SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number:
0-21017
BANK UNITED CORP.
---------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3528556
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 SOUTHWEST FREEWAY, SUITE 2600
HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 543-6500
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 (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of May 10, 2000, there were 32,441,426 shares of the registrant's
common stock outstanding.
BANK UNITED CORP.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements..............................................1
Consolidated Statements of Financial Condition -
As of March 31, 2000 (unaudited) and September 30, 1999...........1
Consolidated Statements of Operations -
For the Three and Six Months Ended March 31, 2000 and 1999
(unaudited).......................................................2
Consolidated Statements of Stockholders' Equity -
For the Six Months Ended March 31, 2000 and 1999 (unaudited)......3
Consolidated Statements of Cash Flows -
For the Six Months Ended March 31, 2000 and 1999 (unaudited)......4
Notes to Consolidated Financial Statements (unaudited)............5
Independent Auditors' Review Report...............................9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................21
Item 2. Changes in Securities and Use of Proceeds........................21
Item 3. Defaults Upon Senior Securities..................................21
Item 4. Submission of Matters to a Vote of Security Holders..............21
Item 5. Other Information................................................22
Item 6. Exhibits and Reports on Form 8-K.................................22
Signatures...............................................................23
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
MARCH 31, SEPTEMBER 30,
2000 1999
------------ ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents .................................................................. $ 188,797 $ 183,260
Securities purchased under agreements to resell and federal funds sold ..................... 244,846 390,326
Securities and other investments
Held to maturity, at amortized cost (fair value of $11.3 million in 2000
and $11.7 million in 1999) ........................................................ 11,675 12,106
Available for sale, at fair value .................................................... 126,594 131,432
Mortgage-backed securities
Held to maturity, at amortized cost (fair value of $273.3 million in 2000
and $308.8 million in 1999) ....................................................... 282,416 315,288
Available for sale, at fair value .................................................... 614,597 688,714
Loans
Held for investment (allowance for credit losses of $94.7 million in 2000
and $82.7 million in 1999) ........................................................ 13,898,704 12,422,238
Held for sale ........................................................................ 556,728 693,964
Federal Home Loan Bank stock ............................................................... 334,775 328,886
Mortgage servicing rights .................................................................. 557,779 534,694
Servicing receivables ...................................................................... 131,716 116,397
Deferred tax asset ......................................................................... 105,645 110,512
Premises and equipment ..................................................................... 89,966 88,684
Intangible assets .......................................................................... 81,101 83,778
Real estate owned .......................................................................... 22,011 17,278
Other assets ............................................................................... 141,023 127,122
------------ ------------
TOTAL ASSETS ............................................................................... $ 17,388,373 $ 16,244,679
============ ============
LIABILITIES
Deposits ................................................................................... $ 8,505,536 $ 7,508,502
Federal Home Loan Bank advances ............................................................ 6,593,300 6,443,470
Securities sold under agreements to repurchase and federal funds
purchased ............................................................................ 553,165 516,900
Notes payable .............................................................................. 368,810 368,762
Other liabilities .......................................................................... 282,657 308,131
------------ ------------
Total liabilities .............................................................. 16,303,468 15,145,765
------------ ------------
MINORITY INTEREST AND REDEEMABLE PREFERRED STOCK
Preferred stock issued by consolidated subsidiary .......................................... 185,500 185,500
Redeemable preferred stock ................................................................. 100,000 160,000
------------ ------------
285,500 345,500
------------ ------------
STOCKHOLDERS' EQUITY
Common stock ............................................................................... 325 325
Paid-in capital ............................................................................ 132,411 132,153
Retained earnings .......................................................................... 693,662 646,549
Unearned stock compensation ................................................................ (3,784) (4,686)
Accumulated other comprehensive income - net unrealized losses on
securities available for sale, net of tax ............................................ (22,120) (20,058)
Treasury stock, at cost .................................................................... (1,089) (869)
------------ ------------
Total stockholders' equity ..................................................... 799,405 753,414
------------ ------------
TOTAL LIABILITIES, MINORITY INTEREST, REDEEMABLE
PREFERRED STOCK, AND STOCKHOLDERS' EQUITY .................................................. $ 17,388,373 $ 16,244,679
============ ============
See accompanying Notes to Consolidated Financial Statements.
1
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------------ ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(RESTATED) (RESTATED)
INTEREST INCOME
Short-term interest-earning assets .................................... $ 7,255 $ 5,514 $ 12,273 $ 10,476
Securities and other investments ...................................... 2,422 1,990 5,258 3,605
Mortgage-backed securities ............................................ 15,585 17,779 31,874 35,746
Loans ................................................................. 276,940 213,263 542,704 423,028
Federal Home Loan Bank stock .......................................... 5,117 4,059 9,884 7,882
--------- --------- --------- ---------
Total interest income ........................................ 307,319 242,605 601,993 480,737
--------- --------- --------- ---------
INTEREST EXPENSE
Deposits .............................................................. 93,652 71,292 181,718 145,668
Federal Home Loan Bank advances ....................................... 97,229 74,948 188,605 145,478
Securities sold under agreements to repurchase and
federal funds purchased ......................................... 7,491 8,666 15,136 18,788
Notes payable ......................................................... 7,922 5,088 15,843 9,975
--------- --------- --------- ---------
Total interest expense ....................................... 206,294 159,994 401,302 319,909
--------- --------- --------- ---------
Net interest income .......................................... 101,025 82,611 200,691 160,828
PROVISION FOR CREDIT LOSSES ........................................... 8,925 5,982 16,067 12,468
--------- --------- --------- ---------
Net interest income after provision for credit losses ........ 92,100 76,629 184,624 148,360
--------- --------- --------- ---------
NON-INTEREST INCOME
Loan servicing fees, net .............................................. 19,514 12,875 36,360 27,598
Deposit fees and charges .............................................. 8,130 4,958 16,017 9,797
Net gains (losses)
Sales of single family loans and servicing rights ............... 3,843 4,662 6,056 13,175
Securities and mortgage-backed securities ....................... 555 605 1,188 785
Other loans ..................................................... 1,778 (38) 3,482 1,027
--------- --------- --------- ---------
Net gains (losses) ........................................... 6,176 5,229 10,726 14,987
Other ................................................................. 4,837 5,264 8,893 9,107
--------- --------- --------- ---------
Total non-interest income .................................... 38,657 28,326 71,996 61,489
--------- --------- --------- ---------
NON-INTEREST EXPENSE
Compensation and benefits ............................................. 34,221 25,419 66,949 47,652
Occupancy ............................................................. 6,816 5,340 12,965 10,068
Data processing ....................................................... 6,937 4,700 13,524 9,051
Court of claims litigation ............................................ 625 1,316 1,250 4,077
Amortization of intangibles ........................................... 1,848 1,582 3,654 2,920
Other ................................................................. 22,211 18,276 43,591 36,736
--------- --------- --------- ---------
Total non-interest expense ................................... 72,658 56,633 141,933 110,504
--------- --------- --------- ---------
Income before income taxes and minority interest ............. 58,099 48,322 114,687 99,345
INCOME TAX EXPENSE .................................................... 20,721 18,292 40,969 37,376
--------- --------- --------- ---------
Income before minority interest .............................. 37,378 30,030 73,718 61,969
MINORITY INTEREST
Subsidiary preferred stock dividends .................................. 4,563 4,563 9,126 9,126
--------- --------- --------- ---------
NET INCOME ................................................... $ 32,815 $ 25,467 $ 64,592 $ 52,843
========= ========= ========= =========
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS .................. $ 30,436 $ 25,467 $ 59,248 $ 52,843
========= ========= ========= =========
EARNINGS PER COMMON SHARE
Basic ........................................................... $ 0.94 $ 0.79 $ 1.83 $ 1.64
Diluted ......................................................... 0.93 0.77 1.80 1.60
See accompanying Notes to Consolidated Financial Statements.
