As filed with the Securities and Exchange Commission on April 17, 1997
Registration No. 333-24025
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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<S> <C>
BANKUNITED FINANCIAL CORPORATION BANKUNITED CAPITAL
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(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
FLORIDA 6035 65-0377773 DELAWARE 6035 APPLIED FOR
- ---------------- ----------------- ------------------- ---------------- ----------------- -------------------
(State or other (Primary Standard (I.R.S. Employer (State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.) jurisdiction of Industrial Identification No.)
incorporation or Classification incorporation or Classification
organization) Code Number) organization) Code Number)
</TABLE>
<TABLE>
<S> <C>
255 ALHAMBRA CIRCLE 255 ALHAMBRA CIRCLE
CORAL GABLES, FLORIDA 33134 CORAL GABLES, FLORIDA 33134
(305) 569-2000 (305) 569-2000
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(Address, including ZIP Code, and telephone (Address, including ZIP Code, and telephone
number, including area code, of registrant's number, including area code, of registrant's
principal executive offices) principal executive offices)
</TABLE>
ALFRED R. CAMNER
CHAIRMAN OF THE BOARD
BANKUNITED FINANCIAL CORPORATION
255 ALHAMBRA CIRCLE
CORAL GABLES, FLORIDA 33134
(305) 569-2000
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(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)
Copies to:
Marsha D. Bilzin, Esq.
Stuzin and Camner,
Professional Association
550 Biltmore Way, Suite 700
Coral Gables, Florida 33134
(305) 442-4994
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box [ ].
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<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
OF SECURITY TO BE REGISTERED REGISTERED PER SHARE (1) PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Preferred Securities, Series B of BankUnited Capital 70,000 98.5%(1) 68,950,000 $20,893.94
Junior Subordinated Deferrable Interest Debentures of N/A
BankUnited Financial Corporation (2)
BankUnited Financial Corporation Guarantee with respect to N/A
Trust Preferred Securities, Series B (3)
Total. . . . . . . . . . . . . . . . . . . . . . . . . 70,000 98.5%(1) $68,950,000 $20,893.94(5)
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<FN>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(f)(1). Based on the market price as of March 25, 1997.
(2) The Junior Subordinated Deferrable Interest Debentures (the "Subordinated
Debentures") were originally purchased by BankUnited Capital with the
proceeds of the sale of the Trust Preferred Securities, Series A (the "Old
Series A Preferred Securities"). No separate consideration will be
received for the Subordinated Debentures distributed upon any liquidation
of BankUnited Capital.
(3) No separate consideration will be received for the BankUnited Financial
Corporation Guarantee (the "Guarantee").
(4) This Registration Statement is deemed to cover the Subordinated Debentures
of BankUnited Financial Corporation under the Indenture, the rights of
holders of Preferred Securities of BankUnited Capital under a trust
agreement, the rights of holders of the Preferred Securities under the
Guarantee, the Expense Agreement entered into by BankUnited Financial
Corporation and certain backup undertakings as described herein.
(5) This registration fee was paid upon filing of the Registration Statement.
</FN>
</TABLE>
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 17, 1997
PROSPECTUS BANKUNITED CAPITAL
OFFER BY BANKUNITED CAPITAL TO EXCHANGE 10 1/4% TRUST PREFERRED
SECURITIES, SERIES B, WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 FOR ANY AND ALL OF ITS OUTSTANDING
10 1/4% TRUST PREFERRED SECURITIES, SERIES A
(LIQUIDATION AMOUNT $1,000 PER TRUST PREFERRED SECURITY, SERIES B)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
BANKUNITED FINANCIAL CORPORATION
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON MAY __, 1997, UNLESS EXTENDED.
BankUnited Capital, a trust created under the laws of the State of
Delaware (the "Issuer"), hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus (as the same may be amended or
supplemented from time to time, the "Prospectus") and in the accompanying Letter
of Transmittal and related documents (which together constitute the "Exchange
Offer"), to exchange up to $70,000,000 aggregate Liquidation Amount (as defined
herein) of its 10 1/4% Trust Preferred Securities, Series B (the "New Series B
Preferred Securities"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
(as defined herein) of which this Prospectus constitutes a part, for a like
Liquidation Amount of its outstanding 10 1/4% Trust Preferred Securities, Series
A (the "Old Series A Preferred Securities"), of which $70,000,000 aggregate
Liquidation Amount is outstanding. Pursuant to the Exchange Offer, BankUnited
Financial Corporation, a Florida corporation (the "Company"), is also exchanging
a guarantee (the "New Guarantee") of the payment of Distributions (as defined
herein) and payments on liquidation or redemption of the New Series B Preferred
Securities and new 10 1/4% Junior Subordinated Deferrable Interest Debentures
(the "New Series B Subordinated Debentures"), for its guarantee (the "Old
Guarantee") of the payment of distributions and payment on liquidation of or
redemption of its Old Series A Preferred Securities and its outstanding 10 1/4%
Junior Subordinated Deferrable Interest Debentures (the "Old Series A
Subordinated Debentures"), of which
<PAGE>
$72,800,000 aggregate principal amount is outstanding, and is exchanging a like
aggregate principal of New Series B Subordinated Debentures for the Old Series A
Subordinated Debentures. The New Guarantee and the New Series B Subordinated
Debentures also have been registered under the Securities Act. (The Old Series A
Preferred Securities, the Old Guarantee and the Old Series A Subordinated
Debentures are collectively referred to herein as the "Old Securities" and the
New Series B Preferred Securities, the New Guarantee and the New Series B
Subordinated Debentures are collectively referred to herein as the "New
Securities.")
