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 quarter ended December 31, 1997.
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:
0000906420
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 1600
HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area co (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 [ ]
Number of shares outstanding of the registrant's $0.01 par value common
stock as of February 11, 1998 were as follows:
TITLE OF EACH CLASS NUMBER OF SHARES
Class A 28,354,276
Class B 3,241,320
BANK UNITED CORP.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements....................................1
Consolidated Statements of Financial Condition -
December 31, 1997 and September 30, 1997..........................1
Consolidated Statements of Operations -
For the Three Months Ended December 31, 1997 and 1996.............2
Consolidated Statements of Stockholders' Equity -
For the Three Months Ended December 31, 1997 and 1996.............3
Consolidated Statements of Cash Flows -
For the Three Months Ended December 31, 1997 and 1996.............4
Notes to Consolidated Financial Statements........................5
Independent Accountants' Report...................................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 14
Item 2. Changes in Securities and Use of Proceeds........................15
Item 3. Defaults Upon Senior Securities..................................15
Item 4. Submission of Matters to a Vote of Security Holders..............15
Item 5. Other Information................................................15
Item 6. Exhibits and Reports on Form 8-K.................................15
Signatures ..........................................................16
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ -------------
(UNAUDITED)
ASSETS
Cash and cash equivalents .................................................................. $ 164,161 $ 121,000
Securities purchased under agreements to resell and federal funds sold ..................... 219,639 349,209
Securities ................................................................................. 138,076 77,809
Mortgage-backed securities
Held to maturity, at amortized cost (fair value of $513.8 million in
1998 and $528.9 million in 1997) .................................................... 522,665 543,361
Available for sale, at fair value ..................................................... 887,596 1,026,344
Loans
Held for investment (net of the allowance for credit losses of
$35.2 million in 1998 and $39.2 million in 1997) .................................... 8,335,581 8,221,626
Held for sale ......................................................................... 1,334,994 773,603
Federal Home Loan Bank stock ............................................................... 230,913 205,011
Premises and equipment ..................................................................... 46,735 46,921
Mortgage servicing rights .................................................................. 276,989 272,214
Real estate owned (net of the allowance for losses of $1.0 million in
1998 and $1.2 million in 1997) ........................................................ 16,071 19,833
Deferred tax asset ......................................................................... 113,142 120,936
Other assets ............................................................................... 236,897 189,205
----------- -----------
TOTAL ASSETS ............................................................................... $12,523,459 $11,967,072
=========== ===========
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits ................................................................................... $ 5,289,625 $ 5,247,668
Federal Home Loan Bank advances ............................................................ 4,504,254 3,992,344
Securities sold under agreements to repurchase and federal
funds purchased ........................................................................ 1,210,137 1,308,600
Notes payable .............................................................................. 220,204 220,199
Advances from borrowers for taxes and insurance ........................................... 151,734 173,294
Other liabilities .......................................................................... 349,489 240,988
----------- -----------
Total liabilities ................................................................ 11,725,443 11,183,093
----------- -----------
MINORITY INTEREST
Preferred stock issued by consolidated subsidiary .......................................... 185,500 185,500
----------- -----------
STOCKHOLDERS' EQUITY
Common stock ............................................................................... 316 316
Paid-in capital ............................................................................ 129,286 129,286
Retained earnings .......................................................................... 477,926 462,551
Accumulated other comprehensive income - unrealized gains (losses) on
securities available for sale, net of tax .............................................. 4,988 6,326
----------- -----------
Total stockholders' equity ....................................................... 612,516 598,479
----------- -----------
TOTAL LIABILITIES, MINORITY INTEREST, AND
STOCKHOLDERS' EQUITY .................................................................... $12,523,459 $11,967,072
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS ENDED DECEMBER 31,
1997 1996
--------- --------
(UNAUDITED)
INTEREST INCOME
Short-term interest-earning assets ....................................................... $ 5,556 $ 9,343
Securities ............................................................................... 2,139 980