2
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended March 31, 2000 and 1999
(in thousands, except share data)
(unaudited)
COMMON STOCK
-------------------------------------------------
CLASS A CLASS B
----------------------- ----------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT
SEPTEMBER 30, 1998, RESTATED .............. 28,969,592 $ 290 3,241,320 $ 32 $ 132,066 $ 560,961
Net income ............................ -- -- -- -- -- 52,843
Net change in unrealized gains (losses) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total comprehensive income ........ -- -- -- -- -- 52,843
---------- ---------- ---------- ---------- ---------- ----------
Dividends declared:
Common stock ($0.314 per share) ... -- -- -- -- -- (10,106)
Stock options exercised ............... 94,805 1 -- -- 506 --
Stock repurchased ..................... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT
MARCH 31, 1999, RESTATED .................. 29,064,397 $ 291 3,241,320 $ 32 $ 132,572 $ 603,698
========== ========== ========== ========== ========== ==========
BALANCE AT
SEPTEMBER 30, 1999 ........................ 32,477,826 $ 325 -- $ -- $ 132,153 $ 646,549
Net income ............................ -- -- -- -- -- 64,592
Net change in unrealized gains (losses) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total comprehensive income ........ -- -- -- -- -- 64,592
---------- ---------- ---------- ---------- ---------- ----------
Dividends declared:
Common stock ($0.370 per share) ... -- -- -- -- -- (12,002)
Redeemable preferred stock
($1.85 per share) ................. -- -- -- -- -- (5,344)
Stock options exercised ............... -- -- -- -- 258 (133)
Stock repurchased ..................... -- -- -- -- -- --
Amortization of unrealized stock
compensation ...................... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT
MARCH 31, 2000 ............................ 32,477,826 $ 325 -- $ -- $ 132,411 $ 693,662
========== ========== ========== ========== ========== ==========
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME -
UNEARNED UNREALIZED TREASURY STOCK TOTAL
STOCK GAINS ------------------------ STOCKHOLDERS'
COMPENSATION (LOSSES) SHARES AMOUNT EQUITY
---------- ---------- ---------- ---------- ----------
BALANCE AT
SEPTEMBER 30, 1998, RESTATED .............. $ -- $ (1,454) (14,200) $ (501) $ 691,394
Net income ............................ -- -- -- -- 52,843
Net change in unrealized gains (losses) -- (3,254) -- -- (3,254)
---------- ---------- ---------- ---------- ----------
Total comprehensive income ........ -- (3,254) -- -- 49,589
---------- ---------- ---------- ---------- ----------
Dividends declared:
Common stock ($0.314 per share) ... -- -- -- -- (10,106)
Stock options exercised ............... -- -- -- -- 507
Stock repurchased ..................... -- -- (20,000) (562) (562)
---------- ---------- ---------- ---------- ----------
BALANCE AT
MARCH 31, 1999, RESTATED .................. $ -- $ (4,708) (34,200) $ (1,063) $ 730,822
========== ========== ========== ========== ==========
BALANCE AT
SEPTEMBER 30, 1999 ........................ $ (4,686) $ (20,058) (28,900) $ (869) $ 753,414
Net income ............................ -- -- -- -- 64,592
Net change in unrealized gains (losses) -- (2,062) -- -- (2,062)
---------- ---------- ---------- ---------- ----------
Total comprehensive income ........ -- (2,062) -- -- 62,530
---------- ---------- ---------- ---------- ----------
Dividends declared:
Common stock ($0.370 per share) ... -- -- -- -- (12,002)
Redeemable preferred stock
($1.85 per share) ................. -- -- -- -- (5,344)
Stock options exercised ............... -- -- 12,000 375 500
Stock repurchased ..................... -- -- (22,000) (595) (595)
Amortization of unrealized stock
compensation ...................... 902 -- -- -- 902
---------- ---------- ---------- ---------- ----------
BALANCE AT
MARCH 31, 2000 ............................ $ (3,784) $ (22,120) (38,900) $ (1,089) $ 799,405
========== ========== ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
3
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
FOR THE SIX MONTHS
ENDED MARCH 31,
--------------------------------
2000 1999
----------- -----------
(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash (used) provided by operating activities ................................ $ (505,603) $ 26,688
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase price of acquisitions ..................................................... (493) (45,000)
Assets purchased in acquisitions ................................................... -- (184,968)
Net change in securities purchased under agreements to resell and
federal funds sold .............................................................. 145,480 75,903
Fundings of loans held for investment .............................................. (3,460,735) (2,392,336)
Proceeds from principal repayments and maturities of
Loans held for investment ....................................................... 2,955,947 2,578,357
Securities held to maturity ..................................................... 2,742 6,054
Securities available for sale ................................................... 119 3,115
Mortgage-backed securities held to maturity ..................................... 32,971 77,245
Mortgage-backed securities available for sale ................................... 36,780 117,170
Proceeds from the sale of
Securities available for sale ................................................... 141,772 198,043
Mortgage-backed securities available for sale ................................... 56,437 --
Mortgage servicing rights ....................................................... 2,226 --
Federal Home Loan Bank stock .................................................... 5,430 11,000
Real estate owned acquired through foreclosure .................................. 19,193 14,718
Purchases of
Loans held for investment ....................................................... (234,446) (1,021,884)
Securities held to maturity ..................................................... (2,308) (10,214)
Securities available for sale ................................................... (1,632) (79)
Mortgage-backed securities held to maturity ..................................... -- (1,613)
Mortgage-backed securities available for sale ................................... (25,124) (427,690)
Mortgage servicing rights ....................................................... (61,863) (32,093)
Federal Home Loan Bank stock .................................................... (1,436) (52,226)
Other changes in loans held for investment ......................................... (182,751) (28,380)
Other changes in mortgage servicing rights ......................................... (14,141) (20,280)
Net purchases of premises and equipment ............................................ (7,533) (20,530)
----------- -----------
Net cash used by investing activities ........................................... (593,365) (1,155,688)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits ............................................................. 997,034 43,285
Proceeds from deposits purchased ................................................... -- 232,804
Proceeds from Federal Home Loan Bank advances ...................................... 3,078,700 3,027,000
Repayment of Federal Home Loan Bank advances ....................................... (2,928,870) (2,065,709)
Net change in securities sold under agreements to repurchase
and federal funds purchased ..................................................... 36,265 (235,960)
Proceeds from issuance of notes payable ............................................ -- 148,984
Payment of issuance costs of notes payable ......................................... -- (1,964)
Redemption of redeemable preferred stock ........................................... (60,000) --
Payment of dividends ............................................................... (18,529) (10,106)
Stock repurchased .................................................................. (595) (562)
Stock options exercised ............................................................ 500 507
----------- -----------
Net cash provided by financing activities ....................................... 1,104,505 1,138,279
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................................ 5,537 9,279
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......................................... 183,260 236,588
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................................... $ 188,797 $ 245,867
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest ............................................................. $ 379,534 $ 313,452
Cash paid for income taxes ......................................................... 29,472 --
NONCASH INVESTING ACTIVITIES
Real estate owned acquired through foreclosure ..................................... 14,280 22,350
Securitization of loans ............................................................ 143,769 202,219
Net transfer of loans to held for investment from held for sale .................... (583,894) (360,198)
See accompanying Notes to Consolidated Financial Statements.
4
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION
The accompanying unaudited Consolidated Financial Statements include the
accounts of Bank United Corp. (the "Parent Company"), Bank United, a federal
savings bank (the "Bank"), and subsidiaries of both the Parent Company and the
Bank (collectively known as the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation. The majority of
the Company's assets and operations are derived from the Bank.
2. BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements were prepared in
accordance with the instructions for Form 10-Q and, therefore, do not include
all disclosures necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. All adjustments (consisting of only normal recurring
adjustments) that are necessary, in the opinion of management, for a fair
presentation of the interim financial statements have been included. The results
of operations for the six months ended March 31, 2000, are not necessarily
indicative of the results that may be expected for the entire fiscal year or any
other interim period. The interim financial information should be read in
conjunction with the Consolidated Financial Statements and Notes included in the
Company's 1999 Annual Report on Form 10-K filed with the Securities and Exchange
Commission ("SEC").
Prior period Consolidated Financial Statements have been restated to include
the accounts of an entity that was acquired using the pooling of interests
method of accounting. Certain amounts within the accompanying unaudited
Consolidated Financial Statements and the related Notes have been reclassified
for comparative purposes to conform to the current presentation.
3. EARNINGS PER COMMON SHARE
Basic earnings per share ("EPS") is computed by dividing net income available
to common stockholders by the weighted-average number of common shares
outstanding during the period. Diluted EPS is computed by dividing net income
available to common stockholders by the weighted-average number of common shares
and potentially dilutive common shares outstanding during the period.
Potentially dilutive common shares are computed using the treasury stock method.
