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 June 30, 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 August 9, 2000, there were 32,477,697 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 June 30, 2000 (unaudited) and September 30, 1999............1
Consolidated Statements of Operations -
For the Three and Nine Months Ended June 30, 2000 and 1999
(unaudited).......................................................2
Consolidated Statements of Stockholders' Equity -
For the Nine Months Ended June 30, 2000 and 1999 (unaudited)......3
Consolidated Statements of Cash Flows -
For the Nine Months Ended June 30, 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................................................21
Item 6. Exhibits and Reports on Form 8-K.................................21
Signatures...............................................................22
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
JUNE 30, SEPTEMBER 30,
2000 1999
------------ -------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 186,867 $ 183,260
Securities purchased under agreements to resell and federal funds sold 516,628 390,326
Securities and other investments
Held to maturity, at amortized cost (fair value of $10.8 million in 2000
and $11.7 million in 1999) 11,173 12,106
Available for sale, at fair value 119,450 131,432
Mortgage-backed securities
Held to maturity, at amortized cost (fair value of $261.0 million in 2000
and $308.8 million in 1999) 269,577 315,288
Available for sale, at fair value 632,908 688,714
Loans
Held for investment (allowance for credit losses of $112.0 million in 2000
and $82.7 million in 1999) 14,077,992 12,422,238
Held for sale 892,421 693,964
Federal Home Loan Bank stock 351,456 328,886
Mortgage servicing rights 569,311 534,694
Servicing receivables 138,882 116,397
Deferred tax asset 105,737 110,512
Premises and equipment 88,686 88,684
Intangible assets 79,298 83,778
Real estate owned 18,248 17,278
Other assets 138,938 127,122
------------ -------------
TOTAL ASSETS $ 18,197,572 $ 16,244,679
============ =============
LIABILITIES
Deposits $ 8,819,413 $ 7,508,502
Federal Home Loan Bank advances 6,921,300 6,443,470
Securities sold under agreements to repurchase and federal funds
purchased 702,827 516,900
Notes payable 368,835 368,762
Other liabilities 271,966 308,131
------------ -------------
Total liabilities 17,084,341 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
------------ -------------
Total minority interest and redeemable preferred stock 285,500 345,500
------------ -------------
STOCKHOLDERS' EQUITY
Common stock 325 325
Paid-in capital 133,095 132,153
Retained earnings 719,425 646,549
Unearned stock compensation (3,333) (4,686)
Accumulated other comprehensive income - net unrealized losses on
securities available for sale, net of tax (21,208) (20,058)
Treasury stock, at cost (573) (869)
------------ -------------
Total stockholders' equity 827,731 753,414
------------ -------------
TOTAL LIABILITIES, MINORITY INTEREST, REDEEMABLE
PREFERRED STOCK, AND STOCKHOLDERS' EQUITY $ 18,197,572 $ 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 NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(RESTATED) (RESTATED)
INTEREST INCOME
Short-term interest-earning assets $ 10,093 $ 4,838 $ 22,366 $ 15,314
Securities and other investments 2,227 1,747 7,485 5,352
Mortgage-backed securities 15,809 17,744 47,683 53,490
Loans 295,730 222,975 838,434 646,003
Federal Home Loan Bank stock 10,834 3,857 20,718 11,739
---------- ---------- ---------- ----------
Total interest income 334,693 251,161 936,686 731,898
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 102,144 72,789 283,862 218,457
Federal Home Loan Bank advances 106,289 73,732 294,894 219,210
Securities sold under agreements to repurchase and
federal funds purchased 9,144 7,242 24,280 26,030
Notes payable 7,923 7,904 23,766 17,879
---------- ---------- ---------- ----------
Total interest expense 225,500 161,667 626,802 481,576
---------- ---------- ---------- ----------
Net interest income 109,193 89,494 309,884 250,322
PROVISION FOR CREDIT LOSSES 19,897 5,617 35,964 18,085
---------- ---------- ---------- ----------
Net interest income after provision for credit losses 89,296 83,877 273,920 232,237
---------- ---------- ---------- ----------
NON-INTEREST INCOME
Loan servicing fees, net 18,611 12,285 54,971 39,883
Deposit fees and charges 9,213 5,901 25,230 15,698
Net gains (losses)
Single family loans and servicing rights 2,923 3,628 8,979 16,803
Securities and mortgage-backed securities 1,948 332 3,136 1,117
Other loans 1,455 879 4,937 1,906
---------- ---------- ---------- ----------
Net gains (losses) 6,326 4,839 17,052 19,826
Other 5,125 4,439 14,018 13,546
---------- ---------- ---------- ----------
Total non-interest income 39,275 27,464 111,271 88,953
---------- ---------- ---------- ----------
NON-INTEREST EXPENSE
Compensation and benefits 35,979 28,611 102,928 76,263
Occupancy 6,855 5,859 19,820 15,927
Data processing 6,936 5,293 20,460 14,344
Court of claims litigation 425 1,749 1,675 5,826
Amortization of intangibles 1,844 1,863 5,498 4,783
Other 21,737 20,367 65,328 57,103
---------- ---------- ---------- ----------
Total non-interest expense 73,776 63,742 215,709 174,246
---------- ---------- ---------- ----------
Income before income taxes and minority interest 54,795 47,599 169,482 146,944
INCOME TAX EXPENSE 16,502 17,639 57,471 55,015
---------- ---------- ---------- ----------
Income before minority interest 38,293 29,960 112,011 91,929
MINORITY INTEREST
Subsidiary preferred stock dividends 4,563 4,563 13,689 13,689
---------- ---------- ---------- ----------
NET INCOME $ 33,730 $ 25,397 $ 98,322 $ 78,240
========== ========== ========== ==========
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 31,918 $ 25,397 $ 91,166 $ 78,240
========== ========== ========== ==========
EARNINGS PER COMMON SHARE
Basic $ 0.98 $ 0.78 $ 2.81 $ 2.42
Diluted 0.97 0.77 2.77 2.37
See accompanying Notes to Consolidated Financial Statements.
