions (42.1% of the total of $189.3 billion of deposits in Florida). The Company intends to continue to establish or acquire branch offices in its market area and may expand into other parts of Florida. 1 The Company encounters strong competition in attracting deposits and in its lending activities. Its most direct competition for deposits historically has been from commercial banks, brokerage houses, other savings associations, and credit unions located in the Company's market area, and the Company expects continued strong competition from such financial institutions in the foreseeable future. The Company also competes in its market area with the branch offices of several super-regional commercial banks and savings associations that are substantially larger and have more extensive operations than the Company. In addition, many financial institutions formerly independent and operating in South Florida have recently been acquired by larger institutions headquartered out of state. The Company'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 Company believes that this strategy will enable it to attract depositors as the number of local institutions declines and depositors who desire more personal service, particularly retirees, relocate their accounts. The competition in originating real estate and other loans comes principally from commercial banks, mortgage banking companies and other savings associations. The Company competes for loan originations primarily through the interest rates and loan fees which it charges, the types of loans which it offers, and the efficiency and quality of service which it provides. The Company purchases residential first mortgage loans in the existing secondary mortgage market and competes with other mortgage purchasers primarily on the basis of price. While the Company has been, and intends to continue to be, primarily a residential lender, the Company has recently increased its emphasis on commercial real estate, construction and commercial lending, as discussed more fully below. Factors that affect competition in lending include general and local economic conditions, current interest rates and volatility of the mortgage markets. As with its deposit products, the Company's strategy is to promote its higher level of personal service and to position itself as a small- to middle-market lender servicing businesses left underserved by larger institutions. Management's strategy has included and continues to include evaluating market needs and offering products to meet those needs. The Company will continue to offer products and services that will allow it to control the growth of its assets and liabilities. These new products and services will allow the Company to properly position itself to its customers as a community bank. FACTORS AFFECTING EARNINGS The results of the Company's operations are affected by many factors beyond the Company's control, including general economic conditions and the related monetary and fiscal policies of the federal government. Earnings generated from lending activities are affected by the demand for mortgages and other types of loans, which is in turn affected by the interest rates at which such loans may be offered, and other factors affecting the supply of housing and the availability of funds. Sources and costs of funds, principally deposits and borrowings, are influenced by yields available on competing investments and by general market rates of interest. ASSET AND LIABILITY MANAGEMENT. The Company's net earnings depend primarily on its net interest income, which is the difference between interest income received on its interest-earning assets (principally loans, short-term and long-term investments, and mortgage-backed securities) and interest expense paid on its interest-bearing liabilities (principally deposits, FHLB advances, and trust preferred securities). The Company's net interest income is significantly affected by (i) the difference between yields received on its interest-earning assets and the rates paid on its interest-bearing liabilities (the "interest rate spread") and (ii) the relative amounts of its interest-earning assets and interest-bearing 2 liabilities. When interest-earning assets equal or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income. When such liabilities exceed such assets, the greater the positive interest rate spread must be in order to produce net interest income. Non-interest sources of income and non-interest expenses also affect the Company's net income. The higher non-interest expenses are, the greater the positive interest rate spread and/or non-interest sources of income must be to produce net income. The Company's exposure to interest rate risk is measured as the sensitivity of the value of its financial instruments and net interest income to changes in the level of interest rates. Generally, interest rate risk for a financial institution results from differences in repricing intervals or maturities between interest-earning assets and interest-bearing liabilities. When such differences exist, a change in the level of interest rates will most likely result in an increase or decrease in net interest income. The Company's ability to manage interest rate risk depends upon a number of factors, including competition for loans and deposits in its market area and conditions prevailing in the secondary mortgage market. In the current interest rate environment, when long-term interest rates are generally low on a historical basis and the spread between short-term rates and long-term rates is relatively narrow, prepayments of adjustable rate and higher fixed-rate mortgages tend to accelerate. As a result of the historically high levels of prepayments, the results of operations for the year ended September 30, 1998 reflect an acceleration in the amortization of purchase premiums on loans and mortgage-backed securities from $1.1 million for the year ended September 30, 1997 to $11.4 million for the year ended September 30, 1998. In turn, this caused a corresponding reduction in net interest income. To reduce the adverse impact of declining market interest rates on the Company's net interest income, the Company began to emphasize originating and purchasing fixed-rate loans in the latter half of the fiscal year. The Company has rate-sensitive (maturing or subject to repricing within one year) assets that exceed its rate-sensitive liabilities, resulting in a positive cumulative one-year gap position of 4.58% of total assets as of September 30, 1998. This imbalance, when coupled with the deregulation of the restrictions previously imposed on the types of savings products that financial institutions are permitted to offer, subjects the Company's earnings to change based on fluctuations in interest rates. The Company constantly attempts to reduce the sensitivity of its earnings to fluctuations in interest rates by adjusting the average maturities of its interest-bearing liabilities and interest-earning assets. The Company currently utilizes derivative instruments on a limited basis to hedge the interest rate risks of certain financial instruments. Interest Rate Cap contracts have been acquired by the Company to hedge the risk on an increase in market interest rates for variable rate sources of funds which are partially funding financial instruments which have interest rate terms which are fixed for certain periods of time (see Note 17 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements for further discussion of the Interest Rate Cap contracts). The Interest Rate Cap contracts will be treated as cash flow hedges and it is anticipated that any change in their fair value will be substantially offset by an opposite change in the fair value of the financial instruments designated in the hedge transaction. There can be no assurance, however, of the degree to which the Company will be able to effectively maintain the balance of its short-term interest-earning assets as compared to its short-term interest-bearing liabilities and manage the risks to liquidity associated therewith. 3 GAP TABLE. The following table sets forth the amount of interest-earning assets and interest-bearing liabilities outstanding at September 30, 1998, which are expected to reprice or mature in each of the future time periods shown.
AT SEPTEMBER 30, 1998 INTEREST SENSITIVITY PERIOD (1) ---------------------------------------------------------------------------- 6 MONTHS 6 MONTHS - OVER 1- OVER 5 - OVER 10- OR LESS 1 YEAR 5 YEARS 10 YEARS YEARS ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Interest-earning assets: Investments, tax certificates, Federal funds sold, FHLB overnight deposits and other interest earning assets, at cost .............. $ 92,080 $ 11,556 $ 24,733 $ 51,289 $ 15,133 Mortgage-backed securities ..................... 308,754 30,848 304 511 5,339 Loans: Adjustable-rate mortgages ...................... 1,080,972 599,087 126,637 18 26 Fixed-rate mortgages ........................... 195,482 84,991 508,154 260,928 124,568 Commercial and consumer loans .................. 16,120 8,501 20,472 59 -- ----------- ----------- ----------- ----------- ----------- Total loans .................................. 1,292,574 692,579 655,263 261,005 124,594 ----------- ----------- ----------- ----------- ----------- Total interest-earning assets .............. 1,693,408 734,983 680,300 312,805 145,066 Nonaccrual loans .................................. -- -- -- -- -- Other non-interest-earning assets ................. -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total assets ................................... $ 1,693,408 $ 734,983 $ 680,300 $ 312,805 $ 145,066 =========== =========== =========== =========== =========== Interest-bearing liabilities: Customer deposits: Money market and NOW accounts ................ $ 98,719 $ 20,900 $ 33,458 $ 33,458 $ -- Passbook accounts ............................ 178,162 31,278 24,359 24,359 -- Certificate accounts ......................... 1,093,897 457,921 81,382 183 -- ----------- ----------- ----------- ----------- ----------- Total customer deposits .................... 1,370,778 510,099 139,199 58,000 -- Borrowings: FHLB advances .................................. 255,000 -- 765,000 1,466 -- Trust Preferred .................................. -- -- -- -- 218,500 Other borrowings ............................... 121,148 -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total borrowings ............................. 376,148 -- 765,000 1,466 218,500 ----------- ----------- ----------- ----------- ----------- Total interest-bearing liabilities ......... 1,746,926 510,099 904,199 59,466 218,500 Non-interest-bearing customer deposits ............ -- -- -- -- -- Other non-interest-bearing liabilities ............ -- -- -- -- -- Shareholders' equity .............................. -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total liabilities and shareholders' equity $ 1,746,926 $ 510,099 $ 904,199 $ 59,466 $ 218,500 =========== =========== =========== =========== =========== Total interest-earning assets less interest-bearing liabilities ("GAP") .......... $ (53,518) $ 224,884 $ (223,899) $ 253,339 $ (73,434) =========== =========== =========== =========== =========== Ratio of GAP to total assets ...................... (1.43)% 6.01% (5.99)% 6.78 % (1.96)% =========== =========== =========== =========== =========== Cumulative excess (deficiency) of interest-earning assets over interest- bearing liabilities ............................ $ (53,518) $ 171,366 $ (52,533) $ 200,806 $ 127,372 =========== =========== =========== =========== =========== Cumulative excess (deficiency) of interest-earning assets over interest- bearing liabilities, as a percentage of total assets ................................ (1.43)% (4.58)% (1.41)% 5.37% 3.41% =========== =========== =========== =========== =========== AT SEPTEMBER 30, 1998 INTEREST SENSITIVITY PERIOD (1) ------------------------------- NON- INTEREST EARNING TOTAL -------------- ------------- (DOLLARS IN THOUSANDS) Interest-earning assets: Investments, tax certificates, Federal funds sold, FHLB overnight deposits and other interest earning assets, at cost ............ $ -- $ 194,791 Mortgage-backed securities ................... -- 345,756 Loans: Adjustable-rate mortgages .................... -- 1,806,740 Fixed-rate mortgages ......................... -- 1,174,123 Commercial and consumer loans ................ -- 45,152 ----------- ----------- Total loans ................................ -- 3,026,015 ----------- ----------- Total interest-earning assets ............ -- 3,566,562 Nonaccrual loans ................................ 15,999 15,999 Other non-interest-earning assets ............... 155,822 155,822 ----------- ----------- Total assets ................................. $ 171,821 $ 3,738,383 =========== =========== Interest-bearing liabilities: Customer deposits: Money market and NOW accounts .............. $ -- $ 186,535 Passbook accounts .......................... -- 258,158 Certificate accounts ....................... -- 1,633,383 ----------- ----------- Total customer deposits .................. -- 2,078,076 Borrowings: FHLB advances ................................ -- 1,021,466 Trust Preferred ................................ -- 218,500 Other borrowings ............................. -- 121,148 ----------- ----------- Total borrowings ........................... -- 1,361,114 ----------- ----------- Total interest-bearing liabilities ....... -- 3,439,190 Non-interest-bearing customer deposits .......... 46,748 46,748 Other non-interest-bearing liabilities .......... 53,153 53,153 Shareholders' equity ............................ 199,292 199,292 ----------- ----------- Total liabilities and shareholders' equity $ 299,193 $ 3,738,383 =========== =========== Total interest-earning assets less interest-bearing liabilities ("GAP") ........ $ -- $ 127,372 =========== =========== Ratio of GAP to total assets .................... -% 3.41% =========== =========== Cumulative excess (deficiency) of interest-earning assets over interest- bearing liabilities .......................... Cumulative excess (deficiency) of interest-earning assets over interest- bearing liabilities, as a percentage of total assets ..............................
(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 correlating 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 the Company 4 YIELDS EARNED AND RATES PAID. The following table sets forth certain information relating to the categories of the Company's interest-earning assets and interest-bearing liabilities for the periods indicated. All yield and rate information is calculated on an annualized basis by dividing the income or expense item for the period by the average balances during the period of the appropriate balance sheet item. Net interest margin is calculated by dividing net interest income by average interest-earning assets. Non-accrual loans are included for the appropriate periods, whereas recognition of interest on such loans is discontinued and any remaining accrued interest receivable is reversed, in conformity with generally accepted accounting principles and federal regulations. The yields and net interest margins appearing in the following table have been calculated on a pre-tax basis.
FOR THE YEAR ENDED SEPTEMBER 30, --------------------------------------------------------------------------------------- 1998 1997 1996 AS OF ----------------------------- ---------------------------- -------------------------- 9/30/98 AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ YIELD/RATE(1) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE ------------- ------- -------- ---- ------- -------- ---- ------- -------- ---- (Dollars in thousands) Interest-earning assets: Loans receivable, net......... 7.05% $2,529,219 $ 177,252 7.01% $1,217,181 $94,655 7.78% $540,313 $ 41,313 7.65% Mortgage-backed securities.... 6.27 288,832 16,588 5.74 103,389 7,035 6.80 62,711 4,250 6.78 Short-term investments (2).... 5.75 86,642 5,013 5.79 27,612 1,613 5.84 41,240 2,359 5.72 Tax certificates.............. 6.10 38,978 2,952 7.57 41,162 3,171 7.70 34,831 3,018 8.66 Long-term investments and FHLB stock, net ............ 7.27 81,600 5,762 7.06 33,161 2,300 6.94 17,352 1,192 6.87 ---- ---------- --------- ---- ---------- ------- ----- -------- ------- ---- Total interest-earning assets.................... 6.95 3,025,271 207,567 6.86 1,422,505 108,774 7.65 696,447 52,132 7.49 ---- ---------- --------- ---- ---------- ------- ----- -------- ------- ---- Interest-bearing liabilities: NOW/Money Market.............. 3.00 163,513 5,083 3.11 91,515 2,236 2.44 33,148 775 2.34 Savings....................... 4.72 193,564 8,983 4.64 137,912 6,342 4.60 59,965 2,627 4.38 Certificate of deposits....... 5.56 1,384,710 79,365 5.73 735,008 41,558 5.65 313,521 17,389 5.55 Trust preferred securities.... 9.53 173,288 16,952 9.78 63,008 6,473 10.27 - - - FHLB advances and other borrowings.................. 5.55 998,562 57,160 5.72 335,112 19,351 5.77 235,264 13,831 5.88 ---- ---------- --------- ---- ---------- ------- ----- -------- ------- ---- Total interest-bearing liabilities................5.58 2,913,637 167,543 5.75 1,362,555 75,960 5.58 641,898 34,622 5.39 ---- ---------- --------- ---- ---------- ------- ----- -------- ------- ---- Excess of interest-earning assets over interest-bearing liabilities................... $ 111,634 $ 59,950 $ 54,549 ========== ========== ======== Net interest income.............. $ 40,024 $32,814 $17,510 ========= ======= ======= Interest rate spread............. 1.37% 1.11% 2.07% 2.10% ==== ==== ===== ==== Net interest margin.............. 1.76% 1.32% 2.31% 2.51% ==== ==== ===== ==== Ratio of interest-earning assets to interest-bearing liabilities................... 103.83% 104.40% 108.50% ========== ========== ========
(1) The yields and rates along with the corresponding interest rate spread and net interest margin represent the yields earned and rates paid on the Company's interest-earning assets and interest-bearing liabilities, respectively, as of the close of business on September 30, 1998 and do not include any estimates of the effect accelerated amortization of purchased premiums would have on the yields earned. (2) Short-term investments include FHLB overnight deposits, securities purchased under agreements to resell, federal funds sold and certificates of deposit. 5 RATE/VOLUME ANALYSIS. The following table presents, for the periods indicated, the changes in interest income and the changes in interest expense attributable to the changes in interest rates and the changes in the volume of interest-earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (i) changes in volume (change in volume multiplied by prior year rate); (ii) changes in rate (change in rate multiplied by prior year volume); (iii) changes in rate/volume (change in rate multiplied by change in volume); and (iv) total changes.
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, --------------------------------------------- ------------------------------------------ 1998 V. 1997 1997 V. 1996 --------------------------------------------- ------------------------------------------ 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 ............................... $ 102,032 $ (9,353) $ (10,082) $ 82,597 $ 52,842 $ 53 $ 447 $ 53,342 Mortgage-backed securities and collateralized mortgage obligations 12,619 (1,098) (1,968) 9,553 2,757 17 11 2,785 Short-term investments (1) .......... 3,447 (15) (32) 3,400 (780) 49 (15) (746) Tax Certificates .................... (168) (53) 2 (219) 549 (335) (61) 153 Long-term investments and FHLB stock 3,360 42 60 3,462 1,078 28 2 1,108 --------- --------- --------- --------- --------- ------- ------- --------- Total interest-earning assets ..... 121,290 (10,477) (12,020) 98,793 56,446 (188) 384 56,642 --------- --------- --------- --------- --------- ------- ------- --------- Interest expense attributable to: NOW/Money Market .................... 1,760 608 479 2,847 1,365 35 61 1,461 Savings ............................. 2,559 58 24 2,641 3,415 131 169 3,715 Certificates of Deposit ............. 36,735 569 503 37,807 23,377 338 454 24,169 Trust preferred securities .......... 11,330 (309) (542) 10,479 -- -- 6,473 6,473 FHLB advances and other borrowings .. 38,310 (168) (333) 37,809 5,855 (233) (102) 5,520 --------- --------- --------- --------- --------- ------- ------- --------- Total interest-bearing liabilities 90,694 758 131 91,583 34,012 271 7,055 41,338 --------- --------- --------- --------- --------- ------- ------- --------- Increase (decrease) in net interest income .............. $ 30,596 $ (11,235) $ (12,151) $ 7,210 $ 22,434 $ (459) $(6,671) $ 15,304 ========= ========= ========= ========= ========= ======= ======= =========
- ---------- (1) Short-term investments include FHLB overnight deposits, securities purchased under agreements to resell, federal funds sold and certificates of deposit. 6 LENDING ACTIVITIES The Company focuses its lending activity on purchasing and originating single-family residential mortgage loans. The Company's lending strategy also includes expanding its commercial real estate, commercial business, and real estate construction lending. The Company also currently offers consumer loans, such as automobile loans and boat loans. LOAN PORTFOLIO. The Company's loan portfolio primarily consists of adjustable-rate mortgage loans ("ARMs") and fixed-rate mortgage loans secured by one-to-four family residential and commercial real estate. As of September 30, 1998, the Company's loan portfolio totaled $3.0 billion, of which $2.8 billion or 91.5 % consisted of one-to-four family residential first mortgages. At the present time, the Company'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"). The Company is, however, approved to originate FHA and VA loans. As of September 30, 1998, the remainder of the Company's loan portfolio consisted of $145.9 million of commercial real estate loans (4.8 % of total loans); five-or-more units residential real estate loans of $24.4 million (0.8 % of total loans, net); $4.3 million of second mortgage loans (0.1 % of total loans, net); $30.4 million of consumer loans (1.0% of total loans, net); $15.6 million of commercial business loans (0.5 % of total loans, net); and $13.2 million of other loans (0.4% of total loans, net). At September 30, 1998, the Company's loan portfolio included $199.4 million, or 6.6% of the Company's total loans receivable, net, of residential mortgage loans to non-resident aliens. See "Residential Mortgage Loan Purchases and Originations" for additional information on the Company's loans to non-resident aliens. Set forth below is a table showing the Company's loan origination, purchase and sale activity for the periods indicated.
YEAR ENDED SEPTEMBER 30, --------------------------------------------------- 1998 1997 1996 ------------- ------------- -------------- (IN THOUSANDS) Total loans receivable, net, at beginning of period (1)....... $ 1,765,723 $ 646,385 $ 453,350 Loans originated:............................................. Residential real estate.................................... 312,749 159,533 65,954 Commercial business and consumer........................... 73,692 18,804 16,705 ----------- ----------- ------------ Total loans originated................................... 386,441 178,337 82,659 Loans acquired in acquisitions (2)............................ 111,786 341,394 8,116 Loans purchased (3)........................................... 2,747,061 913,653 242,099 Loans sold.................................................... (173,498) (39,934) (4,356) Loans securitized............................................. (355,469) - - Principal repayments and amortization of discounts and premiums............................................... (1,435,075) (270,281) (133,640) Increase in allowance for loan losses......................... (2,435) (1,535) (689) Transfers to real estate owned, net........................... (2,520) (2,296) (1,154) ----------- ----------- ------------ Total loans receivable, net, at end of period(1)........... $ 3,042,014 $ 1,765,723 $ 646,385 =========== =========== ============
- ------------------------- (1) Includes loans held for sale. (2) Loans acquired in the Central and Consumers mergers included $69.6 million of one-to-four family residential real estate loans, $15.3 million of commercial real estate loans and $26.8 million of other types of loans. The Suncoast merger included $230.7 million of one-to-four family residential real estate loans, $95.8 million of commercial real estate loans and $14.9 million of other types of loans. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Acquisitions" for additional information regarding the acquisitions. (3) All loans purchased are one-to-four family residential real estate loans except for the purchase of $32.0 million of commercial real estate loans in fiscal 1996. 7 The following table sets forth certain information with respect to the composition of the Company's loan portfolio, including mortgage loans held for sale, as of the dates indicated.
AS OF SEPTEMBER 30, ---------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------------ ------------------- ----------------- ------------------ ------------------ AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- (DOLLARS IN THOUSANDS) First mortgage loans: One-to four-family residential loans $2,784,494 91.5% $1,559,823 88.3% $568,203 87.9% $432,472 95.4% $393,933 95.3% Five or more units residential loans 24,392 0.8 32,163 1.8 12,559 2.0 1,124 0.2 2,164 0.5 Commercial......... 145,819 4.8 130,197 7.4 49,318 7.6 10,223 2.3 4,469 1.1 Construction....... 7,827 0.3 7,477 0.4 - - 200 0.1 - - Land............... 5,410 0.2 7,997 0.5 2,687 0.4 450 0.1 1,095 0.3 Second mortgages loans............ 4,344 0.1 5,992 0.3 2,748 0.4 2,412 0.5 2,616 0.6 ---------- ----- ---------- ----- -------- ----- -------- ----- -------- ----- Total first and second mortgage loans 2,972,286 97.7 1,743,649 98.7 635,515 98.3 446,881 98.6 404,277 97.8 ---------- ----- ---------- ----- -------- ----- -------- ----- -------- ----- Consumer loans..... 30,401 1.0 1,748 0.1 2,648 0.4 920 0.2 2,336 0.6 Commercial business loans............ 15,550 0.5 10,890 0.6 5,822 0.9 3,632 0.8 4,732 1.1 ---------- ----- ---------- ----- -------- ----- -------- ----- -------- ----- Total loans receivable... 3,018,237 99.2 1,756,287 99.4 643,985 99.6 451,433 99.6 411,345 99.5 ---------- ----- ---------- ----- -------- ----- -------- ----- -------- ----- Deferred loan fees, premiums and (discounts)...... 29,905 1.0 13,129 0.8 4,558 0.7 3,386 0.7 2,783 0.7 Allowance for loan losses........... (6,128) (0.2) (3,693) (0.2) (2,158) (0.3) (1,469) (0.3) (841) (0.2) ---------- ----- ---------- ----- -------- ----- -------- ----- -------- ----- Loans receivable, net........... $3,042,014 100.0% $1,765,723 100.0% $646,385 100.0% $453,350 100.0% $413,287 100.0% ========== ===== ========== ===== ======== ===== ======== ===== ======== =====
The following table sets forth, as of September 30, 1998, the amount of loans (including mortgage loans held for sale) by category and expected principal repayments by year.
OUTSTANDING AT 2003- 2005- 2009 AND SEPTEMBER 30, 1998 1999 2000 2001 2002 2004 2008 THEREAFTER ------------------- ---------- --------- --------- --------- --------- --------- ---------- (IN THOUSANDS) First mortgage loans: One-to-four-family residential $2,784,494 $860,283 $ 549,271 $ 365,307 $ 251,455 $ 179,781 $ 418,077 $ 160,320 Five-,or-more-unit residential 24,392 3,640 2,348 1,520 1,450 3,405 7,629 4,400 Commercial.................... 145,819 52,597 18,812 12,224 13,953 9,736 33,623 4,874 Construction.................. 7,827 4,123 457 3,247 - - - - Land.......................... 5,410 3,840 147 135 124 767 249 148 Second mortgage loans............ 4,344 1,343 857 570 392 280 652 250 ---------- ---------- --------- --------- --------- --------- --------- --------- Total first and second mortgage loan 2,972,286 925,826 571,892 383,003 267,374 193,969 460,230 169,992 ---------- ---------- --------- --------- --------- --------- --------- --------- Consumer loans................... 30,401 13,449 8,584 6,849 1,519 - - - Commercial business loans........ 15,550 11,857 965 667 1,335 666 60 - ---------- ---------- --------- --------- --------- --------- --------- --------- Total loans................ $3,018,237 $ 951,132 $ 581,441 $ 390,519 $ 270,228 $ 194,635 $ 460,290 $ 169,992 ========== ========== ========= ========= ========= ========= ========= =========
Applicable regulations permit the Company 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. As of September 30, 1998, 18.9% of the Company's gross loans receivable (15.3% of total assets) were secured by properties located in Florida and 16.5 % of gross loans receivable (13.3% of total assets) were secured by properties located in California. Because of this concentration, regional economic circumstances in those states could affect the level of the Company's non-performing loans. 8 The following table sets forth, as of September 30, 1998, the distribution of the amount of the Company's loans (including mortgage loans held for sale) by state. OUTSTANDING ON STATE SEPTEMBER 30, 1998 ----- ------------------ (IN THOUSANDS) Florida(l)................................................$ 571,695 California................................................ 496,450 Illinois.................................................. 180,503 Massachusetts............................................. 163,724 Michigan.................................................. 156,496 Colorado.................................................. 155,256 Virginia.................................................. 115,805 Texas..................................................... 100,960 Maryland.................................................. 100,694 New York.................................................. 99,921 New Jersey................................................ 80,170 Washington................................................ 77,109 Arizona................................................... 69,705 Ohio...................................................... 66,722 Georgia................................................... 58,620 Connecticut............................................... 53,516 Pennsylvania.............................................. 46,720 North Carolina............................................ 44,048 Utah...................................................... 38,067 Oregon.................................................... 37,216 Tennessee................................................. 28,276 Missouri.................................................. 27,718 Minnesota................................................. 21,063 Indiana................................................... 19,402 South Carolina............................................ 18,168 Nevada.................................................... 15,485 District of Columbia...................................... 13,444 New Mexico................................................ 12,837 Kansas.................................................... 11,186 Wisconsin................................................. 10,306 Alabama................................................... 8,542 Oklahoma.................................................. 7,468 Idaho..................................................... 6,848 Kentucky.................................................. 6,829 Hawaii.................................................... 6,522 Louisiana................................................. 5,961 Delaware.................................................. 5,262 Arkansas.................................................. 4,894 Iowa...................................................... 4,583 Montana................................................... 4,099 Rhode Island.............................................. 3,936 New Hampshire............................................. 3,682 Nebraska.................................................. 3,307 Wyoming................................................... 2,738 Mississippi............................................... 1,915 Maine..................................................... 1,708 Alaska.................................................... 1,231 Vermont................................................... 1,067 Other(2).................................................. 461 Not secured by real estate................................ 45,902 ------------ Total........................................... $ 3,018,237 =========== (1) Does not include $40.0 million of tax certificates representing liens secured by properties in Florida. (2) Less than $1 million in any one state. 9 RESIDENTIAL MORTGAGE LOAN PURCHASES AND ORIGINATIONS. The Company's lending primarily involves purchasing in the secondary mortgage market and originating loans secured by first mortgages on real estate improved with single-family dwellings. The Company's first mortgage loans purchased or originated are generally repayable over 15 or 30 years. Additionally, the Company offers second mortgage residential loans with maturities ranging from five to 15 years. Residential loans typically remain outstanding for shorter periods than their contractual maturities because borrowers prepay the loans in full upon sale of the mortgaged property or upon refinancing of the original loan. The Company's ARMs generally have interest rates that adjust semi-annually, annually and, to a lesser extent, after a 3, 5 or 7 year fixed-rate term with subsequent annual interest rate adjustments at a margin over the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one year published by the Federal Reserve. The maximum interest rate adjustment of the Company's ARMs is generally 1% semi-annually and 6% over the life of the loan, above or below the initial rate on the loan for semi-annual adjustables, or 2% annually and 6% over the life of the loan, above or below the initial rate on the loan for annual adjustables. The Company has purchased and originated loans with "teaser" rates that are below market rates during an initial period after the loan is originated. The teaser rate loans are generally tied to the constant maturity of one year published by the Federal Reserve. For loans with teaser rates, the borrower's ability to repay is determined by reference to the teaser rate plus 2%. As of September 30, 1998 there were approximately $492.4 million of loans with teaser rates. Applicable regulations permit the Company to lend up to 100% of the appraised value of the real property securing a loan ("loan-to-value ratio"). When terms are favorable, the Company may purchase or originate single-family mortgage loans with loan-to-value ratios between 80% and 95%. In most of these cases, the Company 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. The Company generally applies the same underwriting criteria to residential mortgage loans purchased or originated. In its loan purchases, the Company generally reserves the right to reject particular loans from a loan package being purchased and does reject loans in a package that do not meet its commitment criteria. In determining whether to purchase or originate a loan, the Company assesses both the borrower's ability to repay the loan and the adequacy of the proposed collateral. On originations, the Company obtains appraisals of the property securing the loan. On purchases, the Company 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. On purchases and originations, the Company reviews information concerning the income, financial condition, employment and credit history of the applicant. On purchases, the Company generally obtains a credit report on the borrower separate from that provided by the loan seller. 10 The Company 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 the Company's Board of Directors. The Company's underwriting standards for residential mortgage loans generally conform to standards established by Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation (the "FHLMC"), except that the Company's underwriting standards allow it to make loans (i) to non-resident aliens, as discussed below, (ii) exceeding the FHMA 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. A loan application is obtained or reviewed by the Company's underwriters to determine the borrower's ability to repay, and confirmation of the more significant information is obtained through the use of credit reports, financial statements, and employment and other verifications. The Company generally uses appraisals to determine the value of collateral for all loans it originates. When originating a real estate mortgage loan, the Company obtains a new 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. 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. 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. The Company also requires that a survey be conducted and title insurance be obtained, insuring the priority of its mortgage lien. Pursuant to its underwriting standards, the Company generally requires private mortgage insurance policies on newly originated mortgage loans with loan-to-value ratios greater than 80%. All loans are reviewed by the Company's underwriters to ensure that its guidelines are met or that waivers are obtained in limited situations where offsetting factors exist. With regard to loan purchases, a legal review of every loan file is conducted to determine the adequacy of the legal documentation. The Company receives various representations and warranties from the sellers of the loans regarding the quality and characteristics of the loans. At September 30, 1998, approximately $199.4 million, or 6.6%, of the Company's gross loans receivable were first mortgage loans to non-resident aliens secured by single-family residences located in Florida. These loans are primarily originated by the Company in a manner similar to that described above for other residential loans. Loans to non-resident aliens generally afford the Company 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. The Company has attempted to minimize these risks through its underwriting standards for such loans (including generally lower loan-to-value ratios and qualification based on verifiable assets located in the United States). The Company has also established a correspondent mortgage banking operation for the origination of single-family residential mortgage loans in its market area. This correspondent operation consists of a network of mortgage brokers and lenders in South Florida that generate mortgage loans for the Company. Originations in the correspondent program, together with branch lending, reached $312.7 million in fiscal 1998 and $159.5 million for the year ended September 30, 1997. Beginning in the Company's fiscal 1997 fourth quarter, management began a program to sell substantially all of the Company's internally generated residential loans. These loans are classified as held for sale when originated and if, after attempting to market the loans, management determines that certain loans are unable to be packaged into saleable pools, the Company may transfer such loans to its portfolio at the lower of cost or market. During the fiscal year ended September 30, 1998 and the fiscal 1997 fourth quarter, residential loans totaling $173.5 million and $30.1 million, respectively, were sold for a gain of $4.0 million and $523,000, respectively. In addition, as part of starting this program, the Company reclassified $93.5 million of its internally generated portfolio of residential loans as held for sale in the fiscal 1997 fourth quarter. Loans held for sale as of September 30, 1998 were $172.4 million. 11 COMMERCIAL REAL ESTATE LENDING. The Company's commercial real estate lending division originates or purchases multi-family and commercial real estate loans from approximately $250,000 to $5.0 million. The Company'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 borrowers, and professionals. At September 30, 1998, the Company had $145.8 million of commercial real estate loans, representing a total of 4.8% of the Company's loan portfolio before net items. The Company's commercial real estate loan portfolio includes loans secured by apartment buildings, office buildings, warehouses, retail stores and other properties, which are located in the Company'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. In determining whether to originate or purchase multi-family or commercial real estate loans, the Company also considers such factors as the financial condition of the borrower and the debt service coverage of the property. Commercial real estate loans are made at both fixed and adjustable interest rates for terms of up to 10 years. REAL ESTATE CONSTRUCTION LENDING. The Company 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, 1998, the Company had $7.8 million of construction loans representing a total of 0.2% of the Company's loan portfolio before net items. COMMERCIAL BUSINESS LENDING. Commercial business loans totaled $15.6 million as of September 30, 1998 representing 0.5 % of total loans. In its commercial business loan underwriting, the Company evaluates the value of the collateral securing the loan and assesses the borrower's creditworthiness and ability to repay. While commercial business 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. LOAN PORTFOLIO QUALITY. Federal regulations require a savings institution to review its assets on a regular basis and, if appropriate, to classify assets as "substandard," "doubtful," or "loss" depending on the likelihood of loss. General allowances for loan losses are required to be established for assets classified as substandard or doubtful. For assets classified as loss, the institution must either establish specific allowances equal to the amount classified as a loss or charge off such amount. Assets that do not require classification as substandard but that possess credit deficiencies or potential weaknesses deserving management's close attention are required to be designated as "special mention." The deputy director of the appropriate OTS regional office may approve, disapprove or modify any classifications of assets and any allowance for loan losses established. 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. 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 in the process of collection or renewal in the normal course of business; 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. The Company issues delinquency notices to borrowers when loans are 30 or more days past due. The Company places conventional mortgage loans on non-accrual status when more than 90 days past due, unless the loan is fully secured and in the process of collection. When a loan is placed on non-accrual status, the Company reverses all accrued and uncollected interest. The Company also begins appropriate legal procedures to obtain repayment of the loan or otherwise satisfy the obligation. 12 As of September 30, 1998, the Company had $21.6 million in substandard assets of which $20.9 million are included in non-performing assets. Substandard assets consisted of the following: AS OF SEPTEMBER 30, 1998 ------------------------ (IN THOUSANDS) One-to-four family residential loans................... $ 13,787 Commercial real estate................................. 4,734 Consumer and business loans............................ 1,128 REO.................................................... 1,974 ----------- Total Substandard Assets............................. $ 21,623 ========== In addition, $521,000 of nonresidential mortgage loans, for which reserves have been established, were classified as loss as of September 30, 1998. The following table sets forth information regarding the Company's allowance for loan losses for the periods indicated:
FOR THE YEARS ENDED SEPTEMBER 30, ---------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (IN THOUSANDS) Allowance for loan losses, balance (at beginning of period)............................................ $ 3,693 $ 2,158 $ 1,469 $ 841 $ 1,184 Provisions (credit) for loan losses...................... 1,700 1,295 (120) 1,221 1,187 Allowance from acquisitions.............................. 1,262 775 183 - - Loans charged off: One-to-four family residential loans................... (508) (604) (493) (535) (1,582) Commercial and other................................... (91) - - (59) - -------- -------- -------- -------- -------- Total................................................ (599) (604) (493) (594) (1,582) -------- -------- -------- -------- -------- Recoveries: One-to-four family residential loans................... 33 48 1,119 1 52 Commercial and other................................... 39 21 - - - -------- -------- -------- -------- -------- Total................................................ 72 69 1,119 1 52 -------- -------- -------- -------- -------- Allowance for loan losses, balance (at end of period).... $ 6,128 $ 3,693 $ 2,158 $ 1,469 $ 841 ======== ======== ======== ======== ========
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 the Company is the real estate securing the loan which is acquired through foreclosure and sold. However, in its fiscal year ended September 30, 1996, the Company received a recovery of approximately $1.0 million as settlement of litigation the Company initiated against a seller of residential mortgage loans. The Company is not aware of any significant liability related to REO or loans that may be foreclosed. 13 The following table sets forth the allocation of general allowance for loan losses by loan category for the periods indicated.
AS OF SEPTEMBER 30, ------------------------------------------------------------------------------- 1998 1997 1996 ------------------------ -------------------------- ------------------------ % OF LOANS % OF LOANS % OF LOANS IN EACH IN EACH IN EACH CATEGORY TO CATEGORY TO CATEGORY TO AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS -------- ----------- --------- ----------- -------- ----------- (Dollars in thousands) Balance at end of period applicable to: One-to-four family residential mortgages....................... $ 1,917 92.4% $ 1,873 89.2% $ 1,381 88.6% Commercial and other loans......... 3,332 7.6 1,787 10.8 739 11.4 Unallocated........................ 879 N/A 33 N/A 38 N/A -------- ----- --------- ----- --------- ----- Total allowances for loan losses... $ 6,128 100.0% $ 3,693 100.0% $ 2,158 100.0% ======== ===== ========= ===== ========= =====
For additional information regarding the Company's allowance for loan losses and the credit quality of the Company's assets, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Discussion of Financial Condition Changes for the Years Ended September 30, 1998, 1997, and 1996--Credit Quality." INVESTMENTS AND MORTGAGE-BACKED SECURITIES The Company maintains an investment portfolio consisting primarily of federal agency securities, FHLB overnight deposits, securities purchased under agreements to resell, trust preferred securities and tax certificates. Federal regulations limit the instruments in which the Company may invest its funds. The Company's current investment policy permits purchases only of investments (with the exception of tax certificates) rated in one of the three highest grades by a nationally recognized rating agency and does not permit purchases of securities of non-investment grade quality (such as so-called "junk bonds"). The Company'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. The Company has adopted detailed policies with regard to its investment in tax certificates, which specify due diligence procedures, purchasing procedures (including parameters for the location, type and size of tax certificates acceptable for purchase) and procedures for managing the portfolio after acquisition. 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. Also included in the Company's investment portfolio are trust preferred securities issued by FDIC-insured financial institutions or their holding companies. Such securities are primarily acquired for their liquidity and yield characteristics. 14 The following table sets forth information regarding the Company's investments and mortgage-backed securities as of the dates indicated. Amounts shown are historical amortized cost. For additional information regarding the Company's investments and mortgage-backed securities, including the carrying values and approximate market values of such securities, see Notes 1 and 6 of the Notes to Consolidated Financial Statements.
AS OF SEPTEMBER 30, ---------------------------------------------------- 1998 1997 1996 ------------- ------------- ------------- (DOLLARS IN THOUSANDS) Federal funds sold........................................ $ - $ - $ 400 Federal agency securities................................. 22,188 23,283 4,985 FHLB overnight deposits................................... 65,268 79,413 28,253 Tax certificates.......................................... 40,007 49,283 40,088 Mortgage-backed securities................................ 345,756 120,271 70,165 Other (1)................................................. 16,015 1,377 1,711 ------------- ------------- ------------- Total investment securities............................ $ 489,234 $ 273,627 $ 145,602 ============= ============= ============= Weighted average yield................................. 6.47% 6.91% 7.09% ============= ============= =============
(1) Includes $15.3 million of trust preferred securities. The following table sets forth information regarding the maturities of the Company's investments as of September 30, 1998. Amounts shown are book values:
PERIODS TO MATURITY FROM SEPTEMBER 30, 1998 --------------------------------------------------------- AS OF WITHIN 1 THROUGH 5 THROUGH OVER SEPTEMBER 30, 1998 1 YEAR 5 YEARS 10 YEARS 10 YEARS ------------------ ----------- ----------- ----------- ----------- (Dollars in thousands) Federal agency securities...... $ 22,188 $ 4,586 $ 17,602 $ - $ - FHLB overnight deposits........ 65,268 65,268 - - - Tax certificates (1)........... 40,007 30,005 10,002 - - Mortgage-backed securities................. 345,756 3,601 19,071 1,327 321,757 Other.......................... 16,015 - 388 491 15,136 ----------- ----------- ----------- ---------- ---------- Total....................... $ 489,234 $ 103,460 $ 47,063 $ 1,818 $ 336,893 =========== =========== =========== =========== =========== Weighted average yield...... 6.47 % 6.09% 6.76% 6.29% 6.54% =========== =========== =========== =========== ===========
- ------------------------- (1) Maturities are based on historical experience. MORTGAGE LOAN SERVICING Prior to November 1996, the Company primarily serviced mortgage loans only for its portfolio. With the acquisition of Suncoast on November 15, 1996, the Company acquired a servicing portfolio consisting of 19,487 loans owned by outside investors. In addition, the Company retains the servicing on the internally generated residential loans that are sold in connection with the loan sales program initiated by management in the Company's 1997 fiscal fourth quarter. 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 loan servicing rights. The Company 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, the Company recovers substantially all of the advanced funds upon cure of default by the borrower, or through 15 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 the Company to remit funds to the loan purchaser only upon receipt of payments from the borrower and, accordingly, the investor bears the risk of loss. The Company, 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. The following table sets forth, by category of investor, the composition of the acquired servicing portfolios of the Company as of the dates indicated:
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 -------------------------------------- -------------------------------------- # OF BOOK # OF BOOK LOANS PRINCIPAL VALUE LOANS PRINCIPAL VALUE ----- --------- ----- ----- --------- ----- (Dollars in thousands) FNMA....................... 1,042 $ 78,007 $ 1,331 1,297 $ 102,805 $ 1,514 FHLMC...................... 2,810 250,152 2,760 2,903 246,557 2,318 Private investors.......... 1,419 202,125 4,826 472 68,906 951 Private subservicing....... 280 11,676 - 320 14,275 - ----- ----------- --------- ----- ----------- --------- 5,551 $ 541,960 $ 8,917 4,992 $ 432,543 $ 4,783 ===== =========== ========= ===== =========== =========
SOURCES OF FUNDS The Company's primary sources of funds for its investment and lending activities are customer deposits, loan repayments, funds from operations, the Company's capital (including trust preferred securities) and FHLB advances. DEPOSITS. The Company offers a full variety of deposit accounts ranging from passbook accounts to certificates of deposit with maturities of up to five years. The Company also offers transaction accounts, which include commercial checking accounts, negotiable order of withdrawal ("NOW") accounts, super NOW accounts and money market deposit accounts. The rates paid on deposits are established periodically by management based on the Company's need for funds and the rates being offered by the Company's competitors with the goal of remaining competitive without offering the highest rates in the market area. In addition, as of September 30, 1998, the Company had $75.0 million in brokered certificates of deposits. The Company has placed increasing reliance on passbook accounts, money market accounts, certificates of deposit and other savings alternatives that are more responsive to market conditions than long-term, fixed-rate certificates. While market-sensitive savings instruments permit the Company to reduce its cost of funds during periods of declining interest rates, such savings instruments also increase the Company's vulnerability to periods of high interest rates. There are no regulatory interest rate ceilings on the Company's accounts. 16 The following table sets forth information concerning the Company'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, ---------------------------------------------------------------------- 1998 1997 1996 ---------------------- ---------------------- ---------------------- AMOUNT RATE AMOUNT RATE AMOUNT RATE ------------- ---- ------------- ---- ------------- ---- (DOLLARS IN THOUSANDS) Passbook accounts: Regular....................................... $ 258,127 4.72% $ 160,522 4.66% $ 73,741 4.44% Holiday club.................................. 31 2.00 35 2.00 39 2.00 ------------- ------------- ------------- Total passbook accounts..................... 258,158 160,557 73,780 ------------- ------------- ------------- Checking: Insured money market.......................... 115,104 4.05 20,325 4.00 16,556 3.87 NOW and non-interest-bearing accounts......... 118,179 1.97 78,907 2.28 24,566 1.49 ------------- ------------- ------------- Total transaction accounts.................. 233,283 99,232 41,122 ------------- ------------- ------------- Total passbook and checking accounts........ 491,441 259,789 114,902 ------------- ------------- ------------- Certificates: 30-89-day certificates of deposit............. 3,485 4.63 - - - - 3-5-month certificates of deposit............. 96,221 5.20 18,674 4.94 7,114 4.67 6-8-month certificates of deposit............. 516,674 5.47 439,091 5.67 159,850 5.40 9-11-month certificates of deposit............ 104,296 5.69 15,721 5.66 20,279 5.45 12-17-month certificates of deposit........... 618,385 5.62 285,305 5.73 124,637 5.49 18-23-month certificates of deposit........... 9,770 5.64 20,410 5.80 12,375 5.79 24-29-month certificates of deposit........... 35,497 5.76 58,279 5.84 42,875 5.94 30-35-month certificates of deposit........... 15,040 5.89 12,517 5.85 1,774 5.57 36-60-month certificates of deposit........... 72,856 6.07 64,106 6.07 22,300 5.93 Public funds.................................. 86,159 5.35 22,000 5.78 - - Brokered certificates of deposit.............. 75,000 5.66 - - - - ------------- ------------- ------------- Total certificates.......................... 1,633,383 936,103 391,204 ------------- ------------- ------------- Total..................................... $ 2,124,824 $ 1,195,892 $ 506,106 ============= ============= ============= Weighted average rate................... 5.18% 5.32% 5.11%
The following table sets forth information by various rate categories regarding the amounts of the Company's certificate accounts (under $100,000) as of September 30, 1998 that mature during the periods indicated:
PERIODS TO MATURITY FROM SEPTEMBER 30, 1998 --------------------------------------------------------- AS OF WITHIN 1 TO 2 TO MORE THAN SEPTEMBER 30, 1998 1 YEAR 2 YEARS 3 YEARS 3 YEARS ------------------ ----------- ----------- ----------- ----------- (IN THOUSANDS) Certificate accounts: 4.00% to 4.99%................ $ 56,956 $ 55,548 $ 1,060 $ 348 $ - 5.00% to 5.99%................ 1,173,855 1,145,179 22,106 4,352 2,218 6.00% to 6.99%................ 63,502 22,106 4,218 1,957 35,221 7.00% to 7.99%................ 1,437 298 1,087 52 - ----------- ----------- ----------- ----------- ----------- Total certificate accounts (under $100,000).......... $ 1,295,750 $ 1,223,131 $ 28,471 $ 6,709 $ 37,439 =========== =========== =========== =========== ===========
17 The following table sets forth information by various rate categories regarding the amounts of the Company's jumbo ($100,000 and over) certificate accounts as of September 30, 1998 that mature during the periods indicated:
PERIODS TO MATURITY FROM SEPTEMBER 30, 1998 --------------------------------------------------------- AS OF WITHIN 1 TO 2 TO MORE THAN SEPTEMBER 30, 1998 1 YEAR 2 YEARS 3 YEARS 3 YEARS ------------------ ----------- ----------- ----------- ----------- (IN THOUSANDS) Jumbo certificate accounts: 4.00% to 4.99%................ $ 21,005 $ 20,577 $ 213 $ 215 $ - 5.00% to 5.99%................ 306,676 304,595 1,627 251 203 6.00% to 6.99%................ 9,722 3,963 687 349 4,723 7.00% to 7.99%................ 230 - 230 - - ----------- ----------- ----------- ----------- ----------- Total Jumbo certificate amounts..................... $ 337,633 $ 329,135 $ 2,757 $ 815 $ 4,926 =========== =========== =========== =========== ===========
Included in the table of jumbo certificates accounts above, are $86.2 million in certificates of deposit issued to the State of Florida, referred to as public funds, where $76.6 million have interest rates ranging from 5.05% to 5.63% and $10.0 million have interest rates of 4.80%. Of the Company's total deposits, excluding public funds, at September 30, 1998, 1997, and 1996, 12.3%, 11.5%, and 10.5%, respectively, were deposits of $100,000 or more issued to the general public. Although jumbo certificates of deposit are generally more rate sensitive than smaller size deposits, management believes that the Company will retain these deposits. In fiscal 1998, the Company opened six new branch offices and acquired four branch offices from Central. The branches acquired from Consumers were closed and the deposits were consolidated with an existing branch of the Company. In fiscal 1999, the Company intends to open several new branch offices including two that are scheduled to be opened in the first quarter of 1999. BORROWINGS. When the Company's primary sources of funds are not sufficient to meet deposit outflows, loan originations and purchases and other cash requirements, the Company may borrow funds from the FHLB of Atlanta and from other sources. The FHLB system acts as an additional source of funding for savings institutions. In addition, the Company uses subordinated notes, securities sold under agreements to repurchase and trust preferred securities in order to increase available funds. FHLB borrowings, known as "advances," are made on a secured basis, and the terms and rates charged for FHLB advances vary in response to general economic conditions. As a shareholder of the FHLB of Atlanta, the Bank is authorized to apply for advances from this bank. A wide variety of borrowing plans are offered by the FHLB of Atlanta, each with its own maturity and interest rate. 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, the Company issued an aggregate of $227.2 million in Junior Subordinated Deferrable Interest Debentures, which were purchased by its Delaware trust subsidiaries primarily with proceeds from the sale of trust preferred securities. See Note 12 of the Notes to Consolidated Financial Statements for a description of the Junior Subordinated Deferrable Interest Debentures and the trust preferred securities. 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 from the FHLB of Atlanta. The notes, none of which have been issued, may have either a fixed or variable 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 issuance. The Bank intends to use the net proceeds from the sale of the notes for general corporate purposes that will ultimately promote home financing or other housing activity and assist the Bank's asset/liability management. The notes have been rated "Aaa" by Moody's Investors Service, Inc. and "AAA" by Standard and Poor's Rating Services. 18 The following tables set forth information as to the Company's borrowings as of the dates and for the periods indicated.
AT SEPTEMBER 30, --------------------------------------------------------------------------- 1998 1997 1996 ---------------------- ---------------------- ---------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE BALANCE RATE BALANCE RATE BALANCE RATE ----------- ---- ----------- ---- ----------- ---- (DOLLARS IN THOUSANDS) PERIOD END BALANCES: FHLB advances(l)...................... $ 1,021,466 5.61% $ 671,484 5.87% $ 237,000 5.73% Company Obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trusts Holding Solely Junior Subordinated Deferrable Interest Debentures of the Company(2)..................... 218,500 9.53 116,000 10.17 - - Subordinated notes.................... - - - - 775 9.00 Securities sold under agreements to repurchase(3)................... 121,148 5.43 30,000 5.64 - - ----------- ---- ----------- ---- ----------- ---- Total borrowings................... $ 1,361,114 6.22% $ 817,484 6.47% $ 237,775 5.74% =========== ==== =========== ==== =========== ==== AT SEPTEMBER 30, --------------------------------------------------------------------------- 1998 1997 1996 ---------------------- ---------------------- ---------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE BALANCE RATE BALANCE RATE BALANCE RATE ----------- ---- ----------- ---- ----------- ---- (DOLLARS IN THOUSANDS) AVERAGE BALANCES: FHLB advances(l)...................... $ 901,269 5.64% $ 325,580 5.77% $ 234,489 5.77% Company Obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trusts Holding Solely Junior Subordinated Deferrable Interest Debentures of the Company(2)..................... 173,288 9.81 63,008 10.27 - - Subordinated notes.................... - - 704 10.53 775 9.00 Securities sold under agreements to repurchase(3)...................... 97,292 5.69 8,828 5.73 - - ----------- ---- ----------- ---- ----------- ---- Total borrowings................... $ 1,171,849 6.26% $ 398,120 6.49% $ 235,264 5.78% =========== ==== =========== ==== =========== ====
- ------------------------- (1) The maximum amount of FHLB advances outstanding during the years ended September 30, 1998, 1997 and 1996 was $1.3 billion, $671.5 million and $244.0 million, respectively. (2) The maximum amount of trust preferred securities outstanding during the years ended September 30, 1998, 1997 and 1996 was $218.5 million, $116.0 million and $0.0 million, respectively. (3) The maximum amount of securities sold under agreements to repurchase at any month-end during the years ended September 30, 1998, 1997, and 1996 was $192.6 million, $30.0 million and $0.0 million, respectively. ACTIVITIES OF SUBSIDIARIES T&D Properties of South Florida, Inc., a Florida corporation ("T&D"), is a wholly owned operating subsidiary of the Bank that 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 real 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 real property. BU Ventures, Inc., a Florida corporation, is a wholly owned operating subsidiary of the Company organized in 1994 to assume from T&D the responsibility for the maintenance, management and disposition of real property acquired through tax deeds. 19 BankUnited Mortgage Corporation, a Florida corporation ("BMC"), is a wholly owned operating subsidiary of the Company 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 the Company. BankUnited Capital was formed in 1996, and BankUnited Capital II and BankUnited Capital III were formed in 1997, for the purpose of issuing Trust Preferred Securities and investing the proceeds therefrom in Junior Subordinated Debentures issued by the Company. BUFC Financial Services, Incorporated, a Florida corporation ("BUFC"), is a wholly owned operating subsidiary of the Company organized in 1997 for the purpose of selling annuities, insurance and securities products. During fiscal 1998, BUFC implemented a program for selling fixed annuities, and, more recently, variable annuities and mutual finds, to customers of the Bank and others. The program is conducted separate from the business of the Bank, under the supervision of licenced insurance agents and a registered broker-dealer, and is expected to continue and expand during the 1999 fiscal year. BUFC is also reviewing the feasibility of selling traditional life, health or property and casualty insurance products. BankUnited Financial Services, Inc., a Florida corporation, is a wholly owned operating subsidiary of the Company, organized in 1997 for the purpose of brokering loans. CRE Properties, Inc., a Florida corporation, is a wholly owned operating subsidiary of the Bank that holds title to, 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, 1998, the Company had 383 full-time equivalent employees. The Company's employees are not represented by a collective bargaining group, and the Company considers its relations with its employees to be excellent. The Company provides employee benefits customary in the savings industry, which include group medical and life insurance, a 401(k) savings plan and paid vacations. The Company also provides a profit sharing plan and incentive compensation plans (including stock bonus and stock option plans) for officers, directors and employees. REGULATION The following discussion is a summary of the significant provisions of the banking laws and regulations which affect the Company and the Bank. THE FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT OF 1989. The FIRREA, which was enacted in response to concerns regarding the soundness of the thrift industry limits savings institutions' business activities, and establishes their regulatory capital requirements. The FIRREA establishes the OTS as the primary federal regulator for savings institutions. Deposits at the Bank are insured through the Savings Association Insurance Fund ("SAIF"), a separate fund managed by the FDIC for institutions whose deposits were formerly insured by the FSLIC. Regulatory functions relating to deposit insurance are generally exercised by the FDIC and the FDIC also manages conservatorships and receiverships of insolvent thrifts. THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. The FDICIA authorizes regulators to take prompt corrective action to solve the problems of critically undercapitalized institutions. As a result, the banking regulators are required to take certain supervisory actions against undercapitalized institutions, the severity of which increases as an institution's level of capitalization decreases. Pursuant to the FDICIA, the federal banking agencies have established the levels at which an insured institution is considered to be "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." See "--Savings Institution Regulations--Prompt Corrective Action" below for a discussion of the applicable capital levels. The FDICIA also requires that the federal banking agencies include components for interest rate risk, concentration of credit risk and the risk of non-traditional activities in their risk-based capital requirements. See "--Savings Institution Regulations--Regulatory Capital Requirements" below for a description of the OTS rule that incorporates an interest rate risk component in the risk-based capital requirement. Although implementation of this rule has been postponed indefinitely. In addition, the FDICIA requires each federal banking agency to have standards relating to internal controls, information systems, and internal audit systems that are designed to assess the financial condition and management of the institution; loan documentation; credit underwriting; interest rate exposure; asset growth; and compensation, fees and benefits. The FDICIA also establishes the qualified thrift lender ("QTL") investment percentage applicable to SAIF-insured institutions, (see "--Savings 20 Institution Regulations--Qualified Thrift Lender Test" below) and pursuant to the FDICIA, a risk based assessment system for insured depository institutions (see "--Savings Institution Regulations--Insurance of Accounts" below) has been implemented. The FDICIA further requires annual on-site full examinations of depository institutions, with certain exceptions, and annual reports on institutions' financial and management controls. THE RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Branching Act") , which was enacted in September 1994, generally does not directly affect savings associations, except for a provision that allows an insured savings association that was an affiliate of a bank on July 1, 1994, to act as the bank's agent as though it were an insured bank affiliate of the bank. SAVINGS AND LOAN HOLDING COMPANY REGULATIONS TRANSACTIONS WITH AFFILIATES. The Company is a unitary savings and loan holding company and is subject to the OTS regulations, examination, supervision and reporting requirements pursuant to certain provisions of the Home Owners' Loan Act (the "HOLA") and the Federal Deposit Insurance Act. As an insured institution and a subsidiary of a savings and loan holding company, the Bank is subject to restrictions in its dealings with companies that are "affiliates" of the Company under the HOLA, certain provisions of the Federal Reserve Act that were made applicable to savings institutions by the FIRREA, and the OTS regulations. As a result of the FIRREA, savings institutions' transactions with their affiliates are subject to the limitations set forth in the HOLA and the OTS regulations, which incorporate Sections 23A, 23B, 22(g) and 22(h) of the Federal Reserve Act and Regulation O adopted by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). Under Section 23A, an "affiliate" of an institution is defined generally as (i) any company that controls the institution and any other company that is controlled by the Company that controls the institution, (ii) any company that is controlled by the shareholders who control the institution or any company that controls the institution, or (iii) any company that is determined by regulation or order to have a relationship with the institution (or any subsidiary or affiliate of the institution) such that "covered transactions" with the Company may be affected by the relationship to the detriment of the institution. "Control" is determined to exist if a percentage stock ownership test is met or if there is control over the election of directors or the management or policies of the Company or institution. "Covered transactions" generally include loans or extensions of credit to an affiliate, purchases of securities issued by an affiliate, purchases of assets from an affiliate (except as may be exempted by order or regulation), and certain other transactions. The OTS regulations and Sections 23A and 23B require that covered transactions and certain other transactions with affiliates be on terms and conditions consistent with safe and sound banking practices or on terms comparable to similar transactions with non-affiliated parties, and imposes quantitative restrictions on the amount of and collateralization requirements on covered transactions. In addition, a savings institution is prohibited from extending credit to an affiliate (other than a subsidiary of the institution), unless the affiliate is engaged only in activities that the Federal Reserve Board has determined, by regulation, to be permissible for bank holding companies. Sections 22(g) and 22(h) of the Federal Reserve Act impose limitations on loans and extensions of credit from an institution to its executive officers, directors and principal shareholders and each of their related interests. ACTIVITIES LIMITATIONS. A unitary savings and loan holding company, such as the Company, whose sole insured institution subsidiary qualifies as a QTL (described below) generally has the broadest authority to engage in various types of business activities. A holding company that acquires another institution and maintains it as a separate subsidiary or whose sole subsidiary fails to meet the QTL test will become subject to the activities limitations applicable to multiple savings and loan holding companies. SAVINGS INSTITUTION REGULATIONS Federal savings institutions such as the Bank are chartered by the OTS, are members of the FHLB system, and have their deposits insured by the SAIF. They are subject to comprehensive OTS and FDIC regulations that are intended primarily to protect depositors. SAIF-insured, federally chartered institutions may not enter into certain transactions unless applicable regulatory tests are met or they obtain necessary approvals. They are also required to file reports with the OTS describing their activities and financial condition, and periodic examinations by the OTS test compliance by institutions with various regulatory requirements, some of which are described below. INSURANCE OF ACCOUNTS. The Bank's deposits are insured by the SAIF up to $100,000 for each insured account holder, the maximum amount currently permitted by law. Under the FDIC regulations implementing risk-based insurance premiums, institutions are divided into three groups-well capitalized, adequately capitalized and undercapitalized-based on criteria consistent with those established pursuant to the prompt corrective action provisions of the FDICIA. See "--Prompt Corrective Action" 21 below. Each of these groups is further divided into three subgroups, based on a subjective evaluation of supervisory risk to the insurance fund posed by the institution. As an insurer, the FDIC issues regulations and conducts examinations of its insured members. SAIF insurance of deposits may be terminated by the FDIC, after notice and hearing, upon a finding that an institution has engaged in unsafe and unsound practices, cannot continue operations because it is in an unsafe and unsound condition, or has violated any applicable law, regulation, rule, order or condition imposed by the OTS or FDIC. When conditions warrant, the FDIC may impose less severe sanctions as an alternative to termination of insurance. The Bank's management does not know of any present condition pursuant to which the FDIC would seek to impose sanctions on the Bank or terminate insurance of its deposits. The FDIC's deposit insurance premiums are assessed through a risk-based system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their level of capital and supervisory evaluation. Under the system, institutions classified as well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier I or core capital to risk-weighted assets ("Tier I risk-based capital") of at least 6% and a risk-based capital ratio of at least 10%) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (i.e., core or Tier I risk-based capital ratios of less than 4% or a risk-based capital ratio of less than 8%) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions is made by the FDIC for each semi-annual assessment period. The FDIC is authorized to increase assessment rates, on a semiannual basis, if it determines that the reserve ratio of the SAIF will be less than the designated reserve ratio of 1.25% of SAIF insured deposits. In setting these increased assessments, the FDIC must seek to restore the reserve ratio to that designated reserve level, or such higher reserve ratio as is established by the FDIC. The FDIC may also impose special assessments on SAIF members to repay amounts borrowed from the United States Treasury or for any other reason deemed necessary by the FDIC. In September 1996, Congress enacted legislation to eliminate this disparity, and any competitive disadvantage between BIF and SAIF member institutions, from SAIF deposit insurance premiums, which were generally higher that BIF deposit insurance premiums. The legislation provided for a one-time assessment to be imposed on all deposits assessed at the SAIF rates, as of March 31, 1995, in order to recapitalize the SAIF. It also provided for the merger of the BIF and the SAIF on January 1, 1999 if no savings associations then exist. The special assessment rate was established at .657% of deposits by the FDIC and the resulting assessment of $2.6 million (exclusive of an additional $2.3 million payment which relates to Suncoast deposits) was paid in November 1996. This special assessment significantly increased non-interest expense and adversely affected the Bank's results of operations for the year ended September 30, 1996. As a result of the special assessment, the Bank's deposit insurance premiums were initially reduced to 6.7 basis points, and as of September 30, 1998 to 6.2 basis points based upon its current risk classification and the new assessment schedule for SAIF insured institutions. These premiums are subject to change in future periods. Prior to the enactment of the legislation, a portion of the SAIF assessment imposed on savings associations was used to repay obligations issued by a federally chartered corporation to provide financing ("FICO") for resolving the thrift crisis in the 1980's. Although the FDIC has proposed that the SAIF assessment be equalized with the BIF assessment schedule, SAIF-insured institutions will continue to be subject to a FICO assessment as a result of this continuing obligation. Although the legislation also now requires assessments to be made on BIF-assessable deposits for this purpose, that assessment will be limited to 20% of the rate imposed on SAIF assessable deposits until the earlier of December 31, 1999 or when no savings association continues to exist, thereby imposing a greater burden on SAIF member institutions such as the Bank. Thereafter, however, assessments on BIF-member institutions will be made on the same basis as SAIF-member institutions. The rates to be established by the FDIC to implement this requirement for all FDIC-insured institutions were 6.48 basis points assessment on SAIF deposits and 1.30 basis points on BIF deposits until BIF insured institutions participate fully in the assessment. REGULATORY CAPITAL REQUIREMENTS. As mandated by the FIRREA, the OTS adopted capital standards under which savings institutions must currently maintain (i) a tangible capital requirement of 1.5% of adjusted total assets, (ii) a leverage (or core capital) ratio of 3.0% of adjusted total assets, and (iii) a risk-based capital requirement of 8.0% of risk-weighted assets. These requirements (which cannot be less stringent than those applicable to national banks) apply to the Bank. Under current law and regulations, there are no capital requirements directly applicable to the Company. See also -"Changes to Capital Requirements" below. Under the current OTS regulations, "tangible capital" includes common shareholders' equity (including retained earnings), noncumulative perpetual preferred stock and related earnings, certain qualifying nonwithdrawable accounts and pledged deposits, and minority interests in fully consolidated subsidiaries, less intangible assets (except certain servicing assets) and specified portions of debt and equity investments in certain subsidiaries. "Core capital" is tangible capital plus limited amounts of intangible assets meeting marketability criteria. The "risk-based capital" requirement provides that an institution's total capital must equal 22 8% of risk-weighted assets. Certain institutions will be required to deduct an interest rate risk component from their total capital, as described below. "Total capital" equals core capital plus "supplementary capital" (which includes specified amounts of cumulative preferred stock, certain limited-life preferred stock, subordinated debt and other capital instruments) in an amount equal to not more than 100% of core capital. "Risk-weighted assets" are determined by assigning designated risk weights based on the credit risk associated with the particular asset. As provided by OTS regulations, representative risk weights include: 0% for cash and assets that are backed by the full faith and credit of the United States; 20% for cash items in the process of collection, FHLB stock, agency securities not backed by the full faith and credit of the United States and certain high-quality mortgage-related securities; 50% for certain revenue bonds, qualifying mortgage loans, certain non-high-quality mortgage-related securities and certain qualifying residential construction loans; and 100% for consumer, commercial and other loans, repossessed assets, assets that are 90 or more days past due, and all other assets. As of September 30, 1998, the Bank's tangible, core and risk-based capital ratios were 8.7%, 8.7% and 17.5% respectively. The OTS regulatory capital regulations take into account a savings institution's exposure to the risk of loss from changing interest rates. Under the regulations, a savings institution with an above normal level of interest rate risk exposure will be required to deduct an IRR component from its total capital when determining its compliance with the risk-based capital requirements. An "above normal" level of interest rate risk exposure is a projected decline of 2% in the net present value of an institution's assets and liabilities resulting from a 2% swing in interest rates. The IRR component will equal one-half of the difference between the institution's measured interest rate exposure and the "normal" (i,e. 2%) level of exposure. Savings institutions are required to file data with the OTS that the OTS will use to calculate, on a quarterly basis, the institutions' measured interest rate risk and IRR components. The IRR component to be deducted from capital is the lowest of the IRR components for the preceding three quarters. The OTS may waive or defer an institution's IRR component on a case-by-case basis. Implementation of the IRR requirements have been delayed. As of September 30, 1998, the Company would not have been required to deduct an IRR component from its total capital when determining its compliance with the Bank's risk-based capital. If an institution becomes categorized as "undercapitalized" under the definitions established by the "prompt corrective action" provisions of the FDICIA, it will become subject to certain restrictions imposed by the FDICIA. See "Prompt Corrective Action" below. PROMPT CORRECTIVE ACTION. The OTS and other federal banking regulators have established capital levels for institutions to implement the "prompt corrective action" provisions of the FDICIA. Based on these capital levels, insured institutions will be categorized as well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized or critically undercapitalized. The FDICIA requires federal banking regulators, including the OTS, to take prompt corrective action to solve the problems of those institutions that fail to satisfy their applicable minimum capital requirements. The level of regulatory scrutiny and restrictions imposed become increasingly severe as an institution's capital level falls. A "well capitalized" institution must have total risk-based capital of 10% or more, core capital of 5% or more and Tier I risk-based capital (based on the ratio of core capital to risk-weighted assets) of 6% or more and may not be subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the OTS. The Bank is a well capitalized institution under the definitions as adopted. An institution will be categorized as "adequately capitalized" if it has total risk-based capital of 8% or more, Tier 1 risk-based capital of 4% or more, and either core capital of 4% or more or core capital 3% or more and a CAMEL composite rating of 1; "undercapitalized" if it has total risk-based capital of less than 8%, Tier I risk-based capital of less than 4%, or either core capital of less than 4% or core capital of less than 3% and a CAMEL rating of 1; "significantly undercapitalized" if it has total risk-based capital of less than 6%, Tier 1 risk-based capital of less than 3%, or core capital of less than 3%; and "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to less than 2%. In the case of an institution that is categorized as "undercapitalized," or worse, such an institution must submit a capital restoration plan to the OTS. An undercapitalized depository institution generally will not be able to acquire other banks or thrifts, establish additional branches, pay dividends, or engage in any new lines of business unless consistent with its capital plan. A "significantly undercapitalized" institution will be subject to additional restrictions on its affiliate transactions, the interest rates paid by the institution on its deposits, the institution's asset growth, compensation of senior executive officers, and activities deemed to pose excessive risk to the institution. Regulators may also order a significantly undercapitalized institution to hold elections for new directors, terminate any director or senior executive officer employed for more than 180 days prior to the time the institution became significantly undercapitalized, or hire qualified senior executive officers approved by the regulators. The FDICIA provides that an institution that is "critically undercapitalized" must be placed in conservatorship or receivership within 90 days of becoming categorized as such unless the institution's regulator and the FDIC jointly determine that some other course of action would result in a lower resolution cost to the institution's insurance fund. Thereafter, the institution's regulator must periodically reassess its determination to permit a particular critically undercapitalized institution to continue to operate. A conservator or receiver must be appointed for the institution at the end of an approximately one-year period following the 23 institution's initial classification as critically undercapitalized unless a number of stringent conditions are met, including a determination by the regulator and the FDIC that the institution has positive net worth and a certification by such agencies that the institution is viable and not expected to fail. The final rules establishing the capital levels for purposes of the FDICIA also indicate that the federal regulators intend to lower or eliminate the core capital requirement from the definitions of well capitalized, adequately capitalized and undercapitalized after the requirement to deduct an IRR component from total capital becomes effective. This action has not yet been taken. See "Regulatory Capital Requirements" above. In addition to the foregoing prompt corrective action provisions, the FDICIA also sets forth requirements that the federal banking agencies, including the OTS, review their capital standards every two years to ensure that their standards require sufficient capital to facilitate prompt corrective action and to minimize loss to the SAIF and the BIF. RESTRICTIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. The current OTS regulation applicable to the payment of dividends or other capital distributions by savings institutions imposes limits on capital distributions based on an institution's regulatory capital levels and net income. An institution that meets or exceeds all of its capital requirements (both before and after giving effect to the distribution) and is not in need of more than normal supervision would be a "Tier 1 association." A Tier I association may make capital distributions during a calendar year of up to the greater of (i) 100% of net income for the current calendar year plus 50% of its capital surplus or (ii) the amount permitted for a "Tier 2 association" which is 75% of its net income over the most recent four quarters. Any additional capital distributions would require notice and opportunity for objection or prior regulatory approval. The Bank currently exceeds its fully phased-in capital requirements and qualifies as a Tier I association under the regulation. A "Tier 3 association" is defined as an institution that does not meet all of the minimum regulatory capital requirements and therefore may not make any capital distributions without the prior approval of the OTS. Savings institutions must provide the OTS with at least 30 days written notice before making any capital distributions. All such capital distributions are also subject to the OTS' right to object to a distribution on safety and soundness grounds. The OTS has proposed regulations that would revise the current capital distribution restrictions to conform to the rules of the other banking agencies. The proposed rule would require a savings association to file an application with the OTS prior to making any capital distribution, if the total amount of the association's capital distributions, including the proposed distribution, for the applicable calendar year exceeds the associations net income for that year to date plus the association's net income for the preceding two years or if the association is not eligible for expedited treatment. A notice would be required if an application is not required, but the savings association would not be at least adequately capitalized after the distribution, the proposed distribution would reduce the amount of or retire any part of the associations common or preferred stock or any part of debt instruments such as notes or debentures included in capital (other than regular debt payments on approved debt instruments), the proposed distribution would violate any applicable statute, regulation or agreement between the association and the OTS, or the association is a holding company subsidiary. In all other circumstances not listed herein, no notice or application would be required. A savings association would qualify for expedited treatment if it has a CAMEL rating of 1 or 2, has a CRA rating of satisfactory or better, has a compliance rating of 1 or 2, is meeting all of its capital requirements, and is not of supervisory concern. The OTS may disapprove a notice or deny an application if the association would be undercapitalized after the distribution, if the OTS determines that the distribution raises safety or soundness concerns, or if the distribution violates any applicable statute, regulation or agreement between the OTS and the association. QUALIFIED THRIFT LENDER TEST. Pursuant to amendments effected by the FDICIA, a savings institution will be a QTL if its qualified thrift investments equal or exceed 65% of its portfolio assets on a monthly average basis in nine of every 12 months. Qualified thrift investments, under the revised QTL test, include (i) certain housing-related loans and investments, (ii) certain obligations of the FSLIC, the FDIC, the FSLIC Resolution Fund and the RTC, (iii) loans to purchase or construct churches, schools, nursing homes and hospitals (subject to certain limitations), (iv) consumer loans (subject to certain limitations), (v) shares of stock issued by any FHLB, and (vi) shares of stock issued by the FHLMC or the FNMA (subject to certain limitations). Portfolio assets under the revised test consist of total assets minus (a) goodwill and other intangible assets, (b) the value of properties used by the savings institution to conduct its business, and (c) certain liquid assets in an amount not exceeding 20% of total assets. Any savings institution that fails to become or remain a QTL must either convert to a national bank charter or be subject to restrictions specified in the OTS regulations. Any such savings institution that does not become a bank will be: (i) prohibited from making any new investment or engaging in activities that would not be permissible for national banks; (ii) prohibited from establishing any new branch office in a location that would not be permissible for a national bank in the institution's home state; (iii) ineligible to obtain new advances from any FHLB; and (iv) subject to limitations on the payment of dividends comparable to the statutory and regulatory dividend restrictions applicable to national banks. Also, beginning three years after the date on which the savings association ceases to be a QTL, the savings association would be prohibited from retaining any investment 24 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, 1998, the Bank exceeded the QTL requirements. FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB system, which consists of 12 regional Federal Home Loan Banks governed and regulated by the Federal Housing Finance Board. The Federal Home Loan Banks provide a central credit facility for member institutions, The Bank, as a member of the FHLB of Atlanta, is required to acquire and hold shares of capital stock in the FHLB of Atlanta in an amount at least equal to the greater of 1% of the aggregate principal amount of its unpaid residential mortgage loans, home purchase contracts and similar obligations as of the close of each calendar year, or 5% of its borrowings from the FHLB of Atlanta (including advances and letters of credit issued by the FHLB on the Bank's behalf). The Bank is currently in compliance with this requirement, with a $51.3 million investment in stock of the FHLB of Atlanta as of September 30, 1998. The FHLB of Atlanta makes advances to members in accordance with policies and procedures periodically established by the Federal Housing Finance Board and the Board of Directors of the FHLB of Atlanta. Currently outstanding advances from the FHLB of Atlanta are required to be secured by a member's shares of stock in the FHLB of Atlanta and by certain types of mortgages and other assets. The FIRREA further limited the eligible collateral in certain respects. Interest rates charged for advances vary depending on maturity, the cost of funds to the FHLB of Atlanta and the purpose of the borrowing. As of September 30, 1998, advances from the FHLB of Atlanta totaled $1.0 billion. The FIRREA restricted the amount of FHLB advances that a member institution may obtain, and in some circumstances requires repayment of outstanding advances, if the institution does not meet the QTL test. See "--Qualified Thrift Lender Test," above. LIQUIDITY. OTS regulations currently require member savings institutions to maintain for each calendar month 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 its average daily balance during the preceding calendar month of 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 1998, the Bank's liquidity ratio was 7.18%. The Bank is also required to maintain cash reserve requirements at the Federal Home Loan Bank. At September 30, 1998 this cash reserve requirement was $8.2 million. COMMUNITY REINVESTMENT ACT. Under the Community Reinvestment Act (the "CRA"), as implemented by the OTS regulations, a savings institution has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the OTS, in connection with its examination of a financial institution, to assess the institution's record of meeting the credit needs of its community and to take such records into account in its evaluation of certain applications. The FIRREA amended the CRA to require public disclosure of an institution's CRA rating and to require that the OTS provide a written evaluation of an institution's CRA performance utilizing a four-tiered descriptive rating system in lieu of the existing five-tiered numerical rating system. Based upon an OTS examination in fiscal 1997, the Bank's CRA rating is satisfactory. Effective July 1, 1995, the OTS together with the other federal banking agencies, adopted a joint rule amending each of their regulations concerning the CRA. Subject to certain exceptions and elections, the new regulations prescribe three tests for the evaluation of a savings institution's performance. The lending test evaluates a savings institution's record of helping to meet the credit needs of its assessment area through its lending activities by considering an institution's home mortgage, small business, small farm, and community development lending. The investment test evaluates a savings institution's record of helping to meet the credit needs of its assessment area through qualified investments that benefit its assessment area or a broader statewide or regional area including the assessment area. Finally, the service test evaluates a savings institution by analyzing both the availability and the effectiveness of the institution's systems for delivering retail banking services and the extent and innovativeness of its community development services. Based upon the savings institution's performance under the lending, investment and service tests, and any other tests which may be applicable to the institution under the new regulations, the OTS will assign the savings institution one of the same four ratings prescribed under current regulations. Additionally, under the new regulations, the OTS will continue to consider an institution's record of performance under the CRA in the same manner and for the same purposes as required under current regulations. These new regulations, while effective July 1, 1995, were implemented over a two-year time frame. A savings institution may elect to be evaluated under the revised performance tests beginning January 1, 1996, although the Company has not made 25 such election. Absent such an election, these revised performance tests became mandatory and were deemed to replace the regulations described above effective July 1, 1997. LOANS-TO-ONE-BORROWER LIMITATIONS. The FIRREA provided that loans-to-one borrower limits applicable to national banks apply to savings institutions. Generally, under current limits, loans and extensions of credit outstanding at one time to a single borrower shall not exceed 15% of the savings institution's unimpaired capital and unimpaired surplus. Loans and extensions of credit fully secured by certain readily marketable collateral may represent an additional 10% of unimpaired capital and unimpaired surplus. As of September 30, 1998, the Bank was in compliance with the loans-to-one-borrower limitations. PORTFOLIO POLICY GUIDELINES The Federal Financial Institutions Examination Council issued a Supervisory Policy Statement on Securities Activities (the "Policy"), which provides guidance to an institution in developing its portfolio policy, specifies factors that must be considered when evaluating an institution's investment portfolio, and provides guidance on the suitability of acquiring and holding certain products, such as mortgage derivative products, in its investment portfolio. The Policy, among other things, defines "high-risk mortgage securities" and provides that such securities are not suitable investment portfolio holdings for depository institutions and that they may only be acquired to reduce interest rate risk. The determination of a high-risk mortgage security will be based upon a quantitative calculation of the average life of the security, and the change in the average life and market price sensitivity of the security based on a 300-basis-point shift in the yield curve. Currently, the Bank does not hold any high-risk mortgage securities. The Policy, however, is applicable to all depository institutions and will affect the Bank's ability to invest in certain mortgage securities, primarily collateralized mortgage obligations, in the future. GENERAL LENDING REGULATIONS The Bank's lending activities are subject to federal and state regulation, including the Equal Credit Opportunity Act, the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Community Reinvestment Act and the laws of Florida, California and other jurisdictions governing discrimination, lender disclosure to borrowers, foreclosure procedures and anti-deficiency judgments, among other matters. FEDERAL RESERVE SYSTEM The Bank is subject to certain regulations promulgated by the Federal Reserve Board. Pursuant to such regulations, savings institutions are required to maintain reserves against their transaction accounts (primarily interest-bearing checking accounts) and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements imposed by the OTS. In addition, Federal Reserve Board regulations limit the periods within which depository institutions must provide availability for and pay interest on deposits to transaction accounts. Depository institutions are required to disclose their check-hold policies and any changes to those policies in writing to customers. The Bank is in compliance with all such Federal Reserve Board regulations. TAXATION The Company 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. Beginning in 1994 and continuing thereafter, the Company and its subsidiaries have elected to file consolidated tax returns on a fiscal year basis ended 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. The Company has not been notified of a proposed examination by the Internal Revenue Service (the "IRS") of its federal income tax returns. 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 may, 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 are 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"). 26 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 is 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 must also be made 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 is 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 requires thrifts to account for bad debts for federal income tax purposes on the same basis as commercial banks for tax years beginning after December 31, 1995. As such, thrifts with assets whose tax basis exceeds $500,000,000 must change to the specific charge off method in computing its bad debt deduction. As such, the Bank must use the specific charge off method in computing its bad debt deduction for tax years beginning after December 31, 1995. As a result of this change in accounting method, the Bank must recapture the excess of its September 30, 1996 bad debt reserve over the reserve in existence on December 31, 1987. This recapture will occur over a six-year period, the commencement of which will be delayed until the first taxable year beginning after December 31, 1997, provided the institution meets certain residential lending requirements. The management of the Company does not believe that the legislation will have a material impact on the Company or the Bank. DISTRIBUTIONS. Under the Code, the Bank's December 31, 1987 reserve must be recaptured into taxable income as a result of certain non-dividend distributions. A distribution is a non-dividend distribution to the extent that, for federal income tax purposes, (i) it is in redemption of shares, (ii) it is pursuant to a liquidation of the institution, or (iii) in the case of a current distribution it, together with all other such distributions during the taxable year, exceeds the Bank's current and post-1951 accumulated earnings and profits. The amount charged against the Bank's bad debt reserves in respect of a distribution will be includable in its gross income and will equal the amount of such distribution, increased by the amount of federal income tax resulting from such inclusion. ALTERNATIVE MINIMUM TAX In addition to the income tax, corporations are generally subject to an alternative minimum tax at a rate of 20%. The alternative minimum tax is imposed on the sum of regular taxable income (with certain adjustments) and tax preference items, less any available exemption ("AMTI"). The alternative minimum tax is imposed to the extent that it exceeds a corporation's regular income tax liability. The items of tax preference that constitute AMTI for 1990 and thereafter include 75% of the difference between the taxpayer's adjusted current earnings and AMTI (determined without regard to this preference and prior to any deduction for net operating loss carry forwards or carry backs). In addition, net operating loss carry forwards cannot offset more than 90% of AMTI. INTEREST ALLOCABLE TO TAX-EXEMPT OBLIGATIONS The 1986 Act eliminates for financial institutions the deduction for interest expense allocable to the purchase or carrying of most tax-exempt obligations for taxable years ending after December 31, 1986, with respect to tax-exempt obligations acquired after August 7, 1986 excluding certain financial institution-qualified issues. For all qualified issues and for non-qualified tax-exempt obligations acquired after 1982 and before August 7, 1986, 20% of allocable interest expense deductions will be disallowed. STATE TAXATION The State of Florida imposes a corporate income tax on the Company, at a rate of 5.5% of the Company's taxable income as determined for Florida income tax purposes. Taxable income for this purpose is based on federal taxable income with certain adjustments. A credit against the tax, for Florida intangible taxes paid, is allowable in an amount equal to the lesser of (i) the amount of such intangible taxes paid or (ii) 65% of the tax liability. 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. As such 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 27 under the experience method, gains or losses realized from the sale of foreclosed property were not taken into account in computing taxable income, but were credited or charged to the thrift's bad debt reserve. As a result of the newly enacted tax legislation, thrift foreclosures are treated as a taxable event for federal tax purposes for property acquired after December 31, 1995. As such, a thrift may recognize gain, loss or a bad debt deduction at the time of foreclosure depending on the method by which the property was acquired. In addition, write downs of foreclosed property to fair market value no longer give rise to a tax benefit. Finally, gains and losses realized upon the sale of foreclosed property are included in taxable income of the thrift. ITEM 2. PROPERTIES The executive and administrative offices of the Company and the Bank and the Coral Gables branch are located at 255 Alhambra Circle, Coral Gables, Florida 33134. The Company owns electronic data processing equipment for its exclusive use, which consists of personal computers and peripherals and software having an aggregate net book value of approximately $2.5 million as of September 30, 1998. The following table sets forth the location of, and certain additional information regarding, the Company's and Bank's offices and branches as of September 30, 1998:
NET BOOK VALUE OF PREMISES OR LEASEHOLD IMPROVEMENTS, LEASE EXPIRATION DATE LOCATION PROPERTY AND EQUIPMENT AND RENEWAL TERMS SQUARE FOOTAGE - ------------------------------------- -------------------------- --------------------- -------------- Executive and administrative offices, and savings branches Aventura branch......................... $ 490,123 1999 5,000 2984 Aventura Boulevard (2 options to renew Aventura, Florida 33180 for 5 years each) Boca Hamptons branch.................... 243,017 2002 2,700 9070 Kimberly Boulevard (3 options to renew Suite 68 for 5 years each) Boca Raton, Florida 33434 Boca Raton branch....................... 122,803 1999 2,442 21222 St. Andrews Boulevard #11 (3 options to renew Boca Raton, Florida 33434 for 3 years each) Boynton Beach branch.................... 197,435 2001 2,933 117 North Congress Avenue (2 options to renew Boynton Beach, Florida 33426 for 5 years) Coconut Creek branch.................... 280,607 2002 2,400 4913 Coconut Creek Parkway (2 options to renew Coconut Creek, Florida 33063 for 5 years each) Coral Gables branch..................... 1,715,760 2001 14,097 255 Alhambra Circle (2 options to renew Coral Gables, Florida 33134 for 5 years each) Coral Gables North branch............... 49,563 1999 2,366 999 Ponce de Leon Boulevard Coral Gables, Florida 33134 Coral Springs branch.................... 71,580 2001 2,805 1307 University Drive (2 options to renew Coral Springs, Florida 33071 for 5 years each) Deerfield Beach branch.................. 279,400 1998 4,000 and Commercial Real Estate office (2 options to renew 2201 West Hillsboro Boulevard for 5 years each) Deerfield Beach, Florida 33442
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NET BOOK VALUE OF PREMISES OR LEASEHOLD IMPROVEMENTS, LEASE EXPIRATION DATE LOCATION PROPERTY AND EQUIPMENT AND RENEWAL TERMS SQUARE FOOTAGE - ------------------------------------- -------------------------- --------------------- -------------- Deerfield Promenade branch.............. 59,819 2003 2,030 1333 South Military Trail Deerfield Beach, Florida 33442 Delray Beach branch..................... 340,251 2001 4,000 7431-39 West Atlantic Avenue (3 options to renew Delray Beach, Florida 33446 for 5 years each) Doral branch............................ 134,445 1999 8,000 7970 N.W. 36 Street (4 options to renew Miami, Florida 33166 for 5 years) Hialeah branch.......................... 80,524 2000 5,063 1291 West 49 Street (5 options to renew Hialeah, Florida 33012 for 3 years) Hallandale branch....................... 645,915 (1) 4,500 501 Golden Isles Drive Hallandale, Florida 33009 Hollywood branch........................ 49,543 2004 4,111 4350 Sheridan Street, Unit 101 Hollywood, Florida 33021 Lake Worth branch....................... 390,321 2002 3,200 7737 Lake Worth Road Lake worth, Florida 33467 Lauderdale by the Sea branch............ 751,661 (1)(2) 5,000 227 Commercial Boulevard Lauderdale by the Sea, Florida 33008 Miami Lakes branch...................... 54,105 1999 3,085 16800 N.W. 67 Avenue (1 option to renew Miami, Florida 33015 for 5 years) Naples branch........................... 244,605 2003 2,000 4649 Ninth Street North (2 options to renew Naples, Florida 34103 for 5 years) Pembroke Pines branch................... 61,286 2001 4,059 100 South Flamingo Road (1 option to renew Pembroke Pines, Florida 33027 for 5 years) Plantation branch....................... 46,054 2003 5,000 8167 West Sunrise Boulevard., Unit 50 Plantation, Florida 33322 Pompano Beach branch.................... 705,561 (1) 5,000 1313 North Ocean Boulevard Pompano Beach, Florida 33062 South Miami branch...................... 116,294 2002 6,701 6075 Sunset Drive (1 option to renew South Miami, Florida 33143 for 5 years) Tamarac branch.......................... 107,003 2002 3,531 5779 North University Drive (1 option to renew Tamarac, Florida 33321 for 5 years) The Falls branch........................ 549,671 2010 3,000 8941 SW 136 St. Miami, Florida 33015
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NET BOOK VALUE OF PREMISES OR LEASEHOLD IMPROVEMENTS, LEASE EXPIRATION DATE LOCATION PROPERTY AND EQUIPMENT AND RENEWAL TERMS SQUARE FOOTAGE - ------------------------------------- -------------------------- --------------------- -------------- West Airport branch..................... 1,035,987 2003 7,200 2410 N.W. 72nd Avenue (4 options to renew Miami, Florida 33122 for 3 years) West Palm Beach branch.................. 169,958 2001 3,740 2911C North Military Trail (2 options to renew West Palm Beach, Florida 33409 for 5 years) Miami Lakes Operation Center............ 4,496,878 2002 40,000 7815 N.W. 148 Street (2 options to renew Miami Lakes, Florida 33016 for 5 years each) Hollywood............................... 149,164 1999 4,042 4350 Sheridan Street, Units 200 & 201 Hollywood, Florida 33021 Other Offices: Presidential Circle.................. - 2000(4) 32,850 4000 Hollywood Boulevard (2 options to renew Hollywood, Florida 33021 for 5 years each) 1177 George Bush Boulevard, #200..... - 2002 4,059 Delray Beach, Florida 33483 (1 option to renew for 5 years) 4340 Sheridan Street................. 558,676 (1)(3) 4,764 Hollywood, Florida 33021
- ------------------------- (1) The Bank owns the facility. (2) The Bank leases part of the facility to unrelated parties. (3) The entire space is currently sub-leased to an unrelated party. (4) The Bank subleases 20,000 square feet to an unrelated party. ITEM 3. LEGAL PROCEEDINGS The Company 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 the Company and its subsidiaries, would have a material effect on the Company'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 the Company's security holders during the fourth quarter of the fiscal year ended September 30, 1998. 30 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information concerning the executive officers and directors of the Company and the Bank.