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
---------- ---------- ---------- ----------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME
Net income available to common stockholders ............... $ 30,436 $ 25,467 $ 59,248 $ 52,843
========== ========== ========== ==========
SHARES
Average common shares outstanding ......................... 32,439 32,190 32,447 32,185
Potentially dilutive common shares from options ........... 282 723 385 673
---------- ---------- ---------- ----------
Average common shares and potentially dilutive common
shares outstanding .................................... 32,721 32,913 32,832 32,858
========== ========== ========== ==========
BASIC EPS ................................................. $ 0.94 $ 0.79 $ 1.83 $ 1.64
DILUTED EPS ............................................... 0.93 0.77 1.80 1.60
Options to purchase 2,022,250 and 544,200 shares of common stock at
weighted-average exercise prices of $39.42 and $44.76 were excluded from the
computation of diluted EPS for the three months ended March 31, 2000 and 1999,
because the options' exercise price was greater than the average market price of
the common stock. Options to purchase 1,959,559 and 700,271 shares of common
stock at weighted-average exercise prices of $39.85 and $43.24 were excluded
from the computation of diluted EPS for the six months ended March 31, 2000 and
1999, because the options' exercise price was greater than the average market
price of the common stock.
5
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company will be required to issue shares of its common stock in August
2002 pursuant to purchase contracts outstanding. The maximum number of shares to
be issued under the purchase contracts is 2,671,120 and the minimum number is
2,225,940. These purchase contracts were not dilutive during the three or six
months ended March 31, 2000 and therefore were not included in the computation
of diluted EPS for those periods.
4. SUMMARY OF STOCK-BASED COMPENSATION
The Company has granted stock options to certain employees and members of its
Board of Directors under incentive and compensation plans. During the six months
ended March 31, 2000, 12,000 options for Parent Company common stock were
exercised by employees of the Bank. See the Company's 1999 Annual Report on Form
10-K for additional disclosures regarding these options.
AT MARCH 31,
---------------------------------------------------------------------
2000 1999
--------------------------------- ---------------------------------
NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------------- ---------------- --------------- ----------------
Outstanding at end of period ............................... 3,712,770 $ 31.58 2,159,470 $ 29.42
Vested at end of period .................................... 1,407,550 22.90 826,596 20.64
Exercisable at end of period ............................... 1,407,550 22.90 32,500 32.16
5. REDEEMABLE PREFERRED STOCK
On February 15, 2000, the Company redeemed at par its 1,200,000 shares of
Series A Preferred Stock. In exchange for the Series A Preferred Stock, a cash
payment of $50.94375 per share was delivered to the holders, representing the
redemption price of $50.00 per share plus all accrued and unpaid dividends from
the last dividend date up to the date of redemption.
6. SEGMENTS
The Company's business segments include Commercial Banking (principally
comprised of Residential Construction Lending, Mortgage Banker Finance,
Commercial Real Estate Lending, Multi-Family Lending, and Healthcare Lending),
Community Banking, Mortgage Banking (comprised of Mortgage Servicing and
Mortgage Production), and Investment Portfolio.
o Commercial Banking provides credit and a variety of cash management and
other services primarily to mortgage bankers, builders, developers, and
healthcare operators. Other products and industry specialties include Small
Business Administration ("SBA") securitizations, and other commercial and
industrial loan products.
o Community Banking activities include deposit gathering, consumer lending,
small business banking, and investment product sales.
o Mortgage Servicing activities include collecting and applying payments from
borrowers, remitting payments to investors, collecting funds for and paying
mortgage-related expenses, and, in general, the overall administration of an
investor's loan.
o Mortgage Banking originates wholesale single family mortgage loans for the
Company's portfolio and for sale in the secondary market.
o Investment Portfolio invests in single family loans, short-term
interest-earning assets, securities and other investments, and
mortgage-backed securities ("MBS").
Income for segment reporting purposes is defined as income before income
taxes and minority interest as these items are not allocated to the segments.
Revenues are comprised of net interest income before the provision for credit
losses and non-interest income. Other includes unallocated expenses, financing
costs incurred at the Parent Company, the net effect of transfer pricing, and
certain unallocated provisions for loan losses.
6
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized financial information by business segment for the periods
indicated, was as follows:
FOR THE THREE MONTHS FOR THE SIX MONTHS AT
ENDED MARCH 31, ENDED MARCH 31, MARCH 31,
2000 2000 2000
---------------------------- ---------------------------- -----------
INCOME REVENUES INCOME REVENUES ASSETS
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
Commercial Banking
Residential Construction Lending ........ $ 7,367 $ 10,404 $ 14,053 $ 20,087 $ 1,407,272
Mortgage Banker Finance ................. 5,906 9,364 11,454 18,846 1,357,565
Commercial Real Estate Lending .......... 4,645 6,297 8,818 12,341 1,102,278
Multi-Family Lending .................... 4,965 6,675 9,690 13,244 1,227,545
Healthcare Lending ...................... 4,818 6,126 8,025 10,718 744,878
Other Commercial ........................ 2,914 4,138 6,473 8,673 488,664
----------- ----------- ----------- ----------- -----------
Total Commercial Banking .............. 30,615 43,004 58,513 83,909 6,328,202
Community Banking ................................ 6,359 48,672 10,999 93,315 1,359,250
Mortgage Banking
Mortgage Servicing ...................... 9,591 21,321 17,231 38,850 808,846
Mortgage Production ..................... 1,573 6,849 1,570 14,486 3,129,455
----------- ----------- ----------- ----------- -----------
Total Mortgage Banking ................ 11,164 28,170 18,801 53,336 3,938,301
Investment Portfolio ............................. 11,417 18,670 23,345 37,689 4,987,244
----------- ----------- ----------- ----------- -----------
Reportable Segments ..................... 59,555 138,516 111,658 268,249 16,612,997
Other ............................................ (1,456) 1,166 3,029 4,438 775,376
----------- ----------- ----------- ----------- -----------
Total ................................... $ 58,099 $ 139,682 $ 114,687 $ 272,687 $17,388,373
=========== =========== =========== =========== ===========
FOR THE THREE MONTHS FOR THE SIX MONTHS AT
ENDED MARCH 31, ENDED MARCH 31, MARCH 31,
1999 1999 1999
---------------------------- ---------------------------- -----------
INCOME REVENUES INCOME REVENUES ASSETS
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
Commercial Banking
Residential Construction Lending ........ $ 5,818 $ 8,284 $ 10,081 $ 15,112 $ 1,043,754
Mortgage Banker Finance ................. 4,958 6,899 10,606 13,617 1,012,391
Commercial Real Estate Lending .......... 3,294 4,826 6,390 9,072 635,259
Multi-Family Lending .................... 3,583 5,440 6,435 9,919 910,380
Healthcare Lending ...................... 1,949 2,893 3,094 4,975 447,063
Other Commercial ........................ 1,320 2,270 3,028 5,007 453,857
----------- ----------- ----------- ----------- -----------
Total Commercial Banking .............. 20,922 30,612 39,634 57,702 4,502,704
Community Banking ................................ 6,631 35,286 13,261 66,891 1,128,654
Mortgage Banking
Mortgage Servicing ...................... 4,465 13,239 12,879 29,965 687,661
Mortgage Production ..................... 2,252 9,503 11,387 26,072 2,363,808
----------- ----------- ----------- ----------- -----------
Total Mortgage Banking ................ 6,717 22,742 24,266 56,037 3,051,469
Investment Portfolio ............................. 10,608 16,423 23,757 35,879 5,548,756
----------- ----------- ----------- ----------- -----------
Reportable Segments ..................... 44,878 105,063 100,918 216,509 14,231,583
Other ............................................ 3,444 5,874 (1,573) 5,808 763,753
----------- ----------- ----------- ----------- -----------
Total ................................... $ 48,322 $ 110,937 $ 99,345 $ 222,317 $14,995,336
=========== =========== =========== =========== ===========
7
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The increase in Commercial Banking income year over year was due to a 42%
increase in commercial loan balances outstanding for this segment. The Community
Bank realized a lower level of income due to costs associated with the 7-Day
Banking Center initiative. The decrease in income for the Mortgage Bank was due
to lower gains on sales of single family loans and servicing caused by a
significant decrease in fixed-rate refinancings. Mortgage Servicing income
increased as loan principal prepayments slowed and was offset by lower Mortgage
Production originations. The increase in other year over year was due to lower
unallocated expenses. As compared to the year ago quarter, other decreased due
to additional loan loss reserves established in the current quarter.