2
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended June 30, 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 -- -- -- -- -- 78,240
Net change in unrealized gains (losses) -- -- -- -- -- --
---------- ------ ---------- ------ -------- ---------
Total comprehensive income -- -- -- -- -- 78,240
---------- ------ ---------- ------ -------- ---------
Dividends declared:
Common stock ($.507 per share) -- -- -- -- -- (16,365)
Stock options exercised 96,021 1 -- -- 518 --
Stock repurchased -- -- -- -- -- --
Conversion of shares 3,241,320 32 (3,241,320) (32) -- --
Restricted stock issued 140,750 1 -- -- 5,550 --
Amortization of unrealized stock
compensation -- -- -- -- -- --
---------- ------ ---------- ------ -------- ---------
BALANCE AT JUNE 30, 1999, RESTATED 32,447,683 $ 324 -- $ -- $138,134 $ 622,836
========== ====== ========== ====== ======== =========
BALANCE AT SEPTEMBER 30, 1999 32,477,826 $ 325 -- $ -- $132,153 $ 646,549
Net income -- -- -- -- -- 98,322
Net change in unrealized gains (losses) -- -- -- -- -- --
---------- ------ ---------- ------ -------- ---------
Total comprehensive income -- -- -- -- -- 98,322
---------- ------ ---------- ------ -------- ---------
Dividends declared:
Common stock ($.555 per share) -- -- -- -- -- (18,010)
Redeemable preferred stock
($2.756 per share) -- -- -- -- -- (7,156)
Stock options exercised 20,087 -- -- -- 942 (280)
Stock repurchased -- -- -- -- -- --
Amortization of unrealized stock
compensation -- -- -- -- -- --
---------- ------ ---------- ------ -------- ---------
BALANCE AT JUNE 30, 2000 32,497,913 $ 325 -- $ -- $133,095 $ 719,425
========== ====== ========== ====== ======== =========
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 -- -- -- -- 78,240
Net change in unrealized gains (losses) -- (12,712) -- -- (12,712)
------------ ------------- ------- ------- -------------
Total comprehensive income -- (12,712) -- -- 65,528
------------ ------------- ------- ------- -------------
Dividends declared:
Common stock ($.507 per share) -- -- -- -- (16,365)
Stock options exercised -- -- -- -- 519
Stock repurchased -- -- (20,000) (562) (562)
Conversion of shares -- -- -- -- --
Restricted stock issued (5,551) -- -- -- --
Amortization of unrealized stock
compensation 346 -- -- -- 346
------------ ------------- ------- ------- -------------
BALANCE AT JUNE 30, 1999, RESTATED $ (5,205) $ (14,166) (34,200) $(1,063) $ 740,860
============ ============= ======= ======= =============
BALANCE AT SEPTEMBER 30, 1999 $ (4,686) $ (20,058) (28,900) $ (869) $ 753,414
Net income -- -- -- -- 98,322
Net change in unrealized gains (losses) -- (1,150) -- -- (1,150)
------------ ------------- ------- ------- -------------
Total comprehensive income -- (1,150) -- -- 97,172
------------ ------------- ------- ------- -------------
Dividends declared:
Common stock ($.555 per share) -- -- -- -- (18,010)
Redeemable preferred stock
($2.756 per share) -- -- -- -- (7,156)
Stock options exercised -- -- 29,684 891 1,553
Stock repurchased -- -- (22,000) (595) (595)
Amortization of unrealized stock
compensation 1,353 -- -- -- 1,353
------------ ------------- ------- ------- -------------
BALANCE AT JUNE 30, 2000 $ (3,333) $ (21,208) (21,216) $ (573) $ 827,731
============ ============= ======= ======= =============
See accompanying Notes to Consolidated Financial Statements.
3
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
FOR THE NINE MONTHS ENDED JUNE 30,
----------------------------------
2000 1999
--------------- ---------------
(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used by operating activities $ (920,852) $ (51,238)
--------------- ---------------
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 (126,302) 262,232
Fundings of loans held for investment (5,153,345) (3,718,137)
Proceeds from principal repayments and maturities of
Loans held for investment 4,705,131 3,870,822
Securities held to maturity 5,617 10,430
Securities available for sale 133 7,799
Mortgage-backed securities held to maturity 45,685 115,664
Mortgage-backed securities available for sale 54,391 162,017
Proceeds from the sale of
Securities available for sale 252,098 340,272
Mortgage-backed securities available for sale 56,437 --
Mortgage servicing rights 5,457 --
Federal Home Loan Bank stock 30,983 11,000
Real estate owned acquired through foreclosure 38,266 27,606
Purchases of
Loans held for investment (302,271) (1,524,236)
Securities held to maturity (4,661) (12,475)
Securities available for sale (1,653) (97)
Mortgage-backed securities held to maturity -- (2,514)
Mortgage-backed securities available for sale (60,124) (427,690)
Mortgage servicing rights (99,206) (70,363)
Federal Home Loan Bank stock (32,836) (61,871)
Other changes in loans held for investment (341,608) (231,561)
Other changes in mortgage servicing rights (25,808) (32,736)
Net purchases of premises and equipment (10,521) (33,628)
--------------- ---------------
Net cash used by investing activities (964,630) (1,537,434)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 1,310,911 184,642
Proceeds from deposits purchased -- 232,804
Proceeds from Federal Home Loan Bank advances 5,040,700 3,915,000
Repayment of Federal Home Loan Bank advances (4,562,870) (2,679,611)
Net change in securities sold under agreements to repurchase
and federal funds purchased 185,927 (176,849)
Proceeds from issuance of notes payable -- 148,984
Payment of issuance costs of notes payable -- (2,120)
Redemption of redeemable preferred stock (60,000) --
Payment of dividends (26,537) (16,365)
Stock repurchased (595) (562)
Stock options exercised 1,553 519
--------------- ---------------
Net cash provided by financing activities 1,889,089 1,606,442
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,607 17,770
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 183,260 236,588
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 186,867 $ 254,358
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 602,402 $ 475,430
Cash paid for income taxes 33,491 13,122
NONCASH INVESTING ACTIVITIES
Real estate owned acquired through foreclosure 37,593 36,054
Securitization of loans 248,160 357,457