Mortgage-backed securities ............................................................... 24,385 26,816
Loans .................................................................................... 184,128 159,264
Federal Home Loan Bank stock ............................................................. 3,157 2,700
--------- --------
Total interest income .......................................................... 219,365 199,103
--------- --------
INTEREST EXPENSE
Deposits ................................................................................. 67,638 66,724
Federal Home Loan Bank advances .......................................................... 60,204 51,924
Securities sold under agreements to repurchase and
federal funds purchased ........................................................... 18,606 12,359
Notes payable ............................................................................ 4,896 2,311
--------- --------
Total interest expense ......................................................... 151,344 133,318
--------- --------
Net interest income ............................................................ 68,021 65,785
PROVISION FOR CREDIT LOSSES .............................................................. 3,439 6,914
--------- --------
Net interest income after provision for credit losses ........................... 64,582 58,871
--------- --------
NON-INTEREST INCOME
Net gains (losses)
Sales of single family servicing rights and single family
warehouse loans ................................................................... (174) 10,489
Securities and mortgage-backed securities ........................................... 915 641
Other loans ......................................................................... -- 940
Loan servicing, net of related amortization .............................................. 9,338 8,175
Other .................................................................................... 6,520 4,912
--------- --------
Total non-interest income ...................................................... 16,599 25,157
--------- --------
NON-INTEREST EXPENSE
Compensation and benefits ................................................................ 18,710 19,975
Occupancy ................................................................................ 3,678 4,255
Data processing .......................................................................... 3,823 3,801
Advertising and marketing ................................................................ 2,874 2,255
Amortization of intangibles .............................................................. 885 1,315
SAIF deposit insurance premiums .......................................................... 851 2,957
Furniture and equipment .................................................................. 892 1,219
Other .................................................................................... 9,477 12,792
--------- --------
Total non-interest expense ...................................................... 41,190 48,569
--------- --------
Income before income taxes and minority interest ............................... 39,991 35,459
INCOME TAX EXPENSE ....................................................................... 14,998 13,633
--------- --------
Income before minority interest ................................................ 24,993 21,826
MINORITY INTEREST
Subsidiary preferred stock dividends ..................................................... 4,563 4,563
--------- --------
NET INCOME ................................................................ $ 20,430 $ 17,263
========= ========
EARNINGS PER COMMON SHARE
Basic ................................................................................. $ 0.65 $ 0.55
Diluted ............................................................................... 0.63 0.54
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ACCUMULATED
OTHER
COMMON STOCK COMPREHENSIVE
------------------------------------ INCOME -
CLASS A CLASS B UNREALIZED TOTAL
----------------- ----------------- PAID-IN RETAINED GAINS STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS (LOSSES) EQUITY
---------- ---- ---------- ---- -------- --------- ------- ---------
BALANCE AT
SEPTEMBER 30, 1996 ...................... 27,735,934 $277 3,859,662 $ 39 $129,286 $ 403,674 $(2,233) $ 531,043
Net income .......................... -- -- -- -- -- 17,263 -- 17,263
Change in unrealized gains (losses) . -- -- -- -- -- -- 1,265 1,265
--------- ------- ---------
Total comprehensive income ....... -- -- -- -- -- 17,263 1,265 18,528
--------- ------- ---------
Dividends declared: common
stock ($0.14 per share) ........ -- -- -- -- -- (4,423) -- (4,423)
Conversion of common stock .......... 618,342 7 (618,342) (7) -- -- -- --
---------- ---- ---------- ---- -------- --------- ------- ---------
BALANCE AT
DECEMBER 31, 1996 ....................... 28,354,276 $284 3,241,320 $ 32 $129,286 $ 416,514 $ (968) $ 545,148
========== ==== ========== ==== ======== ========= ======= =========
BALANCE AT
SEPTEMBER 30, 1997 ...................... 28,354,276 $284 3,241,320 $ 32 $129,286 $ 462,551 $ 6,326 $ 598,479
Net income .......................... -- -- -- -- -- 20,430 -- 20,430
Change in unrealized gains (losses) . -- -- -- -- -- -- (1,338) (1,338)
--------- ------- ---------
Total comprehensive income ....... -- -- -- -- -- 20,430 (1,338) 19,092
--------- ------- ---------
Dividends declared: common
stock ($0.16 per share) ........ -- -- -- -- -- (5,055) -- (5,055)
---------- ---- ---------- ---- -------- --------- ------- ---------
BALANCE AT
DECEMBER 31, 1997 ....................... 28,354,276 $284 3,241,320 $ 32 $129,286 $ 477,926 $ 4.988 $ 612,516
========== ==== ========== ==== ======== ========= ======= =========
See accompanying Notes to Consolidated Financial Statements.