7. RELATED PARTIES
In August 1999, the Parent Company entered into five loan participation
agreements with the Bank totalling $60 million. In February 2000, the Bank
repurchased the participation agreements.
8. RECENT ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and for Hedging Activities," requires companies to
recognize all derivatives as either assets or liabilities in the statement of
financial condition and to record those instruments at fair value. SFAS No. 133
requires that changes in fair value of a derivative be recognized currently in
earnings unless specific hedge accounting criteria are met. Upon implementation
of SFAS No. 133, hedging relationships may be redesignated and securities held
to maturity may be transferred to available for sale or trading. SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," deferred the effective date of SFAS
No. 133 to fiscal years beginning after June 15, 2000. The Company will adopt
SFAS No. 133 on October 1, 2000 and is evaluating the impact, if any, this
statement may have on its future Consolidated Financial Statements.
8
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Stockholders
Bank United Corp.:
We have reviewed the accompanying consolidated statement of financial condition
of Bank United Corp. and subsidiaries as of March 31, 2000, and the related
consolidated statements of operations for the three-month and six-month periods
then ended and the related consolidated statements of stockholders' equity, and
cash flows for the six-month period then ended. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data, and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion on the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial condition of Bank United
Corp. and subsidiaries as of September 30, 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated October 26, 1999, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated
statement of financial condition as of September 30, 1999, is fairly stated, in
all material respects, in relation to the consolidated statement of financial
condition from which it has been derived.
KPMG LLP
Houston, Texas
April 19, 2000
9
BANK UNITED CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DISCUSSION OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND
1999
GENERAL
Net income was $64.6 million or $1.80 per diluted share for the six months
ended March 31, 2000, compared to $52.8 million or $1.60 per diluted share for
the six months ended March 31, 1999. Net interest income increased due to higher
levels of interest-earning assets, particularly commercial loans, and to an
increase in the net yield on interest-earning assets ("net yield"). A larger
loan servicing portfolio, coupled with the favorable impact of rising interest
rates on that portfolio, contributed to an increase in net loan servicing fees,
partially offsetting lower single family loan originations and the resulting
sales. Expansion of the Community Banking business resulted in an increase in
deposit fees and charges. Higher non-interest expenses reflect costs associated
with the growth in the Community and Commercial Banking businesses as well as
new technology initiatives.
NET INTEREST INCOME
Net interest income was $200.7 million for the six months ended March 31,
2000, compared to $160.8 million for the six months ended March 31, 1999, a
$39.9 million or 25% increase. This increase was due to a $2.4 billion or 18%
increase in average interest-earning assets as well as a change in the
composition of the assets. The net yield increased 14 basis points to 2.57% for
the six months ended March 31, 2000.
AVERAGE BALANCE SHEET, INTEREST INCOME/EXPENSE, AND AVERAGE YIELD/RATE
FOR THE SIX MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------------
2000 1999
----------------------------------------- ----------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE (1) BALANCE INTEREST RATE (1)
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Interest-earning assets
Short-term interest-earning assets .... $ 403,492 $ 12,273 5.98% $ 414,883 $ 10,476 5.12%
Securities and other investments ...... 164,975 5,258 6.37 145,291 3,605 5.29
Mortgage-backed securities ............ 960,557 31,874 6.64 1,124,774 35,746 6.38
Loans
Single family ...................... 7,147,164 260,116 7.28 6,873,145 242,684 7.07
Commercial ......................... 6,059,827 254,568 8.37 4,041,667 159,608 7.93
Consumer ........................... 708,781 28,020 7.91 528,811 20,736 7.93
----------- ----------- ----------- ----------- ----------- -----------
Total loans ................... 13,915,772 542,704 7.79 11,443,623 423,028 7.41
FHLB stock ............................ 332,890 9,884 5.94 281,789 7,882 5.61
----------- ----------- ----------- ----------- ----------- -----------
Total interest-earning assets ...... 15,777,686 601,993 7.62 13,410,360 480,737 7.19
Non-interest-earning assets .............. 1,223,196 1,110,776
----------- -----------
Total assets ....................... $17,000,882 $14,521,136
=========== ===========
Interest-bearing liabilities
Deposits
Interest-bearing ................... $ 7,029,672 181,718 5.17 $ 5,889,280 145,668 4.98
Non-interest bearing ............... 1,181,735 -- -- 1,096,443 -- --
----------- ----------- ----------- ----------- ----------- -----------
Total deposits ................ 8,211,407 181,718 4.43 6,985,723 145,668 4.20
FHLB advances ......................... 6,543,345 188,605 5.68 5,538,186 145,478 5.20
Securities sold under agreements
to repurchase and federal funds
purchased .......................... 543,400 15,136 5.48 726,231 18,788 5.16
Notes payable ......................... 370,667 15,843 8.55 225,457 9,975 8.85
----------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing liabilities . 15,668,819 401,302 5.09 13,475,597 319,909 4.74
Non-interest-bearing liabilities,
minority interest, redeemable
preferred stock, and stockholders'
equity ............................... 1,332,063 1,045,539
----------- -----------
Total liabilities, minority
interest, redeemable preferred
stock, and stockholders' equity .. $17,000,882 $14,521,136
=========== ===========
Net interest income/interest rate spread . $ 200,691 2.53% $ 160,828 2.45%
=========== =========== =========== ===========
Net yield on interest-earning assets ..... 2.57% 2.43%
=========== ===========
Ratio of average interest-earning
assets to average interest-bearing
liabilities ........................... 1.01 1.00
=========== ===========
(1) Annualized.
10
BANK UNITED CORP.
Average interest-earning assets increased 18% to $15.8 billion during the six
months ended March 31, 2000, compared to the six months ended March 31, 1999,
primarily due to a 50% increase in higher yielding commercial loans. The
increase in average interest-earnings assets was funded with deposits and
Federal Home Loan Bank ("FHLB") advances. See "Discussion of Changes in
Financial Condition."
The net yield was 2.57% for the six months ended March 31, 2000, compared to
2.43% for the six months ended March 31, 1999. During the six months ended March
31, 2000, market interest rates increased, causing upward rate resets on the
Company's substantial portfolio of adjustable-rate commercial loans. As a
result, net interest income and gross yields rose during the current period.
During this period, more assets repriced than liabilities, hence the increase in
gross yields on assets more than offset the rise in the costs of funds,
resulting in a 14 basis point increase in the net yield for the six months ended
March 31, 2000.
PROVISION FOR CREDIT LOSSES
Management periodically evaluates each loan portfolio based on a variety of
factors in an effort to determine that the period end allowance for credit loss
level is adequate to cover probable losses. The allowance for credit losses
totalled $94.7 million or .65% of total loans at March 31, 2000, compared to
$82.7 million or .63% at September 30, 1999, and $59.3 million or .51% at March
31, 1999. The provision for credit losses totalled $16.1 million for the six
months ended March 31, 2000, compared to $12.5 million for the six months ended
March 31, 1999.
ALLOWANCE FOR CREDIT LOSSES
SINGLE
FAMILY COMMERCIAL CONSUMER TOTAL
------------ ------------ ------------ ------------
(IN THOUSANDS)
Balance at September 30, 1998 ............................ $ 12,503 $ 32,745 $ 2,255 $ 47,503
Provision ............................................ 1,989 10,144 335 12,468
Midland acquisition .................................. -- 2,594 -- 2,594
Net charge-offs ...................................... (1,651) (981) (613) (3,245)
------------ ------------ ------------ ------------
Balance at March 31, 1999 ................................ $ 12,841 $ 44,502 $ 1,977 $ 59,320
============ ============ ============ ============
Balance at September 30, 1999 ............................ $ 19,030 $ 61,271 $ 2,404 $ 82,705
Provision ............................................ 1,776 13,468 823 16,067
Net charge-offs ...................................... (2,797) (452) (804) (4,053)
------------ ------------ ------------ ------------
Balance at March 31, 2000 ................................ $ 18,009 $ 74,287 $ 2,423 $ 94,719
============ ============ ============ ============
During the six months ended March 31, 2000, the Company reassessed the
allowance for credit losses and determined that the allowance for single family
loans could be reduced based on the portfolio's historical losses. Accordingly,
$1.9 million of the single family allowance was reversed through a negative
provision, bringing the single family allowance ratio to 26 basis points at
March 31, 2000 compared to 29 basis points at September 30, 1999. The Company
increased the commercial loan allowance during the period due to growth in the
portfolio, increased risks associated with this type of asset, and management's
assessment of the current economic environment. The commercial loan allowance
ratio increased to 116 basis points at March 31, 2000, up from 114 basis points
at September 30, 1999.