Net transfer of loans to held for investment from held for sale (625,667) (1,299,624)
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 nine months ended June 30, 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 NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- -------------------
2000 1999 2000 1999
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME
Net income available to common stockholders $31,918 $25,397 $91,166 $78,240
======= ======= ======= =======
SHARES
Average common shares outstanding 32,452 32,401 32,449 32,257
Potentially dilutive common shares from options 597 681 447 676
------- ------- ------- -------
Average common shares and potentially
dilutive common shares outstanding 33,049 33,082 32,896 32,933
======= ======= ======= =======
BASIC EPS $ 0.98 $ 0.78 $ 2.81 $ 2.42
DILUTED EPS 0.97 0.77 2.77 2.37
Options to purchase 1,875,450 and 532,950 shares of common stock at
weighted-average exercise prices of $40.27 and $44.54 were excluded from the
computation of diluted EPS for the three months ended June 30, 2000 and 1999,
because the options' exercise price was greater than the average market price of
the common stock. Options to purchase 1,931,625 and 538,544 shares of common
stock at weighted-average exercise prices of $39.98 and $44.65 were excluded
from the computation of diluted EPS for the nine months ended June 30, 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 nine
months ended June 30, 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 nine
months ended June 30, 2000, 49,771 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 JUNE 30,
--------------------------------------------------------
2000 1999
-------------------------- ---------------------------
NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- ---------------- --------- ----------------
Outstanding at end of period 3,665,449 $ 31.65 3,195,370 $ 32.43
Vested at end of period 1,361,879 22.80 1,192,020 20.48
Exercisable at end of period 1,361,879 22.80 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 (comprised of
Residential Construction Lending, Mortgage Banker Finance, Commercial Real
Estate Lending, Multi-Family Lending, Healthcare Lending, and Other Commercial),
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 Production 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 NINE MONTHS AT
ENDED JUNE 30, ENDED JUNE 30, JUNE 30,
2000 2000 2000
-------------------- --------------------- -----------
INCOME REVENUES INCOME REVENUES ASSETS
-------- -------- --------- -------- -----------
(IN THOUSANDS)
Commercial Banking
Residential Construction Lending $ 8,604 $ 11,973 $ 22,657 $ 32,060 $ 1,558,555
Mortgage Banker Finance 5,532 8,613 16,986 27,459 1,657,293
Commercial Real Estate Lending 5,547 7,228 14,365 19,569 1,058,703
Multi-Family Lending 5,272 7,077 14,962 20,322 1,268,486
Healthcare Lending 3,763 5,339 11,788 16,057 750,133
Other Commercial 1,912 5,015 8,385 13,687 528,535
-------- -------- --------- -------- -----------
Total Commercial Banking 30,630 45,245 89,143 129,154 6,821,705
Community Banking 8,814 50,618 19,813 143,933 1,505,304
Mortgage Banking
Mortgage Servicing 9,837 21,143 27,068 59,993 824,712
Mortgage Production 219 7,942 1,789 22,428 3,464,698
-------- -------- --------- -------- -----------
Total Mortgage Banking 10,056 29,085 28,857 82,421 4,289,410
Investment Portfolio 10,780 17,053 34,125 54,742 4,657,620
-------- -------- --------- -------- -----------
Reportable Segments 60,280 142,001 171,938 410,250 17,274,039
Other (5,485) 6,467 (2,456) 10,905 923,533
-------- -------- --------- -------- -----------
Total $ 54,795 $148,468 $ 169,482 $421,155 $18,197,572
======== ======== ========= ======== ===========
FOR THE THREE MONTHS FOR THE NINE MONTHS AT
ENDED JUNE 30, ENDED JUNE 30, JUNE 30,
1999 1999 1999
-------------------- --------------------- -----------
INCOME REVENUES INCOME REVENUES ASSETS
-------- -------- --------- -------- -----------
(IN THOUSANDS)
Commercial Banking
Residential Construction Lending $ 6,885 $ 9,250 $ 16,966 $ 24,362 $ 1,168,854
Mortgage Banker Finance 5,391 7,812 15,996 21,429 1,191,831
Commercial Real Estate Lending 3,536 5,211 9,927 14,283 841,594
Multi-Family Lending 4,500 5,400 10,935 15,319 941,215
Healthcare Lending 2,479 3,442 5,574 8,417 549,306
Other Commercial 1,671 2,317 4,698 7,324 440,310
-------- -------- --------- -------- -----------
Total Commercial Banking 24,462 33,432 64,096 91,134 5,133,110
Community Banking 5,810 39,447 19,071 106,338 1,165,646
Mortgage Banking
Mortgage Servicing 3,786 13,593 16,665 43,558 769,942
Mortgage Production 3,238 9,355 14,625 35,427 2,460,859
-------- -------- --------- -------- -----------
Total Mortgage Banking 7,024 22,948 31,290 78,985 3,230,801
Investment Portfolio 8,626 16,872 32,383 52,751 5,224,456
-------- -------- --------- -------- -----------
Reportable Segments 45,922 112,699 146,840 329,208 14,754,013
Other 1,677 4,259 104 10,067 791,734
-------- -------- --------- -------- -----------
Total $ 47,599 $116,958 $ 146,944 $339,275 $15,545,747
======== ======== ========= ======== ===========
7
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Commercial Bank's income grew significantly during the quarter ended June
30, 2000, compared to the year ago quarter, due to a 31% increase in commercial
loan balances outstanding. Income for the Community Bank also increased quarter
over quarter due to expansion of its deposit customer base and the resulting
increase in deposit fees and charges, somewhat offset by costs associated with
the 7-Day Banking Center initiative. Mortgage Servicing income increased quarter
over quarter due to a higher average servicing portfolio, increased servicing
fees received per loan, a slow down in the amortization rate, recovery of the
impairment reserve, and gains on sales of servicing rights in the current
period. Mortgage Production income decreased during the quarter ended June 30,
2000, compared to the year ago quarter, due to lower gains on sales of single
family loans caused by a significant drop in fixed-rate originations. The other
caption decreased as additional loan loss reserves were established in the
current quarter.