POSITIONS WITH COMPANY NAME AGE AND BUSINESS EXPERIENCE ---- --- ----------------------- Alfred R. Camner 54 Director, Chairman of the Board and Chief Executive Officer (1993 to present) and President (1993 to 1998) of the Company; 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 42 Director, President and Chief Operating Officer of the Company 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 Bank, Inc. (1995 to 1996); Executive Vice President, Commercial Real Estate, Barnett Bank of South Florida (1993 to 1995). Lawrence H. Blum 55 Director and Vice Chairman of the Board of the Company (1993 to present) and the Bank (1984 to present); Managing Director (1992 to present) and partner (1974 to present) of Rachlin, Cohen & Holtz, certified public accountants. Earline G. Ford 55 Director, Executive Vice President and Treasurer of the Company (1993 to present); Director (1984 to present), Executive Vice President (1990 to present), Senior Vice President--Administration (1988 to 1990), Treasurer (1984 to present) and Vice President-- Administration (1984 to 1988) of the Bank; Legal Administrator of Stuzin and Camner, Professional Association, attorneys-at-law (1973 to 1996); Vice Chairman of CSW Associates, Inc., an asset management firm (1990 to 1995). Marc D. Jacobson 56 Director (1993 to present) and Secretary (1993 to 1997) of the Company; Director (1984 to present) and Secretary (1985 to 1996) of the Bank; Vice President of Head-Beckham Insurance Agency, Inc. (1990 to present). Allen M. Bernkrant 68 Director of the Company (1993 to present) and the Bank (1985 to present); Private investor in Miami, Florida (1990 to present). Bruce D. Friesner 56 Director of the Company and the Bank (1996 to present); Principal of F&G Associates, a commercial real estate development company (1972 to present); Director of Loan America Financial Corporation, a national mortgage banking company (1990 to 1994). Marc Lipsitz 57 Director (1996 to present) and Secretary (1997 to present) of the Company; Managing Director (1996 to present) of 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).
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POSITIONS WITH COMPANY NAME AGE AND BUSINESS EXPERIENCE ---- --- ----------------------- Neil H. Messinger, M.D. 60 Director of the Company 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 83 Director of the Company (1993 to present) and the Bank (1985 to present); Private investor in Miami, Florida. EXECUTIVE OFFICERS OF THE COMPANY AND/OR THE BANK WHO ARE NOT DIRECTORS: James A. Dougherty 48 Executive Vice President, Commercial and Middle Market Lending (December 1998 to present) of the Company and the Bank; Director (1995 to December 1998), Chief Operating Officer (1994 to December 1998) and Executive Vice President (1994 to present) of the Company; Director and Chief Operating Officer (1994 to December 1998) and Executive Vice President (1994 to present) of the Bank; Executive Vice President of Retail Banking of Intercontinental Bank (1989 to 1994). Donald Putnam 41 Executive Vice President of the Company (1997 to present) and the Bank (1996 to present); Senior Vice President and Regional Sales Manager, NationsBank of Florida, N.A. (1996); Senior Vice President (1994 to 1996), and First Vice President (1987 to 1994), of Citizens Federal Bank. David Malinoff 53 Executive Vice President, Senior Loan Officer of the Bank (July 1998 to present); President and Chief Executive Officer of Central Bank (1991 to 1998). Diane DeLella 47 Vice President and Chief Financial Officer (December 1998 to present) and Controller (1995 to present) of the Company and the Bank; Vice President and Controller of Coral Gables Federal Savings and Loan (1986 to 1995).
------------------------- All executive officers serve at the discretion of the Board of Directors and are elected annually by the Board. 32 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS STOCK INFORMATION The Company's Class A Common Stock, $.01 par value ("Class A Common Stock"), is traded in the over-the-counter market and quoted in the Nasdaq Stock Market ("Nasdaq"). The Company's Class B Common Stock, $.01 par value ("Class B Common Stock"), is not currently traded on any established public market. At December 22, 1998, there were 535 and 18 holders of record of the Company'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 Class B share surrendered for conversion. There were no common stock dividends declared or paid in fiscal 1998 or 1997. See Note 13 to the Company's Consolidated Financial Statements for a discussion of restrictions on the Bank's payment of dividends to the Company. 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, 1998: 1st Quarter................................... $15.63 $ 12.75 2nd Quarter................................... $15.63 $ 12.25 3rd Quarter................................... $18.50 $ 13.75 4th Quarter................................... $17.00 $ 8.25 Fiscal Year Ended September 30, 1997: 1st Quarter................................... $10.25 $ 7.875 2nd Quarter................................... $11.25 $ 9.25 3rd Quarter................................... $ 10.875 $ 8.50 4th Quarter................................... $ 13.375 $ 9.625 33 ITEM 6. SELECTED FINANCIAL DATA
AS OF OR FOR THE FISCAL YEARS ENDED SEPTEMBER 30, -------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------- ------------- ------------- ------------- ------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) OPERATIONS DATA: Interest income................................ $ 207,567 $ 108,774 $ 52,132 $ 39,419 $ 30,421 Interest expense............................... 167,543 75,960 34,622 26,305 16,295 ------------ ------------ ------------ ------------ ------------ Net interest income............................ 40,024 32,814 17,510 13,114 14,126 Provision (credit) for loan losses............. 1,700 1,295 (120) 1,221 1,187 ------------ ------------ ------------ ------------ ------------ Net interest income after provision (credit) for loan losses........................... 38,324 31,519 17,630 11,893 12,939 ------------ ------------ ------------ ------------ ------------ Non-interest income: Service fees, net.............................. 1,139 2,993 597 423 358 Net gain on sales of loans and mortgage-backed securities.................................. 4,429 819 5 239 150 Net gain (loss) on sales of other assets(1).... 6 1 (6) 9,569 - Other.......................................... 651 247 53 6 46 ------------ ------------ ------------ ------------ ------------ Total non-interest income................... 6,225 4,060 649 10,237 554 ------------ ------------ ------------ ------------ ------------ Non-interest expense: Employee compensation and benefits.......... 10,943 8,880 4,275 3,997 3,372 Occupancy and equipment..................... 4,854 3,568 1,801 1,727 1,258 Insurance(2)................................ 1,185 948 3,610 1,027 844 Professional fees........................... 1,891 1,605 929 1,269 833 Other....................................... 13,310 7,946 3,421 4,129 3,579 ------------ ------------ ------------ ------------ ------------ Total non-interest expense................ 32,183 22,947 14,036 12,149 9,886 ------------ ------------ ------------ ------------ ------------ Income before income taxes..................... 12,366 12,632 4,243 9,981 3,607 Provision for income taxes(3).................. 5,009 5,033 1,657 3,741 1,328 ------------ ------------ ------------ ------------ ------------ Net income before Preferred Stock dividends.... 7,357 7,599 2,586 6,240 2,279 Preferred stock dividends: Bank........................................ - - - - 198 Company..................................... 897 2,890 2,145 2,210 1,871 ------------ ------------ ------------ ------------ ------------ Net income after Preferred Stock dividends..... $ 6,460 $ 4,709 $ 441 $ 4,030 $ 210 ============ ============ ============ ============ ============ FINANCIAL CONDITION DATA: Total assets................................... $ 3,738,383 $ 2,145,406 $ 824,360 $ 608,415 $ 551,075 Loans receivable, net, and mortgage-backed securities(4)............... 3,215,360 1,781,652 716,550 506,132 470,154 Investments, overnight deposits, tax certificates, reverse repurchase agreements, certificates of deposits and other earning assets........... 194,791 186,955 87,662 88,768 64,783 Total liabilities.............................. 3,539,091 2,045,761 755,249 562,670 509,807 Deposits....................................... 2,124,824 1,195,892 506,106 310,074 347,795 Long-term debt................................. 766,466 191,484 45,000 62,000 6,000 Company obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely junior subordinated deferrable interest debentures of the Company.......... 218,500 116,000 - - - Borrowings..................................... 1,361,114 817,484 237,775 241,775 158,175 Total stockholders' equity..................... 199,292 99,645 69,111 45,745 41,268 Common stockholders' equity.................... 190,627 75,649 44,807 21,096 16,667 (Continued on next page)
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AS OF OR FOR THE FISCAL YEARS ENDED SEPTEMBER 30, -------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------- ------------- ------------- ------------- ------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) PER COMMON SHARE DATA: Basic earnings per common share................ $ 0.41 $ 0.57 $ 0.10 $ 1.77 $ 0.10 ============ ============ ============ ============ ============ Fully diluted.................................. $ 0.39 $ 0.54 $ 0.10 $ 1.26 $ 0.10 ============ ============ ============ ============ ============ Weighted average number of common shares and common equivalent shares assumed outstanding during the period: Basic....................................... 15,692,566 8,210,890 4,306,042 2,296,021 2,175,210 Diluted..................................... 16,666,415 9,148,229 4,558,521 4,158,564 2,175,210 Book value per common share.................... $ 10.50 $ 7.94 $ 7.85 $ 10.20 $ 8.33 Fully converted tangible book value per common share............................... $ 8.66 $ 6.88 $ 7.13 $ 8.15 $ 7.39 Cash dividends per common share Class A..................................... $ - $ - $ - $ - $ 0.075 Class B..................................... $ - $ - $ - $ - $ 0.030 SELECTED FINANCIAL RATIOS PERFORMANCE RATIOS: Return on average assets(5).................... 0.24% 0.51% 0.36% 1.10% 0.46% Return on average common equity................ 4.94 9.34 1.30 22.60 1.21 Return on average total equity................. 4.53 8.06 4.30 14.70 5.84 Interest rate spread........................... 1.11 2.07 2.10 2.12 2.78 Net interest margin............................ 1.32 2.31 2.51 2.39 3.01 Dividend payout ratio(6)....................... 12.19 38.03 82.95 35.42 96.79 Ratio of earnings to combined fixed charges and preferred stock dividends(7): Excluding interest on deposits............ 1.14 1.26 1.05 1.52 1.07 Including interest on deposits............ 1.06 1.10 1.02 1.21 1.03 Total loans, net, and mortgage-backed securities to total deposits................ 151.32 148.98 141.58 163.13 134.40 Non-interest expenses to average assets........ 1.03 1.55 1.97 2.14 2.04 Efficiency ratio(8)............................ 64.86 57.56 76.45 14.58 66.06 ASSET QUALITY RATIOS: Ratio of non-performing loans to total loans... 0.64% 0.72% 0.99% 1.02% 1.07% Ratio of non-performing assets to total loans, real estate owned and tax certificates...... 0.73 0.79 1.14 1.35 1.41 Ratio of non-performing assets to total assets. 0.61 0.67 0.95 1.10 1.17 Ratio of net charge-offs to total average loans 0.02 0.04 (0.12) 0.14 0.42 Ratio of loan loss allowance to total loans.... 0.20 0.21 0.34 0.32 0.20 Ratio of loan loss allowance to non-performing loans....................................... 31.51 28.96 33.74 31.54 18.89 CAPITAL RATIO: Ratio of average common equity to average total assets................................ 4.18% 3.40% 4.78% 3.14% 3.58% Ratio of average total equity to average total assets................................ 5.19 6.36 8.44 7.47 8.05 Core capital-to-assets ratio(9)................ 8.72 8.07 7.01 7.09 6.65 Risk-based capital-to-assets ratio(9).......... 17.54 11.27 14.19 15.79 14.13
- ------------------------- (1) In 1995 the Company recorded a $9.3 million gain ($5.8 million after tax) from the sale of its branches on the west coast of Florida. (2) In 1996 the Company recorded a one-time SAIF special assessment of $2.6 million ($1.6 million after tax). (3) Amount reflects expense from change in accounting principle of $194,843 for fiscal 1994. (4) Does not include mortgage loans held for sale. (5) Return on average assets is calculated before payment of Preferred Stock dividends. (6) The ratio of total dividends declared during the period (including dividends on the Bank's and the Company's Preferred Stock and the Company's Class A and Class B Common Stock) to total earnings for the period before dividends. (7) The ratio of earnings to combined fixed charges and Preferred Stock dividends excluding interest on deposits is calculated by dividing income before taxes and extraordinary items by interest on borrowings plus 33% of rental expense plus Preferred Stock dividends on a pretax basis. The ratio of earnings to combined fixed charges and Preferred Stock dividends including interest on deposits is calculated by dividing income before taxes and extraordinary items by interest on deposits plus interest on borrowings plus 33% of rental expense plus Preferred Stock dividends on a pretax basis. (8) Efficiency ratio is calculated by dividing non-interest expenses less non-interest income by net interest income. (9) Regulatory capital ratio of the Bank. 35 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BankUnited Financial Corporation (the "Company" or "BankUnited") is a Florida-incorporated savings and loan holding company that operates as a financial intermediary by acquiring and investing funds primarily through its principal subsidiary, BankUnited, FSB (the "Bank"). The Bank is subject to the regulations of certain federal agencies and undergoes periodic examinations by those regulatory authorities. References to the Company include the activities of all of its subsidiaries, including the Bank and its subsidiaries, if the context so requires. The following discussion and analysis and the related financial data present a review of the consolidated operating results and financial condition of the Company for the fiscal years ended September 30, 1998, 1997 and 1996. This discussion and analysis is presented to assist the reader in understanding and evaluating the financial condition, results of operations and future prospects of BankUnited, and is intended to supplement, and should be read in conjunction with, the Consolidated Financial Statements and Notes thereto. BankUnited's income is derived primarily from its loans and other investments. Funding for such loans and investments is derived principally from deposits, loan repayments, and borrowings. Consequently, BankUnited's net income depends, to a large extent, on the interest rate spread between the average yield earned on loans and investments and the average rate paid on deposits and borrowings. 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. ACQUISITIONS The Company has had an active acquisition program during the last two years and expects to continue this program in the foreseeable future. On June 19, 1998, the Company acquired Central Bank ("Central"), for 1,386,000 shares of the Company'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, the Company acquired Consumers Bancorp, Inc. ("Consumers"), for approximately $12.0 million in a combination of cash and stock, and merged its wholly-owned subsidiary, Consumers Savings Bank, which had assets of $104.4 million and deposits of $88.3 million as of January 23, 1998, into the Bank. On November 15, 1996, BankUnited completed its acquisition of Suncoast Savings and Loan Association, FSA ("Suncoast"). Suncoast had total assets of $409.4 million, net loans of $335.0 million, deposits of $298.5 million and shareholders' equity of $24.7 million as of September 30, 1996. The cost of the acquisition to BankUnited was $27.8 million, representing the fair value of consideration given to Suncoast shareholders as well as option and warrant holders. See Note 3 of the Notes to Consolidated Financial Statements for additional information regarding these acquisitions. DISCUSSION OF FINANCIAL CONDITION CHANGES FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996 Total assets increased $1.6 billion, or 76.2% to $3.7 billion at September 30, 1998 from $2.1 billion at September 30, 1997, as compared to $824 million at September 30, 1996. LOANS. The Company's net loans receivable increased by $1.2 billion, or 70.6% to $2.9 billion at September 30, 1998 from $1.7 billion at September 30, 1997. The increase was primarily the result of the $2.7 billion of residential loans purchased, $386.0 million of loans originated, and $66.3 million and $44.2 million of loans acquired with Consumers and Central, respectively, partially offset by repayments of $1.4 billion (net of accretion of discount and amortization of premium) and the securitization of $355.5 million of mortgage loans. In fiscal 1997, the Company's net loans receivable increased by $1.1 billion, or 170.2% to $1.7 billion at September 30, 1997 from $646 million at September 30, 1996. The increase was primarily the result of the $913.7 million of residential loans purchased in fiscal 1997, $341.4 million of loans acquired with Suncoast, and $178.3 million of loan originations, partially offset by principal repayments of $271 million (net of accretion of discount and amortization of premium). Of the new loans originated or purchased during fiscal 1998 totaling $3.1 billion, $2.0 billion or 64.5% represented adjustable-rate residential loans ("ARMs"). Of BankUnited's total net loans receivable of $2.9 billion at September 30, 1998, $1.6 billion or 55.2% were ARMs. Of this amount BankUnited had $98.1 million in ARMs tied to the 11th District Federal Home Loan Bank cost of funds index ("COFI"). COFI is a lagging index in that it does not change as quickly as market rates. Loans available for sale as of September 30, 1998, were $172.4 million as compared to $104.3 million at September 30, 1997 and no such loans were available for sale as of September 30, 1996. Beginning in the Company's fiscal 1997 fourth quarter, 36 management began a program to sell substantially all of the Company's internally generated residential loans. These loans are classified as held for sale when originated and if, after attempting to market the loans, management determines that certain loans are unable to be packaged into saleable pools, the Company may transfer such loans to its portfolio at the lower of cost or market. During the fiscal year ended September 30, 1998 and the fiscal 1997 fourth quarter, residential loans totaling $173.5 million and $30.1 million, respectively, were sold for a gain of $4.0 million and $523,000, respectively. In addition, as part of starting this program, the Company reclassified $93.5 million of its internally generated portfolio of residential loans as available for sale in the fiscal 1997 fourth quarter. Currently, the Company classifies loans as available for sale at time of origination. CREDIT QUALITY. At September 30, 1998, non-performing assets totaled $22.6 million as compared to $14.3 million and $7.8 million at September 30, 1997 and 1996, respectively. Expressed as a percentage of total assets, non-performing assets declined to 0.61% as of September 30, 1998 as compared to 0.67% as of September 30, 1997 and 0.95% as of September 30, 1996. The increase in non-performing assets in 1998 is due primarily to the increase in total loans. The allowance for loan losses was $6.1 million, $3.7 million, and $2.2 million at September 30, 1998, 1997, and 1996, respectively. The allowance for loan losses as a percentage of total loans decreased to 0.20% at fiscal year end 1998, as compared to 0.21% at fiscal year end 1997, and 0.34% at fiscal year end 1996. The decrease in the allowance as a percentage of total loans reflects the Company's recent charge-off history which shows net charge-offs (recoveries) as a percentage of average loans of 0.02%, 0.04% and (0.12%) for 1998, 1997 and 1996, respectively. The increase in non-performing assets to $22.6 million as of September 30, 1998 from $14.3 million as of September 30, 1997 was due to increases in non-performing loans of $6.7 million which, as stated above, relates to the increase in total loans. Real estate owned increased to $2.0 million as of September 30, 1998 from $611,000 as of September 30, 1997. Effective October 1, 1995, BankUnited adopted Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan" as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures" (collectively, "SFAS No. 114"). There was no impact on the consolidated statement of operations upon implementation due to the composition of BankUnited's loan portfolio (primarily residential or collateral dependent loans) and BankUnited's policy for establishing the allowance for loan losses. The only impact to the consolidated statement of financial condition and to non-performing assets was to reclassify three loans totaling $522,000 previously classified as in-substance foreclosures in real estate owned to non-accrual loans. These loans were reclassified because BankUnited did not have possession of the collateral which, under SFAS No. 114, is required for a loan to be classified as real estate owned. SFAS No. 114 does not apply to large groups of smaller balance homogenous loans that are collectively evaluated for impairment. Loans collectively reviewed by BankUnited for impairment include all residential and consumer loans that are past due not more than 60 days. All other loans are reviewed based on specific criteria such as delinquency or other factors that may come to the attention of management. BankUnited's impaired loans within the scope of SFAS No. 114 include all non-performing loans. BankUnited's process for evaluating the adequacy of the allowance for loans losses has three basic elements: first is the identification of impaired loans; second is the establishment of an appropriate loan loss allowance once individual specific impaired loans are identified; and third is a methodology for establishing loan losses based on the inherent risk in the remainder of the loan portfolio, past loan loss experience, specific loans which could have loss potential, geographic and industry concentration, delinquency trends, economic conditions, the views of its regulators, and other relevant factors. The identification of impaired loans is achieved mainly through individual reviews of all loans 60 or more days past due. Loss allowances are established for specifically identified impaired loans based on the fair value of the underlying collateral in accordance with SFAS No. 114. Impairment losses are included in the allowance for loan losses through a charge to the provision for loan losses. Adjustments to impairment losses resulting from changes in the fair value of an impaired loan's collateral are included in the provision for loan losses. Upon disposition of an impaired loan any related valuation allowance is removed from the allowance for loan losses. The allowance for loan losses is adjusted by additions charged to operations as a provision for loan losses and by loan recoveries, with actual losses charged as reductions to the allowance. Management believes that the allowance for loan losses 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. 37 The following table sets forth information concerning the Company's non-performing assets for the periods indicated:
SEPTEMBER 30, ------------------------------------------------------------------------ 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Non-accrual loans(1)............................. $ 15,999 $ 10,866 $ 4,939 $ 3,496 $ 3,918 Restructured loans(2)............................ 1,137 1,888 1,457 1,070 533 Loans past due 90 days and still accruing........ 2,313 -- -- 92 -- ----------- ----------- ----------- ----------- ----------- Total non-performing loans(3)................. 19,449 12,754 6,396 4,658 4,451 Non-accrual tax certificates..................... 1,225 958 800 574 -- Real estate owned................................ 1,974 611 632 1,453 1,983 ----------- ----------- ----------- ----------- ----------- Total non-performing assets...................... $ 22,648 $ 14,323 $ 7,828 $ 6,685 $ 6,434 =========== =========== =========== =========== =========== Allowance for losses on tax certificates......... $ 469 $ 697 $ 614 $ 569 $ 85 Allowance for loan losses........................ 6,128 3,693 2,158 1,469 841 ----------- ----------- ----------- ----------- ----------- Total allowance............................... $ 6,597 $ 4,390 $ 2,772 $ 2,038 $ 926 =========== =========== =========== =========== =========== Non-performing assets as a percentage of total assets................................ 0.61% 0.67% 0.95% 1.10% 1.17% Non-performing loans as a percentage of total loans(4).............................. 0.64% 0.72% 0.99% 1.02% 1.07% Allowance for loan losses as a percentage of total loans(4)........................... 0.20% 0.21% 0.34% 0.32% 0.20% Allowance for loan losses as a percentage of non-performing loans..................... 31.51% 28.96% 33.74% 31.54% 18.89% Net chargeoffs as a percentage of average total loans................................. 0.02% 0.04% (0.12%) 0.14% 0.42%
(1) Gross interest income that would have been recorded on non-accrual loans had they been current in accordance with original terms was $1,037,000, $556,000, $217,000, $128,000, and $52,000, for the years ended September 30, 1998, 1997, 1996, 1995, and 1994, respectively. The amount of interest income on such non-accrual loans included in net income for years ended September 30, 1998, 1997, and 1996 was $372,000, $369,000, and $145,000, respectively. (2) All restructured loans were accruing. (3) In addition to the above, management has concerns as to the borrower's ability to comply with present repayment terms on $2,679,000 and $1,878,000 of accruing loans as of September 30, 1998 and 1997, respectively. Management estimates the loss, if any, on these loans will not be significant. (4) Based on balances prior to deductions for allowance for loan losses. FEDERAL HOME LOAN BANK (FHLB) OVERNIGHT DEPOSITS. FHLB overnight deposits decreased to $65.3 million at September 30, 1998 from $79.4 million at September 30, 1997, but increased from $28.3 million at September 30, 1996. This change is due to adjustments to BankUnited's liquidity position in response to the growth in the balance sheet and projected cash requirements. TAX CERTIFICATES. BankUnited's investment in tax certificates decreased $9.3 million, or 18.9%, to $40.0 million at September 30, 1998 from $49.3 million at September 30, 1997 and $40.1 million at September 30, 1996. The decrease was primarily the result of $27.7 million in certificate purchases during fiscal 1998 which was offset by $37.0 million in certificate redemptions and repayments. INVESTMENTS. Investments held to maturity remained constant at $14.5 million as of September 30, 1998 as compared with $14.5 million as of September 30, 1997 and increased from $11,000 as of September 30, 1996. Investments available for sale increased $13.5 million to $23.7 million as of September 30, 1998 as compared to $10.2 million as of September 30, 1997 and $6.7 million as of September 30, 1996. The increase is primarily due to the investment in agency securities to be used as collateral for future borrowings. MORTGAGE-BACKED SECURITIES. Mortgage-backed securities held to maturity were $146.1 million, $11.4 million and $14.7 million at September 30, 1998, 1997 and 1996, respectively. The increase in fiscal 1998 was primarily due to the securitization of $356.0 million of mortgage loans less repayments and amortization of approximately $221.3 million. BankUnited's available for sale mortgage-backed securities portfolio increased $90.7 million to $199.6 million as of September 30, 1998 from $108.9 million as of September 30, 1997, and $55.5 million as of September 30, 1996. In fiscal 1998, the increase was due to $17.2 million and $13.2 million of mortgage-backed securities acquired with Consumers and Central, respectively, and purchases of $118.3 million, partially offset by sales of $15.0 million and repayments and amortization of $44.8 million. 38 OTHER INTEREST EARNING ASSETS. Other interest earning assets increased to $51.3 million at September 30, 1998 from $33.6 million at September 30, 1997 and $12.2 million as of September 30, 1996 . This category primarily represents stock in the FHLB which the Company is required to purchase as FHLB advances increase. OTHER ASSETS. Office properties and equipment, net, mortgage servicing rights, goodwill and prepaid and other assets increased by $6.8 million, $4.1 million, $17.8 million and $20.9 million, respectively, from September 30, 1997 to September 30, 1998. These increases all relate primarily to the acquisition of Consumers and Central. Accrued interest receivable increased $16.6 million from September 30, 1997 to September 30, 1998, due to the increase in the loan portfolio. Since acquiring Suncoast, the Company sold its $292 million Ginnie Mae ("GNMA") mortgage servicing portfolio for $4.7 million and transferred its FDIC/RTC subservicing portfolio. No gain or loss was recorded on either of these transactions. DEPOSITS. Deposits increased by $0.9 billion, or 75.0%, to $2.1 billion at September 30, 1998 from $1.2 billion at September 30, 1997. Management believes this increase is attributable to the Company's opening of additional branch offices, the offering of competitive interest rates and personalized service in a market area dominated by super-regional banks and continued industry consolidation. The acquisition of Consumers and Central also contributed to this increase with deposits of $88.3 million and $65.9 million, respectively. BankUnited intends to open as many as 5 branches in the 1999 fiscal year. FHLB ADVANCES. FHLB advances were $1.0 billion at September 30, 1998, up $0.3 billion from $0.7 billion at September 30, 1997. This increase was used to fund, together with deposits and other sources, the purchase of residential loans. TRUST PREFERRED SECURITIES. In March 1998, BankUnited's subsidiary, BankUnited Capital III, issued $102.5 million of Trust Preferred Securities; in June 1997, BankUnited's subsidiary, BankUnited Capital II, issued $46 million of Trust Preferred Securities; in December 1996, BankUnited's subsidiary, BankUnited Capital, issued $50 million of Trust Preferred Securities; and in March 1997, BankUnited Capital issued an additional $20 million of Trust Preferred Securities. The net proceeds from the sales of the Trust Preferred Securities were $98.9 million and $111.5 million for the years ended September 30, 1998 and 1997, respectively. These funds may be used for general corporate purposes, including, but not limited to, acquisitions by either the Bank or the Company, capital contributions to support the Bank's growth and for working capital, and the possible repurchase of shares of the Company's preferred stock subject to acceptable market conditions. In the year ended September 30, 1998, BankUnited contributed $110.0 million of additional capital to the Bank. SUBORDINATED NOTES. On August 31, 1997, BankUnited called all outstanding subordinated notes totaling $774,500. STOCKHOLDERS' EQUITY. BankUnited's total stockholders' equity was $199.3 million at September 30, 1998, an increase of $99.7 million, or 100.1% from $99.6 million at September 30, 1997. This was due primarily to the issuance of 3.7 million shares of Class A Common stock pursuant to a public stock offering in October 1997 with net proceeds of approximately $43.9 million; the issuance of 0.6 million shares of Class A Common Stock in connection with the acquisition of Consumers in January 1998 with an approximate value of $7.7 million; the issuance of 1.4 million shares of Class A Common Stock in connection with the acquisition of Central in June 1998 with an approximate value of $22.8 million; and the issuance of 1.08 million shares of Class A Common Stock, 30,000 shares of Class B Common Stock and 25,000 shares of Series B Preferred Stock in a publicly underwritten offering and a direct offering to certain directors and principal stockholders during April 1998 with net proceeds of $15.3 million. In September 1997, the Company exercised its right to call all the outstanding shares of its 8% Noncumulative Convertible Preferred Stock, Series 1996, effective October 10, 1997. As a result 927,204 shares converted to 1,548,410 shares of Class A Common Stock at a ratio of 1- 2/3 shares of common stock for each share of preferred. The remaining 5,696 shares of preferred stock were redeemed at $15 per share. In January 1998, the Company called the outstanding 743,870 shares of its Series 1993 Preferred Stock effective February 20, 1998 at $10.00 per share. Holders of shares of the Series 1993 Preferred Stock had the right to convert them into shares of the Company's Class A Common Stock at a ratio of one-for-one. Holders of 712,464 shares of Series 1993 Preferred Stock exercised their conversion right, which resulted in the issuance of 712,464 additional shares of Class A Common Stock, and 31, 406 shares of Series 1993 Preferred Stock were redeemed. In June 1998, holders of 42,655 warrants issued by Suncoast exercised their conversion right, which resulted in the issuance of 71,259 shares of Class A Common Stock. The 5,545 warrants which remained unexercised after July 9, 1998 expired pursuant to the terms of the warrant agreements. In December 1998, the Board of Directors of the Company authorized the purchase from time to time in open market transactions of up to 1,000,000 shares of the Company's Class A Common Stock at such prices as the Executive Committee shall deem advantageous. LIQUIDITY AND CAPITAL RESOURCES. BankUnited's most significant sources of funds are deposits, FHLB advances, amortization and pre-payment of mortgage loans and securities, maturities of investment securities and other short term investments, and earnings and funds provided from operations. While FHLB advances, scheduled mortgage loan repayments and securities repayments are relatively predictable sources of funds, deposit flows and prepayments on loans and mortgage-backed securities are greatly influenced by general interest rates, economic conditions and competition. BankUnited manages the pricing of its deposits to maintain a desired balance. In addition, BankUnited invests excess funds in federal funds and other short-term interest-earning assets which provide liquidity to meet lending requirements. Over the last couple of years, the Company has increased the total deposit base primarily through branch expansion in the South Florida market by 25% for transaction accounts and 75% for certificates of deposit with contractual maturities. While there 39 is no guarantee that the certificates of deposit will remain with the Company upon maturity, the Company's branch network cultivates a strong customer base which gives the Company reasonable assurance of available deposits at market rates. Management expects the Company's market share to continue to grow. Additional sources of funds are FHLB advances, which the Company generally uses as a source of funds with longer maturities than deposits. FHLB advances are limited to 30% of assets in accordance with the FHLB policy. As of September 30, 1998, the Company had 27% of FHLB advances to total assets. Other sources of short-term funds are available through other collateral borrowings. During November 1998, the Company finalized a medium-term note program which permits the issuance, from time to time, of up to $500 million of senior notes with maturities from 9 months to 10 years from the date of issue. As a condition of issuance, principal and interest on all offered notes will be supported by an irrevocable stand-by letter of credit of the FHLB of Atlanta and provide an additional source of funding, potentially with longer maturities with attractive rates. The Bank is required under applicable federal regulations to maintain specified levels of liquid investments in cash, United States government securities and other qualifying investments. Regulations currently in effect require the Bank to maintain liquid assets of not less than 4.0% of its net withdrawable accounts plus short-term borrowings. As of September 30, 1998, the Bank had liquid assets of 7.18% which was in compliance with this requirement, and as of September 30, 1997, the Bank had liquid assets of 8.49%. BankUnited's primary use of funds is to purchase or originate loans and to purchase mortgage-backed and investment securities. In fiscal 1998, 1997, and 1996, loans increased $1.2 billion, $1.1 billion, and $193.0 million, respectively, and BankUnited purchased $133.7 million, $78.6 million, and $22.7 million, respectively, of mortgage-backed and investment securities. Funding for the above came primarily from increases in deposits of $928.9 million, $689.8 million and $196.1 million in 1998, 1997 and 1996, respectively, and increases in FHLB advances and other borrowings of $543.6 million in 1998, $580.5 million in 1997 and $52.7 million in 1996. Federal savings banks such as the Bank are also required to maintain capital at levels specified by applicable minimum capital ratios. At September 30, 1998, the Bank was in compliance with all capital requirements and met the definition of a "well capitalized" institution under applicable federal regulations. YEAR 2000 The Company utilizes extensive electronic data processing hardware and software in its banking operations, among other things, to process and record customer transactions, determine and collect revenue to be earned and expenses to be paid in connection with customer transactions, maintain and report customer transaction information, record and manage the Company's short-term and long-term investments, accounting and financial management, and risk management. The Company also relies on certain vendors to provide critical services to the Company's banking operations, including telecommunications, loan servicing and correspondent banking. Failure of the electronic data processing hardware or software of the Company, its third-party service bureaus, or certain vendors to properly recognize the Year 2000 could result in a significant disruption of the Company's banking operations. The Company's customer transactions are processed through a network of electronic data processing workstations in its branch offices and loan servicing department and are recorded on electronic data processing hardware and software, a substantial portion of which are maintained by two third-party service bureaus. The Company is in the process of replacing any hardware or software in its branch offices to ensure compliance with Year 2000 issues, while one of the Company's third-party service bureaus is working with the Company to convert its customer transaction hardware and software to a more advanced version which is expected to be completed in February 1999 and which will also be Year 2000 compliant. The third-party service bureau which processes the Company's loan servicing transactions is also expected to be Year 2000 compliant. The Company is in the process of replacing any other hardware and software used in its operations as necessary for Year 2000 compliance. The Company is also seeking Year 2000 compliance certifications from its major telecommunications, loan servicing and correspondent banking vendors. While a portion of the Company's financial assets and liabilities are with commercial businesses and government sponsored entities, the Company's loans and deposits are primarily with individuals. As a result, the Company does not expect any significant disruptions resulting from customers that may not be Year 2000 compliant. While the Company does not anticipate any difficulties becoming Year 2000 compliant with its third-party service bureaus, the Company continues to monitor the feasibility of using a substitute third-party service bureau in the event of such difficulties. Following the February 1999 conversion, should any operational problems arise regarding compliance with Year 2000, the Company will immediately pursue an alternative plan. Management is unable at this time to estimate the additional costs should such alternative plans become necessary. The Company has designated a Year 2000 task force under the direction of a senior officer of the Company which is identifying and coordinating the Company's efforts to become Year 2000 compliant. Additionally, the Company and its banking subsidiary are subject to regulation and supervision by the OTS which regularly conducts reviews of the safety and soundness of the Company's operations, including the Company's progress in becoming Year 2000 compliant. Failure by the Company to adequately prepare for Year 2000 issues could negatively impact the Company's banking operations resulting in restrictions on its banking operations by the OTS. No such restrictions exist at this time, nor does the Company expect any such restrictions resulting from failure to address Year 2000 issues. The Company has estimated the costs associated with becoming Year 2000 compliant to be approximately $679,000, of which, approximately $353,000 has been expensed through September 30, 1998. 40 COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1998 AND 1997 NET INCOME AFTER PREFERRED STOCK DIVIDENDS. BankUnited had net income after preferred stock dividends of $6.5 million for the year ended September 30, 1998, compared to net income after preferred stock dividends of $4.7 million for the year ended September 30, 1997. All major categories of income and expense increased significantly in the year ended September 30, 1998 as compared to the year ended September 30, 1997 and reflect the significant growth BankUnited has experienced in the last year. Significant factors in such growth were the acquisitions of Consumers and Central, which were completed on January 23, 1998 and June 19, 1998, respectively. BankUnited's Consolidated Statement of Operations for the year ended September 30, 1998 reflects Consumers' and Central's operations from the date of acquisition. Below is a more detailed discussion of each major category of income and expenses. NET INTEREST INCOME. Net interest income increased $7.2 million, or 22.0%, to $40.0 million for the year ended September 30, 1998 from $32.8 million for the year ended September 30, 1997. This increase was attributable to an increase in average interest-earning assets of $1.6 billion, or 114.3%, to $3.0 billion for the year ended September 30, 1998 from $1.4 billion for the year ended September 30,1997 partially offset by a decrease in the net interest margin to 1.32% for the year ended September 30, 1998 from 2.31% for the year ended September 30, 1997. The increase in average interest-earning assets was primarily due to the purchase of $2.7 billion of residential mortgage loans during the 1998 fiscal year. The decrease in the net interest margin was due to a decrease in the yield on interest-earning assets to 6.86% for the year ended September 30, 1998 from 7.65% for the year ended September 30, 1997, primarily attributable to the lower yields on the loans purchased, and a 17 basis point increase in the cost of interest-bearing liabilities to 5.75% for the year ended September 30, 1998 from 5.58% for the year ended September 30, 1997. The increase in interest income of $98.8 million, or 90.8%, to $207.6 million for the year ended September 30, 1998 from $108.8 million for the year ended September 30, 1997, primarily reflects increases in interest and fees on loans of $82.6 million and a $9.6 million increase in interest on mortgage-backed securities. This increase in interest and fees on loans is due to an increase in average loans outstanding of $1.3 billion, or 108.3%, to $2.5 billion for the year ended September 30, 1998 from $1.2 billion for the year ended September 30, 1997 which resulted primarily from purchases of residential loans in the secondary mortgage market. The results of operations for the year ended September 30, 1998 reflect an acceleration in the amortization of purchase premiums on loans and mortgage-backed securities which increased from $1.1 million for the year ended September 30, 1997 to $11.4 million for the year ended September 30, 1998. The increase in premium amortization was largely the result of increased prepayments on purchased mortgage loans. Prepayments on purchased mortgage loans also negatively affect interest income since such loans are generally serviced by other entities who only remit funds received from prepayments on a monthly basis, which results in a loss of interest income from the delay in remittance and use of funds from such prepayments. As a result of prepayments and because many of the loans purchased are adjustable-rate mortgages in the "teaser" period, the yield on loans declined from 7.78% for the year ended September 30, 1997 to 7.01% for the year ended September 30, 1998. This 77 basis point drop in the yield earned on loans was a significant factor in the decline of the yield on interest earning assets. The increase in interest expense of $91.5 million, or 120.4%, to $167.5 million for the year ended September 30, 1998 from $76.0 million for the year ended September 30, 1997 primarily reflects an increase in interest expense on interest-bearing deposits of $43.3 million, or 86.4%, to $93.4 million for the year ended September 30, 1998, from $50.1 million for the year ended September 30, 1997, an increase in interest expense on FHLB advances of $32.9 million to $51.6 million for the year ended September 30, 1998, from $18.7 million for the year ended September 30, 1997, an increase in preferred dividends of the trust subsidiaries of $10.5 million to $17.0 million for the year ended September 30, 1998 from $6.5 million for the year ended September 30, 1997 and an increase in interest expense on securities sold under agreements to repurchase of $5.0 million to $5.5 million for the year ended September 30, 1998 from $0.5 million for the year ended September 30, 1997. This was due to an increase in average interest-bearing deposits of $777.4 million, or 80.6%,to $1.7 billion for the year ended September 30, 1998, from $964.4 million for the year ended September 30, 1997. Approximately $79.1 million of this increase represents deposits acquired with Consumers and Central. The average rate paid on interest-bearing deposits increased 16 basis points to 5.36% for the year ended September 30, 1998 from 5.20% for the year ended September 30, 1997. PROVISION FOR LOAN LOSSES. The provision for loan losses for the year ended September 30, 1998 was $1.7 million as compared with a provision for loan losses of $1.3 million for the year ended September 30, 1997. The provision for loan losses represents management's estimate of the charge to operations after reviewing the nature, volume, delinquency status, and inherent risk in the loan portfolio in relation to the allowance for loan losses. For a detailed discussion of BankUnited's asset quality and allowance for loan losses, see "--Discussion of Financial Condition Changes for the Years Ended September 30, 1998, 1997 and 1996--Credit Quality." NON-INTEREST INCOME. Non-interest income for the year ended September 30, 1998 was $6.2 million compared with $4.1 million for the year ended September 30, 1997, an increase of $2.1 million. Of this increase, $3.6 million represents gains on the sale of loans and mortgage backed securities, partially offset by a $2.3 million decrease in loan servicing fee income, net, primarily due to the acceleration of amortization of mortgage servicing rights resulting from an increase in prepayments. The remaining increase was primarily attributable to service fees on deposits reflecting the increase in the amount of deposits outstanding. NON-INTEREST EXPENSES. Operating expenses increased $9.3 million, or 40.6%, to $32.2 million for the year ended September 30, 1998 compared to $22.9 million for the year ended September 30, 1997. The increase in expenses was attributable to the growth BankUnited has experienced including the expenses of Consumers' and Central's operations. 41 INCOME TAXES. The income tax provision was $5.0 million for each of the years ended September 30, 1998 and 1997. PREFERRED STOCK DIVIDENDS. Preferred stock dividends for the year ended September 30, 1998 were $0.9 million, a decrease of $2.0 million, as compared to $2.9 million for the year ended September 30, 1997. This decrease is the result of the retirement, in October 1997, of the 8% Noncumulative Convertible Preferred Stock, Series 1996, issued in connection with the acquisition of Suncoast and ,in January 1998, of the Series 1993 Preferred Stock, partially offset by the issuance of the Series B Preferred Stock in April 1998. COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1996 NET INCOME AFTER PREFERRED STOCK DIVIDENDS. BankUnited had net income after preferred stock dividends of $4.7 million for the year ended September 30, 1997, compared to net income after preferred stock dividends of $441,000 for the year ended September 30, 1996. All major categories of income and expense increased significantly in the year ended September 30, 1997 as compared to the year ended September 30, 1996 and reflect the significant growth BankUnited experienced in fiscal 1997. A significant factor in such growth was the acquisition of Suncoast, which was completed on November 15, 1996. BankUnited's Consolidated Statement of Operations for the year ended September 30, 1997 reflects Suncoast's operations from the date of acquisition. Below is a more detailed discussion of each major category of income and expenses. NET INTEREST INCOME. Net interest income increased $13.9 million, or 78.8%, to $31.5 million for the year ended September 30, 1997 from $17.6 million for the year ended September 30, 1996. This increase was attributable to an increase in average interest-earning assets of $726.0 million, or 104.3%, to $1.4 billion for the year ended September 30, 1997 from $696.4 million for the year ended September 30, 1996. Approximately $350 million of the increase in average interest-earning assets for the year ended September 30, 1997 was a result of the acquisition of Suncoast. The remaining increase in average interest-earning assets is due primarily to loan purchases. The average yield on interest-earning assets increased 16 basis points to 7.65% for the year ended September 30, 1997, from 7.49% for the year ended September 30, 1996. The increase in average yield was attributable to an increase in the yield on loans receivable relating primarily to commercial real estate and construction loans acquired with Suncoast. Suncoast had a greater percentage of higher yielding commercial real estate and construction loans than the Bank. The increase in interest income of $56.6 million, or 108.8%, to $108.8 million for the year ended September 30, 1997 from $52.1 million for the year ended September 30, 1996, primarily reflects increases in interest and fees on loans of $53.3 million. The average yield on loans receivable increased to 7.78% for the year ended September 30, 1997 from 7.65% for the year ended September 30, 1996 and the average balance of loans receivable increased $676.9 million, or 125.3%, to $1.2 billion for the year ended September 30, 1997. Approximately $300 million of the increase in loans was due to the acquisition of Suncoast and, as stated above, the increase in the yield on loans was also attributed to Suncoast. The increase in interest expense of $41.3 million, or 119.4%, to $76.0 million for the year ended September 30, 1997 from $34.6 million for the year ended September 30, 1996 primarily reflects an increase in interest expense on interest-bearing deposits of $29.3 million, or 141.1%, from $20.8 million for the year ended September 30, 1996, to $50.1 million for the year ended September 30, 1997, an increase in interest expense on FHLB advances of $5 million from $13.8 million for the year ended September 30, 1996 to $18.8 million for the year ended September 30, 1997, and interest expense of $6.5 million on Trust Preferred Securities which were issued in fiscal 1997. This increase was due to an increase in average interest-bearing deposits of $557.8 million, or 137.2%, from $406.6 million for the year ended September 30, 1996 to $964.4 million for the year ended September 30, 1997. Approximately $250 million of this increase represents deposits acquired with Suncoast. The average rate paid on interest-bearing deposits increased 9 basis points from 5.11% for the year ended September 30, 1996 to 5.20% for the year ended September 30, 1997. PROVISION FOR LOAN LOSSES. The provision for loan losses for the year ended September 30, 1997 was $1.3 million as compared with a credit for loan losses of $120,000 for the year ended September 30, 1996. The credit in 1996 was due to a recovery of approximately $1 million as a result of a legal settlement relating to certain loans previously purchased. The provision for loan losses represents management's estimate of the charge to operations after reviewing the nature, volume, delinquency status, and inherent risk in the loan portfolio in relation to the allowance for loan losses. For a detailed discussion of BankUnited's asset quality and allowance for loan losses, see "--Discussion of Financial Condition Changes for the Years Ended September 30, 1997, 1996 and 1995--Credit Quality." NON-INTEREST INCOME. Non-interest income for the year ended September 30, 1997 was $4.1 million compared with $649,000 for the year ended September 30, 1996, an increase of $3.4 million. Of this increase, $1.6 million represents loan servicing fees (net of amortization of capitalized servicing rights) from operations acquired with Suncoast, and $819,000 represent gains on the sale of loans and mortgage backed securities. The remaining increase was primarily attributable to service fees on deposits reflecting the increase in the amount of deposits outstanding. NON-INTEREST EXPENSES. Operating expenses increased $8.9 million, or 63.5%, to $22.9 million for the year ended September 30, 1997 compared to $14.0 million for the year ended September 30, 1996. The increase in expenses was attributable to the growth BankUnited has experienced including the expenses of Suncoast's operations. The year ended September 30, 1996 included a one time assessment to replenish the Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation (FDIC) of $2.6 million. 42 INCOME TAXES. The income tax provision was $5.0 million for the year ended September 30, 1997 compared to $1.7 million for the year ended September 30, 1996. The increase in income taxes was the result of BankUnited's higher pre-tax earnings during the year ended September 30, 1997, compared to the year ended September 30, 1996. PREFERRED STOCK DIVIDENDS. Preferred stock dividends for the year ended September 30, 1997 were $2.9 million, an increase of $745,000, as compared to $2.1 million for the year ended September 30, 1996. This increase is the result of dividends paid on the 8% Noncumulative Convertible Preferred Stock, Series 1996, issued in connection with the acquisition of Suncoast and retired in October, 1997, partially offset by the conversion of the Noncumulative Convertible Preferred Stock, Series C and C-II in February 1997. 43 SELECTED QUARTERLY FINANCIAL DATA Set forth below is selected quarterly data for the fiscal years ended September 30, 1998 and 1997. The quarterly financial data for the fourth quarter of 1998 and 1997 was not reviewed by the Company's independent certified public accountants in accordance with standards established for such reviews.
1998 --------------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ----------- ----------- (Dollars in thousands, except per share data) Net interest income.................................... $ 9,367 $ 11,360 $ 8,151 $ 11,146 Provision for loan losses.............................. 650 400 300 350 Non-interest income.................................... 1,644 1,015 2,503 1,063 Non-interest expense................................... 7,025 8,170 8,054 8,934 ----------- ----------- ----------- ----------- Income before taxes and preferred stock dividends...... 3,336 3,805 2,300 2,925 Income taxes........................................... 1,361 1,513 949 1,186 ----------- ----------- ----------- ----------- Net income before preferred stock dividends............ 1,975 2,292 1,351 1,739 Preferred stock dividends.............................. 332 182 185 198 ----------- ----------- ----------- ----------- Net income applicable to common stock.................. $ 1,643 $ 2,110 $ 1,166 $ 1,541 =========== =========== =========== =========== Basic earnings per share............................... $ 0.13 $ 0.14 $ 0.07 $ 0.09 =========== =========== =========== =========== Diluted earnings per share............................. $ 0.12 $ 0.13 $ 0.07 $ 0.08 =========== =========== =========== ===========
In the fourth quarter of 1998, as a result of increased prepayments, the Company recorded amortization expense of approximately $6.8 million relating to premiums on loans and mortgage-backed securities. In addition, during the fourth quarter, the Company adjusted normal recurring accruals of certain non-interest and operating expenses, deferred loan costs and estimates of required reserves based upon management's determination of amounts so required, in an aggregate of approximately $1.0 million resulting in an increase to net income before taxes.
1997 --------------------------------------------------------- First Second Third Fourth QUARTER QUARTER QUARTER QUARTER ----------- ----------- ---------- ----------- (Dollars in thousands, except per share data) Net interest income.................................... $ 7,076 $ 8,001 $ 8,842 $ 8,895 Provision for loan losses.............................. 250 165 280 600 Non-interest income.................................... 600 1,001 916 1,543 Non-interest expense................................... 4,805 5,751 6,158 6,233 ----------- ----------- ----- ----------- Income before taxes and preferred stock dividends...... 2,621 3,086 3,320 3,605 Income taxes........................................... 1,022 1,243 1,329 1,439 ----------- ----------- ----------- ----------- Net income before preferred stock dividends............ 1,599 1,843 1,991 2,166 Preferred stock dividends.............................. 672 777 718 723 ----------- ----------- ----------- ----------- Net income applicable to common stock.................. $ 927 $ 1,066 $ 1,273 $ 1,443 =========== =========== =========== =========== Basic earnings per share............................... $ 0.14 $ 0.13 $ 0.14 $ 0.16 =========== =========== =========== =========== Diluted earnings per share............................. $ 0.13 $ 0.12 $ 0.14 $ 0.15 =========== =========== =========== ===========
44 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The business of the Company and the composition of its balance sheet consists of investments in interest-earning assets (primarily loans, mortgage-backed securities, and investment securities) which are primarily funded by interest-bearing liabilities (deposits and borrowings). Such financial instruments have varying levels of sensitivity to changes in market interest rates resulting in market risk. Other than loans which are originated and held for sale, all of the financial instruments of the Company are for other than trading purposes. Interest rate risk results when the maturity or repricing intervals and interest rate indices of the interest-earning assets, interest-bearing liabilities, and off-balance sheet financial instruments are different, creating a risk that changes in the level of market interest rates will result in disproportionate changes in the value of, and the net earnings generated from, the Company's interest-earning assets, interest-bearing liabilities, and off-balance sheet financial instruments. The Company's exposure to interest rate risk is managed primarily through the Company's strategy of selecting the types and terms of interest-earning assets and interest-bearing liabilities which generate favorable earnings, while limiting the potential negative effects of changes in market interest rates. Since the Company's primary source of interest-bearing liabilities is customer deposits, the Company's ability to manage the types and terms of such deposits may be somewhat limited by customer preferences in the market areas in which the Company operates. Borrowings, which include FHLB advances, short-term borrowings, and long-term borrowings, are generally structured with specific terms which in management's judgement, when aggregated with the terms for outstanding deposits and matched with interest-earning assets, mitigate the Company's exposure to interest rate risk. The rates, terms and interest rate indices of the Company's interest-earning assets result primarily from the Company's strategy of investing in loans and securities (a substantial portion of which have adjustable-rate terms) which permit the Company to limit its exposure to interest rate risk, together with credit risk, while at the same time achieving a positive interest rate spread from the difference between the income earned on interest-earning assets and the cost of interest-bearing liabilities (see "Business--Factors Affecting Earnings--Asset and Liability Management" for a further discussion of rate sensitive assets, rate sensitive liabilities and net interest spread). SIGNIFICANT ASSUMPTIONS UTILIZED IN MANAGING INTEREST RATE RISK Managing the Company's exposure to interest rate risk involves significant assumptions about the exercise of imbedded options and the relationship of various interest rate indices of certain financial instruments. IMBEDDED OPTIONS. A substantial portion of the Company's loans and mortgage-backed securities are residential mortgage loans containing significant imbedded options which permit the borrower to prepay the principal balance of the loan prior to maturity ("prepayments") without penalty. A loan's propensity for prepayment is dependent upon a number of factors, including, the current interest rate and interest rate index (if any) on the loan, the financial ability of the borrower to refinance, the economic benefit to be obtained from refinancing, availability of refinancing at attractive terms, as well as economic and other factors in specific geographic areas which affect the sales and price levels of residential property. In a changing interest rate environment, prepayments may increase or decrease on fixed- and adjustable-rate loans depending on the current relative levels and expectations of future short- and long-term interest rates. Since a significant portion of the Company's loans are ARM loans, prepayments on such loans generally increase when long-term interest rates fall or are at historically low levels relative to short-term interest rates making fixed-rate loans more desirable. Investment securities, other than those with early call provisions, generally do not have significant imbedded options and repay pursuant to specific terms until maturity. While savings and checking deposits generally may be withdrawn upon the customer's request without prior notice, a continuing relationship with customers resulting in future deposits and withdrawals is generally predictable resulting in a dependable and uninterruptible source of funds. Time deposits generally have early withdrawal penalties, while term FHLB Advances have prepayment penalties, which discourage customer withdrawal of time deposits and prepayment of FHLB Advances prior to maturity. The Company's trust preferred securities may be redeemed at varying times, and as to $70 million of such securities, until 2016, at a premium. (See Note 12 of the Notes to Consolidated Financial Statements for further discussion of the trust preferred securities). INTEREST RATE INDICES. The Company's ARM loans and mortgage-backed securities are primarily indexed to the One Year Constant Maturity Treasury Index (see "Business--Lending Activities"). When such loans and mortgage-backed securities are funded by interest-bearing liabilities which are determined by other indices, primarily deposits and FHLB advances, a changing interest rate environment may result in different levels of change in the different indices leading to disproportionate changes in the value of, and the net earnings generated from, the Company's financial instruments. Each index is unique and is influenced 45 by different external factors, therefore, the historical relationships in various indices may not necessarily be indicative of the actual change which may result in a changing interest rate environment. 46 INTEREST RATE RISK MEASUREMENT In addition to periodic gap reports (see "Business--Factors Affecting Earnings--Asset and Liability Management") comparing the sensitivity of interest-earning assets and interest-bearing liabilities to changes in interest rates, management also utilizes a quarterly report ("model") prepared for the Bank by the OTS based on information provided by the Bank which measures the Bank's exposure to interest rate risk. The model calculates the present value of assets, liabilities, off-balance sheet financial instruments, and equity at current interest rates, and at hypothetical higher and lower interest rates at one percent intervals. The present value of each major category of financial instrument is calculated by the model using estimated cash flows based on weighted average contractual rates and terms at discount rates representing the estimated current market interest rate for similar financial instruments. The present value of the interest rate caps is calculated by the model using estimated cash flows based on the contractual rates and terms at a discount rate representing the index to which the interest rate caps are tied. The resulting present value of longer term fixed-rate financial instruments are more sensitive to change in a higher or lower market interest rate scenario, while adjustable-rate financial instruments largely reflect only a change in present value representing the difference between the contractual and discounted rates until the next interest rate repricing date. The following table reflects the estimated present value of interest-earning assets, interest-bearing liabilities, and off-balance sheet financial instruments as calculated by the OTS for the Bank as of September 30, 1998, consolidated with the estimated present values of other financial instruments of the Company, at current interest rates and at hypothetical higher and lower interest rates of one and two percent.