11
BANK UNITED CORP.
NONPERFORMING ASSETS
MARCH 31, SEPTEMBER 30, MARCH 31,
2000 1999 1999
--------------- --------------- ---------------
(IN THOUSANDS)
Nonperforming loans
Single family .................. $ 76,757 $ 73,575 $ 56,025
Commercial ..................... 22,013 14,170 5,927
Consumer ....................... 1,437 1,617 1,354
--------------- --------------- ---------------
100,207 89,362 63,306
(Discounts) premiums ............... (2,125) 287 (148)
--------------- --------------- ---------------
Nonperforming loans ............ 98,082 89,649 63,158
Real estate owned
Single family .................. 22,047 17,231 22,230
Commercial ..................... 1,122 1,387 7,364
--------------- --------------- ---------------
23,169 18,618 29,594
--------------- --------------- ---------------
Total nonperforming assets .. $ 121,251 $ 108,267 $ 92,752
=============== =============== ===============
Nonperforming loans may include loans on both accrual and nonaccrual status.
On a loan-by-loan basis, management may continue to accrue interest on loans
that are past due more than 90 days if management believes that the individual
loan is in the process of collection or renewal and the interest is fully
collectible. At March 31, 2000, the commercial nonperforming loan total includes
$1.7 million of loans that are greater than 90 days past due and still accruing
interest. At September 30, 1999, and March 31, 1999, there were no loans greater
than 90 days past due and still accruing interest included in the nonperforming
loan totals.
SELECTED ASSET QUALITY RATIOS
AT OR FOR THE AT OR FOR AT OR FOR THE
SIX MONTHS ENDED THE YEAR ENDED SIX MONTHS ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999 MARCH 31, 1999
--------------- --------------- ---------------
Allowance for credit losses to nonperforming loans
Single family ......................................................... 24.04% 25.71% 22.96%
Commercial ............................................................ 341.28 436.59 752.87
Consumer .............................................................. 171.97 151.77 148.65
Total ................................................................. 96.57 92.25 93.92
Allowance for credit losses to total loans
Single family ......................................................... 0.26 0.29 0.26
Commercial ............................................................ 1.16 1.14 1.00
Consumer .............................................................. 0.33 0.36 0.34
Total ................................................................. 0.65 0.63 0.51
Nonperforming assets to total assets ...................................... 0.70 0.67 0.62
Net loan charge-offs to average loans - annualized
Single family ......................................................... 0.09 0.06 0.07
Commercial ............................................................ 0.02 0.03 0.05
Consumer .............................................................. 0.23 0.22 0.23
Total ................................................................. 0.06 0.05 0.06
The Company's commercial loan portfolio was net of $18.0 million in discounts
at March 31,2000.
12
The following table summarizes the recorded investments in impaired loans and
related allowances:
AT OR FOR THE SIX AT OR FOR
MONTHS ENDED THE YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
--------------- ---------------
(IN THOUSANDS)
Impaired loans with allowance ............ $ 22,313 $ 44,406
Impaired loans with no allowance ......... -- --
--------------- ---------------
Total impaired loans ..................... $ 22,313 $ 44,406
=============== ===============
Average impaired loans ................... $ 17,951 $ 13,630
Allowance for impaired loans ............. 6,892 6,626
At September 30, 1999, impaired loans included a $41.5 million secured loan
to a mortgage banking company. A principal payment was received on this loan
during the six month period ended March 31, 2000, resulting in an outstanding
loan balance of $7.3 million. The Company believes that all of its impaired
loans are adequately secured and reserved.
NON-INTEREST INCOME
Non-interest income totalled $72.0 million for the six months ended March 31,
2000, compared to $61.5 million for the six months ended March 31, 1999. During
the period, higher levels of net loan servicing fees somewhat offset the effect
of lower single family loan originations and lower single family loan sales. The
continued growth in the Community Bank contributed to increased deposit fees and
charges.
The largest component of non-interest income is net loan servicing fees,
which increased $8.8 million or 32% to $36.4 million during the six months ended
March 31, 2000, compared to the six months ended March 31, 1999. Growth in the
servicing portfolio, higher servicing fees received per loan and a slow down in
the amortization rate on the mortgage servicing rights ("MSRs") all contributed
to this increase. The portfolio of single family loans serviced for others
increased 17% to $26.8 billion at March 31, 2000 from March 31, 1999. During the
twelve month period ended March 31, 2000, the Company purchased $7.9 billion in
servicing rights, a large portion of which were Government National Mortgage
Association ("GNMA") securities. Loans included in GNMA securities generally
yield a higher servicing fee rate than conventional and other government related
servicing, contributing to the increase in average servicing fees earned. The
annualized average service fee rate was 44.1 basis points for the six months
ended March 31, 2000, compared to 42.4 basis points for the six months ended
March 31, 1999. Increased market interest rates during the current period caused
a corresponding decline in mortgage loan prepayment activity, contributing to a
reduction in the MSR impairment reserve as well as a slow down in MSR
amortization. The single family servicing portfolio totalled $31.9 billion at
March 31, 2000, including $5.1 billion serviced for the Company's own account
and $26.8 billion serviced for others.
Deposit fees and charges, which are primarily comprised of Community Banking
transaction fees, increased $6.2 million during the six months ended March 31,
2000, to $16.0 million. The number of checking accounts increased 31% over the
year ago period to 251,000 at March 31, 2000. Growth in the number of checking
accounts primarily came from expansion of the 7-Day Banking Centers over the
past year. See "-Discussion of Changes in Financial Condition".
Net gains from sales of single family loans and servicing rights and SBA
loans and securities comprised the majority of the $10.7 million of gains during
the six months ended March 31, 2000, down $4.3 million from the six months ended
March 31, 1999. Gains during the current period included $3.0 million related to
the sale of $460.9 million of single family servicing rights. No such gains were
recognized in the year ago period. Gains on sales of single family loans of $2.7
million declined $10.4 million during the six months ended March 31, 2000,
compared to the same period a year ago. A significant drop in fixed rate
refinancings during the current period caused a sizeable reduction in sales
volume ($655.2 million during the six months ended March 31, 2000, compared to
$2.1 billion during the six months ended March 31, 1999). SBA banking gains were
$4.0 million for the current period, up 77% from a year ago.
13
BANK UNITED CORP.
NON-INTEREST EXPENSE
Non-interest expense was $141.9 million and $110.5 million for the six months
ended March 31, 2000 and 1999. Included in these amounts are litigation expenses
of $1.3 and $4.1 million related to the Company's Court of Claims case against
the federal government. See "Legal Proceedings". The increase in non-interest
expense was due to the continued growth in all businesses of the Company,
particularly the Community Bank and the Commercial Bank. During the twelve
months ended March 31, 2000, the Community Bank's retail branch network expanded
from 94 branch locations to 154. The Midland acquisition, the 7-Day Banking
Center initiative, and the expansion of the SBA banking initiative contributed
to this growth. Costs associated with new offices for commercial and mortgage
banking and technology initiatives also contributed to the increase.
Notwithstanding this growth in the Company's business, the efficiency ratio for
the six months ended March 31, 2000 was 50.82%.
INCOME TAX EXPENSE
The Company's effective income tax rate was 35.7% for the six months ended
March 31, 2000, compared to 37.6% for the six months ended March 31, 1999. This
reduction was principally a result of the issuance of certain securities in
August 1999. The dividends on these securities are deductible for purposes of
computing the Company's tax benefit sharing payments to the Federal Savings and
Loan Insurance Corporation ("FSLIC") Resolution Fund.
DISCUSSION OF CHANGES IN FINANCIAL CONDITION FROM SEPTEMBER 30, 1999 TO MARCH
31, 2000
GENERAL
Total assets increased $1.1 billion or 7% to $17.4 billion at March 31, 2000,
up from $16.2 billion at September 30, 1999, primarily due to growth in the
commercial loan portfolio. Higher asset levels were financed principally with an
increase in deposits.