7. RELATED PARTIES
In August 1999, the Parent Company entered into five loan participation
agreements with the Bank totaling $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 measure all derivatives 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. SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities" amended the
accounting and reporting standards of SFAS No. 133 for certain derivative
instruments, hedging activities, and decisions made by the Derivatives
Implementation Group ("DIG"). The DIG is still addressing certain issues, which
could impact the Company's implementation of SFAS 133. The Company will adopt
SFAS No. 133 on October 1, 2000 and is evaluating the impact this statement may
have on its future Consolidated Financial Statements. The Company anticipates
that adoption of this statement could increase the volatility of reported
earnings and stockholders' equity.
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 June 30, 2000, and the related
consolidated statements of operations for the three-month and nine-month periods
then ended and the related consolidated statements of stockholders' equity, and
cash flows for the nine-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
July 21, 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 NINE MONTHS ENDED JUNE 30, 2000
AND 1999
GENERAL
Net income was $98.3 million or $2.77 per diluted share for the nine months
ended June 30, 2000, compared to $78.2 million or $2.37 per diluted share for
the nine months ended June 30, 1999. Net interest income increased due to higher
levels of interest-earning assets, particularly commercial loans, an increase in
the net yield on interest-earning assets ("net yield"), and a special dividend
received from the Federal Home Loan Bank ("FHLB"). A larger average loan
servicing portfolio, coupled with the favorable impact of rising interest rates
on that portfolio, contributed to an increase in net loan servicing fees.
Expansion of the Community Banking business continued to produce an increase in
deposit fees and charges. Additional provisions for credit losses primarily
related to a single nonperforming commercial loan and, in general, higher levels
of commercial loans outstanding. Higher non-interest expenses include costs
associated with the growth in the Community and Commercial Banking businesses.
The Company also recorded an income tax benefit during the third quarter
relating to increased net operating loss carryforwards ("NOLs") available for
future periods.
NET INTEREST INCOME
Net interest income was $309.9 million for the nine months ended June 30,
2000, compared to $250.3 million for the nine months ended June 30, 1999, a
$59.6 million or 24% increase. This increase was due to both the growth in
average interest-earning assets and a higher net yield.
AVERAGE BALANCE SHEET, INTEREST INCOME/EXPENSE, AND AVERAGE YIELD/RATE
FOR THE NINE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------
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 $ 453,698 $ 22,366 6.48% $ 403,831 $ 15,314 5.07%
Securities and other investments 166,214 7,485 6.02 160,493 5,352 4.67
Mortgage-backed securities 950,510 47,683 6.69 1,122,566 53,490 6.37
Loans
Single family 7,196,553 394,947 7.32 6,758,435 358,567 7.08
Commercial 6,241,109 399,521 8.52 4,302,970 254,842 7.91
Consumer 734,158 43,966 8.00 553,655 32,594 7.91
----------- -------- -------- ----------- -------- --------
Total loans 14,171,820 838,434 7.88 11,615,060 646,003 7.43
FHLB stock 337,389 20,718 8.20 286,516 11,739 5.48
----------- -------- -------- ----------- -------- --------
Total interest-earning assets 16,079,631 936,686 7.76 13,588,466 731,898 7.20
Non-interest-earning assets 1,207,822 1,130,351
----------- -----------
Total assets $17,287,453 $14,718,817
=========== ===========
Interest-bearing liabilities
Deposits
Interest-bearing $ 7,144,218 283,862 5.31 $ 5,945,739 218,457 4.93
Non-interest bearing 1,209,136 -- -- 1,121,770 -- --
----------- -------- -------- ----------- -------- --------
Total deposits 8,353,354 283,862 4.54 7,067,509 218,457 4.15
FHLB advances 6,651,049 294,894 5.84 5,634,082 219,210 5.14
Securities sold under agreements to repurchase
and federal funds purchased 568,345 24,280 5.61 679,928 26,030 5.08
Notes payable 370,593 23,766 8.55 273,212 17,879 8.73
----------- -------- -------- ----------- -------- --------
Total interest-bearing liabilities 15,943,341 626,802 5.21 13,654,731 481,576 4.70
Non-interest-bearing liabilities, minority interest,
redeemable preferred stock, and stockholders' equity 1,344,112 1,064,086
----------- -----------
Total liabilities, minority interest, redeemable
preferred stock, and stockholders' equity $17,287,453 $14,718,817
=========== ===========
Net interest income/interest rate spread $309,884 2.55% $250,322 2.50%
======== ======== ======== ========
Net yield on interest-earning assets 2.59% 2.48%
======== ========
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 totaled $16.1 billion during the nine months
ended June 30, 2000, an increase of $2.5 billion or 18% over the year ago
period, primarily due to a 45% increase in commercial loans. The growth in
average interest-earning assets was funded with deposits and FHLB advances. See
"-Discussion of Changes in Financial Condition."
The net yield was 2.59% for the nine months ended June 30, 2000, compared to
2.48% for the nine months ended June 30, 1999. The Company's net interest income
and gross yields continued an upward trend during the current period, benefiting
from rate resets on the substantial portfolio of LIBOR and prime-based
commercial loans, as well as a special $5.4 million dividend received from the
FHLB (contributing 5 basis points to the net yield). On a year-to-date basis,
more assets repriced than liabilities, allowing the increase in gross yields on
assets to more than offset the rise in the cost of funds, resulting in a 6 basis
point increase in the net yield.