3
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED DECEMBER 31,
1997 1996
------------ -----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash (used) provided by operating activities ............................................. $ (503,485) $ (126,540)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase price of acquisitions ............................................................... (2,825) --
Net change in securities purchased under agreements to resell and
federal funds sold ...................................................................... 129,570 92,013
Fundings of loans held for investment ........................................................ (712,866) (510,594)
Proceeds from principal repayments and maturities of
Loans held for investment ............................................................... 836,591 600,832
Securities available for sale ........................................................... 63,562 --
Mortgage-backed securities held to maturity ............................................. 20,439 19,258
Mortgage-backed securities available for sale ........................................... 138,015 47,374
Proceeds from the sale of
Securities available for sale ........................................................... 134,587 45,336
Mortgage servicing rights ............................................................... -- 7,461
Real estate owned acquired through foreclosure .......................................... 12,307 13,466
Purchases of
Loans held for investment ............................................................... (139,071) (456,118)
Securities available for sale ........................................................... (141,093) --
Mortgage-backed securities available for sale ........................................... (2,178) --
Mortgage servicing rights ............................................................... (15,533) 24,500
Federal Home Loan Bank stock ............................................................ (22,745) (15,898)
Other changes in loans held for investment ..................................................... (175,005) (91,983)
Other changes in mortgage servicing rights ..................................................... (454) (8,756)
Net purchases of premises and equipment ........................................................ (5,444) (2,265)
----------- -----------
Net cash (used) provided by investing activities ........................................ 117,857 (235,374)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits ....................................................................... (19,618) (148,659)
Proceeds from deposits purchased ............................................................. 61,575 --
Proceeds from Federal Home Loan Bank advances ................................................ 1,045,745 1,386,202
Repayment of Federal Home Loan Bank advances ................................................. (533,835) (1,016,127)
Net change in securities sold under agreements to repurchase ................................. (98,463) 205,800
Change in advances from borrowers for taxes and insurance and
federal funds purchased ................................................................ (21,560) (47,586)
Payment of dividends ......................................................................... (5,055) (4,423)
----------- -----------
Net cash provided (used) by financing activities ........................................ 428,789 375,207
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ......................................................... 43,161 13,293
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................................................. 121,000 119,523
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................................................ $ 164,161 $ 132,816
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest ....................................................................... $ 149,922 $ 131,622
Cash (received) paid for income taxes ........................................................ (192) 185
NONCASH INVESTING ACTIVITIES
Real estate owned acquired through foreclosure ............................................... 9,901 20,776
Sales of real estate owned financed by the Bank .............................................. 553 3,764
Securitization of loans ...................................................................... 116,934 49,157
Net transfer of loans from held from investment .............................................. 64,739 (46)
Change in unrealized gains (losses) on securities available for sale ......................... (1,338) 1,265
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
have been eliminated in consolidation. A majority of the Company's assets and
substantially all of the Company's 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 three months ended December 31, 1997 are not necessarily
indicative of the results that may be expected for the entire fiscal year or any
interim period. The interim financial information should be read in conjunction
with the Consolidated Financial Statements and Notes included in the Company's
1997 Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
Certain amounts within the accompanying Consolidated Financial Statements and
the related Notes have been reclassified for comparative purposes to conform to
the current presentation. Such reclassifications had no effect on previously
presented net income or retained earnings.
3. EARNINGS PER COMMON SHARE
Effective October 1, 1997, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 128, "Earnings per Share", which establishes
standards for computing and presenting earnings per share ("EPS"). It requires
dual presentation of basic and diluted EPS on the face of the income statement
for entities with complex capital structures and requires a reconciliation of
the basic EPS computation to the diluted EPS computation. All prior period EPS
data were restated to comply with SFAS No. 128, but are not materially
different. The table below presents the computation of EPS pursuant to SFAS No.
128 (in thousands, except per share data).
FOR THE THREE MONTHS
ENDED DECEMBER 31,
1997 1996
------- -------
INCOME
Net income applicable to common shares ................... $20,430 $17,263
SHARES
Average common shares outstanding ........................ 31,596 31,596
Potential dilutive common shares from options ............ 729 224
------- -------
Average common shares and equivalents outstanding ........ 32,325 31,820
======= =======
BASIC .................................................... $ 0.65 $ 0.55
DILUTED .................................................. 0.63 0.54
5
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. EMPLOYEE BENEFITS
SUMMARY OF STOCK-BASED COMPENSATION
The Company has granted stock options to certain employees and its Board of
Directors under incentive and compensation plans. See the Company's 1997 Annual
Report on Form 10-K for additional disclosures regarding these options.
FOR THE THREE MONTHS ENDED
DECEMBER 31,
-------------------------------------------------------------------------
1997 1996
------------------------------- -------------------------------------
NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
Outstanding at end of period ... 1,658,220 $24.50 1,312,020 $20.91
Exercisable at end of period ... 15,000 26.54 -- --
Vested at end of period......... 427,319 20.43 -- --
PERFORMANCE UNITS
Effective October 1, 1997, the Company's Board of Directors granted
performance units to executive officers and other key officers and employees
under its 1996 Stock Incentive Plan. These units, which equate to shares of the
Company's common stock on a one-for-one basis, will be earned based on the
achievement of certain corporate performance goals over a performance period
beginning October 1, 1997 and ending September 30, 2000. The maximum award is
195,000 units in the aggregate. Upon completion of the performance period, the
Company's Compensation Committee will determine the number of performance units
that have been earned based on the Company's performance. Cash will be
distributed to the participants equal to the number of performance units earned
multiplied by the fair market value of the Company's common stock as of
September 30, 2000. Compensation expense totalling $200,000 was recorded for the
quarter ended December 31, 1997 relating to these units.
5. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income", which
requires that all components of comprehensive income and total comprehensive
income be reported on one of the following: the statement of operations, the
statement of stockholders' equity, or a separate statement of comprehensive
income. The Company is disclosing this information on its statement of
stockholders' equity. Comprehensive income is comprised of net income and all
changes to stockholders' equity, except those due to investments by owners
(changes in paid in capital) and distributions to owners (dividends). This
statement did not change the current accounting treatment for components of
comprehensive income (i.e. changes in unrealized gains or losses on securities
and mortgage-backed securities ("MBS") available for sale).
6. RECENT ACCOUNTING STANDARDS
Under SFAS No. 127, "Deferral of Certain Provisions of FASB Statement No.