The terms of the New Securities are identical in all material respects
to the respective terms of the Old Securities, except that (i) the New Series B
Preferred Securities have been registered under the Securities Act and therefore
will not be subject to certain restrictions on transfer applicable to the Old
Series A Preferred Securities, (ii) the New Series B Preferred Securities and
the New Series B Subordinated Debentures will not provide for any increase in
the Distribution rate thereon or the interest rate thereon, respectively, since
the Old Securities provided for such increases only in the event that the Old
Securities were not registered under the Securities Act within the period
specified in the terms of the Old Securities. (See "Description of the New
Securities" and "Description of the Old Securities.") The New Series B Preferred
Securities are being offered for exchange in order to satisfy certain
obligations of the Issuer under the registration rights agreements dated as of
December 30, 1996 and March 24, 1997 (together, the "Registration Rights
Agreements") among the Company, the Issuer and the Initial Purchasers (as
defined herein). In the event that the Exchange Offer is consummated, any Old
Series A Preferred Securities which remain outstanding after consummation of the
Exchange Offer and the New Series B Preferred Securities issued in the Exchange
Offer will vote together as a single class for purposes of determining whether
holders of the requisite percentage in outstanding Liquidation Amount thereof
have taken certain actions or exercised certain rights under the Trust Agreement
(as defined herein).
---------------------
SEE "RISK FACTORS" COMMENCING ON PAGE __ FOR CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER OLD SERIES A PREFERRED
SECURITIES IN THE EXCHANGE OFFER.
THESE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April __, 1997.
<PAGE>
The New Series B Preferred Securities and the Old Series A Preferred
Securities (together, the "Preferred Securities" represent undivided beneficial
interests in the assets of the Issuer. The Company is the owner of all of the
beneficial interests represented by common securities of the Issuer (the "Common
Securities" and, collectively with the Preferred Securities, the "Issuer
Securities"). The Bank of New York is the Property Trustee of the Issuer. The
Issuer exists for the sole purpose of issuing the Issuer Securities and
investing the proceeds thereof in the Subordinated Debentures first, by
acquiring the Old Series A Subordinated Debentures which will be exchanged for
the New Series B Subordinated Debentures (together, the "Subordinated
Debentures"). The Subordinated Debentures will mature on December 31, 2026 (the
"Stated Maturity"). The Preferred Securities will have a preference under
certain circumstances with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise over the Common Securities. The amount
payable on the Preferred Securities in the event of any liquidation of the
Issuer is $1,000 per Preferred Security ("Liquidation Amount"), plus accumulated
and unpaid Distributions. (See "Description of the New Securities--Description
of Preferred Securities--Subordination of Series A Common Securities.")
As used herein, (i) the "Indenture" means the Junior Subordinated
Indenture dated as of December 30, 1996, as supplemented by the Supplemental
Indenture dated as of March 24, 1997 between the Company and The Bank of New
York, as trustee (the "Debenture Trustee"), (ii) the "Trust Agreement" means the
Amended and Restated Trust Agreement dated as of March 24, 1997, relating to the
Trust among the Company, as Depositor, The Bank of New York, as Property Trustee
(the "Property Trustee"), The Bank of New York (Delaware), as Delaware Trustee
(the "Delaware Trustee"), the Administrative Agents named therein (collectively,
with the Property Trustee and Delaware Trustee, the "Issuer Trustees") and the
holders from time to time of the undivided beneficial interests in the assets of
the Issuer, (iii) the "Guarantee Agreement" means the Amended Guarantee
Agreement dated as of March 24, 1997, between the Company and The Bank of New
York, as trustee (the "Guarantee Trustee") relating to the Old Guarantee and the
New Guarantee (together, the "Guarantee"), and (iv) the "Expense Agreement"
means the Expense Agreement dated as of December 30, 1996, between the Company
and the Issuer.