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
totaled $112.0 million or .74% of total loans at June 30, 2000, compared to
$82.7 million or .63% at September 30, 1999, and $64.0 million or .51% at June
30, 1999. The provision for credit losses totaled $36.0 million for the nine
months ended June 30, 2000, compared to $18.1 million for the nine months ended
June 30, 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 4,138 13,254 693 18,085
Midland acquisition -- 2,594 -- 2,594
Net charge-offs (2,254) (931) (979) (4,164)
-------- ---------- -------- ---------
Balance at June 30, 1999 $ 14,387 $ 47,662 $ 1,969 $ 64,018
======== ========== ======== =========
Balance at September 30, 1999 $ 19,030 $ 61,271 $ 2,404 $ 82,705
Provision 2,146 32,645 1,173 35,964
Net charge-offs (4,735) (840) (1,138) (6,713)
-------- ---------- -------- ---------
Balance at June 30, 2000 $ 16,441 $ 93,076 $ 2,439 $ 111,956
======== ========== ======== =========
The Company increased the commercial loan allowance during the current period
due to higher levels of commercial loans outstanding, increased risks associated
with this type of portfolio, and to reflect potential exposure associated with a
large nonperforming commercial loan. The commercial loan allowance ratio
increased to 138 basis points at June 30, 2000, up from 114 basis points at
September 30, 1999. During the nine months ended June 30, 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 25 basis
points at June 30, 2000, compared to 29 basis points at September 30, 1999.
11
BANK UNITED CORP.
NONPERFORMING ASSETS
JUNE 30, SEPTEMBER 30, JUNE 30,
2000 1999 1999
-------- ------------- --------
(IN THOUSANDS)
Nonperforming loans
Single family $ 62,832 $ 73,575 $ 67,042
Commercial 43,639 14,170 7,035
Consumer 1,865 1,617 911
-------- ------------- --------
108,336 89,362 74,988
Premiums 375 287 13
-------- ------------- --------
Nonperforming loans 108,711 89,649 75,001
Real estate owned
Single family 15,972 17,231 18,880
Commercial 2,848 1,387 6,197
-------- ------------- --------
18,820 18,618 25,077
-------- ------------- --------
Total nonperforming assets $127,531 $ 108,267 $100,078
======== ============= ========
IMPAIRED LOANS
AT OR FOR THE NINE AT OR FOR
MONTHS ENDED THE YEAR ENDED
JUNE 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
(IN THOUSANDS)
Impaired loans with allowance $ 35,124 $ 44,406
Impaired loans with no allowance -- --
------------------ ------------------
Total impaired loans $ 35,124 $ 44,406
================== ==================
Average impaired loans $ 23,675 $ 13,630
Allowance for impaired loans 19,565 6,626
SELECTED ASSET QUALITY RATIOS
AT OR FOR THE AT OR FOR AT OR FOR THE
NINE MONTHS ENDED THE YEAR ENDED NINE MONTHS ENDED
JUNE 30, 2000 SEPTEMBER 30, 1999 JUNE 30, 1999
------------------ ------------------ ------------------
Allowance for credit losses to nonperforming loans
Single family 25.92% 25.71% 21.44%
Commercial 214.24 436.59 679.04
Consumer 132.27 151.77 221.48
Total 102.98 92.25 85.36
Allowance for credit losses to total loans
Single family 0.25 0.29 0.24
Commercial 1.38 1.14 0.93
Consumer 0.29 0.36 0.31
Total 0.74 0.63 0.51
Nonperforming assets to total assets 0.70 0.67 0.64
Net loan charge-offs to average loans - annualized
Single family 0.10 0.06 0.06
Commercial 0.02 0.03 0.03
Consumer 0.21 0.22 0.23
Total 0.06 0.05 0.05
12
BANK UNITED CORP.
At June 30, 2000, nonperforming and impaired loans included a partially
secured $23.3 million commercial loan (total commitment of $25 million) to a
Houston-based department store chain, which filed for bankruptcy protection
under Chapter 11 in June 2000. The borrower intends to present its
reorganization plan to the bankruptcy court after the Christmas selling season.
The Company believes it is adequately reserved against losses, if any, that may
be realized on this loan, and does not believe that the performance and
collection of the loan will have an adverse effect upon the earnings or capital
of the Company.
At September 30, 1999, impaired loans included a $41.5 million secured loan
to a mortgage banking company. Principal payments were received on this loan
during the nine month period ended June 30, 2000, resulting in an outstanding
loan balance of $6.3 million at June 30, 2000. The Company believes that all of
its impaired loans are adequately secured and reserved.
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 June 30, 2000, the commercial nonperforming loan total includes
$1.8 million of loans that are greater than 90 days past due and still accruing
interest. At September 30, 1999 and June 30, 1999, there were no loans greater
than 90 days past due and still accruing interest included in the nonperforming
loan totals.
NON-INTEREST INCOME
Non-interest income totaled $111.3 million for the nine months ended June 30,
2000, compared to $89.0 million for the nine months ended June 30, 1999. During
the current period, higher levels of net loan servicing fees and gains on sales
of single family servicing rights offset the effect of lower fixed-rate single
family loan originations and related 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 $15.1 million or 38% to $55.0 million for the nine months ended
June 30, 2000, compared to the year ago period. Growth in the servicing
portfolio, higher servicing fees received per loan, and a slow down in the
amortization rate all contributed to this increase. The portfolio of single
family loans serviced for others increased $3.4 billion or 15% on average for
the nine months ended June 30, 2000, compared to the year ago period. During the
last twelve months, the Company purchased $7.9 billion in servicing rights,
which included $3.4 billion purchased on June 30, 1999. A large portion of the
servicing rights purchased were Government National Mortgage Association
("GNMA") securities, which generally yield a higher servicing fee rate than
conventional and other government related servicing. The increased level of GNMA
servicing coupled with the effect of rising market interest rates on
adjustable-rate loans in the servicing portfolio contributed to the increase in
the average service fee rate. The average service fee rate was 45.0 basis points
for the nine months ended June 30, 2000, compared to 41.4 basis points for the
year ago period. Increased market interest rates caused a decline in mortgage
loan prepayment activity, which in turn extended the average life and increased
the overall value of the portfolio, resulting in a slowdown in the amortization
of mortgage servicing rights ("MSRs") and a recovery of the impairment reserve.