125", certain provisions of SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" were not
effective until January 1, 1998. The deferred provisions related to secured
borrowings and collateral for all transactions and transfers of financial assets
for securities purchased under agreements to resell ("repurchase agreements"),
dollar rolls, securities lending, and similar transactions. Implementation of
the deferred portion of SFAS No. 125 should have no material effect on the
Company's Consolidated Financial Statements.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" requires public companies to report certain information about their
operating segments in their annual financial statements and quarterly reports
issued to stockholders, for years after implementation. It also requires public
companies to report certain information about their products and services, the
geographic areas in which they operate, and their major customers. This
statement is effective for fiscal years beginning after December 15, 1997. The
Company anticipates implementing SFAS No. 131 for its fiscal 1998 Annual Report
on Form 10-K. Implementation of SFAS No. 131 should have no material effect on
the Company's Consolidated Financial Statements.
6
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Bank United Corp.:
We have reviewed the accompanying condensed consolidated statement of financial
condition of Bank United Corp. and its subsidiaries (collectively known as the
"Company") as of December 31, 1997, and the related condensed consolidated
statements of operations, stockholders' equity, and cash flows for the
three-month periods ended December 31, 1997 and 1996. These 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 of 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 regarding 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 such condensed consolidated financial statements 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 its subsidiaries as of September 30, 1997, 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 24,
1997, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated statement of financial condition as of September 30, 1997
is fairly stated, in all material respects, in relation to the consolidated
statement of financial condition from which it has been derived.
Deloitte & Touche LLP
Houston, Texas
January 27, 1998
7
BANK UNITED CORP.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DISCUSSION OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31,
1997 AND 1996
GENERAL
Net income was $20.4 million or basic EPS of $0.65 for the three months ended
December 31, 1997, and $17.3 million or basic EPS of $0.55 for the three months
ended December 31, 1996, reflecting an 18% increase. Diluted earnings per share
were $0.63 and $0.54 for those same periods. Operating earnings were $39.1
million and $33.9 million for the three months ended December 31, 1997 and 1996,
respectively. Operating earnings includes income before taxes and minority
interest and excludes gains (losses) on securities, MBS, and other loans. The
increase in earnings primarily reflects an increase in net interest income,
lower provisions for credit losses, and lower non-interest expenses, partially
offset by lower gains on sales of single family warehouse loans.
NET INTEREST INCOME
Net interest income was $68.0 million for the three months ended December 31,
1997, compared to $65.8 million for the three months ended December 31, 1996,
reflecting a $2.2 million increase. This increase was attributable to a $1.1
billion, or 11%, increase in average interest-earning assets, as well as a
change in the composition of the assets and deposits, partially offset by a 16
basis point decrease in the net yield on interest-earning assets ("net yield").
AVERAGE BALANCE SHEET, INTEREST INCOME/EXPENSE, AND AVERAGE YIELD/RATE
FOR THE THREE MONTHS ENDED DECEMBER 31,
-------------------------------------------------------------------------
1997 1996
----------------------------------- --------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE(1) BALANCE INTEREST RATE (1)
--------- -------- ------- --------- -------- --------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS
Short-term interest-earning assets ............... $ 297,943 $ 5,556 7.30% $634,129 $ 9,343 5.77%
Securities ....................................... 119,137 2,139 7.12 76,720 980 5.07
Mortgage-backed securities ....................... 1,454,163 24,385 6.71 1,612,074 26,816 6.65
Loans ............................................ 9,265,652 184,128 7.95 7,724,234 159,264 8.24
FHLB stock ....................................... 209,062 3,157 5.99 183,361 2,700 5.84
----------- ----------- ---- ------------ -------- -----
Total interest-earning assets ........... 11,345,957 219,365 7.73 10,230,518 199,103 7.77
Non-interest-earning assets ........................... 707,741 543,404
----------- ----------- ---- ------------ -------- -----
TOTAL ASSETS ............................ $12,053,698 $10,773,922
=========== ============
INTEREST-BEARING LIABILITIES
Deposits ......................................... $ 5,246,880 67,638 5.11 $ 5,110,113 66,724 5.18
FHLB advances .................................... 4,099,667 60,204 5.75 3,599,127 51,924 5.65
Securities sold under agreements to repurchase
and federal funds purchased ..................... 1,256,110 18,606 5.80 872,321 12,359 5.54
Notes payable .................................... 220,201 4,896 8.89 115,000 2,311 8.05
----------- ----------- ---- ----------- -------- ----
Total interest-bearing liabilities ...... 10,822,858 151,344 5.51 9,696,561 133,318 5.42
Non-interest-bearing liabilities, minority interest,
and stockholders' equity ........................ 1,230,840 1,077,361
----------- ----------- ---- ----------- -------- ----
TOTAL LIABILITIES, MINORITY INTEREST,
AND STOCKHOLDERS' EQUITY ................... $12,053,698 $10,773,922
=========== ===========
Net interest income/interest rate spread .............. $68,021 2.22% $65,785 2.35%
======= ==== ======= =====
Net yield on interest-earning assets .................. 2.47% 2.63%
==== =====
Ratio of average interest-earning assets to
average interest-bearing liabilities ............. 1.05 1.06
==== ====
(1) Annualized.