Holders of the Preferred Securities are entitled to receive
preferential cumulative cash distributions accumulating from December 30, 1996
and payable semi-annually in arrears on June 30 and December 31 of each year
("Distribution Date") , commencing June 30, 1997, at the annual rate of 10 1/4%
of the Liquidation Amount of $1,000 per Preferred Security ("Distributions").
Subject to certain exceptions, the Company has the right to defer payment of
interest on the Subordinated Debentures at any time or from time to time for a
period not exceeding 10 consecutive semi-annual periods with respect to each
deferral period (each, an "Extension Period"), provided that no Extension Period
may extend beyond the Stated Maturity of the Subordinated Debentures. Upon the
termination of any such Extension Period and the payment of all interest then
accrued and unpaid (together with interest thereon at the rate of 10 1/4%,
compounded semi-annually, to the extent permitted by applicable law), the
Company may elect to begin a new Extension Period subject to the requirements
set forth herein. If interest payments on the Subordinated Debentures are so
deferred, Distributions on the Preferred Securities will also be deferred, and
the Company will not be permitted, subject to certain exceptions described
herein, to declare or pay any cash distributions with respect to the capital
stock of the Company or debt
2
<PAGE>
securities of the Company that rank PARI PASSU with or junior to the
Subordinated Debentures. During an Extension Period, interest on the
Subordinated Debentures will continue to accrue (and the amount of Distributions
to which holders of the Preferred Securities are entitled will accumulate) at
the rate of 10 1/4% per annum, compounded semi-annually, and holders of the
Preferred Securities will be required to accrue interest income for United
States federal income tax purposes. (See "Description of the New
Securities--Description of Subordinated Debentures--Right to Defer Interest
Payment Obligation" and "Certain Federal Income Tax Consequences--Original Issue
Discount.")
The Company has, through the Guarantee, the Trust Agreement, the
Subordinated Debentures, the Indenture and the Expense Agreement (each as
defined herein), taken together, fully, irrevocably and unconditionally
guaranteed all of the Issuer's obligations under the Preferred Securities. (See
"Relationship Among the Preferred Securities, the Subordinated Debentures, the
Expense Agreement and the Guarantee--Full and Unconditional Guarantee.") No
single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Issuer's obligations under the
Preferred Securities. The Guarantee of the Company guarantees the payment of
Distributions and payments on liquidation or redemption of the Preferred
Securities, but only in each case to the extent of funds held by the Issuer, as
described herein. (See "Description of the New Securities--Description of the
Guarantee.") If the Company does not make interest payments on the Subordinated
Debentures held by the Issuer, the Issuer will have insufficient funds to pay
Distributions on the Preferred Securities. The Guarantee does not cover payment
of Distributions when the Issuer does not have sufficient funds to pay such
Distributions. In such event, a holder of the Preferred Securities may institute
a legal proceeding directly against the Company to enforce payment of such
Distributions to such holder. (See "Description of the New
Securities--Description of Subordinated Debentures--Enforcement of Certain
Rights by Holders of the Preferred Securities.") The obligations of the Company
under the Guarantee and the Subordinated Debentures are subordinate and junior
in right of payment to all Senior Debt of the Company (as defined in
"Description of the New Securities-Description of Subordinated
Debentures--Subordination").
The Preferred Securities are subject to mandatory redemption, in whole
or in part, upon repayment of the Subordinated Debentures at their Stated
Maturity or their earlier redemption. The Subordinated Debentures are redeemable
prior to their Stated Maturity at the option of the Company (i) on or after
December 31, 2006, in whole at any time or in part from time to time at a
redemption price (the "Optional Redemption Price") equal to 105.125% of the
principal amount thereof on December 31, 2006, declining ratably on each
December 31 thereafter to 100% on or after December 31, 2016, plus accrued
interest thereon to the date of redemption, or (ii) at any time, in whole (but
not in part), upon the occurrence and continuation of a Tax Event (as defined
herein) at a redemption price (the "Tax Event Redemption Price") equal to the
Make-Whole Amount (as defined herein) plus accrued and unpaid interest on the
Subordinated Debentures to the date fixed for redemption. (See "Description of
the New Securities--Description of Subordinated Debentures--Optional Redemption"
and "Description of the New Securities--Description of Subordinated
Debentures--Tax Event Redemption.")