Deposit fees and charges, which are primarily comprised of Community Banking
transaction fees, totaled $25.2 million for the nine months ended June 30, 2000,
an increase of $9.5 million or 61%, compared to the year ago period. Over the
past twelve months, the Company has expanded its deposit customer base with the
number of checking accounts increasing 25% to 264,000 at June 30, 2000, compared
to 211,000 at June 30, 1999. This growth came primarily from the 7-Day Banking
Centers and, to a lesser extent, successful marketing efforts. See "-Discussion
of Changes in Financial Condition."
Net gains from sales of single family loans, servicing rights, and SBA loans
and securities comprised the majority of the $17.1 million of gains during the
nine months ended June 30, 2000, down $2.8 million from the year ago period. The
"natural hedge" provided by the Company's servicing portfolio allowed higher
values in that portfolio, along with the resulting gains to offset the effect of
lower levels of fixed-rate single family loan originations and related sales.
Gains during the current period included $5.7 million related to the sale of
$1.1 billion in servicing rights. There were no sales of servicing rights during
the year ago period. Gains on sales of single family loans were $3.3 million for
the nine months ended June 30, 2000, a decline of $13.5 million from the year
ago period, primarily due to a decline in sales volume.
13
BANK UNITED CORP.
Historically, single family loan sales were comprised of fixed-rate loans
originated by the Company. A significant drop in fixed-rate originations during
the nine months ended June 30, 2000, caused the lower sales volumes ($1.1
billion in the current period, compared to $2.6 billion in the year ago period).
SBA banking gains were $7.4 million for the nine months ended June 30, 2000, up
116% over the year ago period.
NON-INTEREST EXPENSE
Non-interest expense was $215.7 million and $174.2 million for the nine
months ended June 30, 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 June 30,
2000, the Community Bank's retail branch network expanded from 144 branch
locations to 155. 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 nine months ended
June 30, 2000 was 50.02%.
INCOME TAX EXPENSE
In June 2000, the Company recognized a $3.0 million tax benefit. In
connection with filing its federal tax return, the Company finalized the NOLs
available to it as a result of the August 1999 ownership change (under section
382 of the Internal Revenue Code). Excluding this tax benefit, the Company's
effective income tax rate was 35.7% for the nine months ended June 30, 2000,
compared to 37.4% for the nine months ended June 30, 1999. The reduction was
principally a result of the issuance of certain securities in 1999, the
dividends of which 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 JUNE 30,
2000
GENERAL
Total assets increased $2.0 billion or 12% to $18.2 billion at June 30, 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 and FHLB advances.
During the nine months ended June 30, 2000, the MBS portfolio declined
primarily due to sales of $55.4 million and principal repayments. Principal
repayments declined from the year ago period ($100.1 million in 2000 compared to
$277.7 million in 1999), as a result of higher interest rates causing a
reduction in payoffs and due to a lower average balance outstanding in the
current period. Purchases totaled $60.1 million during the nine months ended
June 30, 2000. Trade date purchases at September 30, 1999 totaling $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 $3.9
million, before tax, principally due to higher market interest rates during the
current period as compared to the year ago period.
LOAN PORTFOLIO
JUNE 30, SEPTEMBER 30, JUNE 30,
2000 1999 1999
------------ ------------- ------------
(IN THOUSANDS)
Single family
Held for investment $ 6,601,060 $ 6,470,636 $ 5,948,319
Held for sale 675,399 592,583 712,233
Commercial 6,977,576 5,469,946 5,230,940
Consumer 828,334 665,742 627,145
------------ ------------- ------------
15,082,369 13,198,907 12,518,637
Less allowance for credit losses (111,956) (82,705) (64,018)
------------ ------------- ------------
Total loans receivable $ 14,970,413 $ 13,116,202 $ 12,454,619
============ ============= ============
14
BANK UNITED CORP.
ORIGINATION, PURCHASE, AND SALE OF LOANS
FOR THE NINE MONTHS ENDED JUNE 30,
------------------------------------
2000 1999
---------------- ----------------
(IN THOUSANDS)
Beginning balance, September 30 $ 13,116,202 $ 10,867,897
Fundings
Single family 1,884,641 3,106,101
Commercial 4,752,823 3,187,555
Consumer 313,747 235,247
Purchases
Single family 507,458 1,304,542
Commercial 386,751 899,946
Consumer -- 25,472
Net change in mortgage banker finance line of credit 443,183 285,106
Repayments
Single family (1,043,462) (1,945,068)
Commercial (3,564,943) (2,178,987)
Consumer (150,557) (137,811)
Loans sold or securitized
Single family (1,115,290) (2,588,485)
Commercial (499,123) (513,022)
Consumer (1,267) --
Foreclosures (37,593) (36,054)
Net change in allowance for credit losses (29,251) (16,515)
Other 7,094 (41,305)
---------------- ----------------
Ending balance, June 30 $ 14,970,413 $ 12,454,619
================ ================
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 during the current period. At June 30, 2000,
commercial and consumer loans made up 52% of the total loan portfolio, compared
to 46% at September 30, 1999.
The commercial loan portfolio is principally comprised of single family
construction, multi-family and commercial real estate, healthcare, small
business and SBA, and mortgage banker finance line of credit loans. All
commercial loan categories increased during the nine months ended June 30, 2000.
The continued growth in the commercial loan portfolio was due to fundings, a
large portion of which were single family construction loans. Purchases of
mortgage banker finance loans during the period also contributed to this growth.
Higher principal repayments during the nine months ended June 30, 2000, as
compared to the year ago period, primarily related to a larger portfolio
balance.
A decrease in industry-wide refinancings caused by higher mortgage interest
rates resulted in a decline in single family loan originations, as well as lower
principal repayments during the current period. Refinancings represented 39% of
total single family loan originations for the current period, compared to 73%
for the nine months ended June 30, 1999. The decline in single family loan sales
volume was consistent with lower levels of fixed-rate loan originations during
the current period. See "-Discussion of Results of Operations for the Nine
Months Ended June 30, 2000 and 1999 - Non-Interest Income."