8
BANK UNITED CORP.
The increase in average interest-earning assets primarily reflects growth in
the commercial loan portfolio through both purchases and originations.
Excluding the effect of $4.1 million of discounts on single family loans
recognized during the year ago quarter, the net yield remained relatively
unchanged at 2.47% for the three months ended December 31, 1997 compared to an
adjusted net yield of 2.48% for the three months ended December 31, 1996. The
yield on interest-earning assets increased 11 basis points, which was offset by
an increase in the cost of funds of 9 basis points. These changes reflect
increases in short-term market interest rates as well as a shift in assets to
higher yielding commercial loans from lower yielding single family loans. The
decline in deposit rates reflects higher rate brokered deposits and certificates
of deposits being replaced with lower cost transaction accounts.
PROVISION FOR CREDIT LOSSES
The provision for credit losses declined $3.5 million from the year ago
quarter, primarily due to lower single family provisions resulting from a
decline in the single family held for investment portfolio, a decline in the
level of single family delinquencies, and a reduction in related charge-offs.
The reduction in delinquencies can be attributed to the sale in April 1997 of
$31.3 million of nonperforming single family mortgage loans with related
charge-offs of $5.0 million. The single family loans held for investment
portfolio decreased $739.7 million from December 31, 1996 compared to December
31, 1997, while the single family held for sale portfolio, which is carried at
lower of cost or market, increased $1.0 billion.
The consumer loan provision increased from the year ago quarter due to
provisions recorded on the consumer line of credit portfolio during the current
quarter. The balance of this portfolio of $37.6 million was sold in January
1998. Charge-offs of $4.9 million related to this sale were recorded during the
current quarter.
ALLOWANCE FOR CREDIT LOSSES
SINGLE
FAMILY COMMERCIAL CONSUMER TOTAL
-------- ------- ------- --------
(IN THOUSANDS)
Balance at September 30, 1996 ..... $ 28,672 $ 5,769 $ 5,219 $ 39,660
Provision ....................... 4,718 1,200 996 6,914
Net charge-offs ................. (1,868) -- (1,174) (3,042)
-------- ------- ------- --------
Balance at December 31, 1996 ...... $ 31,522 $ 6,969 $ 5,041 $ 43,532
======== ======= ======= ========
Balance at September 30, 1997 ..... $ 24,538 $ 8,766 $ 5,870 $ 39,174
Provision ....................... (116) 1,357 2,198 3,439
Net charge-offs ................. (1,101) -- (6,303) (7,404)
-------- ------- ------- --------
Balance at December 31, 1997 ...... $ 23,321 $10,123 $ 1,765 $ 35,209
======== ======= ======= ========
9
BANK UNITED CORP.
NONPERFORMING ASSETS
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1997 1997 1996
------------- ------------- -----------
(IN THOUSANDS)
NONACCRUAL LOANS
Single family .............................. $ 59,639 $ 51,742 $ 88,817
Commercial ................................. 6,980 1,995 205
Consumer ................................... 691 974 1,362
-------- -------- ---------
67,310 54,711 90,384
DISCOUNTS .................................... (1,235) (759) (410)
-------- -------- ---------
Net nonaccrual loans ...................... 66,075 53,952 89,974
REO, primarily single family properties ...... 17,056 21,038 33,909
-------- -------- ---------
Total nonperforming assets .............. $ 83,131 $ 74,990 $ 123,883
======== ======== =========
NONPERFORMING ASSETS
The Company's nonperforming assets decreased from December 1996 due to the
sale in April of 1997 of $31.3 million of nonperforming assets and a higher
sales volume of real estate owned ("REO") properties. Nonperforming assets have
increased from September 1997 levels due to residential construction and single
family residential loan delinquencies.
SELECTED ASSET QUALITY RATIOS
AT OR FOR THE AT OR FOR AT OR FOR THE
THREE MONTHS ENDED THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1997 DECEMBER 31, 1996
-------------------- ------------------ -------------------
Allowance for credit losses to net nonaccrual loans
Single family ........................................ 39.40% 47.37% 35.59%
Total ................................................ 53.29 72.61 48.38
Allowance for credit losses to total loans ............. 0.36 0.43 0.54
Nonperforming assets to total assets ................... 0.66 0.63 1.12
Net nonaccrual loans to total loans .................... 0.68 0.60 1.12
Nonperforming assets to total loans and REO ............ 0.86 0.83 1.54
Net loan charge-offs to average loans - annualized
Single family ........................................ 0.07 0.18(1) 0.12
Total ................................................ 0.32(2) 0.23(1) 0.16
(1)Excluding charge-offs totalling $5.0 million related to the nonperforming
loan sale in April 1997, the single family charge-off ratio would have been
0.11% and the total charge-off ratio would have been 0.17%.
(2)Excluding charge-offs in December 1997 totalling $4.9 million related to the
January 1998 sale of the consumer line of credit portfolio, the total
charge-off ratio would have been 0.11%.