3
<PAGE>
In the event of a termination of the Issuer, including upon the
exercise by the Company at any time of its right to terminate the Issuer, after
satisfaction of creditors of the Issuer, if any, as provided by applicable law,
an amount of Subordinated Debentures equivalent to a Liquidation Amount of
$1,000 per Preferred Security plus accumulated and unpaid Distributions thereon
to the date of distribution will be distributed to the holders of the Preferred
Securities in exchange therefor upon liquidation of the Issuer, subject to
certain exceptions. (See "Description of the New Securities--Description of
Preferred Securities--Liquidation of the Issuer and Distribution of the
Subordinated Debentures to Holders,--Liquidation Distribution upon Termination."
The Subordinated Debentures will be unsecured and subordinated to all
Senior Debt of the Company. At March 24, 1997, the Company had no outstanding
Senior Debt. (See "Description of the New Securities--Description of
Subordinated Debentures-- Subordination.")
THE PREFERRED SECURITIES WILL BE ISSUED, AND MAY BE TRANSFERRED, ONLY
IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $100,000 (100 PREFERRED
SECURITIES). ANY TRANSFER, SALE OR OTHER DISPOSITION OF PREFERRED SECURITIES IN
A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000 SHALL BE DEEMED TO BE
VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH TRANSFEREE SHALL BE DEEMED NOT
TO BE THE HOLDER OF SUCH PREFERRED SECURITIES FOR ANY PURPOSE, INCLUDING BUT NOT
LIMITED TO THE RECEIPT OF DISTRIBUTIONS ON SUCH PREFERRED SECURITIES, AND SUCH
TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN SUCH PREFERRED
SECURITIES.
Based upon certain interpretive letters issued by the staff of the
United States Securities and Exchange Commission (the "Commission") to third
parties in unrelated transactions, the Company is of the view that holders of
Old Series A Preferred Securities (other than any holder who is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) who
exchange their Old Series A Preferred Securities for New Series B Preferred
Securities pursuant to the Exchange Offer generally may offer such New Series B
Preferred Securities for resale, resell such New Series B Preferred Securities,
and otherwise transfer such New Series B Preferred Securities without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided such New Series B Preferred Securities are acquired in the ordinary
course of the holder's business and such holder has no arrangement with any
person to participate in a distribution of such New Series B Preferred
Securities. Each broker-dealer that receives New Series B Preferred Securities
for its own account in exchange for Old Series A Preferred Securities must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Series B Preferred Securities. (See "Plan of Distribution.") In
addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Series B Preferred Securities may not be offered or sold
unless they have been registered or qualified for sale in such jurisdiction or
in compliance with an available exemption from registration or qualification.
The Company has agreed, pursuant to the Registration Rights Agreements and
subject to certain specified limitations therein, to register or qualify the New
Series B Preferred Securities for offer or sale under the securities or blue sky
laws of such jurisdictions as any holder of the Preferred Securities reasonably
requests in writing. If a holder of Old Series A Preferred Securities does not
exchange such Old Series A Preferred Securities for New Series B Preferred
Securities pursuant to the Exchange Offer, such Old Series A Preferred
4
<PAGE>
Securities will continue to be subject to the restrictions on transfer contained
in the legend thereon. In general, the Old Series A Preferred Securities may not
be offered or sold unless registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Holders of Old Series A Preferred Securities
do not have any appraisal or dissenters' rights under the Delaware General
Corporation Law in connection with the Exchange Offer. (See "Risk
Factors--Consequences of a Failure to Exchange Old Series A Preferred
Securities;" "The Exchange Offer--Resales of New Series B Preferred
Securities.")
Each holder of Old Series A Preferred Securities who wishes to exchange
Old Series A Preferred Securities for New Series B Preferred Securities in the
Exchange Offer will be required to represent that (i) it is not an "affiliate"
of the Company or the Issuer, (ii) any New Series B Preferred Securities to be
received by it are being acquired in the ordinary course of its business, (iii)
it has no arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of such New Series B
Preferred Securities, and (iv) if such holder is not a broker-dealer, such
holder is not engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such New Series B Preferred
Securities. In addition, the Company and the Issuer may require such holder, as
a condition to such holder's eligibility to participate in the Exchange Offer,
to furnish to the Company and the Issuer (or an agent thereof) in writing
information as to the number of "beneficial owners" (within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934, as amended) on behalf of whom
such holder holds the Preferred Securities to be exchanged in the Exchange
Offer. Each broker-dealer that receives New Series B Preferred Securities for
its own account pursuant to the Exchange Offer must acknowledge that it acquired
the Old Series A Preferred Securities for its own account as the result of
market-making activities or other trading activities and must agree that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Series B Preferred Securities. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based upon the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive letters
referred to above, the Company and the Issuer believe that broker-dealers who
acquired Old Series A Preferred Securities for their own accounts, as a result
of market-making activities or other trading activities ("Participating
Broker-Dealers"), may fulfill their prospectus delivery requirements with
respect to the New Series B Preferred Securities received upon exchange of such
Old Series A Preferred Securities with a prospectus meeting the requirements of
the Securities Act, which may be the prospectus prepared for the Exchange Offer
so long as it contains a description of the plan of distribution with respect to
the resale of such New Series B Preferred Securities. Accordingly, this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer during the period referred to below in
connection with resales of New Series B Preferred Securities received in
exchange for Old Series A Preferred Securities where such Old Series A Preferred
Securities were acquired by such Participating Broker-Dealer for its own account
as a result of market-making or other trading activities. Subject to certain
provisions set forth in the Registration Rights Agreements, the Company and the
Issuer have agreed that this Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating Broker-Dealer in connection
with resales of such New Series B Preferred Securities until June 28, 1997 or,
if earlier, when all such New Series B Preferred Securities have been disposed
of by such Participating Broker-Dealer. (See "Plan of Distribution.") Any
Participating Broker-Dealer who is an "affiliate" of the Company or the Issuer
must comply
5
<PAGE>
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. (See "The Exchange Offer--Resales of
New Series B Preferred Securities.")