The consumer loan portfolio increased 24% during the nine months ended June
30, 2000, as a result of fundings of second lien, home improvement, and home
equity loans.
MSRs increased $34.6 million during the nine months ended June 30, 2000,
primarily due to purchases. During this period, the Company purchased servicing
rights associated with $3.4 billion in loans at a cost of $77.5 million. At June
30, 2000, $801.7 million of these loans had not yet been transferred to the
Company, but are expected to be transferred during the fourth quarter of fiscal
2000. A liability approximating $48 million was included in other liabilities at
June 30, 2000, representing the amount withheld until these loans are
transferred. MSRs totaling $22.2 million were created during the nine months
ended June 30, 2000, through sales of $1.1 billion of originated single family
loans. Sales of servicing rights totaled
15
BANK UNITED CORP.
$1.1 billion during the current period. See "-Discussion of Results of
Operations for the Nine Months Ended June 30, 2000 and 1999." Outstanding
receivables related to these sales totaled $15.3 million at June 30, 2000.
Transaction accounts, which include checking, savings, money market, and
escrow accounts, increased $952.1 million or 26% during the nine months ended
June 30, 2000, primarily due to growth in both Community Banking and Commercial
Banking deposits. The increase in Community Banking deposits primarily relates
to the Company's 7-Day Banking Center initiative. The growth in the Commercial
Banking deposit base is consistent with the Company's overall strategy of
providing a full range of loan and deposit products and services to its
commercial customers.
The Series A Redeemable Preferred Stock, totaling $60 million, was redeemed
during the nine months ended June 30, 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 servicing rights, 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 and servicing 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 third quarter of fiscal 2000, the Bank's liquidity
ratio was 4.95%.
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
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 June
30, 2000, the Bank had $238.0 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 June 30, 2000 and September 30,
1999 qualified it as "well-capitalized", the highest of five tiers under
applicable regulatory definitions.
JUNE 30, SEPTEMBER 30, CAPITAL ADEQUACY WELL-CAPITALIZED
2000 1999 REQUIREMENT REQUIREMENT
-------- ------------- ------------------ ------------------
Tangible capital 6.85% 7.14% 1.50% --
Core capital 6.86 7.15 3.00 5.00%
Tier 1 risk-based capital 9.13 9.73 -- 6.00
Total risk-based capital 11.06 11.71 8.00 10.00
16
BANK UNITED CORP.
DISCUSSION OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND
1999
GENERAL
Net income was $33.7 million or $.97 per diluted share for the three months
ended June 30, 2000, compared to $25.4 million or $.77 per diluted share for the
three months ended June 30, 1999. Net interest income increased due to higher
levels of interest-earning assets, particularly commercial loans, and an
increase in the net yield caused primarily by the special dividend received from
the FHLB. A larger average loan servicing portfolio, coupled with the favorable
impact of rising interest rates on that portfolio, contributed to an increase in
net loan servicing fees. Expansion of the Community Banking business continued
to produce an increase in deposit fees and charges. Additional provisions for
credit losses primarily related to a single nonperforming commercial loan and,
in general, higher levels of commercial loans outstanding. Higher non-interest
expenses include costs associated with the growth in the Community and
Commercial Banking businesses. The Company also recorded an income tax benefit
during the current quarter relating to increased NOLs available for future
periods.
NET INTEREST INCOME
Net interest income was $109.2 million for the three months ended June 30,
2000, compared to $89.5 million for the three months ended June 30, 1999, a
$19.7 million or 22% increase. This increase was due to both the growth in
average interest-earning assets and a higher net yield.
AVERAGE BALANCE SHEET, INTEREST INCOME/EXPENSE, AND AVERAGE YIELD/RATE
FOR THE THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------
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 $ 554,664 $ 10,093 7.20% $ 385,440 $ 4,838 4.97%
Securities and other investments 168,705 2,227 5.31 189,728 1,747 3.69
Mortgage-backed securities 930,308 15,809 6.80 1,117,770 17,744 6.35
Loans
Single family 7,295,876 134,831 7.39 6,528,684 115,884 7.10
Commercial 6,605,420 144,953 8.77 4,822,368 95,212 7.88
Consumer 785,191 15,946 8.17 604,371 11,879 7.88
----------- -------- -------- ----------- -------- --------
Total loans 14,686,487 295,730 8.05 11,955,423 222,975 7.45
FHLB stock 346,436 10,834 12.58 295,328 3,857 5.24
----------- -------- -------- ----------- -------- --------
Total interest-earning assets 16,686,600 334,693 8.02 13,943,689 251,161 7.20
Non-interest-earning assets 1,177,143 1,169,682
----------- -----------
Total assets $17,863,743 $15,113,371
=========== ===========
Interest-bearing liabilities
Deposits
Interest-bearing $ 7,374,572 102,144 5.57 $ 6,057,645 72,789 4.82
Non-interest bearing 1,264,240 -- -- 1,174,548 -- --
----------- -------- -------- ----------- -------- --------
Total deposits 8,638,812 102,144 4.75 7,232,193 72,789 4.04
FHLB advances 6,867,641 106,289 6.13 5,825,878 73,732 5.01
Securities sold under agreements to repurchase
and federal funds purchased 618,510 9,144 5.85 587,465 7,242 4.88
Notes payable 370,445 7,923 8.56 370,034 7,904 8.54
----------- -------- -------- ----------- -------- --------
Total interest-bearing liabilities 16,495,408 225,500 5.45 14,015,570 161,667 4.60
Non-interest-bearing liabilities, minority interest,
redeemable preferred stock, and stockholders' equity 1,368,335 1,097,801
----------- -----------
Total liabilities, minority interest, redeemable
preferred stock, and stockholders' equity $17,863,743 $15,113,371
=========== ===========
Net interest income/interest rate spread $109,193 2.57% $ 89,494 2.60%
======== ======== ======== ========
Net yield on interest-earning assets 2.63% 2.58%
======== ========
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 $2.7 billion or 20% to $16.7
billion during the three months ended June 30, 2000, compared to year ago
period, primarily due to a 37% increase in commercial loans. The growth in
average interest-earning assets was funded with deposits and FHLB advances.