At December 31, 1997 and September 30, 1997, the recorded investment in
impaired loans pursuant to SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan", totalled $3.6 million. The average outstanding balance for the three
months ended December 31, 1997 and for fiscal 1997 was $3.6 million.
NON-INTEREST INCOME
Non-interest income decreased $8.6 million, or 34%, during the three months
ended December 31, 1997, as compared to the three months ended December 31,
1996. This decrease was largely the result of lower gains on sales of single
family warehouse loans due to a decrease in volume sold resulting from the sale
of the retail mortgage origination offices during the second quarter of fiscal
1997. The loss on sales of single family warehouse loans in the current quarter
primarily reflected the more competitive market conditions during fiscal 1997 as
compared to fiscal 1996. Loan servicing income, which primarily consists of loan
servicing fee revenue, net of amortization of mortgage
10
BANK UNITED CORP.
servicing rights ("MSRs"), increased $1.2 million, or 14%, during the three
months ended December 31, 1997, as compared to the year ago quarter. Gross
servicing fee revenue increased $7.9 million and was partially offset by a $6.7
million increase in amortization of MSRs. These increases reflect a larger
portfolio of single family loans serviced for others, which increased to $20.0
billion at December 31, 1997, as compared to $10.3 billion at December 31, 1996
due to purchases. During the three months ended December 31, 1997, $7.5 billion
of servicing rights purchased during fiscal 1997 were transferred to the
Company. Such servicing rights were previously subserviced for the Company.
NON-INTEREST EXPENSE
Non-interest expense was $41.2 million for the three months ended December 31,
1997, down from $48.6 million for the three months ended December 31, 1996, or
1.36% and 1.79% of average total assets for those same periods. This decrease is
principally the result of the following two items. First, the sale in the second
quarter of fiscal 1997 of certain of the Company's retail and wholesale mortgage
origination offices reduced the Company's non-interest expenses from the year
ago quarter. Second, Savings Association Insurance Fund ("SAIF") premiums paid
were lower by $2.1 million from the year ago quarter due to a reduction in the
rate applied to deposits. Theses decreases were partially offset by increased
expenses to support higher asset volumes and new initiatives, including
geographic expansion, a higher servicing portfolio, and technological
expenditures.
INCOME TAX EXPENSE
The Company's income tax rate was reduced by approximately 1% effective
October 1, 1997. This reduction was primarily caused by the fiscal 1997 sale of
the Company's retail mortgage origination offices, which were located in various
states. This sale had the effect of increasing the percentage of the Company's
business in states with lower effective tax rates.
DISCUSSION OF CHANGES IN FINANCIAL CONDITION FROM SEPTEMBER 30, 1997 TO
DECEMBER 31, 1997
GENERAL
Total assets increased during the three months ended December 31, 1997 by
$556.4 million, or 4.6%, to $12.5 billion. This increase is primarily due to
growth in the Company's commercial loan portfolio, funded primarily with
principal repayments on single family loans and MBS and increased Federal Home
Loan Bank ("FHLB") advances. The decrease in single family loans held for
investment and MBS and the increase in commercial loans reflects the Company's
continued strategy to shift from single family loans and MBS in favor of its
higher margin commercial loan portfolio.
ORIGINATION, PURCHASE, AND SALE OF LOANS
FOR THE THREE MONTHS
ENDED DECEMBER 31,
---------------------------
1997 1996
------------ -----------
(IN THOUSANDS)
Beginning balance, September 30............... $ 8,995,229 $ 7,519,488
Fundings
Single family ......................... 846,941 649,752
Commercial............................. 528,620 329,641
Consumer............................... 36,565 23,768
Purchases
Single family.......................... 30,281 352,552
Commercial............................. 236,941 152,834
Consumer............................... 172 41,626
Net change in mortgage banker
finance line of credit................... 172,919 103,210
Repayments................................. (914,236) (603,754)
Securitized loans sold or transferred...... (239,690) (490,516)
Sales...................................... (13,322) (102,665)
Other...................................... (9,845) (18,926)
----------- -----------
Ending balance, December 31................... $ 9,670,575 $ 7,957,010
=========== ===========
11
LOAN PORTFOLIO
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1997 1997 1996
---------------------------------------------
(IN THOUSANDS)
Single family ............... $6,711,311 $6,492,589 $6,450,418
Commercial .................. 2,659,695 2,201,880 1,295,825
Consumer .................... 299,569 300,760 210,767
---------- ---------- ----------
$9,670,575 $8,995,229 $7,957,010
========== ========== ==========
Total loans increased $675.3 million, or 8%, during the three months ended
December 31, 1997, reflecting a $218.7 million increase in single family loans
and a $457.8 million increase in commercial loans.
The increase in single family loans occurred in the held for sale portfolio,
which increased $544.6 million, to $1.2 billion at December 31, 1997. Despite
the sale of a portion of the Company's mortgage production business during
fiscal 1997, single family loan originations increased to $846.9 million during
the current quarter, compared to $649.8 million in the prior year quarter,
reflecting an increase in refinance activity due to lower market interest rates.
Refinancings approximated $571.7 million and $168.4 million, or 67% and 26%, of
total loan originations during these periods. Originations during the current
quarter reflect loans that may be sold or securitized in the future.