AT SEPTEMBER 30, 1998 PRESENT VALUE --------------------------------------------------------------------------- -2% -1% CURRENT +1% +2% -------------- ------------- ------------- -------------- ------------- Interest-earning assets: Investments, tax certificates, Federal funds sold, FHLB overnight deposits and other interest earning assets, at cost.............................. $ 198,567 $ 196,731 $ 194,948 $ 194,200 $ 191,549 Mortgage-backed securities............. 348,445 345,764 343,115 338,054 331,164 Loans: Adjustable-rate mortgages.............. 1,899,162 1,883,720 1,869,052 1,851,441 1,826,847 Fixed-rate mortgages................... 1,394,086 1,368,699 1,340,019 1,288,675 1,222,284 Commercial and consumer loans.......... 52,104 51,495 50,902 50,323 49,757 -------------- ------------- ------------- -------------- ------------- Total loans.......................... 3,345,352 3,303,914 3,259,973 3,190,439 3,098,888 -------------- ------------- ------------- -------------- ------------- Total interest-earning assets.......... $ 3,892,364 $ 3,846,409 $ 3,798,036 $ 3,722,693 $ 3,621,601 ============== ============= ============= ============== ============= Interest-bearing liabilities: Customer deposits: Money market and NOW accounts........ $ 233,661 $ 233,661 $ 233,661 $ 233,661 $ 233,661 Passbook accounts.................... 257,780 257,780 257,780 257,780 257,780 Certificate accounts................. 1,660,614 1,651,162 1,641,745 1,632,549 1,623,507 -------------- ------------- ------------- -------------- ------------- Total customer deposits.............. 2,152,055 2,142,603 2,133,186 2,123,990 2,114,948 Borrowings: FHLB advances........................ 1,096,430 1,060,280 1,026,135 993,863 963,340 Trust preferred...................... 230,117 221,266 212,915 205,029 197,575 Other borrowings..................... 121,148 121,148 121,148 121,148 121,148 -------------- ------------- ------------- -------------- ------------- Total borrowings..................... 1,447,695 1,402,694 1,360,198 1,320,040 1,282,063 -------------- ------------- ------------- -------------- ------------- Total interest-bearing liabilities..... $ 3,599,750 $ 3,545,297 $ 3,493,384 $ 3,444,030 $ 3,397,011 ============== ============= ============= ============== ============= Loan commitments and interest rate caps... $ (19,815) $ (11,946) $ (4,180) $ 549 $ 3,667 ============= ============ ============ ============== =============
The calculations of present value have certain shortcomings. The discount rates utilized for loans and mortgage-backed securities are based on estimated market interest rate levels for similar loans and securities nationwide, with prepayment levels generally assumed based on global statistics. The unique characteristics of the Company's loans and mortgage-backed securities may not necessarily parallel those assumed in the model, and therefore, would likely result in different discount rates, prepayment 47 experiences, and present values. The discount rates utilized for deposits and borrowings are based upon available alternative types and sources of funds which are not necessarily indicative of the present value of deposits and FHLB Advances since such deposits and Advances are unique to, and have certain price and customer relationship advantages for, depository institutions. The present values are determined based on the discounted cash flows over the remaining estimated lives of the financial instruments and assumes that the resulting cash flows are reinvested in financial instruments with virtually identical terms. The total measurement of the Company's exposure to interest rate risk as presented in the above table may not be representative of the actual values which might result from a higher or lower interest rate environment. A higher or lower interest rate environment will most likely result in different investment and borrowing strategies by the Company designed to further mitigate the effect on the value of, and the net earnings generated from, the Company's net assets from any change in interest rates. NET PORTFOLIO VALUE. The OTS adopted a final rule in August of 1993 incorporating an interest rate risk ("IRR") component into the risk-based capital rules (see "Regulation"). The IRR component is a dollar amount that is deducted from total capital for the purpose of calculating an institution's risk-based capital requirement and is measured in terms of the sensitivity of its net portfolio value ("NPV") to changes in interest rates. An institution's NPV is calculated as the net discounted cash flows from assets, liabilities, and off-balance sheet contracts. An institution's IRR component is measured as the change in the ratio of NPV to the net present value of total assets as a result of a hypothetical 200 basis point change in market interest rates. A resulting decline in this ratio of more than 2% of the estimated present value of an institution's total assets prior to the hypothetical 200 basis point change will require the institution to deduct from its regulatory capital 50% of that excess decline. Implementation of the rule has been postponed indefinitely. The following table presents the Bank's ratio of NPV to the present value of total assets as of September 30, 1998, as calculated by the OTS, based on information provided to the OTS by the Bank.
CHANGE IN INTEREST RATES RATIO OF NPV IN BASIS POINTS PRESENT VALUE OF TO THE PRESENT VALUE OF (RATE SHOCK) NPV TOTAL ASSETS TOTAL ASSETS CHANGE ----------------------- --- ---------------- ----------------------- ------ (DOLLARS IN THOUSANDS) +200 $ 273,973 $3,521,702 7.78% (16.72)% +100 312,389 3,603,318 8.67 (4.73) Static 328,964 3,666,638 8.97 - -100 317,941 3,707,525 8.58 (3.35) -200 304,220 3,747,892 8.12 (7.52)
Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the loan. Further, in the event of a change in interest rates, prepayment and early withdrawal levels could deviate significantly from those assumed in calculating the tables. Finally, the ability of many borrowers to service their debt may decrease in the event of a significant interest rate increase. In addition, the previous table does not necessarily indicate the impact of general interest rate movements on the Company's net interest income because the repricing of certain categories of assets and liabilities are subject to competitive and other pressures beyond the Company's control. As a result, certain assets and liabilities indicated as maturing or otherwise repricing within a stated period may in fact mature or reprice at different times and at different volumes. RISKS ASSOCIATED WITH THE COMPANY'S ADJUSTABLE RATE MORTGAGE LOANS. The Company has purchased and intends to continue to purchase a significant amount of residential mortgage loans. During the fiscal years ended September 30, 1998 and 1997, the Company purchased $2.7 billion and $913.7 million, respectively, of one-to-four family residential loans, of which $2.0 billion and $728.2 million, respectively, were ARM loans. At September 30, 1998 the Company's residential loan portfolio included $1.6 billion of ARMs (55.2% of the Company's gross loan portfolio). The ARMs purchased by the Company have annual interest rate adjustment caps that limit rate increases or decreases to 2% per year. Further, a portion of the ARMs purchased by the Company provide for initial rates of interest below the rates which would prevail were the contractual index and margin used for repricing applied initially (the "teaser rate period"). 48 If market interest rates rise rapidly, the annual and lifetime interest rate adjustment caps on the ARMs may limit the increase in the interest rates on ARMs relative to the increase in market interest rates, and yields on ARMs with teaser rates may be limited to repricing at interest rates below the contractual index plus the margin. At September 30, 1998, $492.4 million of the Company's ARM loans (17.3% of the Company's gross loan portfolio) were in the teaser rate period with an average teaser rate of 6.21% and an average fully indexed rate of 7.48%. Rapid increases in market interest rates may not be fully reflected in loans which are in the teaser rate period and may, accordingly, have a negative impact on the Company's net interest margin. REFINANCING RISKS. A significant portion of the Company's loans receivable are single-family residential mortgages that generally have an imbedded option that allows the borrower to prepay the loan at any time without penalty. A substantial portion of these loans have been purchased by the Company in the secondary mortgage market at a premium. In the current interest rate environment, when long-term interest rates are generally low on a historical basis and the spread between short-term rates and long-term rates is relatively narrow, prepayments of ARMs and higher fixed-rate mortgages tend to accelerate. In addition, at September 30, 1998, $492.4 million of the Company's ARMs had teaser rates, which will be subject to interest rate adjustments within the next twelve months. Teaser rate loans may tend to be prepaid near the end of the teaser period in the current interest rate environment, creating higher levels of prepayments on loans overall which the Company may not be able to reinvest quickly enough and at sufficient interest rates to mitigate the effect on it net interest margin. Premiums, net of discounts and deferred origination costs, which at September 30, 1998 were $29.9 million, are recognized as a reduction to interest income using the interest method over the contractual life of the loans adjusted for estimated prepayments, based on the Company's historical prepayment experience. As prepayments accelerate, the Company's historical prepayment experience changes, resulting in a shortening of the estimated life of the loan portfolio, and an increase in the rate at which premiums are expensed, resulting in a greater reduction in interest income. Accelerated prepayments could, therefore, have a material adverse effect on the Company's results of operations. Based on a continuation of the current interest rate environment, a significant portion of the premium may be expensed in a relatively short term period. AVAILABILITY OF MORTGAGE LOANS. The Company's net income depends significantly on its ability to acquire mortgage loans an acceptable terms and at favorable spreads over the Company's borrowing costs. If the Company is unable to acquire mortgage loans, its results of operations will be adversely affected. In acquiring mortgage loans, the Company will compete with REITs, investment banking firms, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, other lenders, FNMA, FHLMC, GNMA and other entities purchasing mortgage loans, some of which have greater financial resources than the Company. Increased competition for the acquisition of eligible mortgage loans or a diminution in the supply could result in higher prices and, thus, lower yields on such mortgage loans that could further narrow the yield spread over borrowing costs. The availability of mortgage loans meeting the Company's criteria is dependent upon, among other things, the size and level of activity in the residential real estate lending market, which depends on various factors, including the level of interest rates, regional and national economic conditions and changes in residential real estate values. To the extent the Company is unable to acquire a sufficient volume of mortgage loans meeting its criteria, the Company's results of operations would be adversely affected. RISKS ASSOCIATED WITH INVESTMENTS AND MORTGAGE-BACKED SECURITIES. The Company purchases fixed and adjustable rate mortgage-backed and other securities for liquidity, yield and risk management purposes. The Company has also, and will continue to, securitize whole loans in its loan portfolio primarily for liquidity and collateral purposes. Such securities provide liquidity through the ability of the Company to dispose of certain securities from time to time and the ability of the Company to use securities as collateral for borrowings, thereby adding leverage capability and lower borrowing costs. Certain securities are purchased for risk management purposes when the terms of those securities mitigate interest rate, credit, prepayment or basis risk within the Company's balance sheet. Certain purchases of securities may increase risk in one area while decreasing risk in another, or may not mitigate any existing risk. The Company manages its exposure to risk in its acquisition of securities through its selection of prices, collateral and terms. Changes in market interest rates and/or prepayment rates associated with the Company's investments and mortgage-backed securities could negatively impact the Company's net interest margin. 49 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA BANKUNITED FINANCIAL CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE ---- Report of Independent Certified Public Accountants........................ 52 Consolidated Statements of Financial Condition as of September 30, 1998 and September 30, 1997................................................. 53 Consolidated Statements of Operations for the Years Ended September 30, 1998, 1997 and 1996...................................... 54 Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1998, 1997 and 1996...................................... 55 Consolidated Statements of Cash Flows for the Years Ended September 30, 1998, 1997 and 1996...................................... 58 Notes to Consolidated Financial Statements................................ 60 50 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1998, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Miami, Florida December 7, 1998 51 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, ------------------------------ 1998 1997 ------------- ------------- (Dollars in thousands) ASSETS: Cash................................................................................... $ 26,243 $ 10,571 Federal Home Loan Bank overnight deposits.............................................. 65,268 79,413 Tax certificates (net of reserves of $469 and $697 at September 30, 1998 and 1997, respectively)........................................................................ 40,007 49,283 Investments held to maturity (market value of approximately $14,699 and $14,613 at September 30, 1998 and 1997, respectively)........................................... 14,542 14,494 Investments available for sale, at market.............................................. 23,661 10,166 Mortgage-backed securities, held to maturity (market value of approximately $143,505 and $11,292 at September 30, 1998 and 1997, respectively)............................ 146,146 11,352 Mortgage-backed securities available for sale, at market............................... 199,610 108,919 Loans receivable, net.................................................................. 2,869,604 1,661,381 Mortgage loans held for sale (market value of approximately $179,503 and $105,980 at September 30, 1998 and 1997,respectively)........................................ 172,410 104,342 Other interest earning assets.......................................................... 51,313 33,599 Office properties and equipment, net................................................... 14,198 7,371 Real estate owned...................................................................... 1,974 611 Accrued interest receivable............................................................ 32,864 16,261 Mortgage servicing rights.............................................................. 8,917 4,783 Goodwill............................................................................... 32,106 14,278 Prepaid expenses and other assets...................................................... 39,520 18,582 ------------- ------------- TOTAL................................................................................ $ 3,738,383 $ 2,145,406 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY: LIABILITIES: Deposits............................................................................... $ 2,124,824 $ 1,195,892 Securities sold under agreements to repurchase......................................... 121,148 30,000 Advances from Federal Home Loan Bank................................................... 1,021,466 671,484 Company obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely junior subordinated deferrable interest debentures of the Company..... 218,500 116,000 Interest payable (primarily on deposits and advances from Federal Home Loan Bank)...... 7,825 3,844 Advance payments by borrowers for taxes and insurance.................................. 12,645 10,688 Accrued expenses and other liabilities................................................. 32,683 17,853 ------------- ------------- TOTAL LIABILITIES.................................................................... 3,539,091 2,045,761 ------------- ------------- COMMITMENTS AND CONTINGENCIES (Notes 8 and 17) STOCKHOLDERS' EQUITY: Preferred stock, Series B, Series 1993, Series 9% and Series 1996, $0.01 par value. Authorized shares--10,000,000; issued and outstanding shares - 926,697 and 2,175,296 at September 30, 1998 and 1997, respectively................... 9 22 Class A Common Stock, $.01 par value. Authorized shares--30,000,000; issued and outstanding shares - 17,816,213 and 9,257,098 at September 30, 1998 and 1997, respectively......................................................................... 178 92 Class B Common Stock, $.01 par value. Authorized shares--3,000,000; issued and outstanding shares - 331,743 and 275,685 at September 30, 1998 and 1997, respectively........................................................................ 3 3 Additional paid-in capital............................................................. 178,777 86,679 Retained earnings...................................................................... 18,448 11,988 Net unrealized gains on securities available for sale, net of tax...................... 1,877 861 ------------- ------------- TOTAL STOCKHOLDERS' EQUITY........................................................... 199,292 99,645 ------------- ------------- TOTAL.............................................................................. $ 3,738,383 $ 2,145,406 ============= =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 52 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30: --------------------------------------------- 1998 1997 1996 ---------- ---------- ---------- (Dollars in thousands, except per share data) Interest income: Interest and fees on loans............................................... $ 177,252 $ 94,655 $ 41,313 Interest on mortgage-backed securities................................... 16,588 7,035 4,250 Interest on short-term investments....................................... 5,013 1,613 2,359 Interest and dividends on long-term investments and other interest-earning assets................................................ 8,714 5,471 4,210 ---------- ---------- ---------- Total interest income................................................ 207,567 108,774 52,132 ---------- ---------- ---------- Interest expense: Interest on deposits..................................................... 93,431 50,136 20,791 Interest on borrowings................................................... 57,160 19,351 13,831 Preferred dividends of Trust Subsidiary.................................. 16,952 6,473 - ---------- ---------- ---------- Total interest expense................................................. 167,543 75,960 34,622 ---------- ---------- ---------- Net interest income before provision (credit) for loan losses........ 40,024 32,814 17,510 Provision (credit) for loan losses.......................................... 1,700 1,295 (120) ---------- ---------- ---------- Net interest income after provision (credit) for loan losses............. 38,324 31,519 17,630 ---------- ---------- ---------- Non-interest income: Service fees, net........................................................ 1,139 2,993 597 Net gain on sale of loans and mortgage-backed securities................. 4,429 819 5 Net gain (loss) on sale of other assets.................................. 6 1 (6) Other ................................................................... 651 247 53 ---------- ---------- ---------- Total non-interest income.............................................. 6,225 4,060 649 ---------- ---------- ---------- Non-interest expenses: Employee compensation and benefits....................................... 10,943 8,880 4,275 Occupancy and equipment.................................................. 4,854 3,568 1,801 Insurance................................................................ 1,185 948 3,610 Professional fees--legal and accounting.................................. 1,891 1,605 929 Data processing.......................................................... 1,109 992 340 Loan servicing expense................................................... 5,313 1,796 979 Real estate owned operations............................................. 82 301 73 Other operating expenses................................................. 6,806 4,857 2,029 ---------- ---------- ---------- Total non-interest expenses............................................ 32,183 22,947 14,036 ---------- ---------- ---------- Income before income taxes and preferred stock dividends................. 12,366 12,632 4,243 Income taxes................................................................ 5,009 5,033 1,657 ---------- ---------- ---------- Net income before preferred stock dividends.............................. 7,357 7,599 2,586 Preferred stock dividends of the Company.................................... 897 2,890 2,145 ---------- ---------- ---------- Net income after preferred stock dividends............................... $ 6,460 $ 4,709 $ 441 ========== ========== ========== Basic earnings per share.................................................... $ 0.41 $ 0.57 $ 0.10 ========== ========== ========== Diluted earnings per share.................................................. $ 0.39 $ 0.54 $ 0.10 ========== ========== ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 53 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 --------------------------------------------------------------------- CLASS A CLASS B PREFERRED STOCK COMMON STOCK COMMON STOCK --------- ---------- ---------------------- -------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT --------- ---------- ---------- --------- -------- --------- (Dollars in thousands) BALANCE AT SEPTEMBER 30, 1995........... 2,679,107 $ 27 1,835,170 $ 18 232,324 $ 2 Conversion of Preferred Stock to Common Stock Class A............ (14,560) - 21,340 - - - Issuance of Class A and Class B Common Stock....................... - - 25,210 - 19,191 1 Underwritten public offering of the Company's Common Class A, net...... - - 3,565,000 36 - - Payment of dividends on the Company's Preferred Stock.......... - - 7,481 - - - Net change in unrealized loss on investments available for sale..... - - - - - - Net income for the year ended September 30, 1996................. - - - - - - --------- ---------- ---------- --------- -------- --------- BALANCE AT SEPTEMBER 30, 1996........... 2,664,547 27 5,454,201 54 251,515 3 Issuance of Class A and Class B Common Stock....................... - - 40,357 - 24,423 - Conversion of Preferred Stock to Common Class A.................. (973,568) (10) 1,470,359 13 - - Conversion of Common Class B to Common Class A.................. - - 253 - (253) - Preferred Stock, Series 9% tender offer....................... (448,583) (4) - - - - Issuance of Stock in connection with the Suncoast acquisition...... 920,000 9 2,199,730 22 - - Stock options and warrants exercised.......................... 12,900 - 89,004 - - - Payments of dividends on the Company's Preferred Stock.......... - - 3,194 3 - - Net change in unrealized gain on investments available for sale..... - - - - - - Net income for the year ended September 30, 1997................. - - - - - - --------- ---------- ---------- --------- -------- --------- BALANCE AT SEPTEMBER 30, 1997........... 2,175,296 22 9,257,098 92 275,685 3 Issuance of Class A and Class B Common Stock....................... - - 35,477 - 3,541 - Conversion of Preferred Stock to Common Class A..................(1,290,061) (13) 1,614,104 16 - - Issuance of Series B Preferred Stock. 20,762 - - - - - Preferred Stock, Series 9% tender offer....................... (4,300) - - - - - Underwritten public offering and direct offering of the Company's Class A and Class B Common Stock and Series B Preferred Stock, net...... 25,000 - 4,761,500 48 30,000 - Issuance of Stock in connection with the Consumers Bancorp acquisition...... - - 562,508 6 - - Issuance of Stock in connection with the Central Bank acquisition........... - - 1,386,000 14 - - Stock options and warrants exercised. - - 195,584 2 22,517 - Payments of dividends on the Company's Preferred Stock.......... - - 3,942 - - - Net change in unrealized gain on investments available for sale..... - - - - - - Net income for the year ended September 30, 1998................. - - - - - - --------- ---------- ---------- --------- -------- --------- BALANCE AT SEPTEMBER 30, 1998........... 926,697 $ 9 17,816,213 $ 178 331,743 $ 3 ========= ========== ========== ========= ======== =========
54
UNREALIZED GAIN(LOSS) ON SECURITIES AVAILABLE TOTAL PAID-IN RETAINED FOR SALE, STOCKHOLDERS' CAPITAL EARNINGS NET OF TAX EQUITY ------------- ------------- ------------- ------------- (Dollars in thousands) BALANCE AT SEPTEMBER 30, 1995.......................... $ 38,835 $ 6,838 $ 25 $ 45,745 Conversion of Preferred Stock to Common Stock Class A........................... - - - - Issuance of Class A and Class B Common Stock...................................... 330 - - 331 Underwritten public offering of the Company's Common Class A, net................. 22,831 - - 22,867 Payment of dividends on the Company's Preferred Stock......................... 59 (2,145) - (2,086) Net change in unrealized loss on investments available for sale.................... - - (332) (332) Net income for the year ended September 30, 1996................................ - 2,586 - 2,586 ------------- ------------- ------------- ------------- BALANCE AT SEPTEMBER 30, 1996.......................... 62,055 7,279 (307) 69,111 Issuance of Class A and Class B Common Stock...................................... 501 - - 501 Conversion of Preferred Stock to Common Class A................................. (3) - - - Conversion of Common Class B to Common Class A................................. - - - - Preferred Stock, Series 9% tender offer...................................... (4,481) - - (4,485) Issuance of Stock in connection with the Suncoast acquisition..................... 27,781 - - 27,812 Stock options and warrants exercised................ 794 - - 794 Payments of dividends on the Company's Preferred Stock......................... 32 (2,890) - (2,855) Net change in unrealized gain on investments available for sale.................... - - 1,168 1,168 Net income for the year ended September 30, 1997................................ - 7,599 - 7,599 ------------- ------------- ------------- ------------- BALANCE AT SEPTEMBER 30, 1997.......................... 86,679 11,988 861 99,645 Issuance of Class A and Class B Common Stock...................................... 237 - - 237 Conversion of Preferred Stock to Common Class A................................. (463) - - (460) Issuance of Series B Preferred Stock................ 398 - - 398 Preferred Stock, Series 9% tender offer...................................... (43) - - (43) Underwritten public offering and direct offering of the Company's Class A and Class B Common Stock and Series B Preferred Stock, net........................................ 59,055 - - 59,103 Issuance of Stock in connection with the Consumers Bancorp acquisition............ 7,647 - - 7,653 Issuance of Stock in connection with the Central Bank acquisition................. 22,769 - - 22,783 Stock options and warrants exercised................ 2,438 - - 2,440 Payments of dividends on the Company's Preferred Stock......................... 60 (897) - (837) Net change in unrealized gain on investments available for sale.................... - - 1,016 1,016 Net income for the year ended September 30, 1998................................ - 7,357 - 7,357 ------------- ------------- ------------- ------------- BALANCE AT SEPTEMBER 30, 1998.......................... $ 178,777 $ 18,448 $ 1,877 $ 199,292 ============= ============= ============= =============
(CONTINUED ON NEXT PAGE) 55 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(CONTINUED) FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 The beginning balance at September 30, 1995 of each series of the Company's preferred stock was as follows:
SHARES AMOUNT ----------- ------------- (Dollars in thousands) Series A..................................................... 55,000 $ 1 Series B..................................................... 142,378 2 Series C..................................................... 363,636 4 Series C-II.................................................. 222,223 2 Series 1993.................................................. 745,870 7 Series 9%.................................................... 1,150,000 11 ------------- ------------- Total........................................................ 2,679,107 $ 27 ============= =============
The ending balance at September 30, 1998 of each series of the Company's preferred stock was as follows:
SHARES AMOUNT ------------ ------------- (Dollars in thousands) Series B....................................................... 229,580 $ 2 Series 9%...................................................... 697,117 7 ------------- ------------- Total.......................................................... 926,697 $ 9 ============= =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 56 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, ------------------------------------------------ 1998 1997 1996 ------------- -------------- ------------- (in thousands) Cash flows from operating activities: Net income............................................................ $ 7,357 $ 7,599 $ 2,586 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision (credit) for loan losses................................ 1,700 1,295 (120) Provision (credit) for losses on tax certificates................. (166) 84 76 Depreciation and amortization..................................... 1,633 1,320 674 Amortization (accretion) of fees, discounts and premiums.......... 11,449 (431) (2,168) Amortization of mortgage servicing rights......................... 2,236 931 - Amortization of goodwill.......................................... 1,070 683 - Net gain on sale of loans and mortgage-backed securities............ (4,429) (819) (5) Net (gain) loss on sale of real estate owned........................ (39) 236 (185) Loans originated for sale.......................................... (312,749) (28,467) (4,141) Proceeds from sale of loans........................................ 177,504 39,890 4,362 Increase in accrued interest receivable............................ (15,506) (6,285) (1,239) Increase in interest payable on deposits and FHLB advances......... 3,523 1,142 31 Decrease in accrued taxes.......................................... (9,418) (1,062) (3,429) Increase (decrease) in other liabilities........................... 20,228 (18,818) 3,054 Increase in prepaid expenses and other assets...................... (17,475) (1,635) (224) Proceeds from sale of mortgage servicing rights..................... - 4,215 - Purchase of mortgage servicing rights............................... (678) - - Other, net.......................................................... (2,523) 712 1,126 ------------- -------------- ------------- Net cash provided by (used in) operating activities............... (136,283) 590 398 ------------- -------------- ------------- Cash flows from investing activities: Net increase in loans................................................. (1,392,617) (792,501) (185,457) Purchase of investment securities..................................... (15,363) (22,144) (3,510) Purchase of mortgage-backed securities................................ (118,336) (56,499) (19,228) Purchase of other earning assets...................................... (46,325) (32,300) (650) Proceeds from repayments of investment securities..................... 22,323 4,051 5,675 Proceeds from repayments of mortgage-backed securities................ 264,164 19,345 10,523 Proceeds from repayments of other earning assets...................... 29,423 14,176 750 Proceeds from sale of investment securities........................... - 126 2,097 Proceeds from sale of mortgage-backed securities...................... 15,572 7,653 - Proceeds from sale of real estate owned............................... 1,225 2,257 2,661 Purchase of office properties and equipment........................... (8,140) (1,980) (1,170) Sale of office properties and equipment............................... 23 1,364 - Capitalized cost for loan securities.................................. (581) - - Net (increase) decrease in tax certificates........................... 9,276 (9,278) (620) Purchase of Bank of Florida, net of acquired cash equivalents......... - - 1,521 Cash and cash equivalents of Suncoast at date of acquisition.......... - 32,803 - Purchase of Consumers, net of acquired cash equivalents............... 8,098 - - Cash and cash equivalents of Central at date of acquisition........... 18,170 - - ------------- ------------- ------------- Net cash used in investing activities............................... $ (1,213,088) $ (832,927) $ (187,408) ------------- ------------- -------------
(CONTINUED ON NEXT PAGE) 57 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, ------------------------------------------------ 1998 1997 1996 ------------- ------------- ------------- (in thousands) Cash flows from financing activities: Net increase in deposits.............................................. $ 774,720 $ 366,049 $ 168,744 Net increase (decrease) in Federal Home Loan Bank advances............ 341,982 382,984 (4,000) Net increase in other borrowings...................................... 74,199 30,000 - Decrease in subordinated notes........................................ - (775) - Net proceeds from issuance of trust preferred securities.............. 98,913 111,456 - Net proceeds from issuance of preferred stock......................... 488 - - Net proceeds from issuance of common stock............................ 60,502 1,329 23,198 Preferred Stock, Series 9% tender offer............................... (43) (4,486) - Preferred Stock, Series 1996 redemption............................... (85) - - Preferred Stock, Series 1993 redemption............................... (339) - - Dividends paid on the Company's preferred stock....................... (837) (2,855) (2,086) Increase in advances from borrowers for taxes and insurance........... 1,398 4,483 560 ------------- -------------- ------------- Net cash provided by financing activities........................... 1,350,898 888,185 186,416 ------------- -------------- ------------- Increase (decrease) in cash and cash equivalents......................... 1,527 55,848 (594) Cash and cash equivalents at beginning of year........................... 89,984 34,136 34,730 ------------- -------------- ------------- Cash and cash equivalents at end of year................................. $ 91,511 $ 89,984 $ 34,136 ============= ============== ============= Supplemental disclosure of non-cash investing and financing activities: Interest paid on deposits and borrowings.............................. $ 163,561 $ 73,385 $ 34,547 Income taxes paid..................................................... $ 3,884 $ 3,390 $ 4,626 Transfers from loans to real estate owned............................. $ 2,226 $ 2,296 $ 1,154 Transfer of mortgage-backed securities from held to maturity to available for sale.................................................. $ - $ - $ 31,780 Issuance of Class A Common Stock upon conversion of preferred stock $ (460) $ - $ - Issuance of Class A Common Stock in connection with the Suncoast acquisition......................................................... $ - $ 27,812 $ - Issuance of Class A Common Stock in connection with the Consumers acquisition......................................................... $ 7,653 $ - $ - Issuance of Class A Common Stock in connection with the Central acquisition......................................................... $ 22,783 $ - $ - Securitization of loans receivable.................................... $ 355,469 $ - $ -
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 58 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of BankUnited Financial Corporation (the "Company") and subsidiaries conform to generally accepted accounting principles and to general practices within the savings and loan industry. Presented below is a description of the Company and its principal accounting policies. (A) BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries, including BankUnited, FSB (the "Bank"). The Bank provides a full range of banking services to individual and corporate customers through its branches in South and West Florida. The Bank is subject to the regulations of certain federal agencies and undergoes periodic examinations by those regulatory authorities. All significant intercompany transactions and balances have been eliminated. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and operations for the period. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the allowance for losses on tax certificates, the effect of prepayments on premiums on purchased loans, the valuation of mortgage servicing rights, and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. Premiums on purchased loans are amortized based, in part, on management's estimate of future prepayment rates. If actual prepayments exceed these estimates, premium amortization is increased through charges to interest income in the period the excess prepayments occur. In connection with the determination of the allowances for loan losses and real estate owned, management obtains independent appraisals for properties. (B) MORTGAGE-BACKED SECURITIES AND INVESTMENTS Mortgage-backed securities and other investments available for sale are carried at fair value (market value), inclusive of unrealized gains and losses, and net of discount accretion and premium amortization computed using the level yield method. Net unrealized gains and losses are reflected as a separate component of stockholders' equity, 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 the Company has the positive intent and ability to hold to maturity are designated as held-to-maturity securities. Gains or losses on sales of mortgage securities and investments are recognized on the specific identification basis. Tax certificates are considered investments held to maturity and, accordingly, are carried at cost less a valuation allowance. Interest is accrued on tax certificates until payoff or until deemed uncollectible. When deemed uncollectible, accrued but uncollected interest is reversed. Applicable law permits application for tax deeds to be applied for two years after the effective date of the acquisition of the tax certificate. Tax deeds applied for are carried at the cost of the tax certificates, adjusted for accrued interest. Tax deeds applied for carry an annual interest rate of 18%. (C) 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 available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require additions to the allowance based on their judgments about information available to them at the time of their examination. The Company's non-accrual policy provides that all loans are placed on non-accrual status when they are more than 90 days past due as to either principal or interest, unless the loan is fully secured and in the process of collection. Loans are returned to accrual status when they become less than 90 days delinquent. 59 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) (D) LOANS RECEIVABLE Loans receivable are considered long-term investments and, accordingly, are carried at historical cost. Loans held for sale are recorded at the lower of cost or market, determined in the aggregate. In determining cost, deferred loan origination fees and costs are adjusted to the principal balances of the related loans. (E) 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 the Company's historical prepayment experience. Commitment fees and costs relating to commitments, of which the likelihood of exercise is remote, are recognized over the commitment period on a straight-line basis. If the commitment is subsequently exercised during the commitment period, the remaining unamortized commitment fee at the time of exercise is recognized over the life of the loan as an adjustment of yield. Premiums paid on purchased loans are capitalized and recognized as an adjustment to interest income over the contractual life of the loans, adjusted for estimated prepayments based on the Company's historical prepayment experience. If actual prepayments exceed those estimated by the Company, premium amortization is increased through charges to interest income in the period the excess prepayments occur. (F) 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. (G) 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 leases, the term of the lease or the useful life (10 years), whichever is shorter. Repair and maintenance costs are charged to operations as incurred, and improvements are capitalized. (H) ACCRUED INTEREST RECEIVABLE Recognition of interest on the accrual method is generally discontinued when interest or principal payments are greater than 90 days in arrears, unless the loan is well secured and in the process of collection. At the time a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed against interest income in the current period. (I) REAL ESTATE OWNED Property acquired through foreclosure or deeds in lieu of foreclosures are 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 carrying value 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 expense. 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. (J) IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets, assets to be disposed of and certain identifiable intangibles, such as mortgage servicing rights, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment is recognized. Measurement of an impairment loss for long-lived assets, assets to be disposed of and identifiable intangibles that an entity expects to hold and use is based upon the fair value of the asset. (K) GOODWILL Goodwill is amortized on a straight-line basis over its estimated beneficial life of 10 to 25 years. Goodwill is evaluated by management for impairment on an annual basis based upon undiscounted cash flows of the related net assets acquired. 60 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) (L) INCOME TAXES The Company 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. The Company 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. (M) EARNINGS PER SHARE Basic earnings per common share is computed on the weighted average number of common shares outstanding during the year. The weighted average number of common shares outstanding for the years ended September 30, 1998, 1997 and 1996 were 15,693,000, 8,211,000, and 4,306,000, respectively. Earnings per common share, assuming dilution, assume the maximum dilutive effect of the average number of shares from stock options and the conversion equivalents of preferred stocks and certain warrants. The weighted average number of diluted common shares outstanding during the years ended September 30, 1998, 1997 and 1996 were 16,667,000, 9,148,000 and 4,558,000, respectively. Stock dividends have been included in the calculation of earnings per share for all years presented. (N) STOCK OPTIONS When stock options are granted to employees and directors, a determination is made of any compensation component based on the excess, if any, of the fair market value of the underlying stock and the option price of the grant. The proceeds from the exercise of options are credited to common stock for the par value of the shares issued, and the excess, adjusted for any tax benefit, is credited to paid-in capital. (See Note 15.) (O) IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" and in December 1996, the FASB issued a related Statement of Financial Accounting Standards No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125" (collectively "SFAS No. 125"). SFAS No. 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities based on a financial components approach that focuses on control. Portions of SFAS No. 125 were effective for transactions entered into after December 31, 1996 with the remaining portions effective for transactions entered into after December 31, 1997. The impact of adopting SFAS No. 125 has not been material to the Company's financial position or the results of operations. In February 1997, the FASB issued Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 specifies the computation, presentation and disclosure requirements for earnings per share. It replaces primary earnings per share and fully diluted earnings per share with basic earnings per share and diluted earnings per share and is effective for reporting periods ending after December 15, 1997. All amounts presented have been restated to conform to the requirements of SFAS No. 128. In February 1997, the FASB issued Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure" ("SFAS No. 129"). SFAS No. 129 continues previous requirements to disclose certain information about an entity's capital structure. The Company currently complies with the disclosure requirements of SFAS No. 129. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS No. 130"), which requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from non-owner sources; and Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"), which establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas, and major customers. Adoption of these statements will not impact the Company's consolidated financial position, results of operations or cash flows, and any effect will be limited to the form and content of its disclosures. Both statements are effective for fiscal years beginning after December 15, 1997, with earlier application permitted. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133") which is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999 (October 1, 1999 for the Company). SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivative instruments are recorded each period in current earnings or other comprehensive income, depending on whether a derivative instrument is designated as part of a hedge transaction and, if it is, the type of hedge transaction as set forth in the guidance. The Company currently utilizes derivative instruments on a limited basis to hedge the interest rate risks of certain financial instruments. Interest Rate Cap contracts have been acquired by the Company to hedge the risk on an increase in market interest rates for variable rate sources of funds which are partially funding financial instruments which 61 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) have interest rate terms which are fixed for certain periods of time (see Note 17 "Commitments and Contingencies" for further discussion of the Interest Rate Cap contracts). The Interest Rate Cap contracts will be treated as cash flow hedges under SFAS No. 133 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 designated in the hedge transaction. Under SFAS No. 133, the portion of change in fair value of any derivative instrument designated as a hedge which is not effective will be recognized in current period earnings. Management does not expect the adoption of SFAS No. 133 for its current derivative instruments to have any material effect on the Company's financial position or results of operations. In October 1998, the FASB issued SFAS 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 not expected to be material to the Company's financial position or results of operations. (P) FINANCIAL STATEMENT RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to the September 30, 1998 consolidated financial statements. (2) EARNINGS PER SHARE Earnings per common share is calculated as follows:
FOR THE YEARS ENDED SEPTEMBER 30, ------------------------------ 1998 1997 1996 -------- -------- ------- (In thousands, except per share amounts) BASIC EARNINGS PER SHARE: Numerator: Net income after preferred stock dividends........................................... $ 6,460 $ 4,709 $ 441 ======== ======== ======== Denominator: Weighted average common shares outstanding........................................... 15,693 8,211 4,306 ======== ======== ======== Basic earnings per share............................................................... $ 0.41 $ 0.57 $ 0.10 ======= ======== ======== DILUTED EARNINGS PER SHARE: Numerator: Net income after preferred stock dividends........................................... $ 6,460 $ 4,709 $ 441 Plus: Reduction of interest expense...................................................... - - 3 Reduction of preferred stock dividends............................................. 111 217 - -------- -------- -------- Diluted net income available to common shareholders.................................. $ 6,571 $ 4,926 $ 444 ======== ======== ======== Denominator: Weighted average common shares outstanding........................................... 15,693 8,211 4,306 Plus: Number of common shares from the conversion of options and warrants................ 655 468 252 Number of common shares from the conversion of dilutive preferred stock(1)......... 319 469 - -------- -------- -------- Diluted weighted average shares outstanding.......................................... 16,667 9,148 4,558 ======== ======== ======== Diluted earnings per share............................................................. $ 0.39 $ 0.54 $ 0.10 ======== ======== ========
(1) For the years ended September 30, 1998, 1997 and 1996 there were 233,000, 2,040,000 and 1,841,000, respectively, 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. During October 1998, the Company repriced stock options on Class A and Class B Common Stock and Series B Preferred Stock. (See Note 15) 62 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (3) ACQUISITIONS On November 15, 1996, the Company acquired Suncoast Savings & Loan Association, FSA ("Suncoast"). The Company issued one share of its Class A Common Stock for each share of Suncoast common stock of which 2,199,930 were outstanding and one share of newly created 8% Noncumulative Convertible Preferred Stock, Series 1996 for each share of Suncoast preferred stock of which 920,000 shares were outstanding. The 8% Noncumulative Convertible Preferred Stock, Series 1996 had substantially the same terms and conditions as the Suncoast preferred stock. The cost of the acquisition, which was accounted for as a purchase, was $27.8 million, representing the fair value of the consideration given to the Suncoast common and preferred stockholders as well as the option and warrant holders. In addition, the Company incurred approximately $1.3 million of costs directly related to the merger. The balance sheet and results of operations of Suncoast have been included with those of BankUnited as of and for periods subsequent to November 15, 1996. As part of the purchase of Suncoast, the Company issued warrants to Suncoast's warrant holders to purchase 80,000 shares of 8% Noncumulative Convertible Preferred Stock, Series 1996, and assumed Suncoast's outstanding stock options. The warrants were exercisable to purchase one share of the 8% Noncumulative Convertible Preferred Stock, Series 1996 at a per share price of $18.00, or to purchase 1.68595 shares, subject to adjustment, of Class A Common Stock at a per share price of $10.68, also subject to adjustment under certain conditions. A total of 42,655 warrants were converted into 71,259 shares of Class A Common Stock during June 1998. The 5,545 warrants which remained unexercised after July 9, 1998 expired pursuant to the terms of the warrant agreements. At the date of acquisition, the fair value of the assets and liabilities acquired from Suncoast were as follows (in thousands): Cash and cash equivalents................................$ 32,804 Loans receivable, net.................................... 341,394 Mortgage-backed securities............................... 18,672 Goodwill................................................. 11,643 Other assets............................................. 34,930 Deposits................................................. (323,737) FHLB advances............................................ (51,500) Other liabilities........................................ (36,394) ------------- Net purchase price.......................................$ 27,812 =============
The unaudited proforma combined condensed statements of operations for the years ended September 30, 1997 and 1996, after giving effect to certain proforma adjustments were as follows (in thousands, except per share data):
1997 1996 ------------- ------------- Interest income....................................................$ 112,642 $ 81,752 Interest expense................................................... 78,268 52,423 Provision for loan losses.......................................... 1,401 45 Non-interest income................................................ 4,714 9,193 Non-interest expense............................................... 24,770 31,885 Income tax expense................................................. 5,166 2,654 ------------- ------------- Net income before preferred stock dividends........................ 7,751 3,938 Preferred stock dividends.......................................... 3,028 3,249 ------------- ------------- Net income after preferred stock dividends.........................$ 4,723 $ 689 ============ ============ Earnings per share Basic..............................................................$ .53 $ .10 Diluted............................................................$ .52 $ .10
The proforma combined condensed statement of operations assumes the acquisition occurred as of October 1, 1995. On January 23, 1998, the Company 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 the Company. On June 19, 1998, the Company acquired Central Bank ("Central"), for 1,386,000 shares of the Company'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 the Company. 63 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (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. The Company's policy is to purchase tax certificates only for properties located in Florida. The net carrying value of tax certificates was $40.0 million and $49.3 million at September 30, 1998 and 1997, respectively. Included in these amounts at September 30, 1998 and 1997 were $0.2 million and $1.3 million, respectively, of tax certificates for which the Company had made application for tax deeds. The Company maintains loss reserves for tax certificates which were $469,000 and $697,000 at September 30, 1998 and 1997, respectively. The estimated market values of the Company's tax certificates are the same as the carrying values, since historically the tax certificates have had relatively short lives and their yields approximate market rates. (5) SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL Interest income from securities purchased under agreements to resell aggregated approximately $2.5 million for the year ended September 30, 1998. The following sets forth information concerning the Company's agreements to resell for the periods indicated:
AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, ---------------------------------------------- 1998 1997 1996 ------------- ------------- ------------ (dollars in thousands) Maximum amount of outstanding agreements at any month end during the period.....................................................$ 95,032 $ - $ - Average amount outstanding during the period............................$ 44,009 $ - $ - Weighted average interest rate for the period........................... 5.56% -% -% Maturity................................................................ -- - -
(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, 1998 ---------------------------------------------------------- GROSS GROSS CARRYING UNREALIZED UNREALIZED MARKET VALUE GAINS LOSSES VALUE ------------ ----------- ---------- ----------- (Dollars in thousands) U.S. government agency securities............................ $ 14,481 $ 157 $ - $ 14,638 State of Israel Bonds........................................ 61 - - 61 ----------- ----------- ----------- ----------- Total...................................................... $ 14,542 $ 157 $ - $ 14,699 =========== =========== =========== =========== SEPTEMBER 30, 1997 Gross Gross Carrying Unrealized Unrealized Market VALUE GAINS LOSSES VALUE (Dollars in thousands) U.S. government agency securities............................ $ 14,483 $ 119 $ - $ 14,602 State of Israel Bonds........................................ 11 - - 11 ----------- ----------- ----------- ----------- Total...................................................... $ 14,494 $ 119 $ - $ 14,613 =========== =========== =========== ===========
64 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (6) INVESTMENTS AND MORTGAGE-BACKED SECURITIES--(CONTINUED) All investments held to maturity at September 30, 1998 and 1997 had maturities between one and five years. Presented below is analysis of the investments designated as available for sale.
SEPTEMBER 30, 1998 --------------------------------------------------------- GROSS GROSS HISTORICAL UNREALIZED UNREALIZED CARRYING COST GAINS LOSSES VALUE ------------ ----------- ----------- ----------- (Dollars in thousands) U.S. Treasury notes.......................................... $ 2,821 $ 18 $ - $ 2,839 U.S. government agency securities............................ 5,316 45 - 5,361 Other........................................................ 15,681 183 (403) 15,461 ------------ ----------- ----------- ----------- Total...................................................... $ 23,818 $ 246 $ (403) $ 23,661 ============ =========== =========== =========== SEPTEMBER 30, 1997 ---------------------------------------------------------- GROSS GROSS HISTORICAL UNREALIZED UNREALIZED CARRYING COST GAINS LOSSES VALUE ------------ ----------- ----------- ----------- (Dollars in thousands) U.S. government agency securities............................ $ 8,799 $ 2 $ - $ 8,801 Other........................................................ 1,353 12 - 1,365 ------------ ----------- ----------- ----------- Total...................................................... $ 10,152 $ 14 $ - $ 10,166 ============ =========== =========== ===========
MORTGAGE-BACKED SECURITIES The market value and historical cost of mortgage-backed securities held to maturity are summarized as follows:
SEPTEMBER 30, 1998 --------------------------------------------------------- GROSS GROSS CARRYING UNREALIZED UNREALIZED MARKET VALUE GAINS LOSSES VALUE ----------- ----------- ----------- ----------- (Dollars in thousands) GNMA mortgage-backed securities.............................. $ 59 $ 4 $ - $ 63 FHLMC mortgage-backed securities............................. 1,731 - (13) 1,718 Collateralized mortgage obligations.......................... 6,165 193 - 6,358 Mortgage pass-through certificates........................... 138,191 - (2,825) 135,366 ------------ ----------- ----------- ----------- Total...................................................... $ 146,146 $ 197 $ (2,838) $ 143,505 =========== =========== =========== =========== SEPTEMBER 30, 1997 ---------------------------------------------------------- GROSS GROSS CARRYING UNREALIZED UNREALIZED MARKET VALUE GAINS LOSSES VALUE ------------ ----------- ----------- ----------- (Dollars in thousands) GNMA mortgage-backed securities.............................. $ 74 $ 6 $ - $ 80 FHLMC mortgage-backed securities............................. 3,434 - (44) 3,390 Collateralized mortgage obligations.......................... 7,844 - (22) 7,822 ----------- ----------- ----------- ----------- Total...................................................... $ 11,352 $ 6 $ (66) $ 11,292 =========== =========== =========== ===========
65 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (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, 1998 ---------------------------------------------------------- GROSS GROSS HISTORICAL UNREALIZED UNREALIZED CARRYING COST GAINS LOSSES VALUE ----------- ----------- ----------- ----------- (Dollars in thousands) GNMA mortgage-backed securities.............................. $ 56,168 $ 1,288 $ (91) $ 57,365 FNMA mortgage-backed securities.............................. 26,618 213 (262) 26,569 FHLMC mortgage-backed securities............................. 78,236 1,183 (209) 79,210 Other........................................................ 35,404 1,062 - 36,466 ----------- ----------- ----------- ----------- Total...................................................... $ 196,426 $ 3,746 $ (562) $ 199,610 =========== =========== =========== =========== SEPTEMBER 30, 1997 ---------------------------------------------------------- Gross Gross Historical Unrealized Unrealized Carrying COST GAINS LOSSES VALUE ----------- ----------- ----------- ----------- (Dollars in thousands) GNMA mortgage-backed securities.............................. $ 48,881 $ 994 $ (41) $ 49,834 FNMA mortgage-backed securities.............................. 4,198 108 (6) 4,300 FHLMC mortgage-backed securities............................. 31,839 119 (19) 31,939 Other........................................................ 22,625 282 (61) 22,846 ----------- ----------- ----------- ----------- Total...................................................... $ 107,543 $ 1,503 $ (127) $ 108,919 =========== =========== =========== ===========
The mortgage-backed securities have contractual maturities which range from the years 1998 to 2028, however, expected maturities will differ from contractual maturities as borrowers have the right to prepay obligations. Gross proceeds on sales of mortgage-backed securities and collateralized mortgage obligations were $15.6 million for the year ended September 30, 1998 and $7.7 million for the year ended September 30, 1997. There were no sales of mortgage-backed securities and collateralized mortgage obligations in 1996. Gross realized gains were $423,000 and $250,000 on sales of mortgage-backed securities and collateralized mortgage obligations during the years ended September 30, 1998 and 1997, respectively. There were no realized losses during the years ended September 30, 1998 and 1997. At September 30, 1998 , GNMA and FNMA mortgage-backed securities with carrying values of approximately $25.5 million were pledged as collateral for public funds on deposit. At September 30, 1998, investment and mortgage-backed securities with an aggregate carrying value of approximately $5.2 million were pledged as collateral for retail repurchase agreements and a portion of a real estate mortgage investment conduit pass-through security, securitized by the Company from its whole loan portfolio, with a carrying value of approximately $121.1 million was pledged as collateral for a $107.1 million repurchase agreement. 66 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (7) LOANS RECEIVABLE Loans receivable consist of the following:
AS OF SEPTEMBER 30, ------------------------------ 1998 1997 ------------- ------------- (Dollars in thousands) Mortgage loans-conventional............................................................ $ 317,807 $ 387,096 Mortgage loans-conventional serviced by others......................................... 2,271,474 1,110,686 Mortgage loans-other................................................................... 203,375 140,393 Commercial loans: Secured.............................................................................. 17,547 9,475 Unsecured............................................................................ 5,223 1,168 Line of credit loans................................................................... 3,331 1,456 Share loans............................................................................ 789 835 Installment loans...................................................................... 26,281 836 ------------- ------------- Total................................................................................ 2,845,827 1,651,945 Less allowance for loan losses......................................................... (6,128) (3,693) Deferred loan fees, discounts and premiums............................................. 29,905 13,129 ------------- ------------- Loans receivable, net................................................................ $ 2,869,604 $ 1,661,381 ============= =============
Of the total gross loans receivable of $2.8 billion at September 30, 1998, approximately $0.5 billion, or 17.5%, represents loans secured by properties in California and $0.4 billion, or 14.1%, represents loans secured by properties in Florida. No other state represents more than 10% of the Company's loan portfolio. At September 30, 1998, the Bank had pledged approximately $1.6 billion of mortgage loans as collateral for advances from the Federal Home Loan Bank of Atlanta (see Note 11). Changes in the allowance for loan losses are as follows:
YEARS ENDED SEPTEMBER 30, ------------------------------------------------ 1998 1997 1996 ------------ ------------- ------------ (Dollars in thousands) Balance at beginning of the period......................... $ 3,693 $ 2,158 $ 1,469 Provision (credit)....................................... 1,700 1,295 (120) Allowance from Bank of Florida........................... - - 183 Allowance from Suncoast.................................. - 775 - Allowance from Consumers and Central..................... 1,262 - - Loans charged-off........................................ (599) (604) (493) Recoveries............................................... 72 69 1,119 ------------- ------------- ------------- Balance at end of the period............................. $ 6,128 $ 3,693 $ 2,158 ============= ============= =============
As of September 30, 1998 and 1997, the Company had impaired or non-accrual loans of $16.0 million and $10.9 million, respectively, and had recorded specific reserves on these loans of $521,000 and $704,000, respectively. For the years ended September 30, 1998, 1997 and 1996 the average amounts of impaired loans were $12.1 million, $8.0 million and $4.8 million, respectively. No income is recognized on loans during the period for which the loan is deemed impaired. 67 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (8) OFFICE PROPERTIES AND EQUIPMENT Office properties and equipment are summarized as follows:
AS OF SEPTEMBER 30, ------------------------ 1998 1997 ----------- ----------- (Dollars in thousands) Office buildings......................................... $ 2,599 $ 2,600 Leasehold improvements................................... 6,568 2,700 Furniture, fixtures and equipment........................ 7,331 3,504 Computer equipment and software.......................... 5,388 3,548 ----------- ----------- Total.................................................. 21,886 12,352 Less: accumulated depreciation........................... (7,688) (4,981) ----------- ----------- Office properties and equipment, net..................... $ 14,198 $ 7,371 =========== ===========
Depreciation expense was $1.6 million, $1.2 million and $674,000, for the years ended September 30, 1998, 1997, and 1996, respectively. The Company has entered into non-cancelable leases with approximate minimum future rentals as follows:
YEARS ENDING SEPTEMBER 30, AMOUNT ---------------------- (Dollars in thousands) 1999.................................................................. $ 3,365 2000.................................................................. 2,365 2001.................................................................. 1,802 2002.................................................................. 1,282 2003.................................................................. 739 Thereafter............................................................ 1,023 --------------------- Total............................................................... $ 10,576 ====================
Rent expense for the years ended September 30, 1998, 1997, and 1996 was $2.2 million, $1.6 million, and $905,000, respectively. 68 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (9) DEPOSITS The weighted average nominal interest rate payable on all deposit accounts at September 30, 1998 and 1997 was 5.18% and 5.20%, respectively. Types of deposits and related range of interest rates were as follows:
SEPTEMBER 30, --------------------------------------------------------------------- 1998 1997 -------------------------------- -------------------------------- (Dollars in thousands) Non-interest-bearing deposits................... -% - -% $ 46,748 -% - -% $ 21,436 Super NOW deposits.............................. 0.00% - 5.16% 71,431 0.00% - 3.93% 57,471 Money market deposits........................... 1.64% - 4.58% 115,104 0.00% - 3.10% 20,325 Passbook and statement savings deposits......... 2.00% - 5.13% 258,158 2.00% - 5.16% 160,557 Certificates of deposit - retail................ 4.51% - 6.45% 1,472,224 3.92% - 6.06% 914,103 Certificates of deposit - public funds.......... 4.80% - 5.63% 86,159 5.74% - 5.81% 22,000 Certificates of deposit - brokered funds........ 5.25% - 5.40% 75,000 -% - -% - ------------ ------------- Total......................................... $ 2,124,824 $ 1,195,892 ============= =============
Deposit accounts with balances of $100,000 or more totaled approximately $469.1 million and $174.0 million at September 30, 1998 and 1997, respectively. Included in balances of $100,000 or more are $161.2 million and $22.0 million in public and brokered funds at September 30, 1998 and 1997, respectively. Interest expense on deposits for the years ended September 30, 1998, 1997 and 1996 was as follows:
1998 1997 1996 ------------- ------------- ------------- (Dollars in thousands) Super NOW and money market deposits...................... $ 5,083 $ 2,236 $ 775 Passbook and statement savings deposits.................. 8,983 6,342 2,627 Certificates of deposit.................................. 79,365 41,558 17,389 ------------- ------------- ------------- Total.................................................. $ 93,431 $ 50,136 $ 20,791 ============= ============= =============
Early withdrawal penalties on deposits are recognized as a reduction of interest on deposits. For the years ended September 30, 1998, 1997 and 1996, early withdrawal penalties totaled $217,000, $101,000, and $42,000, respectively. The amounts and scheduled maturities of certificate accounts at September 30, 1998 are as follows:
YEARS ENDING SEPTEMBER 30, AMOUNT - ------------------------- --------------------- (Dollars in thousands) 1999..................................................................... $ 1,552,266 2000..................................................................... 31,228 2001..................................................................... 7,524 2002..................................................................... 32,741 2003..................................................................... 9,581 Thereafter............................................................... 43 ---------------------- Total.................................................................. $ 1,633,383 ======================
69 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (10) SECURITIES SOLD UNDER AN AGREEMENT TO REPURCHASE Interest expense on securities sold under an agreement to repurchase aggregated $5.5 million and $506,000 for the years ended September 30, 1998 and 1997, respectively. The following sets forth information concerning repurchase agreements for the periods indicated:
AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, ------------------------------------------------ 1998 1997 1996 ------------- ------------- ------------- (dollars in thousands) Maximum amount of outstanding agreements at any month end during the period...................................................$ 192,610 $ 30,000 $ - Average amount outstanding during the period............................$ 97,292 $ 8,828 $ - Weighted average interest rate for the period........................... 5.77% 5.73% -
Of the $121.1 million of repurchase agreements outstanding at September 30, 1998, $114.3 million matures in October 1998, $0.4 million matures in November 1998, $5.4 million matures in December 1998, $0.3 million matures in March 1999, $0.2 million matures in May 1999 and $0.5 million matures in June 1999. At September 30, 1998 and 1997, the Company had $126.3 million and $34.0 million, respectively, of investment and mortgage-backed securities pledged under repurchase agreements. At September 30, 1996, the Company had no pledged securities under repurchase agreements. (11) ADVANCES FROM FEDERAL HOME LOAN BANK Advances from the Federal Home Loan Bank of Atlanta (FHLB) incur interest and are repayable as follows:
SEPTEMBER 30, ------------------------------------------------------ REPAYABLE DURING YEAR ENDING SEPTEMBER 30, INTEREST RATE 1998 1997 - ------------------------------------------ ----------------- ------------- ------------- (Dollars in thousands) 1998............................................... 5.63% - 6.55% $ - $ 480,000 1999............................................... 5.28% - 5.80% 255,000 25,000 2000(1)............................................ 5.13% - 5.85% 125,000 -- 2001(2)............................................ 5.54% - 5.92% 140,000 15,000 2002(3)............................................ 5.43% - 6.24% 150,000 150,000 2003(4)............................................ 4.70% - 5.94% 125,000 -- 2005............................................... 6.65% 1,466 1,484 2007(5)............................................ 4.99% - 5.06% 75,000 -- 2008(6)............................................ 4.75% - 5.50% 150,000 -- ------------- ------------- Total.............................................. $ 1,021,466 $ 671,484 ============= =============
______________ (1) Advances for $25 million are callable by the FHLB in 1998. (2) Advances for $15 million are callable by the FHLB in 1998 and $25 million in 1999. (3) Advances for $25 million are callable by the FHLB in 1998 and $125 million in 1999. (4) Advances for $25 million are callable by the FHLB in each of 1998, 1999 and 2000. (5) Advances for $75 million are callable by the FHLB in 1998. (6) Advances for $25 million are callable by the FHLB in each of 1998, 1999 and 2003 and $75 million in 2000. 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. 70 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (12) COMPANY OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES OF THE COMPANY. On December 30, 1996, a newly formed trust subsidiary created under the laws of Delaware, BankUnited Capital, issued $50 million of 10-1/4% Trust Preferred Securities, Series A (the "Series A Preferred Securities") and $2 million of common securities. The common securities are wholly owned by the Company. In connection with this transaction, BankUnited Capital simultaneously purchased $52 million of 10-1/4% Junior Subordinated Deferrable Interest Debentures, Series A (the "Series A Subordinated Debentures") issued by BankUnited Financial Corporation with terms similar to the Series A Preferred Securities, which are the sole assets of BankUnited Capital. On March 24, 1997, BankUnited Capital issued an additional $20 million of the Series A Preferred Securities and $800,000 of common securities, which common securities are also wholly owned by the Company. BankUnited Capital simultaneously purchased an additional $20.8 million of the Series A Subordinated Debentures issued by BankUnited Financial Corporation. These securities mature December 31, 2026 and pay a preferential cumulative cash distribution at an annual rate of 10-1/4%. The Company and BankUnited Capital have the right to defer payment of interest for up to 5 years. BankUnited Financial Corporation has guaranteed all of the obligations of the Series A Preferred Securities. The Series A Preferred Securities are subject to mandatory redemption, in whole or in part, upon the maturity or earlier redemption of the Series A Subordinated Debentures. The Series A Subordinated Debentures are redeemable on or after December 31, 2006 at a redemption price of 105.125% during the 12-month period beginning December 31, 2006 and declining 51 basis points annually thereafter to 100% on December 31, 2016. On June 5, 1997, BankUnited Capital II, a newly formed trust subsidiary created under the laws of Delaware, issued $46 million of 9.60% Cumulative Trust Preferred Securities (the "9.60% Preferred Securities") and $1.84 million of common securities. The common securities are wholly owned by the Company. In connection with this transaction, BankUnited Capital II simultaneously purchased $47.8 million of 9.60% Junior Subordinated Deferrable Interest Debentures (the "9.60% Subordinated Debentures") issued by BankUnited Financial Corporation with terms similar to the 9.6% Preferred Securities, which are the sole assets of BankUnited Capital II. These securities mature June 30, 2027 and pay a preferential cumulative cash distribution at an annual rate of 9.60%. The Company and BankUnited Capital II have the right to defer payment of interest for up to five years. BankUnited Financial Corporation has guaranteed all the obligations of the 9.60% Preferred Securities. The 9.60% Subordinated Debentures rank PARI PASU with the Series A Subordinated Debentures. The 9.60% Preferred Securities are subject to mandatory redemption, in whole or in part, upon the maturity or earlier redemption of the 9.60% Subordinated Debentures. The 9.60% Subordinated Debentures are redeemable on or after June 30, 2002 at a redemption price equal to the accrued and unpaid interest on the 9.60% Subordinated Debentures to be redeemed to the date fixed for redemption, plus 100% of the principal amount. On March 11, 1998, BankUnited Capital III, a newly formed trust subsidiary created under the laws of Delaware, issued $102.5 million of 9% Cumulative Trust Preferred Securities (the "9% Preferred Securities") and $4.1 million of common securities. The common securities are wholly owned by the Company. In connection with this transaction, BankUnited Capital III simultaneously purchased $106.6 million 9% Junior Subordinated Deferrable Interest Debentures (the "9% Subordinated Debentures") issued by BankUnited Financial Corporation with terms similar to the 9% Preferred Securities, which are the sole assets of BankUnited Capital III. These securities mature March 31, 2028 and pay a preferential cumulative cash distribution at an annual rate of 9%. The Company and BankUnited Capital III have the right to defer payment of interest for up to five years. BankUnited Financial Corporation has guaranteed all the obligations of the 9% Preferred Securities. The 9% Subordinated Debentures rank PARI PASU with the Series A Subordinated Debentures. The 9% Preferred Securities are subject to mandatory redemption, in whole or in part, upon the maturity or earlier redemption of the 9% Subordinated Debentures. The 9% Subordinated Debentures are redeemable on or after March 31, 2003 at a redemption price equal to the accrued and unpaid interest on the 9% Subordinated Debentures to be redeemed to the date fixed for redemption, plus 100% of the principal amount. Considered together the back-up undertakings constitute a full and unconditional guarantee by the Company of the obligations of the Trust Preferred Securities. 71 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (13) REGULATORY CAPITAL The Bank's required, actual and excess regulatory capital levels as of September 30, 1998 and 1997 are as follows:
REGULATORY CAPITAL ------------------------------------------------------------------------------------------ REQUIRED ACTUAL EXCESS ----------------------------- ----------------------------- ---------------------------- 1998 1997 1998 1997 1998 1997 -------------- ------------- ------------- ------------- ------------- ------------- (dollars in thousands) Core Capital................ $ 108,958 $ 63,084 $ 316,586 $ 169,708 $ 207,628 $ 106,624 3.0% 3.0% 8.7% 8.1% 5.7% 5.1% Risk-based capital.......... $ 146,972 $ 123,365 $ 322,238 $ 173,725 $ 175,266 $ 50,360 8.0% 8.0% 17.5% 11.3% 9.5% 3.3%
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, 1998, 1997 and 1996 did not differ from regulatory capital and net income amounts reported to the OTS. On August 31, 1993, the OTS adopted an amendment to its regulatory capital regulations to take into account a savings institution's exposure to the risk of loss from changing interest rates. Under the regulation as amended, a savings institution with an above normal level of interest rate risk exposure will be required to deduct an interest rate risk ("IRR") component from its total capital when determining its compliance with the risk-based capital requirements. An "above normal" level of interest rate risk exposure is a projected decline of 2% in the net present value of an institution's assets and liabilities resulting from a 2% swing in interest rates. The IRR component will equal one-half of the difference between the institution's measured interest rate exposure and the "normal" level of exposure. Savings institutions will be required to file data with the OTS that the OTS will use to calculate, on a quarterly basis (but with a two-quarter lag), institutions' measured interest rate risk and IRR components. Implementation of the IRR requirements have been delayed pending the testing of the OTS appeals process. If the IRR component had been required as of September 30, 1998, the Bank would not have been required to deduct an IRR component from its total capital when determining its compliance with its risk-based capital requirements. 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. 72 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (14) STOCKHOLDERS' EQUITY The Company has the following capital structure: PREFERRED STOCK-Issuable in series with rights and preferences to be designated by the Board of Directors. As of September 30, 1998, 10,000,000 shares of Preferred Stock were authorized, of which 7,012,628 shares were not designated to a particular series. NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A: Effective September 30, 1995, pursuant to an Offer to Exchange Preferred Stock, the holders of the Noncumulative Convertible Preferred Stock, Series A, agreed to exchange each of the 55,000 shares of the Series A Preferred Stock for one share of the Company's Noncumulative Convertible Preferred Stock, Series B. Because the dividend rate, redemption price, and the liquidation preference for the Series B Preferred Stock are lower than those for the Series A Preferred Stock, the Company agreed not to redeem the shares of Series B Preferred Stock issued pursuant to the exchange offer for a period of three years, and for three years thereafter, such Series B Preferred Stock will only be redeemed at a 50% premium, or $11.0625 per share. NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES B: Authorized shares- 500,000 shares as of September 30, 1998 and 200,000 shares as of September 30, 1997. Issued and outstanding shares-229,580 as of September 30, 1998 and 183,818 shares as of September 30, 1997. Dividends-noncumulative cash dividends payable quarterly in cash or shares of Class A Common Stock at the option of the holder, at the fixed annual rate of $0.55 per share beginning October 1, 1997 and $0.7375 per share prior to that date. Preference on liquidation--voluntary liquidation at the applicable redemption price per share and involuntary liquidation at $7.375 per share. Redemption-Prior to October 1, 1997- except for the shares converted from Series A Preferred Stock in 1995, for which the redemption price is $11.0625 until September 30, 2001, the redemption price is $7.375 per share. Effective October 1, 1997, the Company agreed, in exchange for the reduction in the dividend rate described above, not to redeem the Series B Preferred Stock until October 1, 2007 or later unless earlier redemption is approved by the holders of at least 50 percent of the Series B Preferred shares. Voting rights-two-and-one-half votes per share. Convertibility-convertible into 1.4959 shares (adjusted for all stock dividends) of Class B Common Stock for each share of Noncumulative Convertible Preferred Stock, Series B, surrendered for conversion, subject to adjustment on the occurrence of certain events. Issuances-During the fiscal year ended September 30, 1998, the Company awarded 20,762 shares to directors and officers of the Company and, in April 1998, issued 25,000 shares in a direct offering to certain directors and principal shareholders. NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES C: In February 1997 all outstanding shares of Noncumulative Convertible Preferred Stock, Series C were converted into shares of Class A Common Stock. NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES C-II: In February 1997 all outstanding shares of Noncumulative Convertible Preferred Stock, Series C-II were converted into shares of Class A Common Stock. 8% NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES 1993: In February 1998 the Company redeemed all outstanding shares of Noncumulative Convertible Preferred Stock, Series 1993 at a redemption price of $10.00 per share. 73 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (14) STOCKHOLDERS' EQUITY--(CONTINUED) 9% NONCUMULATIVE PERPETUAL PREFERRED STOCK: Authorized shares- 1,554,942 shares as of September 30, 1998 and 1,851,417 shares as of September 30, 1997. Issued and outstanding- 697,117 as of September 30, 1998 and 701,417 as of September 30, 1997. Dividends- noncumulative cash dividends payable quarterly at the fixed annual rate of $0.90 per share. Preference on liquidation-voluntary liquidation at the applicable redemption price per share and involuntary liquidation at $10.00 per share. Redemption- at the option of the Company at a redemption price of $10.00 per share. Voting rights- nonvoting, except under certain circumstances. 8% NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES 1996: In October 1997 the Company redeemed all outstanding shares of its Noncumulative Convertible Preferred Stock, Series 1996 at a redemption price of $15.00 per share. CLASS A COMMON STOCK- Issuable in series with rights and preferences to be designated by the Board of Directors. As of September 30, 1998 and 1997, 30,000,000 shares of Class A Common Stock were authorized, of which 10,000,000 shares were not designated to a series. SERIES I CLASS A COMMON STOCK: Authorized shares- 20,000,000 at September 30, 1998 and 1997. Issued and outstanding- 17,816,213 shares as of September 30, 1998 and 9,257,098 shares as of September 30, 1997. 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, 1998, the Company issued 195,584 shares with the exercise of options and warrants, 39,419 shares in awards and issuances to directors, officers and employees of the Company, 1,948,508 shares with the acquisitions of Consumers and Central and 1,614,104 shares from the conversion of preferred stock. Additionally, the Company issued 3,680,000 shares in a public stock offering in October 1997 and, in April 1998, issued 977,500 shares in a publicly underwritten offering and 104,000 shares to certain directors and principal shareholders in a direct offering. 74 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (14) STOCKHOLDERS' EQUITY--(CONTINUED) CLASS B COMMON STOCK: Authorized shares- 3,000,000. Issued and outstanding- 331,743 shares as of September 30, 1998 and 275,685 shares as of September 30, 1997. 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 1998, the Company issued 30,000 shares in a direct offering to certain directors and principal shareholders of the Company, awarded 3,541 shares to directors and officers and issued 22,517 shares in connection with the exercise of stock options. (15) STOCK BONUS PLAN, OPTION AGREEMENTS AND OTHER BENEFIT PLANS The Company 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 the Company. As of September 30, 1998, 70,221 shares of Class A Common Stock and 54,779 shares of Class B Common Stock had been issued under the 1992 Stock Bonus Plan. As of September 30, 1998, there were 6,000 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 the Company prior to full vesting of such awards. The Company 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, 1998, no shares were available for the grant of options under this plan, and 101,528 options had been exercised. The Company also maintains the 1994 Incentive Stock Option Plan under which options for up to 250,000 shares of Class A and Class B Common Stock have been granted. As of September 30, 1998, 28,906 shares were available for the grant of options under this plan (due to options which had been forfeited by officers and employees who terminated service with the Company prior to full vesting of these options), and options for 23,327 shares had been exercised. BankUnited's Board of Directors approved several non-qualified stock option agreements (the "Agreements") under which options to purchase shares of Class B Common Stock were granted at the fair market price of the Class B Common Stock on the date of the grant. The Agreements, which originally expired on October 23, 1994, have been extended pursuant to Stockholders' approval to October 23, 1999. As of September 30, 1998, the Agreements are exercisable for a total of 155,367 shares at the exercise price of $4.64 per share. The Company maintains the 1996 Incentive Compensation and Stock Award Plan. Under this plan, the Compensation Committee of the Board of Directors may grant options to purchase, or may issue in connection with stock awards, stock bonuses and restricted stock, up to (as amended in January 1998) 1,300,000 shares of Class A and Class B Common Stock and up to 375,000 shares of Series B Preferred. As of September 30, 1998, options to purchase 449,540 shares of Class A Common Stock, 287,500 shares of Class B Common Stock and 315,000 shares of Series B Preferred Stock had been granted and options for 20,571 shares of Class A Common Stock had been exercised. In addition, 32,733 shares of Class A Common Stock and 20,762 shares of Series B Preferred Stock had been issued pursuant to other awards under this plan. As of September 30, 1998, 594,745 shares of Class A Common Stock and Class B Common Stock and 39,238 shares of Series B Preferred Stock were available for grant under this plan. Options granted under the Company'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. Options granted under the 1994 Incentive Stock Option Plan and the 1996 Incentive Compensation and Stock Award Plan may become exercisable over a period of three or five years, subject to forfeiture as to any portion which is not exercisable upon termination of employment. 75 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (15) STOCK BONUS PLAN, OPTION AGREEMENTS AND OTHER BENEFIT PLANS--(CONTINUED) The following table presents additional data concerning the Company's outstanding stock options:
NUMBER OPTION PRICE AGGREGATE OF SHARES PER SHARE OPTION PRICE ------------ ------------------- ------------- Options outstanding, September 30, 1995............................. 818,563 $ 3.11 - $10.98 $ 4,477,516 Options granted..................................................... 122,585 7.24 - 8.26 933,064 ------------ ------------------- ------------- Options outstanding, September 30, 1996............................. 941,148 3.11 - 10.98 5,410,580 Options granted (including Suncoast options)........................ 729,381 3.00 - 10.74 5,839,961 Options exercised................................................... (83,004) 3.00 - 8.80 (490,932) ------------ ------------------- ------------- Options outstanding, September 30, 1997............................. 1,587,525 3.00 - 10.98 10,759,609 Options granted..................................................... 665,705 9.63 - 21.07 10,726,793 Options exercised................................................... (120,991) 3.00 - 13.25 (646,547) Options expired..................................................... (106,924) 5.73 - 13.24 (1,069,860) Reduction of option price(1)........................................ - 9.30 - 13.91 (2,999,259) ------------ ------------------- ------------- Options outstanding, September 30, 1998(2).......................... 2,025,315 $ 3.00 - $13.91 $ 16,770,736 ============ =================== =============
(1) On September 3, 1998, the Company 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, the Company 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. The aggregate option price is reduced to approximately $14.4 million as a result of this reduction. The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation" and as permitted by SFAS No. 123, the Company continues to follow the measurement provisions of Accounting Principles Board Option No. 25, "Accounting for Stock Issued to Employees, " and, accordingly, does not recognize compensation expense for its stock-based incentive plans. Had compensation cost for the Company's stock based incentive compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the methodology prescribed by SFAS No. 123, the Company's net income and earnings per share for fiscal 1998, 1997 and 1996 would have been reduced to the pro forma amounts indicated below:
1998 1997 1996 ------------ ------------- ------------- (Dollars in thousands, except per share amounts) As Reported.............................................................$ 6,460 $ 4,709 $ 441 Pro forma...............................................................$ 4,011 $ 3,328 $ 204 Basic earnings per common share: As reported.............................................................$ 0.41 $ 0.57 $ 0.10 Pro forma...............................................................$ 0.26 $ 0.41 $ 0.03 Diluted earnings per common share:...................................... As reported.............................................................$ 0.39 $ 0.54 $ 0.10 Pro forma...............................................................$ 0.26 $ 0.38 $ 0.03
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. 76 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (15) STOCK BONUS PLAN, OPTION AGREEMENTS AND OTHER BENEFIT PLANS--(CONTINUED) The fair value of each option has been estimated on the date of the grant using the Black Scholes option pricing model, with the following historical weighted average assumptions applied to grants in fiscal 1998, 1997 and 1996:
1998 1997 1996 ------------- ------------- ------------- Dividend yields......................................................... - - - Expected volatility..................................................... 33.7% 30.1% 30.1% Risk-free interest rates................................................ 5.55% 6.30% 6.52% Expected life (in years)................................................ 7.00 9.52 7.88
Based upon the above assumptions, the weighted average fair value of options granted during 1998, 1997 and 1996 was $5,565,000, $2,484,000 and $334,000, respectively. The Company has a 401(k) savings plan pursuant to which eligible employees are permitted to contribute up to 15% of their annual salary to the savings plan. Currently, the Company intends to make matching contributions at a rate of 33% of such contributions, up to a maximum of 6% of an employee's salary. The amount of such matching by the Company for the years ended September 30, 1998, 1997, and 1996 totaled approximately $71,900, $34,600, and $7,000 respectively. Employees are eligible to participate in the plan after one year of service and begin vesting in the company's contribution after two years of participation in the plan at the rate of 25% per year up to 100%. The Company's Board of Directors adopted a Profit Sharing Plan. Under the terms of the plan, the Company, at the discretion of the Board of Directors, may contribute Class A Common Stock to the plan. The contributions are allocated to the account of the eligible employees based upon their salaries. Employees become eligible for the plan after one year of service and become vested at the rate of 20% per year, after the third year, up to 100%. The Board of Directors authorized a contribution of $100,000, $170,000 and $100,000 in 1998, 1997 and 1996, respectively. In connection with the Suncoast acquisition the Company assumed 119,000 of Suncoast's options with option prices ranging from $3.00 to $7.38 per share of Class A Common Stock with an aggregate exercise price of $610,000. As of September 30, 1998, all of these options had been exercised. (16) INCOME TAXES The Company's effective tax rate differs from the statutory federal income tax rate as follows:
YEARS ENDED SEPTEMBER 30, -------------------------------------------------------------------- 1998 1997 1996 -------------------- ------------------- ------------------- AMOUNT % AMOUNT % AMOUNT % ---------- --- ---------- ---- ----------- ---- (Dollars in thousands) Tax at federal income tax rate.................... $ 4,229 34.2% $ 4,295 34.0% $ 1,443 34.0% Increase resulting from: State tax......................................... 480 3.9 314 2.5 154 3.6 Other, net........................................ 300 2.4 424 3.3 60 1.5 ----------- --- ---------- ---- ---------- --- Total........................................... $ 5,009 40.5% $ 5,033 39.8% $ 1,657 39.1% =========== ===== ========== ===== =========== =====
The components of the provision for income taxes for the year ended September 30, 1998, 1997 and 1996 are as follows:
FOR THE YEARS ENDED SEPTEMBER 30, ------------------------------------------------ 1998 1997 1996 ------------- ------------- ------------- (Dollars in Thousands) Current-federal.................... $ 3,874 $ 1,150 $ 1,324 Current-state...................... 663 125 227 Deferred-federal................... 407 3,391 90 Deferred-state..................... 65 367 16 ------------- ------------- ------------- Total............................ $ 5,009 $ 5,033 $ 1,657 ============= ============= =============
77 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (16) INCOME TAXES--(CONTINUED) The tax effects of significant temporary differences included in the deferred tax asset as of September 30, 1998 and 1997 were:
SEPTEMBER 30, --------------------- 1998 1997 -------- -------- (Dollars in thousands) Deferred tax asset: Non-accrual interest................................ $ 325 $ 200 Loan loss and other reserves........................ 1,711 875 Fixed assets........................................ 132 77 Deferrals and amortization.......................... - 250 Purchase accounting................................. 1,088 1,605 Other............................................... 771 765 -------- --------- Gross deferred tax asset.......................... 4,027 3,772 -------- --------- Deferred tax liability: FHLB Atlanta stock dividends........................ 106 159 Deferrals and amortizations......................... 1,219 912 Unrealized gains on securities available for sale... 1,150 529 Other............................................... 314 91 -------- --------- Gross deferred tax liability...................... 2,789 1,691 -------- --------- Net deferred tax asset............................ $ 1,238 $ 2,081 ======== =========
At September 30, 1998, the Company had $565,000 in Tax Bad Debt Reserves originating before December 31, 1987 for which deferred taxes have not been provided. The amount becomes taxable under the Internal Revenue Code upon the occurrence of certain events, including certain non-dividend distributions. The Company does not anticipate any actions which would ultimately result in the recapture of this amount for income tax purposes. The components of deferred income tax provision (benefit) relate to the following:
YEARS ENDED SEPTEMBER 30, --------------------------------- 1998 1997 1996 --------- --------- -------- (Dollars in thousands) Differences in book/tax depreciation.............................. $ 15 $ - $ (10) Delinquent interest............................................... (71) (18) (7) FHLB Stock dividends.............................................. (19) - - Loan fees......................................................... - 15 - Loan loss and other reserves...................................... (494) (294) 156 Deferrals and amortization........................................ (76) (145) (33) SAIF special assessment........................................... - 758 - Purchase accounting............................................... 540 2,635 - Other............................................................. 577 807 - --------- -------- -------- Total deferred taxes............................................ $ 472 $ 3,758 $ 106 ========= ======== ========
78 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (16) INCOME TAXES--(CONTINUED) In connection with the acquisition of Suncoast, the Company recorded deferred tax assets and liabilities for the differences between values assigned in purchase accounting and the tax bases of acquired assets and liabilities. The resultant net deferred tax asset is not included in the summary of significant temporary differences at September 30, 1996 above. Approximately $2,635,000 of this deferred tax asset has been recognized as deferred tax expense during the year ended September 30, 1997 and $1,605,000 represents the tax effect at September 30, 1997 of amounts deductible for tax purposes in future periods. The Company also acquired net deferred tax assets of approximately $1,140,000 in conjunction with its acquisition of Suncoast. These net deferred tax assets are not included in the summary of significant temporary differences at September 30, 1996 above. In connection with the acquisition of Consumers and Central, the Company recorded deferred tax assets and liabilities for the differences between values assigned in purchase accounting and the tax bases of acquired assets and liabilities. With respect to the Consumers and Central acquisitions, approximately $19,000 and $7,000, respectively, of net deferred tax assets have been recognized as net deferred tax benefit during the year ended September 30, 1998 and $287,000 and $16,000, respectively, represent the tax effect at September 30, 1998 of amounts not deductible for tax purposes in future periods. The Company 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. (17) COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company 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 the Company has in particular classes of financial instruments. The Company'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, 1998 were as follows:
SEPTEMBER 30, 1998 ------------------------------------------------- FIXED VARIABLE RATE RATE TOTAL -------------- ------------ --------------- (in thousands) Commitments to fund loans.................................... $ 54,512 $ 13,394 $ 67,906 Loans in process............................................. 56,211 14,010 70,221 Domestic letters of credit................................... 3,994 - 3,994 International letters of credit.............................. 340 - 340 Commitments to purchase loans................................ 100,000 152,659 252,659 -------------- ------------- -------------- Total...................................................... $ 215,057 $ 180,063 $ 395,120 ============== ============= ==============
The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, 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 the Company 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. The Company requires collateral to support those commitments. 79 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (17) COMMITMENTS AND CONTINGENCIES--(CONTINUED) During April 1998, the Bank entered into two interest rate cap contracts with a major Wall Street firm, in notional amounts of $90.0 million and $60.0 million, terminating on October 23, 1999 and April 23, 2000, respectively. The contracts require the counter-party to pay the Bank quarterly interest payments based on the notional amounts and the difference between the "London Inter Bank Offering Rate", ( the "LIBOR rate") and 5.90% when the LIBOR rate exceeds 5.90%, in return for a one-time payment by the Bank. During May 1998, the Bank entered into a third interest rate cap contract with another major Wall Street firm in a notional amount of $75.0 million terminating on May 30, 2000. The contract requires the counter-party to pay the Bank quarterly interest payments based on the notional amount and the difference between the LIBOR rate and 6.10% when the LIBOR rate exceeds 6.10%, in return for a one-time payment by the Bank. The Bank entered into these contracts for the purpose of hedging a portion of the Company's interest rate risk for rising interest rates. As of September 30, 1998, the 3-month LIBOR rate was 5.42%. The following table provides additional information regarding the interest rate caps:
AS OF SEPTEMBER 30, 1998 ----------------------- (Dollars in thousands) Aggregate notional amount.................................................... $ 225,000 Amortized costs.............................................................. $ 67 Aggregate market value....................................................... $ (55)
The interest rate caps are accounted for as a non-trading hedge for rising interest rates against certain short-term borrowings. During November 1998, the Bank completed 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. The Bank intends to use the net proceeds from the sale of the notes for general corporate purposes that will ultimately promote home financing or other housing activity and encourage and assist the Bank's asset/liability management. The notes have been rated "Aaa" by Moody's Investors Service, Inc. and "AAA" by Standard & Poor's Ratings Services. The Company is a party to certain other claims and litigation arising in the ordinary course of business. In the opinion of management, the resolution of such claims and litigation will not materially affect the Company's consolidated financial position or results of operations. (18) RELATED PARTY TRANSACTIONS The Company employs the services of a law firm, of which the Company's Chairman of the Board and President is senior managing director and of which another director of the Company 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, 1998, 1997 and 1996, total fees (a portion of which were capitalized) paid to this law firm totaled approximately $2.2 million, $2.2 million, and $986,000, respectively, and amounts paid to this insurance company totaled approximately $445,000, $373,000, and $147,000, respectively. In fiscal 1997, the Company leased property for a new branch, which is 25% owned by the Company'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 $138,000. 80 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (19) BANKUNITED FINANCIAL CORPORATION The following summarizes the major categories of the Company's (parent company only) financial statements: CONDENSED STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, -------------------------------- 1998 1997 -------------- ------------- (in thousands) Assets: Cash......................................................................... $ 1,128 $ 623 FHLB overnight deposits...................................................... 10,608 2,822 Tax certificates............................................................. 1,694 40 Investments, net (market value of approximately $60 and $10 at September 30, 1998 and 1997, respectively)................................. 60 10 Investments available for sale............................................... 15,073 -- Mortgage-backed securities, available for sale............................... 31,642 18,644 Accrued interest receivable.................................................. 885 173 Investment in the Bank....................................................... 350,904 183,807 Investment in subsidiaries................................................... 8,644 4,640 Other assets................................................................. 9,445 9,622 ------------- ------------- Total...................................................................... $ 430,083 $ 220,381 ============= ============= Liabilities..................................................................... $ 3,551 $ 96 ------------- ------------- Junior subordinated deferrable interest debentures.............................. 227,240 120,640 ------------- ------------- Stockholders' equity: Preferred stock.............................................................. 9 22 Common stock................................................................. 181 95 Paid-in capital.............................................................. 178,777 86,679 Retained earnings............................................................ 18,448 11,988 Net unrealized gains on securities available for sale, net of taxes............................................................... 1,877 861 ------------- ------------- Total stockholders' equity................................................. 199,292 99,645 ------------- ------------- Total liabilities and stockholders' equity................................. $ 430,083 $ 220,381 ============= =============
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, ------------------------------------------------ 1998 1997 1996 ------------- ------------- ------------- (in thousands) Interest income....................................................... $ 4,808 $ 2,626 $ 803 Interest expense...................................................... 17,621 6,726 17 Equity income of the subsidiaries..................................... 16,227 10,927 2,406 Operating expenses.................................................... 1,495 1,166 491 ------------- ------------- ------------- Income before income taxes.......................................... 1,919 5,661 2,701 Income tax expense (benefit).......................................... (5,438) (1,938) 115 ------------- ------------- ------------- Net income before preferred stock dividends......................... 7,357 7,599 2,586 Preferred stock dividends of the Company.............................. 897 2,890 2,145 ------------- ------------- ------------- Net income after preferred stock dividends.......................... $ 6,460 $ 4,709 $ 441 ============= ============= =============
81 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (19) BANKUNITED FINANCIAL CORPORATION (CONTINUED) CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, ------------------------------------------------ 1998 1997 1996 ------------ ------------- ------------- (in thousands) Cash flow from operating activities: Net income.......................................................... $ 7,357 $ 7,599 $ 2,586 Less: Undistributed income of the subsidiaries...................... (16,227) (11,551) (406) Other............................................................... (2,508) (2,792) 242 ------------- ------------- ------------- Net cash provided by (used in) operating activities............... (11,378) (6,744) 2,422 ------------- ------------- ------------- Cash from investing activities: Equity contributions to the Bank.................................... (110,000) (85,000) (16,000) Equity contributions to subsidiaries................................ (4,100) (4,640) - Purchase of investment securities................................... (15,363) - (155) Proceeds from sale of investments................................... - 155 - Purchase of mortgage-backed securities.............................. (30,734) (27,411) - Proceeds from repayments of mortgage-backed securities.............. 18,821 5,054 368 Proceeds from sales of mortgage-backed securities................... - 5,021 - Net (increase) decrease in tax certificates......................... (1,654) 269 145 ------------- ------------- ------------- Net cash used in investing activities............................. (143,030) (106,552) (15,642) ------------- ------------- ------------- Cash flow from financing activities: Net proceeds from issuance of Junior subordinated deferrable interest debentures.................................... 103,013 114,776 - Net proceeds from issuance of common stock.......................... 60,502 1,329 23,198 Net proceeds from issuance of preferred stock....................... 488 - - Dividends paid on preferred stock................................... (837) (2,855) (2,086) Preferred Stock, Series 9% tender offer............................. (43) (4,486) - Preferred Stock redemption.......................................... (424) - - ------------- ------------- ------------- Net cash provided by financing activities......................... 162,699 108,764 21,112 ------------- ------------- ------------- (Decrease) increase in cash and cash equivalents...................... 8,291 (4,532) 7,892 Cash and cash equivalents at beginning of year........................ 3,445 7,977 85 ------------- ------------- ------------- Cash and cash equivalents at end of year.......................... $ 11,736 $ 3,445 $ 7,977 ============= ============= =============
82 BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1998 (20) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The information set forth below provides disclosure of the estimated fair value of the Company'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 and adjustable rate 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 secondary market sources adjusted to reflect differences in servicing and credit costs. 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 discount rate is estimated using the Company's current rates for deposits of similar maturities adjusted for insurance costs. 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 following table presents information for the Company's financial instruments at September 30, 1998 and 1997:
AS OF SEPTEMBER 30, 1998 ----------------------------------- CARRYING VALUE FAIR VALUE -------------- --------------- (in thousands) Financial assets: Cash and overnight investments.......................................... $ 91,511 $ 91,511 Tax certificates and other investments.................................. 78,210 78,367 Mortgage-backed securities.............................................. 345,756 343,115 Loans receivable........................................................ 3,042,014 3,253,845 Mortgage servicing rights............................................... 8,917 8,917 Other interest-earning assets........................................... 51,313 51,313 Financial liabilities: Deposits................................................................ $ 2,124,824 $ 2,133,186 Borrowings.............................................................. 1,142,614 1,147,283 Trust Preferred Securities.............................................. 218,500 212,915
AS OF SEPTEMBER 30, 1997 ----------------------------------- CARRYING VALUE FAIR VALUE -------------- --------------- (in thousands) Financial assets: Cash and overnight investments.......................................... $ 89,984 $ 89,984 Tax certificates and other investments.................................. 73,943 74,062 Mortgage-backed securities.............................................. 120,271 120,211 Loans receivable........................................................ 1,765,723 1,814,459 Mortgage servicing rights............................................... 4,783 4,890 Other interest-earning assets........................................... 33,599 33,599 Financial liabilities: Deposits................................................................ $ 1,195,892 $ 1,197,871 Borrowings.............................................................. 701,484 704,705 Trust Preferred Securities.............................................. 116,000 119,010
83 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. The information contained under the caption "Election of Directors" to appear in the Company's definitive proxy statement relating to the Company's 1999 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 the Company'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 the Company is included in Part I of this Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. The information contained under the caption "Executive Compensation" to appear in the Annual Meeting Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information contained under the caption "Security Ownership of Certain Beneficial Owners and Management" to appear in the Annual Meeting Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information contained under the captions "Compensation Committee Interlocks and Insider Participation" and "Certain Relationships and Related Transactions" to appear in the Annual Meeting Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT: (1) Financial Statements. The following consolidated financial statements of the Company 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, 1998 and 1997. Consolidated Statements of Operations for the years September 30, 1998, 1997 and 1996. Consolidated Statements of Stockholder's Equity for the years ended September 30, 1998, 1997 and 1996. 84 Consolidated Statements of Cash Flows for the years ended September 30, 1998, 1997 and 1996. 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-K Report for the year ended September 30, 1997 [the "1997 10-K"]). 3.2 Bylaws of BankUnited (Exhibit 4.5 to BankUnited's Form S-8 Registration Statement, File No. 333-43211, as filed with the Securities and Exchange Commission on November 14, 1996). 4.1 Statement of Designation of Series 1 Class A Common Stock and Class B Common Stock of BankUnited (included as an appendix to Exhibit 3.1). 4.2 Statement of Designation of 8% 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 8% Noncumulative Convertible Preferred Stock, Series 1993 of BankUnited (included as appendix to Exhibit 3.1). 4.5 Statement of Designation of 9% Noncumulative Perpetual Preferred Stock of BankUnited (included as an appendix to Exhibit 3.1). 4.6 Statement of Designation of 8% Noncumulative Convertible Preferred Stock, Series 1996 of BankUnited (included as appendix to Exhibit 3.1). 4.7 Form of Letter Agreement between BankUnited and the holders of shares of BankUnited's Noncumulative Convertible Preferred Stock, Series B. 4.8 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). 4.9 The Advances, Specific Collateral Pledge and Security Agreement dated March 30, 1998 between BankUnited, FSB and the Federal Home Loan Bank of Atlanta. 4.91 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"). 4.92 Form of the Bank's Senior Note (Fixed Rate) issuable pursuant to the Indenture. 4.93 Form of the Bank's Senior Note (Floating Rate) issuable pursuant to the Indenture. 4.94 The Letter of Credit Reimbursement Agreement dated November 14, 1998 between the Bank and the Federal Home Loan Bank of Atlanta. 85 10.1 Non-Statutory Stock Option Plan, as amended, (Exhibit 4.9 to BankUnited's Form S-8 Registration Statement, File No. 33-76882, as filed with the Securities and Exchange Commission on March 24, 1994). ** 10.2 1992 Stock Bonus Plan, as amended (Exhibit 10.2 to BankUnited's Form 10-K Report for the year ended September 30, 1994 [the "1994 10-K"]).** 10.3 1994 Incentive Stock Option Plan. (Exhibit 10.3 to the 1994 10-K).** 10.4 The Bank's Profit Sharing Plan. (Exhibit 10.4 to BankUnited's Form S-2 Registration Statement, File No. 33-80791, as filed with the Securities and Exchange Commission on December 22, 1995).** 10.5 1996 Incentive Compensation and Stock Award, as amended by approval of the Company's stockholders on January 26, 1998.** 10.6 Form of Employment Agreement between BankUnited and Alfred R. Camner .*** 10.7 Form of Employment Agreement between the Bank and Alfred R. Camner .*** 10.8 Form of Employment Agreement between BankUnited, the Bank and Mehdi Ghomeshi .*** 10.9 Junior Subordinated Indenture with respect to BankUnited's 10 1/4% Junior Subordinated Debentures. (Exhibit 4.1A to the Company's Registration Statement on Form S-4, File No. 333- 24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.10 Supplemental Indenture (Exhibit 4.1B to the Company's Registration Statement on Form S-4, File No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.11 Form of Amended and Restated Trust Agreement of BankUnited Capital. (Exhibit 4.3 to the Company's Registration Statement on Form S-4, No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.12 Form of Amended and Restated Guarantee Agreement for BankUnited Capital. (Exhibit 4.5 to the Company's Registration Statement on Form S-4, No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.13 Form of Agreement as to Expenses and Liabilities (included as an exhibit to Exhibit 99.6 to the Company's Registration Statement on Form S-4, No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.14 Registration Rights Agreement (Exhibit 4.6 to the Company's Registration Statement on Form S- 4, No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.15 Registration Rights Agreement (Exhibit 4.7 to the Company's Registration Statement on Form S- 4, No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.16 Purchase Agreement (Exhibit 99.4 to the Company's Registration Statement on Form S-4, No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.17 Purchase Agreement (Exhibit 99.5 to the Company's Registration Statement on Form S-4, No. 333-24025, as filed with the Securities and Exchange Commission on March 27, 1997). 10.18 Underwriting Agreement dated June 1997 between the Company 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). 10.19 Form of Indenture with respect to BankUnited's 9.60% Junior Subordinated Debentures. (Exhibit 4.3 to the Company's Registration Statement on Form S-2, File No. 333-27597, as filed with the Securities and Exchange Commission on May 22, 1997). 10.20 Trust Agreement of BankUnited Capital II. (Exhibit 4.6 to the Company's Registration Statement on Form S-2, File No. 333-27597, as filed with the Securities and Exchange Commission on May 22, 1997). 10.21 Form of Amended and Restated Trust Agreement of BankUnited Capital II. (Exhibit 4.7 to the Company's Registration Statement on Form S-2, No. 333-27597, as filed with the Securities and Exchange Commission on May 22, 1997). 86 10.22 Form of Guarantee Agreement for BankUnited Capital II. (Exhibit 4.9 to the Company's Registration Statement on Form S-2, No. 333-27597, as filed with the Securities and Exchange Commission on May 22, 1997). 10.23 Form of Agreement as to Expenses and Liabilities (included as an exhibit to Exhibit 4.7) (Exhibit 4.10 to the Company's Registration Statement on Form S-2, No. 333-27597, as filed with the Securities and Exchange Commission on May 22, 1997). 10.24 Purchase Agreement between the Company and BankUnited Capital III and PaineWebber Incorporated (Exhibit 1.1 to the Company's Amendment No. 3 to Form S-3, No. 333-28677, as filed with the Securities and Exchange Commission on March 6, 1998). 10.25 Form of Indenture with respect to BankUnited's 9% Junior Subordinated Debentures (Exhibit 4.3 to Amendment No. 3 to the Company's Registration Statement on Form S-3, No. 333-28677, as filed with the Securities and Exchange Commission on March 6, 1998). 10.26 Trust Agreement of BankUnited Capital III. (Exhibit 4.6 to the Company's Registration Statement on Form S-3, No. 333-28677, as filed with the Securities and Exchange Commission on June 6, 1997). 10.27 Form of Amended and Restated Trust Agreement of BankUnited Capital III. (Exhibit 4.3 to Amendment No. 3 to the Company's Registration Statement on Form S-3, No. 333-28677, as filed with the Securities and Exchange Commission on March 6, 1998). 10.28 Form of Guarantee Agreement for BankUnited Capital III. (Exhibit 4.3 to Amendment No. 3 to the Company's Registration Statement on Form S-3, No. 333-28677, as filed with the Securities and Exchange Commission on March 6, 1998). 10.29 Form of Agreement as to Expenses and Liabilities (Exhibit 4.3 to Amendment No. 3 to the Company's Registration Statement on Form S-3, No. 333-28677, as filed with the Securities and Exchange Commission on March 6, 1998). 11.1 Statement regarding calculation of earnings per common share (set forth in Footnote (2) to the Notes to Consolidated Financial Statements contained in Part II, Item 8 of this report on Form 10- K for the year ended September 30, 1998). 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 IVof this Report on Form 10-K for the year ended September 30, 1998). 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, 1998, no Current Reports on Form 8-K were filed by the Company. SUPPLEMENTAL INFORMATION As of the date of filing of this report on Form 10-K no annual report or proxy material has been sent to security holders. Such material will be furnished to security holders and the Securities and Exchange Commission subsequent to the filing of this report on Form 10-K. 87 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on December 29, 1998. BANKUNITED FINANCIAL CORPORATION BY: /s/ ALFRED R. CAMNER ---------------------------- Alfred R. Camner Chairman of the Board, and Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alfred R. Camner, Earline G. Ford and Marc Jacobson and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on December 29, 1998 on behalf of the Registrant by the following persons and in the capacities indicated. /s/ ALFRED R. CAMNER - ------------------------------------- Chairman of the Board, ALFRED R. CAMNER Chief Executive Officer, and Director (Principal Executive Officer) /s/ MEHDI GHOMESHI - ------------------------------------- President and Chief MEHDI GHOMESHI Operating Officer and Director /s/ LAWRENCE H. BLUM - ------------------------------------- Vice Chairman of the Board LAWRENCE H. BLUM and Director /s/ EARLINE G. FORD - ------------------------------------- Executive Vice President, EARLINE G. FORD Treasurer and Director /s/ MARC LIPSITZ - ------------------------------------- Director and Corporate Secretary MARC LIPSITZ /s/ MARC D. JACOBSON - ------------------------------------- Director MARC D. JACOBSON /s/ ALLEN M. BERNKRANT - ------------------------------------- Director ALLEN M. BERNKRANT /s/ ANNE W. SOLLOWAY - ------------------------------------- Director ANNE W. SOLLOWAY 88 /s/ NEIL MESSINGER - ------------------------------------- Director NEIL MESSINGER /s/ BRUCE FRIESNER - ------------------------------------- Director BRUCE FRIESNER /s/ DIANE DELELLA - ------------------------------------- Vice President, Chief DIANE DELELLA Financial Officer and Controller 89 EXHIBIT INDEX EXHIBIT DESCRIPTION - ------- ----------- 4.7 Form of Letter Agreement between BankUnited and the holders of shares of BankUnited's Noncumulative Convertible Preferred Stock, Series B. 4.9 The Advances, Specific Collateral Pledge and Security Agreement dated March 30, 1998 between BankUnited, FSB and the Federal Home Loan Bank of Atlanta. 4.91 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"). 4.92 Form of the Bank's Senior Note (Fixed Rate) issuable pursuant to the Indenture. 4.93 Form of the Bank's Senior Note (Floating Rate) issuable pursuant to the Indenture. 4.94 The Letter of Credit Reimbursement Agreement dated November 14, 1998 between the Bank and the Federal Home Loan Bank of Atlanta. 10.5 1996 Incentive Compensation and Stock Award, as amended by approval of the Company's stockholders on January 26, 1998.* 10.6 Form of Employment Agreement between BankUnited and Alfred R. Camner. 10.7 Form of Employment Agreement between the Bank and Alfred R. Camner. 10.8 Form of Employment Agreement between BankUnited, the Bank and Mehdi Ghomeshi. 12.1 Statement regarding calculation of ratio of earnings to combined fixed charges and preferred stock dividends. 21.1 Subsidiaries of the Registrant. 23.1 Consent of PricewaterhouseCoopers LLP. 27.1 Financial Data Schedule - ----------------------- * Compensatory plan or arrangement. EX-4.7 2 EXHIBIT 4.7 SHAREHOLDER AGREEMENT By this agreement (this "Agreement"), BankUnited Financial Corporation (the "Company") and the holders (the "Holders") of the Company's Noncumulative Convertible Preferred Stock, Series B (the "Series B Preferred Stock"), agree as follows, effective as of October 1, 1997: 1. Notwithstanding the annual dividend rate of $0.7375 stated in Section 2 of the Statement of Designation for the Series B Preferred Stock (the "Statement of Designation"), Appendix C to the Company's Articles of Incorporation, the Holders agree that they shall accept, when, as, and if declared by the Board of Directors and out of the assets of the Company which are by law available for the payment of dividends, preferential cash dividends payable quarterly on the last day of February, May, August and November of each year (unless such day is a non-business day, in which event on the next business day), at the fixed annual rate of $0.55 per share and no more. 2. In consideration of this decrease in the annual dividend rate, and notwithstanding the provisions of Section 4 of the Statement of Designation, the Company agrees it shall not redeem any of the shares of the Series B Preferred Stock prior to October 1, 2007, unless such redemption is approved by the holders of at least 50% of the outstanding shares of the Series B Preferred Stock. 3. This Agreement shall not be deemed to modify or cancel any other rights of the Holders, not expressly changed herein. 4. This Agreement may be executed in one or more counterparts, each of which shall be deemed to constitute an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company and the Holders have executed this Agreement, or have caused this Agreement to be executed by their duly authorized representatives, as of the date first written above. BANKUNITED FINANCIAL CORPORATION By:----------------------------------- Name: -------------------------------- Title: ------------------------------- HOLDERS ------------------------------------- ALFRED R. CAMNER ------------------------------------- LAWRENCE H. BLUM ------------------------------------- ALLEN M. BERNKRANT ------------------------------------- EARLINE G. FORD ------------------------------------- MARC D. JACOBSON ------------------------------------- CHARLES B. STUZIN ------------------------------------- JAMES M. STUZIN, AS TRUSTEE ------------------------------------- HARVEY MILLER ------------------------------------- BARRY SHULMAN EX-4.9 3 EXHIBIT 4.9 FEDERAL HOME LOAN BANK OF ATLANTA ADVANCES, SPECIFIC COLLATERAL PLEDGE AND SECURITY AGREEMENT AGREEMENT, dated as of March 30, 1998, between BankUnited, FSB having its principal place of business at 255 Alhambra Circle, Coral Cables, FL 33134 ("Member") and the Federal Home Loan Bank of Atlanta, 1475 Peachtree Street, N. E., Atlanta, Georgia 30309 ("Bank"). WHEREAS, the Member desires from time to time to participate in the Bank's credit program(s) under the terms of this Agreement, and the Bank is authorized to extend credit to the Member pursuant to the provisions of the Federal Home Loan Bank Act, as now and hereafter amended (the "Act"), and the regulations and guidelines of the Federal Housing Finance Board (the "Board") or any successor entity now and hereafter in effect (collectively, the "Regulations"); and WHEREAS, the Bank requires that advances by the Bank be secured pursuant to this Agreement, and the Member agrees to provide such security as requested by the Bank by the means set forth in this Agreement; NOW THEREFORE, the Member and the Bank agree as follows: ARTICLE 1: DEFINITIONS SECTION 1.01 DEFINITIONS. As used herein, the following terms shall have the following meanings: (A) "Advance" or "Advances" means any and all loans or other extensions of credit, including all Commitments, heretofore, now or hereafter granted by the Bank to, on benalf of, or for the account of, the Member. (B) "Application" means a writing, signed by the Member, in such form or forms as shall be specified by the Bank from time to time, by which the Member requests, and which it executed by the Bank shall together with this Agreement evidence the terms of, an Advance or a commitment for an Advance. (C) "Capital Stock" means all of the capital stock of the Bank held by the Member, and all payments which have been or hereafter are made on account of subscriptions to and all unpaid dividends on such capital stock. (D) "Collateral" means all property, including the proceeds thereof, heretofore assigned, transferred or pledged to the Bank by the Member as collateral for Advances or other extensions of credit prior to the date hereof, and all Capital Stock, First Mortgage Collateral, Government and Agency Securities Collateral, other Collateral and Other Securities Collateral, including the proceeds thereof, which is now or hereafter pledged to the Bank pursuant to Section 3.01 hereof. (E) "Collateral Maintenance Level" means the aggregate dollar amount equal to such percentage(s) as the Bank may specify from time to time of (1) the outstanding amounts of all Advances, (2) with respect to each outstanding Swap Transaction, the amount of which the Member is required to maintain Collateral: and (3) any additional obligations and liabilities of the Member to the Bank. The Bank may increase or decrease the Collateral Maintenance Level at any Time. (F) "Commitment" or "Commitments" means any and all agreements under wnich the Bank is contractually obligated to make a loan to, or to make a future payment on behalf or for the account of the Member (but excluding any obligations that the Bank may now or hereafter have to honor items or transfer orders under a depository or similar agreement between the Bank and the Member), regardless of whether such obligation is contingent in whole or in part, including, without limitation, letters of credit issued for the account of the Member. (G) "Confirmation of Advance" means a writing or machine readable electronic transmission, in such form or forms as the Bank may generate from time to time, by which the Bank agrees to and confirms the Member's request for an Advance or a commitment for an Advance and which, together with this Agreement, shall evidence the terms of such Advance or commitment. (H) "First Mortgage Collateral" means First Mortgage Documents (excluding participation or other fractional interests therein) and all ancillary security agreements, policies and certificates of insurance or guarantees, evidences of recordation, applications, underwriting materials, surveys, appraisals, approvals, permits, notices, opinions of counsel and loan servicing data and all other electronically stored and written records or materials relating to the loans evidenced or Secured by the First Mortgage Documents. (I) "First Mortgage Documents" mean mortgages and deeds of trust (herein "mortgages") secured by a first lien on one-to-four unit single family dwellings, and all notes, bonds or other instruments (herein "mortgage notes") evidencing fully disbursed loans secured by such mortgages and any endorsements or assignments thereof to the Member. (J) "Government and Agency Securities Collateral" means mortgage-backed securities (including participation certificates) issued by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association, obligations guaranteed by the Government National Mortgage Association, and obligations issued or guaranteed by the United States or an agency thereof. (K) "Indebtedness" means all indebtedness, now or hereafter outstanding, of the Member to the Bank, including, without limitation, all Advances and all other obligations to pay and liabilities of the Member to the Bank. (L) "Lendable Collateral Value" means an amount equal to such percentage as the Bank shall from time to time in its sole discretion, ascribe to the market value or unpaid principal balances of items of Qualifying Collateral. 2 (M) "Other Collateral" means items of property other than Capital Stock First Mortgage Collateral, Government and Agency Securities Collateral and Other Securities Collateral which are offered as Collateral by the Member to the Bank and are specifically accepted by the Bank as Collateral. (N) "Other Mortgage Documents" mean mortgages secured by a first lien on real property other than on a one-to-four unit single family dwelling and all mortgage notes secured by such mortgages and any endorsements or assignments thereof to the Member. (O) "Other Securities Collateral" means securities (other than Government and Agency Securities Collateral) representing unsubordinated interests in, or collateralized by first lien security interests in, both the interest and principal payments on first lien residential mortgages. (P) "Qualifying Collateral" means Collateral other than Capital Stock which: (i) is eligible as collateral that can be used to support the origination of Advances under the terms and conditions of the Act and the Regulations and satisfies such other requirements as may be established by the Bank; (ii) is owned by the Member free and clear of any liens, encumbrances or other interests other than the assignment to the Bank hereunder; (iii) has not been in default within the most recent 12-month period, excepting only in the case of First Mortgage Collateral payments which are not past due except as permitted by the Bank's Credit Policy; (iv) in the case of First Mortgage Collateral, relates to residential real property on which is located a one-to-four unit single family dwelling trial is covered by fire and hazard insurance in an amount at least sufficient to discharge the mortgage loan in full in case of loss and as to which all real estate taxes are current; (v) has not been classified as substandard, doubtful, or loss by the Member's regulatory authority or its management; (vi) in the case of First Mortgage Collateral and Other Collateral does not secure an indebtedness on which any director, officer, employee, attorney or agent of the Member or any Federal Home Loan Bank Is personally liable unless the acceptance of such Collateral by the Bank nas been specifically approved by formal resolution of the Board; and (vii) in the case of Other Collateral, Government and Agency Securities Collateral and Other Securities Collateral has been offered by the Member to the Bank and specifically accepted by the Bank as Qualifying Collateral. (Q) "Swap Transaction" means an interest rate swap, interest rate cap, floor or collar, currency exchange transaction or similar transaction entered into between the Bank and the Member. ARTICLE II: ADVANCES AGREEMENT SECTION 2.01 ADVANCE DOCUMENTATION. The Member may apply for Advances and commitments for Advances by completing and submitting an Application to the Bank or by telephonic or other unsigned communication. The Bank may suspend the use of telephonic applications at any time. The terms of each Advance or commitment shall be conclusively established by this Agreement and by either (i) the Member's Application when such Application is executed by the Bank without any change, or (ii) in the case of an Application received, completed or modified by the Bank pursuant to a telephonic or other 3 unsigned communication from the Member ("telephonic application"), by a Confirmation of Advance generated by the Bank. The Member shall be estopped from asserting any claim or defense with respect to the terms applicable to an Advance or commitment entered into pursuant to a telephonic application unless, within two (2) business days of receipt of the Bank's Confirmation of Advance, the Member delivers to the Bank a written notice specifying the disputed term(s) or condition(s) of the Advance or commitment. Within three (3) business days of the date of the Member's receipt of the Bank's Confirmation of Advance, the Member shall prepare, sign and submit to the Bank a completed Application conforming to such Confirmation of Advance. Upon the request of the Bank, the Member shall sign and deliver to the Bank a promissory note or notes in such form as the Bank may reasonably require evidencing any Advance. Unless otherwise agreed to by the Bank in writing, each Advance shall be made by crediting the Member's demand deposit account(s) with the Bank. SECTION 2.02 REPAYMENT OF ADVANCES. The Member agrees to repay each Advance in accordance with this Agreement and the terms and conditions of the Application or Confirmation of Advance evidencing such Advance. Interest shall be paid on each Advance at the times specified by the Bank in writing and shall be charged for each day that an Advance is outstanding at the rate applicable to the Advance. The Member shall pay to the Bank, immediately and without demand, interest on any past due principal of and interest on any Advance at an interest rate which is the greater of (1) the rate applicable to such Advance plus one percent (1%) or (ii) The rate in effect and being charged by the Bank from time to time on overdrafts on demand deposit accounts of its members, but in no event more than any applicable limit set by the Regulations. The Member shall ensure that, on any day on which any payment is due to the Bank with respect to Advances or other indebtedness, the Member's demand deposit account(s) with the Bank has an available balance in an amount at least equal to the amounts then due and payable to the Bank, and the Member hereby authorizes the Bank to debit the Member's demand deposit account(s) with the Bank for all amounts due and payable with respect to any Advance and for all other amounts due and payable hereunder. In the event that the available balance in the Member's demand deposit account(s) is insufficient to pay such due and payable amounts, the Bank may, without notice to or request from the Member, apply any other deposits, credits, or monies of the Member then in the possession of the Bank to the payment of amounts due and payable. All payments with respect to Advances shall be applied first to any fees or charges applicable thereto and to interest due thereon, in such order as the Bank may determine, and then to any principal amount thereof that is then due and payable. SECTION 2.03 RIGHT OF BANK TO MAKE ADVANCES WITH RESPECT TO OUTSTANDING COMMITMENTS. In the event that there are one or more outstanding Commitments at the time of an Event of Default under Section 4.01 hereof, the Bank may at its option, and without notice to or request from the Member, make an Advance by crediting a special account of the Member with the Bank in an amount equal to the outstanding Commitments. Amounts credited to such special account shall be utilized by the Bank for the purpose of satisfying the Bank=s obligations under such Commitments. When all such obligations have expired or have been satisfied, the Bank shall disburse the balance, if any, in such special account first to the satisfaction of any amounts then due and owing by the Member to the Bank and then to the Member or its successors in interest. Advances made pursuant to this Section 2.03 shall be payable on demand and shall bear interest from the date the same shall be made until paid at the rate in effect and being charged by the Bank from time to time on overdrafts on demand deposit accounts of its members, but in no event more than any applicable limit set by the Regulations 4 SECTION 2.04 AMORTIZATION OF ADVANCES. In the event that the Bank determines that the creditworthiness of the Member, as determined from time to time by the Bank, does not meet the requirements of the Bank, the Bank may, without limitation of the Bank=s rights upon the occurrence of an Event of Default hereunder, require amortization by means of monthly payments of principal on all or part of the Member's Advances. The Member agrees to begin making such monthly amortization payments, upon thirty (30) days written notice from the Bank, in such monthly amounts as the Bank shall specify in writing. No monthly payment shall exceed ten percent (10%) of the original principal balance of the Advance being amortized. Unless otherwise specified by the Bank in writing to the Member, such monthly amortizing payments shall not extend or modify its maturity date or other scheduled payment dates applicable to the Advance being amortized. ARTICLE III: SECURITY AGREEMENT SECTION 3.01 CREATION OF SECURITY INTEREST. As security for all Indebtedness, the Member hereby assigns, transfers, and pledges to the Bank, and grants to the Bank a security interest in: (i) all of the Capital Stock and (ii) all of the First Mortgage Collateral, Government and Agency Securities Collateral, Other Collateral, and Other Securities Collateral now or hereafter owned by the Member, and all proceeds thereof, which is specified pursuant to Section 3.04 or delivered pursuant to Section 3.05. Without limitation of the foregoing, all property heretofore assigned, transferred or pledged by the Member to the Bank as Collateral securing Indebtedness and other obligations of the Member prior to the date hereof is hereby assigned, transferred and pledged to the Bank as Collateral hereunder. SECTION 3.02 MEMBER'S REPRESENTATION AND WARRANTIES CONCERNING COLLATERAL. The Member represents and warrants to the Bank, as of the date hereof and the date of each Advance hereunder, as follows: (A) The Member owns and has marketable title to the Collateral and has the right and authority to grant a security interest in the Collateral and to subject all of the Collateral to this Agreement; (B) The information given from lime to time by the Member as to each item of Collateral is true, accurate and complete in all material respects; (C) All the Collateral meets the standards and requirements with respect thereto from time to time established by the Act, the Regulations and the Bank; (D) The lien of the First Mortgage Collateral and Other Collateral on the real property securing the same is a perfected lien under applicable law; (E) The Member has not conveyed or otherwise created, and there does not otherwise exist, any participation interest or other direct indirect, legal. or beneficial interest in any Collateral on the part of anyone other than the Bank and the Member; 5 (F) Except as may be approved in writing by the Bank, no account holder or other obligor owing any obligation to the Member with respect to any item of First Mortgage Collateral or Other Collateral has or will have any defenses, offsetting claims, or other rights affecting the right of the Member or the Bank to enforce such mortgage, mortgage note or promissory obligation, and no defaults (or conditions that, with the passage of time or the giving of notice or both, would constitute a default) exist under any such writings; and (G) No part of any real property or interest in real property that is, or is the subject of mortgages, included in the Qualifying Collateral contains or is subject to the effects of toxic or hazardous materials or other hazardous substances (including those defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. /section/9601, el seq.; the Hazardous Materials Transportation Act, 49 U.S.C. /section/1801 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. /section/6901 et seq.; and in the regulations adopted and publications promulgated pursuant to said laws) the presence of which could subject the Bank to any liability under applicable state or Federal law or local ordinance either at any time that such property is placed to the Bank or upon the enforcement by the Bank of its security interest therein. The Member hereby agrees to indemnify and hold the Bank harmless against all costs, claims, expenses, damages, and liabilities resuming in any way from the presence or effects of any such toxic or hazardous substances or materials in, on, or under any real property or interest in real property that is subject to or included in the Collateral. SECTION 3.03 COLLATERAL MAINTENANCE REQUIREMENT. (A) The Member shall at all times maintain as Collateral an amount of Qualifying Collateral which has a Lendable Collateral Value that is at least equal to the then current required Collateral Maintenance Level. In addition, the Member agrees to maintain such additional amounts of Collateral (which may be Collateral that is not Qualifying Collateral) as may be required by the Bank in order to protect its security position with respect to outstanding indebtedness. The Member shall not assign, pledge, transfer, create any security interest in, sell, or otherwise dispose of any Collateral without the express written consent of the Bank. (B) It any Collateral that was Qualifying Collateral ceases to be Qualifying Collateral, the Member shall promptly notify the Bank in writing of that fact and, if so requested by the Bank, of the reason that the Collateral has ceased to be Qualifying Collateral. The Member shall promptly specify, or deliver, as the case may be, other Qualifying Collateral having at least the same Lendable Collateral Value as the Collateral so requested to be withdrawn. (C) The Bank may review the form and sufficiency of all documents pertaining to the Collateral. Such documents must be satisfactory to the Bank and, if not, such Collateral may not be acceptable as Qualifying Collateral or may have a Lendable Collateral Value applied thereto that is less than the Lendable Collateral Value otherwise applicable under the Bank's Credit Policy, as the Bank may specify. The Bank may require that the Member make any or all documents pertaining to the Collateral available to the Bank for its inspection and approval. 6 SECTION 3.04 SPECIFICATION AND IDENTIFICATION OF COLLATERAL. (A) Upon execution of this Agreement, the Member shall deliver to the Bank a status report and accompanying securities, all in the form(s) prescribed by the Bank, specifying and describing Qualifying Collateral in an amount sufficient to satisfy the requirements of Section 3.03(A) hereof. (B) Specified Collateral shall be held by the Member in trust for the benefit of, and subject to the direction and control of the Bank, and will be physically safeguarded by the Member with at least the same degree of care as the Member uses in physically safeguarding its other property. Without limitation of the foregoing, the Member shall take all action necessary or desirable to protect and preserve the Collateral and the Bank's interest therein, including without limitation the maintaining of insurance on property securing Mortgages constituting Collateral (such policies and certificates of insurance or guaranty relating to such mortgages are herein called Ainsurance"), the collection of payments under all mortgages and under all insurance, and otherwise assuring that all mortgages are serviced in accordance with the standards of a reasonable and prudent mortgagee. (C) The Member shall hold each set of First mortgage Documents and all Other mortgage Documents which are a part of such specified Collateral in a separate file folder with each file folder clearly labeled with the loan identification number and the name of the borrower(s). Each such file folder shall be clearly marked or stamped with the statement: AThe Mortgage/Deed of Trust and Note Relating to This Loan Have Been Assigned To the Federal Home Loan Bank of Atlanta," or such other statement that may be approved by the Bank from time to time. If so requested by the Bank, in writing, the Member shall physically segregate First Mortgage Documents and Other Mortgage Documents which are a part of such specified Collateral from all other property of the Member in a manner satisfactory to the Bank. SECTION 3.05 DELIVERY OF COLLATERAL. (A) Upon the Bank's written or oral request, or promptly at any time that the Member becomes subject to any mandatory collateral delivery requirements that may be established in writing by the Bank, and until such time as may be agreed upon by the Bank in writing, the Member shall deliver to the Bank, or to a custodian designated by the Bank, such Qualifying Collateral as may be necessary so that the Lendable Collateral Value of Qualifying Collateral held by the Bank, or such custodian, meets or exceeds the Collateral Maintenance Level at all times. The Member shall also deliver to the Bank, or to a custodian designated by the Bank, additional Collateral (which may be Collateral that is not Qualifying Collateral) in such amount as may be required by the Bank. Collateral delivered to the Bank, shall be endorsed or assigned, as appropriate, in recordable form by the Member to the Bank, as specified by the Bank. Unless otherwise indicated by the Bank, such endorsements or assignments may be in blanket form and, in the case of First Mortgage Documents and Other Mortgage Documents, there shall be separate endorsements and assignments for each county or recording district in which the real property covered by such mortgage loans is located. With respect to First Mortgage Collateral and mortgage loans which are Other Collateral that are delivered hereunder, the Member need only 7 deliver the First Mortgage Documents and Other Mortgage Documents together with recordable assignments of the mortgages, unless otherwise directed by the Bank. Concurrently with the initial delivery of Collateral, the Member shall deliver to the Bank a status report and accompanying schedules, all in the form(s) prescribed by the Bank. specifying and describing the Collateral need by the Bank or its custodian and identifying those items of Collateral that are Qualifying Collateral. (B) With respect to any uncertificated securities pledged to the Bank as Collateral hereunder, the delivery requirements contained in this Agreement shall be satisfied by the transfer of a security interest in such securities to the Bank, such transfer to be effected in such manner and to be evidenced by such documents as shall be reasonably specified by the Bank. (C) The Member agrees to pay to the Bank such reasonable fees and charges as may be assessed by the Bank to cover the Bank's overhead and other costs relating to the receipt, holding, redelivery and reassignment of Collateral and to reimburse the Bank upon request for all recording fees and other reasonable expenses, disbursements and advances incurred or made by the Bank in connection therewith (including the reasonable compensation and the expenses and disbursements of any custodian that may be appointed by the Bank hereunder, and the agents and legal counsel of the Bank and of such custodian). (D) The Member shall, upon request of the Bank, immediately take such other actions as the Bank shall deem necessary or appropriate to perfect the Bank's security interest in the Collateral or otherwise to obtain. preserve, protect, enforce or collect the Collateral. SECTION 3.06 WITHDRAWAL OF COLLATERAL. Upon receipt by the Bank of writings in the form specified by the Bank constituting; (i) a request from the Member for the withdrawal of Collateral which has been specified or identified pursuant to Section 3.04 hereof, delivered pursuant to Section 3 05 hereof, or as to which the Bank has otherwise perfected its security interest; (ii) a detailed listing of the Collateral to be withdrawn; and (iii) a certificate of a responsible officer of the Member certifying as to the Qualifying Collateral that is specified and identified by the Member, or held by the Bank, as appropriate, after such withdrawal, and upon the Bank's determination that the Lendable Collateral value of the remaining Qualifying Collateral is not less than the current required Collateral Maintenance Level, the Bank shall promptly redeliver, release or reassign to the Member the Collateral identified in the Member's listing of Collateral to be withdrawn, provided that the Collateral requested to be withdrawn is not required by the Bank to be maintained as additional Collateral. Notwithstanding anything to the contrary herein contained, while an Event of Default hereunder shall have occurred and be continuing, or at any time trial the Bank reasonably and in good faith seems itself insecure, the Member may not obtain any such withdrawal. SECTION 3.07 REPORTS: COLLATERAL AUDITS: ACCESS. (A) The Member shall furnish to the Bank annually, and at such other times as the Bank may request, an audit report with respect to the Member's Collateral, prepared by the Member's external auditor and in form or substance acceptable to the Bank, and such financial reports and 8 Other information relating to The Member's financial condition as the Bank may reasonably request. (B) The Member shall furnish to the Bank at such times as line Bank may request, or as necessary to satisfy the requirements of the Bank, a status report with respect to the Members Collateral prepared by the Member in form and substance acceptable to the Bank and as of a date within two weeks of the report due date. The status report shall be a written report covering such matters regarding the Collateral as the Bank may require, including listings of mortgages and unpaid principal balances thereof and certifications concerning the status of payments on mortgages and of Taxes and insurance on property securing mortgages. (C) If so requested by the Bank, the Member shall promptly report to the Bank any event which reduces the principal balance of any mortgage or security or other item of Collateral by five percent (5%) or more, whether by prepayment, foreclosure sale, insurance or guaranty payment or otherwise. (D) The Member shall give the Bank access at all reasonable times to Collateral in the Members possession and to the Member's books and records of account relating to such Collateral, for the purpose of the Bank's examining, verifying or reconciling the Collateral and the Member's reports to the Bank thereon. (E) If the Member becomes aware or has reason to believe That the Lendable Collateral Value of the Member's Qualifying Collateral has fallen below the Collateral Maintenance Level, or that a contingency exists which with the lapse of time could result in The Member failing to meet the Collateral Maintenance Level, the Member shall immediately notify the Bank. (F) All Collateral and any matters relating thereto shall be subject to audit and verification by or on behalf of the Bank. Such audits and verifications may occur without notice during the Member's normal business hours or upon reasonable notice at such other times as the Bank may reasonably request. The Member shall provide access to, and shall make adequate working facilities available to, line representatives or agents of the Bank for purposes of such audits. Reasonable fees and charges may be assessed to the Member by the Bank to cover overhead and other costs relating to such audit and verification. (G) Notwithstanding anything to the contrary, the Member shall De solely responsible for the accuracy and adequacy of all information and data in each audit or status report (Or other writing specifying and describing any Collateral) submitted to the Bank, regardless of the form in which submitted. The Bank shall have no duty to make any independent examination of or calculation with respect to the information submitted in an audit or status report (or in any written schedule that may be Submitted by the Member) and, without limiting the generality of the foregoing, the Bank makes no representation or warranty as to line validity, accuracy or completeness of any information contained in any written records of the Bank concerning or of any response to, such audit or status report. 9 SECTION 3.08 ADDITIONAL DOCUMENTATION. The Member shall make execute. record and deliver to the Bank such financing statements, notices, assignments, listings, powers, and other documents with respect to the Collateral and the Bank's security interest therein and in such form as the Bank may reasonably require. SECTION 3.09 BANK'S RESPONSIBILITIES AS TO COLLATERAL. The Bank's duty as to the Collateral shall be Solely to use reasonable care in the custody and preservation of the Collateral in ITS possession. which shall not include any steps necessary to preserve rights against prior parties nor the duty to send notices, perform services or take any action in connection with the management at the Collateral. The Bank shall not nave any responsibility or liability for the form, sufficiency, correctness, genuineness or legal effect of any instrument or document constituting a pan of the Collateral, or any signature thereon or the description or misdescription, or value of property represented, or purported to be represented, by any such, document or instrument. The Member agrees that any and all Collateral may be removed by the Bank from The state or location where situated and may be subsequently dealt with by the Bank as provided in this Agreement. SECTION 3.10 BANK'S RIGHTS AS TO COLLATERAL: POWER OF ATTORNEY. At any time or times, at the expense of the Member, the Bank may in its discretion, before or after the occurrence of an Event of Default as defined in Section 4.01 hereof, in its own name or in the name of its nominee or of the Member, do any or all things and take any and all actions that are pertinent to the protection of the Bank's interest hereunder and are lawful under the laws of the State of Georgia, including, out not limited to, the following: (A) Terminate any consent given hereunder; (B) Notify obligors on any Collateral to make payments thereon directly to the Bank; (C) Endorse any Collateral in the Members name; (D) Enter into any extension, compromise, settlement, or other agreement relating to or affecting any Collateral; (E) Take any action The Member is required to take or which is otherwise reasonably necessary to (i) sign and record a financing statement or otherwise perfect a security interest in any or all of the Collateral, or (ii) to obtain, preserve, protect, enforce or collect the Collateral; (F) Take control of any funds or other proceeds generated by the Collateral and use the same to reduce Indebtedness as it becomes due; and (G) Cause The Collateral to be transferred to its name or the name of its nominee. The Member hereby appoints the Bank as its True and lawful attorney, for and on behalf of the Member and in its name, place and stead, to prepare, execute and record endorsements and assignments to the Bank of all or any item of Collateral, giving or granting to the Bank, as such attorney, full power and authority to co or perform every lawful act necessary or proper in connection therewith as fully as the 10 Member might or could do. The Member hereby ratifies and confirms all that the Bank shall lawfully do or cause to be done by virtue of this special power of anorney. This special power of attorney is granted for a period commencing on the date hereof and continuing until the discharge of all indebtedness and all obligations of theMember hereunder regardless of any default by the Member, is coupled wiln an interest, and is irrevocable for the period granted. SECTION 3.11 SUBORDINATION OF OTHER LOANS TO COLLATERAL. The Member hereby agrees that all mortgage notes which are part of first Mortgage Collateral or Other Collateral (Apledged notes") shall have priority in right and remedy over any other loans, whenever made and, however evidenced, which are also secured by the mortgages or security agreements securing the pledged notes. The pledged notes shall be satisfied out or the property (or proceeds thereof) covered by such mortgages or security agreements before any payment is made on the loans which are not part or the Collateral. To this end, the Member hereby subordinates the lien of such mortgages and security agreements with respect to such other loans to the lien of such mortgages and security agreements with respect to the pledged notes. The Member further agrees to retain possession of all notes or other instruments evidencing such other loans and not to pledge, assign, or transfer the same, except insofar as such other loans may be pledged to the Bank as part of the Collateral. ARTICLE IV: DEFAULT; REMEDIES SECTION 4.01 EVENTS OF DEFAULT: ACCELERATION. Upon the occurrence of any of the following events or conditions of defaults (AEvent of Default"), the Bank may at its option, by a notice to the Member, declare all or any part(s) of the indebtedness and accrued interest thereon, including any prepayment fees or charges which are applicable to any Advance, to be immediately due and payable without presentment, demand, protest, or any further notice: (A) Failure of the Member to pay when due any interest on or principal of any Advance; or (B) Failure of the Member to perform any promise or obligation or to satisfy any condition or liability contained herein, in any Application, in any Confirmation of Advance or in any other agreement to which the Member and the Bank are parties; or (C) Evidence coming to the attention of the Bank that any representations, statements, or warranties made or furnished in any manner to the Bank by or on behalf of the Member in connection with any Advance or Swap Transaction, any specification or description of Qualifying Collateral was false in any material respect when made or furnished; or (D) Failure of the Member to maintain adequate (Qualifying Collateral free of any encumbrances or claims as required herein; or (E) The issuance of any tax, levy, seizure, attachment, garnishement, levy of execution, or other process with respect to the Collateral; or 11 (F) Any suspension of payment by the Member to any creditor of sums due tor the occurrence of any event which results in another creditor having the right to accelerate the maturity of any indebtedness of the Member under any security agreement, indenture, loan agreement, or comparable undertaking; or (G) Appointment of a conservator, receiver, or similar official for the Member or any subsidiary of the Member or the Member's property, entry of a judgment or decree adjudicating the Member or any subsidiary of the Member insolvent or bankrupt or an assignment by the Member or any subsidiary of the Member for benefit of creditors; or (H) Sale by the Member of all or a material part of the Member=s assets or the taking of any other action by the Member to liquidate or dissolve; or (I) Termination for any reason of the Member's membership in the Bank, or the Member's ceasing to be a type of entity that is eligible under the Act to become a member of the Bank; or (J) Merger, consolidation or other combination of the Member with an entity which is not a member of te Bank if the nonmember entity is the surviving entity; or (K) With respect to Advances made pursuant to Section 11(g)(4) of the Act, if the creditor liabilities of the Member, excepting liabilities to the Bank, are increased in any manner to an amount exceeding five percent (5%) of the Member's net assets; or (L) The Bank reasonably and in good faith determines that a material adverse change has occurred in the financial condition of the Member from trial disclosed at the time of the making of any Advance or from the condition of the Member as theretofore most recently discloseed to the Bank. SECTION 4.02 REMEDIES. Upon the occurrence of any Event of Default, the Bank shall have all of the rights and remedies provided by applicable law which shall include, but not be limited to, all of the remedies of a secured party under the Uniform Commercial Code as in effect in the State of Georgia. In addition, the Bank may take immediate possession of any of the Collateral or any part thereof wherever the same may be found. The Bank may sell, assign and deliver the Collateral or any part thereof at public or private sale for such price as line Bank deems appropriate without any liability for any loss due to decrease in the market value of the Collateral during the period held. The Bank shall have the right to purchase all or pan of the Collateral at such sale. If the Collateral includes insurance or securities which will be redeemed by the issuer upon surrender, or any accounts or deposits in the possession of the Bank, the Bank may realize upon such Collateral without notice to the Member. If any notification of intended disposition of any of the Collateral is required by applicable law, such notification shall be deemed reasonable and property given if given as provided by applicable law or in accordance with Section 5.06 hereof at least 5 days before any such disposition. The proceeds of any sale shall be applied in the order that the Bank, In its sole discretion, may choose. The Member agrees to pay all the costs and expenses of the Bank in the collateral of the Indebtedness and enforcement of the Banks rights and remedies in case of default, including, without limitation, reasonable attorneys' fees. The Bank shall, to the extent required by law, apply any surplus, after (i) payment of the Indebtedness, 12 (ii) provision for repayment to the Bank of any amounts to be paid or advanced under Outstanding Commitments, and (iii) payment of all costs of collection and enforcement, to the claims of person(s) legally entitled thereto, with any remaining surplus paid to the Member. The Member shall be liable to the Bank for any deficiency remaining. SECTION 4.03 PAYMENT OF PREPAYMENT CHARGES. Any prepayment fees or charges applicable to an Advance shall be payable at the time of any voluntary or involuntary payment of all or part of the principal of such Advance prior to the originally scheduled maturity thereof, including without limitation payments treat are made as a part of a liquidation of the Member or that become due by operation of law or as a result of an acceleration pursuant to Section 4.01 hereof, whether such payment is made by the Member, by a conservator, receiver, liquidator or trustee of or for theMember, or by any successor to or any assignee of the Member. ARTICLE V: MISCELLANEOUS SECTION 5.01 GENERAL REPRESENTATIONS AND WARRANTIES BY THE MEMBER. The Member hereby represents and warrants that, as of the date hereof and the date of each Advance hereunder: (A) The Member is not, and neither the execution of nor the performance of any of the transactions or obligations of the Member under inis Agreement shall, cause the Member to be; (i) in violation of its charter or articles of incorporation, Bylaws the Act or the Regulations, any other law or administrative regulation, or any court decree; or (ii) in default under or in breach of any material indenture, contract or other instrument or agreement to which the Member is a party or by which it or any of its property is bound. (B) The Member has full corporate power and authority and has received all corporate and governmental authorizations and approvals (including without limitation those required under the Act and the Regulations) as may be required to enter into and perform its obligations under this Agreement to borrow each Advance and to obtain each commitment for an Advance. (C) The information given by the Member in any document provided, or in any oral statement made, in connection with an application or request for an Advance or commitment for an Advance, is true, accurate and complete in all material respects. SECTION 5.02 ASSIGNMENT. The Bank may assign or negotiate to any other Federal Home Loan Bank or to any other person or entiry, with or without recourse, any indebtedness of the Member or participations therein, and Bank may assign or transfer all or any part of Bank's right, title, and interest in and to this Agreement and may assign and deliver the whole or any pan of the Collateral to the transferee, which shall succeed to all the powers and rights of the Bank in respect hereof, and the Bank shall thereafter be forever relieved and fully discharged from any liability or responsibility with respect to the transferred Collateral. The Member may not assign or transfer any of its rights or obligations hereunder without the express prior written consent of the Bank. 13 SECTION 5.03 DISCRETION OF THE BANK TO GRANT OR DENY ADVANCES. Nothing contained herein or in any documents describing or setting forth the Bank's Credit Program and credit policies shall be construed as an agreement or commitment on the part of the Bank to grant Advances or extend commitments for Advances hereunder, the right and power of the Bank in its discretion to either grant or deny any Advance or commitment for an Advance requested hereunder being expressly reserved. The determination by the Bank of Lendable Collateral Value shall not constitute a determination by the Bank that the Member may obtain Advances or commitments for Advances in amounts up to such Lendable Collateral Value. SECTION 5.04 AMENDMENT: WAIVERS. No modification, amendment or waiver of any provision of this Agreement or consent to any departure therefrom shall be effective unless in a writing executed by a responsible officer of the party against whom such change is asserted and shall be effective only in the specific instance and for the purpose of which given. No notice to or demand on the Member in any case shall entitle the Member to any other or further notice or demand in the same, or similar or other circumstances. Any forbearance, failure or delay by the Bank in exercising any right, power or remedy hereunder shall not be deemed to be a waiver thereof, and any single or partial exercise by the Bank of any right, power or remedy hereunder shall not preclude the further exercise thereof. Every right, power and remedy of the Bank shall continue in full force and effect until specifically waived by the Bank. SECTION 5.05 JURISDICTION: LEGAL FEES. In any action or proceeding brought by the Bank or the Member in order to enforce any right or remedy under this Agreement, the parties hereby consent to, and agree that they will submit to, the jurisdiction of the United States District Court for the Northern District of Georgia or, if such action or proceeding may not be brought in Federal court, the jurisdiction of the courts of the State of Georgia located in the City of Atlanta. The Member agrees trial if any action or proceeding is brought by the Member seeking to obtain any legal or equitable relief against the Bank under or arising out of this Agreement or any transaction contemplated hereby and such relief is not granted by the final decision, after any and all appeals, of a court of competent jurisdiction, the Member will pay all attorneys' fees and other costs incurred by the Bank in connection therewith. SECTION 5.06 NOTICES. Except as provided in the last sentence of this Section any written notice, advice, request, consent or direction given, made or withdrawn pursuant to this Agreement shall be either in writing or transmitted electronically and reproduces mechanically by the addressee and small be given by first class mail, postage prepaid, by telecopy or other facsimile transmission or by private courier or delivery service. All non-oral notices shall be deemed given when actually received at the principal office of the Bank or the Member, as appropriate. All notices shall be designated to the attention of an office or section of the Bank or of the Member it the Bank or the Member has made a request for the notice to be so addressed. Any notice by the Bank to the Member pursuant to Sections 3.04 or 3.05 hereof may be oral and shall be deemed to have been duly given to and received by the Member at the time of the oral communication. SECTION 5.07 SIGNATURES OF MEMBER. For purposes of this Agreement, documents shall be deemed signed by the Member when a signature of an authorized signatory or an authorized facsimile thereof appears on the document. The Bank may rely on any signature or facsimile thereof which reasonably appears to the Bank to be the signature of an authorized person, including signatures appearing on documents transmitted electronically to and reproduced mechanically at the Bank. The Secretary or an 14 Assistant Secretary of the Member shall from time to time certify to the Bank on forms provided by the Bank the names and specimen signatures of the persons authorized to apply on behalf of the Member to the Bank for Advances and commitments tor Advances and otherwise act for and on behalf of the Member in accordance with this Agreement. Such certifications are incorporated herein and made a part of this Agreement and shall continue in effect until expressly revoked by the Member notwithstanding that subsequent certifications may authorize additional persons to act for and on behalf of the Member. SECTION 5.08 APPLICABLE LAW: SEVERABILITY. In addition to the terms and conditions specifically set forth herein and in any Application or Confirmation of Advance between the Bank and the Member, this Agreement and all Advances and all commitments for Advances granted hereunder shall be governed by me statutory and common law of the United States and, io the extent Federal law incorporates or defers to state law, the laws (exclusive of the choice of law provisions) of the State of Georgia. Notwithstanding the foregoing, the Uniform Commercial Code as in effect in the Staie of Georgia shall be deemed applicable to this Agreement and to any Advance thereunder and shall govern the attachment and perfection of any security interest granted hereunder. In the event that any portion of this Agreement conflicts with applicable law, such conflict shall not affect other provisions of this Agreement which can be given effect without the conflicting provision, and to this end the provisions of this Agreement are declared to be severable. SECTION 5.09 SUCCESSORS AND ASSIGNS. This Agreement shall beginning upon and inure to the benefit of the successors and permitted assigns of the Member and the Bank. SECTION 5.10 ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto relating to the subject matter hereof and supersedes all prior agreements between such parties which relate to such subject matter. Notwithstanding the above, rates of interest, repayment schedules, and fees ana other charges applicable to Advances and commitments for Advances made by the Bank to the Member prior to the execution of this Agreement shall continue to be governed exclusively by the terms of the prior agreements pursuant to which such Advances and commitments were made, provided, however, that Section 4.03 hereof shall apply to all Advances. 15 IN WITNESS WHEREOF, Member and Bank have caused this Agreement to be signed in their names by their duly authorized officers as of the date first above mentioned. BankUnited, FSB (Full Corporate Name of Member) By: /s/ JAMES A. DOUGHERTY JAMES A. DOUGHERTY, EVP & COO -------------------------------- ------------------------------------ (Typed Name and Title of Signer) By:/s/ SAMUEL A. MILNE SAMUEL A. MILNE, EVP & CFO -------------------------------- ------------------------------------ (Typed Name and Title of Signer) (MEMBER'S CORPORATE SEAL) FEDERAL HOME LOAN BANK OF ATLANTA SENIOR VICE PRESIDENT AND CHIEF By: CAROL JACKSON CREDIT OFFICER -------------------------------- ------------------------------------ (Authorized Officer) (Title) VICE PRESIDENT AND DIRECTOR By: WILLIAM C. BRIN OF COLLATERAL SERVICES -------------------------------- ------------------------------------ (Authorized Officer) (Title) 16 FEDERAL HOME LOAN BANK OF ATLANTA MEMBER ACKNOWLEDGMENT AND NOTARIZATION STATE OF Florida} ss: County of Miami-Dade} On this 31st day of March, 1998, before me personally came James A. Dougherty and Samuel A. Milne, to me known, who, being by me duty sworn, did depose and state that they are the Chief Operating Officer and Chief Financial Officer of said Member; the Member described in and which executed the above instrument; that they know the seal of said Member; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors or other governing body of said Member; and that they signed their names thereto be order of the Board of Directors or other governing body of said Member and that said James A. Dougherty and Samuel A. Milne acknowledged the execution of said instrument to be the voluntary act and deed of said Member. /s/ PILAR BARROS - ----------------------------------------------- Notary Public Signature Notary Public in and for the State of: Florida (NOTARY PUBLIC'S SEAL) My commission expires: November 23, 2001 17 EX-4.91 4 EXHIBIT 4.91 - ------------------------------------------------------------------------------- BANKUNITED, FSB to THE BANK OF NEW YORK Trustee ----------- INDENTURE Dated as of November 4, 1998 ----------- Senior Notes - ------------------------------------------------------------------------------- INDENTURE, dated as of November 4, 1998, among BANKUNITED, FSB, a federally chartered savings bank (hereinafter called the "Bank") having its principal executive offices at 255 Alhambra Circle, Coral Gables, Florida 33134, and The Bank of New York, 101 Barclay Street, New York, New York 10286 (hereinafter called the "Trustee"), and the FEDERAL HOME LOAN BANK OF ATLANTA (hereinafter called the "FHLB of Atlanta") which has joined in this Indenture as a consenting party. RECITALS OF THE BANK The Bank has duly authorized the issuance from time to time of its Senior Notes (hereinafter called the "Notes") of substantially the tenor and amount hereinafter set forth, and to provide therefor and to secure the Notes the Bank has duly authorized the execution and delivery of this Indenture. All things necessary to make the Notes, when executed by the Bank and authenticated and delivered by the Trustee hereunder and duly issued by the Bank, the valid obligations of the Bank, and to make this Indenture a valid agreement of the Bank, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal proportionate benefit of all Holders of the Notes, as follows: 2 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) all accounting terms not otherwise defined herein have the meanings assigned to them from time to time in accordance with generally accepted accounting principles; and (3) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not any particular Article, Section or other subdivision. "ACT" when used with respect to any Holder has the meaning specified in Section 104. "ADJUSTED TREASURY RATE" means, with respect to any Redemption Date for a Designated Fixed Rate Note, the sum of (i) the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date, plus (ii) the Adjusted Treasury Rate Spread, if any, for such Note; provided, however, that in no event will the Adjusted Treasury Rate for such Note be less than the Minimum Adjusted Treasury Rate for such Note. "ADJUSTED TREASURY RATE SPREAD" means, with respect to a Designated Fixed Rate Note, the "Adjusted Treasury Rate Spread" as set forth in such Note. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "AGENTS" mean the agents named in the Distribution Agreement. "AUTHENTICATING AGENT" means the Trustee or such other Person appointed by the Trustee pursuant to Section 612. 3 "BANK" means the Person named as the "Bank" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Bank" shall mean such successor corporation. "BANK REQUEST" and "BANK ORDER" mean, respectively, a written request or order signed in the name of the Bank by the Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President (any reference to a Vice President of the Bank herein shall be deemed to include any Vice President of the Bank whether or not designated by a number or word or words added before or after the title "Vice President"), and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Bank, and delivered to the Trustee. "BASE RATES" means the base rates for the interest rates applicable to Notes which bear a floating rate of interest as set forth in such Notes. "BOARD OF DIRECTORS" means either the board of directors of the Bank or any committee of that board duly authorized by that board to act with respect to any matter relating hereto. "BOARD RESOLUTION" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Bank to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "BUSINESS DAY" means any day which is not a Saturday or a Sunday and that in The City of New York and Atlanta, Georgia is not a day on which banking institutions are authorized or required by law, regulation or executive order to close and, with respect to which LIBOR is an applicable interest rate formula, is also a London Business Day. "London Business Day" means any day on which dealings in deposits in US Dollars are transacted in the London interbank market. "CALCULATION AGENT" means the Trustee or such other Person appointed by the Bank pursuant to Section 1506 hereof and includes any successor thereto. "CALCULATION DATE" shall mean the earlier of (i) the tenth calendar day after such Interest Determination Date or, if such day is not a Business Day, the next succeeding Business Day or (ii) the Business Day immediately preceding the applicable Interest Payment Date, maturity date or date of earlier redemption, as the case may be. "CODE" means the Internal Revenue Code of 1986, as it may be amended from time to time, and regulations of the United States Department of the Treasury promulgated thereunder. "COMPARABLE TREASURY ISSUE" means, with respect to a Designated Fixed Rate Note, the United States Treasury security selected by the Quotation Agent as having comparable scheduled payments of interest from the Redemption Date to the Maturity Date of such Note that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Note. 4 "COMPARABLE TREASURY PRICE" means, with respect to the Redemption Date for a Designated Fixed Rate Note, the average of the Reference Treasury Dealer Quotations for the Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or if the Quotation Agent obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such Quotations. "CORPORATE TRUST OFFICE" means the principal office of the Trustee at which at any particular time the corporate trust business shall be administered; at the date hereof the Corporate Trust Office of the Trustee is located at 101 Barclay Street, New York, New York 10286. "CREDIT AMOUNT" means the amount specified in the Letter of Credit up to which the Trustee is authorized to draw on the FHLB of Atlanta under the Letter of Credit, as such amount may be increased or reduced or reinstated from time to time in accordance with the terms hereof and of the Letter of Credit. "DEPOSITARY" means, with respect to Notes issuable or issued in whole or in part in the form of one or more Global Notes, the Person designated as Depositary by the Bank pursuant to Section 301 (or any successor thereto). "DESIGNATED FIXED RATE NOTE" means a Fixed Rate Note, the terms of which provide for the payment of a Redemption Premium upon the redemption of such Note. "DISTRIBUTION AGREEMENT" means the Distribution Agreement dated November 4, 1998 among the Bank and the Agents named therein, as it may from time to time be amended or supplemented. "DOLLARS" or "$" means a dollar or other equivalent unit in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debt. "EVENT OF DEFAULT" has the meaning specified in Article Five. "FDIC" means the Federal Deposit Insurance Corporation, as from time to time constituted, or if at any time after the execution of this Indenture the FDIC is not existing and performing the duties now assigned to it, then the body performing such duties on such date. "FHLB OF ATLANTA" means the Federal Home Loan Bank of Atlanta and any successor thereto. "FIXED RATE NOTE" means a Note that bears interest at a fixed rate of interest. "GLOBAL NOTE" means a Note that pursuant to Section 301 is issued to evidence a Note, that is delivered to the Depositary or pursuant to the instructions of the Depositary and that shall be registered in the name of the Depositary or its nominee. "HOLDER" means a Person in whose name a Note is registered in the Note Register. 