See "-Discussion of Changes in Financial Condition."
The net yield was 2.63% for the three months ended June 30, 2000, compared to
2.58% for the three months ended June 30, 1999. The Company's net interest
income and gross yields continued an upward trend during the current period,
benefiting from rate resets on the substantial portfolio of LIBOR and
prime-based commercial loans as well as a special dividend received from the
FHLB (contributing 13 basis points to the net yield). Exclusive of the special
FHLB dividend received in the quarter, the net yield declined from the year ago
period as a result of tightening market spreads triggered by recent rate
increases by the Federal Reserve.
PROVISION FOR CREDIT LOSSES
The allowance for credit losses totaled $112.0 million or .74% of total
loans at June 30, 2000, compared to $82.7 million or .63% at September 30, 1999,
and $64.0 million or .51% at June 30, 1999. The provision for credit losses
totaled $19.9 million for the three months ended June 30, 2000, compared to $5.6
million for the three months ended June 30, 1999. See "-Discussion of Results of
Operations for the Nine Months Ended June 30, 2000 and 1999 - Provision for
Credit Losses."
ALLOWANCE FOR CREDIT LOSSES
SINGLE
FAMILY COMMERCIAL CONSUMER TOTAL
-------- ---------- -------- ---------
(IN THOUSANDS)
Balance at March 31, 1999 $ 12,841 $ 44,502 $ 1,977 $ 59,320
Provision 2,149 3,110 358 5,617
Net charge-offs (603) 50 (366) (919)
-------- ---------- -------- ---------
Balance at June 30, 1999 $ 14,387 $ 47,662 $ 1,969 $ 64,018
======== ========== ======== =========
Balance at March 31, 2000 $ 18,009 $ 74,287 $ 2,423 $ 94,719
Provision 370 19,177 350 19,897
Net charge-offs (1,938) (388) (334) (2,660)
-------- ---------- -------- ---------
Balance at June 30, 2000 $ 16,441 $ 93,076 $ 2,439 $ 111,956
======== ========== ======== =========
NON-INTEREST INCOME
Non-interest income totaled $39.3 million for the three months ended June 30,
2000, compared to $27.5 million for the year ago period, an increase of $11.8
million or 43%. Net loan servicing fees increased $6.3 million or 51% to $18.6
million during the three months ended June 30, 2000, compared to the year ago
period. Growth in the servicing portfolio, higher servicing fees received per
loan and a slow down in the amortization rate on MSRs all contributed to this
increase. The average 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 45.6 basis
points for the three months ended June 30, 2000, compared to 43.2 basis points
for the year ago period. Increased market interest rates during the past twelve
months caused a decline in mortgage loan prepayment activity resulting in a slow
down in MSR amortization and a recovery of the impairment reserve.
Deposit fees and charges, which are primarily comprised of Community Banking
transaction fees, increased $3.3 million during the three months ended June 30,
2000 to $9.2 million. This increase came from growth in the deposit customer
base including a 25% increase in the number of checking accounts, which totaled
264,000 at June 30, 2000. This growth primarily came from the 7-Day Banking
Centers. See "-Discussion of Changes in Financial Condition."
Net gains from sales of single family loans, servicing rights and SBA loans
and securities comprised the majority of the $6.3 million of gains during the
three months ended June 30, 2000, up $1.5 million from the year ago period.
Gains during the current period included $2.4 million related to the sale of
$675.5 million of servicing rights. No such gains were recognized in the year
ago period. Gains on sales of single family loans declined $3.1 million during
the three months ended June 30, 2000, compared to the same period a year ago. A
drop in fixed-rate originations during the current period caused a reduction in
sales volume ($460.1 million sold during the three months ended June 30, 2000,
compared to $492.3 million
18
BANK UNITED CORP.
sold during the three months ended June 30, 1999). SBA banking gains were $3.4
million for the current period, up almost threefold from a year ago.
NON-INTEREST EXPENSE
Non-interest expense was $73.8 million and $63.7 million for the three months
ended June 30, 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 June 30,
2000, the Community Bank's retail branch network expanded from 144 branch
locations to 155. 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 48.56% for the three months
ended June 30, 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;
LIQUIDITY AND CAPITAL
o changes in availability of funds increasing costs or reducing liquidity;
o changes in the ability of the Company and the Bank to pay dividends on their
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;
19
BANK UNITED CORP.
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 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 is a summary of the changes inherent in the Company's net
interest income over a 12 month period and market value of portfolio equity
("MVE") that are projected to result 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 June
30, 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.
JUNE 30, 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 (6.58)% (26.47)% (5.45)% (33.28)%
+100 (2.57) (9.80) (1.79) (13.82)
0 0.00 0.00 0.00 0.00
-100 0.95 9.08 0.54 11.63
-200 1.73 11.95 0.62 26.34
20
BANK UNITED CORP.
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
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6A. EXHIBITS
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
*10.27a - Amendment of the Company's Director Stock Plan
*15.1 - Letter in Lieu of Consent of KPMG LLP, independent accountants
*27.1 - Financial Data Schedule, Quarter Ended June 30, 2000
* Filed herewith.
ITEM 6B. REPORTS ON FORM 8-K
The Company did not file a report on Form 8-K during the nine months ended
June 30, 2000.
21
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 AUGUST 9, 2000 /S/ BARRY C. BURKHOLDER
-------------------- ----------------------------
Barry C. Burkholder
President
Chief Executive Officer
(Duly Authorized Officer)
Date AUGUST 9, 2000 /S/ ANTHONY J. NOCELLA
-------------------- ----------------------------
Anthony J. Nocella
Vice Chairman
Chief Financial Officer
22