Single family loans held for investment decreased $325.9 million during the
three months ended December 31, 1997 due to principal repayments. This decrease
reflects the Company's reduced reliance on these loans as it continues to build
its commercial loan portfolio. See "Discussion of Results of Operations for the
Three Months Ended December 31, 1997 and 1996 - Net Interest Income."
The commercial loan portfolio increased to $2.7 billion at December 31, 1997
due to purchases and originations. During the three months ended December 31,
1997, the Company purchased commercial real estate loans with principal amounts
totalling $133.1 million. These loans are secured by apartment buildings, office
buildings, and retail centers. The mortgage banker finance line of credit
portfolio increased due to the decline in market interest rates during the
current quarter.
During the three months ended December 31, 1997, the Company purchased
$109.6 million of Small Business Administration ("SBA") loans. Securities
created from SBA loans totalled $116.9 million, of which $108.7 million were
sold during the current quarter.
Deposits increased $42.0 million during the three months ended December 31,
1997. Although the volume of deposits remained relatively unchanged, their
composition changed. Higher rate brokered deposits and certificates of deposits
were replaced with lower cost transaction accounts. During the three months
ended December 31, 1997, the Company purchased three branches with deposits
totalling $66 million. Additionally, during the quarter ended December 31, 1997,
the Company signed an agreement to purchase 18 branches with deposits totalling
$1.45 billion. This transaction was completed in January 1998. The Company plans
to consolidate 12 of the 21 branches purchased with existing branches. FHLB
advances increased $511.9 million during the three months ended December 31,
1997, to $4.5 billion, primarily to fund loan purchases and originations.
Increases in other assets and other liabilities are primarily due to growth
in the Company's servicing portfolio.
LIQUIDITY
The Bank is required by the Office of Thrift Supervision ("OTS") to maintain
a certain level of liquidity. The Bank's average daily liquidity ratio for the
quarter ended December 31, 1997 was 5.47%, compared to the requirement of 4.0%.
12
BANK UNITED CORP.
The primary sources of funds consist of deposits, advances from the FHLB,
reverse repurchase agreements, and principal repayments on loans and MBS.
Funding resources are principally used to meet ongoing commitments to fund
deposit withdrawals, repay borrowings, fund existing and continuing loan
commitments, and maintain liquidity. Management believes that the Bank has
adequate resources to fund all of its commitments.
The Company's ability to pay dividends on its common stock and to meet its
other cash obligations is dependent upon the receipt of dividends from the Bank.
The declaration of dividends by the Bank on all classes of its capital stock is
subject to the discretion of the Board of Directors of the Bank, the terms of
the Bank Preferred Stock, and applicable regulatory requirements. At December
31, 1997, the Bank had $209.6 million of available capacity for the payment of
dividends under OTS regulations.
REGULATORY MATTERS
The Bank's capital levels at December 31, 1997 and September 30, 1997
qualified it as "well-capitalized", the highest of five tiers under applicable
regulatory definitions. The Bank's capital ratios at December 31, 1997 and
September 30, 1997, and the regulatory capital requirements were as follows:
DECEMBER 31, 1997 SEPTEMBER 30, 1997 REQUIREMENT
----------------- ------------------ -----------
Tangible capital.......... 7.37% 7.72% 1.50%
Core capital.............. 7.41 7.77 3.00
Tier 1 capital............ 11.54 12.65 6.00
Total risk-based capital.. 11.98 13.18 8.00
FORWARD-LOOKING INFORMATION
Statements and financial discussion and analysis by management contained
herein 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,
changes in interest rates and economic conditions; the shift in the Company's
emphasis from residential mortgage lending to community and commercial banking
activities; increased competition for deposits and loans; changes in the
availability of funds; changes in local economic and business conditions;
changes in availability of residential mortgage loans originated by other
financial institutions or the Company's ability to purchase such loans on
favorable terms; the Company's ability to make acquisitions of other depository
institutions, their assets or their liabilities and the Company's successful
integration of any such acquisitions; transactions in the Company's common stock
that might result in an ownership change triggering an annual limitation on the
use of the Company's net operating loss carryforwards under Section 382 of the
Internal Revenue Code of 1986, as amended; changes in the ability of the Bank to
pay dividends on its common stock; changes in applicable statutes and government
regulations or their interpretation; the loss of senior management or operating
personnel; claims with respect to representations and warranties made by the
Company to purchasers and insurers of mortgage loans and to purchasers of MSRs;
claims of noncompliance by the Company with statutory and regulatory
requirements; and changes in the status of litigation to which the Company is a
party. See "Risk Factors" in the Company's registration statement filed with
respect to an offering of its common stock (Registration No. 333-19237).
13
BANK UNITED CORP.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 25, 1995, the Bank, the Parent Company (including its predecessors),
and Hyperion Partners L.P. (collectively, "Plaintiffs") filed suit against the
United States of America in the United States Court of Federal Claims for breach
of contract and taking of property without compensation in contravention of the
Fifth Amendment of the United States Constitution. The action arose because the
passage of Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") and the regulations adopted by the OTS pursuant to FIRREA deprived
Plaintiffs of their contractual rights.