During the six months ended March 31, 2000, the MBS portfolio declined
primarily due to sales, which totalled $55.4 million, and due to principal
repayments. Principal repayments of $69.8 million during the six months ended
March 31, 2000 were lower than repayments of $194.4 million during the six
months ended March 31, 1999 as a result of a decline in payoffs and due to a
lower average balance outstanding in the current period. Purchases totalled
$25.1 million during the six months ended March 31, 2000. Trade date purchases
at September 30, 1999 totalling $42.9 million were settled during the current
period, resulting in a decline in other liabilities. The net unrealized loss on
MBS available for sale increased $5.5 million, before tax, principally due to
the recent rise in market interest rates.
14
BANK UNITED CORP.
ORIGINATION, PURCHASE, AND SALE OF LOANS
FOR THE SIX MONTHS
ENDED MARCH 31,
----------------------------
2000 1999
------------ ------------
(IN THOUSANDS)
Beginning balance, September 30 ....................................................... $ 13,116,202 $ 10,867,897
Fundings
Single family .................................................................. 1,103,768 2,399,092
Commercial ..................................................................... 3,184,620 2,043,508
Consumer ....................................................................... 173,572 142,620
Purchases
Single family .................................................................. 356,173 908,151
Commercial ..................................................................... 264,157 580,491
Consumer ....................................................................... -- 25,472
Net change in mortgage banker finance line of credit ............................... 260,920 80,091
Repayments
Single family .................................................................. (607,517) (1,441,142)
Commercial ..................................................................... (2,289,999) (1,372,905)
Consumer ....................................................................... (93,023) (87,203)
Loans sold or securitized
Single family .................................................................. (655,209) (2,096,196)
Commercial ..................................................................... (320,403) (309,524)
Consumer ....................................................................... (1,267) --
Foreclosures ....................................................................... (14,280) (22,350)
Net change in allowance for credit losses .......................................... (12,014) (11,817)
Other .............................................................................. (10,268) (33,196)
------------ ------------
Ending balance, March 31 .............................................................. $ 14,455,432 $ 11,672,989
============ ============
LOAN PORTFOLIO
MARCH 31, SEPTEMBER 30, MARCH 31,
2000 1999 1999
------------ ------------ ------------
(IN THOUSANDS)
Single family
Held for investment .................................................. $ 6,857,527 $ 6,470,636 $ 5,001,165
Held for sale ........................................................ 373,868 592,583 1,571,433
Commercial .............................................................. 6,573,816 5,469,946 4,573,774
Consumer ................................................................ 744,940 665,742 585,937
------------ ------------ ------------
14,550,151 13,198,907 11,732,309
Less allowance for credit losses ........................................ (94,719) (82,705) (59,320)
------------ ------------ ------------
Total loans receivable .............................................. $ 14,455,432 $ 13,116,202 $ 11,672,989
============ ============ ============
As the Company continued to expand its commercial and consumer lending lines
of business, the ratio of commercial and consumer loans, as well as the size of
the loan portfolio, increased. At March 31, 2000, commercial and consumer loans
made up 50% of the total loan portfolio, compared to 46% at September 30, 1999.
The commercial loan portfolio is primarily comprised of single family
construction, multi-family and commercial real estate, healthcare, and mortgage
banker finance line of credit loans. All commercial loan categories increased
during the six months ended March 31, 2000, resulting in a $1.1 billion or 20%
increase in the total commercial loan portfolio. A large portion of the current
period's commercial loan fundings came from the residential construction
portfolio. Purchases of mortgage banker finance loans during the period also
contributed to this growth.
Single family loan refinancings represented 44% of total originations for the
current period, compared to 79% for the prior year period. The decrease in
industry-wide refinancings caused by higher market interest rates, resulted in a
decline in originations, lower principal repayments and lower sales volumes
during the six months ended March 31, 2000.
15
BANK UNITED CORP.
The increase in the consumer loan portfolio primarily related to fundings of
home improvement and home equity loans.
MSRs increased $23.1 million during the six months ended March 31, 2000,
primarily due to purchases. During this period, the Company purchased servicing
rights associated with $2.5 billion in loans at a cost of $52.8 million. At
March 31, 2000, $2.1 billion of these loans had not yet been transferred to the
Company, but are expected to be transferred during the third quarter of fiscal
2000. A liability approximating $33 million was included in other liabilities at
March 31, 2000, representing the amount withheld until these loans are
transferred. MSRs totalling $12.4 million were created during the six months
ended March 31, 2000, through sales of $546.8 million of originated single
family loans. Sales of single family servicing rights totalled $460.9 million
during the current period. See "Discussion of Results of Operations for the Six
Months Ended March 31, 2000 and 1999." A receivable relating to this sale
totalling $8.7 million was included in other assets at March 31, 2000, and will
be collected upon transfer of the loans to the purchaser.
Transaction accounts, which include checking, savings, money market, and
escrow accounts, increased $321.0 million or 9%, and certificates of deposit
increased $218.5 million or 6% during the six months ended March 31, 2000. These
increases are due to continued growth in the Community Bank. Wholesale deposits
increased to $879.2 million at March 31, 2000, primarily due to higher levels of
brokered deposits.
The Series A Redeemable Preferred Stock, totalling $60 million, was
redeemed during the six months ended March 31, 2000.
LIQUIDITY
The management of the Company's liquidity focuses on ensuring that sufficient
funds are available to meet loan funding commitments, withdrawals from deposit
accounts, the repayment of borrowed funds, and ensuring that the Bank complies
with regulatory liquidity requirements.
The Company's primary sources of liquidity are deposits, FHLB advances,
securities sold under agreements to repurchase, principal and interest payments
on loans and MBS, proceeds from the sale of loans, and proceeds from the
issuance of debt and stock. While maturities and scheduled payments of loans and
MBS are predictable sources of funds, deposit outflows, loan sales, and access
to the capital markets for issuance of securities are greatly influenced by
economic conditions and general interest rates.
Under the Office of Thrift Supervision ("OTS") regulations, the Bank must
maintain, for each calendar quarter, an average daily balance of liquid assets
equal to at least 4.0% of either (1) its net withdrawable accounts plus
short-term borrowings (liquidity base), at the end of the preceding calendar
quarter or (2) the average daily balance of its liquidity base during the
preceding quarter. For the second quarter of fiscal 2000, the Bank's liquidity
ratio was 4.26%.
The primary source of funds for the Parent Company, excluding funds raised
through the capital markets, to meet its cash obligations and to make dividend
payments on its cumulative redeemable preferred stock and common stock has been
from dividends from the Bank. The ability of the Bank to pay dividends is
subject to regulations of the OTS and the terms of the preferred stock of the
Bank. At March 31, 2000, the Bank had $207.3 million of capital available for
dividend payments without prior approval of the OTS. See "Management"s
Discussion and Analysis - Capital Resources and Liquidity" in the Company's 1999
Annual Report on Form 10-K.
REGULATORY MATTERS
The Bank is subject to regulatory capital requirements set forth in the OTS
capital regulations. The Bank's capital level at March 31, 2000 and September
30, 1999 qualified it as "well-capitalized", the highest of five tiers under
applicable regulatory definitions.
MARCH 31, SEPTEMBER 30, CAPITAL ADEQUACY WELL-CAPITALIZED
2000 1999 REQUIREMENT REQUIREMENT
--------------- --------------- --------------- ---------------
Tangible capital ....................................... 7.01% 7.14% 1.50% --
Core capital ........................................... 7.02 7.15 3.00 5.00%
Tier 1 risk-based capital .............................. 9.29 9.73 -- 6.00
Total risk-based capital ............................... 11.16 11.71 8.00 10.00
16
BANK UNITED CORP.
DISCUSSION OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
AND 1999
GENERAL
Net income was $32.8 million or $.93 per diluted share for the three months
ended March 31, 2000, compared to $25.5 million or $.77 per diluted share for
the three months ended March 31, 1999. Net interest income increased due to
higher levels of interest-earning assets, particularly commercial loans, and to
an increase in the net yield. A larger loan servicing portfolio, coupled with
the favorable impact of rising interest rates on that portfolio, contributed to
an increase in net loan servicing fees, partially offsetting lower single family
loan originations and the resulting sales. Expansion of the Community Banking
business resulted in an increase in deposit fees and charges. Higher
non-interest expenses include costs associated with the growth in the Community
and Commercial Banking businesses as well as new technology initiatives.