In that regard, each Participating Broker-Dealer who surrenders Old
Series A Preferred Securities pursuant to the Exchange Offer will be deemed to
have agreed, by execution of the Letter of Transmittal or delivery of an Agent's
Message (as defined herein), that, upon receipt of notice from the Company or
the Issuer of the occurrence of any event or the discovery of any fact which
makes any statement contained or incorporated by reference in this Prospectus
untrue in any material respect or which causes this Prospectus to omit to state
a material fact necessary in order to make the statements contained or
incorporated by reference herein, in light of the circumstances under which they
were made, not misleading or of the occurrence of certain other events specified
in the Registration Rights Agreements, such Participating Broker-Dealer will
suspend the sale of New Series B Preferred Securities (or the New Series B
Subordinated Debentures, as applicable) pursuant to this Prospectus until the
Company or the Issuer has amended or supplemented this Prospectus to correct
such misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to such Participating Broker-Dealer or the Company or
the Issuer has given notice that the sale of the New Series B Preferred
Securities (or the New Guarantee or the New Series B Subordinated Debentures, as
applicable) may be resumed, as the case may be.
Prior to the Exchange Offer, there has been only a limited secondary
market and no public market for the Old Series A Preferred Securities. The New
Series B Preferred Securities will be a new issue of securities for which there
currently is no market. Although Friedman, Billings, Ramsey & Co., Inc. and
Raymond James & Associates, Inc. (the "Initial Purchasers") have informed the
Company and the Issuer that they currently intend to make a market in the New
Series B Preferred Securities, they are not obligated to do so, and any such
market making may be discontinued at any time without notice. Accordingly, there
can be no assurance as to the development or liquidity of any market for the New
Series B Preferred Securities. Neither the Company nor the Issuer currently
intends to apply for listing of the New Series B Preferred Securities on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
Any Old Series A Preferred Securities not tendered and accepted in the
Exchange Offer will remain outstanding and will be entitled to all the same
rights and will be subject to the same limitations applicable thereto under the
Trust Agreement (except for those rights which terminate upon consummation of
the Exchange Offer). Following consummation of the Exchange Offer, the holders
of Old Series A Preferred Securities will continue to be subject to all of the
existing restrictions upon transfer thereof and neither the Company nor the
Issuer will have any further obligation to such holders (other than under
certain limited circumstances) to provide for registration under the Securities
Act of the Old Series A Preferred Securities held by them. To the extent that
Old Series A Preferred Securities are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Old Series A Preferred Securities
could be adversely affected. (See "Risk Factors--Consequences of a Failure to
Exchange Old Series A Preferred Securities.")
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD SERIES A PREFERRED SECURITIES ARE URGED TO READ THIS
PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING
WHETHER TO TENDER THEIR OLD SERIES A PREFERRED SECURITIES PURSUANT TO THE
EXCHANGE OFFER.
6
<PAGE>
Old Series A Preferred Securities may be tendered for exchange on or
prior to 5:00 p.m., New York City time, on May __, 1997 (such time on such date
being hereinafter called the "Expiration Date"), unless the Exchange Offer is
extended by the Company and the Issuer (in which case the term "Expiration Date"
shall mean the latest date and time to which the Exchange Offer is extended).