5 "INDENTURE" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "INTEREST PAYMENT DATE" when used with respect to any Note, means each date on which an installment of interest on such Note is due. "LETTER OF CREDIT" means (i) the Irrevocable Letter of Credit, in the form of Exhibit A to this Indenture, which has been delivered to the Trustee by the FHLB of Atlanta in compliance with the provisions of Section 1101 hereof, as the same may be amended or renewed from time to time in accordance with the terms hereof and thereof, or (ii) any Substitute Letter of Credit which is then in full force and effect and in the possession of the Trustee. "MATURITY" when used with respect to any Note means the date on which the principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "MAXIMUM RATE OF INTEREST" means, with respect to each Note bearing interest at a fixed rate, the fixed rate of interest specified in such Note and, with respect to each Note bearing interest at a rate other than a fixed rate, the rate of interest specified in such Note as the "maximum interest rate," in each case calculated on the basis specified in such Note. "MINIMUM ADJUSTED TREASURY RATE" means, with respect to a Designated Fixed Rate Note, the "Minimum Adjusted Treasury Rate" as set forth in such Note. "MOODY'S" means Moody's Investors Service, Inc., located on the date hereof at 99 Church Street, New York, New York 10017, and includes any successor thereto. "NOTE ACCOUNT" means the special purpose trust account established by the Trustee pursuant to Section 1201. "NOTE ACCOUNT DEPOSIT DATE" means each date on which the Bank is required to remit immediately available funds to the Trustee for deposit in the Note Account pursuant to Section 1202(b). "NOTE FACE VALUE" means, at the time any determination thereof is to be made, an amount equal to the sum of (i) the aggregate principal amount of the Notes Outstanding, plus (ii) an amount equal to the maximum amount of interest with respect to each Note Outstanding which could accrue and be outstanding at any one time prior to the respective next immediately succeeding Interest Payment Date of each such Note Outstanding calculated at the Maximum Rate of Interest applicable to each such Note and based upon the assumption that there is no default in the payment of principal or such interest when due, plus (iii) an amount equal to the maximum amount of interest which could accrue on such Outstanding Note for an additional period of 27 calendar days calculated at the Maximum Rate of Interest applicable to each such Note, plus (iv) an amount equal to the maximum amount of Redemption Premium with respect to all Notes Outstanding which would be payable on the next succeeding Redemption Date for each such Note Outstanding, assuming in the case of each such Note Outstanding that such next 6 succeeding Redemption Date is a date which occurs on the sixth calendar day after the next immediately succeeding Interest Payment Date for such Note. "NOTE REGISTER" has the meaning specified in Section 305. "NOTE REGISTRAR" means the Trustee or such other Person appointed by the Bank pursuant to Section 305 hereof and includes any successor. "OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Bank, and delivered to the Trustee. "OPINION OF COUNSEL" means a written opinion of counsel, who may be counsel for the Bank or the FHLB of Atlanta (including, except as otherwise expressly provided in this Indenture, the in house general counsel for the Bank or the FHLB of Atlanta, as the case may be), and, in the case of an opinion of the Bank, who shall be reasonably acceptable to the FHLB of Atlanta. "ORIGINAL ISSUE DATE" means the date of issuance specified in each Note. "OTS" means the Office of Thrift Supervision, as from time to time constituted, or if at any time after the execution of this Indenture the OTS is not existing and performing the duties now assigned to it, the body performing such duties on such date. "OUTSTANDING" when used with respect to Notes means, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture, except: (i) Notes theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Notes for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee in trust for the Holders of such Notes, provided that, if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and (iii) Notes which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture; provided, however, that in determining whether the Holders of the requisite principal amount of Notes Outstanding are present at a meeting of Holders of Notes for quorum purposes or have taken or concurred in any action under this Indenture, including the making of any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Bank or any other obligor upon the Notes or any Affiliate of the Bank or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which a Responsible Officer of the Trustee actually knows to be 7 so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee certifies to the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Bank or any other obligor upon the Notes or any Affiliate of the Bank or such other obligor. "PAYING AGENT" means the Trustee or any Person authorized by the Bank to pay the principal of or interest on any Notes on behalf of the Bank. "PAYMENT DATE" means any Interest Payment Date, any Redemption Date and any date on which a payment of principal of any Note is due by the terms of such Note or this Indenture. "PERMITTED INVESTMENTS" has the meaning specified in Section 1203. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "PREDECESSOR NOTES" of any particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 306 in lieu of a mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Note. "PRIMARY TREASURY DEALER" means a primary U.S. Government securities dealer in The City of New York. "QUOTATION AGENT" means the Reference Treasury Dealer specified as the Quotation Agent in the applicable Designated Fixed Rate Note, and its successors. "RECORD DATE" means a Regular Record Date or a Special Record Date. "REDEMPTION DATE" when used with respect to any Note to be redeemed means the date fixed for such redemption by or pursuant to this Indenture. "REDEMPTION PREMIUM" means, with respect to a Designated Fixed Rate Note, an amount equal to the present value, as determined by the Quotation Agent, of the scheduled payments of interest on such Note from the Redemption Date for such Note to but excluding the Maturity Date for such Note, discounted to such Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate. "REDEMPTION PRICE" when used with respect to any Note to be redeemed means the price at which it is to be redeemed pursuant to this Indenture. "REDEMPTION RECORD DATE" when used with respect to any Redemption Date means a date fixed by the Trustee pursuant to Section 1303. "REDUCTION CERTIFICATE" means a Reduction Certificate in the form of Exhibit D to the Letter of Credit, which has been delivered to the Trustee pursuant to Section 1103. 8 "REFERENCE TREASURY DEALERS" means: (i) Credit Suisse First Boston Corporation, PaineWebber Incorporated and Prudential Securities Incorporated and their respective successors; PROVIDED, HOWEVER, that if any of the foregoing shall cease to be a Primary Treasury Dealer, the Quotation Agent shall substitute therefor another Primary Treasury Dealer, and (ii) two other Primary Treasury Dealers selected by the Quotation Agent. "REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each Reference Treasury Dealer and the Redemption Date for a Designated Fixed Rate Note, the average, as determined by the Quotation Agent, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Quotation Agent by such Reference Treasury Dealers at 5:00 p.m., New York City time, on the fourth Business Day preceding such Redemption Date. "REGULAR RECORD DATE" when used with respect to any Note means with respect to any Interest Payment Date, unless otherwise specified in such Note, the date 15 calendar days next preceding such Interest Payment Date (whether or not a Business Day); provided, however, that interest payable at Maturity shall be payable to the person to whom the principal of such Note shall be payable. "REIMBURSEMENT AGREEMENT" means the Letter of Credit Reimbursement Agreement, dated as of November 4, 1998, between the Bank and the FHLB of Atlanta pursuant to which the FHLB of Atlanta has agreed to issue the Letter of Credit, as the same may at any time be amended or modified and in effect. "RESPONSIBLE OFFICER" when used with respect to the Trustee means any Vice President (whether or not, designated by a number or a word or words added before or after the title "Vice President"), the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, any Senior Trust Officer or Trust Officer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "SAIF" means the Savings Association Insurance Fund of the FDIC, and includes any successor thereto. "SPECIAL RECORD DATE" for the payment of any overdue installment of interest means a date fixed by the Trustee pursuant to Section 309. "S&P" means Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies, Inc., located on the date hereof at 25 Broadway, New York, New York 10004, and includes any successor thereto. "STATED MATURITY" when used with respect to any Note means the date specified in such Note as the fixed date on which the principal of such Note is due and payable. "SUBSIDIARY" means any corporation, association or business trust at least a majority of the shares of Voting Stock of which is at the time owned, directly or indirectly, by the Bank or by one or more Subsidiaries or by the Bank and one or more Subsidiaries. 9 "SUBSTITUTE LETTER OF CREDIT" means any irrevocable letter of credit issued by the FHLB of Atlanta to the Trustee which complies with the provisions of Section 1104. "TRUSTEE" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor trustee. "VOTING STOCK" as applied to the stock (or the equivalent thereof, in the case of corporations incorporated outside the continental limits of the United States of America) of any corporation, means stock (or such equivalent) of any class or classes, however designated, having ordinary voting power for the election of a majority of the directors of such corporation, other than stock (or such equivalent) having such power only by reason of the happening of a contingency. SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application or request by the Bank to the Trustee to take any action under any provision of this Indenture, the Bank shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any other provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished pursuant to this Section. Every certificate or opinion furnished by the Bank to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case where several matters are required to be certified by, or covered by an opinion of any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters 10 and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Bank may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate of, or representations by, an officer or officers of the Bank stating that the information with respect to such factual matters is in the possession of the Bank, unless such counsel knows, or in the exercise of reasonable are should know, that the certificate or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. ACTS OF HOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by (i) one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing, (ii) resolutions duly adopted by Holders voting in favor thereof, either in person or by proxy duly appointed in writing, at any meeting of Holders duly called and held in accordance with the provisions of Article Fourteen as indicated by the records of such meeting or (iii) any combination of any such instrument or instruments and any such resolutions. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments and, in the case of resolutions, a signed and verified record of such meeting as provided in Section 1406, are delivered to the Trustee and, where it is hereby expressly required, to the Bank. Such instrument or instruments and resolutions (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments or voting in favor of such resolutions. Proof of execution of any such instrument or of a writing appointing any such agent or proxy and execution by such agent or proxy shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Bank, if made in the manner provided in this Section. (b) The fact and date of execution of any such instrument or writing, or the authority of the Person executing the same, may be proved in any reasonable manner which the Trustee deems sufficient and in accordance with such reasonable rules as the Trustee may determine; and the Trustee may in any instance require further proof with respect to any of the matters referred to in this Section. (c) The principal amount and ownership of Notes, and the serial number(s) of the Notes held by any Person, shall be proved by the Note Register. 11 (d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Bank in reliance thereon, whether or not notation of such action is made upon such Note. SECTION 105. NOTICES BY HOLDERS TO TRUSTEE AND BANK. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing with the Trustee at its Corporate Trust Office, or (2) the Bank by any Holder shall be sufficient for every purpose hereunder if in writing and mailed, first-class postage prepaid, to the Bank addressed to the attention of its Chief Financial Officer at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Bank. SECTION 106. NOTICES TO HOLDERS; WAIVER. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder at his address as it appears on the Note Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed to any particular Holder shall affect the sufficiency of such notice with respect to other Holders, and any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given. In case, by reason of the suspension of regular mail service or by reason of any other cause, it shall be impracticable to give notice by mail, then such notification to the Holders as shall be made with the approval of the Trustee shall constitute sufficient notification to such Holders for every purpose hereunder. SECTION 107. NOTICES, ETC., BY PARTIES. (a) Any telephonic instructions, notices or other communications given to any party hereto (including the FHLB of Atlanta) by any other party hereto (including the FHLB of Atlanta) shall be confirmed in writing by the party giving the same in accordance with the provisions of this Section 107 (according to the recipient's written records), and, except as otherwise provided herein, the Trustee, the Bank or the FHLB of Atlanta, as the case may be, 12 shall incur no liability for acting in accordance with such telephonic instructions, notices or other communications reasonably believed by it in good faith to be genuine. (b) Except where telephonic instructions or notices are authorized herein to be given, all notices, demands, instructions and other communications required or permitted to be given to or made upon any parties hereto (including the FHLB of Atlanta) shall be in writing and shall be personally delivered or sent by first class mail, by express mail or similar service, or by facsimile or shall be electronically transmitted, and shall be deemed to be given for purposes of this Indenture on the day that such writing is received by the intended recipient thereof in accordance with the provisions of this Section 107. Unless otherwise sent or delivered in accordance with the foregoing provisions of this Section 107, notices, demands, instructions and other communications in writing shall be given to or made upon the respective parties hereto at their respective addresses indicated below, and, in the case of telephonic instructions or notices, by calling the telephone number or numbers indicated for such party below. If to the Trustee: The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Attention: Corporate Trust Administration Telephone: (212) 815-5939 Facsimile: (212) 815-5915 If to the FHLB of Atlanta: FEDERAL HOME LOAN BANK OF ATLANTA 1475 Peachtree Street, N.E. Atlanta, GA 30309 Attention: Credit Operations Manager Telephone: 404 888-8000 Facsimile: 404 888-5649 If to the Bank: BANKUNITED, FSB 255 Alhambra Circle Coral Gables, Florida 33134 Attention: Clifford Hope, Chief Financial Officer Telephone: (305) 569-2000 Facsimile: (305) 569-2026 (c) If any day on which any notice, demand, instruction or other communication is given by any party hereto (including the FHLB of Atlanta) is not a Business Day, such notice, demand, instruction or other communication shall be deemed to have been given on the Business Day next succeeding such non-Business Day. 13 (d) For purposes of this Indenture, any officer of the FHLB of Atlanta holding any of the following positions shall be authorized to act, and to give notices and instructions, on behalf of the FHLB of Atlanta: the Executive Vice President; the Senior Vice President and General Counsel; the Vice President - Credit Services; and the Vice President - Collateral Service or any other officer of the FHLB of Atlanta so authorized to act; provided the FHLB of Atlanta provides to the Trustee written notification of such other officer's authorization. SECTION 108. EFFECT OF READINGS AND TABLE OF CONTENTS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 109. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Indenture by the Bank shall bind its successors and assigns, whether so expressed or not. SECTION 110. SEPARABILITY CLAUSE. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 111. BENEFITS OF INDENTURE; ASSIGNMENT. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders of Notes, any benefit or any legal or equitable right, remedy or claim under this Indenture; provided, however, no party hereto (including the FHLB of Atlanta) may assign any of its rights or obligations hereunder, except with the prior written consent of all parties hereto (including the FHLB of Atlanta) or except as otherwise expressly permitted by the provisions of this Indenture. SECTION 112. GOVERNING LAW. This Indenture shall be governed by and construed in accordance with the laws of the State of New York and for all purposes shall be governed by and construed in accordance with the laws of such State, without regard to the conflicts of laws principles thereof. SECTION 113. LEGAL HOLIDAYS. Unless otherwise specified in such Note, in any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Note shall not be a Business Day, then (notwithstanding any other provision of this Indenture or such Note) payment of principal, Redemption Premium, if any, or interest need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date or at the Stated Maturity, and no interest shall accrue with respect to such payment for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, to and including such next succeeding Business Day. 14 SECTION 114. BANK'S OBLIGATIONS. No recourse may be taken, directly or indirectly, against any stockholder, officer, member of the Board of Directors or employee of the Bank (or any predecessor or successor of the Bank) with respect to the Bank's obligations on the Notes or under this Indenture or any certificate or other writing delivered in connection herewith or therewith. ARTICLE TWO NOTE FORMS SECTION 201. FORMS GENERALLY. The Notes shall be in the form established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistently herewith, be determined by the officers executing such Notes, as evidenced by their execution of the Notes. A copy of the form of Note established by action taken pursuant to a Board Resolution, and a copy of such Board Resolution shall be delivered to the Trustee at or prior to the delivery of the Bank Order contemplated by Section 301 for the authentication and delivery of Notes. The definitive Notes shall be printed, lithographed or engraved on steel engraved borders or may be produced by any combination of these methods or in any other manner, all as determined by the officers executing such Notes, as evidenced by their execution of such Notes. SECTION 202. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. The Trustee's Certificate of Authentication on all Notes shall be in substantially the following form: This is one of the Notes described in the within-mentioned Indenture. The Bank of New York, as Trustee Dated: By: ---------------------------------------------- Authorized Signatory 15 ARTICLE THREE THE NOTES SECTION 301. ISSUANCE AND AUTHENTICATION. (a) The aggregate principal amount of the Notes which may be authenticated and delivered from time to time under this Indenture shall be limited to such aggregate principal amount as may have been authorized for issuance by the Bank as evidenced by one or more Board Resolutions, exclusive of Notes authenticated and delivered under Sections 305 and 306. If at any time the Bank shall authorize for issuance an aggregate principal amount of the Notes which is greater than the aggregate principal amount theretofore authorized, then, prior to any issuance of Notes pursuant to such authorization, the Bank shall deliver to the Trustee and to Moody's and S&P one or more Board Resolutions evidencing such authorization. (b) From time to time during the term of this Indenture and in accordance with a Bank Order or procedures specified therein, the Trustee, in accordance therewith, shall complete, authenticate and deliver Notes pursuant to the provisions of this Section. Upon receipt of a Bank Order pursuant to this Section, the Trustee shall promptly notify the FHLB of Atlanta of the instructions so received. (c) In connection with the initial issuance of Notes, the Bank shall deliver to the Trustee: (i) a Board Resolution authorizing and approving (A) the execution and delivery of this Indenture, and (B) the form of, authentication, execution and delivery at any time and from time to time of Notes; (ii) the Letter of Credit and related documentation referred to in Section 1101; (iii) a Bank Order directing the Trustee to authenticate and deliver Notes, which Bank Order shall establish and set forth the following for each such Note to be issued: (1) the Original Issue Date; (2) the Stated Maturity; (3) the principal amount of the Note; (4) the rate (or manner of determining the same) at which the Note shall bear interest and the Interest Payment Dates on which such interest shall be payable; (5) whether or not the Notes shall be issued in whole or in part in the form of a Global Notes and, if so, the Depositary for such Global Note; (6) if such Note is a Fixed Rate Note, whether or not such Note shall be a Designated Fixed Rate Note, and if so, the Adjusted Treasury Spread, if applicable, and the Minimum Adjusted Treasury Rate for such Note; and 16 (7) any other terms of the Note (which terms shall not be inconsistent with the provisions of this Indenture); (iv) an Officer's Certificate, dated no later than the date of authentication and delivery of such Notes, stating that (A) the Bank is not, and by the granting of the request then being made, will not be, in default under any of the provisions of this Indenture or the Reimbursement Agreement; (B) the issuance and authentication of such Notes will not conflict with, result in a breach of or constitute a default, or with the giving of notice or passage of time or both, would not constitute a default, under the charter or by laws of the Bank or result in such a default or violation; (C) no Event of Default hereunder or event of default under the Reimbursement Agreement has occurred which has not been cured; (D) each such Note has been duly and validly authorized by all necessary corporate action on behalf of the Bank; (E) each such Note has been validly executed by the Bank; (F) each such Note, when completed, authenticated and delivered pursuant hereto, will constitute the legal, valid and binding obligation of the Bank enforceable in accordance with its terms; and (G) all conditions precedent provided for in this Indenture relating to the authentication and delivery of the Notes in the aggregate principal amount specified in the aforesaid instructions or directions delivered to the Trustee have been complied with; and (v) an Opinion of Counsel, dated no later than the date of the authentication and delivery of such Notes, stating that all conditions precedent provided for in this Indenture relating to the authentication and delivery of the aggregate principal amount of such Notes established by or pursuant to the authority granted in one or more Board Resolutions have been complied with and such Notes may lawfully be authenticated and delivered under this Indenture and that such Notes, when completed, authenticated and delivered by the Trustee and issued by the Bank, will constitute valid and legally binding obligations of the Bank, enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws relating to or affecting enforcement of creditors' rights or by general equity principles or by the rights of creditors of federally chartered savings banks the accounts of which are insured by the SAIF of the FDIC. (d) In connection with all subsequent issuances of Notes, the Bank shall deliver to the Trustee: (i) a Bank Order relating to such Notes substantially to the same effect as the Bank Order required by Section 301(c)(iii); (ii) an Officers' Certificate substantially to the same effect as the Officers' Certificate set forth in Section 301(c)(iv); and (iii) an Opinion of Counsel substantially to the same effect as the Opinion of Counsel required by Section 301(c)(v). (e) Notwithstanding any directions or instructions of the Bank to issue any Notes pursuant to this Section, the Trustee shall not authenticate or deliver any Notes (i) if a 17 Responsible Officer of the Trustee has actual knowledge of any Event of Default that has occurred and is continuing, (ii) if a demand under the Letter of Credit has been made and a Responsible Officer of the Trustee has not received notice from the FHLB of Atlanta that the Credit Amount of the Letter of Credit has been reinstated in full or (iii) if a Responsible Officer of the Trustee has received a Bank Request pursuant to Section 401. (f) Notwithstanding any Bank Order to authenticate and deliver any Notes pursuant to this Section, the Trustee shall not authenticate or deliver any Notes if upon such authentication and delivery: (i) the Note Face Value of Notes Outstanding, together with the Note Face Value of all other Notes for which instructions to authenticate have been received by the Trustee (assuming such other Notes to be Outstanding), would exceed the Credit Amount; or (ii) the aggregate principal amount of Notes Outstanding, together with the aggregate principal amount of all other Notes for which instructions to authenticate have been received by the Trustee, would exceed the aggregate principal amount of Notes theretofore approved for issuance by or pursuant to authority granted by one or more Board Resolutions, exclusive of Notes authenticated and delivered under Sections 305 and 306. (g) No Notes shall be authenticated by the Trustee unless it shall have received all instructions, directions and/or accompanying documentation required pursuant to this Section. Notwithstanding any instructions or directions received by the Trustee pursuant to Section 301(b), if the Trustee shall receive, prior to the time of delivery of the relevant Notes, written or telephonic instructions (which telephonic instructions shall be promptly confirmed in writing) from the Bank or the FHLB of Atlanta not to authenticate or deliver Notes, which instructions may be specific with respect to a particular issue of Notes or may be general and applicable to all Notes authenticated and delivered, after receipt of such instructions until revoked or superseded by further written instructions from the Bank or the FHLB of Atlanta, the Trustee shall not authenticate or deliver Notes and, subject to Section 601, the Bank shall hold the Trustee harmless against liability arising from the Trustee's compliance with this provision. SECTION 302. DENOMINATIONS. The Notes shall be issuable only in registered form without coupons in a minimum denomination of $250,000 and any integral multiple of $1,000 in excess thereof. SECTION 303. EXECUTION, AUTHENTICATION AND DELIVERY; TERMS. The Notes shall all be executed on behalf of the Bank by its Chairman of the Board, a Vice Chairman of the Board, its President or one of its Vice Presidents and by its Secretary or one of its Assistant Secretaries under its corporate seal reproduced thereon or affixed thereto. The signature of any of these officers on the Notes may be manual or facsimile. Notes bearing the manual or facsimile Signatures of individuals who were at any time the proper officers of the Bank shall bind the Bank, notwithstanding that such individuals or any of 18 them have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the date of such Notes. Forthwith upon the execution and delivery of this Indenture, or from time to time thereafter, Notes may be executed by the Bank and delivered to the Trustee for authentication, and, subject to Section 301, shall thereupon be authenticated and delivered by the Trustee upon Bank Order, without any further action by the Bank. Each Note shall be dated the date of its authentication and bear its Original Issue Date or the Original Issue Date of its Predecessor Note first in time and shall mature on the Stated Maturity set forth on the face of such Note. No Note shall have a Stated Maturity which (i) is less than nine months or more than 10 years or such later date as may be set by the Bank pursuant to a Board resolution from its Original Issue Date or (ii) is a date that is later than two Business Days prior to the Business Day on which the Letter of Credit expires. No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by or on behalf of the Trustee by manual Signature, and such certificate upon any Note shall be conclusive evidence that such has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. SECTION 304. TEMPORARY NOTES. Pending the preparation of definitive Notes, the Bank may execute, and upon Bank Order, the Trustee shall authenticate and deliver, temporary Notes which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denominations, substantially of the tenor of the definitive Notes in lieu of which they are issued, with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Notes may determine, as evidenced by their signatures on such Notes. If temporary Notes are issued, the Bank will cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at each office or agency of the Bank maintained for such purpose pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes, the Bank shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Notes of authorized denominations having the identical Original Issue Date, Stated Maturity and provisions with respect to payment of interest as such temporary Notes. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes. SECTION 305. REGISTRATION, TRANSFER AND EXCHANGE. The Bank shall cause to be kept at an office or agency to be maintained by the Bank in accordance with the provisions of Section 1002, a register (herein sometimes referred to as the "Note Register") in which, subject to such reasonable regulations as it may prescribe, the Bank shall provide for the registration of Notes and of transfers of Notes as herein provided. The 19 Trustee is hereby appointed "Note Registrar" for the purpose of registering Notes and transfers and exchanges of Notes as herein provided. Upon surrender for registration of transfer of any Note at any office or agency of the Bank maintained for such purpose pursuant to Section 1002, the Bank shall execute, and the Authenticating Agent shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denominations of a like aggregate principal amount having the identical Original Issue Date, Stated Maturity and provisions with respect to payment of interest. At the option of the Holder, Notes may be exchanged for other Notes of any authorized denominations, of a like aggregate principal amount having the identical Original Issue Date, Stated Maturity and provisions with respect to payment of Redemption Premium, if any and interest, upon surrender of the Notes to be exchanged at such office or agency, and upon payment, if the Bank shall so require, of the charges hereinafter provided. Whenever any Notes are so surrendered for exchange, the Bank shall execute, and the Authenticating Agent shall authenticate and deliver, the Notes which the Holder making the exchange is entitled to receive. All Notes issued upon any transfer or exchange of Notes shall be the valid obligations of the Bank, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered for such transfer or exchange. Every Note presented or surrendered for transfer or exchange shall (if so required by the Bank or the Authenticating Agent) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Bank, the Authenticating Agent and the Note Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge to the Holder will be made for any transfer or exchange of Notes. The Bank may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Notes, other than exchanges expressly provided in this Indenture to be made at the Bank's own expense or without expense or without charge to the Holders. The provisions of Clauses (1), (2), (3) and (4) below shall apply only to Global Notes: (1) Each Global Note authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Note or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Note shall constitute a single Note for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture, no Global Note may be exchanged in whole or in part for Notes registered, and no transfer of a Global Note in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Note or a nominee thereof unless (A) such Depositary (i) has notified the Bank that it is unwilling or unable to continue as Depositary for such Global Note or (ii) has ceased to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, at a time when the Depositary is required to be so registered to act as depositary, in each case unless the Bank has approved a successor Depositary 20 within 90 days, (B) there shall have occurred and be continuing an Event of Default with respect to such Global Note, (C) the Bank in its sole discretion determines that such Global Note will be so exchangeable or transferable or (D) there shall exist such circumstances, if any, in addition to or in lieu of the foregoing as have been specified for this purpose as contemplated by Section 301. (3) Subject to Clause (2) above, any exchange of a Global Note for other Notes may be made in whole or in part, and all Notes issued in exchange for a Global Note or any portion thereof shall be registered in such names as the Depositary for such Global Note shall direct. (4) Every Note authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Note or any portion thereof, whether pursuant to this Section or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Note, unless such Note is registered in the name of a Person other than the Depositary for such Global Note or a nominee thereof. The Bank shall not be required (i) to issue, transfer or exchange any Note during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Notes and ending at the close of business on the day of such mailing or (ii) to transfer or exchange any Note so to be redeemed. SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN NOTES. If (i) any mutilated Note is surrendered to the Trustee, or the Bank and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, and (ii) there is delivered to the Bank and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Bank or the Trustee that such Note has been acquired by a bona fide purchaser, the Bank shall execute and upon its request the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a new Note of like tenor and principal amount, having the identical original Issue Date, Stated Maturity and provisions with respect to payment of Redemption Premium, if any, and interest and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, the Bank in its discretion may, instead of issuing a new Note, pay such Note. Upon the issuance of any new Note under this Section, the Bank may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Note issued pursuant to this Section in lieu of any destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Bank, whether or not the destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to 21 all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. SECTION 307. PERSONS DEEMED OWNERS. Prior to due presentation of a Note for registration or transfer, the Bank and the Trustee, or any agent of the foregoing, may treat the Person in whose name any Note is registered as the owner of such Note for the purpose of receiving payment of principal of, Redemption Premium, if any, and (subject to Section 309) interest on, such Note and for all other purposes whatsoever whether or not such Note be overdue, and neither the Bank or the Trustee nor any agent of the Bank or the Trustee shall be affected by notice to the contrary. SECTION 308. CANCELLATION. All Notes surrendered for payment, redemption, transfer or exchange shall, if surrendered to the Bank or any agent of the Bank, be delivered to the Trustee and, if not already cancelled, shall be promptly cancelled by it. The Bank may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Bank may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly cancelled by the Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Notes held by the Trustee shall be disposed of in accordance with the Trustee's policies and procedures in effect at such time. SECTION 309. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED. Interest on any Note which is payable, and is punctually paid or duly provided for, on the applicable Interest Payment Date shall be paid to the Person in whose name that Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such interest (unless the Note or one or more Predecessor Notes is called for redemption on a date which is prior to such Interest Payment Date, in which case interest shall be paid thereon as provided in Article Thirteen), except that interest payable on the Stated Maturity of a Note shall be paid to the Person to whom principal is paid. Any interest on any Note which is payable, but is not timely paid or duly provided for, on any Interest Payment Date shall forthwith cease to be payable to the registered Holder on the relevant Regular Record Date by virtue of having been such Holder and the interest payment shall be made by the Bank, at its election, in each case, as provided in Clause (1) or (2) below: (1) The Bank may elect to pay such overdue amounts to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a Special Record Date for the payment of such overdue amounts, which Special Record Date shall be fixed in the following manner. The Bank shall notify the Trustee in writing of the amount of overdue interest proposed to be paid on each Note 22 and the date of the proposed payment (which shall be at least 30 days after the date of such notice), and at the same time the Bank shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such overdue amounts or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled thereto as in this paragraph provided; thereupon the Trustee shall fix a Special Record Date for the payment of such overdue amounts, which Special Record Date shall be not more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 15 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Bank of such Special Record Date and, in the name and at the expense of the Bank, shall cause notice of the proposed payment of such overdue interest and the Special Record Date therefor to be mailed, first class postage prepaid, not less than 10 days prior to such Special Record Date, to each Holder at his address as it appears in the Note Register as of the date of such notice, and such overdue interest shall be paid to the Persons in whose names the Notes (or their respective predecessor Notes) are registered as of the close of business on such Special Record Date. (2) The Bank may make payment of any overdue interest in any other lawful manner if, after notice given by the Bank to the Trustee of the proposed payment, such manner of payment shall be deemed practicable by this Trustee. Notwithstanding the foregoing, no such payment of overdue interest shall affect the status of the failure to pay interest on any Interest Payment Date as an Event of Default under Section 501. Subject to the foregoing provisions of this Section each Note delivered under this Indenture upon transfer or exchange for or in lieu of any other Note shall carry the rights to accrued and unpaid interest which were carried by such other Note. SECTION 310. COMPUTATION OF INTEREST. Except as otherwise specified as contemplated by Section 301, interest on the Notes for any period shall be computed on the basis of a 360- day year of twelve 30-day months and, for any period less than a full calendar month, the number of days elapsed in such month. ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture shall upon Bank Request cease to be of further effect (except as to any surviving rights of transfer or exchange of Notes herein expressly provided for), and the Trustee, at the expense of the Bank, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, and shall make arrangements with the FHLB of Atlanta for surrender of the Letter of Credit, when 23 (1) either (A) all Outstanding Notes have been delivered to the Trustee cancelled or for cancellation or the Trustee has received destruction certificates with respect thereto as provided in Section 308 hereof; or (B) all Outstanding Notes not theretofore delivered to the Trustee for cancellation have become due and payable and the Bank has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Trustee for cancellation, for principal and interest to the date of such deposit (in the case of Notes which have become due and payable), or to the Stated Maturity or Redemption Date, as the case may be; (2) the Bank has paid or caused to be paid all other sums payable hereunder by the Bank; and (3) the Bank has delivered to the Trustee an Officers Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Bank to the Trustee under Section 607 shall survive. SECTION 402. APPLICATION OF TRUST MONEY. All money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment to the Persons entitled thereto, of the principal, Redemption Premium, if any, and interest for the payment of which money has been deposited with the Trustee. ARTICLE FIVE REMEDIES SECTION 501. EVENTS OF DEFAULT. "EVENT OF DEFAULT" wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon any Note when it becomes due and payable and continuance of such failure for a period of more than two Business Days; or (2) default in the payment of the principal of, or Redemption Premium, if any, on any Note when and as the same shall become due whether at its maturity, call for redemption or otherwise; or 24 (3) failure of the Trustee to receive notice from the FHLB of Atlanta within five Business Days after a draw on the Letter of Credit that the Credit Amount of the Letter of Credit has been reinstated in full; or (4) any failure to maintain the Letter of Credit in full force and effect until its expiration date and any change whatsoever in the terms of the Letter of Credit which is not expressly permitted by the provisions of Article Eleven; or (5) failure on the part of the Bank duly to observe or perform in any material respect any other of the covenants or agreements on the part of the Bank in the Notes or in this Indenture contained, and continuance of such failure unremedied for a period of 30 days after the date on which written notice of such failure, requiring the Bank to remedy the same, shall have been given to the Bank by the Trustee, or to the Bank and the Trustee by the holders of at least twenty-five percent (25%) in aggregate principal amount of the Notes at the time Outstanding; or (6) a receiver, liquidator, assignee, custodian, trustee, conservator, sequestrator (or other similar official) shall be appointed to take or shall take possession of the Bank or any substantial part of its property without its consent, or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Bank in an involuntary case under any applicable bankruptcy, insolvency, moratorium or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, conservator, sequestrator (or other similar official) of the Bank or for any substantial part of its property, or ordering the winding up or liquidation of its affairs, and such decree or order shall remain unstayed in effect for a period of 90 consecutive days; or (7) the Bank shall commence a voluntary case under any applicable bankruptcy, insolvency, moratorium or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, conservator, sequestrator (or other similar official) of the Bank or of any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall take any corporate action in furtherance of any of the foregoing. SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of Default occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Notes Outstanding may declare the principal of all the Notes to be due and payable, by a notice in writing to the Bank (and to the Trustee if given by Holders), and upon any such declaration, such principal and, in the case of Designated Fixed Rate Notes, the Redemption Premium shall become due and payable by mandatory redemption pursuant to Section 1301; provided, however, that if the Letter of Credit, for any reason, is not in full force and effect, the Trustee or the Holders may declare the principal of, and, in the case of Designated Fixed Rate Notes, the Redemption Premium on, all the Notes to be due and payable immediately; provided further, that if an Event of Default set forth in clause (6) or (7) of Section 501 shall occur and a receiver, conservator, liquidator, assignee, 25 trustee or sequestrator (or other similar official) shall be appointed in respect of the Bank, no acceleration of maturity of the Notes or declaration thereof shall occur pursuant to this Section 502 unless and until consistent with the rights of such receiver or conservator (or similar official) under applicable law; provided further, however, that the foregoing proviso shall not apply if (i) any Event of Default other than those set forth in clauses (6) or (7) shall have occurred and be continuing or (ii) the Notes are repudiated or the maturity of the Notes is accelerated by a receiver or conservator (or other similar official) or by a court. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Notes Outstanding, by written notice to the Bank and the Trustee, or the Trustee if such declaration of acceleration has not been made by the Holders of Notes, by written notice to the Bank, may rescind and annul such declaration and its consequences if (1) the Bank has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue installments of interest on all Notes, (B) the principal of any Notes which have become due otherwise than by such declaration of acceleration and interest thereon at the respective rates borne by such Notes, (C) to the extent that payment of such interest is lawful, interest upon overdue installments of interest at the respective rates borne by such Notes, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; (2) all Events of Default, other than the non-payment of the principal of, or Redemption Premium, if any, on Notes which have become due solely by such acceleration, have been cured or waived as provided in Section 513; and (3) notice of redemption has not been given pursuant to Section 1303. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. The Bank covenants that if (1) default is made in the payment of any installment of interest on any Note when such interest becomes due and payable and such default continues for a period of more than two Business Days, or (2) default is made in the payment of the principal of, or Redemption Premium, if any, on any Note at the Maturity thereof, 26 the Bank will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Notes, the whole amount then due and payable on such Notes for principal, Redemption Premium, if any, and interest, with interest upon the overdue principal and Redemption Premium, if any, and, to the extent that payment of such interest shall be legally enforceable, upon overdue installments of interest, at the rates borne by the Notes; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Bank fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Bank or any other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Bank or any other obligor upon the Notes, wherever situated. Without limiting the generality of the foregoing, if the FHLB of Atlanta fails to make payment under the Letter of Credit after a proper demand for payment has been made by the Trustee, in its own name and as trustee of an express trust, the Trustee may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the FHLB of Atlanta in the manner provided by law out of the property of the FHLB of Atlanta. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency of any conservatorship or receivership or any insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other similar proceeding relative to the Bank or any other obligor upon the Notes or the property of the Bank or of such other obligor or their creditors or relating to the FHLB of Atlanta, the Trustee (irrespective of whether the principal or Redemption Premium, if any, of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made a demand on the Bank for the payment of overdue principal, Redemption Premium, if any, or interest or shall have made any drawing under the Letter of Credit) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal, Redemption Premium, if any, and interest owing and unpaid in respect of the Notes or for the Credit Amount of the Letter of Credit and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such proceeding, and 27 (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any conservator, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept, or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes in respect of which such judgment has been recovered. SECTION 506. APPLICATION OF MONEY COLLECTED. Any money collected by the Trustee pursuant to this Article, other than (i) any money received by the Trustee as a result of any demand for payment under the Letter of Credit or (ii) any money held in trust for the benefit of Holders of Notes, shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, Redemption Premium, if any, or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 607; SECOND: To the payment of the amounts then due and unpaid for interest on the Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for interest; THIRD: To the payment of the amounts then due and unpaid for principal and Redemption Premium, if any, on the Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for principal and Redemption Premium, if any; and FOURTH: The balance, if any, to the Bank. 28 SECTION 507. LIMITATION ON SUITS. No Holder of any Note shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to a Responsible Officer of the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 30 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; (5) no direction inconsistent with such written request has been given to the Trustee during such 30-day period by the Holders of a majority in principal amount of the Outstanding Notes; and (6) such Event of Default is continuing; it being understood and intended that no one or more Holders of Notes shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Notes, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders of Notes. SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL AND INTEREST. Notwithstanding any other provision in this Indenture, the Holder of any Note shall have the right which is absolute and unconditional to receive payment of the principal of, and (subject to Section 309) interest on, such Note on the Stated Maturity expressed in such Note (or, in the case of redemption, principal of, Redemption Premium, if any, and (subject to Section 309) interest on such Note on the Redemption Date fixed for such Note) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. SECTION 509. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case the Bank, the Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights 29 and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 511. DELAY OR OMISSION NOT WAIVER. No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 512. CONTROL BY HOLDERS. The Holders of a majority in principal amount of the Outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 513. WAIVER OF PAST DEFAULTS. The Holders of not less than a majority in principal amount of the Outstanding Notes may, at any time prior to the giving of notice of redemption pursuant to Section 1303, on behalf of the Holders of all the Notes waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of, Redemption Premium, if any, or interest on any Note, or (2) of the type specified in Section 501(3), or (3) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Note affected. 30 Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 514. UNDERTAKING FOR COSTS. All parties to this Indenture agree, and each Holder of any Note by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Notes, or to any suit instituted by any Holder for the enforcement of the payment of the principal of or interest on any Note on or after the Stated Maturity expressed in such Note (or, in the case of redemption, principal of, Redemption Premium, if any, or interest on or after the Redemption Date). SECTION 515. WAIVER OF USURY, STAY OR EXTENSION LAWS. The Bank covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Bank (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 516. CALCULATION OF ORIGINAL ISSUE DISCOUNT The Bank shall file with the Trustee promptly at the end of each calendar year (i) a written notice specifying the amount of original issue discount accrued on Notes Outstanding as of the end of such year and (ii) such other specific information relating such original issue discount as may then be relevant under the Code. 31 ARTICLE SIX THE TRUSTEE SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES. (a) Except during the continuance of an Event of Default, (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not on their face they conform to the requirements of this Indenture; and (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that (1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Notes relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. 32 (e) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 602. NOTICE OF DEFAULTS. Within 60 days after the occurrence of any default hereunder, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Note Register, notice of such default hereunder actually known to a Responsible Officer of the Trustee, unless such default shall have been cured or waived; PROVIDED, HOWEVER, that, except in the case of a default in the payment of the principal of, Redemption Premium, if any, or interest on any Note or an Event of Default of the type specified in Section 501(3), the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Holders; and PROVIDED, FURTHER, that in the case of any default of the character specified in Section 501(5), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "DEFAULT" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 603. CERTAIN RIGHTS OF TRUSTEE. Except as otherwise provided in Section 601: (a) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Bank mentioned herein shall be sufficiently evidenced by a Bank Request or Bank Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, conclusively rely upon an Officers' Certificate; (d) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; 33 (f) the Trustee shall not be bound to make any investigation into facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Bank, personally or by agent or attorney; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES. The recitals contained herein and in the Notes, except the Trustee's certificate of authentication, shall be taken as the statements of the Bank, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes. The Trustee represents that it is duly authorized to execute and deliver this Indenture and to perform its duties hereunder. The Trustee or any Authenticating Agent shall not be accountable for the use or application by the Bank of Notes or the proceeds thereof. SECTION 605. MAY HOLD NOTES. The Trustee, any Authenticating Agent, any Paying Agent the Note Registrar and any other agent of the Bank or the Trustee, in its individual or any other capacity, may become the owner or pledgee of, or may hold or acquire other rights in, Notes and may otherwise deal with the Bank with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Note Registrar or such agent. SECTION 606. MONEY HELD IN TRUST. Money held by the Trustee in trust hereunder need not be segregated from other trust funds except to the extent required by law or by the express provisions hereof. The Trustee shall not be under any liability for interest on any money received by it hereunder except as provided herein or otherwise agreed with the Bank. SECTION 607. COMPENSATION AND REIMBURSEMENT. The Bank agrees (1) to pay to the Trustee from time to time such compensation as agreed upon from time to time in writing for all services rendered by it hereunder (which compensation shall not be limited by any provisions of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all expenses, disbursements and advances incurred or made by the Trustee 34 in accordance with any provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The FHLB of Atlanta shall have no liability to the Trustee with respect to any sums payable to the Trustee under this Section 607 or otherwise hereunder. The provisions of this Section shall survive the termination of this Indenture. SECTION 608. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America, any state thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 subject to supervision or examination by Federal or state authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 609. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until (i) the acceptance of appointment by the successor Trustee under Section 610, (ii) a Substitute Letter of Credit has been issued by the FHLB of Atlanta to the successor Trustee conforming to the requirements of Section 1104 and (iii) the successor Trustee has established a Note Account. (b) The Trustee may resign at any time by giving written notice thereof to the Bank. If the requirements of paragraph (a) of this Section shall not have been satisfied within 30 days after the giving of such notice of resignation or removal, the resigning or removed Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Notes, delivered to the Trustee and to the Bank. (d) If at any time: 35 (1) the Trustee shall cease to be eligible under Section 608 and shall fail to resign after written request therefor by the Bank or by any Holder who has been a bona fide Holder of a Note for at least six months, or (2) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Bank by a Board Resolution may remove the Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Bank, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Notes delivered to the Bank and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Bank. If no successor Trustee shall have been so appointed by the Bank or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Bank shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Notes at their addresses as shown in the Note Register. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 610. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Bank and the retiring Trustee an instrument accepting such appointment, and, subject to Section 609, the resignation or removal of the retiring Trustee shall thereupon become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Bank or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject nevertheless to its lien, if any, provided for in Section 607. Upon request of any such successor Trustee, the Bank and the FHLB of Atlanta shall execute any and all instruments reasonably determined by such parties to be necessary for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. 36 No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 611. MERGER OR CONSOLIDATION. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Notes shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such Notes. SECTION 612. APPOINTMENT OF AUTHENTICATING AGENT. As of the date of this Indenture and at any time when any of the Notes remain Outstanding, the Trustee may appoint an Authenticating Agent or Authenticating Agents with respect to any Notes which the Authenticating Agent or Authenticating Agents shall be authorized to act on behalf of the Trustee to authenticate, and Notes so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the completion, authentication and delivery of Notes by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Bank and shall at all times be a corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State Authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be Authenticating Agent without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. 37 An Authenticating Agent may at any time resign by providing no less than 120 days advance written notice of resignation to the Trustee and to the Bank, unless the Bank agrees in writing to a shorter notice period, such resignation not to become effective prior to the date of appointment of a successor Authenticating Agent. The Bank or the Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Bank. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Bank and shall mail notice of such appointment to all Holders of Notes with respect to which such Authenticating Agent will serve, as their names and addresses appear on the Note Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent herein. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Bank agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section. If an appointment is made pursuant to this Section, the Notes may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form: This is one of the Notes referred to in the within-mentioned Indenture. -------------------------------------- As Trustee By: ----------------------------------- As Authenticating Agent By: ----------------------------------- Authorized Signatory 38 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE SECTION 701. BANK TO FURNISH NAMES AND ADDRESSES OF HOLDERS. The Bank will furnish or cause to be furnished by the Note Registrar to the Trustee on a semi-annual basis, on each Regular Record Date for the Notes, and at such other times as the Trustee may request in writing, within 30 days after receipt by the Bank of any such request, a list in such form as the Trustee may reasonably require containing all the information in the possession or control of the Bank as to the names and addresses of the Holders, obtained since the date as of which the next previous list, if any, was furnished; PROVIDED, HOWEVER, that no such list need be furnished so long as the Trustee is the Note Registrar. Any such list may be dated as of a date not more than 15 days prior to the time such information is furnished or caused to be furnished and need not include information received after such date. SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS. (a) The Trustee shall preserve, in as current a form as reasonably practicable, all information (i) as to the names and addresses of Holders contained in the most recent list furnished to it as provided in Section 701, and (ii) received by it in the capacity of Note Registrar hereunder. The Trustee may (i) destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished, (ii) destroy any information received by it as Note Registrar hereunder upon delivering to itself as Trustee, not earlier than 45 days after an Interest Payment Date, a list containing the names and addresses of the Holders obtained from such information since the delivery of the next previous list, if any, and (iii) destroy any list delivered to itself as Trustee which was compiled from information received by it as Note Registrar hereunder upon the receipt of a new list so delivered. (b) If three or more Holders (hereinafter referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Note for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders with respect to their rights under this Indenture or under the Notes and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election, either (i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 702(a), or (ii) inform such applicants as to the approximate number of Holders whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 702(a) and as to the approximate cost of mailing to such Holders the form of proxy or other communication, if any, specified in such application. 39 If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder whose name and address appears in the information preserved at the time by the Trustee in accordance with Section 702(a), a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five Business Days after such tender, the Trustee shall mail to such applicants a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the Holders or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. In the event the applicants decide to proceed despite the Trustee's opinion and obtain an order of a court of competent jurisdiction directing the Trustee to mail the applicable material, the Trustee shall mail copies of such material to all such Holders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (c) Each and every Holder of the Notes, by receiving and holding the same, agrees with the Bank and the Trustee and the FHLB of Atlanta that neither the Bank nor the Trustee nor any Note Registrar nor the FHLB of Atlanta shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 702(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 702(b). SECTION 703. REPORTS BY THE TRUSTEE TO THE FHLB OF ATLANTA AND THE BANK; NOTICE TO RATING AGENCY. (a) Within ten Business Days after the last day of each calendar month, the Trustee shall prepare a written statement showing the aggregate principal amount and the Note Face Value of all Notes Outstanding as of the last day of such month, which statement shall include the certificate identification number, Original Issue Date, Stated Maturity, principal amount and maximum Rate of Interest of each such Note and shall show the Note Face Value of each such Note by total principal amount of such Note having the same Original Issue Date, Stated Maturity and Maximum Rate of Interest. Such statement shall be signed by a Responsible Officer of the Trustee and shall be sent to the Bank by first class mail no later than the Business Day following the preparation of such statement. (b) The Trustee agrees to use its reasonable best efforts to give prior notice, and if unable, to promptly notify Moody's and S&P, if such rating agency is then rating the Notes, of: (1) expiration, renewal, extension or replacement of the Letter of Credit; (2) redemption or declaration of acceleration of the principal of the Notes; (3) any amendment to this Indenture or the Letter of Credit; 40 (4) receipt by the Trustee of any amendment to the Reimbursement Agreement pursuant to Section 1105 or any Board Resolution authorizing an increase in aggregate principal amount of Notes which may be issued hereunder; (5) any resignation or removal of the Trustee or appointment of a successor Trustee pursuant to Section 609 hereof; or (6) any issuance of Notes hereunder. The Trustee shall incur no liability to Moody's or S&P or any other person for failure to provide such notice. ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 801. BANK MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. The Bank shall not consolidate with or merge into any other corporation, association or other similar entity or entities (hereinafter referred to as "corporation" or "corporations") or convey, transfer or lease its properties and assets substantially as an entirety to any Person, unless: (1) the corporation (if other than the Bank) formed by such consolidation or into which the Bank is merged or the Person which acquires by conveyance, transfer or lease the properties and assets of the Bank substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America or any state or the District of Columbia, and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee and the FHLB of Atlanta, in form satisfactory to the Trustee and the FHLB of Atlanta, the due and punctual payment of the principal of, Redemption Premium, if any, and interest on all the Notes and the performance of every covenant of this Indenture on the part of the Bank to be performed or observed; (2) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; and (3) the Bank has delivered to the Trustee and the Bank an Officers' Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance, transfer or lease and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 802. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any conveyance, transfer or lease of the properties and assets of the Bank substantially as an entirety in accordance with Section 801, the Successor 41 corporation formed by such consolidation or into which the Bank is merged or to which such conveyance transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Bank under this Indenture with the same effect as if such successor corporation had been named as the Bank herein; and in the event of any such conveyance or transfer (but not lease), the Bank (which term for this purpose shall mean the Person named as the "Bank" in the first paragraph of this instrument or any successor corporation which shall theretofore have become such in the manner prescribed in this Article) shall be discharged from all obligations and covenants under the Indenture and may be dissolved and liquidated. ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. Subject to the written consent of the FHLB of Atlanta, without the consent of any Holders, the Bank, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another corporation to the Bank, and the assumption by any such successor of the covenants of the Bank herein and in the Notes contained; or (2) to add to the covenants of the Bank, for the benefit of the Holders of all or any Notes, to convey, transfer, assign, mortgage or pledge any property to or with the Trustee, or to surrender any right or power herein conferred upon the Bank; or (3) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, PROVIDED such action shall not materially adversely affect the interests of the Holders; or (4) to establish the form of Notes as permitted by Section 201; or (5) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee; or (6) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to qualify this Indenture (including any supplemental indenture), if necessary, under the Trust Indenture Act of 1939, or under any similar federal statute hereafter enacted, and to add to this Indenture such other provisions as may be expressly permitted by the Trust Indenture Act of 1939, excluding, however, the provisions referred to in Section 316(a)(2) of the Trust Indenture Act of 1939 as in effect at the date as of which this Indenture was executed or any corresponding provision in any similar federal statute hereafter enacted. 42 SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. Subject to the written consent of the FHLB of Atlanta, with the consent of the Holders of not less than a majority in principal amount of the Outstanding Notes, by Act of said Holders delivered to the Bank and the Trustee, the Bank, when authorized by a Board Resolution and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Note affected thereby: (1) change the Stated Maturity of the principal of, or interest on, any Note, or reduce the principal amount thereof or the Redemption Premium or interest thereon, or change the coin or currency in which, any Note or the Redemption Premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (2) reduce the percentage in principal amount of the Outstanding Notes, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture, or (3) modify any of the provisions of this Section or Section 513 or Section 906, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Note affected thereby. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this 43 Indenture for all purposes; and every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 905. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Bank shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Bank and authenticated and delivered by the Trustee in exchange for Outstanding Notes. SECTION 906. WAIVER OF COMPLIANCE BY HOLDERS OF NOTES. Anything in this Indenture to the contrary notwithstanding, any of the acts which the Bank is required to do or is prohibited from doing by any of the provisions of this Indenture may, to the extent that such provisions might be changed or eliminated by a supplemental indenture pursuant to Section 902 hereof upon consent of Holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, be omitted or done by the Bank, if there is obtained the written consent thereto of the FHLB of Atlanta and of the Holders of not less than a majority of the aggregate principal amount of the Notes at the time Outstanding or the written waiver of compliance with any such provision or provisions signed by such Holders. The Bank agrees promptly to file with the Trustee and the FHLB of Atlanta a duplicate original of each such consent or waiver. ARTICLE TEN COVENANTS SECTION 1001. PAYMENT OF PRINCIPAL, REDEMPTION PREMIUM AND INTEREST. The Bank will duly and punctually pay the principal of, Redemption Premium, if any, and interest on the Notes in accordance with the terms of the Notes and this Indenture; PROVIDED, HOWEVER, that amounts properly withheld under the Code by any Person from a payment to any Holder of Notes shall be considered as having been paid by the Bank to such Holder for all purposes of this Indenture. SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY; CALCULATION AGENTS. The Bank will maintain in the Borough of Manhattan, The City of New York, an office or agency where Notes may be presented or surrendered for payment, where the issuance of Notes may be registered, where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Bank in respect of the Notes and this Indenture may be served. The Bank initially appoints the Trustee as its agent for such purposes. The Trustee agrees to deliver promptly copies of all notices and demands to or upon the Bank received by the Trustee in such capacity. 44 The Bank agrees that there shall at all times be one Calculation Agent in respect of the Notes that bear interest at a floating rate, and such Calculation Agent shall be a financial institution or investment bank and shall not control, be controlled by, or be under common control with, the Bank. In the event that the Calculation Agent is unwilling or unable to act as such Calculation Agent or shall fail to perform, the Bank shall promptly appoint a Calculation Agent (qualified as aforesaid) to act in its place. Pursuant to Article 15 hereof, the Bank has appointed the Trustee as the initial Calculation Agent. SECTION 1003. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST. Whenever the Bank shall have one or more Paying Agents for the Notes, the Trustee will, at the Bank's written request, on each Payment Date, withdraw from the Note Payment Account and wire transfer to such Paying Agent or Paying Agents, in Federal Reserve or other immediately available funds, a sum sufficient for the payment of the principal of or interest on the Notes so becoming due. The Bank will cause each Paying Agent for the Notes to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will hold all sums held by it for the payment of the principal of, Redemption Premium, if any, or interest on the Notes in trust for the benefit of the Holders of Notes entitled thereto until such sums shall be paid to such Holders or otherwise disposed of as provided herein. Any money deposited with the Trustee or any Paying Agent in trust for the payment of the principal of, Redemption Premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, Redemption Premium, if any, or interest has become due and payable shall be paid to the Bank on Bank Request; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Bank for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Bank cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Bank. Any money deposited with the Trustee or any Paying Agent, in trust for payment of principal of, Redemption Premium, if any, or interest on any Note and which is unclaimed, shall only be invested in Permitted Investments with maturities of less than one day or held in the form of cash. SECTION 1004. MAINTENANCE OF EXISTENCE. Subject to the provisions of Article Eight and, except as otherwise specifically permitted in this Indenture, the Bank, at its own cost and expense, will do or cause to be done all things necessary to preserve and keep in full force and effect its existence as a depository financial institution deposits in which are insured by the FDIC. 45 SECTION 1005. FURTHER ASSURANCES. From time to time, whenever reasonably demanded by the Trustee, the Bank will make, execute and deliver or cause to be made, executed and delivered any and all such further and other instruments and assurances, and will furnish such information, as may be reasonably necessary or proper to carry out the intention of or to facilitate the performance of the terms of this Indenture or to secure the rights and remedies hereunder of the Holders of the Notes. SECTION 1006. CERTIFICATES TO BE DELIVERED. The Bank will: (1) deliver to a Responsible Officer of the Trustee forthwith upon becoming aware of any default or defaults in the performance of any covenant, agreement or condition contained in this Indenture, an Officers' Certificate specifying such default or defaults, and (2) deliver to a Responsible Officer of the Trustee on or before a date not more than 120 days after the end of each fiscal year of the Bank ending after the date hereof, an Officers' Certificate stating that a review of the activities of the Bank during such year and of performance under this Indenture has been made under the supervision of such officers and stating whether or not, to the best knowledge of the signers, based on such review, the Bank is in default in the performance of any covenant, agreement or condition contained in this Indenture, and, if so, specifying each such default of which the signers have knowledge and the nature and status thereof. SECTION 1007. MAINTENANCE OF BOOKS OF RECORD AND ACCOUNT; FINANCIAL STATEMENTS OF THE BANK. (a) The Bank will keep proper books of record and account in which full and correct entries will be made of its transactions in conformity with generally accepted accounting principles, except as may be required or permitted by applicable Federal or State law or rules, regulations or policy statements promulgated thereunder, including, but not limited to, the rules, regulations and policy statements of the OTS and the FDIC. The Bank will permit the Trustee and its agents, auditors, attorneys and counsel, at all reasonable times, to examine all the books of record and account of the Bank and to make copies and take extracts therefrom, and will from time to time furnish, or cause to be furnished, to the Trustee such information and statements as the Trustee may reasonably request, all as may be reasonably necessary for the purpose of determining performance or observance by the Bank of the covenants, conditions and obligations contained in this Indenture, but the Trustee will not be under any obligation to examine the books of record and account of the Bank. The Trustee will, and will cause its agents, auditors, attorneys and counsel to, keep all such information confidential in accordance with its customary procedures, except to the extent that disclosure thereof is required in connection with the performance of its duties hereunder. (b) The Bank will deliver to the Trustee and to each rating agency then rating any of the Notes, within 120 days after the expiration of each fiscal year of the Bank during which there are any Notes Outstanding, a consolidated statement of operations for such fiscal year and a 46 consolidated statement of condition of the Bank and its consolidated subsidiaries as of the last day of such fiscal year. Such consolidated statements of operations and condition shall set forth in reasonable detail the results of operations for the period ended, and the financial condition of the Bank and its consolidated subsidiaries as at the date thereof, and shall be accompanied by the report or opinion of the independent public accountants who have audited the books of the Bank for such fiscal year. The Bank will also deliver to the Trustee and to each rating agency then rating any of the Notes, within 30 days after the filing thereof with the OTS, each quarterly report and each annual report filed by the Bank with the OTS. ARTICLE ELEVEN LETTER OF CREDIT SECTION 1101. DELIVERY OF THE LETTER OF CREDIT. (a) On or prior to the date of the initial authentication and delivery of Notes, the Bank shall cause the FHLB of Atlanta, as issuer of the Letter of Credit, to deliver the Letter of Credit to the Trustee for the account of the Bank and for the purpose of assuring payment of the Notes. The Letter of Credit shall be in the form of Exhibit A hereto, shall be irrevocable and shall: (1) identify the Trustee as the beneficiary thereof, for the benefit of Holders of Notes; (2) have an original Credit Amount at least equal to the greater of $225,000,000 or the Note Face Value of all Notes to be Outstanding upon such initial authentication and delivery; (3) have an effective date no later than the date of such initial authentication and delivery of Notes; (4) have an expiration date which is a Business Day and which is no earlier than November 4, 2008 or such later date as the FHLB of Atlanta may agree to; and (5) authorize the Trustee to draw upon the Letter of Credit at any time from the effective date until the close of the FHLB of Atlanta's business on the expiration date set forth in the Letter of Credit. (b) In connection with the issuance and delivery of the Letter of Credit, the Bank shall deliver to, and deposit with, the Trustee the following documents or instruments with respect to the Letter of Credit: (1) a fully executed counterpart of the Reimbursement Agreement between the Bank and the FHLB of Atlanta, pursuant to which the FHLB of Atlanta has agreed to issue the Letter of Credit; and 47 (2) a fully executed counterpart of the Confirmation of Letter of Credit issued pursuant to the Reimbursement Agreement, the terms of which confirmation shall agree in every particular with the Letter of Credit delivered pursuant to this Section. SECTION 1102. ACCEPTANCE BY TRUSTEE. The Trustee declares that it will hold the Letter of Credit, together with any amounts held in any fund or account established pursuant to this Indenture and any proceeds of any draw upon the Letter of Credit, in trust for the use and benefit of all present and future Holders of Notes. SECTION 1103. AMENDMENTS TO THE LETTER OF CREDIT; RENEWALS OF THE LETTER OF CREDIT; INCREASING OR REINSTATING THE CREDIT AMOUNT; REDUCTION OF THE CREDIT AMOUNT. Any amendment to the Letter of Credit, other than a reinstatement of or increase in the Credit Amount or an extension or renewal of the expiration date of the Letter of Credit, must be consented to by the Trustee in writing. Upon application by the Bank to the FHLB of Atlanta, and subject to the FHLB of Atlanta's regulations and credit guidelines, the expiration date of the Letter of Credit may be extended and the Letter of Credit may be renewed from time to time, by a Certificate of Renewal issued by the FHLB of Atlanta to the Trustee in the form of Exhibit F to the Letter of Credit, which shall be effective upon receipt by the Trustee. Any expiration date established by any Certificate of Renewal shall be a Business Day and shall not be earlier than the then existing expiration date of the Letter of Credit nor later than the date which is ten years from the effective date of such Certificate of Renewal or such later date as the FHLB of Atlanta may agree to. The Credit Amount may be increased from time to time or, as the same may be reduced by a drawing upon the Letter of Credit, may be reinstated by a Certificate Increasing the Credit Amount or a Certificate Reinstating the Credit Amount in the form of Exhibits E or C, respectively, to the Letter of Credit which shall be effective upon receipt by the Trustee. In addition, the Bank may, subject to the provisions of this Section, reduce the Credit Amount of the Letter of Credit from time to time by presentation to the Trustee of a Reduction Certificate. Upon receipt by the Trustee of a Reduction Certificate, the Bank shall determine the Note Face Value, which calculation shall be confirmed by the Trustee. If the Credit Amount, after giving effect to the Reduction Certificate, shall be equal to or greater than the Note Face Value of the Notes Outstanding as verified by the Trustee, the Trustee shall consent to such Reduction Certificate as provided thereon and shall present such Certificate to the FHLB of Atlanta. SECTION 1104. SUBSTITUTE LETTER OF CREDIT. At the direction of the FHLB of Atlanta, the Letter of Credit may be replaced with a Substitute Letter of Credit provided that: 48 (1) The FHLB of Atlanta certifies that its direction to replace the Letter of Credit and the Substitute Letter of Credit are in compliance with and pursuant to the Reimbursement Agreement; (2) such Substitute Letter of Credit: (a) is in the form of Exhibit A hereto; (b) is irrevocable; (c) is issued by the FHLB of Atlanta to the Trustee as the beneficiary thereof for the benefit of Holders of the Notes; (d) has a Credit Amount at least equal to the Note Face Value of the Notes Outstanding; (e) has an expiration date which is no earlier than the latest Stated Maturity of any Note Outstanding plus two Business Days or such later date as the FHLB of Atlanta may agree to and an effective date which is no later than the date of replacement; (f) is otherwise identical to the outstanding Letter of Credit; and (3) the Trustee receives written confirmation from Moody's and S&P (in each case, if then in the business of rating securities such as the Notes) that replacement of the Letter of Credit with such Substitute Letter of Credit will not, in and of itself, reduce or result in the withdrawal of any rating on the Notes then in effect. SECTION 1105. INSPECTION OF DOCUMENTS BY HOLDERS OF NOTES. The Trustee shall keep fully executed or conformed copies of this Indenture, the Letter of Credit and the Reimbursement Agreement (together with all amendments, modifications, supplements, waivers and consents made or given with respect hereto and thereto) on file at its Corporate Trust Office and shall provide to the Holder of any Note or by an officer, employee or agent of such Holder, provided that the person purporting to be such Holder establishes to the satisfaction of the Trustee he is in fact such Holder and, in cases where inspection is sought to be made by a person purporting to be an officer, employee or agent of such Holder, that such person submits evidence satisfactory to the Trustee of his authority to make inspection on behalf of such Holder. The Bank shall promptly advise the Trustee of any amendment, modification, waiver or consent made or given with respect to the Reimbursement Agreement, and promptly after the effectiveness thereof, shall furnish a fully executed or conformed copy of such amendment, modification, waiver or consent to the Trustee. 49 ARTICLE TWELVE PAYMENT OF NOTES SECTION 1201. ESTABLISHMENT OF NOTE ACCOUNT. At the time of the execution and delivery of this Indenture, and for the purposes of this Indenture, the Trustee shall establish a special purpose trust account for the benefit of Holders of Notes to be referred to herein as the "Note Account" and over which the Trustee shall have exclusive control and the sole right of withdrawal. Any and all funds at any time on deposit in, or otherwise to the credit of, the Note Account shall be held in trust by the Trustee for the benefit of Holders of Notes. Except as provided in Section 1203 hereof, the only permitted withdrawal from or application of funds on deposit in, or otherwise to the credit of, the Note Account shall be to pay the interest on and principal of the Notes in accordance with their terms and the provisions of this Indenture. The Trustee agrees to give the Bank and the FHLB of Atlanta immediate notice if the Note Account or any funds on deposit in, or otherwise to the credit of, the Note Account shall become subject to any writ, order, judgment, warrant of attachment, execution or similar process. Neither the Bank nor the FHLB of Atlanta shall have any legal, equitable or beneficial interest in the Note Account. SECTION 1202. PAYMENT OF NOTES; DRAWS UPON THE LETTER OF CREDIT. (a) The Trustee agrees that, to the extent sufficient funds are available in the Note Account or are available subject to a drawing under the Letter of Credit, the Trustee shall, subject to Section 1003, make payment from such available funds of interest on and principal of the Notes as herein provided. (b) By 10:00 a.m. (Atlanta, Georgia time) on the third Business Day before each Payment Date, the Bank shall remit to the Trustee in immediately available funds for deposit in the Note Account the amount payable on the Notes on such Payment Date. Each such date on which the Bank is required to remit funds to the Trustee for deposit in the Note Account is hereinafter referred to as a "Note Account Deposit Date." (c) As promptly as may be practicable on each Note Account Deposit Date, the Trustee shall determine whether sufficient immediately available funds are then on deposit in the Note Account (for purposes hereof, funds shall not be considered immediately available to the extent they are subject to any writ, order, judgment, warrant of attachment, execution or similar process) to enable the Trustee to pay when due the interest and Redemption Premium, if any, on, and principal of, each Note due on the next succeeding Payment Date. If, at such time, the immediately available funds then on deposit in the Note Account are insufficient to pay all of such interest, Redemption Premium, if any, and principal in full when due, then the Trustee shall promptly notify the Bank by telephone, and, if the Trustee has not received from the Bank by 3:15 p.m. (Atlanta, Georgia time) on such Note Account Deposit Date, sufficient immediately available funds to pay all the interest, Redemption Premium, if any, and principal due on the Notes on the next succeeding Payment Date, then on the Business Day immediately following such Note Account Deposit Date, the Trustee shall, no later than 4:45 p.m. (Atlanta, Georgia time), make a demand for payment in accordance with the terms of the Letter of Credit in an 50 amount equal to the amount due on the Notes on such Payment Date less the amount of immediately available funds then on deposit in the Note Account. Pursuant to the Letter of Credit, if the FHLB of Atlanta receives a conforming drawing certificate not later than 4:45 P.M., Atlanta, Georgia time, it will on the second Business Day thereafter make available to the Trustee immediately available funds in the amount of the drawing not later than 10:00 A.M., Atlanta, Georgia time. If the FHLB of Atlanta receives a conforming drawing certificate after 4:45 P.M., Atlanta, Georgia time, such drawing shall be deemed to have been received on the next succeeding Business Day. If the Trustee receives notice from the FHLB of Atlanta that a demand for payment under the Letter of Credit is non-conforming, the Trustee will take prompt steps to submit to the FHLB of Atlanta a conforming demand. The Trustee, to the extent that it has taken all steps required hereunder and pursuant to the Letter of Credit to present to the FHLB of Atlanta a conforming drawing certificate on a timely basis, shall not be liable for the failure of the FHLB of Atlanta to make a disbursement of the proceeds of such Letter of Credit to the Trustee. (d) Any funds received by the Trustee as a result of any drawing or demand for payment under the Letter of Credit shall be applied by the Trustee, subject to Section 1003, together with the funds, if any, to be withdrawn from the Note Account, directly to the payment in full of the interest, Redemption Premium, if any, and principal payments due on the Notes (including Notes held for the Trustee's own account). Funds received by the Trustee as a result of any drawing or demand for payment under the Letter of Credit shall be held by the Trustee until disbursed to Holders of Notes in a separate trust account established for this purpose for the benefit of the Holders of Notes, and shall not be deposited in the Note Account or applied or used for any other purpose whatsoever. SECTION 1203. INVESTMENT OF FUNDS IN THE NOTE ACCOUNT. Any immediately available funds remitted by the Bank to the Trustee for deposit in the Note Account in accordance with Section 1202(b) hereof shall, between the date such funds are remitted to the Trustee and the next succeeding Payment Date, be invested by the Trustee at the written direction of the Bank in the following permitted investments ("Permitted Investments"): (i) direct obligations of the United States, (ii) repurchase agreements with respect to such direct obligations with the lead bank (which may include the Trustee if the Trustee so qualifies) of a bank holding company the senior debt of which has a rating of at least "Aaa" from Moody's and "AAA" by S&P, or (iii) such other investments as may be acceptable to the rating agency or agencies rating the Notes, such acceptability to be evidenced in writing, which would not result in a reduction or withdrawal of the rating on the Notes by any such rating agency or agencies; PROVIDED, HOWEVER, that such Permitted Investments shall mature or be redeemable at par at the option of the holder within such periods as to permit timely payments in respect of the Notes. If as a result of any investment by the Trustee in Permitted Investments listed above, there shall be insufficient immediately available funds in the Note Account to pay when due the interest and Redemption Premium, if any, on, and principal of, the Notes with respect to which the funds were deposited by the Bank, the Trustee shall promptly and in any event prior to or on the Payment Date of such payments notify the Bank of such deficiency and the Bank shall deposit additional funds for the payment of Notes in the amount of such insufficiency prior to or at the opening of business on the earlier of (i) the following Business Day and (ii) the Payment Date of such payments. Any funds remaining in the Note Account on any Payment Date after payment in 51 full of all amounts of interest, Redemption Premium, if any, and principal due on the Notes on such Payment Date shall belong to the Bank and be returned to the Bank at its written direction; PROVIDED, HOWEVER, that no such withdrawal will be permitted if as a result thereof the Note Face Value of the Notes Outstanding would exceed the Credit Amount. Subject to Section 601, the Trustee shall have no liability for losses to the Note Account caused by investments made according to the terms of this Section 1203. Interest shall not accrue on uninvested funds. SECTION 1204. NOTE ACCOUNT STATEMENTS. The Trustee shall give the Bank a monthly statement reflecting all deposits to and withdrawals from the Note Account since the date of the last statement furnished pursuant to this Section. ARTICLE THIRTEEN REDEMPTION OF NOTES SECTION 1301. MANDATORY REDEMPTION. (a) The Notes may not be redeemed at the option of the Bank prior to the Stated Maturity of the Notes. (b) However, the Notes are subject to mandatory redemption, and the Trustee shall call for redemption all Notes Outstanding, upon the occurrence of any of the following events: (1) if any payment of principal of or interest on any Note has been made with funds drawn under the Letter of Credit and the Trustee does not receive from the FHLB of Atlanta a Certificate Reinstating the Credit Amount (in the form described in Section 1103 hereof) reinstating the Credit Amount in full by the close of business of the fifth Business Day after the date the Trustee submitted a drawing certificate under the Letter of Credit; (2) if an Event of Default specified in clauses (1), (2) or (3) of Section 501 shall have occurred; or (3) if an Event of Default other than those specified in clauses (1), (2) and (3) of Section 501 shall have occurred and a declaration of acceleration has been made pursuant to Section 502 and such declaration of acceleration has not been rescinded prior to the giving of notice of redemption by the Trustee. Notwithstanding the foregoing, the Notes are not subject to redemption upon the occurrence of an event specified in clause (b)(1) of this Section or an Event of Default specified in clause (3) of Section 501 if (i) the Trustee receives from the FHLB of Atlanta a Certificate Reinstating the Credit Amount reinstating the Credit Amount in full prior to the giving of notice of redemption by the Trustee and (ii) no other Event of Default shall have occurred and be continuing. 