NET INTEREST INCOME
Net interest income was $101.0 million for the three months ended March 31,
2000, compared to $82.6 million for the three months ended March 31, 1999, a
$18.4 million or 22% increase. This increase was due to a $2.3 billion or 17%
increase in average interest-earning assets as well as a change in the
composition of the assets. The net yield increased 12 basis points to 2.53% for
the three months ended March 31, 2000.
AVERAGE BALANCE SHEET, INTEREST INCOME/EXPENSE, AND AVERAGE YIELD/RATE
FOR THE THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------------
2000 1999
----------- ----------- ----------- ----------- ----------- -----------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE (1) BALANCE INTEREST RATE (1)
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Interest-earning assets
Short-term interest-earning assets ...... $ 467,586 $ 7,255 6.14% $ 454,508 $ 5,514 4.85%
Securities and other investments ........ 164,151 2,422 5.93 158,625 1,990 5.09
Mortgage-backed securities .............. 923,570 15,585 6.75 1,128,287 17,779 6.30
Loans
Single family ........................ 7,161,253 130,826 7.31 6,847,552 119,015 6.95
Commercial ........................... 6,225,195 131,755 8.46 4,276,401 83,509 7.85
Consumer ............................. 720,625 14,359 8.01 548,140 10,739 7.95
----------- ----------- ----------- ----------- ----------- -----------
Total loans ..................... 14,107,073 276,940 7.85 11,672,093 213,263 7.33
FHLB stock .............................. 335,699 5,117 6.13 299,268 4,059 5.50
----------- ----------- ----------- ----------- ----------- -----------
Total interest-earning assets ........ 15,998,079 307,319 7.68 13,712,781 242,605 7.10
Non-interest-earning assets ................ 1,208,021 1,154,760
----------- -----------
Total assets ......................... $17,206,100 $14,867,541
=========== ===========
Interest-bearing liabilities
Deposits
Interest-bearing ..................... $ 7,235,182 93,652 5.21 $ 5,919,682 71,292 4.88
Non-interest bearing ................. 1,101,023 -- -- 1,096,320 -- --
----------- ----------- ----------- ----------- ----------- -----------
Total deposits .................. 8,336,205 93,652 4.52 7,016,002 71,292 4.12
FHLB advances ........................... 6,593,281 97,229 5.84 5,872,316 74,948 5.11
Securities sold under agreements
to repurchase and federal
funds purchased ...................... 528,884 7,491 5.60 693,700 8,666 5.00
Notes payable ........................... 370,592 7,922 8.55 231,318 5,088 8.80
----------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing liabilities ... 15,828,962 206,294 5.20 13,813,336 159,994 4.66
Non-interest-bearing liabilities,
minority interest, redeemable
preferred stock, and stockholders'
equity ................................. 1,377,138 1,054,205
----------- -----------
Total liabilities, minority
interest, redeemable preferred
stock, and stockholders' equity .... $17,206,100 $14,867,541
=========== ===========
Net interest income/interest rate spread ... $ 101,025 2.48% $ 82,611 2.44%
=========== =========== =========== ===========
Net yield on interest-earning assets ....... 2.53% 2.41%
=========== ===========
Ratio of average interest-earning assets
to average interest-bearing liabilities . 1.01 0.99
=========== ===========
(1) Annualized.
17
BANK UNITED CORP.
Average interest-earning assets increased 17% to $16.0 billion during the
three months ended March 31, 2000, compared to the three months ended March 31,
1999, primarily due to a 46% increase in higher yielding commercial loans. The
increase in average interest-earnings assets was funded with deposits and FHLB
advances. See "Discussion of Changes in Financial Condition."
The net yield was 2.53% for the three months ended March 31, 2000, compared
to 2.41% for the three months ended March 31, 1999. During the three months
ended March 31, 2000, market interest rates increased, causing upward rate
resets on the Company's substantial portfolio of adjustable-rate commercial
loans. As a result, net interest income and gross yields rose during the current
period. During this period, more assets repriced than liabilities, hence, the
increase in gross asset yields more than offset the rise in the costs of funds,
resulting in a 12 basis point increase in the net yield for the three months
ended March 31, 2000.
PROVISION FOR CREDIT LOSSES
The allowance for credit losses totalled $94.7 million or .65% of total
loans at March 31, 2000, compared to $82.7 million or .63% at September 30,
1999, and $59.3 million or .51% at March 31, 1999. The provision for credit
losses totalled $8.9 million for the three months ended March 31, 2000, compared
to $6.0 million for the three months ended March 31, 1999. Reassessment of the
allowance for credit losses during the quarter ended March 31, 2000, resulted in
a decrease in the single family allowance ratio to 26 basis points and an
increase in the commercial loan allowance ratio to 116 basis points. See
"Discussion of Results of Operations for the Six Months Ended March 31, 2000 and
1999 - Provision for Credit Losses".
ALLOWANCE FOR CREDIT LOSSES
SINGLE
FAMILY COMMERCIAL CONSUMER TOTAL
--------------- --------------- --------------- ---------------
(IN THOUSANDS)
Balance at December 31, 1998 ........................... $ 13,186 $ 37,543 $ 1,964 $ 52,693
Provision .......................................... 671 5,047 264 5,982
Midland acquisition ................................ -- 2,594 -- 2,594
Net charge-offs .................................... (1,016) (682) (251) (1,949)
--------------- --------------- --------------- ---------------
Balance at March 31, 1999 .............................. $ 12,841 $ 44,502 $ 1,977 $ 59,320
=============== =============== =============== ===============
Balance at December 31, 1999 ........................... $ 19,369 $ 66,111 $ 2,293 $ 87,773
Provision .......................................... 93 8,522 310 8,925
Net charge-offs .................................... (1,453) (346) (180) (1,979)
--------------- --------------- --------------- ---------------
Balance at March 31, 2000 .............................. $ 18,009 $ 74,287 $ 2,423 $ 94,719
=============== =============== =============== ===============
NON-INTEREST INCOME
Non-interest income totalled $38.7 million for the three months ended March
31, 2000, compared to $28.3 million for the three months ended March 31, 1999.
Increases in loan servicing fees and deposit fees and charges were offset by
lower gains on sales of single family loans.
Net loan servicing fees increased $6.6 million or 52% to $19.5 million during
the three months ended March 31, 2000, compared to the three months ended March
31, 1999. Growth in the servicing portfolio, higher servicing fees received per
loan and a slow down in the amortization rate on the MSRs all contributed to
this increase. The portfolio of single family loans serviced for others
increased primarily due to purchases. A large portion of these purchases
included higher yielding GNMA securities, contributing to the increased average
servicing fee earned. The annualized average service fee rate was 44.9 basis
points for the three months ended March 31, 2000, compared to 43.7 basis points
for the three months ended March 31, 1999. Increased market interest rates
during the current period caused a corresponding decline in mortgage loan
prepayment activity, contributing to a reduction in the MSR impairment reserve
as well as a slow down in MSR amortization.
18
BANK UNITED CORP.
Deposit fees and charges, which are primarily comprised of Community Banking
transaction fees, increased $3.2 million during the three months ended March 31,
2000, to $8.1 million. The number of checking accounts increased 31% over the
year ago period to 251,000 at March 31, 2000. Growth in the number of checking
accounts primarily came from expansion of the 7-Day Banking Centers over the
past year. See "-Discussion of Changes in Financial Condition".
Net gains from sales of single family loans and servicing rights and SBA
loans and securities comprised the majority of the $6.2 million of gains during
the three months ended March 31, 2000, up $947,000 from the three months ended
March 31, 1999. Gains during the current period included $3.0 million related to
the sale of $460.9 million of single family servicing rights. No such gains were
recognized in the year ago period. Gains on sales of single family loans
declined $4.1 million during the three months ended March 31, 2000, compared to
the same period a year ago. A significant drop in fixed rate refinancings during
the current period caused a sizeable reduction in sales volume ($303.0 million
sold during the three months ended March 31, 2000, compared to $804.2 million
sold during the three months ended March 31, 1999). SBA banking gains were $2.1
million for the current period, up 114% from a year ago.