Tenders of Old Series A Preferred Securities may be withdrawn at any time on or
prior to the Expiration Date. The Exchange Offer is not conditioned upon any
minimum Liquidation Amount of Old Series A Preferred Securities being tendered
for exchange. However, the Exchange Offer is subject to certain events and
conditions which may be waived by the Company or the Issuer and to the terms and
provisions of the Registration Rights Agreements. Old Series A Preferred
Securities may be tendered in whole or in part in a Liquidation Amount of not
less than $100,000 (100 Old Series A Preferred Securities) and or any integral
multiple of $1,000 Liquidation Amount (1 Old Series A Preferred Security) in
excess thereof. The Company has agreed to pay all expenses of the Exchange
Offer. (See "The Exchange Offer--Fees and Expenses.") Each New Series B
Preferred Security will pay cumulative Distributions from the most recent
Distribution Date for the Old Series A Preferred Securities surrendered in
exchange for such New Series B Preferred Securities or, if no Distributions have
been paid on such Old Series A Preferred Securities, from December 30, 1996.
Holders of the Old Series A Preferred Securities whose Old Series A Preferred
Securities are accepted for exchange will not receive accumulated Distributions
on such Old Series A Preferred Securities for any period from and after the last
Distribution Date for such Old Series A Preferred Securities or, if no such
Distributions have been paid, will not receive any accumulated Distributions on
such Old Series A Preferred Securities, and will be deemed to have waived the
right to receive any Distributions on such Old Series A Preferred Securities
accumulated from and after such Distribution Date or, if no such Distributions
have been paid or duly provided for, from and after December 30, 1996. This
Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders of Old Series A Preferred Securities as of April __, 1997.
Neither the Company nor the Issuer will receive any cash proceeds from
the issuance of the New Series B Preferred Securities offered hereby. No
dealer-manager is being used in connection with this Exchange Offer. (See "Use
of Proceeds From Sale of Old Series A Preferred Securities" and "Plan of
Distribution.")
---------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE ISSUER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF
ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
AFFAIRS OF THE COMPANY OR THE ISSUER SINCE THE DATE HEREOF.
---------------------
7
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TABLE OF CONTENTS
PAGE
----
Available Information.............................................. 9
Certain Documents Included as Appendices and Incorporoated
by Reference................................................ 9
Summary............................................................ 11
Risk Factors....................................................... 21
Ratio of Earnings to Fixed Charges................................. 32
Use of Proceeds from Sale of Old Series A Preferred Securities..... 32
The Issuer ........................................................ 33
BankUnited Financial Corporation................................... 34
Capitalization..................................................... 35
Accounting Treatment............................................... 36
The Exchange Offer................................................. 37
Description of the New Securities.................................. 50
Description of the Old Securities.................................. 79
Relationship Among the Preferred Securities, the Subordinated
Debentures and the Guarantee................................. 79
Certain Federal Income Tax Consequences............................ 81
ERISA Considerations............................................... 86
Plan of Distribution............................................... 87
Validity of the New Securities..................................... 88
Experts............................................................ 88
Appendix A -
1996 Annual Report on Form 10-K/A for BankUnited Financial Corporation.
Appendix B -
Form 10-Q for the Quarter Ended December 31, 1996 for BankUnited Financial
Corporation.
Appendix C -
1996 Annual Report on Form 10-K of Suncoast Savings and Loan Association, FSA.
Appendix D -
Form 10-Q for the Quarter Ended September 30, 1996 for Suncoast Savings and Loan
Association, FSA.
8
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W.,Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
may also be accessed electronically by means of the Commission's home page on
the Internet at http://www.sec.gov. Reports, proxy statements and other
information filed by Suncoast Savings and Loan Association, FSA ("Suncoast"),
pursuant to the informational requirements of the Exchange Act prior to its
acquisition by the Company can be inspected and copied at the public reference
facilities maintained by the OTS at 1700 G Street, N.W., Washington, D.C. 20552
or at the OTS Southeast Regional Office, 1475 Peachtree Street, N.E., Atlanta,
Georgia 30309.
No separate financial statements of the Issuer have been included
herein. The Company and the Issuer do not consider that such financial
statements would be material to holders of the Preferred Securities because the
Issuer is a newly-formed special purpose entity, has no operating history or
independent operations and is not engaged in and does not propose to engage in
any activity other than holding as trust assets the Subordinated Debentures and
issuing the Securities. (See "Description of the New Securities--Description of
Preferred Securities," "--Description of Subordinated Debentures" and
"--Description of Guarantee.")
CERTAIN DOCUMENTS INCLUDED AS APPENDICES AND
INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K/A for the fiscal year ended
September 30, 1996, the Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996, as well as Suncoast's Annual Report on Form 10-K for the
fiscal year ended June 30, 1996 and Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 appear as appendices hereto and are
incorporated in and made a constituent part of this Prospectus by reference. The
Company's Current Reports on Form 8-K, dated November 15, 1996, December 30,
1996, February 25, 1997, March 24, 1997, and April 2, 1997 are also incorporated
and made a constituent part of this Prospectus by reference.