52 Any redemption of Notes required by this Section 1301 shall be made in accordance with this Article Thirteen, shall be made in whole, but not in part, on any date, and shall be at a Redemption Price equal to the principal amount of the Notes plus interest accrued thereon to the Redemption Date plus, in the case of Designated Fixed Rate Notes only, the Redemption Premium for such Notes. There shall be no Redemption Premium in respect of Notes that bear a floating rate of interest. SECTION 1302. REDEMPTION DATE. In the event the Notes are to be redeemed pursuant to Section 1301, the Trustee shall establish the Redemption Date as follows: (1) In the case of redemption pursuant to Section 1301(b)(1), the Redemption Date shall be a Business Day not more than ten (10) days after the end of the period of five Business Days allotted for receipt by the Trustee of the Certificate Reinstating the Credit Amount; and (2) In the case of redemption pursuant to clause (2) or (3) of Section 1301(b), the Redemption Date shall be a Business Day not more than ten (10) days after the occurrence of the Event of Default or the declaration of acceleration, as the case may be. SECTION 1303. NOTICE OF REDEMPTION. Notice of redemption shall be given by first class mail, postage prepaid, mailed not less than six (6) days prior to the Redemption Date, to each Holder of Notes to be redeemed, at his last address appearing in the Note Register on the record date for the giving of such notice of redemption (the "Redemption Record Date"). The Redemption Record Date shall be as set by the Trustee. In addition, in the case of Designated Fixed Rate Notes, notice of redemption shall also be given by facsimile to the Quotation Agent for receipt by such Quotation Agent no later than six (6) days prior to the Redemption Date. All notices of redemption shall state: (1) a description of the issue, including Cusip number, if any, (2) the Redemption Date, (3) that on the Redemption Date the Redemption Price will become due and payable upon each Note, and that interest thereon shall cease to accrue on and after said date, and (4) the place or places where the Notes are to be surrendered for payment of the Redemption Price, which shall include the office or agency of the Bank maintained in accordance with Section 1002. Notice of redemption of Notes shall be given by the Trustee in the name of and at the expense of the Bank. 53 SECTION 1304. DEPOSIT OF REDEMPTION PRICE. In accordance with Section 1202(b), the Bank shall remit to the Trustee an amount of money sufficient to pay the Redemption Price of all Notes on the Note Account Deposit Date prior to the Redemption Date. SECTION 1305. NOTES PAYABLE ON REDEMPTION DATE. Notice of redemption having been given as aforesaid, the Notes shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and on and after such date (unless the Bank shall default in the payment of the Redemption Price) the Notes shall cease to bear interest. Upon surrender of any such Note for redemption in accordance with said notice, such Note shall be paid by the Bank at the Redemption Price in accordance with the terms thereof and of the Indenture. If any Note called for redemption shall not be so paid upon surrender thereof for redemption and if funds for all amounts payable upon such redemption shall not be on deposit with the Trustee, the principal, and Redemption Premium, if applicable (and, to the extent that interest thereon shall be legally enforceable, the interest), shall, until paid, bear interest from the Redemption Date at the rate borne by the Note. ARTICLE FOURTEEN MEETINGS OF HOLDERS OF NOTES SECTION 1401. PURPOSES FOR WHICH MEETINGS MAY BE CALLED. A meeting of Holders of Notes may be called at any time and from time to time pursuant to this Article for any of the following purposes: (1) to give any notice to the Bank or to the Trustee, or to give any directions to the Trustee, or to waive any default hereunder and its consequences, or to take any other action authorized to be taken by Holders of Notes pursuant to Article Five; (2) to remove the Trustee and appoint a successor Trustee pursuant to Section 609; (3) to consent to the execution of an indenture supplemental hereto pursuant to Section 902; or (4) to take any other action authorized to be taken by or on behalf of the Holders of any specified aggregate principal amount of the Notes under any other provision of this Indenture or an indenture supplemental hereto or under applicable law. 54 SECTION 1402. PLACE OF MEETINGS. Meetings of Holders of Notes may be held at such place in New York, New York, or in such other place in the United States, as the Trustee, or, in the case of its failure to act, the Bank or the Holders of Notes calling the meeting, shall from time to time determine. SECTION 1403. CALL AND NOTICE OF MEETINGS. (a) The Trustee may at any time call a meeting of Holders to be held at such time and at such place in the location designated in Section 1402 as the Trustee shall determine. Notice of every meeting of Holders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given in the manner provided in Section 106 not less than 10 nor more than 120 days prior to the date set for such meeting to each Holder affected by the business to be submitted to such meeting. The Trustee may fix, in advance, a date as the record date for determining the Holders entitled to notice of or to vote at any such meeting not less than 25 nor more than 135 days prior to the date fixed for such meeting. (b) In case at any time the Bank or the Holders of at least 10% in aggregate principal amount of outstanding Notes affected by the business to be submitted to the meeting, shall, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, have requested the Trustee to call a meeting of Holders to take any action authorized to be taken under Section 1401 and the Trustee shall not have given notice of such meeting within 20 days after receipt of such request, then the Bank or the Holders of Notes in the amount above specified may determine the time and the place for such meeting pursuant to Section 1402, the record date for determining the Holders entitled to notice of or to vote at such meeting, and may call such meeting by giving notice thereof at the time and in the manner as provided in subsection (a) of this Section. SECTION 1404. PERSONS ENTITLED TO VOTE AT MEETINGS. To be entitled to vote on any particular item of business at any meeting of Holders, a Person shall be (i) a Holder of one or more Outstanding Notes affected by such item of business or (ii) a Person appointed by an instrument in writing as proxy by a Holder of one or more such Notes. The only Persons who shall be entitled to be present or to be heard at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Bank and its counsel, provided that the Persons entitled to vote at such meeting and their counsel shall be entitled to speak only as to items of business on which such Persons are entitled to vote. SECTION 1405. CONDUCT OF MEETINGS; ADJOURNMENT. (a) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders in regard to proof of the holding of Notes and of the appointment of proxies (subject to the provisions of Section 104), the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. 55 (b) The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Bank or by Holders as provided in Section 1403, in which case the Bank or the Holders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Holders of a majority in principal amount of the Notes represented at the meeting and entitled to vote. (c) Subject to the provisions of Section 1404, at any meeting each Holder or proxy shall be entitled to one vote for each $1,000 principal amount of Notes held or represented by him; PROVIDED, HOWEVER, that no vote shall be cast or counted at any meeting in respect of any Note challenged as not Outstanding and ruled, by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder or proxy. Any meeting of Holders duly called pursuant to the provisions of Section 1403 at which a quorum is present may be adjourned from time to time, by the Holders of a majority in principal amount of the Notes represented at the meeting and entitled to vote, and the meeting may be held as so adjourned without further notice. (d) At any meeting of Holders, the presence of Persons holding or representing Notes in an aggregate principal amount sufficient to take action upon the business for the transaction of which such meeting was called shall constitute a quorum, but, if less than a quorum be present, the Persons holding or representing a majority in aggregate principal amount of the Notes represented at the meeting may adjourn such meeting with the same effect, for all interests and purposes, as though a quorum had been present, and the meeting may be held as so adjourned without further notice. (e) Any resolution passed, or action or decision taken, at any meeting of Holders duly held in accordance with this Section shall be binding on all Holders, whether or not present or represented at the meeting. SECTION 1406. MANNER OF VOTING. The vote upon any resolution submitted to any meeting of Holders shall be by written ballots on which shall be subscribed the signatures of the Holders or proxies and the serial numbers of the Notes held or represented by them. The permanent chairman of the meeting shall appoint an inspector of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting a verified written report in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Holders shall be prepared by the permanent secretary of the meeting and there shall be attached to said record the original report of the inspector of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 1403. The record shall be signed and verified by the affidavits of the permanent chairman and permanent secretary of the meeting and one of the duplicates shall be delivered to the Bank and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto or be accompanied by the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. 56 SECTION 1407. CALL OF MEETINGS NOT TO HINDER TRUSTEE OR HOLDERS. Nothing in this Article contained shall be deemed or construed to authorize or permit, by reason of any call of a Holders' meeting or the exercise of any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any rights conferred upon or reserved to the Trustee or to the Holders under the provisions of this Indenture or any indenture supplemental hereto or of the Notes. ARTICLE FIFTEEN APPOINTMENT OF TRUSTEE AS CALCULATION AGENT SECTION 1501. APPOINTMENT OF TRUSTEE AS CALCULATION AGENT; DUTIES. The Bank hereby appoints the Trustee as the initial Calculation Agent in respect of, and for the purposes set forth in, Notes that bear interest at a floating rate. The Trustee agrees to accept its obligations as Calculation Agent as set forth herein. 57 SECTION 1502. CALCULATION OF BASE RATES. The Trustee shall determine the Base Rates and communicate the same to the Bank in the manner provided in the Notes and upon the terms and conditions contained herein. The Trustee shall notify by telephone or electronic transmission the applicable Agents (at the Agents' notice addresses set forth in the Distribution Agreement) of such Base Rate calculation on the applicable Calculation Date (defined herein below). SECTION 1503. STATUS OF CALCULATION AGENT. Any acts of the Trustee in its capacity as Calculation Agent or in connection with the Notes shall be solely as agent of the Bank and shall not create or imply any obligation to, or any relationship with, the Holders of the Notes in respect of its duties as Calculation Agent. SECTION 1504. RIGHTS AND LIABILITIES OF CALCULATION AGENT. The Trustee, in its capacity as Calculation Agent, shall incur no liability for, or in respect of, any action taken or omitted to be taken, or anything suffered by it in reliance upon any Note, written instruction, notice, request, direction, certificate, affidavit, statement or other paper, document or communication reasonably believed by it to be genuine. Any order, certificate, affidavit, instruction, notice, request, direction, statement or other communication from the Bank made or given by it and sent, delivered or directed to the Trustee, in its capacity as Calculation Agent, under, pursuant to or as permitted by any provision herein contained shall be sufficient if such communication is in writing and signed by any officer of the Bank, who prior thereto has been designated in writing by the Bank as authorized to make such communications, such designation having been delivered to the Trustee. The Trustee, as Calculation Agent, may consult with counsel satisfactory to it and the advice or opinion of such counsel shall be full and complete authorization and protection with respect to any action taken, omitted to be taken, or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. SECTION 1505. DUTIES OF CALCULATION AGENT. The Trustee, as Calculation Agent, shall be obligated to perform such duties and only such duties as are specifically set forth herein and in the Notes. Any order, certificate, notice, request, direction or other communication from the Bank made or given by it shall be sufficient if signed by any officer of the Bank. SECTION 1506. TERMINATION, RESIGNATION OR REMOVAL OF CALCULATION AGENT. (a) The Trustee may at any time resign as Calculation Agent by giving no less than 30 days written notice to the Bank unless the Bank agrees in writing to a shorter time. The Bank may terminate the Trustee as Calculation Agent at any time by giving written notice to the Trustee and specifying the date when the termination of its status as Calculation Agent shall become effective; however, the Trustee, as Calculation Agent, hereby agrees that no termination by it or by the Bank shall become effective prior to the date of the appointment by the Bank of a successor Calculation Agent meeting the requirements of Section 1002 hereof and the acceptance of such appointment by such successor Calculation Agent. Upon termination by either party under this Section, the Trustee shall be entitled to the payment of any amount owed to it by the 58 Bank for its services as Calculation Agent and to the reimbursement of all reasonable expenses incurred in connection with the services rendered by it hereunder, and the provisions of Section 1507 shall remain in effect. (b) Any successor Calculation Agent appointed shall execute and deliver to the Trustee and to the Bank an instrument accepting such appointment, and thereupon such successor Calculation Agent shall, without any further act, deed or conveyance, become vested with all the authority, rights, powers, trusts, immunities, duties and obligations of Calculation Agent, and with like effect as if originally named as Calculation Agent hereunder and the Trustee shall thereupon be obligated to transfer and deliver, and such subsequent Calculation Agent shall be entitled to receive, copies of any relevant records maintained by the Trustee. SECTION 1507. INDEMNIFICATION. The Bank agrees to indemnify and hold harmless the Trustee, its officers and employees, in each case in respect of the Trustee's role as Calculation Agent, from and against all actions, claims, damages, liabilities, losses and expenses (including legal fees and expenses) relating to or arising out of actions or inactions in its capacity as Calculation Agent, except actions, claims, damages, liabilities, losses and expenses caused by the negligence or willful misconduct of the Trustee, its officers or employees, in each case in respect of the Trustee's role as Calculation Agent. * * * * * This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 59 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. BANKUNITED, FSB By ----------------------------------- [SEAL] Attest --------------------------- THE BANK OF NEW YORK By ----------------------------------- Consented and Agreed to: FEDERAL HOME LOAN BANK OF ATLANTA By ------------------------------- Authorized Signatory By ------------------------------- Authorized Signatory 60 STATE OF FLORIDA ) ) ss.: COUNTY OF MIAMI-DADE ) On this __ day of __________________, before me, a notary public in and for said State, personally appeared __________________________, known to me to be the __________________________ of BANKUNITED, FSB, one of the entities that executed the within instrument, and also known to me to be the persons who executed it on behalf of said entity, and acknowledged to me that such entity executed the within instrument pursuant to its By-Laws or a resolution of its Board of Directors. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. ----------------------------------- NOTARY PUBLIC 61 STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this __ day of ______________, before me, a notary public in and for said State, personally appeared __________________________________, known to me to be the __________________________________ of THE BANK OF NEW YORK, one of the entities that executed the within instrument, and also known to me to be the person who executed it on behalf of said entity, and acknowledged to me that such entity executed the within instrument pursuant to its By-Laws or a resolution of its Board of Directors. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. ----------------------------------- NOTARY PUBLIC 62 STATE OF GEORGIA ) ) ss.: COUNTY OF FULTON ) On this __ day of __________________, before me, a notary public in and for said State, personally appeared ____________________________ and ____________________________, known to me to be the ___________________________ and ___________________________ of the FEDERAL HOME LOAN BANK OF ATLANTA, one of the entities that executed the within instrument, and also known to me to be the person who executed it on behalf of said entity, and acknowledged to me that such entity executed the within instrument pursuant to its By-Laws or a resolution of its Board of Directors. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. ----------------------------------- NOTARY PUBLIC 63 EXHIBIT A LETTER OF CREDIT 64 EX-4.92 5 EXHIBIT 4.92 THIS NOTE IS NOT A SAVINGS ACCOUNT OR DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"). UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE "DEPOSITARY") TO THE BANK OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED UPON REGISTRATION OF TRANSFER OF, OR IN EXCHANGE FOR, OR IN LIEU OF, THIS NOTE IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. THIS NOTE IS ISSUABLE ONLY IN FULLY REGISTERED FORM IN MINIMUM DENOMINATIONS OF $250,000 AND INTEGRAL MULTIPLES OF $1,000 IN EXCESS THEREOF. No. FXR-________ REGISTERED CUSIP NO.: _______ GLOBAL SENIOR NOTE (Fixed Rate) ORIGINAL ISSUE DATE: MATURITY DATE: INTEREST RATE: ___% ORIGINAL ISSUE DISCOUNT: Total Amount of OID: [ ] Yes Yield to Maturity: [ ] No Initial Accrual Period: REDEMPTION PREMIUM OTHER PROVISIONS: [ ] No [ ] Yes Quotation Agent: Adjusted Treasury Rate Spread:
IF REDEEMED PRIOR TO SCHEDULED MAXIMUM REDEMPTION PRICE NOVEMBER 15, (AS A PERCENTAGE OF NOTE PRINCIPAL AMOUNT) -------------------- ------------------------------------------ Scheduled Maximum ---------% Redemption Price: ---------% ---------% ---------% ---------% ---------% ---------% ---------% ---------% ---------%
2 BankUnited, FSB (the "Bank"), a federal savings bank, for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of _____________________________________________________________ United States Dollars on the Maturity Date shown above, and to pay interest thereon at the rate per annum shown above until the principal hereof is paid or duly made available for payment. The Bank will pay interest semi-annually on each ________ _______and ______________________ (herein called an "Interest Payment Date"), commencing with the first Interest Payment Date following the Original Issue Date shown above, and on the Maturity Date shown above; provided, however, that if the Original Issue Date shown above is between a Regular Record Date (as defined herein) and an Interest Payment Date, interest payments will commence on the Interest Payment Date following the next succeeding Regular Record Date. Interest on this Note will accrue from the most recent Interest Payment Date to which interest has been paid or fully provided for or, if no interest has been paid on this Note, from the Original Issue Date shown above until the principal hereof has been paid or duly provided for or made available for payment in accordance with the terms of the Indenture. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, subject to certain exceptions provided in the Indenture be paid only to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such Interest Payment Date. The "Regular Record Date" shall be the date which is 15 calendar days prior to the related Interest Payment Date, whether or not such date shall be a Business Day; provided, however, that interest payable on the Maturity Date shown above or upon redemption will be payable to the Person to whom the principal hereof shall be payable. Any such interest which is payable, but is not punctually paid or duly provided for on any Interest Payment Date, shall forthwith cease to be payable to the registered Holder on such Regular Record Date, and shall be paid to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on a Special Record Date for the payment of such overdue interest to be fixed by the Trustee, notice of which shall be given to the Holder of this Note not less than ten days prior to such Special Record Date, or may be paid at any time in any other lawful manner, all as more fully provided in the Indenture. Payments of principal, the Redemption Premium, if any, and interest on this Note shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts. Payments of interest on this Note (other than on the Maturity Date or upon earlier redemption or repayment) will be made by wire transfer to such account as has been appropriately designated to the Paying Agent (as defined herein) by the person entitled to such payments. If any Interest Payment Date, Maturity Date or date of earlier redemption falls on a day that is not a Business Day, the required payment of principal, Redemption Premium, if any, and/or interest shall be made on the next succeeding Business Day with the same force and effect as if made on the date such payment was due, and no interest shall accrue with respect to such payment for the period from and after such Interest Payment Date, the Maturity Date or date of earlier redemption, as the case may be, to the date of such payment on the next succeeding Business Day. 3 As used herein, "Business Day" means any day which is not a Saturday or a Sunday and that in The City of New York and Atlanta, Georgia is not a day on which banking institutions are authorized or required by law. The principal amount hereof, Redemption Premium, if any, and interest due at maturity or redemption will be paid upon maturity or redemption in immediately available funds against presentation of this Note at the Corporate Trust Office of the Trustee, as paying agent (the "Paying Agent") in New York, New York (as of the date of this Note, such office being located at 101 Barclay Street, New York, New York 10286), or at such other office or agency of the Trustee as the Bank shall designate by written notice to the registered Holder of this Note. The Bank of New York is also the authenticating agent (the "Authenticating Agent") and the note registrar (the "Note Registrar") for the Notes (as defined on the reverse hereof). Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Note shall not be entitled to any benefits under the Indenture or be valid or obligatory for any purpose. 4 IN WITNESS WHEREOF, the Bank has caused this Note to be duly executed. BANKUNITED, FSB By: --------------------------------- Authorized Signatory By: --------------------------------- Authorized Signatory [SEAL] TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Notes referred to in the within-mentioned Indenture. THE BANK OF NEW YORK as Trustee By: ------------------------------------- Authorized Signatory Dated: 5 [Reverse] This Note is one of a duly authorized issue of Senior Notes (herein called the "Notes") of the Bank, issued and to be issued under an Indenture dated as of November 4, 1998 (herein called the "Indenture"), between the Bank and the Bank of New York, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture) to which the Federal Home Loan Bank of Atlanta (herein called the "FHLB of Atlanta"), has joined as a consenting party, to which Indenture and all Indentures supplemental thereto reference is hereby made for a statement of the respective rights, duties and obligations thereunder of the Bank, the Trustee and the Holders of the Notes and the terms upon which the Notes are, and are to be, authenticated and delivered. The Notes may bear different dates, mature at different times and bear interest at different fixed or floating rates and differ in such other respects as may be provided pursuant to the terms of the Indenture. Payment of the principal of, Redemption Premium, if any, and interest on, this Note is supported by an irrevocable standby letter of credit (herein called the "Letter of Credit") issued to the Trustee by the FHLB of Atlanta pursuant to a certain Letter of Credit Reimbursement Agreement (herein called the "Reimbursement Agreement") between the Bank and the FHLB of Atlanta. Copies of the Indenture, the Letter of Credit, the Reimbursement Agreement and other related credit documents are on file with the Trustee at its Corporate Trust Office and are available for inspection at such office. Reference is made to those documents for the terms upon which the Letter of Credit has been issued, the liability of the FHLB of Atlanta under the Letter of Credit with respect to payment of this Note and the procedure governing demands for payment under the Letter of Credit by the Trustee. This Note is subject to mandatory redemption in whole, but not in part, at any time, at the Redemption Price (as defined below) in the event that a demand under the Letter of Credit has been made for a payment of principal of or interest on this Note or any Note issued pursuant to the Indenture and the Trustee fails to receive notice from the FHLB of Atlanta within five Business Days thereafter (I.E., within five Business Days after submission to the FHLB of Atlanta by the Trustee of a drawing certificate under the Letter of Credit) that the Credit Amount of the Letter of Credit has been reinstated or (ii) upon the occurrence of certain Events of Default, or upon the declaration of acceleration of the principal, and Redemption Premium, if any, of all the Notes following the occurrence of certain other Events of Default, all in accordance with the provisions of the Indenture. In the event this Note shall be called for redemption, notice thereof shall be given by the Trustee by mailing a copy of the redemption notice to the Holder hereof at the address shown in the Note Register and, if a Quotation Agent is named on the face hereof, to the Quotation Agent in accordance with the provisions of the Indenture. If notice of redemption shall have been duly given, and funds for the payment of Interest to the Redemption Date shall be on deposit with the Trustee on such Redemption Date, this Note shall cease to bear interest on the Redemption Date. The "Redemption Price" means the sum of (i) the principal amount hereof, (ii) if specified on the face hereof, the Redemption Premium, if any, plus (iii) accrued interest to the 6 Redemption Date; provided, however, that if a Redemption Premium is payable in respect of this Note, the Redemption Price shall not exceed the applicable Scheduled Maximum Redemption Price set forth on the face hereof plus accrued interest to the Redemption Date. There shall be no Redemption Premium payable in respect of this Note unless so specified on the face hereof. "Redemption Premium" means the amount equal to the present value, as determined by the Quotation Agent, of the scheduled payments of interest hereon from the Redemption Date to but excluding the Maturity Date shown on the face hereof, discounted to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate. "Adjusted Treasury Rate" means the sum of (i) the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date, plus (ii) the Adjusted Treasury Rate Spread, if and as specified on the face hereof. "Comparable Treasury Issue" means the United States Treasury security selected by the Quotation Agent as having comparable scheduled payments of interest to this Note from the Redemption Date to the Maturity Date that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of this Note. "Quotation Agent" means the Quotation Agent specified on the face hereof, and its successors. "Reference Treasury Dealers" means: (i) Credit Suisse First Boston Corporation, PaineWebber Incorporated and Prudential Securities Incorporated and their respective successors; PROVIDED, HOWEVER, that if any of the foregoing shall cease to be a Primary Treasury Dealer, the Quotation Agent shall substitute therefor another Primary Treasury Dealer, and (ii) two other Primary Treasury Dealers selected by the Quotation Agent. "Comparable Treasury Price" means, with respect to the Redemption Date for a Fixed Rate Note, the average of the Reference Treasury Dealer Quotations for the Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or if the Quotation Agent obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such Quotations. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and the Redemption Date, the average, as determined by the Quotation Agent, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Quotation Agent by such Reference Treasury Dealers at 5:00 p.m., New York City time, on the fourth Business Day preceding the Redemption Date. "Primary Treasury Dealer" means a primary U.S. Government securities dealer in The City of New York. 7 Except as provided in the preceding paragraph, this Note is not redeemable prior to the Maturity Date shown on the face hereof or otherwise subject to prepayment; provided, however, that if an Event of Default, as defined in the Indenture, shall occur, the principal of all the Notes and the Redemption Premium thereon may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Bank and the rights of the Holders of the Notes at any time by the Bank and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the Notes at the time Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Notes at the time Outstanding on behalf of the Holders of all Notes to waive compliance by the Bank with certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent or waiver is made upon this Note. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Bank, which is absolute and unconditional, to pay the principal of, Redemption Premium, if any, and interest on this Note at the time, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note may be registered on the Note Register of the Bank, upon surrender of this Note for registration of transfer at the office or agency of the Note Registrar in the Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Bank and the Note Registrar, duly executed by, the Holder hereof or by his attorney duly authorized in writing, and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, having the identical Original Issue Date, Maturity Date and provisions with respect to payment of interest, will be issued to the designated transferee or transferees. Prior to due presentment of this Note for registration of transfer, the Bank and the Trustee, and any agent of the Bank and the Trustee, may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Bank or the Trustee, nor any such agent, shall be affected by notice to the contrary. The Notes are issuable only in fully registered form in minimum denominations of $250,000 and integral multiples of $1,000 in excess thereof. Beneficial interests represented by this Note are exchangeable for definitive Notes in registered form, of like tenor and of an equal aggregate principal amount, only if (x) The Depository Trust Company, as Depositary (the "Depositary") notifies the Bank that it is unwilling or unable to continue as Depositary for this Note or if at any time the Depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, and a successor depositary is not appointed by the Bank within 90 days, (y) there shall 8 have occurred and be continuing an Event of Default with respect to this Note, or (z) the Bank in its sole discretion determines that this Note will be so exchangeable. Any Note representing such beneficial interests that is exchangeable pursuant to the preceding sentence shall be exchangeable in whole for definitive Notes in registered form, of like tenor and of an equal aggregate principal amount, in minimum denominations of $250,000 and integral multiples of $1,000 in excess thereof. Such definitive Notes shall be registered in the name or names of such person or persons as the Depositary shall instruct the Trustee. No service charge shall be made for any such registration of transfer or exchange, but the Bank may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. This Note shall be governed by and construed and enforced in accordance with the laws of the State of New York, without regard to conflicts of laws principles. 9 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of the within Note, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- _______________ Custodian _____________ (Cust) (Minor) under Uniform Gifts to Minors Act --------------------------------------- (State) Additional abbreviations may also be used though not in the above list. 10 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s),_________________ assign(s) and transfer(s) unto__________________________________________________ ________________________________________________________________________________ PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ------------------------------------ /------------------------------/ ________________________________________________________________________________ ________________________________________________________________________________ (Please print or typewrite name and address, including postal zip code, of assignee) the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ to transfer said Note on the books of the Trustee with full power of substitution in the premises. Dated:_________________________ ______________________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within Note in every particular, without alteration or enlargement or any change whatsoever. _______________________________________ Signature Guarantee 11 EX-4.93 6 EXHIBIT 4.93 THIS NOTE IS A SAVINGS ACCOUNT OR DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"). UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE "DEPOSITARY") TO BANKUNITED, FSB OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED UPON REGISTRATION OF TRANSFER OF, OR IN EXCHANGE FOR, OR IN LIEU OF, THIS NOTE IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. THIS NOTE IS ISSUABLE ONLY IN FULLY REGISTERED FORM IN MINIMUM DENOMINATIONS OF $250,000 AND INTEGRAL MULTIPLES OF $1,000 IN EXCESS THEREOF. No. FLR-_____ REGISTERED CUSIP NO.: _____ GLOBAL SENIOR NOTE (Floating Rate) ORIGINAL ISSUE DATE: MATURITY DATE: INITIAL INTEREST RATE: _____% INDEX MATURITY: INTEREST RATE MINIMUM INTEREST RATE: IF LIBOR: [ ] Libor Telerate MAXIMUM INTEREST RATE: Page: [ ] Libor Reuters INTEREST PAYMENT PERIOD: Page: Designated LIBOR Currency: INTEREST RATE RESET PERIOD: IF CMT: CALCULATION AGENT (if other than the [ ] Telerate Page 7055 Trustee): [ ] Telerate Page 7052 [ ] Weekly Average [ ] Monthly Average Designated CMT Maturity Index: SPREAD (PLUS OR MINUS) ORIGINAL ISSUE DISCOUNT AND/OR SPREAD MULTIPLIER: [ ] Yes [ ] No Total Amount of OID: INTEREST PAYMENT DATES: Yield to Maturity: Initial Accrual Period: INITIAL INTEREST RESET DATE: INTEREST RESET DATES: 2 BankUnited, FSB (the "Bank"), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of _____________________ United States Dollars on the Maturity Date shown above, and to pay interest thereon, at a rate per annum equal to the Initial Interest Rate shown above until the first Interest Reset Date shown above following the Original Issue Date shown above and thereafter at a rate determined in accordance with the provisions on the reverse hereof under the heading or headings "Determination of CMT Rate," "Determination of Commercial Paper Rate," "Determination of Eleventh District Cost of Funds Rate," "Determination of Federal Funds Rate," "Determination of LIBOR," "Determination of Prime Rate," or "Determination of Treasury Rate," depending upon the Interest Rate Basis shown on the face hereof, until the principal hereof is paid or duly made available for payment. The Bank will pay interest monthly, quarterly, semi-annually or annually as shown above under "Interest Payment Period," on each Interest Payment Date shown above, commencing with the first Interest Payment Date shown above next succeeding the Original Issue Date shown above, and on the Maturity Date shown above; provided, however, that if the Original Issue Date is between a Regular Record Date (as hereinafter defined) and an Interest Payment Date, interest payments will commence on the Interest Payment Date following the next succeeding Regular Record Date, and provided further, that if an Interest Payment Date would fall on a day that is not a Business Day (as defined on the reverse hereof), such Interest Payment Date shall be the following day that is a Business Day, except that in the case the Interest Rate Basis is LIBOR, as indicated above, if such next Business Day falls in the next calendar month, such Interest Payment Date shall be the next preceding day that is a Business Day. Except as provided above and in the Indenture, interest payments will be made on the Interest Payment Dates shown above. The "Regular Record Date" shall be the date 15 calendar days prior to such Interest Payment Date, whether or not such date shall be a Business Day. Interest on this Note will accrue from the most recent Interest Payment Date to which interest has been paid or duly provided for. The interest payment on the Maturity Date will include interest accrued to and excluding such Maturity Date, or, if no interest has been paid on this Note, from the Original Issue Date, until the principal hereof has been paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions provided in the Indenture, be paid only to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such Interest Payment Date; provided, however, that interest payable on the Maturity Date shown above or upon redemption will be payable to the Person to whom the principal hereof shall be payable. Any such interest which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date shall forthwith cease to be payable to the registered Holder hereof on such Regular Record Date, and shall be paid to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on a Special Record Date for the payment of such overdue interest to be fixed by the Trustee, notice of which shall be given to the Holder hereof not less than ten days prior to such Special Record Date, or may be paid at any time in any other lawful manner, all as more fully provided in the Indenture. Payments of principal and interest on this Note shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts. Payments of interest on this Note (other than on the Maturity Date or upon earlier redemption or repayment) will be made by wire transfer to such account as has been 3 appropriately designated to the Paying Agent (as defined herein) by the person entitled to such payments. The principal amount hereof and interest due at maturity or redemption will be paid upon maturity or redemption in immediately available funds against presentation of this Note at the Corporate Trust Office of the Trustee, as paying agent (the "Paying Agent") in New York, New York (as of the date of this Note, such office being located at 101 Barclay Street, New York, New York 10286), or at such other office or agency of the Paying Agent as the Bank shall designate by written notice to the registered Holder of this Note. The Trustee is also the authenticating agent (the "Authenticating Agent") and the note registrar (the "Note Registrar") for the Notes (as defined on the reverse hereof). Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 4 IN WITNESS WHEREOF, the Bank has caused this Note to be duly executed. BANKUNITED, FSB By: ------------------------------------ Authorized Signatory By: ------------------------------------ Authorized Signatory [SEAL] TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Notes referred to in the within-mentioned Indenture. THE BANK OF NEW YORK as Trustee By: -------------------------- Authorized Signatory Dated: 5 [Reverse] This Note is one of a duly authorized issue of Senior Notes (herein called the "Notes") of the Bank issued and to be issued under an Indenture, dated as of November 4, 1998 (herein called the "Indenture"), between the Bank and The Bank of New York, as trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), to which the Federal Home Loan Bank of Atlanta (herein called the "FHLB of Atlanta") has joined as a consenting party, to which Indenture and all Indentures supplemental thereto reference is hereby made for a statement of the respective rights, duties and obligations thereunder of the Bank, the Trustee and the Holders of the Notes, and the terms upon which the Notes are, and are to be, authenticated and delivered. The Notes may bear different dates, mature at different times, bear interest at different fixed or floating rates, and differ in such other respects as provided herein or as may be provided pursuant to the terms of the Indenture. Payment of the principal of and interest on this Note is supported by an irrevocable standby letter of credit (herein called the "Letter of Credit") issued to the Trustee by the FHLB of Atlanta pursuant to a certain Letter of Credit Reimbursement Agreement (herein called the "Reimbursement Agreement") between the Bank and the FHLB of Atlanta. Copies of the Indenture, the Letter of Credit, the Reimbursement Agreement and other related credit documents are on file with the Trustee at its Corporate Trust Office and are available for inspection at such office. Reference is made to those documents for the terms upon which the Letter of Credit has been issued, the liability of the FHLB of Atlanta under the Letter of Credit with respect to payment of this Note and the procedures governing demands for payment under the Letter of Credit by the Trustee. Commencing with the first Interest Reset Date shown on the face hereof following the Original Issue Date shown on the face hereof, the rate at which interest on this Note is payable (herein, called the "Interest Rate") shall be adjusted weekly, monthly, quarterly, semi-annually or annually as shown on the face hereof under "Interest Rate Reset Period." Each such adjusted rate shall be applicable on and after the Interest Reset Date to which it relates to but not including the next succeeding Interest Reset Date or until maturity or redemption, as the case may be. If any Interest Reset Date would be a day that is not a Business Day, such Interest Reset Date shall be postponed to the next succeeding day that is a Business Day, except that in the case of a LIBOR Note, if such Business Day is in the next succeeding calendar month, such Interest Reset Date shall be the next preceding Business Day. "Business Day" means any day which is not a Saturday or a Sunday and that in The City of New York and Atlanta, Georgia is not a day on which banking institutions are authorized or required by law, regulation or executive order to close and, with respect to which LIBOR is an applicable interest rate formula, is also a London Business Day. "London Business Day" means any day on which dealings in deposits in US Dollars are transacted in the London interbank market. The interest rate applicable to each Interest Rate Reset Period commencing on an Interest Reset Date will be the rate determined on the "Interest Determination Date." The Interest 6 Determination Date with respect to the CMT Rate, the Commercial Paper Rate, the Federal Funds Rate and the Prime Rate will be the second Business Day preceding each Interest Reset Date; the Interest Determination Date with respect to the Eleventh District Cost of Funds Rate will be the last working day of the month immediately preceding each Interest Reset Date on which the Federal Home Loan Bank of San Francisco publishes the Index (as herein defined); and the Interest Determination Date with respect to LIBOR will be the second London Business Day immediately preceding each Interest Reset Date. With respect to the Treasury Rate, the Interest Determination Date will be the day in the week in which the related Interest Reset Date falls on which day Treasury Bills (as defined below) are normally auctioned (Treasury Bills are normally sold at auction on Monday of each week, unless the day is a legal holiday, in which case the auction is normally held on the following Tuesday, except that such auction may be held on the preceding Friday); provided, however, that if an auction is held on the Friday of the week preceding the related Interest Reset Date, the related Interest Determination Date will be such preceding Friday; and provided further that if an auction falls on any Interest Reset Date, then the related Interest Reset Date will instead be the first Business Day following such auction. The "Calculation Date", if applicable, pertaining to any Interest Determination Date shall be the earlier of (i) the tenth calendar day after such Interest Determination Date or, if such day is not a Business Day, the next succeeding Business Day or (ii) the Business Day immediately preceding the applicable Interest Payment Date, Maturity Date or date of earlier redemption, as the case may be. All percentages resulting from any calculation on this Note will be rounded to the nearest one hundred-thousandth of a percent, with five one-millionths of a percent rounded upward, e.g. 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655), and all dollar amounts used in or resulting from such calculation on this Note will be rounded to the nearest cent (with one-half cent being rounded upward). Subject to applicable provisions of law and except as specified herein, on each Interest Reset Date, the Interest Rate on this Note shall be the rate determined in accordance with the provisions of the applicable heading or headings below. DETERMINATION OF CMT RATE. If an Interest Rate Basis for this Note is the CMT Rate, as indicated on the face hereof, the CMT Rate shall be determined as of the applicable Interest Determination Date ("the CMT Rate Interest Determination Date"), as the rate displayed on the Designated CMT Telerate Page under the caption "...Treasury Constant Maturities...Federal Reserve Board Release H.15...Mondays Approximately 3:45 P.M.," under the column for the Designated CMT Maturity Index for (i) if the Designated CMT Telerate Page is 7055, the rate on such CMT Rate Interest Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the weekly or monthly average, as specified on the face hereof, for the week or the month, as applicable, ended immediately preceding the week or the month, as applicable, in which the related CMT Rate Interest Determination Date falls. If such rate is no longer displayed on the relevant page or is not so displayed by 3:00 P.M., New York City time, on the related Calculation Date, then the CMT Rate for such CMT Rate Interest 7 Determination Date will be such treasury constant maturity rate for the Designated CMT Maturity Index as published in H.15(519). If such rate is no longer published or is not so published by 3:00 P.M., New York City time, on the related Calculation Date, then the CMT Rate on such CMT Rate Interest Determination Date will be such treasury constant maturity rate for the Designated CMT Maturity Index (or other United States Treasury rate for the Designated CMT Maturity Index) for the CMT Rate Interest Determination Date with respect to such Interest Reset Date as may then be published by either the Board of Governors of the Federal Reserve System or the United States Department of the Treasury that the Calculation Agent determines to be comparable to the rate formerly displayed on the Designated CMT Telerate Page and published in H.15(519). If such information is not so provided by 3:00 P.M., New York City time, on the related Calculation Date, then the CMT Rate on the CMT Rate Interest Determination Date will be calculated by the Calculation Agent and will be a yield to maturity, based on the arithmetic mean of the secondary market offered rates as of approximately 3:30 P.M., New York City time, on such CMT Rate Interest Determination Date reported, according to their written records, by three leading primary United States government securities dealers in The City of New York (which may include Credit Suisse First Boston Corporation, PaineWebber Incorporated and Prudential Securities Incorporated (the "Agents") or their affiliates) (each, a "Reference Dealer") selected by the Calculation Agent (from five such Reference Dealers selected by the Calculation Agent and eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest)), for the most recently issued direct noncallable fixed rate obligations of the United States ("Treasury Notes") with an original maturity of approximately the Designated CMT Maturity Index and a remaining term to maturity of not less than such Designated CMT Maturity Index minus one year. If the Calculation Agent is unable to obtain three such Treasury Note quotations, the CMT Rate on such CMT Rate Interest Determination Date will be calculated by the Calculation Agent and will be a yield to maturity based on the arithmetic mean of the secondary market offered rates as of approximately 3:30 P.M., New York City time, on such CMT Rate Interest Determination Date of three Reference Dealers in The City of New York (from five such Reference Dealers selected by the Calculation Agent and eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest)), for Treasury Notes with an original maturity of the number of years that is the next highest to the Designated CMT Maturity Index and a remaining term to maturity closest to the Designated CMT Maturity Index and in an amount of at least $100 million. If three or four (and not five) of such Reference Dealers are quoting as described above, then the CMT Rate will be based on the arithmetic mean of the offered rates obtained and neither the highest nor the lowest of such quotes will be eliminated; provided, however, that if fewer than three Reference Dealers so selected by the Calculation Agent are quoting as mentioned herein, the CMT Rate determined as of such CMT Rate Interest Determination Date will be the CMT Rate in effect on such CMT Rate Interest Determination Date. If two Treasury Notes with an original maturity as described in the second preceding sentence have remaining terms to maturity equally close to the Designated CMT Maturity Index, the Calculation Agent will obtain quotations for the Treasury Note with the shorter remaining term to maturity. "Designated CMT Telerate Page" means the display on Bridge Telerate, Inc. (or any successor service) on the page specified on the face hereof (or any other page as may replace such page on such service) for the purpose of displaying Treasury Constant Maturities as reported in H.15(519) or, if no such page is specified on the face hereof, page 7052. "Designated CMT Maturity Index" means the original period to maturity of the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified on the face hereof with 8 respect to which the CMT Rate will be calculated or, if no such maturity is specified on the face hereof, 2 years. "H.15(519)" means the weekly statistical release designated as such, or any successor publication, published by the Board of Governors of the Federal Reserve System. DETERMINATION OF COMMERCIAL PAPER RATE. If an Interest Rate Basis for this Note is the Commercial Paper Rate, as indicated on the face hereof, the Commercial Paper Rate shall be determined as of the applicable Interest Determination Date (a "Commercial Paper Rate Interest Determination Date"), as the Money Market Yield (as hereinafter defined) on such date of the rate for commercial paper having the Index Maturity specified on the face hereof as published in H.15(519) under the caption "Commercial Paper-Nonfinancial" or, if not so published by 3:00 P.M., New York City time, on the related Calculation Date, the rate on such Commercial Paper Rate Interest Determination Date for commercial paper having the Index Maturity specified on the face hereof as published in H.15 Daily Update, or such other recognized electronic source used for the purpose of displaying such rate, under the caption "Commercial Paper-Nonfinancial." If such rate is not yet published in H.15(519), H.15 Daily Update or another recognized electronic source by 3:00 P.M., New York City time, on the related Calculation Date, then the Commercial Paper Rate on such Commercial Paper Rate Interest Determination Date will be calculated by the Calculation Agent and will be the Money Market Yield of the arithmetic mean of the offered rates at approximately 11:00 A.M., New York City time, on such Commercial Paper Rate Interest Determination Date of three leading dealers of commercial paper in The City of New York (which may include the Agents or their affiliates) selected by the Calculation Agent for commercial paper having the Index Maturity specified on the face hereof placed for industrial issuers whose bond rating is "Aa", or the equivalent, from a nationally recognized statistical rating organization; provided, however, that if the dealers so selected by the Calculation Agent are not quoting as mentioned in this sentence, the Commercial Paper Rate determined as of such Commercial Paper Rate Interest Determination Date will be the Commercial Paper Rate in effect on such Commercial Paper Rate Interest Determination Date. "Money Market Yield" means a yield (expressed as a percentage) calculated in accordance with the following formula: Money Market Yield = D X 360 --------------- X 100 360 - (D X M) where "D" refers to the applicable per annum rate for commercial paper quoted on a bank discount basis and expressed as a decimal, and "M" refers to the actual number of days in the applicable Interest Reset Period. "H.15 Daily Update" means the daily update of H.15(519), available through the world-wide-web site of the Board of Governors of the Federal Reserve System at HTTP://WWW.BOG.FRB.FED.US/RELEASES/H15/UPDATE, or any successor site or publication. DETERMINATION OF ELEVENTH DISTRICT COST OF FUNDS RATE. If an Interest Rate Basis for this Note is the Eleventh District Cost of Funds, as indicated on the face hereof, the Eleventh District Cost of Funds shall be determined as of the applicable Interest Determination Date (an 9 "Eleventh District Cost of Funds Interest Determination Date"), as the rate equal to the monthly weighted average cost of funds for the calendar month immediately preceding the month in which such Eleventh District Cost of Funds Rate Interest Determination Date falls as set forth under the caption "11th District" on the display on Bridge Telerate, Inc. (or any successor service) on page 7058 ("Telerate Page 7058") as of 11:00 A.M., San Francisco time, on such Eleventh District Cost of Funds Rate Interest Determination Date. If such rate does not appear on Telerate Page 7058 on such Eleventh District Cost of Funds Rate Interest Determination Date, then the Eleventh District Cost of Funds Rate on such Eleventh District Cost of Funds Rate Interest Determination Date shall be the monthly weighted average cost of funds paid by member institutions of the Eleventh Federal Home Loan Bank District that was most recently announced (the "Index") by the FHLB of San Francisco as such cost of funds for the calendar month immediately preceding such Eleventh District Cost of Funds Rate Interest Determination Date. If the FHLB of San Francisco fails to announce the Index on or prior to such Eleventh District Cost of Funds Rate Interest Determination Date for the calendar month immediately preceding such Eleventh District Cost of Funds Rate Interest Determination Date, the Eleventh District Cost of Funds Rate determined as of such Eleventh District Cost of Funds Rate Interest Determination Date will be the Eleventh District Cost of Funds Rate in effect on such Eleventh District Cost of Funds Rate Interest Determination Date. DETERMINATION OF FEDERAL FUNDS RATE. If an Interest Rate Basis for this Note is the Federal Funds Rate, as indicated on the face hereof, the Federal Funds Rate shall be determined as of the applicable Interest Determination Date (a "Federal Funds Rate Interest Determination Date"), as the rate on such date for United States dollar federal funds as published in H.15(519) under the heading "Federal Funds (Effective)," as such rate is displayed on Bridge Telerate, Inc. (or any successor service) on page 120 ("Telerate Page 120"), or, if such rate does not appear on Telerate Page 120 or is not so published by 3:00 P.M., New York City time, on the related Calculation Date, the rate on such Federal Funds Rate Interest Determination Date for United States dollar federal funds as published in H.15 Daily Update, or such other recognized electronic source used for the purpose of displaying such rate, under the caption "Federal Funds (Effective)." If such rate does not appear on Telerate Page 120 or is not yet published in H.15(519), H.15 Daily Update or another recognized electronic source by 3:00 P.M., New York City time, on the related Calculation Date, then the Federal Funds Rate on such Federal Funds Rate Interest Determination Date will be calculated by the Calculation Agent and will be the arithmetic mean of the rates for the last transaction in overnight United States dollar federal funds arranged prior to 9:00 A.M., New York City time, on such Federal Funds Rate Interest Determination Date by three leading brokers of federal funds transactions in The City of New York selected by the Calculation Agent; provided, however, that if any of the brokers selected as aforesaid by the Calculation Agent are not quoting as mentioned in this sentence, the Federal Funds Rate determined as of such Federal Funds Rate Interest Determination Date shall be the Federal Funds Rate in effect on such Federal Funds Rate Interest Determination Date. DETERMINATION OF LIBOR. If an Interest Rate Basis for this Note is LIBOR, as indicated on the face hereof, LIBOR shall be determined by the Calculation Agent as of the applicable Interest Determination Date (a "LIBOR Interest Determination Date") in accordance with the following provisions: 10 (i) LIBOR will be either: (a) if "LIBOR Reuters" is specified is specified on the face hereof, the arithmetic mean of the offered rates (unless the Designated LIBOR Page by its terms provides only for a single rate, in which case such single rate shall be used) for deposits in the Designated LIBOR Currency having the Index Maturity specified on the face hereof, commencing on the applicable Interest Reset Date, that appear (or, if only a single rate is required as aforesaid, appears) on the Designated LIBOR Page as of 11:00 A.M., London time, on such LIBOR Interest Determination Date, or (b) if "LIBOR Telerate" is specified on the face hereof or if neither "LIBOR Reuters" nor "LIBOR Telerate" is specified on the face hereof as the method for calculating LIBOR, the rate for deposits in the Designated LIBOR Currency having the Index Maturity specified on the face hereof, commencing on such Interest Reset Date, that appears on the Designated LIBOR Page as of 11:00 A.M., London time, on such LIBOR Interest Determination Date. If fewer than two such offered rates so appear, or if no such rate so appears, as applicable, LIBOR on such LIBOR Interest Determination Date will be determined in accordance with the provisions described in clause (ii) below. (ii) With respect to a LIBOR Interest Determination Date on which fewer than two offered rates appear, or no rate appears, as the case may be, on the Designated LIBOR Page as specified in clause (i) above, the Calculation Agent will request the principal London offices of each of four major reference banks (which may include affiliates of the Agents) in the London interbank market, as selected by the Calculation Agent, to provide the Calculation Agent with its offered quotation for deposits in the Designated LIBOR Currency for the period of the Index Maturity specified on the face hereof, commencing on the applicable Interest Reset Date, to prime banks in the London interbank market at approximately 11:00 A.M., London time, on such LIBOR Interest Determination Date and in a principal amount that is representative for a single transaction in the Designated LIBOR Currency in such market at such time. If at least two such quotations are so provided, then LIBOR on such LIBOR Interest Determination Date will be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, then LIBOR on such LIBOR Interest Determination Date will be the arithmetic mean of the rates quoted at approximately 11:00 A.M., in the applicable Principal Financial Center, on such LIBOR Interest Determination Date by three major banks (which may include affiliates of the Agents) in such Principal Financial Center selected by the Calculation Agent for loans in the Designated LIBOR Currency to leading European banks, having the Index Maturity specified on the face hereof commencing on the second London Business Day following that LIBOR Interest Determination Date and in a principal amount that is representative for a single transaction in the Designated LIBOR Currency in such market at such time; provided, however, that if the banks so selected by the Calculation Agent are not quoting as mentioned in this sentence, LIBOR determined as of such LIBOR Interest Determination Date will be LIBOR in effect on such LIBOR Interest Determination Date. "Designated LIBOR Currency" means the currency or composite currency specified on the face hereof as to which LIBOR shall be calculated or, if no such currency or composite currency is specified on the face hereof, United States dollars. 11 "Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified on the face hereof, the display on the Reuter Monitor Money Rates Service (or any successor service) on the page specified on the face hereof (or any other page as may replace such page on such service) for the purpose of displaying the London interbank rates of major banks for the Designated LIBOR Currency, or (b) if "LIBOR Telerate" is specified on the face hereof or neither "LIBOR Reuters" nor "LIBOR Telerate" is specified on the face hereof as the method for calculating LIBOR, the display on Bridge Telerate, Inc. (or any successor service) on the page specified on the face hereof (or any other page as may replace such page on such service) for the purpose of displaying the London interbank rates of major banks for the Designated LIBOR Currency. "Principal Financial Center" means the capital city of the country to which the Designated LIBOR Currency relates (or, in the case of ECU, Luxembourg), except, in each case, that with respect to United States dollars, Australian dollars, Canadian dollars, Deutsche marks, Dutch guilders and Swiss francs, the "Principal Financial Center" shall be The City of New York, Sydney, Toronto, Frankfurt, Amsterdam and Zurich, respectively. DETERMINATION OF PRIME RATE. If an Interest Rate Basis for this Note is the Prime Rate, as indicated on the face hereof, the Prime Rate shall be determined as of the applicable Interest Determination Date (a "Prime Rate Interest Determination Date"), as the rate on such date as such rate is published in H.15(519) under the caption "Bank Prime Loan" or, if not published by 3:00 P.M., New York City time, on the related Calculation Date, the rate on such Prime Rate Interest Determination Date as published in H.15 Daily Update, or such other recognized electronic source used for the purpose of displaying such rate, under the caption "Bank Prime Loan." If such rate is not yet published in H.15(519), H.15 Daily Update or another recognized electronic source by 3:00 P.M., New York City time, on the related Calculation Date, then the Prime Rate shall be the arithmetic mean of the rates of interest publicly announced by each bank that appears on the Reuters Screen USPRIME1 Page (as hereinafter defined) as such bank's prime rate or base lending rate as in effect for such Prime Rate Interest Determination Date. If fewer than four such rates appear on the Reuters Screen USPRIME1 Page for such Prime Rate Interest Determination Date, then the Prime Rate shall be the arithmetic mean of the prime rates or base lending rates quoted on the basis of the actual number of days in the year divided by a 360-day year as of the close of business on such Prime Rate Interest Determination Date by four major money center banks (which may include affiliates of the Agents) in The City of New York selected by the Calculation Agent. If fewer than four such quotations are so provided, then the Prime Rate shall be the arithmetic mean of four prime rates quoted on the basis of the actual number of days in the year divided by a 360-day year as of the close of business on such Prime Rate Interest Determination Date as furnished in The City of New York by the major money center banks, if any, that have provided such quotations and by a reasonable number of substitute banks or trust companies (which may include affiliates of the Agents) to obtain four such prime rate quotations, provided such substitute banks or trust companies are organized and doing business under the laws of the United States, or any State thereof, each having total equity capital of at least $500 million and being subject to supervision or examination by Federal or State authority, selected by the Calculation Agent to provide such rate or rates; provided, however, that if the banks or trust companies so selected by the Calculation Agent are not quoting as mentioned in this sentence, the Prime Rate determined as of such Prime Rate Interest Determination Date will be the Prime Rate in effect on such Prime Rate Interest Determination Date. 12 "Reuters Screen USPRIME1 Page" means the display on the Reuter Monitor Money Rates Service (or any successor service) on the "USPRIME1" page (or such other page as may replace the USPRIME1 page on such service) for the purpose of displaying prime rates or base lending rates of major United States banks. DETERMINATION OF TREASURY RATE. If an Interest Rate Basis for this Note is the Treasury Rate, as indicated on the face hereof, the Treasury Rate shall be determined as of the applicable Interest Determination Date (a "Treasury Rate Interest Determination Date"), as the rate from the auction held on such Treasury Rate Interest Determination Date (the "Auction") of direct obligations of the United States ("Treasury Bills") having the Index Maturity specified on the face hereof under the caption "AVGE INVEST YIELD" on the display on Bridge Telerate, Inc. (or any successor service) on page 56 ("Telerate Page 56") or page 57 ("Telerate Page 57") or, if not so published by 3:00 P.M., New York City time, on the related Calculation Date, the auction average rate of such Treasury Bills (expressed as a bond equivalent on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) as otherwise announced by the United States Department of the Treasury. In the event that the results of the Auction of Treasury Bills having the Index Maturity specified on the face hereof are not so published by 3:00 P.M., New York City time, on the related Calculation Date, or if no such Auction is held, then the Treasury Rate will be the rate (expressed as a bond equivalent on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) on such Treasury Rate Interest Determination Date of Treasury Bills having the Index Maturity specified on the face hereof as published in H.15(519) under the caption "U.S. Government Securities/Treasury Bills/Secondary Market" or, if not yet published by 3:00 P.M., New York City time, on the related Calculation Date, the rate on such Treasury Rate Interest Determination Date of such Treasury Bills as published in H.15 Daily Update, or such other recognized electronic source used for the purpose of displaying such rate, under the caption "U.S. Government Securities/Treasury Bills/Secondary Market." If such rate is not yet published in H.15(519), H.15 Daily Update or another recognized electronic source, then the Treasury Rate will be calculated by the Calculation Agent and will be a yield to maturity (expressed as a bond equivalent on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) of the arithmetic mean of the secondary market bid rates, as of approximately 3:30 P.M., New York City time, on such Treasury Rate Interest Determination Date, of three leading primary United States government securities dealers (which may include the Agents or their affiliates) selected by the Calculation Agent, for the issue of Treasury Bills with a remaining maturity closest to the Index Maturity specified on the face hereof; provided, however, that if the dealers so selected by the Calculation Agent are not quoting as mentioned in this sentence, the Treasury Rate determined as of such Treasury Rate Interest Determination Date will be the Treasury Rate in effect on such Treasury Rate Interest Determination Date. Notwithstanding the foregoing, the interest rate hereon shall not be greater than the Maximum Interest Rate specified on the face hereof or less than the Minimum Interest Rate, if any, specified on the face hereof. In addition to any Maximum Interest Rate applicable hereto pursuant to the above provisions, the interest rate on this Note will in no event be higher than the maximum rate permitted by New York law, as the same may be modified by United States law of general application. The Calculation Agent shall calculate the interest rate hereon in accordance with the foregoing on or before each Calculation Date. Unless otherwise specified on the face hereof, the Trustee will be the Calculation Agent. 13 At the request of the Holder hereof, the Calculation Agent shall provide to the Holder hereof the interest rate hereon then in effect and, if determined, the interest rate which shall become effective as of the next Interest Reset Date. Interest payments hereon made on any Interest Payment Date or at maturity or upon redemption will include interest accrued to but not including such Interest Payment Date or date of maturity or redemption, as the case may be. Accrued interest hereon from the Original Issue Date or from the last date to which interest hereon has been paid, as the case may be, shall be an amount calculated by multiplying the face amount hereof by an accrued interest factor. Such accrued interest factor shall be computed by adding the interest factor calculated for each day from the Original Issue Date or from the last date to which interest shall have been paid, as the case may be, to the date for which accrued interest is being calculated. The interest factor for each such day shall be computed by dividing the Interest Rate applicable to such day by 360 if the Interest Rate Basis is the Commercial Paper Rate, the Eleventh District Cost of Funds Rate, the Federal Funds Rate, LIBOR or the Prime Rate Notes, as indicated on the face hereof or by the actual number of days in the year if the Interest Rate Basis is the CMT Rate or the Treasury Rate as indicated on the face hereof. This Note is subject to mandatory redemption in whole, but not in part, at any time, at a Redemption Price equal to the principal amount hereof plus accrued interest to the Redemption Date (i) in the event that a demand under the Letter of Credit has been made for a payment of principal of or interest on this Note or any Note issued pursuant to the Indenture and the Trustee fails to receive notice from the FHLB of Atlanta within five Business Days thereafter (I.E., within five Business Days after submission to the FHLB of Atlanta by the Trustee of a drawing certificate under the Letter of Credit) that the Credit Amount of the Letter of Credit has been reinstated or (ii) upon the occurrence of certain Events of Default, or upon the declaration of acceleration of the principal of all the Notes following the occurrence of certain other Events of Default, all in accordance with the provisions of the Indenture. In the event this Note shall be called for redemption, notice thereof shall be given by the Trustee by mailing a copy of the redemption notice to the Holder hereof at the address shown in the Note Register. If notice of redemption shall have been duly given, and funds for the payment of interest to the Redemption Date shall be on deposit with the Trustee on such Redemption Date, this Note shall cease to bear interest on the Redemption Date. Except as provided in the preceding paragraph, this Note is not redeemable prior to the Maturity Date shown on the face hereof or otherwise subject to prepayment; provided, however, that if an Event of Default, as defined in the Indenture, shall occur, the principal of all the Notes may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of rights and obligations of the Bank and the rights of the Holders of the Notes at any time by the Bank and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the Notes at the time Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Notes at the time Outstanding, on behalf of the Holders of all Notes, to waive compliance by the Bank with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent of waiver by the 14 Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Bank, which is absolute and unconditional, to pay the principal of and interest on this Note at the time, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note may be registered on the Note Register of the Bank, upon surrender of this Note for registration of transfer at the office or agency of the Note Registrar in the Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Bank and the Note Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes of authorized denominations and for the same aggregate principal amount, having the identical Original Issue Date, Maturity Date and provisions with respect to payment of interest, will be issued to the designated transferee or transferees. Prior to due presentment of this Note for registration of transfer, the Bank and the Trustee, and any agent of the Bank and the Trustee, may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Bank or the Trustee, nor any such agent, shall be affected by notice to the contrary. The Notes are issuable only in fully registered form in minimum denominations of $250,000 and integral multiples of $1,000 in excess thereof. Beneficial interests represented by this Note are exchangeable for definitive Notes in registered form, of like tenor and of an equal aggregate principal amount, only if (x) The Depository Trust Company, as Depositary (the "Depositary") notifies the Bank that it is unwilling or unable to continue as Depositary for this Note or if at any time the Depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, and a successor depositary is not appointed by the Bank within 90 days, (y) there shall have occurred and be continuing an Event of Default with respect to this Note, or (z) the Bank in its sole discretion determines that this Note will be so exchangeable. Any Note representing such beneficial interests that is exchangeable pursuant to the preceding sentence shall be exchangeable in whole for definitive Notes in registered form, of like tenor and of an equal aggregate principal amount, in minimum denominations of $250,000 and integral multiples of $1,000 in excess thereof. Such definitive Notes shall be registered in the name or names of such person or persons as the Depositary shall instruct the Trustee. No service charge shall be made for any such registration of transfer or exchange, but the Bank may require a payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. 15 All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. This Note shall be governed by and construed and enforced in accordance with the laws of the State of New York, without regard to conflicts of laws principles. 16 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of the within Note, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM -as tenants in common TEN ENT -as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - ___________ Custodian ___________ (Cust) (Minor) under Uniform Gifts to Minors Act ______________________________ (State) Additional abbreviations may also be used though not in the above list. 17 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto__________________________________________________ ________________________________________________________________________________ PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _________________________ /____________________/ ________________________________________________________________________________ ________________________________________________________________________________ (Please print or typewrite name and address, including postal zip code, of assignee) the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ to transfer said Note on the books of the Trustee, with full power of substitution in the premises. Dated:____________________ ______________________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within Note in every particular, without alteration or enlargement or any change whatsoever. _______________________________ Signature Guarantee 18 EX-4.94 7 EXHIBIT 4.94 LETTER OF CREDIT REIMBURSEMENT AGREEMENT THIS AGREEMENT, dated as of November 4, 1998, is between BANKUNITED, FSB, having its principal office at 255 Alhambra Circle, Coral Gables, Florida 33134 (the "Member"), and FEDERAL HOME LOAN BANK OF ATLANTA, Atlanta, Georgia (the "Bank"). WHEREAS, the Member proposes to issue from time to time its promissory notes in an aggregate principal amount up to $500 million (the "Senior Notes"), pursuant to an Indenture to be dated as of November 4, 1998, a copy of which has heretofore been furnished to the Bank (the "Indenture") between the Member and The Bank of New York, as Trustee (the "Beneficiary"), to which the Bank shall join as a consenting party; and WHEREAS, the issuance of the Senior Notes will provide funds to the Member that will promote home financing or housing activity and encourage and assist the Member's asset and liability management; and WHEREAS, to provide for the payment of interest, principal and Redemption Premium (as defined in the Indenture), if any, on the Senior Notes, the Member has requested the Bank to issue its letter of credit in the form attached as Exhibit A hereto (such letter of credit, as the same may from time to time be supplemented or amended, being hereinafter referred to as the "Credit") for the benefit of the Beneficiary, whereby the Bank would agree, subject to the terms and conditions set forth therein, to honor drawings by the Beneficiary in such amount as is set forth in the outstanding Credit (such amount, as the same may from time to time be changed subject to the terms and conditions herein, being hereinafter referred to as the "Credit Amount"); and WHEREAS, in connection with the issuance of the Credit, the Member on the date hereof (the "Closing Date") delivered to the Bank (i) the written opinion of counsel to the Member dated as of the Closing Date in the form referred to in Section 5(a) of the Distribution Agreement dated as of November 4, 1998 (the "Distribution Agreement"), between the Member, Credit Suisse First Boston Corporation, PaineWebber Incorporated, and Prudential Securities Incorporated (the "Agents") and (ii) certified copies of the resolutions of the Board of Directors of the Member referred to in Section 301(c) of the Indenture; and WHEREAS, the Bank is issuing the Credit on the date hereof with an initial Credit Amount of $225,000,000.00 and an initial expiration date as of the close of business of the Bank on November 4, 2008 (such initial expiration date as the same may be extended in the manner provided herein is hereinafter referred to as the "Expiration Date"); and 1 WHEREAS, the Member and the Bank have entered into an Advances, Specific Collateral Pledge and Security Agreement dated March 30, 1998 (such agreement, including any amendments thereto and any successor agreement that may be entered into by the Member and the Bank in substitution for such agreement, is hereinafter referred to as the "Advances Agreement"), whereby the Bank may advance funds to the Member from time to time under the terms and conditions thereof; and WHEREAS, subject to the provisions of the Federal Home Loan Bank Act (the "Act"), and the regulations and guidelines of the Federal Housing Finance Board ("FHFB") or any successor entity (the "Regulations"), and the Bank's Credit Policy, the Bank is authorized to issue the Credit. NOW, THEREFORE, the Member and the Bank agree as follows: 1. The Credit. (a) CONFIRMATION. The Member agrees to be bound by the terms and conditions contained herein, and in the Confirmation of Letter of Credit, in the form attached hereto as Exhibit B (the "Confirmation"), issued with respect to the Credit. (b) APPLICATIONS. From time to time during the period this Agreement is effective, the Member may submit applications under the Credit, in the form and manner to be provided by the Bank, which applications the Bank may deny on grounds that (i) the Member fails to meet the Bank's guidelines for extension of credit; (ii) the purpose of the underlying obligation supported by the Credit is contrary to the Act, Regulation or policies applicable to advances and letters of credit established by the FHFB, any successor entity, or the Board of Directors of the Bank; (iii) the Bank determines that approval of such application would expose the Bank to an unreasonable risk; or (iv) such other reasons as the Bank may reasonably establish. (c) AMENDMENTS TO CREDIT. From time to time during the currency of the Credit, the Bank agrees that it will, subject to the terms and conditions set forth herein, supplement or amend the terms of the Credit, upon the application of the Member. The obligation of the Bank to supplement or amend the terms of the Credit, including any increase in the Credit Amount or any extension of the Expiration Date of the Credit, is subject to the fulfillment, at no cost to the Bank, of the following conditions precedent: (i) the Bank shall have received by 2:00 p.m., Atlanta time, in form and substance reasonably satisfactory to it, one business day's prior oral and written notice from the Member of the effective date; (ii) the representations and 2 warranties of the Member contained in Section 6 hereof shall be true and correct as of the effective date of such change as though made upon and as of such date; (iii) no event shall have occurred and be continuing, or would result from the change of the Credit, which would constitute an Event of Default under this Agreement or would constitute such an Event of Default but for the requirement that notice be given or time elapse or both; (iv) no change shall have occurred in any federal, state or foreign law or regulation or in the interpretation thereof which, in the opinion of counsel for the Bank, may make it impermissible for the Bank to change the Credit as contemplated hereby; and (v) the Member shall have submitted an application for the amendment to the Credit in the form to be provided by the Bank, which application the Bank may deny on the grounds set forth in Section 1(b)(i)-(iv) hereof. The Expiration Date of the Credit may be extended by an amendment to the terms of the Credit pursuant to this Section 1(c), provided that the period from the date such extension is effective through the Expiration Date shall not exceed such period as the Act, the Regulations, and the Bank's Credit Policy may allow. The Bank's approval of (A) an increase in the Credit Amount pursuant to this Section 1(c) shall be evidenced by a Certificate Increasing Credit Amount in the form attached hereto as Exhibit C, an original copy of which will be sent by the Bank to the Beneficiary by overnight mail; and (B) an extension in the Expiration Date pursuant to this Section 1(c) shall be evidenced by a Certificate Renewing Letter of Credit by Amending Expiration Date to Later Date in the form attached hereto as Exhibit D. Upon the Bank's issuance of any amendment of the Credit, the Member shall promptly sign and return to the Bank the Confirmation of Amendment to Letter of Credit, in the form attached hereto as Exhibit E (the "Amendment Confirmation"), setting forth the terms upon which the Bank and the Member have agreed with respect to the amendment to the Credit. Notwithstanding the foregoing, however, the failure of the Member to deliver to the Bank, prior to the effective date of any amendment of the Credit as specified in the related Amendment Confirmation, written notice to the Bank specifying any disputed term or condition set forth in the Amendment Confirmation shall constitute the agreement and acknowledgment by the Member that the terms and conditions of the Credit as amended are valid and are those which the Member requested and by which the Member agreed to be bound, and the Member shall be estopped from asserting any claim or defense with respect to the repayment of any draw under the Credit as amended or otherwise with respect to those terms and conditions. (d) REDUCTION OF CREDIT AMOUNT. From time to time and at any time 3 during the currency of the Credit, the Member may request the Bank to reduce the undrawn Credit Amount by such amount as specified in a Certificate Regarding Reduction of Credit, in the form attached as Exhibit F hereto (the "Reduction Certificate"), presented to the Bank by the Beneficiary under the Credit, provided, however, that the Bank is entitled to rely upon the Reduction Certificate as presented. The Credit Amount shall be reduced automatically in accordance with the related Reduction Certificate upon receipt of the same by the Bank. 2. PAYMENTS UNDER THE CREDIT. For purposes of this Agreement and the Advances Agreement the Credit Amount plus any unreimbursed payment made by the Bank shall constitute "Advances" by the Bank to the Member and "Advances" as such term is used in the Advances Agreement. The Member agrees that any such payment made by the Bank under the Credit shall be reimbursed by the Member unconditionally and immediately upon demand by the Bank. Upon the Bank's receipt of a certificate demanding payment under the Credit, the Bank will make an oral or written demand to the Member for reimbursement. Any oral demands by the Bank for reimbursement shall be confirmed concurrently in writing. For purposes of this Section 2, an Advance shall be deemed to have been reimbursed immediately if payment is received by the Bank (or credited to the Member's account) not later than 2:00 p.m., Atlanta time, on the next Business Day after an oral or written demand for reimbursement has been made by the Bank. Any failure by the Member to provide such immediate reimbursement shall constitute a default under this Agreement. The Member agrees to pay the Bank interest on such amounts in default at the rate in effect and charged by the Bank from time to time on overdrafts on demand deposit accounts of its members, but in no event more than any applicable limit set by Regulations. Nothing herein shall prevent the Member from applying for an Advance under any other advance plan of the Bank for the funding of such reimbursement. The Member agrees to pay any reasonable costs of collection including reasonable attorneys' fees, if such reimbursements are collected by or through an attorney at law. The Member hereby authorizes the Bank to debit the Member's demand account(s) with the Bank for any and all reimbursement due the Bank and for all fees, charges and other amounts payable in connection with the Credit hereunder. In the event that the balance in such demand account(s) is insufficient to pay such amounts, the Bank may without prior notice to the Member apply any other deposits, credits, monies or other property of the Member then in the possession of the Bank (and not held as bailee for a third party) to the payment of such due and payable amounts. The Bank will promptly notify the Member following the taking of any such action. Upon any payment by the Bank of a drawing under the Credit, the Credit Amount shall be reduced as provided in the Credit, and by the close of 4 business on the fifth Business Day after the date of such drawing the Credit Amount shall be reinstated by the amount of such drawing provided that the Beneficiary has received from the Bank by telecopy or otherwise, a Certificate Reinstating the Credit Amount substantially in the form of Exhibit G hereto with respect to such drawing. The Bank will reinstate the Credit Amount, provided that each of the following conditions shall be satisfied by 12:00 noon, Atlanta time, on the fifth Business Day following the date of demand by the Beneficiary under the Credit (i.e., the submission by the Beneficiary of a conforming drawing certificate under the Credit): (a) the Bank shall have been reimbursed in full by the Member for the amount of any payment made, or to be made as a result of such drawing, by the Bank under the Credit, together with interest thereon as provided herein; (b) the Bank shall have received from the Member a written request for such reinstatement; and (c) the Bank shall not have determined that there has occurred and is continuing an "Event of Default" or any event which with the giving of notice or the passage of time or both would constitute such an Event of Default. 3. COLLATERAL AND SECURITY INTEREST. In consideration of the issuance of the Credit and to secure all Advances and all of the other obligations of the Member hereunder, the Member hereby assigns, transfers and pledges to the Bank and grants to the Bank a security interest in all collateral now or hereafter pledged to the Bank under the Advances Agreement and applicable Bank Credit and Collateral Policies ("Collateral"). The terms and conditions in the Advances Agreement applicable to security and collateral shall apply to Advances to the same extent and in the same manner in which they apply to advances made under the Advances Agreement. Without limiting the generality of the foregoing, the collateral requirements otherwise applicable to Advances made by the Bank under the Advances Agreement and applicable Bank Credit and Collateral Policies shall apply to Advances hereunder, and the amount of Collateral that the Member is required to pledge to the Bank shall be based on the amount of outstanding Advances to the Member under the Advances Agreement plus Advances hereunder. 4. ACCEPTANCE AND HONOR OF CREDIT. The Bank agrees to: (a) accept and pay drafts or other documents requesting payment under the Credit drawn in conformity with this Credit; (b) honor drafts or other documents requesting payment drawn under the Credit for less than or equal to the Credit Amount; (c) accept or pay, as complying with the terms of the Credit, any drafts or other documents requesting payments signed or issued by any trustee in bankruptcy, debtor-in-possession, assignee for benefit of creditors, liquidator, receiver, conservator, attorney-in-fact or other representative of the Beneficiary or of any successor or assign approved in writing by the Bank; (d) accept or pay any drafts or other 5 documents requesting payment dated and presented on or before the Expiration Date of the Credit, regardless of when drawn and when or whether negotiated; and (e) accept documents of any character which comply with the terms of the Credit. 