In December 1988, the United States, through its agencies, entered into
certain agreements with the Plaintiffs that resulted in contractual obligations
owed to Plaintiffs. Plaintiffs contend that the obligations were undertaken to
induce, and did induce, the Company's acquisition of substantially all of the
assets and the secured deposit, and certain tax liabilities of United Savings
Association of Texas ("Old USAT"), an insolvent savings and loan association,
thereby relieving the Federal Savings and Loan Insurance Corporation ("FSLIC"),
an agency of the United States government, of the immense costs and burdens of
taking over and managing or liquidating the institution.
The lawsuit alleges breaches of the United States' contractual obligations
(1) to abide by a capital forbearance, which 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, which 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. The lawsuit
seeks monetary relief for the breaches by the United States of its contractual
obligations to Plaintiffs and, in the alternative, seeks just compensation for a
taking of property and for a denial of due process under the Fifth Amendment to
the United States Constitution.
The lawsuit was stayed from the outset by a judge of the Court of Federal
Claims pending the Supreme Court's decision in UNITED STATES V. WINSTAR CORP.,
an action by three other thrifts raising similar issues (the "WINSTAR cases").
Since the Supreme Court ruling, the Chief Judge of the Court of Federal Claims
convened a number of status conferences to establish a case management protocol
for the more than 100 lawsuits on the Court of Federal Claims docket, that, like
Plaintiffs' case, involve issues similar to those raised in the WINSTAR cases.
Following a number of status conferences, Chief Judge Loren Smith of the
United States Court of Federal Claims transferred all WINSTAR-related cases to
his own docket and entered an Omnibus Case Management Order governing
proceedings in such cases, including the Company's case. Under the Omnibus Case
Management Order, Chief Judge Smith serves as the "Managing Judge" for all
WINSTAR-related cases and may assign other judges of the United States Court of
Federal Claims to resolve pre-trial discovery disputes and common legal issues
and to conduct trials. The trial of one of these two cases is in progress and
the trial of the other case has not yet begun. Trials in the remaining cases
subject to the Omnibus Case Management Plan are scheduled to begin four months
after completion of the first two damages trials. The Company's case is one of
thirteen cases that "shall be accorded priority in the scheduling" of the
damages trials under the Omnibus Case Management Order. On January 3, 1997, the
court issued a scheduling order scheduling the trial of the Company's case in
the third month after the trials of the "priority" cases begin.
In December 1996, Chief Judge Smith decided the motion IN LIMINE on damage
theories of Glendale Federal, one of four WINSTAR plaintiffs, and allowed
Glendale Federal to assert several other alternative damage theories against the
Government. While the Company expects Plaintiffs' claims for damages to exceed
$200 million, and that they could range as high as $1 billion or more, the
Company is unable to predict the outcome of Plaintiffs'
14
BANK UNITED CORP.
suit against the United States and the amount of judgment for damages, if any,
that may be awarded. Plaintiffs expect that the government may argue that no
breach by the government has occurred and that damages to the plaintiffs, in any
event, would approach zero. The Company, on November 27, 1996, moved for partial
summary judgment on liability, and the Government has opposed the motion. The
Company is pursuing an early trial on damages. Uncertainties remain concerning
the administration of the Omnibus Case Management Order and the future course of
the Company's lawsuit pursuant to the Omnibus Case Management Order.
Accordingly, the Company cannot predict the timing of any resolution of its
claims. The damage trial in the first case has lasted longer than was originally
estimated, and the Company now expects the trial of its case to commence during
the first quarter of fiscal 1999. The Company is unable to predict the outcome
of its suit against the United States and the amount of judgment for damages, if
any, that may be awarded. Consequently, no assurances can be given as to the
results of this suit.
The Company and the Bank have entered into an agreement with Hyperion
Partners L.P. acknowledging the relative value, as among the parties, of their
claims in the pending litigation. The agreement confirms that the Company and
the Bank are entitled to receive 85% of the amount, if any, recovered as a
result of the settlement of or a judgment on such claims, and that Hyperion
Partners L.P. is entitled to receive 15% of such amount. The agreement was
approved by the disinterested directors of the Company. Plaintiffs will continue
to cooperate in good faith and will use their best efforts to maximize the total
amount, if any, that they may recover.
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
*15.1 - Letter in Lieu of Consent of Deloitte & Touche LLP, independent
accountants
*27 - Financial Data Schedule
* Filed herewith.
ITEM 6B. REPORTS ON FORM 8-K
The Company did not file a report on Form 8-K during the three months ended
December 31, 1997.
15
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 FEBRUARY 12, 1998 /S/ BARRY C. BURKHOLDER
--------------------------------------- -------------------------
Barry C. Burkholder
President
Chief Executive Officer
(Duly Authorized Officer)
Date FEBRUARY 12, 1998 /S/ ANTHONY J. NOCELLA
-------------------------------------- ------------------------
Anthony J. Nocella
Vice Chairman
Chief Financial Officer
16