All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
the termination of the offering of the New Securities offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part of
this Prospectus from the date of filing of such document. Any statements
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this offering to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
This Prospectus constitutes a part of a registration statement on Form
S-4 (the "Registration Statement") filed by the Company and the Issuer with the
Commission under the Securities Act. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission,
9
<PAGE>
and reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company and the New
Securities. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
As used herein, the terms "Prospectus" and "herein" mean this
Prospectus, including the documents incorporated or deemed to be incorporated
herein by reference, as the same may be amended, supplemented or otherwise
modified from time to time. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein do not purport to
be complete, and where reference is made to the particular provisions of such
contract or other document, such provisions are qualified in all respects by
reference to all of the provisions of such contract or other document. Upon oral
or written request, the Company will provide without charge a copy of any
document incorporated in this Prospectus, exclusive of exhibits, to each person
to whom this Prospectus is delivered. Requests for such documents should be
directed to Ms. Nancy Ashton at the corporate headquarters of the Company, 255
Alhambra Circle, Coral Gables, Florida 33134 (telephone no. (305) 569-2000).
10
<PAGE>
SUMMARY
This summary is qualified by the more detailed information and
financial statements in the Company's Annual Report on Form 10-K/A for the
fiscal year ended September 30, 1996 and Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996, and Suncoast's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996 and Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996, which are included as appendices to and
incorporated by reference in this Prospectus. As used herein, (i) the
"Indenture" means the Junior Subordinated Indenture dated as of December 30,
1996, as supplemented by the Supplemental Indenture dated as of March 24, 1997,
between the Company and The Bank of New York, as trustee (the "Debenture
Trustee"), and (ii) the "Trust Agreement" means the Amended and Restated Trust
Agreement dated as of March 24, 1997 relating to the Issuer among the
Company, as Depositor, The Bank of New York, as Property Trustee (the "Property
Trustee"), The Bank of New York (Delaware), as Delaware Trustee (the "Delaware
Trustee"), the Administrative Trustees named therein (collectively with the
Property Trustee and Delaware Trustee, the "Issuer Trustees"), and the holders
from time to time of the undivided beneficial interests in the assets of the
Issuer.
BANKUNITED FINANCIAL CORPORATION
GENERAL
The Company is a Florida corporation organized in December 1992 for the
purpose of becoming the savings and loan holding company for BankUnited, FSB
(the "Bank"). This holding company reorganization, together with BankUnited's
conversion from a Florida-chartered stock savings bank to a federally chartered
stock savings bank, became effective on March 5, 1993.
The Company currently has fifteen branch offices in Dade, Broward and
Palm Beach counties, Florida ("South Florida") and anticipates opening three or
more additional branches there during the next 18 months. The Company's business
has traditionally consisted of attracting deposits from the general public and
using those deposits, together with borrowings and other funds, to purchase
nationwide and to originate in its market area single-family residential
mortgage loans, and to a lesser extent, to purchase and originate commercial
real estate, commercial business and consumer loans. The Company's revenues are
derived principally from interest earned on loans, mortgage-backed securities
and investments. The Company's primary expenses arise from interest paid on
savings deposits and borrowings and overhead expenses incurred in its
operations.
The Company's operating plan emphasizes (i) concentrating lending
activities on the origination of single-family residential mortgage loans and
purchasing such loans as favorable market opportunities arise; (ii) expanding
the Company's deposit base by providing convenience, competitive rates and
personalized service in its market area; (iii) continuing expansion of the
Company's branch network through de novo branching or the acquisition of
branches of, and mergers with, existing financial institutions, although there
are no current plans, arrangements, understandings, or agreements regarding such
acquisitions; (iv) expanding the Company's commercial and multi-family real
estate, commercial business, and real estate construction lending; and (v)
managing exposure to interest rate risk, while optimizing operating results
through effective asset/liability management and investment policies.
In 1995, the Company redefined its strategy to increase its emphasis on
strategic product niches which management believes are being underserved as
South Florida's banking market
11
<PAGE>
consolidates. These products include commercial business and commercial real
estate lending and deposit services for small to mid-size businesses. The
Company has also focused on attracting depositors who are seeking convenience,
competitive rates and personalized service. To accomplish this strategy, the
Company has attracted management with expertise in developing and managing its
new product lines.
The Bank is a member of the Federal Home Loan Bank system and is
subject to comprehensive regulation, examination and supervision by the Office
of Thrift Supervision (the "OTS") and the Federal Deposit Insurance Corporation
(the "FDIC"). Deposits at the Bank are insured by the Savings Association
Insurance Fund of the FDIC (the "SAIF") for up to $100,000 for each insured
account holder, which is the maximum permitted by law.