NON-INTEREST EXPENSE
Non-interest expense was $72.7 million and $56.6 million for the three months
ended March 31, 2000 and 1999. The increase in non-interest expense was due to
the continued growth in all businesses of the Company, particularly the
Community Bank and the Commercial Bank. During the twelve months ended March 31,
2000, the Community Bank's retail branch network expanded from 94 branch
locations to 154. The Midland acquisition, the 7-Day Banking Center initiative,
and the expansion of the SBA banking business contributed to this growth. Costs
associated with new offices for commercial and mortgage banking and technology
initiatives also contributed to this increase. Notwithstanding this growth in
the Company's business, the efficiency ratio was 50.81% for the three months
ended March 31, 2000.
FORWARD-LOOKING INFORMATION
Statements and financial discussion and analysis by management contained in
this report that are not historical facts are forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve a number of risks and
uncertainties. The important factors that could cause actual results to differ
materially from the forward-looking statements include, without limitation:
INTEREST RATES AND ECONOMY
o changes in interest rates and economic conditions;
o changes in the levels of loan prepayments and the resulting effects on the
value of the loan and servicing portfolios and the related hedging
instruments;
o changes in local economic and business conditions adversely affecting the
Company's borrowers and their ability to repay their loans according to their
terms or impacting the value of the related collateral;
o changes in local economic and business conditions adversely affecting the
Company's customers other than borrowers and their ability to transact
profitable business with the Company;
COMPETITION AND PRODUCT AVAILABILITY
o increased competition for deposits and loans adversely affecting rates and
terms;
o changes in availability of loans originated by other financial institutions or
the Company's ability to purchase such loans on favorable terms;
o changes in availability of single family servicing rights in the marketplace
and the Company's ability to purchase such assets on favorable terms;
o the Company's ability to make acquisitions of other depository institutions,
their assets or their liabilities on terms favorable to the Company, and the
Company's successful integration of any such acquisitions;
CHANGE IN COMPANY'S ASSET MIX
o increased credit risk in the Company's assets and increased operating risk
caused by an increase in commercial and consumer loans and a decrease in
single family loans as a percentage of the total loan portfolio;
19
LIQUIDITY AND CAPITAL
o changes in availability of funds increasing costs or reducing liquidity;
o changes in the ability of the Company to pay dividends on its preferred and
common stock;
o increased asset levels and changes in the composition of assets and the
resulting impact on the Bank's capital levels and regulatory capital ratios;
SYSTEMS
o the Company's ability to acquire, operate, and maintain cost effective and
efficient systems;
PERSONNEL
o the loss of senior management or operating personnel and the potential
inability to hire qualified personnel at reasonable compensation levels;
REGULATORY, COMPLIANCE, AND LEGAL
o changes in applicable statutes and government regulations or their
interpretations;
o claims of noncompliance by the Company with statutory and regulatory
requirements;
o claims with respect to representations and warranties made by the Company to
purchasers and insurers of mortgage loans and to purchasers of MSRs;
o changes in the status of litigation to which the Company is a party.
For further information regarding these factors, see "Risk Factors" in the
prospectus dated August 4, 1999, relating to the universal shelf for the
issuance of up to $830 million in various securities filed with the SEC (File
No. 333-75937 and File No. 333-83797).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Company's principal market risk exposure is to changes in
interest rates. Interest rate risk arises primarily from timing differences in
the duration or repricing of the Company's assets, liabilities, and
off-balance-sheet financial instruments. The Company is most affected by changes
in U. S. Treasury rates and London InterBank Offered Rates ("LIBOR") because
many of the Company's financial instruments reprice based on these indices.
Substantial changes in these indices may adversely impact the Company's
earnings. To that end, management actively monitors and seeks to manage its
interest rate risk exposure. This is done by seeking to structure the balance
sheet and off-balance-sheet portfolios and by seeking to maximize net interest
income while maintaining an acceptable level of risk to changes in market
interest rates. Management of market risk requires a balance between
profitability, liquidity, and interest rate risk. See discussion in
"Quantitative and Qualitative Disclosures About Market Risk" in the Company's
1999 Annual Report on Form 10-K.
The following table represents an analysis of the changes inherent in the
Company's net interest income over a 12 month period and market value of
portfolio equity ("MVE") arising from hypothetical changes in market interest
rates. MVE is the market value of assets, less the market value of liabilities,
adjusted for the market value of off-balance-sheet instruments. The interest
rate scenarios presented in the table include interest rates at March 31, 2000
and September 30, 1999 and as adjusted by instantaneous parallel rate changes
upward and downward of up to 200 basis points. Each rate scenario has unique
prepayment, repricing, and reinvestment assumptions. Prepayments are assumed to
increase as rates decrease and to slow as rates increase.
MARCH 31, 2000 SEPTEMBER 30, 1999
--------------------------------- ----------------------------------
CHANGE IN NET INTEREST MARKET VALUE OF NET INTEREST MARKET VALUE OF
INTEREST RATES INCOME PORTFOLIO EQUITY INCOME PORTFOLIO EQUITY
-------------- ------------ ---------------- ------------ ----------------
+200 (6.18)% (31.08)% (5.45)% (33.28)%
+100 (2.42) (12.97) (1.79) (13.82)
0 0.00 0.00 0.00 0.00
-100 0.47 5.91 0.54 11.63
-200 0.79 8.54 0.62 26.34
20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 25, 1995 the Bank, the Parent Company, and Hyperion Partners LP
(collectively the "Plaintiffs") filed suit against the United States of America
in the United States Court of Federal Claims for alleged failures of the United
States (1) to abide by a capital forbearance that would have allowed the Bank to
operate for ten years under negotiated capital levels lower than the levels
required by the then existing regulations or successor regulations, (2) to abide
by its commitment to allow the Bank to count $110 million of subordinated debt
as regulatory capital for all purposes and (3) to abide by an accounting
forbearance that would have allowed the Bank to count as capital for regulatory
purposes, and to amortize over a period of twenty-five years, the $30.7 million
difference between certain FSLIC payment obligations to the Bank and the
discounted present value of those future FSLIC payments.
In March 1999, the United States Court of Federal Claims granted the
Company's motion for summary judgment on the issue of liability and held that
the United States was liable for claims in the case filed by the Plaintiffs. On
August 5, 1999, the Court denied a motion for summary judgment filed by the
United States of America on the issue of lost profits damages. The Company's
case proceeded to trial on the amount of damages on September 13, 1999, and the
taking of evidence by the Court concluded on October 21, 1999. The parties have
now submitted post-trial briefs and presented final oral arguments. A decision
by the Court is expected in calendar year 2000. The Plaintiffs' seek and offered
evidence in support of damages of approximately $560 million. The government
argued that damages to Plaintiffs as a result of the breach, if any, approached
zero. The Company is unable to predict the outcome of the Plaintiffs' suit
against the United States and the amount of judgment for damages, if any, that
may be awarded. No assurances can be given on the outcome of this case.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Parent Company was held on March
16, 2000, for the purpose of voting on the election of directors. Proxies for
the meeting were solicited pursuant to Section 14(a) of the Securities Exchange
Act of 1934, and there was no solicitation in opposition to management's
solicitation.
All of the nominees for director listed in the proxy statement were elected
with the following vote:
NOMINEE SHARES FOR SHARES WITHHELD
------- ---------- ---------------
Barry C. Burkholder 27,377,079 376,841
Lawrence Chimerine, Ph. D. 26,564,448 189,472
Alan E. Master 27,503,748 250,172
Lewis S. Ranieri, Chairman 27,071,129 682,791
The names of the directors whose terms of office continued after the meeting
are as follows:
David M. Golush
Paul M. Horvitz
Anthony J. Nocella
Salvatore A. Ranieri
Scott A. Shay
Patricia A. Sloan
Michael S. Stevens
Kendrick R. Wilson III
21
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6A. EXHIBITS
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
*15.1 - Letter in Lieu of Consent of KPMG LLP, independent accountants
*27.1 - Financial Data Schedule, Quarter Ended March 31, 2000
* Filed herewith.
ITEM 6B. REPORTS ON FORM 8-K
The Company did not file a report on Form 8-K during the six months ended
March 31, 2000.
22
BANK UNITED CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANK UNITED CORP.
-------------------------
(Registrant)
Date MAY 10, 2000 /s/ BARRY C. BURKHOLDER
---------------------------- -------------------------
Barry C. Burkholder
President
Chief Executive Officer
(Duly Authorized Officer)
Date MAY 10, 2000 /s/ ANTHONY J. NOCELLA
--------------------------- ------------------------
Anthony J. Nocella
Vice Chairman
Chief Financial Officer
23