5. FEES AND OTHER CHARGES. The Member agrees to pay the Bank, on demand, any and all reasonable charges and expenses (including, but not limited to, attorneys' and accountants' fees and expenses) paid or incurred by the Bank in connection with the preparation, negotiation and enforcement of this Agreement or any amendment hereto. In addition, the Member agrees to pay to the Bank the applicable fees for the establishment and maintenance of the Credit issued hereunder (plus any applicable fees for any increase, extension, amendment, renewal or partial renewal thereof) as shall be contemplated by the Bank's Credit Policy and by that certain letter agreement of even date herewith between the Bank and the Member. The Member agrees to pay or reimburse the Bank, upon its request, for all reasonable third party expenses incurred by the Bank in the administration of the Credit. 6. MEMBER'S WARRANTIES, REPRESENTATIONS AND COVENANTS. The Member represents, warrants and covenants to the Bank that the following are and shall remain true, complete and correct as of the date hereof and for so long as the Credit shall be outstanding: (a) this Agreement has been duly and validly executed and delivered by the Member and its execution, delivery and performance have been authorized by all necessary corporate action on behalf of the Member; (b) neither this Agreement nor the Credit nor any transaction to which this Agreement or the Credit relates violates any law or regulation applicable to the Member, including, without limitation, any applicable federal or state securities laws and regulations; (c) the Member has duly entered into the Advances Agreement and the same is currently in full force and effect; and (d) the Member will maintain one or more demand accounts with the Bank at all times during which any Credit issued hereunder remains outstanding. In addition, the Member represents and warrants to the Bank as of the date hereof and as of each subsequent date contemplated in Section 1of the Distribution Agreement to the same effect as set forth in and contemplated by Section1 of the Distribution Agreement, and the Member further agrees that each confirmation of the parties' agreement to an amendment to the Credit as evidenced by the Member's signing and returning to the Bank an Amendment Confirmation in accordance with Section 1 hereof shall be deemed (a) an affirmation by the Member that its representations, warranties and covenants as set forth in this Section 6 are true and correct at the time of return of the related Amendment Confirmation to the Bank, as though made at and as of each such 6 time, (b) an undertaking that such representations and warranties will be true and correct at the time such amendment to the Credit becomes effective and (c) an affirmation by the Member that it is in compliance with its covenants as set forth in this Section 6. The Member covenants to the Bank that (a) it will furnish to the Bank copies of the financial statements and other documents as contemplated by Section 5 of the Distribution Agreement at such time as the same are furnished to the Agents thereunder, (b) it will immediately inform the Bank as to any matters notice of which is given to the Agents pursuant to Section 5 of the Distribution Agreement, and (c) it will furnish to the Bank, a reasonable time prior to the use thereof, any Offering Circular (as defined in the Distribution Agreement) or other material which the Member proposes to use in connection with the offer or sale of the Senior Notes which refers to the Bank or the Credit and that it will not use any Offering Circular (as defined in the Distribution Agreement) or other material to which the Bank has objected. 7. LIABILITIES AND RESPONSIBILITIES OF THE BANK. It is agreed that the Bank shall not be responsible for, and no obligation of the Bank under the Credit shall be affected by or in respect of: (a) the use which may be made of the Credit or any act or omission of any Beneficiary or assignee of the Credit; (b) the validity, authenticity, sufficiency, completeness, genuineness or collectibility of any drafts, instruments, notices of default, or other documents, including endorsements and signatures thereon; (c) any breach of contract (other than in respect of the Senior Notes), including, without limitation, the Distribution Agreement between the Member and any other party other than the Bank; (d) compliance with or circumstances resulting from the existence or exercise of applicable laws, regulations, customs, controls or restrictions by any government or by any group asserting or exercising de facto or de jure governmental powers; (e) any failure of drafts or other evidences of withdrawal to bear reference or adequate reference to the Credit, or failure of any person to surrender, take up or forward the Credit, or to note thereon any withdrawal thereunder, each of which requirements the Bank may waive even if included in the Credit; (f) any errors, omissions, interruptions or delays in transmission or delivery of any messages, however sent and whether plain or in code or cipher, or errors in translation or in interpretation of technical or other terms, absent the Bank's gross negligence or bad faith; (g) any event, fact or condition beyond the control of the Bank; and (h) without limiting the foregoing, any act or omission of the Bank or any confirming or advising bank or any of the Bank's correspondents, agents or subagents done or omitted in good faith (excepting, however, any such act or omission that contravenes the Bank's obligations under the governing laws and 7 authorities referred to in Section 11 of this Agreement). The Bank is expressly authorized and directed to honor any draft or other request for payment which is made under and in compliance with the Credit without regard to, and without any duty to inquire into, the existence of any disputes or controversies between the Member, the Beneficiary or any other person or firm, or their respective rights, duties or liabilities or whether any fact or event referred to in any notice of default or other document presented under the Credit is true and correct. Except for the obligation of the Bank set forth in the last sentence of Section 2 hereof, the sole obligation of the Bank to the Member in connection with drawings under the Credit is limited to honoring requests for payment made under and in compliance with the Credit, and the Bank shall have no liability to the Member in connection with any such drawing even though the Bank may have prepared the Credit or any notice of default or other document required to be presented thereunder and even though the Bank may otherwise be aware of facts concerning the transaction which gives rise to the drawing under the Credit. 8. EVENTS OF DEFAULT. The following occurrences shall be Events of Default: (a) any Event of Default as defined in the Advances Agreement; (b) the failure of the Member to pay any amount due hereunder; (c) the breach by the Member of, or the failure by the Member to comply in all respects with, any covenant, agreement, term or condition under or in connection with this Agreement if the Member shall not have cured such breach or failure within 10 days after notice thereof from the Bank; (d) any failure at any time of any representation or warranty or information, furnished by the Member to the Bank in any context, to be and remain true, correct and complete in all material respects; or (e) any failure by the Member to furnish the Bank such information, and such access to all its books and records, and copies thereof, as the Bank may reasonably require. 9. REMEDIES Upon the occurrence of an Event of Default, without limiting any other rights and remedies which may be available at law or in equity, the Bank shall have all rights and remedies as provided for in respect of a default under the Advances Agreement. 10. ISSUANCE OF FURTHER NOTES. Upon the occurrence of an Event of Default, the Bank may, in its sole discretion, without limiting any other rights and remedies which may be available at law or in equity, issue written instructions (or telephonic instructions, confirmed in writing in accordance with Section 107 of the Indenture promptly thereafter) to the Beneficiary not to issue or deliver Senior Notes, which instructions may be specified with respect to a particular issue of Senior Notes or may be general and applicable to all Senior Notes requested to be issued or 8 delivered after receipt of such instructions, until revoked or superseded by further instructions from the Bank. 11. GOVERNING LAW; CUMULATIVE REMEDIES. In addition to the terms and conditions specifically set forth herein and in any Confirmation between the Bank and the Member, this Agreement and the Credit shall be governed by the Federal Home Loan Bank Act, Rules and Regulations of the FHFB, policies, guidelines and directives of the FHFB, and the statutory and common law of the United States and, to the extent federal law incorporates or defers to state law, the laws of the State of Georgia (without giving effect to choice of law principles included therein). Notwithstanding the foregoing, Article 9 of the Uniform Commercial Code as in effect in the State of Georgia shall be deemed applicable to this Agreement and to any Credit hereunder. It is further agreed that this Agreement shall be supplemented by the provisions (to the extent that such provisions are consistent with the provisions of this Agreement) of the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 and, to the extent not inconsistent therewith, by the provisions of Article 5 of the Uniform Commercial Code as in effect in the State of Georgia. All rights and remedies of the Bank hereunder are cumulative of each other and of every other right or remedy which the Bank may otherwise have at law or in equity or under any contract or other writing for the enforcement of the security interest herein or the collection of any amount due hereunder. 12. WAIVER; AMENDMENT; SEVERABILITY. No delay or failure on the part of the Bank in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or be construed to be a waiver of any Event of Default. No waiver by the Bank of any Event of Default shall be effective unless in writing and signed by an authorized officer of the Bank, and no such waiver shall be deemed to be a waiver of a subsequent Event of Default or be deemed to be a continuing waiver. No course of dealing between the Member and the Bank or its agents or employees shall be effective to change, modify or discharge any provision of this Agreement or to constitute a waiver of any default. If any provision of this Agreement is held invalid or unenforceable to any extent or in any application, the remainder of this Agreement, or the application of such provision to different persons or circumstances or in different jurisdictions, shall not be affected thereby. 13. INDEMNITY. Member agrees to defend, indemnify and hold harmless the Bank and the Bank's correspondents, agents and subagents, and its directors, officers and employees, from and against any and all demands, 9 actions, damages, claims, losses, penalties, liabilities and expenses (including reasonable attorneys' fees and expenses whether or not suit is instituted), not involving any Indemnitee's (as defined below) bad faith or any willful breach of any Indemnitee's obligations under this Agreement or the Credit, or involving any violation by any Indemnitee of obligations under the governing laws and authorities referred to in Section 11 of this Agreement, resulting from or incurred, suffered or paid by any of them in connection with this Agreement, the Credit, or any breach or failure in respect of the Member of any representation, warranty, covenant, agreement, term or condition set forth in or referred to in this Agreement. The Member further agrees to assume liability for and to indemnify, protect, save and hold harmless the Bank, each individual, corporation, partnership, trust, association or other entity ("Person") controlling the Bank, any affiliate of any such Person or the Bank and their respective directors, officers, incorporators, shareholders, partners, servants, trustees, employees and agents (the "Indemnitees") from and against any and all losses, liabilities, claims, damages, penalties, causes of action, suits, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses whether or not suit is instituted) or judgments of whatever kind and nature, imposed upon, incurred by or asserted against the Indemnitees, which are (x) based upon or arising under the securities laws of the United States of America or of any state or any regulation, rule, or interpretation thereunder or thereof to the extent arising from the transactions contemplated hereby and by the Distribution Agreement, (y) based upon the inaccuracy of any representation made or reaffirmed by the Member, or (z) based upon any untrue statement or alleged untrue statement of a material fact in the Offering Circular (as defined in the Distribution Agreement), or the omission or alleged omission therefrom of a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If any action, suit or proceeding arising from any of the foregoing is brought against any of the Indemnitees, the Member will, if requested in writing within a reasonable time to do so, and at its own expense, resist and defend such action, suit or proceeding or cause the same to be resisted and defended by counsel designated by the Member (which counsel shall be satisfactory to such Indemnitees) and regardless of whether the Member is a party to the same, pay all reasonable costs and expenses of such defense (including, without limitation, reasonable attorneys' fees and expenses). It is agreed, however, that the obligations of the Member under this Section 13 shall not extend to any liability of any Indemnitee arising out of any untrue statement by any Indemnitee (whether written or oral) 10 of a material fact in connection with the issue and sale of the Senior Notes, or any omission by any Indemnitee to state a material fact necessary to make any statement by any Indemnitee, in light of the circumstances under which it was made, not misleading, in connection with the issue and sale of the Senior Notes, except to the extent such untrue statement or omission was made by such Indemnitee on the basis of information provided by or omitted to be provided by the Member. The provisions of this Section 13 shall not be deemed to constitute a waiver on the part of the Member of any of its rights at law or in equity against any Indemnitee in any circumstance contemplated by the preceding sentence hereof. The foregoing indemnity will also extend to any supplemental material subsequently furnished to the Agents by the Member and distributed to purchasers or prospective purchasers during the term of the Distribution Agreement. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 13 is for any reason held unavailable (otherwise than in accordance with the terms of this Section 13), the Member and any Indemnitees sought to be charged with any liability shall contribute to the aggregate costs of satisfying such liability in the proportion of their respective economic interests. For purposes of this Section 13, the "economic interests" of the Member shall be equal to the aggregate proceeds of the Senior Notes issued in connection with the Distribution Agreement received by the Member and the "economic interests" of any Indemnitee shall be equal to the aggregate commissions and fees earned by the Bank as a result of the issuance of the Credit. The obligations of the Member under this Section 13 shall survive any termination of the Indenture, in whole or in part, or of the Credit or this Agreement, in whole or in part. 14. OTHER LETTER OF CREDIT REIMBURSEMENT AGREEMENTS. In the event that at any time there shall be in effect any Letter of Credit Reimbursement Agreement between the Member and the Bank other than this Agreement, the terms and provisions of this Agreement shall be the sole terms and provisions applicable to the Credit and the respective rights and obligations of the parties hereunder. 15. COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. 11 IN WITNESS WHEREOF, the Member and the Bank have caused this Agreement to be signed in their names by their duly authorized officers as of the date first above mentioned. FEDERAL HOME LOAN BANK BANKUNITED, FSB OF ATLANTA By: By: ------------------------------ ------------------------------- Vice President and Director of Title: Credit Services ---------------------------- By: By: ------------------------------ ------------------------------- Vice President and Director of Title: Collateral Services ---------------------------- NOTE: This form must be signed on behalf of the Member by two authorized signers as identified on the Member's Credit and Collateral Signature Card. 12 EX-10.5 8 EXHIBIT 10.5 BANKUNITED FINANCIAL CORPORATION 1996 INCENTIVE COMPENSATION AND STOCK AWARD PLAN (as amended on January 26, 1998) 1. PURPOSE. The purpose of this 1996 Incentive Compensation and Stock Award Plan (the "Plan") is to assist BankUnited Financial Corporation (the "Company") and its subsidiaries and affiliates in attracting, motivating, retaining and rewarding high-quality executives and other employees, officers, directors and affiliates enabling such persons to acquire or increase a proprietary interest in the Company in order to strengthen the mutuality of interests between such persons and the Company's stockholders, and providing such persons with annual and long term performance incentives to expend their maximum efforts in the creation of shareholder value. 2. DEFINITIONS. For purposes of the Plan, the following terms shall be defined as set forth below: (a) "Affiliate" means any entity other than the Company and its Subsidiaries that is designated by the Board or the Committee as a participating employer under the Plan, provided that such entity is controlled by or under common control with the Company. (b) "Award" means any Option, Restricted Stock, Restricted Stock Units, Stock Bonus or Stock Award in Lieu of Cash, or Other Stock-Based Award granted to a Participant under the Plan. (c) "Award Agreement" means any written agreement, contract or other instruments or document evidencing an Award. (d) "Beneficiary" means the person, persons, trust or trusts which have been designated by such Participant in his or her most recent written beneficiary designation filed with the Company to receive the benefits specified under this Plan upon the death of the Participant, or, if there is no designated Beneficiary or surviving designated Beneficiary, then the person, persons, trust or trusts entitled by will or the laws of descent and distribution to receive such benefits. (e) "Board" means the Board of Directors of the Company. (f) "Change in Control" means Change in Control as defined with related terms in Section 8. (g) "Code" means the Internal Revenue Code of 1986, as amended from time to time. References to any provision of the Code shall be deemed to include successor provisions thereto and regulations thereunder. (h) "Committee" means the Compensation Committee of the Board, or such other Board committee as may be designated by the Board to administer the Plan; provided, however, that Committee action shall be taken by act of such members specified in, and otherwise in accordance with, Section 3(b). The Committee shall consist solely of two or more directors of the Company. In appointing members of the Committee, the Board will consider whether each member will qualify as a "non-employee director" within the meaning of Rule 16b-3(b)(3), but such members are not required to so qualify at the time of appointment or during their term of service on the Committee. (i) "Company" means BankUnited Financial Corporation, a corporation organized under the laws of the State of Florida, or any successor corporation. A-1 (j) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. References to any provision of the Exchange Act shall be deemed to include successor provisions thereto and regulations thereunder. (k) "Fair Market Value" means, with respect to Stock, Awards, or other property, the fair market value of such Stock, Awards, or other property determined by such methods or procedures as shall be established from time to time by the Committee. Unless otherwise determined by the Committee, the Fair Market Value of Stock as of any given date shall mean the per share value of Stock as determined by using the average of the mean of the closing prices of such Stock as quoted on the NASDAQ system on each of the immediately preceding five days on which the stock was traded, as reported for such dates in the table contained in The Wall Street Journal or an equivalent successor table. (l) "ISO" means any Option intended to be and designated as an incentive stock option within the meaning of Section 422 of the Code. (m) "NQSO" means any Option that is not an ISO. (n) "Option" means a right, granted to a Participant under Section 6(b), to purchase Stock or other Awards. An Option may be either an ISO or an NQSO. (o) "Participant" means a person who, as an executive officer, officer, director, or employee or independent contractor of the Company (which includes employees of Subsidiaries or Affiliates), has been granted an Award under the Plan. (p) "Restricted Stock" means an award of shares of Stock to a Participant under Section 6(d) that may be subject to certain restrictions and to a risk of forfeiture. (q) "Restricted Stock Unit" means a right, granted to a Participant under Section 6(d), to receive Stock or cash at the end of a specified deferral period. (r) "Plan" means this 1996 Incentive Compensation and Stock Award Plan. (s) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and applicable to the Plan and Participants, promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act. (t) "Stock" means the Series I Class A Common Stock, the Class B Common Stock (which together shall be referred to as "Common Stock"), or the Noncumulative Convertible Preferred Stock, Series B ("Preferred Stock") of the Company or such other securities as may be substituted or resubstituted therefor pursuant to Section 5. (u) "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. A-2 3. ADMINISTRATION. (a) AUTHORITY OF THE COMMITTEE. Except as otherwise provided herein, the Plan shall be administered by the Committee. The Committee shall have full and final authority to take the following actions, in each case subject to and consistent with the provisions of the Plan: (i) to select Participants to whom Awards may be granted; (ii) to designate Affiliates; (iii) to determine the type or types of Awards to be granted to each Participant; (iv) to determine the type and number of Awards to be granted, the number and type of shares of Stock to which an Award may relate, the terms and conditions of any Award granted under the Plan (including, but not limited to, any exercise price, grant price, or purchase price, any restriction or condition, any schedule for lapse of restrictions or conditions relating to transferability or forfeiture, exercisability, or settlement of an Award, and waivers or accelerations thereof, and waivers of performance conditions relating to an Award, based in each case on such considerations as the Committee shall determine), and all other matters to be determined in connection with an Award; (v) to determine whether, and to what extent, the right of a Participant to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Committee. The Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to reduce or increase the amounts payable under any Award subject to performance conditions; (vi) to determine whether, to what extent, and under what circumstances an Award may be settled or the exercise price of an Award may be cancelled, forfeited, exchanged, or surrendered; (vii) to determine whether, to what extent, and under what circumstances an Award will be deferred either automatically, at the election of the Committee, or at the election of the Participant, and whether to create trusts and deposit Stock or other property therein; (viii) to prescribe the form of each Award Agreement, which need not be identical for each Participant; (ix) to adopt, amend, suspend, waive, and rescind such rules and regulations and appoint such agents as the Committee may deem necessary or advisable to administer the Plan; (x) to correct any defect or supply any omission or reconcile any inconsistency in the Plan and to construe and interpret the Plan and any Award, rules and regulations, Award Agreement, or other instrument hereunder; and (xi) to make all other decisions and determinations as may be required under the terms of the Plan or as the Committee may deem necessary or advisable for the administration of the Plan. Other provisions of the Plan notwithstanding, the Board may perform any function of the Committee under the Plan, including without limitation for the purpose of ensuring that transactions under the Plan by Participants who are then subject to Section 16 of the Exchange Act in respect of the Company are exempt under Rule 16b-3. In any case in which the Board is performing a function of the Committee under the Plan, each reference to the Committee herein shall be deemed to refer to the Board. A-3 (b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. At any time that a member of the Committee is not a Non-Employee Director as defined in Rule 16b-3, any action of the Committee relating to an Award granted or to be granted to a Participant who is then subject to Section 16 of the Exchange Act in respect of the Company may be taken either (i) by a subcommittee, designated by the Committee, composed solely of two or more members who are Non-Employee Directors, or (ii) by the Committee but with each such member who is not a Non-Employee Director abstaining or recusing himself or herself from such action; PROVIDED, HOWEVER, that, upon such abstention or recusal, the Committee remains composed solely of two or more members who are Non-Employee Directors. Such action, authorized by such a subcommittee or by the Committee upon the abstention or recusal of such non-qualifying member(s), shall be the action of the Committee for purposes of the Plan. Any action of the Committee with respect to the Plan shall be final, conclusive, and binding on all persons, including the Company, Subsidiaries, Affiliates, Participants, any person claiming any rights under the Plan from or through any Participant, and stockholders. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may delegate to officers or managers of the Company or any Subsidiary the authority, subject to such terms as the Committee shall determine, to perform administrative functions and such other functions as the Committee may determine, to the extent permitted under applicable law, and in the case of a Participant then subject to Section 16 of the Exchange Act with respect to the Company, to the extent that such delegation will not result in the loss of an exemption under Rule 16b-3(d)(1). (c) LIMITATION OF LIABILITY. Each member of the Committee shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or other employee of the Company or any Subsidiary or Affiliate, the Company's independent certified public accountants, or other professional retained by the Company to assist in the administration of the Plan. No member of the Committee, nor any officer or employee of the Company acting on behalf of the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Committee and any officer or employee of the Company or its Subsidiaries acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination, or interpretation. 4. ELIGIBILITY. (a) GENERALLY. Executive officers, officers, directors and employees of the Company, including employees of the Company's Subsidiaries and Affiliates who are responsible for or contribute to the management, growth and/or profitability of the business of the Company or its Subsidiaries are eligible to be granted Awards under the Plan. (b) ANNUAL PER-PERSON LIMITATION. Subject to adjustment as hereinafter provided in Sections 5(a) and 5(d), in each calendar year during any part of which the Plan is in effect, a Participant may be granted Stock Options relating to no more than 95,000 shares of Stock. 5. STOCK SUBJECT TO THE PLAN; ADJUSTMENT. (a) NUMBER OF SHARES. Subject to adjustment as hereinafter provided, the number of shares of Common Stock for which Options may be granted under the Plan shall be 875,000, and the number of shares of Common Stock which may be issued in connection with Stock Bonuses, Stock Awards, Restricted Stock and Restricted Stock Units in lieu of cash or other Stock-Based Awards shall be 425,000, provided however that to the extent that the total number of shares of Common Stock does not exceed 1,300,000 the Committee may reallocate the split between the number of shares of Common Stock for which Options may be granted and the number of shares of Common Stock which may be issued in connection with Stock Bonuses, Stock Awards, Restricted Stock and Restricted Stock Units in lieu of cash or other Stock-Based Awards. Additionally, subject to adjustment as hereinafter provided the number of shares of Noncumulative Convertible Preferred Stock, Series B for which Options may be granted and which may be A-4 issued in connection with Stock Bonuses, Stock Awards, Restricted Stock and Restricted Stock Units in lieu of cash or other Stock-Based Awards shall be 375,000. (b) MANNER OF COUNTING SHARES. If any shares subject to an Award are forfeited, cancelled, exchanged, or surrendered or such Award otherwise terminates without a distribution of shares to the Participant such number of shares will again be available for Awards under the Plan. The Committee may make determinations and adopt regulations for the counting of shares relating to any Awards to ensure appropriate counting, avoid double counting (in the case of tandem or substitute awards), and provide for adjustments in any case in which the number of shares actually distributed differs from the number of shares previously counted in connection with such Award. (c) TYPE OF SHARES DISTRIBUTABLE. Any shares of Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued shares or treasury shares, including shares acquired by purchase in the open market or in private transactions. (d) ADJUSTMENTS. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Stock, or other property) which is special, large, and non-recurring, recapitalization, stock split, reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event, affects the Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Plan, then the Committee shall make such equitable changes or adjustments as it deems appropriate and, in such manner as it may deem equitable, adjust any or all of (i) the number and kind of shares of Stock which may thereafter be issued in connection with Awards, (ii) the number of and kind of shares of Stock issued or issuable in respect of outstanding Awards or, if deemed appropriate, make provisions for payment of cash or other property with respect to any outstanding Award, (iii) the per-person limit, number and kind of shares subject to Options which may be granted pursuant to Section 4(b) and (iv) the exercise price, grant price, or purchase price relating to any Award; provided, however, in each case that, with respect to ISOs, such adjustment shall be made in accordance with Section 424(h) of the Code, unless the Committee determines otherwise. In addition, the Committee is authorized to make adjustments in the terms and conditions of, and the criteria and performance objectives included in Awards, in recognition of unusual or non-recurring events (including, without limitation, events described in the preceding sentence, as well as acquisitions and dispositions of businesses and assets) affecting the Company or any Subsidiary, or business unit, or the financial statements thereof, or in response to changes in applicable laws, regulations, accounting principles, tax rates and regulations, or business conditions or in view of the Committee's assessment of the business strategy of the Company, a Subsidiary, or business unit thereof, performance of comparable organizations, economic and business conditions, personal performance of a Participant, and any other circumstances deemed relevant. 6. SPECIFIC TERMS OF AWARDS. (a) GENERAL. Awards may be granted on the terms and conditions set forth in this Section 6. In addition, the Committee may impose on any Award or the exercise thereof, at the date of grant or thereafter (subject to Section 9(e)), such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine, including terms regarding forfeiture of Awards or continued exercisability of Awards in the event of termination of employment by the Participant. (b) OPTIONS. The Committee is authorized to grant Options to Participants on the following terms and conditions: (i) EXERCISE PRICE. Unless otherwise required by applicable law, the exercise price per share of Stock purchasable under an Option shall be determined by the Committee; provided, however, that, except as provided in Section 7(a), such exercise price shall be not less than the Fair Market Value of a share on the date of grant of such Option. A-5 (ii) TIME AND METHOD OF EXERCISE. The Committee shall determine at the date of grant or thereafter the time or times at which an Option may be exercised in whole or in part, the methods by which such exercise price may be paid or deemed to be paid, the form of such payment, including, without limitation, cash, Stock, other Awards, notes or other property, and the methods by which Stock will be delivered or deemed to be delivered to Participants (including, without limitation, deferral of delivery of shares under a deferral arrangement). (iii) ISOS. The terms of any ISO granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code. (c) RESTRICTED STOCK. The Committee is authorized to grant Restricted Stock or Restricted Stock Units ("RSU") to Participants on the following terms and conditions: (i) ISSUANCE AND RESTRICTIONS. Restricted Stock and RSU shall be subject to such restrictions on transferability and other restrictions, if any, as the committee may impose at the date of grant or thereafter, which restrictions may lapse separately or in combination at such times, under such circumstance, in such installments, or otherwise, as the Committee may determine. Except to the extent restricted under the Award Agreement relating to the Restricted Stock or RSU, a Participant granted Restricted Stock or RSU shall have all of the rights of a stockholder including, without limitation, the right to vote Restricted Stock and the right to receive dividends thereon. (ii) FORFEITURE. Except as otherwise determined by the Committee, at the date of grant or thereafter, upon termination of employment (as determined under criteria established by the Committee) during the applicable restriction period, Restricted Stock or RSU, and any accrued but unpaid dividend(s) that is or are then subject to a risk of forfeiture shall be forfeited; provided, however, that the Committee may provide, by rule or regulation or in any Award Agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to Restricted Stock or RSU will be waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part the forfeiture of Restricted Stock. (iii) CERTIFICATES FOR STOCK. Restricted Stock or RSU granted under the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing Restricted Stock are registered in the name of the participant, such certificates shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, the Company shall retain physical possession of the certificate, and the Company may require the Participant to deliver a stock power, endorsed in blank, relating to the Restricted Stock. Upon expiration of the deferral period specified for RSU by the Committee (or, if permitted by the Committee, as elected by the participant) the stock underlying such RSU shall be delivered. (iv) DIVIDENDS. Dividends paid on Restricted Stock or RSU shall be either paid at the dividend payment date in cash or in shares of unrestricted Stock having a Fair Market Value equal to the amount of such dividends, or the payment of such dividends shall be deferred or the amount or value thereof automatically reinvested in additional Restricted Stock, RSU, other Awards, or other investment vehicles, as the Committee shall determine or permit the Participant to elect. Stock distributed in connection with a Stock split or Stock dividend, and other property distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock or RSU with respect to which such Stock or other property has been distributed. (d) STOCK BONUSES AND STOCK AWARDS IN LIEU OF CASH AWARDS. The Committee is authorized to grant Stock as a bonus, or to grant other Awards, in lieu of Company commitments to pay cash under other plans or compensatory arrangements. Stock or Awards granted hereunder shall have such other terms as shall be determined by the Committee. (e) OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to limitations under applicable law, to grant to Participants such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Stock or other securities, as deemed by the Committee to A-6 be consistent with the purposes of the Plan, including, without limitation, rights convertible or exchangeable into Stock or such securities, purchase rights for Stock or such other securities, and Awards with value or payment contingent upon performance of the Company, or a Subsidiary, or upon any other factor or performance condition designated by the Committee. The Committee is authorized to make cash awards pursuant to this Section 6(f) as an element of or supplement to any other Award under the Plan. 7. CERTAIN PROVISIONS APPLICABLE TO AWARDS. (a) STAND-ALONE, ADDITIONAL, TANDEM AND SUBSTITUTE AWARDS. Awards granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in exchange or substitution for, any other Award granted under the Plan or any award granted under any other plan of the Company, any Subsidiary or Affiliate, or any business entity to be acquired by the Company or a Subsidiary or Affiliate, or any other right of a Participant to receive payment from the Company or any Subsidiary or Affiliate. Awards may be granted in addition to or in tandem with such other Awards or awards and may be granted either as of the same time as or a different time from the grant of such other Awards or awards. The per share exercise price of any Option, or purchase price of any other Award conferring a right to purchase Stock which is granted, in connection with the substitution of awards granted under any other plan of the Company or any Subsidiary or Affiliate or any business entity to be acquired by the Company or any Subsidiary or Affiliate, shall be determined by the Committee, in its discretion. (b) TERMS OF AWARDS. The term of each Award shall be for such period as may be determined by the Committee; provided, however, that in no event shall the term of any ISO exceed a period of ten years from the date of its grant (or such shorter period as may be applicable under Section 422 of the Code). (c) FORM OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and any applicable Award Agreement, payments to be made by the Company upon the grant, maturation, or exercise of an Award may be made in such forms as the Committee shall determine at the date of grant or thereafter, including, without limitation, cash, Stock, or other property, and may be made in a single payment or transfer, in installments, or on a deferred basis. The Committee may make rules relating the installment or deferred payments with respect to Awards, including the rate of interest to be credited with respect to such payments. (d) RULE 16B-3 COMPLIANCE. (i) SIX-MONTH HOLDING PERIOD. Unless a Participant could otherwise dispose of equity securities, including derivative securities, acquired under the Plan without incurring liability under Section 16(b) of the Exchange Act, equity securities acquired under the Plan must be held for a period of six months following the date of such acquisition, provided that this condition shall be satisfied with respect to a derivative security if at least six months elapse from the date of acquisition of the derivative security to the date of disposition of the derivative security (other than upon exercise or conversion) or its underlying equity security. (ii) OTHER COMPLIANCE PROVISIONS. With respect to a Participant who is then subject to Section 16 of the Exchange Act in respect of the Company, the Committee shall implement transactions under the Plan and administer the Plan in a manner that will ensure that each transaction by such a Participant is exempt from liability under Rule 16b-3, except that such a Participant may be permitted to engage in a non-exempt transaction under the Plan if written notice has been given to the Participant regarding the non-exempt nature of such transaction. Unless otherwise specified by the Participant, equity securities, including derivative securities, acquired under the Plan which are disposed of by a Participant shall be deemed to be disposed of in the order acquired by the Participant. 8. CHANGE IN CONTROL PROVISIONS. (a) ACCELERATION UPON CHANGE IN CONTROL. In the event of a "Change in Control," as defined in this Section: A-7 (i) any Award carrying a right to exercise that was not previously exercisable and vested shall become fully exercisable and vested; and (ii) the restrictions, deferral limitations, and forfeiture conditions applicable to any other Award granted under the Plan shall lapse and such Awards shall be deemed fully vested, and any performance conditions imposed with respect to Awards shall be deemed to be fully achieved; provided, however, that, the Board may determine, by entry of a resolution prior to the occurrence of a Change in Control, that a Change in Control will not result in some or all of the consequences specified in (i) or (ii) or will not result in such consequences for specified Participants. (b) "CHANGE IN CONTROL" DEFINED. For purposes of the Plan, a "Change in Control" shall have occurred if: (i) any "person," as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company; any trustee or other fiduciary holding securities under an employee benefit plan of the Company; any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company; or any person or group of persons who as of the date of approval of this Plan by the Board of Directors of the Company owns, directly or indirectly 10% or more of the combined voting power of the securities of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding voting securities; (ii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) 50% or more of the combined voting power of the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquired 50% or more of the combined voting power of the Company's then outstanding securities; or (iii) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect). 9. GENERAL PROVISIONS. (a) COMPLIANCE WITH LEGAL AND EXCHANGE REQUIREMENTS. The Company shall not be obligated to take any action under the Plan and any Award Agreement, unless and until it is satisfied that all applicable federal and state laws, rules and regulations, and approvals by any regulatory or governmental agency have been complied with or obtained. The Company, in its discretion, may postpone the issuance or delivery of Stock under any Award until completion of such stock exchange listing or registration or qualification of such Stock or other required action under any state, federal or foreign law, rule or regulation as the Company may consider appropriate, and may require any Participant to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Stock in compliance with applicable laws, rules and regulations. (b) NONTRANSFERABILILTY. Except as otherwise provided in this Section 9(b), Awards shall not be transferable by a Participant other than by will or the laws of descent and distribution or pursuant to a designation of a Beneficiary, and Awards shall be exercisable during the lifetime of a Participant only by such Participant or his guardian or legal representative. In addition, except as otherwise provided in this Section 9(b), no rights under the Plan A-8 may be pledged, mortgaged, hypothecated, or otherwise encumbered, or subject to the claims of creditors. The foregoing notwithstanding, the Committee may, in its sole discretion, provide that Awards (or rights or interests therein) other than ISOs shall be transferable, including but not limited to permitting transfers to a Participant's immediate family members (I.E., spouse, children, or grandchildren, as well as the Participant), to trusts for the benefit of such family members or other transfers deemed by the Committee to be not inconsistent with the purposes of the Plan. (c) NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor any action taken thereunder shall be construed as giving any Participant the right to be retained in the employ or service of the Company or any of its Subsidiaries or Affiliates, nor shall it interfere in any way with the right of the Company or any of its Subsidiaries or Affiliates to terminate any Participant's employment or services at any time. (d) TAXES. The Company or any Subsidiary or Affiliate is authorized to withhold from any Award granted, any payment relating to an Award under the Plan, including from a distribution of Stock, or any payroll or other payment to a Participant, amounts of withholding and other taxes due in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Company and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to withhold or receive Stock or other property and to make cash payments in respect thereof in satisfaction of a Participant's tax obligations. (e) CHANGES TO THE PLAN AND AWARDS. The Board may amend, alter, suspend, discontinue, or terminate the Plan or the Committee's authority to grant Awards under the Plan without the consent of stockholders or Participants, except that any such amendment, alteration, suspension, discontinuation, or termination shall be subject to the approval of the Company's stockholders within one year after such Board action if such stockholder approval is required by any federal law or regulation or the rules of any stock exchange or automated quotation system on which the Stock may then be listed or quoted; provided, however, that, without the consent of an affected Participant, no amendment, alteration, suspension, discontinuations, or termination oft he Plan may materially adversely affect the rights of such Participant under any Award theretofore granted to him or her. The Committee may waive any conditions or rights under, or amend, alter, suspend, discontinue, or terminate any Award theretofore granted and any Award Agreement relating thereto: provided, however, that, without the consent of an affected Participant, no such amendment, alteration, suspension, discontinuation, or termination of any Award may materially adversely affect the rights of such Participant under such Awards. Following the occurrence of a Change in Control, the Board may not terminate this Plan or amend this Plan in any manner adverse to Participants. (f) NO RIGHT TO AWARDS; NO STOCKHOLDER RIGHTS. No Participant or employee shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Participants and employees. No Award shall confer on any Participant any of the rights of a stockholder of the Company unless and until Stock is duly issued or transferred to the Participant in accordance with the terms of the Award. (g) UNFUNDED STATUS OF AWARDS AND TRUSTS. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award shall give any such Participant any rights that are greater than those of a general creditor of the Company; provided, however, that the Committee may authorize the creation of trusts or make other arrangements to meet the Company's obligations under the Plan to deliver cash, Stock, other Awards, or other property pursuant to any Award, which trusts or other arrangements shall be consistent with the "unfunded" status of the Plan unless the Committee otherwise determines with the consent of each affected Participant. If an to the extent authorized by the Committee, the Company may deposit into such a trust Stock or other assets for delivery to the Participant in satisfaction of the Company's obligations under any Award. If so provided by the Committee, upon such a deposit of Stock or other assets for the benefit of a Participant, there shall be substituted for the rights of the Participant to receive delivery of Stock and other payments under the Plan a right to receive the assets of the trust (to the extent that the deposited Stock or other assets represented the full amount of the Company's obligation under the Award at the date of deposit). The trustee of the trust may be authorized to dispose of trust assets and reinvest the proceeds in alternative investments, subject to such terms and conditions as the Committee may specify and in accordance with applicable law. A-9 (h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board nor its submission to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including without limitation, the granting of stock options and other awards otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. (i) NO FRACTIONAL SHARES. No fractional shares of Stock shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated. (j) GOVERNING LAW. The validity, construction, and effect of the Plan, any rules and regulations relating to the Plan, and any Award Agreement shall be determined in accordance with the laws of the state of Florida, without giving effect to principles of conflicts of laws, and applicable federal law. (k) EFFECTIVE DATE AND APPROVAL DATE; PLAN TERMINATION. The Plan shall become effective upon approval by the Board of Directors (the "Effective Date"), provided, however, that the Plan shall be subject to the subsequent approval by the affirmative votes of the holders of a majority of voting securities present in person or represented by proxy, and entitled to vote on the subject matter, at a meeting of Company stockholders duly held in accordance with the Florida Corporation Code, or any adjournment thereof in accordance with applicable provisions of the Florida Corporation Code, such stockholder approval to be obtained not later than one year after the Effective Date (the "Approval Date"). Any Awards granted under the Plan prior to such approval of stockholders shall be subject to such approval and in the absence of such approval, such Awards shall be null and void. Unless earlier terminated by the Board, the Plan will terminate at such time as the Company has no further obligations with respect to any Award granted under the Plan; provided, however, that ISOs may not be granted later than 10 years after the Effective Date.. (l) TITLE AND HEADINGS. The titles and headings of the sections in the Plan are for convenience of reference only. In the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. A-10 EX-10.6 9 EXHIBIT 10.6 AMENDED AND RESTATED COMPANY EMPLOYMENT AGREEMENT This AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") is made and entered into effective as of November 14, 1997, by and between BANKUNITED FINANCIAL CORPORATION, a publicly held business corporation organized and operating under the laws of the State of Florida and having an office at 255 Alhambra Circle, Coral Gables, Florida 33134 ("Company") and ALFRED R. CAMNER, an individual residing at 6855 S.W. 101st Street, Miami, Florida 33156 ("Executive"). Any reference to the "Bank" herein shall mean BankUnited, FSB, a wholly-owned subsidiary of the Company. W I T N E S S E T H : WHEREAS, the Company, the Bank and the Executive entered into an Employment Agreement dated as of November 14, 1996 ("Prior Employment Agreement") pursuant to which the Executive has served as Chairman of the Board, President and Chief Executive Officer of the Company and the Bank; and WHEREAS, the Company desires to assure for itself and for the Bank the continued availability of the Executive's services and the ability of the Executive to perform such services with a minimum of personal distraction in the event of a threatened or pending Change in Control (as defined herein); and WHEREAS, the Executive is willing to continue to serve in the employ of the Company and the Bank on such basis; and WHEREAS, the Company and the Executive each hereby agree that in order to achieve the foregoing objectives it is necessary to amend and restate the terms and conditions of the Prior Employment Agreement, as set forth herein and for the Bank to enter into a separate amended and restated employment agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants and conditions hereinafter set forth, the Company and the Executive hereby agree as follows: SECTION 1. EMPLOYMENT. The Company agrees to continue to employ the Executive, and the Executive hereby agrees to such continued employment, during the period and upon the terms and conditions set forth in this Agreement. Page 1 of 19 SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT PERIOD. (a) The terms and conditions of this Agreement shall be and remain in effect during the period of employment established under this section 2 ("Employment Period"). The Employment Period shall be for a term of five years beginning on the date of this Agreement and ending on the fifth anniversary date of this Agreement (each, an "Anniversary Date"), plus such extensions, if any, as are provided by the Board of Directors of the Company ("Board") pursuant to section 2(b). (b) Except as provided in section 2(c), beginning on the date of this Agreement, the Employment Period shall automatically be extended for one (1) additional day each day, unless either the Company or the Executive elects not to extend the Agreement further by giving written notice to the other party, in which case the Employment Period shall end on the fifth anniversary of the date on which such written notice is given. For all purposes of this Agreement, the term "Remaining Unexpired Employment Period" as of any date shall mean the period beginning on such date and ending on: (i) if a notice of non-extension has been given in accordance with this section 2(b), the fifth anniversary of the date on which such notice is given; and (ii) in all other cases, the fifth anniversary of the date as of which the Remaining Unexpired Employment Period is being determined. Upon termination of the Executive's employment with the Company for any reason whatsoever, any daily extensions provided pursuant to this section 2(b), if not therefore discontinued, shall automatically cease. (c) Nothing in this Agreement shall be deemed to prohibit the Company at any time from terminating the Executive's employment during the Employment Period with or without notice for any reason; PROVIDED, HOWEVER, that the relative rights and obligations of the Company and the Executive in the event of any such termination shall be determined under this Agreement. SECTION 3. DUTIES. The Executive shall serve as the Chairman of the Board and the President and Chief Executive Officer of the Company, having such power, authority and responsibility and performing such duties as are prescribed by or under the By-Laws of the Company and as are customarily associated with such position. Except as provided in section 7 hereof, the Executive shall devote his full business time and attention (other than during weekends, holidays, approved vacation periods, and periods of illness or approved leaves of absence) to the business and affairs of the Company and shall use his best efforts to advance the interests of the Company. Page 2 of 19 SECTION 4. CASH COMPENSATION. In consideration for the services to be rendered by the Executive hereunder, the Company shall pay to him a salary at an annual rate of Three Hundred Thousand And 00/100 Dollars ($300,000), payable in approximately equal installments in accordance with the Company's customary payroll practices for senior officers. Prior to each Anniversary Date occurring during the Employment Period, the Board shall review the Executive's annual rate of salary and may, in its discretion, approve an increase therein. In addition to salary, the Executive may receive other cash or stock compensation from the Company for services rendered hereunder at such times, in such amounts and on such terms and conditions as the Board, in its discretion, may determine from time to time. For purposes of section 9(b)(iv), the term "Salary" shall mean the aggregate value of the annual rate of cash compensation and the fair market value, determined at the time of grant, of the stock compensation paid to the Executive pursuant to this section 4 hereof. SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS. During the Employment Period, the Executive shall be treated as an employee of the Company and shall be entitled to participate in and receive benefits under any and all qualified or non-qualified retirement, pension, savings, profit-sharing or stock bonus plans, any and all group life, health (including hospitalization, medical and major medical), dental, accident and long term disability insurance plans, and any other employee benefit and compensation plans (including, but not limited to, any incentive compensation plans or programs, stock option and appreciation rights plans and restricted stock plans) as may from time to time be maintained by, or cover similarly situated executives of, the Company, in accordance with the terms and conditions of such employee benefit plans and programs and compensation plans and programs and consistent with the Company's customary practices. In lieu of Class A Common Stock or Class B Common Stock, the Executive may, at his election, receive stock options and/or stock awards granted pursuant to the 1996 Incentive Compensation and Stock Award Plan in shares of BankUnited's Noncumulative Convertible Preferred Stock, Series B ("Series B Stock"), adjusted to reflect the fair market value of the Series B Stock as compared to the Class A Common Stock or Class B Common Stock. The Executive's estate or his designee shall be the beneficiary of life insurance policies on the life of the Executive having a face amount of at least $4,000,000.00. SECTION 6. INDEMNIFICATION AND INSURANCE. (a) During the Employment Period and for a period of six (6) years thereafter, the Company shall cause the Executive to be covered by and named as an insured under any policy or contract of insurance obtained by it to insure its directors and officers against personal liability for acts or omissions in connection with service as an officer or director of the Company or service in other capacities at the request of the Company. The coverage provided to the Executive pursuant to this section 6 shall be of the same scope and on the same terms and conditions as the coverage (if any) provided to other officers or directors of the Company. Page 3 of 19 (b) To the maximum extent permitted under applicable law, during the Employment Period and for a period of six (6) years thereafter, the Company shall indemnify the Executive against and hold him harmless from any costs, liabilities, losses and exposures to the fullest extent and on the most favorable terms and conditions that similar indemnification is offered to any director or officer of the Company or any subsidiary or affiliate thereof. SECTION 7. OUTSIDE ACTIVITIES. During the Employment Period, it shall not be a violation of this Agreement and shall not permit the Company to terminate the Executive's employment for Cause if the Executive engages in the activities described below or any activities similar in nature and scope, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities in accordance with this Agreement and do not constitute a violation of any applicable law, rule, regulation or code of conduct or policy established by the Company and applicable to similarly situated executives: (i) engaging in the practice of law, including, without limitation, as a member of the firm of Stuzin and Camner, Professional Association, (ii) serving on industry, corporate, civic or charitable boards or committees, (iii) managing personal investments (including, without limitation, family-controlled enterprises), or (iv) investing in, advising or serving as an officer or director of other corporations or business entities. It is expressly understood and agreed that to the extent any such activities have been conducted by the Executive prior to the date of this Agreement, the continued conduct of such activities (or the conduct of activities similar in nature and scope) shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. The Executive may also serve as an officer or director of the Bank on such terms and conditions as the Company and the Bank may mutually agree upon, and such service shall not be deemed to materially interfere with the Executive's performance of his duties hereunder or otherwise result in a material breach of this Agreement. If the Executive is discharged or suspended, or is subject to any regulatory prohibition or restriction with respect to participation in the affairs of the Bank, he shall continue to perform services for the Company in accordance with this Agreement but shall not directly or indirectly provide services to or participate in the affairs of the Bank in a manner inconsistent with the terms of such discharge or suspension or any applicable regulatory order. SECTION 8. WORKING FACILITIES AND EXPENSES. The Executive's principal place of employment shall be at the Company's executive offices at the address first above written, or at such other location within Coral Gables at which the Company shall maintain its principal executive offices, or at such other location as the Company and the Executive may mutually agree upon. The Company shall provide the Executive at his principal place of employment with a private office, secretarial services and other support services and facilities including, but not limited to, Internet and Bloomberg Financial Market Commodities and News Access Subscriptions, cellular telephones, pagers and a lap-top computer, suitable to his position with the Company and necessary or appropriate in connection with the per- Page 4 of 19 formance of his assigned duties under this Agreement. The Company shall provide to the Executive for his exclusive use an automobile owned or leased by the Company which shall be a BMW 740 (or an automobile of similar stature and caliber), to be used in the performance of his duties hereunder, including commuting to and from his personal residence. The Company shall reimburse the Executive for his ordinary and necessary business expenses, including, without limitation, all expenses associated with his business use of the aforementioned automobile, fees for memberships in such clubs and organizations as the Executive and the Company shall mutually agree are necessary and appropriate for business purposes, and his travel and entertainment expenses incurred in connection with the performance of his duties under this Agreement, in each case upon presentation to the Company of an itemized account of such expenses in such form as the Company may reasonably require. SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE BENEFITS. (a) The Executive shall be entitled to the severance benefits described herein in the event that his employment with the Company terminates during the Employment Period under any of the following circumstances: (i) The Executive's voluntary resignation from employment with the Company within ninety (90) days following: (A) the failure of the Board to appoint or re-appoint or elect or re-elect the Executive to the office of Chairman of the Board, President and Chief Executive Officer of the Company; (B) the failure of the stockholders of the Company to elect or re-elect the Executive or the failure of the Board (or the nominating committee thereof) to nominate the Executive for such election or re-election; (C) the expiration of a thirty (30) day period following the date on which the Executive gives written notice to the Company of its material failure, whether by amendment of the Company's Charter or By-laws, action of the Board or the Company's stockholders or otherwise, to vest in the Executive the functions, duties, or responsibilities prescribed in section 3 of this Agreement, unless, during such thirty (30) day period, the Company cures such failure in a manner determined by the Executive, in his discretion, to be satisfactory; or (D) the expiration of a thirty (30) day period following the date on which the Executive gives written notice to the Company of its material breach of any term, condition or covenant contained in this Agreement (including, without limitation any reduction of the Executive's rate of base salary in effect from time to time and any change in the terms and conditions of any compensation or benefit program in which the Executive participates which, either individually or together Page 5 of 19 with other changes, has a material adverse effect on the aggregate value of his total compensation package), unless, during such thirty (30) day period, the Company cures such failure in a manner determined by the Executive, in his discretion, to be satisfactory; or (E) the relocation of the executive offices of the Company, a distance of more than 25 miles from its current Coral Gables, Florida location. (ii) subject to the provisions of section 10, the termination of the Executive's employment by the Company for any other reason; then, the Company shall provide the benefits and pay to the Executive the amounts described in section 9(b). (b) Upon the termination of the Executive's employment with the Company under circumstances described in section 9(a) of this Agreement, the Company shall pay and provide to the Executive (or, in the event of his death following such termination of employment to his estate): (i) his earned but unpaid compensation (including, without limitation, all items which constitute wages under applicable state law and the payment of which is not otherwise provided for under this section 9(b)) as of the date of the termination of his employment with the Company, such payment to be made at the time and in the manner prescribed by law applicable to the payment of wages but in no event later than thirty (30) days after termination of employment; (ii) the benefits, if any, to which he is entitled as a former employee under the employee benefit plans and programs and compensation plans and programs maintained for the benefit of the officers and employees of the Company or the Bank, as applicable; (iii) continued group life, health (including hospitalization, medical, major medical and any supplemental insurance coverages), dental, accident and long term disability insurance benefits, in addition to that provided pursuant to section 9(b)(ii), and after taking into account the coverage provided by any subsequent employer, if and to the extent necessary to provide for the Executive, for the Remaining Unexpired Employment Period, coverage equivalent to the coverage to which he would have been entitled under such plans (as in effect on the date of his termination of employment, or, if his termination of employment occurs after a Change in Control, on the date of such Change in Control, whichever benefits are greater), if he had continued working for the Company or the Bank, as applicable during the Remaining Unexpired Employment Period at the highest annual rate of compensation achieved during that portion of the Employment Period which is prior to the Executive's termination of employment with the Company and with such continued coverages to be provided to the Executive at the Company's expense through COBRA or Page 6 of 19 in any other manner determined by the Board to be appropriate including, but not limited to, through the purchase of an individual policy or policies; (iv) within thirty (30) days following his termination of employment with the Company, a lump sum payment, in an amount equal to the present value of the Salary that the Executive would have earned if he had continued working for the Company or the Bank, as applicable during the Remaining Unexpired Employment Period at the highest annual Salary achieved during that portion of the Employment Period which is prior to the Executive's termination of employment with the Company or the Bank, as applicable, where such present value is to be determined using a discount rate equal to the applicable short-term federal rate prescribed under section 1274(d) of the Internal Revenue Code of 1986 ("Code"), compounded using the compounding period corresponding to the regular payroll periods of the Company or the Bank, as applicable for its officers, such lump sum to be paid in lieu of all other payments of Salary provided for under this Agreement in respect of the period following any such termination; (v) within thirty (30) days following his termination of employment with the Company, a lump sum payment in an amount equal to the excess, if any, of: (A) the present value of the aggregate benefits to which he would be entitled under any and all qualified and non-qualified defined benefit pension plans maintained by, or covering employees of, the Company or the Bank, as applicable, if he were 100% vested thereunder and had continued working for the Company or the Bank, as applicable during the Remaining Unexpired Employment Period, such benefits to be determined as of the date of termination of employment by adding to the service actually recognized under such plans an additional period equal to the Remaining Unexpired Employment Period and by adding to the compensation recognized under such plans for the year in which termination of employment occurs all amounts payable under sections 9(b)(i), (iv), (vii), (viii) and (ix); over (B) the present value of the benefits to which he is actually entitled under such defined benefit pension plans as of the date of his termination; where such present values are to be determined using the mortality tables prescribed under section 415(b)(2)(E)(v) of the Code and a discount rate, compounded monthly equal to the annualized rate of interest prescribed by the Pension Benefit Guaranty Corporation for the valuation of immediate annuities payable under terminating single-employer defined benefit plans for the month in which the Executive's termination of employment occurs ("Applicable PBGC Rate"); (vi) within thirty (30) days following his termination of employment with the Company, a lump sum payment in an amount equal to the present value of the additional Page 7 of 19 employer contributions to which he would have been entitled under any and all qualified and non-qualified defined contribution plans maintained by, or covering employees of, the Company or the Bank, as applicable, if he were 100% vested thereunder and had continued working for the Company or the Bank, as applicable during the Remaining Unexpired Employment Period at the highest annual rate of compensation achieved during that portion of the Employment Period which is prior to the Executive's termination of employment with the Company, and making the maximum amount of employee contributions, if any, required under such plan or plans, such present value to be determined on the basis of a discount rate, compounded using the compounding period that corresponds to the frequency with which employer contributions are made to the relevant plan, equal to the Applicable PBGC Rate; (vii) the payments that would have been made to the Executive under any cash bonus or long-term or short-term cash incentive compensation plan maintained by, or covering employees of, the Company or the Bank, as applicable if he had continued working for the Company or the Bank, as applicable during the Remaining Unexpired Employment Period and had earned the maximum bonus or incentive award in each calendar year that ends during the Remaining Unexpired Employment Period, such payments to be equal to the product of: (A) the maximum percentage rate at which an award was ever available to the Executive under such incentive compensation plan; multiplied by (B) the salary that would have been paid to the Executive during each such calendar year at the highest annual rate of salary achieved during that portion of the Employment Period which is prior to the Executive's termination of employment with the Company: such payments to be made (without discounting for early payment) within thirty (30) days following the Executive's termination of employment; (viii) at the election of the Company made within thirty (30) days following his termination of employment with the Company, upon the surrender of options or appreciation rights issued to the Executive under any stock option and appreciation rights plan or program maintained by, or covering employees of, the Company or the Bank, as applicable, a lump sum payment in an amount equal to the product of: (A) the excess of (I) the fair market value of a share of stock of the same class as the stock subject to the option or appreciation right, determined as of the date of termination of employment, over (II) the exercise price per share for such option or appreciation right, as specified in or under the relevant plan or program; multiplied by Page 8 of 19 (B) the number of shares with respect to which options or appreciation rights are being surrendered. For purposes of this section 9(b)(viii) and for purposes of determining the Executive's right following his termination of employment with the Company to exercise any options or appreciation rights not surrendered pursuant hereto, the Executive shall be deemed fully vested in all options and appreciation rights under any stock option or appreciation rights plan or program maintained by, or covering employees of, the Company, even if he is not vested under such plan or program; (ix) at the election of the Company made within thirty (30) days following the Executive's termination of employment with the Company, upon the surrender of any shares awarded to the Executive under any restricted stock plan maintained by, or covering employees of, the Company or the Bank, as applicable, a lump sum payment in an amount equal to the product of: (A) the fair market value of a share of stock of the same class of stock granted under such plan, determined as of the date of the Executive's termination of employment; multiplied by (B) the number of shares which are being surrendered. For purposes of this section 9(b)(ix) and for purposes of determining the Executive's right following his termination of employment with the Company to any stock not surrendered pursuant hereto, the Executive shall be deemed fully vested in all shares awarded under any restricted stock plan maintained by, or covering employees of, the Company, even if he is not vested under such plan. (x) In addition, the Company shall provide the Executive with (A) personal use, at the Company expense for the Remaining Unexpired Employment Period, of a late model automobile comparable to that used by the Executive prior to his termination of employment; (B) the right of the Executive to purchase, at book value, the membership in up to two country clubs which the Company has maintained for the benefit of the Executive; (C) the transfer to the Executive of two $1 million life insurance policies that the Company then maintains on the life of the Executive as part of his benefits; and (D) continued use, at the Company expense for the Remaining Unexpired Employment Period, of the secretarial services, Internet and Bloomberg Financial Market Commodities and News Access Subscriptions, cellular telephones, pagers and the lap-top computer which had been provided to the Executive immediately prior to his termination of employment. The Company and the Executive hereby stipulate that the damages which may be incurred by the Executive following any such termination of employment are not capable of accurate measurement as of the date first above written and that the payments and benefits contemplated by this section Page 9 of 19 9(b) constitute reasonable damages under the circumstances and shall be payable without any requirement of proof of actual damage and without regard to the Executive's efforts, if any, to mitigate damages. The Company and the Executive further agree that the Company may condition the payments and benefits (if any) due under sections 9(b)(iii), (iv), (v), (vi), (vii) and (x) on the receipt of the Executive's resignation from any and all positions which he holds as an officer, director or committee member with respect to the Company, the Bank or any subsidiary or affiliate of either of them. In no event shall any of the foregoing provisions of this section 9(b) entitle the Executive to additional grants of statutory or non-statutory options to purchase shares of common stock of the Company pursuant to any incentive stock option plan, then in effect. SECTION 10. TERMINATION WITHOUT ADDITIONAL COMPANY LIABILITY. (a) In the event that the Executive's employment with the Company shall terminate during the Employment Period on account of: (i) the discharge of the Executive for "cause," which, for purposes of this Agreement shall mean: (A) the Executive intentionally engages in dishonest conduct in connection with his performance of services for the Company resulting in his conviction of a felony; (B) the Executive is convicted of, or pleads guilty or NOLO CONTENDERE to, a felony or any crime involving moral turpitude; (C) the Executive willfully fails or refuses to perform his duties under this Agreement and fails to cure such breach within sixty (60) days following written notice thereof from the Company; (D) the Executive breaches his fiduciary duties to the Company for personal profit; or (E) the Executive's willful breach or violation of any law, rule or regulation (other than traffic violations or similar offenses), or final cease and desist order in connection with his performance of services for the Company; or (ii) the Executive's voluntary resignation from employment with the Company for reasons other than those specified in section 9(a); then, the Company shall have no further obligations under this Agreement, other than the payment to the Executive (or, in the event of his death, to his estate) of his earned but unpaid salary as of the date of the termination of his employment, and the provision of such other benefits, if any, to which he is entitled as a former employee under the employee benefit plans and programs and compensation plans and programs maintained by, or covering employees of, the Company. (b) For purposes of section 10(a)(i)(A) or (B), no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the written advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Page 10 of 19 Executive shall not be deemed to be for "cause" within the meaning of section 10(a)(i) unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of three-fourths of the non-employee members of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in section 10(a)(i) above, and specifying the particulars thereof in detail. SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE IN CONTROL. (a) A Change in Control of the Company ("Change in Control") shall be deemed to have occurred upon the happening of any of the following events: (i) approval by the stockholders of the Company of a transaction that would result in the reorganization, merger or consolidation of the Company, respectively, with one or more other persons, other than a transaction following which: (A) at least 51% of the equity ownership interests of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of the outstanding equity ownership interests in the Company; and (B) at least 51% of the securities entitled to vote generally in the election of directors of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of the securities entitled to vote generally in the election of directors of the Company; (ii) the acquisition of all or substantially all of the assets of the Company or beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the outstanding securities of the Company entitled to vote generally in the election of directors by any person or by any persons acting in concert, or approval by the stockholders of the Company of any transaction which would result in such an acquisition; (iii) a complete liquidation or dissolution of the Company, or approval by the stockholders of the Company of a plan for such liquidation or dissolution; Page 11 of 19 (iv) the occurrence of any event if, immediately following such event, at least 50% of the members of the board of directors of the Company do not belong to any of the following groups: (A) individuals who were members of the Board of the Company on the date of this Agreement; or (B) individuals who first became members of the Board of the Company after the date of this Agreement either: (I) upon election to serve as a member of the Board of directors of the Company by affirmative vote of three-quarters of the members of such board, or of a nominating committee thereof, in office at the time of such first election; or (II) upon election by the stockholders of the Board to serve as a member of the board of directors of the Board, but only if nominated for election by affirmative vote of three-quarters of the members of the board of directors of the Board, or of a nominating committee thereof, in office at the time of such first nomination; PROVIDED, HOWEVER, that such individual's election or nomination did not result from an actual or threatened election contest (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) other than by or on behalf of the Board of the Company; or (v) any event which would be described in section 11(a)(i), (ii), (iii) or (iv) if the term "Bank" were substituted for the term "Company" therein. In no event, however, shall a Change in Control be deemed to have occurred as a result of any acquisition of securities or assets of the Company, the Bank, or a subsidiary of either of them, by the Company, the Bank, or a subsidiary of either of them, or by any employee benefit plan maintained by any of them. For purposes of this section 11(a), the term "person" shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act. (b) In the event of a Change in Control, the Executive shall be entitled to the payments and benefits contemplated by section 9(b) in the event of his termination of employment with the Company under any of the circumstances described in section 9(a) of this Agreement or under any of the following circumstances: Page 12 of 19 (i) resignation, voluntary or otherwise, by the Executive at any time during the Employment Period following his demotion, loss of title, office or significant authority or responsibility, or following any reduction in any element of his package of compensation and benefits; (ii) resignation, voluntary or otherwise, by the Executive at any time during the Employment Period following any relocation of his principal place of employment or any change in working conditions at such principal place of employment which the Executive, in his reasonable discretion, determines to be embarrassing, derogatory or otherwise adverse; (iii) resignation, voluntary or otherwise, by the Executive at any time during the Employment Period following the failure of any successor to the Company in the Change in Control to include the Executive in any compensation or benefit program maintained by it or covering any of its executive officers, unless the Executive is already covered by a substantially similar plan of the Company which is at least as favorable to him; or (iv) resignation, voluntary or otherwise, for any reason whatsoever following the effective date of the Change in Control. SECTION 12. TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABILITY. (a) In the event that the Executive's employment with the Company shall terminate during the Employment Period on account of: (i) the Executive's death; or (ii) a determination that the Executive is eligible for long-term disability benefits under the Company's long-term disability insurance program or, if there is no such program, under the federal Social Security Act; then, subject to the provisions of subsection 12(b) and the next immediately succeeding sentence, to be applicable in the event of the Executive's death, the Company shall have no further obligations under this Agreement, other than the payment to the Executive (or, in the event of his death, to his estate) of his earned but unpaid salary as of the date of the termination of his employment, and the provision of such other benefits, if any, to which he is entitled as a former employee under the employee benefit plans and programs and compensation plans and programs maintained by, or covering employees of, the Company. In the event of the Executive's death, the payments and benefits described in sections 9(b)(ii), 9(b)(iii) and 9(b)(x)(A), (B) and (C) hereof shall be provided to the Executive's surviving spouse. (b) Notwithstanding the provisions of subsection 12(a) hereof, in the event a Change in Control (as defined in section 11 of this Agreement) occurs within eighteen (18) months Page 13 of 19 following the effective date of the Executive's termination of employment with the Company due to his death or disability, the Executive (or his estate, in the event of his death) shall be entitled to receive the payments and benefits that would have been paid to the Executive pursuant to section 9(b) of this Agreement assuming the Executive's employment with the Company had terminated following the date such Change in Control occurs; PROVIDED, HOWEVER, the Company's obligations under this section 12(b) shall be offset by any compensation, benefits or perquisites previously provided to the Executive's surviving spouse pursuant to section 12(a) hereof as a result of the Executive's death during the Employment Period. For purposes of the compensation, benefits or perquisites to be provided to the Executive pursuant to section 9(b) of this Agreement, the Executive's "employment termination date" shall be the date immediately following the date such Change in Control occurs and any elections permitted to be made by the Executive pursuant to section 9(b) may be made by the Executive or his legally appointed representative, whatever the case may be. SECTION 13. TAX INDEMNIFICATION. (a) This section 13 shall apply if the Executive's employment is terminated upon or following (i) a Change in Control (as defined in section 11 of this Agreement); or (ii) a change "in the ownership or effective control" of the Company or the Bank or "in the ownership of a substantial portion of the assets" of the Company or the Bank within the meaning of section 280G of the Code. If this section 13 applies, then, if for any taxable year, the Executive shall be liable for the payment of an excise tax under section 4999 of the Code with respect to any payment in the nature of compensation made by the Company, the Bank or any direct or indirect subsidiary or affiliate of the Company or the Bank to (or for the benefit of) the Executive, the Company shall pay to the Executive an amount equal to X determined under the following formula: X = E x P ------------------------------------ 1 - [(FI x (1 - SLI)) + SLI + E + M] where E = the rate at which the excise tax is assessed under section 4999 of the Code; P = the amount with respect to which such excise tax is assessed, determined without regard to this section 13; FI = the highest marginal rate of income tax applicable to the Executive under the Code for the taxable year in question; Page 14 of 19 SLI= the sum of the highest marginal rates of income tax applicable to the Executive under all applicable state and local laws for the taxable year in question; and M = the highest marginal rate of Medicare tax applicable to the Executive under the Code for the taxable year in question. With respect to any payment in the nature of compensation that is made to (or for the benefit of) the Executive under the terms of this Agreement, or otherwise, and on which an excise tax under section 4999 of the Code will be assessed, the payment determined under this section 13(a) shall be made to the Executive on the earlier of (i) the date the Company, the Bank or any direct or indirect subsidiary or affiliate of the Company or the Bank is required to withhold such tax, or (ii) the date the tax is required to be paid by the Executive. (b) Notwithstanding anything in this section 13 to the contrary, in the event that the Executive's liability for the excise tax under section 4999 of the Code for a taxable year is subsequently determined to be different than the amount determined by the formula (X + P) x E, where X, P and E have the meanings provided in section 13(a), the Executive or the Company, as the case may be, shall pay to the other party at the time that the amount of such excise tax is finally determined, an appropriate amount, plus interest, such that the payment made under section 13(a), when increased by the amount of the payment made to the Executive under this section 13(b) by the Company, or when reduced by the amount of the payment made to the Company under this section 13(b) by the Executive, equals the amount that should have properly been paid to the Executive under section 13(a). The interest paid under this section 13(b) shall be determined at the rate provided under section 1274(b)(2)(B) of the Code. To confirm that the proper amount, if any, was paid to the Executive under this section 13, the Executive shall furnish to the Company a copy of each tax return which reflects a liability for an excise tax payment made by the Company, at least 20 days before the date on which such return is required to be filed with the Internal Revenue Service. SECTION 14. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS. The termination of the Executive's employment during the term of this Agreement or thereafter, whether by the Company or by the Executive, shall have no effect on the rights and obligations of the parties hereto under the Company's qualified or non-qualified retirement, pension, savings, thrift, profit-sharing or stock bonus plans, group life, health (including hospitalization, medical and major medical), dental, accident and long term disability insurance plans or such other employee benefit plans or programs, or compensation plans or programs, as may be maintained by, or cover employees of, the Company from time to time. SECTION 15. SUCCESSORS AND ASSIGNS. Page 15 of 19 This Agreement will inure to the benefit of and be binding upon the Executive, his legal representatives and testate or intestate distributees, and the Company and its successors and assigns, including any successor by merger or consolidation or a statutory receiver or any other person or firm or corporation to which all or substantially all of the assets and business of the Company may be sold or otherwise transferred. Failure of the Company to obtain from any successor its express written assumption of the Company's obligations hereunder at least sixty (60) days in advance of the scheduled effective date of any such succession shall be deemed a material breach of this Agreement. SECTION 16. NOTICES. Any communication required or permitted to be given under this Agreement, including any notice, direction, designation, consent, instruction, objection or waiver, shall be in writing and shall be deemed to have been given at such time as it is delivered personally, or five (5) days after mailing if mailed, postage prepaid, by registered or certified mail, return receipt requested, addressed to such party at the address listed below or at such other address as one such party may by written notice specify to the other party: If to the Executive: Mr. Alfred R. Camner 6855 S.W. 101st Street Miami, Florida 33156 WITH A COPY TO: Stuzin & Camner 550 Biltmore Way Suite 700 Coral Gables, Florida 33134 Attention: MARSHA BILZIN, ESQ. If to the Company: BankUnited Financial Corporation 255 Alhambra Circle Coral Gables, Florida 33134 Attention: COMPENSATION COMMITTEE OF THE BOARD OF --------------------------------------- DIRECTORS --------- Page 16 of 19 WITH A COPY TO: Thacher Proffitt & Wood 1700 Pennsylvania Avenue, Suite 800 Washington, D.C. 20006 Attention: V. GERARD COMIZIO, ESQ. SECTION 17. INDEMNIFICATION FOR ATTORNEYS' FEES. The Company shall indemnify, hold harmless and defend the Executive against rea sonable costs, including legal fees, incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved, as a result of his efforts, in good faith, to defend or enforce the terms of this Agreement; PROVIDED, HOWEVER, that the Executive shall have substantially prevailed on the merits pursuant to a judgment, decree or order of a court of competent jurisdiction or of an arbitrator in an arbitration proceeding, or in a settlement. For purposes of this Agreement, any settlement agreement which provides for payment of any amounts in settlement of the Company's obligations hereunder shall be conclusive evidence of the Executive's entitlement to indemnification hereunder, and any such indemnification payments shall be in addition to amounts payable pursuant to such settlement agreement, unless such settlement agreement expressly provides otherwise. SECTION 18. SEVERABILITY. A determination that any provision of this Agreement is invalid or unenforceable shall not affect the validity or enforceability of any other provision hereof. SECTION 19. WAIVER. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant, or condition. A waiver of any provision of this Agreement must be made in writing, designated as a waiver, and signed by the party against whom its enforcement is sought. Any waiver or relinquishment of any right or power hereunder at any one or more times shall not be deemed a waiver or relinquishment of such right or power at any other time or times. SECTION 20. COUNTERPARTS. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same Agreement. Page 17 of 19 SECTION 21. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the federal laws of the United States and, to the extent that federal law is inapplicable, in accordance with the laws of the State of Florida applicable to contracts entered into and to be performed entirely within the State of Florida. SECTION 22. HEADINGS AND CONSTRUCTION. The headings of sections in this Agreement are for convenience of reference only and are not intended to qualify the meaning of any section. Any reference to a section number shall refer to a section of this Agreement, unless otherwise stated. SECTION 23. ENTIRE AGREEMENT; MODIFICATIONS. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supersedes in its entirety any and all prior agreements, understandings or representations relating to the subject matter hereof. No modifications of this Agreement shall be valid unless made in writing and signed by the parties hereto. SECTION 24. GUARANTEE. The Company hereby agrees to guarantee the payment by the Bank of any benefits and compensation to which the Executive is or may be entitled to under the terms and conditions of the employment agreement dated effective as of the 14th day of November, 1997 between the Bank and the Executive, a copy of which is attached hereto as Exhibit A ("Bank Agreement"). SECTION 25. NON-DUPLICATION. In the event that the Executive shall perform services for the Bank or any other direct or indirect subsidiary of the Company, any compensation, benefits or perquisites provided to the Executive by such other employer shall be applied to offset the obligations of the Company hereunder, it being intended that this Agreement set forth the aggregate compensation, benefits and perquisites payable to the Executive for all services to the Company and all of its direct or indirect subsidiaries. SECTION 26. REQUIRED REGULATORY PROVISIONS. Notwithstanding anything herein contained to the contrary, any payments to the Executive by the Company, whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. /section/1828(k), and any regulations promulgated thereunder. Page 18 of 19 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and the Executive has hereunto set his hand, all as of the day and year first above written. ------------------------------ ALFRED R. CAMNER ATTEST: BANKUNITED FINANCIAL CORPORATION By ------------------------- Secretary By ---------------------------- NAME: TITLE: [Seal] Page 19 of 19 EX-10.7 10 EXHIBIT 10.7 AMENDED AND RESTATED BANK EMPLOYMENT AGREEMENT This AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") is made and entered into effective as of November 14, 1997, by and between BANKUNITED, FSB, a savings bank organized and operating under the federal laws of the United States and having an office at 255 Alhambra Circle, Coral Gables, Florida 33134 ("Bank") and ALFRED R. CAMNER, an individual residing at 6855 S.W. 101st Street, Miami, Florida 33156 ("Executive"). Any reference to the "Company" herein shall mean BankUnited Financial Corporation. W I T N E S S E T H : WHEREAS, the Company, the Bank and the Executive entered into an Employment Agreement dated as of November 14, 1996 ("Prior Employment Agreement") pursuant to which the Executive has served as Chairman of the Board, President and Chief Executive Officer of the Company and the Bank; and WHEREAS, the Bank desires to assure for itself the continued availability of the Executive's services and the ability of the Executive to perform such services with a minimum of personal distraction in the event of a threatened or pending Change in Control (as defined herein); and WHEREAS, the Executive is willing to continue to serve in the employ of the Bank on such basis; and WHEREAS, the Bank and the Executive each hereby agree that in order to achieve the foregoing objectives it is necessary to amend and restate the terms and conditions of the Prior Employment Agreement, as set forth herein and for the Company to enter into a separate amended and restated employment agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants and conditions hereinafter set forth, the Bank and the Executive hereby agree as follows: SECTION 1. EMPLOYMENT. The Bank agrees to continue to employ the Executive, and the Executive hereby agrees to such continued employment, during the period and upon the terms and conditions set forth in this Agreement. Page 1 of 17 SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT PERIOD. (a) The terms and conditions of this Agreement shall be and remain in effect during the period of employment established under this section 2 ("Employment Period"). The Employment Period shall be for a term of three years beginning on the date of this Agreement. Prior to the first anniversary of the date of this Agreement and on or prior to each anniversary date thereafter (each, an "Anniversary Date"), the Board of Directors of the Bank ("Board") shall review the terms of this Agreement and the Executive's performance of services hereunder and may, in the absence of objection from the Executive, approve an extension of the Employment Agreement. In such event, the Employment Agreement shall be extended to the third anniversary of the relevant Anniversary Date. (b) For all purposes of this Agreement, the term "Remaining Unexpired Employment Period" as of any date shall mean the period beginning on such date and ending on the Anniversary Date on which the Employment Period (as extended pursuant to section 2(a) of this Agreement) is then scheduled to expire. (c) Nothing in this Agreement shall be deemed to prohibit the Bank at any time from terminating the Executive's employment during the Employment Period with or without notice for any reason; provided, however, that the relative rights and obligations of the Bank and the Executive in the event of any such termination shall be determined under this Agreement. SECTION 3. DUTIES. The Executive shall serve as the Chairman of the Board and the President and Chief Executive Officer of the Bank, having such power, authority and responsibility and performing such duties as are prescribed by or under the By-Laws of the Bank and as are customarily associated with such position. Except as provided in section 7 hereof, the Executive shall devote his full business time and attention (other than during weekends, holidays, approved vacation periods, and periods of illness or approved leaves of absence) to the business and affairs of the Bank and shall use his best efforts to advance the interests of the Bank. SECTION 4. ANNUAL COMPENSATION. In consideration for the services to be rendered by the Executive hereunder, the Bank shall pay to him a salary at an annual rate of Three Hundred Thousand And 00/100 Dollars ($300,000), payable in approximately equal installments in accordance with the Bank's customary payroll practices for senior officers. Prior to each Anniversary Date occurring during the Employment Period, the Board shall review the Executive's annual rate of salary and may, in its discretion, approve an increase therein. In addition to salary, the Executive may receive other cash from the Bank for services rendered hereunder at such times, in such amounts and on such terms and conditions as the Board, in its discretion, may determine from time to time. For purposes of section 9(b)(iv), the term "Salary" shall mean the aggregate value of the annual rate Page 2 of 17 of cash compensation and the fair market value, determined at the time of grant, of the stock compensation paid to the Executive pursuant to this section 4 hereof. SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS. During the Employment Period, the Executive shall be treated as an employee of the Bank and shall be entitled to participate in and receive benefits under any and all qualified or non-qualified retirement, pension, savings, profit-sharing or stock bonus plans, any and all group life, health (including hospitalization, medical and major medical), dental, accident and long term disability insurance plans, and any other employee benefit and compensation plans (including, but not limited to, any incentive compensation plans or programs, stock option and appreciation rights plans and restricted stock plans) as may from time to time be maintained by, or cover similarly situated executives of, the Bank, in accordance with the terms and conditions of such employee benefit plans and programs and compensation plans and programs and consistent with the Bank's customary practices. The Executive's estate or his designee shall be the beneficiary of life insurance policies on the life of the Executive having a face amount of at least $4,000,000.00. SECTION 6. INDEMNIFICATION AND INSURANCE. (a) During the Employment Period and for a period of six (6) years thereafter, the Bank shall cause the Executive to be covered by and named as an insured under any policy or contract of insurance obtained by it to insure its directors and officers against personal liability for acts or omissions in connection with service as an officer or director of the Bank or service in other capacities at the request of the Bank. The coverage provided to the Executive pursuant to this section 6 shall be of the same scope and on the same terms and conditions as the coverage (if any) provided to other officers or directors of the Bank. (b) To the maximum extent permitted under applicable law, during the Employment Period and for a period of six (6) years thereafter, the Bank shall indemnify the Executive against and hold him harmless from any costs, liabilities, losses and exposures to the fullest extent and on the most favorable terms and conditions that similar indemnification is offered to any director or officer of the Bank or any subsidiary or affiliate thereof. SECTION 7. OUTSIDE ACTIVITIES. During the Employment Period, it shall not be a violation of this Agreement and shall not permit the Bank to terminate the Executive's employment for Cause if the Executive engages in the activities described below or any activities similar in nature and scope, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities in accordance with this Agreement and do not constitute a violation of any applicable law, rule, regulation or code of conduct or policy established by the Bank and applicable to similarly situated executives: (i) engaging in the practice of law, including, without limitation, as a member of the firm of Stuzin and Camner, Professional Association, (ii) serving Page 3 of 17 on industry, corporate, civic or charitable boards or committees, (iii) managing personal investments (including, without limitation, family-controlled enterprises), or (iv) investing in, advising or serving as an officer or director of other corporations or business entities. It is expressly understood and agreed that to the extent any such activities have been conducted by the Executive prior to the date of this Agreement, the continued conduct of such activities (or the conduct of activities similar in nature and scope) shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Bank. The Executive may also serve as an officer or director of the Company on such terms and conditions as the Bank and the Company may mutually agree upon, and such service shall not be deemed to materially interfere with the Executive's performance of his duties hereunder or otherwise result in a material breach of this Agreement. SECTION 8. WORKING FACILITIES AND EXPENSES. The Executive's principal place of employment shall be at the Bank's executive offices at the address first above written, or at such other location within Coral Gables at which the Bank shall maintain its principal executive offices, or at such other location as the Bank and the Executive may mutually agree upon. The Bank shall provide the Executive at his principal place of employment with a private office, secretarial services and other support services and facilities including, but not limited to, Internet and Bloomberg Financial Market Commodities and News Access Subscriptions, cellular telephones, pagers and a lap-top computer, suitable to his position with the Bank and necessary or appropriate in connection with the performance of his assigned duties under this Agreement. The Bank shall provide to the Executive for his exclusive use an automobile owned or leased by the Bank which shall be a BMW 740 (or an automobile of similar stature and caliber), to be used in the performance of his duties hereunder, including commuting to and from his personal residence. The Bank shall reimburse the Executive for his ordinary and necessary business expenses, including, without limitation, all expenses associated with his business use of the aforementioned automobile, fees for memberships in such clubs and organizations as the Executive and the Bank shall mutually agree are necessary and appropriate for business purposes, and his travel and entertainment expenses incurred in connection with the performance of his duties under this Agreement, in each case upon presentation to the Bank of an itemized account of such expenses in such form as the Bank may reasonably require. SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE BENEFITS. (a) The Executive shall be entitled to the severance benefits described herein in the event that his employment with the Bank terminates during the Employment Period under any of the following circumstances: (i) The Executive's voluntary resignation from employment with the Bank within ninety (90) days following: Page 4 of 17 (A) the failure of the Board to appoint or re-appoint or elect or re-elect the Executive to the office of Chairman of the Board, President and Chief Executive Officer of the Bank; (B) the failure of the stockholders of the Bank to elect or re-elect the Executive or the failure of the Board (or the nominating committee thereof) to nominate the Executive for such election or re-election; (C) the expiration of a thirty (30) day period following the date on which the Executive gives written notice to the Bank of its material failure, whether by amendment of the Bank's Organization Certificate or By-laws, action of the Board or the Bank's stockholders or otherwise, to vest in the Executive the functions, duties, or responsibilities prescribed in section 3 of this Agreement, unless, during such thirty (30) day period, the Bank cures such failure in a manner determined by the Executive, in his discretion, to be satisfactory; or (D) the expiration of a thirty (30) day period following the date on which the Executive gives written notice to the Bank of its material breach of any term, condition or covenant contained in this Agreement (including, without limitation any reduction of the Executive's rate of base salary in effect from time to time and any change in the terms and conditions of any compensation or benefit program in which the Executive participates which, either individually or together with other changes, has a material adverse effect on the aggregate value of his total compensation package), unless, during such thirty (30) day period, the Bank cures such failure in a manner determined by the Executive, in his discretion, to be satisfactory; or (E) the relocation of the executive offices of the Bank, a distance of more than 25 miles from its current Coral Gables, Florida location. (ii) subject to the provisions of section 10, the termination of the Executive's employment by the Bank for any other reason; then, the Bank shall provide the benefits and pay to the Executive the amounts described in section 9(b). (b) Upon the termination of the Executive's employment with the Bank under circumstances described in section 9(a) of this Agreement, the Bank shall pay and provide to the Executive (or, in the event of his death following such termination of employment to his estate): (i) his earned but unpaid compensation (including, without limitation, all items which constitute wages under applicable state law and the payment of which is not otherwise provided for under this section 9(b)) as of the date of the termination of his Page 5 of 17 employment with the Bank, such payment to be made at the time and in the manner prescribed by law applicable to the payment of wages but in no event later than thirty (30) days after termination of employment; (ii) the benefits, if any, to which he is entitled as a former employee under the employee benefit plans and programs and compensation plans and programs maintained for the benefit of the Bank's officers and employees; (iii) continued group life, health (including hospitalization, medical, major medical and any supplemental insurance coverages), dental, accident and long term disability insurance benefits, in addition to that provided pursuant to section 9(b)(ii), and after taking into account the coverage provided by any subsequent employer, if and to the extent necessary to provide for the Executive, for the Remaining Unexpired Employment Period, coverage equivalent to the coverage to which he would have been entitled under such plans (as in effect on the date of his termination of employment, or, if his termination of employment occurs after a Change in Control, on the date of such Change in Control, whichever benefits are greater), if he had continued working for the Bank during the Remaining Unexpired Employment Period at the highest annual rate of compensation achieved during that portion of the Employment Period which is prior to the Executive's termination of employment with the Bank and with such continued coverages to be provided to the Executive at the Bank's expense through COBRA or in any other manner determined by the Board to be appropriate including, but not limited to, through the purchase of an individual policy or policies; (iv) within thirty (30) days following his termination of employment with the Bank, a lump sum payment, in an amount equal to the present value of the Salary that the Executive would have earned if he had continued working for the Bank during the Remaining Unexpired Employment Period at the highest annual Salary achieved during that portion of the Employment Period which is prior to the Executive's termination of employment with the Bank, where such present value is to be determined using a discount rate equal to the applicable short-term federal rate prescribed under section 1274(d) of the Internal Revenue Code of 1986 ("Code"), compounded using the compounding period corresponding to the Bank's regular payroll periods for its officers, such lump sum to be paid in lieu of all other payments of Salary provided for under this Agreement in respect of the period following any such termination; (v) within thirty (30) days following his termination of employment with the Bank, a lump sum payment in an amount equal to the excess, if any, of: (A) the present value of the aggregate benefits to which he would be entitled under any and all qualified and non-qualified defined benefit pension plans maintained by, or covering employees of, the Bank, if he were 100% vested thereunder and had continued working for the Bank during the Remaining Page 6 of 17 Unexpired Employment Period, such benefits to be determined as of the date of termination of employment by adding to the service actually recognized under such plans an additional period equal to the Remaining Unexpired Employment Period and by adding to the compensation recognized under such plans for the year in which termination of employment occurs all amounts payable under sections 9(b)(i), (iv), (vii), (viii) and (ix); over (B) the present value of the benefits to which he is actually entitled under such defined benefit pension plans as of the date of his termination; where such present values are to be determined using the mortality tables prescribed under section 415(b)(2)(E)(v) of the Code and a discount rate, compounded monthly equal to the annualized rate of interest prescribed by the Pension Benefit Guaranty Corporation for the valuation of immediate annuities payable under terminating single-employer defined benefit plans for the month in which the Executive's termination of employment occurs ("Applicable PBGC Rate"); (vi) within thirty (30) days following his termination of employment with the Bank, a lump sum payment in an amount equal to the present value of the additional employer contributions to which he would have been entitled under any and all qualified and non-qualified defined contribution plans maintained by, or covering employees of, the Bank, if he were 100% vested thereunder and had continued working for the Bank during the Remaining Unexpired Employment Period at the highest annual rate of compensation achieved during that portion of the Employment Period which is prior to the Executive's termination of employment with the Bank, and making the maximum amount of employee contributions, if any, required under such plan or plans, such present value to be determined on the basis of a discount rate, compounded using the compounding period that corresponds to the frequency with which employer contributions are made to the relevant plan, equal to the Applicable PBGC Rate; (vii) the payments that would have been made to the Executive under any cash bonus or long-term or short-term cash incentive compensation plan maintained by, or covering employees of, the Bank if he had continued working for the Bank during the Remaining Unexpired Employment Period and had earned the maximum bonus or incentive award in each calendar year that ends during the Remaining Unexpired Employment Period, such payments to be equal to the product of: (A) the maximum percentage rate at which an award was ever available to the Executive under such incentive compensation plan; multiplied by (B) the salary that would have been paid to the Executive during each such calendar year at the highest annual rate of salary achieved during that portion Page 7 of 17 of the Employment Period which is prior to the Executive's termination of employment with the Bank: such payments to be made (without discounting for early payment) within thirty (30) days following the Executive's termination of employment; (viii) at the election of the Bank made within thirty (30) days following his termination of employment with the Bank, upon the surrender of options or appreciation rights issued to the Executive under any stock option and appreciation rights plan or program maintained by, or covering employees of, the Bank, a lump sum payment in an amount equal to the product of: (A) the excess of (I) the fair market value of a share of stock of the same class as the stock subject to the option or appreciation right, determined as of the date of termination of employment, over (II) the exercise price per share for such option or appreciation right, as specified in or under the relevant plan or program; multiplied by (B) the number of shares with respect to which options or appreciation rights are being surrendered. For purposes of this section 9(b)(viii) and for purposes of determining the Executive's right following his termination of employment with the Bank to exercise any options or appreciation rights not surrendered pursuant hereto, the Executive shall be deemed fully vested in all options and appreciation rights under any stock option or appreciation rights plan or program maintained by, or covering employees of, the Bank, even if he is not vested under such plan or program; (ix) at the election of the Bank made within thirty (30) days following the Executive's termination of employment with the Bank, upon the surrender of any shares awarded to the Executive under any restricted stock plan maintained by, or covering employees of, the Bank, a lump sum payment in an amount equal to the product of: (A) the fair market value of a share of stock of the same class of stock granted under such plan, determined as of the date of the Executive's termination of employment; multiplied by (B) the number of shares which are being surrendered. For purposes of this section 9(b)(ix) and for purposes of determining the Executive's right following his termination of employment with the Bank to any stock not surrendered pursuant hereto, the Executive shall be deemed fully vested Page 8 of 17 in all shares awarded under any restricted stock plan maintained by, or covering employees of, the Bank, even if he is not vested under such plan. (x) In addition, the Bank shall provide the Executive with (A) personal use, at the Bank expense for the Remaining Unexpired Employment Period, of a late model automobile comparable to that used by the Executive prior to his termination of employment; (B) the right of the Executive to purchase, at book value, the membership in up to two country clubs which the Bank has maintained for the benefit of the Executive; (C) the transfer to the Executive of two $1 million life insurance policies that the Bank then maintains on the life of the Executive as part of his benefits; and (D) continued use, at the Bank expense for the Remaining Unexpired Employment Period, of the secretarial services, Internet and Bloomberg Financial Market Commodities and News Access Subscriptions, cellular telephones, pagers and the lap-top computer which had been provided to the Executive immediately prior to his termination of employment. The Bank and the Executive hereby stipulate that the damages which may be incurred by the Executive following any such termination of employment are not capable of accurate measurement as of the date first above written and that the payments and benefits contemplated by this section 9(b) constitute reasonable damages under the circumstances and shall be payable without any requirement of proof of actual damage and without regard to the Executive's efforts, if any, to mitigate damages. The Bank and the Executive further agree that the Bank may condition the payments and benefits (if any) due under sections 9(b)(iii), (iv), (v), (vi), (vii) and (x) on the receipt of the Executive's resignation from any and all positions which he holds as an officer, director or committee member with respect to the Bank, the Bank or any subsidiary or affiliate of either of them. In no event shall any of the foregoing provisions of this section 9(b) entitle the Executive to additional grants of statutory or non-statutory options to purchase shares of common stock of the Company pursuant to any incentive stock option plan, then in effect. SECTION 10. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY. In the event that the Executive's employment with the Bank shall terminate during the Employment Period on account of: (a) the discharge of the Executive for "cause," which, for purposes of this Agreement shall mean personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease and desist order, or any material breach of this Agreement, in each case as measured against standards generally prevailing at the relevant time in the savings and community banking industry; PROVIDED, HOWEVER, that the Executive shall not be deemed to have been discharged for cause unless and until the following procedures shall have been followed: Page 9 of 17 (i) the Board shall adopt a resolution duly approved by affirmative vote of a majority of the entire Board at a meeting called and held for such purpose calling for the Executive's termination for cause and setting forth the purported grounds for such termination ("Proposed Termination Resolution"); (ii) as soon as practicable, and in any event within five (5) days, after adoption of such resolution, the Board shall furnish to the Executive a written notice of termination which shall be accompanied by a certified copy of the Proposed Termination Resolution ("Notice of Proposed Termination"); (iii) the Executive shall be afforded a reasonable opportunity to make oral and written presentations to the members of the Board, on his own behalf, or through a representative, who may be his legal counsel, to refute the grounds set forth in the Proposed Termination Resolution at one or more meetings of the Board to be held no sooner than fifteen (15) days and no later than thirty (30) days after the Executive's receipt of the Proposed Termination Notice ("Termination Hearings"); and (iv) within ten (10) days following the end of the Termination Hearings, the Board shall adopt a resolution duly approved by affirmative vote of a majority of the entire Board at a meeting called and held for such purpose (A) finding that in the good faith opinion of the Board the grounds for termination set forth in the Proposed Termination Resolution exist and (B) terminating the Executive's employment ("Termination Resolution"); and (v) as promptly as practicable, and in any event within one (1) business day after adoption of the Termination Resolution, the Board shall furnish to the Executive written notice of termination, which notice shall include a copy of the Termination Resolution and specify an effective date of termination that is not later than the date on which such notice is given; (b) The Executive's voluntary resignation from employment with the Bank for reasons other than those specified in section 9(a)(i); (c) The Executive's death; or (d) a determination that the Executive is eligible for long-term disability benefits under the Bank's long-term disability insurance program or, if there is no such program, under the federal Social Security Act; then subject to the provisions of the next immediately succeeding sentence, which shall be applicable in the event of the Executive's death, the Bank shall have no further obligations under this Agreement, other than the payment to the Executive (or, in the event of his death, to his estate) of his earned but unpaid salary as of the date of the termination of his employment, and the Page 10 of 17 provision of such other benefits, if any, to which he is entitled as a former employee under the employee benefit plans and programs and compensation plans and programs maintained by, or covering employees of, the Bank. In the event of the Executive's death, the payments and benefits described in sections 9(b)(ii), 9(b)(iii) and 9(b)(x)(A), (B) and (C) shall be provided to the Executive's surviving spouse. SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE IN CONTROL. (a) A Change in Control of the Bank ("Change in Control") shall be deemed to have occurred upon the happening of any of the following events: (i) approval by the stockholders of the Bank of a transaction that would result in the reorganization, merger or consolidation of the Bank, respectively, with one or more other persons, other than a transaction following which: (A) at least 51% of the equity ownership interests of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of the outstanding equity ownership interests in the Bank; and (B) at least 51% of the securities entitled to vote generally in the election of directors of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of the securities entitled to vote generally in the election of directors of the Bank; (ii) the acquisition of all or substantially all of the assets of the Bank or beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the outstanding securities of the Bank entitled to vote generally in the election of directors by any person or by any persons acting in concert, or approval by the stockholders of the Bank of any transaction which would result in such an acquisition; (iii) a complete liquidation or dissolution of the Bank, or approval by the stockholders of the Bank of a plan for such liquidation or dissolution; (iv) the occurrence of any event if, immediately following such event, at least 50% of the members of the board of directors of the Bank do not belong to any of the following groups: Page 11 of 17 (A) individuals who were members of the Board of the Bank on the date of this Agreement; or (B) individuals who first became members of the Board of the Bank after the date of this Agreement either: (I) upon election to serve as a member of the Board of directors of the Bank by affirmative vote of three-quarters of the members of such board, or of a nominating committee thereof, in office at the time of such first election; or (II) upon election by the stockholders of the Board to serve as a member of the board of directors of the Board, but only if nominated for election by affirmative vote of three-quarters of the members of the board of directors of the Board, or of a nominating committee thereof, in office at the time of such first nomination; PROVIDED, HOWEVER, that such individual's election or nomination did not result from an actual or threatened election contest (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) other than by or on behalf of the Board of the Bank; or (v) any event which would be described in section 11(a)(i), (ii), (iii) or (iv) if the term "Company" were substituted for the term "Bank" therein. In no event, however, shall a Change in Control be deemed to have occurred as a result of any acquisition of securities or assets of the Company, the Bank, or a subsidiary of either of them, by the Company, the Bank, or a subsidiary of either of them, or by any employee benefit plan maintained by any of them. For purposes of this section 11(a), the term "person" shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act. (b) In the event of a Change in Control, the Executive shall be entitled to the payments and benefits contemplated by section 9(b) in the event of his termination of employment with the Bank under any of the circumstances described in section 9(a) of this Agreement or under any of the following circumstances: (i) resignation, voluntary or otherwise, by the Executive at any time during the Employment Period and within ninety (90) days following his demotion, loss of title, office or significant authority or responsibility, or following any material reduction in any element of his package of compensation and benefits; Page 12 of 17 (ii) resignation, voluntary or otherwise, by the Executive at any time during the Employment Period and within ninety (90) days following (A) any relocation of his principal place of employment outside of a 25-mile radius of the principal place of employment immediately prior to the Change of Control that would require a relocation of his residence in order to be able to commute to such new place of employment within a commuting time not in excess of the greater of 60 minutes or the Executive's commuting time prior to the Change of Control or (B) any material adverse change in working conditions at such principal place of employment; or (iii) resignation, voluntary or otherwise, by the Executive at any time during the Employment Period following the failure of any successor to the Bank in the Change of Control to include the Executive in any compensation or benefit program maintained by it or covering any of its executive officers, unless the Executive is already covered by a substantially similar plan of the Bank which is at least as favorable to him. SECTION 12. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS. The termination of the Executive's employment during the term of this Agreement or thereafter, whether by the Bank or by the Executive, shall have no effect on the rights and obligations of the parties hereto under the Bank's qualified or non-qualified retirement, pension, savings, thrift, profit-sharing or stock bonus plans, group life, health (including hospitalization, medical and major medical), dental, accident and long term disability insurance plans or such other employee benefit plans or programs, or compensation plans or programs, as may be maintained by, or cover employees of, the Bank from time to time. SECTION 13. SUCCESSORS AND ASSIGNS. This Agreement will inure to the benefit of and be binding upon the Executive, his legal representatives and testate or intestate distributees, and the Bank and its successors and assigns, including any successor by merger or consolidation or a statutory receiver or any other per- son or firm or corporation to which all or substantially all of the assets and business of the Bank may be sold or otherwise transferred. Failure of the Bank to obtain from any successor its express written assumption of the Bank's obligations hereunder at least sixty (60) days in advance of the scheduled effective date of any such succession shall be deemed a material breach of this Agreement. SECTION 14. NOTICES. Any communication required or permitted to be given under this Agreement, including any notice, direction, designation, consent, instruction, objection or waiver, shall be in writing and shall be deemed to have been given at such time as it is delivered personally, or five (5) days after mailing if mailed, postage prepaid, by registered or certified mail, return receipt Page 13 of 17 requested, addressed to such party at the address listed below or at such other address as one such party may by written notice specify to the other party: If to the Executive: Mr. Alfred R. Camner 6855 S.W. 101st Street Miami, Florida 33156 WITH A COPY TO: Stuzin & Camner 550 Biltmore Way Suite 700 Coral Gables, Florida 33134 Attention: MARSHA BILZIN, ESQ. If to the Bank: BankUnited, FSB 255 Alhambra Circle Coral Gables, Florida 33134 Attention: COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS WITH A COPY TO: Thacher Proffitt & Wood 1700 Pennsylvania Avenue, Suite 800 Washington, D.C. 20006 Attention: V. GERARD COMIZIO, ESQ. SECTION 15. INDEMNIFICATION FOR ATTORNEYS' FEES. The Bank shall indemnify, hold harmless and defend the Executive against reasonable costs, including legal fees, incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved, as a result of his efforts, in good faith, to defend or enforce the terms of this Agreement; PROVIDED, HOWEVER, that the Executive shall have substantially prevailed on the merits pursuant to a judgment, decree or order of a court of competent jurisdiction or of an arbitrator in an arbitration proceeding, or in a settlement. For purposes of this Agreement, any settlement agreement which provides for payment of any amounts Page 14 of 17 in settlement of the Bank's obligations hereunder shall be conclusive evidence of the Executive's entitlement to indemnification hereunder, and any such indemnification payments shall be in addition to amounts payable pursuant to such settlement agreement, unless such settlement agreement expressly provides otherwise. SECTION 16. SEVERABILITY. A determination that any provision of this Agreement is invalid or unenforceable shall not affect the validity or enforceability of any other provision hereof. SECTION 17. WAIVER. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant, or condition. A waiver of any provision of this Agreement must be made in writing, designated as a waiver, and signed by the party against whom its enforcement is sought. Any waiver or relinquishment of any right or power hereunder at any one or more times shall not be deemed a waiver or relinquishment of such right or power at any other time or times. SECTION 18. COUNTERPARTS. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same Agreement. SECTION 19. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the federal laws of the United States and, to the extent that federal law is inapplicable, in accordance with the laws of the State of Florida applicable to contracts entered into and to be performed entirely within the State of Florida. SECTION 20. HEADINGS AND CONSTRUCTION. The headings of sections in this Agreement are for convenience of reference only and are not intended to qualify the meaning of any section. Any reference to a section number shall refer to a section of this Agreement, unless otherwise stated. SECTION 21. ENTIRE AGREEMENT; MODIFICATIONS. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supersedes in its entirety any and all prior agreements, understandings or representations relating to the subject matter hereof. No modifications of this Agreement shall be valid unless made in writing and signed by the parties hereto. Page 15 of 17 SECTION 22. REQUIRED REGULATORY PROVISIONS. The following provisions are included for the purposes of complying with various laws, rules and regulations applicable to the Bank: (a) Notwithstanding anything herein contained to the contrary, in no event shall the aggregate amount of compensation payable to the Executive under section 9(b) hereof (exclusive of amounts described in section 9(b)(i)) exceed the lesser of (i) three times the Executive's average annual total compensation for the last five consecutive calendar years to end prior to his termination of employment with the Bank (or for his entire period of employment with the Bank if less than five calendar years) and (ii) the maximum amount that may be paid without producing an "excess parachute payment" (as such term is defined in section 280G of the Code), the applicability of such provision to the Executive and any such maximum amount to be determined in good faith by the firm of independent certified public accountants regularly retained to audit the Bank's books and records. (b) Notwithstanding anything herein contained to the contrary, any payments to the Executive by the Bank, whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with section 18(k) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. /section/1828(k), and any regulations promulgated thereunder. (c) Notwithstanding anything herein contained to the contrary, if the Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the affairs of the Bank pursuant to a notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12 U.S.C. /section/1818(e)(3) or 1818(g)(1), the Bank's obligations under this Agreement shall be suspended as of the date of service of such notice, unless stayed by appropriate proceedings. If the charges in such notice are dismissed, the Bank, in its discretion, may (i) pay to the Executive all or part of the compensation withheld while the Bank's obligations hereunder were suspended and (ii) reinstate, in whole or in part, any of the obligations which were suspended. (d) Notwithstanding anything herein contained to the contrary, if the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C. /section/1818(e)(4) or (g)(1), all prospective obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights and obligations of the Bank and the Executive shall not be affected. (e) Notwithstanding anything herein contained to the contrary, if the Bank is in default (within the meaning of section 3(x)(1) of the FDI Act, 12 U.S.C. /section/1813(x)(1), all prospective obligations of the Bank under this Agreement shall terminate as of the date of default, but vested rights and obligations of the Bank and the Executive shall not be affected. Page 16 of 17 (f) Notwithstanding anything herein contained to the contrary, all prospective obligations of the Bank hereunder shall be terminated, except to the extent that a continuation of this Agreement is necessary for the continued operation of the Bank: (i) by the Director of the Office of Thrift Supervision ("OTS") or his designee or the Federal Deposit Insurance Corporation ("FDIC"), at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in section 13(c) of the FDI Act, 12 U.S.C. /section/1823(c); (ii) by the Director of the OTS or his designee at the time such Director or designee approves a supervisory merger to resolve problems related to the operation of the Bank or when the Bank is determined by such Director to be in an unsafe or unsound condition. The vested rights and obligations of the parties shall not be affected. If and to the extent that any of the foregoing provisions shall cease to be required or by applicable law, rule or regulation, the same shall become inoperative as though eliminated by formal amendment of this Agreement. IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed and the Executive has hereunto set his hand, all as of the day and year first above written. --------------------------------- ALFRED R. CAMNER ATTEST: BANKUNITED, FSB By ------------------------- Secretary By ------------------------------ NAME: TITLE: [Seal] Page 17 of 18 EX-10.8 11 EXHIBIT 10.8 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this ___ day of November 1998 by and between Mehdi Ghomeshi (hereinafter the "Executive") and BankUnited Financial Corporation, a Florida corporation ("BankUnited"), and its principal wholly owned subsidiary, BankUnited, FSB (BankUnited and BankUnited, FSB are collectively referred to herein as the "Company" and are jointly and severally obligated hereunder subject to the provisions of Section 17.4 hereof). RECITALS A. The Executive possesses intimate knowledge of, and experience in, the banking industry. B. The Boards of Directors of BankUnited and BankUnited, FSB (collectively referred to herein as the "Board") have determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the services of the Executive as its President and Chief Operating Officer, and to compensate him therefor. C. The Company, on behalf of itself and its shareholders, also wishes to retain well-qualified key personnel (such as Executive), and to assure itself of the continuity of its management. D. The Company is concerned that in the event of a possible or threatened Change in Control (as hereinafter defined), uncertainties necessarily arise and the Executive may have concerns about his employment status and responsibilities, and may be approached by others offering competing employment opportunities, and the Company therefore desires to provide the Executive assurances as to the continuation of his employment status and responsibilities in such event. The Company further desires to assure that, if a possible or threatened Change in Control should arise and the Executive should be involved in deliberations or negotiations in connection therewith, the Executive would be in a secure position to consider and participate in such transaction as objectively as possible in the best interests of the Company and, to this end, desires to protect the Executive from any direct or implied threat to his financial well-being. E. The Board has determined that this Agreement will reinforce and encourage the Executive's attention and dedication to the Company. F. The Executive is willing to make his services available to the Company on the terms and conditions hereinafter set forth, but desires assurance that in the event of such a threatened or actual Change in Control he will continue to have the employment status and responsibilities he could reasonably expect absent such event and, in the event of his termination or a Change in Control, he will have fair and reasonable severance protection on the basis of his service to the Company at that time. 1 NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, the parties agree as follows: 1. DEFINITIONS. In addition to the words and terms defined elsewhere in this Agreement, the following words and terms as used herein shall have the meanings as set forth below, unless the context or use indicates a different meaning: (a) "DATE OF TERMINATION" means the date of receipt of a Notice of Termination or any later date specified therein, as the case may be; provided, however, that if the Executive's employment is terminated by reason of the Executive's death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. (b) "DISABILITY" means any physical or mental condition that wholly prevents the Executive from performing his duties for at least six months after the commencement of such condition and that is determined to be of a permanent duration by a physician acceptable to the Company and the Executive or the Executive's legal representative (such agreement as to acceptability not to be unreasonably withheld). If the Company determines in good faith that the Disability of the Executive has occurred, it may give to the Executive written notice of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective the Disability Effective Date, provided that the Executive shall not have returned to full-time performance of the Executive's duties prior to the Disability Effective Date. Any subsequent Disability, whether of a similar nature or not, shall not be deemed a continuation of a prior Disability and, the determination of time periods for the purposes of this provision shall recommence. (c) "DISABILITY EFFECTIVE DATE" means the date thirty (30) days following receipt by the Executive of notice from the Company of the Company's intention to terminate the Executive's employment because of the Executive's Disability. (d) "NOTICE OF TERMINATION" means a written notice that (i) indicates the specific termination provision in this Agreement relied upon, (ii) in the case of termination for Cause, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment for Cause and includes the resolution of the Board regarding the termination of the Executive's employment for Cause, and (iii) if the Date of Termination is other than the date of receipt of such notice, specifies the termination date. (e) "TERMINATION PAYMENT" means a lump sum cash payment to the Executive by the Company in an amount which equals three times the sum of the Executive's Base Salary for the year in which the termination occurs and an amount equal to the last Annual Bonus paid to the Executive. (f) "VESTED BENEFITS" means all amounts earned by and vested in the Executive pursuant to the plans, programs, policies and practices of the Company, including, without 2 limitation, the BankUnited Financial Corporation Profit Sharing Plan, disability insurance plan, and group and supplemental life insurance plans. 2. EMPLOYMENT. 2.1 EMPLOYMENT AND TERM. The Company hereby agrees to employ the Executive and the Executive hereby agrees to serve the Company, on the terms and conditions set forth herein, for the thirty (30) month period commencing on December 1, 1998 (hereinafter the "Commencement Date") and expiring at the conclusion of May 31, 2001 (the "Term") unless sooner terminated as hereinafter set forth; provided, however, that commencing on June 1, 2001 and each year thereafter (the "Extension Date"), subject to review under Section 2.4 hereof, the Term of this Agreement shall automatically be extended for an additional period of twelve (12) months from that date unless at least six (6) months prior to such Extension Date, the Company shall have delivered to the Executive, or the Executive shall have delivered to the Company, written notice that the Term of the Executive's employment hereunder will not be extended. In the event any such notice is delivered by the Company to the Executive or by the Executive to the Company, thereafter, so long as the Executive is performing his obligations pursuant to this Agreement, the Executive may begin his search and may interview for subsequent employment, which actions shall not constitute a breach of this Agreement by the Executive or give rise to a basis for his termination for Cause (as such term is defined in Section 5.1 hereof). 2.2 POSITION AND DUTIES OF EXECUTIVE. The Executive shall serve as the President and Chief Operating Officer of BankUnited and BankUnited, FSB, and shall have powers and authority superior to any other officer or employee of the Company or of any subsidiary of the Company (excepting the Chairman of the Board). The Executive shall be responsible for all lines of business and all support functions, and shall manage the affairs of the Company on a day-to-day basis. Subject to the preceding sentences, during the Term of employment, the Executive shall diligently perform all services as may be reasonably assigned to him by the Board (or its Chairman) and shall exercise such power and authority as may from time to time be delegated to him by the Board (or its Chairman). Executive shall be required to report solely to, and shall be subject solely to the supervision and direction of, the Board (or its Chairman) at duly called meetings thereof, and no other person or group shall be given authority to supervise or direct Executive in the performance of his duties. The Executive shall devote substantially all his working time and attention to the business and affairs of the Company, render such services efficiently and to the best of his ability, and use his best efforts to promote the interests of the Company. 2.3 PLACE OF PERFORMANCE. In connection with his employment by the Company, the Executive shall be based at the Company's principal executive offices (which shall be in Miami-Dade County, Broward County or Palm Beach County, Florida) unless a change of location is mutually satisfactory to the Executive and the Company, except for required travel on the Company's business. To the extent the Executive, as a consequence of his employment, is required to relocate from Miami-Dade County, Florida, the Company shall reimburse the Executive for all reasonable costs incurred in connection with the relocation including, but not limited to, moving expenses and transaction costs related to the sale of his home, such expenses to include brokerage commissions 3 and transfer costs customarily paid by sellers of residential real property. 2.4 PERFORMANCE REVIEW. It is the intent of the parties that the Executive's performance be reviewed with the Board of Directors once each year (as said term is defined in Section 3.2 hereof). 3. COMPENSATION. 3.1 BASE SALARY. The Executive shall receive a base salary of $325,000 (the "Base Salary") per year during the Term of this Agreement, with such Base Salary payable in installments consistent with the Company's standard payroll practice for executives. On each anniversary of the Commencement Date commencing in 1999, the Compensation Committee of the Board (or the full Board in the absence of such committee or a replacement therefor) may engage in good faith negotiations with the Executive concerning an increase of the Executive's then Base Salary . The Base Salary shall not be decreased for any reason. Any increase in Base Salary shall not limit or reduce any obligation to the Executive under this Agreement. 3.2 ANNUAL BONUS. The Executive shall be entitled to a cash bonus (the "Annual Bonus") for each year of the Term (for purposes of this Agreement a "year" shall mean, with respect to the first year, the period starting on the Commencement Date of this Agreement and ending on the first anniversary thereafter, and for each subsequent year, a period commencing on the day after the end of the preceding year and ending twelve (12) months thereafter). The Annual Bonus for a year shall be based upon merit during such year (taking into account various factors including net income, assets and deposit growth, and such other factors as may be deemed appropriate) and shall be determined by the Compensation Committee of the Board (or the full Board in the absence of such Committee or a replacement therefor); provided, however, that the minimum amount of the Bonus shall be $50,000 for the year to which the Bonus relates. The Annual Bonus for a year shall be paid, at the election of the Executive, in the immediately following months of December or January. 4. ADDITIONAL BENEFITS. 4.1 EXPENSE REIMBURSEMENT. During the Term, the Company, upon the submission of supporting documentation by the Executive in form sufficient to permit deduction thereof under applicable tax law, shall promptly reimburse the Executive for all reasonable expenses actually paid or incurred by the Executive in the course of and pursuant to the business of the Company, including expenses for entertainment and all travel and living expenses while away from home on business or at the request of the Company, provided that such expenses are incurred and accounted for in accordance with the Company's regular policies and procedures. 4.2 OTHER BENEFITS. The Company shall obtain or shall continue in force comprehensive major medical and hospitalization insurance coverages, including dental coverage, either group or individual, for the Executive and his dependents, and shall obtain or shall continue in force disability and life insurance for the Executive (collectively, the "Policies"), which Policies the Company shall keep in effect at its sole expense throughout the Term. To the extent any Policies 4 have an eligibility period, Executive may maintain his existing equivalent coverage under COBRA and the Company shall reimburse him for that expense until the eligibility period is satisfied. The Policies to be provided by the Company shall be on terms as determined by the Board; provided, however, that the death benefit under the life insurance policy(ies) maintained on behalf of the Executive shall be at least equal to a face amount of $2,000,000 and shall be payable to beneficiary(s) designated by the Executive. In addition to the group disability insurance coverage provided by the Company to its executive employees, the Company shall pay to the Executive $6,000 annually to reimburse him for the cost of an individual disability policy which would provide the Executive monthly disability benefits of $11,125 (or such disability benefits as the Executive individually secures with the reimbursed amount), without deduction for any payments provided under the Company's group disability insurance coverage. Regardless of anything herein to the contrary, if at any time during the Executive's employment hereunder, the Company agrees to provide or provides any benefit to any other executive officer of the Company (excepting the Chairman of the Board), which benefit is not otherwise provided to the Executive hereunder, or which is greater than a similar benefit provided to the Executive hereunder, the Company shall provide such benefit to the Executive or increase his benefit to be at least equal to such benefit agreed to be provided or provided to such other executive officer . Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the Base Salary or Annual Bonus payable to the Executive pursuant to this Agreement. 4.3 WORKING FACILITIES AND SUPPORT STAFF. The Company shall furnish the Executive with an office or offices, of a size and with furnishings and other appointments, and secretarial and such other facilities and support services suitable to his position and adequate for the performance of his duties hereunder. The office facilities and support staff shall substantially equal the most favorable provided to any other officer or employee of the Company. 4.4 AUTOMOBILE ALLOWANCE. During the Term, the Company shall provide Executive with an automobile allowance of fifteen hundred dollars ($1,500) per month, which amount is intended to compensate Executive for wear and tear and, in addition, reimburse the Executive for all costs of gasoline, oil, repairs, maintenance, insurance and other expenses incurred by Executive by reason of the use of Executive's automobile for Company business from time to time. The amount of this allowance will be reviewed by the Company and the Executive on each anniversary from the Commencement Date during the Term, commencing in 1999, and increased prospectively as is necessary to compensate and reimburse the Executive for such wear and tear and costs. 4.5 VACATION. The Executive shall be entitled to four (4) weeks vacation per year, said vacation to be scheduled so as not to materially interfere with the performance by the Executive of his duties pursuant to this Agreement. 4.6 COUNTRY CLUB MEMBERSHIP. The Company shall pay initiation fees (not to exceed $20,000) and dues for the Executive's membership at a country club of his choice, and such luncheon clubs as he deems appropriate for the discharge of his duties hereunder. 5 4.7 INCENTIVE COMPENSATION. Executive shall be granted annually options to purchase at least 30,000 shares of the Company's Class A Common Stock, such grants to be based upon Executive's performance and the market price of such stock. Any such future grants shall provide that the options immediately vest upon a Change in Control as defined in Section 6, the Executive's termination under Sections 5.2 or 5.3, or the Company or the Executive advising the other pursuant to Section 2.1 that the Term of this Agreement will not be extended. Executive shall also be eligible to participate in stock option, incentive compensation and other plans providing opportunities to receive additional compensation. 4.8 ESTATE PLANNING. The Company shall pay the cost for reasonable estate planning services that the Executive receives from time to time; provided, however, that the aggregate amount of the foregoing, shall not exceed $5000 per year. 4.9 SECURITIES GRANTS. At the first meeting of the Board of Directors of the Company following Commencement Date, Executive shall receive: a) a grant of 35,000 shares of the Company's Class A Common Stock, ownership of which is to vest on January 4, 1999; b) a grant of options to purchase 70,000 shares of the Company's Class A Common Stock at a price of $7 1/8 and with an expiration date of ten (10) years, which options will vest 50% at the first anniversary from the Commencement Date, 25% at the second anniversary from the Commencement Date, and 25% at the third anniversary from the Commencement Date, subject to immediate vesting in the event of the Executive's termination under Sections 5.2 or 5.3, the Company or the Executive advising the other pursuant to Section 2.1 that the Term of this Agreement will not be extended, or in the event of a Change of Control as defined in Section 6. 5. TERMINATION. 5.1 TERMINATION FOR CAUSE. Notwithstanding anything contained herein to the contrary, this Agreement may be terminated by the Company for Cause. As used in this Agreement, "Cause" shall only mean (i) any action or omission of the Executive which constitutes a willful and material breach of this Agreement which is not cured within sixty (60) days after receipt by Executive of specific written notice of same, (ii) the Executive intentionally engages in dishonest conduct in connection with his performance of services for the Company and that results in his conviction for a felony, (iii) the conviction of Executive for, or a plea of guilty or NOLO CONTENDERE to, a criminal act which is a felony; (iv) the Executive willfully and materially breaches a fiduciary duty owed to the Company, for personal profit; or (v) the Executive's willful and material breach or violation of any law, rule, regulation (other than traffic violations or similar offenses), or final cease and desist order in connection with his performance of services for the Company. Notwithstanding the foregoing, the Executive shall not be deemed to be terminated for Cause unless and until: (a) the Board first holds a meeting, as to which the Executive was provided ten (10) days advance notice and an opportunity to be heard, and the Board delivers written notice to the Executive specifying in detail the action or inaction of the Executive alleged to constitute Cause and 6 demanding that he remedy such action or inaction; (b) the Executive shall not have remedied such action or inaction allegedly constituting Cause within twenty (20) days after his receipt of such written notice; and (c) there shall have been delivered to the Executive a Notice of Termination and a certified copy of a resolution duly adopted by the affirmative vote of at least a majority of the Board (excluding the Executive) at a special meeting of the Board at which the Executive was given a further opportunity to appear with legal counsel of his choosing to refute any allegations of Cause, which meeting was called and held for the purpose of finding that, in the good faith opinion of the Board, the Executive's action or inaction constituted Cause and the Executive did not remedy such action or inaction after demand by the Board. Nothing in Section 5.1(b) shall, prior to delivery of a Notice of Termination as provided herein, be deemed to suspend or extinguish the Executive's entitlement to receive the compensation and other benefits provided under Sections 3, 4, 5.2, 5.3 and 6. In the event that the Company terminates the employment of the Executive for Cause and, within 30 days after receipt of the Notice of Termination, the Executive notifies the Company that he disputes such termination, the Executive shall still be subject to the obligations set forth in Section 2 and entitled to receive the compensation and other benefits provided under Sections 3, 4, 5.2, 5.3 and 6 until a final and binding judgment is rendered by a court of competent jurisdiction finding that the termination was properly for Cause, in which event all payments subsequent to termination to which the Executive would not otherwise be entitled shall be recoverable by the Company, except to the extent such payments constitute reasonable compensation for services rendered. 5.2 TERMINATION FOR DEATH OR DISABILITY. This Agreement shall terminate automatically upon the Executive's death and may be terminated by the Company upon the Executive's Disability. Upon a termination by reason of the Executive's Disability, the Company shall pay to the Executive or his beneficiaries, as the case may be, (i) any compensation or other obligations accrued for periods prior to the Date of Termination, all of which shall be paid within 15 days after the Date of Termination, (ii) six months of Base Salary plus an amount equal to one-half of the last Annual Bonus paid to the Executive, all of which shall be paid in installments consistent with the Company's payroll practice for executives, and (iii) implement the provisions for the Executive's Vested Benefits as of the Date of Termination. If Termination is due to the death of the Executive, the Company shall, within 15 days after the Date of Termination, pay to the Executive's estate or beneficiaries, as the case may be, (i) any unpaid Base Salary, Annual Bonus and benefits accrued for periods prior to the Date of Termination, and (ii) the rights to the Vested Benefits, other than life insurance and disability insurance, shall be provided to his spouse. In addition, the life insurance proceeds from the policies described in this Agreement shall be paid to his personal representative or such other persons as the Executive may have designated in writing. 5.3 TERMINATION WITHOUT CAUSE. At any time the Company shall have the right to terminate Executive's employment hereunder by written notice to Executive; provided, however, that the Company shall (i) pay to Executive any unpaid Base Salary, Annual Bonus and benefits and 7 amounts due under the programs described in Sections 4 and 6, (ii) continue to pay Executive's Base Salary, Annual Bonus and benefits, described in Sections 4 and 6, for the balance of the then effective Term, and (iii) implement the provisions for the Executive's Vested Benefits as of the Date of Termination. In such event, the Executive shall be awarded an Annual Bonus of $75,000 per year for the year to which the Annual Bonus relates for the balance of the then effective Term. At the election of the Executive, such Base Salary, Annual Bonus, Vested Benefits and amounts due shall be paid in one lump sum within thirty (30) days after notice of such election is given to the Company by the Executive. The Company shall be deemed to have terminated the Executive's employment pursuant to this Section 5.3 if such employment is terminated (i) by the Company without Cause, or (ii) by the Executive voluntarily as a result of the occurrence of any of the following events which is not consented to in writing, by the Executive prior to its occurrence or which is not cured by the Company within thirty (30) days after its receipt of prompt written notice of the Executive's objection to the occurrence: (a) Executive is assigned to any position, duties or responsibilities that are diminished when compared with the position, duties or responsibilities of the Executive on the date of this Agreement, (b) the Executive's Base Salary or benefits are reduced or the Executive's Annual Bonus is less than the minimum specified in Section 3.2, (c) the Executive is requested to engage in conduct that is reasonably likely to result in a violation of law, (d) the withdrawal from the Executive of any authority described in Section 2.2 or a change of the reporting relationship described in that Section, (e) the Company requiring, without his consent, the Executive to maintain his principal office or conduct his principal activities anywhere other than at the Company's principal executive offices in Miami-Dade County, Broward County or Palm Beach County, Florida, (f) the failure by the Company to obtain the assumption and agreement to perform this Agreement by any successor as contemplated in Section 17.1 hereof, or (g) repudiation by the Company of any material obligation of the Company under this Agreement. The Executive shall have no duty or obligation to mitigate the obligations of the Company (through seeking other employment or otherwise) in the event of termination of his employment pursuant to this Section 5.3, and the Company's obligations hereunder shall not be offset, mitigated or otherwise reduced by reason of the Executive's subsequent employment or otherwise. 6. CHANGE IN CONTROL. 6.1 CHANGE IN CONTROL. A "Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (a) any person, as defined in Section 3(a)(9) of the Securities and Exchange Act of 1934 ("Exchange Act"), as such term is modified in Sections 13(d) and 14(d) of the Exchange Act (other than (A) any employee plan established by any "Corporation" [which for these purposes shall be deemed to be the Company and any corporation, association, joint venture, proprietorship or partnership which is connected with the Company either through stock ownership or through common control, within the meaning of Sections 414(b) and (c) and 1563 of the Internal Revenue Code of 1986, as amended], (B) the Company or any of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act), (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) a corporation owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company or (E) Alfred R. Camner or a group acting in concert with him) (a "Person"), is or becomes the beneficial owner 8 (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company) representing 25% or more of the combined voting power of the Company's then outstanding voting securities; (b) during any period of up to two consecutive years, subsequent to the date hereof, the individuals who, at the beginning of such period, constitute the Board cease for any reason to constitute at least a majority thereof, provided that any person who becomes a director subsequent to the beginning of such period and whose nomination for election is approved by at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved (other than a director (A) whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act, or (B) who was designated by a Person who has entered into an agreement with the Company to effect a transaction described in clause (a), (c) or (d) hereof) shall be deemed a director as of the beginning of such period; (c) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than (A) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of any Corporation, at least 51% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner (as defined in clause (a) above), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company) representing 25% or more of the combined voting power of the Company's then outstanding voting securities; (d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 75% of the combined voting power of the voting securities of which are owned by persons in substantially the same proportions as their ownership of the Company immediately prior to such sale; or (e) any "Person" (as such term is defined in Sections 407(q)(9)(A) and 408(a)(1)(G) of the National Housing Act of 1934, as amended [the "NHA"]) or group of Persons, shall have acquired "control" (as such term is defined in Sections 407(q)(9)(B) and 408(a)(2) of the NHA) of the Company. 6.2 PAYMENTS UPON A CHANGE IN CONTROL. Upon the first date on which a Change 9 in Control occurs: (a) the Company shall, within thirty (30) days following the Change in Control, pay the Executive a Termination Payment; and (b) the Executive shall have the right, but not the obligation, to resign and the Company shall pay the Executive any Base Salary, Annual Bonus or other benefits accrued for dates prior to the date of resignation and implement the provisions of the Executive's Vested Benefits; provided, however, that the Executive must remain in the employ of the acquiring entity for a period of time not to exceed six (6) months if the acquiring entity so desires; and (c) nothing in, or done pursuant to, Sections 6.2 (a) or (b) shall be deemed to suspend or extinguish the Executive's rights under Section 5. 6.3 ARRANGEMENTS NOT EXCLUSIVE OR LIMITING. The specific arrangements referred to herein are not intended to exclude or limit the Executive's participation in other benefits available to executive personnel generally, or to preclude or limit other compensation or benefits as may be authorized by the Board of the Company at any time, or to limit or reduce any compensation or benefit to which the Executive would be entitled but for this Agreement. 7. GROSS-UP OF TERMINATION PAYMENTS. The parties intend that (i) the net amount retained by the Executive (the "Net Termination Payment") upon the receipt of the Termination Payment, after reduction for and payment of all applicable federal, state and local income and employment taxes (the "Withholding Taxes") or the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986 or any successor statute, rule or regulation of similar effect (the "Code"), including interest and penalties, and payable by or on behalf of the Executive, shall be an amount equal to three times the sum of the Executive's Base Salary for the year in which the Executive's employment is terminated plus the last Annual Bonus paid to the Executive, and (ii) the net amount of all other payments or benefits retained or to be retained by the Executive from the Company or from one of the Company's benefit plans as a direct or indirect result of or in connection with a Change in Control or a Potential Change in Control or in connection with a Termination, from whatever source other than a Termination Payment (the "Other Payments"), that are or become subject to the Excise Tax, shall be equal to the gross amount of Other Payments payable to the Executive without regard to the reduction or payment of any such Excise Tax, and without regard to this Section. Accordingly, the Termination Payment shall include an amount (the "Gross-Up Payment") sufficient that, after payment of all Withholding Taxes and Excise Tax payable by or on behalf of the Executive in respect of the Termination Payment, the Other Payments and any other payments payable pursuant to the provisions of this Section (including the cumulative effect of the Gross-Up Payment on Withholding Taxes and Excise Tax), the Executive will actually retain an amount equal to the Net Termination Payment and will actually receive the value of the Other Payments, without diminution for Withholding Taxes or Excise Tax. (a) In determining the Withholding Taxes payable by or on behalf of the Executive, the Executive shall be deemed to pay federal, state and local income taxes on the date of Termination, at the highest marginal rates imposed on individuals under Section 1 of the Code, with 10 respect to federal income taxes, and at the highest marginal rates imposed under the laws of the state and locale of the Executive's residence on the date of Termination, with respect to state and local income taxes, as such laws are in effect during the calendar year in which the date of Termination occurs. Such federal income taxes shall be determined taking account of the maximum deduction permitted for the payment of such state and local taxes. In addition, the Executive shall be deemed to be subject to only the tax imposed by Section 3101(b) of the Code. (b) In determining the Excise Tax payable by or on behalf of the Executive, all Termination Payment and the Other Payments shall be deemed to constitute "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code, except to the extent that, in the opinion of tax counsel selected by the Company's independent auditors and acceptable to the Executive, such payments (in whole or in part) do not constitute "parachute payments" within the meaning of Section 280G(b)(2)(A) of the Code, or represent reasonable compensation for services actually rendered or to be rendered within the meaning of Section 280G(b)(4) of the Code. (c) In determining the amount of the Other Payments, the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. (d) In the event the amount or amounts of the Excise Tax or Withholding Taxes are subsequently determined to be less than the amounts taken into account hereunder at the time of the payment of the Gross-Up Payment, the Executive shall repay the Company the portion of such payment attributable to such reduction, taking into account the effect of any deductions allowable to the Executive for such repayment, consistent with the provisions of Paragraph (a) of this Section. (e) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service or any other taxing authority (collectively, the "IRS") that, if successful, would require the payment by the Company of a Gross-Up Payment (other than a Gross-Up Payment previously paid). Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim, and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company reasonably requests in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and 11 (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Withholding Taxes or Excise Tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Paragraph (e), the Company shall control all proceedings taken in connection with such contest and may, at its sole option, pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that the Executive shall not be required to extend the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due except with respect to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the IRS. (f) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Paragraph (e)(iv), the Executive becomes entitled to receive any refund or credit with respect to such contested claim, the Executive shall (subject to the Company's complying with the requirements of Paragraph (e)(iv)) promptly pay to the Company the amount of such refund or credit (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of any such advance, a determination is made that the Executive shall not be entitled to any refund with respect to such contested claim, and the Company does not notify the Executive in writing of its intent to contest such determination within thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and shall be an offset against the amount of Gross-Up Payment required to be paid. 8. CERTAIN REGULATORY CONSIDERATIONS. 8.1 If the Executive is suspended and/or temporarily prohibited from participating in the conduct of BankUnited, FSB's affairs by a notice served under Sections 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. /sections/ 1818 (e)(3) or (g)(1)), (the "Act"), the Company's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in such notice are dismissed, the Company shall pay to the Executive all of the compensation withheld while the obligations under this Agreement were suspended and shall reinstate its obligations hereunder. 12 8.2 If the Executive is removed and/or permanently prohibited from participating in the conduct of BankUnited, FSB's affairs by an order issued under Sections 8(e)(4) or (g)(1) of the Act (12 U.S.C. /sections/ 1818 (e)(4) or (g)(1)), all obligations of the Company shall terminate as of the effective date of the order, but vested rights of the parties hereto shall not be affected. 8.3 If BankUnited, FSB is in default (as defined in Section 3(x)(1) of the Act), all obligations under this Agreement shall terminate as of the date of default, but this subsection shall not affect any vested rights of the parties hereto. 8.4 All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of BankUnited, FSB (i) by the Director of the Office of Thrift Supervision or his/her designee (the "Director"), at the time the Federal Deposit Insurance Corporation (the "FDIC") enters into an agreement to provide assistance to or on behalf of BankUnited, FSB under the authority contained in Section 13c of the Act; or (ii) by the Director, at the time the Director approves a supervisory merger to resolve problems related to operation of BankUnited, FSB or when BankUnited, FSB is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties hereto that have already vested, however, shall not be affected by such action. 8.5 Notwithstanding anything herein contained to the contrary, any payments to the Executive by BankUnited Financial Corporation, whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. /section/1828(k), and any regulations promulgated thereunder. 9. REPRESENTATION BY THE EXECUTIVE. The Executive will be required to represent and warrant, as of the Commencement Date, that he is not a party to any agreement, contract or understanding, whether of employment or otherwise, or subject to any governmental restriction, which would in any way restrict or prohibit him from undertaking or performing employment with the Company in accordance with the terms and conditions of this Agreement. Executive has disclosed that he has a contract of employment with his present employer and that he has tendered his resignation to be effective December 1, 1998. 10. WITHHOLDING. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulations. 11. ATTORNEYS' FEES. The Company agrees to pay such reasonable attorneys' fees (not to exceed $10,000) as are incurred by the Executive with respect to advice and counsel concerning or related to the negotiation and preparation of this Agreement. The Company shall pay reasonable costs and attorneys' fees incurred by the Executive in connection with any Board action pursuant to Section 5.1 in the event that the Board does not determine that "Cause" exists in accordance with the procedures in said Section. The Company shall also indemnify, hold harmless and defend the Executive against reasonable costs, including legal fees, incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved, as a result of his efforts, in good faith, to defend or enforce the terms of this Agreement; provided, however, that the 13 Executive shall have substantially prevailed on the merits pursuant to a judgment, decree or order of a court of competent jurisdiction or of an arbitrator in an arbitration proceeding, or in a settlement. For purposes of this Agreement, any settlement agreement which provides for payment of any amounts in settlement of the Company's obligations hereunder shall be conclusive evidence of the Executive's entitlement to indemnification hereunder, and any such indemnification payments shall be in addition to amounts payable pursuant to such settlement agreement, unless such settlement agreement expressly provides otherwise. 12. ENFORCEMENT COSTS. The Company is aware that upon the occurrence of a Change in Control, the Board of Directors or a stockholder of the Company may then cause or attempt to cause the Company to refuse to comply with its obligations under Section 6 of this Agreement, or may cause or attempt to cause the Company to institute, or may institute, litigation seeking to have Section 6 of this Agreement declared unenforceable, or may take, or attempt to take, other action to deny the Executive the benefits intended under Section 6 of this Agreement. In these circumstances, the purpose of this Agreement could be frustrated. It is the intent of the parties that the Executive not be required to incur the legal fees and expenses associated with the protection or enforcement of his rights under Section 6 of this Agreement by litigation or other legal action because such costs would substantially detract from the benefits intended to be extended to the Executive hereunder, nor be bound to negotiate any settlement of his rights hereunder under threat of incurring such costs. Accordingly, if at any time after the Commencement Date, it should appear to the Executive that the Company is or has acted contrary to or is failing or has failed to comply with any of its obligations under Section 6 of this Agreement for the reason that it regards this Agreement to be void or unenforceable or for any other reason, or in the event that the Company or any other person takes any action to declare Section 6 of this Agreement void or unenforceable, or institutes any litigation or other legal action designed to deny, diminish or to recover from the Executive the benefits provided or intended to be provided to him under Section 6, and the Executive has acted in good faith to perform his obligations under this Agreement, the Company irrevocably authorizes the Executive from time to time to retain counsel of his choice at the expense of the Company to represent him in connection with the protection and enforcement of his rights under Section 6, including without limitation representation in connection with termination of his employment contrary to Section 6 of this Agreement or with the initiation or defense of any litigation or other legal action, whether by or against the Executive or the Company or any director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. The reasonable fees and expenses of counsel selected from time to time by the Executive as herein above provided shall be paid or reimbursed to the Executive by the Company on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by such counsel in accordance with its customary practices. Counsel so retained by the Executive may be counsel representing other officers or key executives of the Company in connection with the protection and enforcement of their rights under similar agreements between them and the Company, and, unless in his sole judgment use of common counsel could be prejudicial to him or would not be likely to reduce the fees and expenses chargeable hereunder to the Company, the Executive agrees to use his best efforts to agree with such other officers or executives to retain common counsel. 13. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida. 14 14. NON-ALIENATION. The Executive shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any amounts provided under this Agreement, and no payments or benefits due hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts or by operation of law. So long as the Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or in the subject matter hereof. 15. NOTICES. Any notice required or permitted to be given under this Agreement shall be in writing, and shall be deemed to have been given when delivered by hand or when deposited in the United States mail, by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: Alfred R. Camner, Chairman BankUnited Financial Corporation 255 Alhambra Circle Coral Gables, Florida 33134 If to the Executive: Mehdi Ghomeshi 13454 S.W. 58th Avenue Miami, Florida 33156 or to such other addresses as either party hereto may from time to time give notice of to the other in the aforesaid manner. 16. SEVERABILITY. The invalidity of any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, or section or sections had not been inserted. 17. SUCCESSORS; BINDING AGREEMENT. 17.1 The Company shall require any successor, whether direct or indirect to all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation or otherwise, prior to or contemporaneously with such acquisition, by agreement in form and substance reasonably satisfactory to the Executive and his legal counsel, to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such acquisition had taken place (to the extent not previously performed by the Company). As used in this Agreement, "Company" shall mean the Company as hereinbefore 15 defined and any such successor which executes and delivers the agreement provided for in this Section 17.1 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 17.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 17.3 This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. 17.4 BankUnited and BankUnited, FSB shall be jointly and severally obligated under this Agreement to the extent permitted by applicable law. BankUnited, FSB shall not be deemed to be a guarantor of payments required under Section 7 hereof. 18. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 19. ENTIRE AGREEMENT, MODIFICATIONS AND WAIVER. This Agreement constitutes the entire agreement between the Company and the Executive with respect to its subject matter and supersedes all prior negotiations, agreements, understandings and arrangements, both oral and written, between the Company and the Executive with respect to such subject matter including, but not limited to, any employee manuals of the Company. No modification or waiver of any provision of this Agreement shall be binding unless executed in writing by all parties hereto. No waiver of any provision of this Agreement shall be deemed or shall constitute a waiver of any other provision (whether or not similar), nor shall any such waiver constitute a continuing waiver. The failure of the Executive or the Company to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof. 16 IN WITNESS WHEREOF, the Executive and, pursuant to the authorization from the Board, BankUnited and BankUnited, FSB have executed this Agreement as of the date first above written. BANKUNITED, FSB BANKUNITED FINANCIAL CORPORATION /s/ ALFRED R. CAMNER /s/ ALFRED R. CAMNER By:------------------------- By:----------------------------- Name: Name: Title: Title: ATTEST: ATTEST: /s/ PATRICIA R. SANTANA /s/ PATRICIA R. SANTANA By:------------------------- By:----------------------------- Secretary Secretary EXECUTIVE: /s/ MEHDI GHOMESHI - ---------------------------- Mehdi Ghomeshi 17 EX-12.1 12 EXHIBIT 12.1 BankUnited Financial Corp Ratio of Earnings to Combined fixed Charges and Preferred Stock Dividends
FOR THE YEARS ENDED SEPTEMBER 30, --------------------------------------------------------------------- 1998 1997 1996 1995 1994 --------------------------------------------------------------------- (Dollars in thousands) Fixed charges (excluding interest on deposits) Interest on Borrowings 74,112 25,824 13,832 8,456 4,951 Rent (33%) 742 542 302 320 256 --------------------------------------------------------------------- Total Fixed Charges 74,854 26,366 14,134 8,776 5,207 Income before income taxed and Extraordinary items 12,366 12,632 4,243 9,981 3,607 --------------------------------------------------------------------- Earnings 87,220 38,998 18,377 18,757 8,814 ===================================================================== Total fixed charges 74,854 26,366 14,134 8,776 5,207 Preferred stock dividends an a pretax basis 1,448 4,661 3,460 3,536 3,016 --------------------------------------------------------------------- Combined fixed charges and preferred stock dividends 76,302 31,027 17,594 12,312 8,223 ===================================================================== Ration of earnings to combined fixed charges and preferred stock dividends 1.14:1 1.26:1 1.04:1 1.52:1 1.07:1 ===================================================================== Fixed charges (including interest on deposits) Interest on Deposits 93,431 50,136 20,791 17,849 11,344 Interest on Borrowings 74,112 25,824 13,832 8,456 4,951 Rent (33%) 742 542 302 320 256 --------------------------------------------------------------------- Total Fixed Charges 168,285 76,502 34,925 26,625 16,551 Income before income taxed and Extraordiary items 12,366 12,632 4,243 9,981 3,607 --------------------------------------------------------------------- Earnings 180,651 89,134 39,168 36,606 20,158 ===================================================================== Total fixed charges 168,285 76,502 34,925 26,625 16,551 Preferred stock dividends on a pretax basis 1,448 4,661 3,460 3,536 3,016 --------------------------------------------------------------------- Combined fixed charges and preferred stock dividends 169,733 81,163 38,385 30,161 19,567 ===================================================================== Ratio of earnings to combined fixed charges and preferred stock dividends 1.06:1 1.10:1 1.02:1 1.21:1 1.03:1 =====================================================================
EX-21.1 13 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT JURISDICTION OF INCORPORATION OR ORGANIZATION ---------------- BankUnited Financial Corporation owns 100% of: Florida - ----BankUnited, FSB which owns 100% of: Federal ------T&D Properties of South Florida, Inc. Florida ------Bay Holdings, Inc. Florida ------SCG Holdings, Inc. Florida ------SCS Ventures, Inc. Florida ------SCG Mortgage Corporation Delaware ------SCS Management Corporation Delaware ------CRE Properties, Inc. Florida - ----BU Ventures, Inc. Florida - ----BankUnited Mortgage Corporation Florida - ----BUFC Financial Services, Incorporated Florida - ----BankUnited Financial Services, Inc. Florida - ----BankUnited Capital (1) Delaware - ----BankUnited Capital II (1) Delaware - ----BankUnited Capital III (1) Delaware (1) BankUnited Financial Corporation owns 100% of the common stock of BankUnited Capital, BankUnited Capital II and BankUnited Capital III. BankUnited Capital has also issued $70 million aggregate liquidation value of its 10 1/4% Trust Preferred Securities, Series B ($1,000 liquidation amount per trust preferred security); BankUnited Capital II has issued $46 million aggregate liquidation value of its 9.60% Cumulative Trust Preferred Securities ($25 liquidation amount per trust preferred security) and BankUnited Capital III has issued $102.5 million of its 9% Cumulative Trust Preferred Securities ($25 liquidation amount per trust preferred security). The trust preferred securities issued by BankUnited Capital, BankUnited Capital II and BankUnited Capital III are publicly held. EX-23.1 14 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-76878, No. 33-76884, No. 33-76882 and No. 333-25595) of BankUnited Financial Corporation of our report dated December 7, 1998 appearing on page 52 of this Form 10-K. PRICEWATERHOUSECOOPERS LLP Miami, Florida December 28, 1998 EX-27.1 15 FDS --
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF BANKUNITED, FOR THE TWELVE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS SEP-30-1998 SEP-30-1998 26,243 65,268 0 0 223,271 200,695 198,211 3,048,142 6,128 3,738,383 2,124,824 376,148 53,153 984,966 0 9 181 199,102 3,738,383 177,252 30,315 0 207,567 93,431 167,543 40,024 1,700 4,429 32,183 12,366 0 0 0 12,366 .41 .39 1.11 15,999 2,313 1,137 0 3,693 599 72 6,128 0 0 0
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