The Company's executive offices are located at 255 Alhambra Circle,
Coral Gables, Florida 33134, telephone (305) 569-2000.
SUNCOAST ACQUISITION
As part of the Company's plan to expand within South Florida, on
November 15, 1996, the Company completed the purchase of Suncoast Savings and
Loan Association, FSA ("Suncoast"), a federally chartered savings association
with assets of $409.0 million at September 30, 1996 and merged Suncoast into the
Bank (the "Merger"). Suncoast had six branch offices in the South Florida market
of which five will continue to operate and one will be consolidated with an
existing Bank branch office. In addition, as of September 30, 1996, Suncoast
serviced or subserviced approximately $1.2 billion in loans for others. The
Company has sold $300 million of Suncoast's servicing portfolio and is
discontinuing certain of Suncoast's subservicing activities. Such actions will
substantially reduce the income derived from servicing as well as the related
expenses from the income and expenses previously reported by Suncoast.
For additional information, see Note 4 of the December 31, 1996
Condensed Notes to Consolidated Financial Statements in Appendix B of this
Prospectus. Also see "Unaudited Pro Forma Condensed Combined Financial
Statements" and Note 18 to the September 30, 1996 Consolidated Financial
Statements contained in Appendix A to this Prospectus.
MARKET AREA AND COMPETITION
The Company conducts operations in South Florida, which at June 30,
1996 had a total of approximately $73 billion in deposits in commercial banks,
savings institutions, and credit unions (41% of the total of $178 billion of
deposits in Florida). The Company intends to continue to establish or acquire
branches in its market area where the Company can service its customer base.
In 1995, the Company sold its three branches on the west coast of
Florida, including their deposits which totaled $130 million at the date of
sale. The sale was part of a shift in growth strategy to focus on South Florida
and take advantage of consolidation trends in banking there. Also, as part of
this strategy, the Company opened branches in Boca Raton, Florida in December
1995, Delray Beach, Florida in June 1996 and West Palm Beach, Florida in
September 1996. On March 29, 1996, the Company acquired the Bank of Florida with
total assets of $28.1 million which was merged into the Company's South Miami
branch. Then, as discussed above, the Company acquired Suncoast on November 15,
1996.
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<PAGE>
The Company encounters strong competition in attracting deposits and in
its lending activities. Its most direct competition for deposits historically
has been from commercial banks, brokerage houses, other savings associations,
and credit unions located in the Company's market area, and the Company expects
continued strong competition from such financial institutions in the foreseeable
future. Within the Company's market areas are branches of several commercial
banks and savings associations that are substantially larger and that have more
extensive operations than does the Company. In addition, many financial
institutions based in South Florida have recently been acquired by larger
institutions based in other parts of the state or based out of state. The
Company's goal is to compete for savings and other deposits by offering
depositors a higher level of personal service and expertise, together with a
wide range of financial services offered at competitive rates. The Company
believes that this strategy will enable it to attract depositors as the number
of local institutions remaining declines and depositors who desire more personal
service, particularly retirees, relocate their accounts.
The competition in originating real estate and other loans comes
principally from commercial banks, mortgage banking companies and other savings
associations. The Company competes for loan originations primarily through the
interest rates and loan fees it charges, the type of loans it offers, and the
efficiency and quality of services it provides. The Company purchases
residential first mortgage loans in the existing secondary mortgage market and
competes with other mortgage purchasers in the secondary market primarily on the
basis of price. While the Company has been, and intends to continue to be,
primarily a residential lender, the Company has recently placed more emphasis on
commercial real estate, construction and commercial lending, as discussed more
fully below. Factors that affect competition in lending include general and
local economic conditions, current interest rates and volatility of the mortgage
markets. As with its deposit products, the Company's strategy is to promote its
greater level of personal service and to position itself as a small-to-middle-
market lender to businesses left underserved by larger institutions.
Management's strategy has included and continues to include evaluation
of market needs and offering products to meet those needs. The Company will
continue to offer products and services that will allow it to control the growth
of its assets and liabilities. These new products and services will allow the
Company to properly position itself to its customers as a community bank.
THE ISSUER
The Issuer is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement executed by the Company, as depositor, The
Bank of New York, as Property Trustee, The Bank of New York (Delaware), as
Delaware Trustee, and the Administrative Trustees named therein and (ii) the
filing of a certificate of trust with the Delaware Secretary of State on
December 13, 1996. The Trust Agreement has been amended and restated in its
entirety as of March 24, 1997. All of the Series A Common Securities issued by
the Issuer, having an aggregate Liquidation Amount equal to 4% of the total
capital of the Issuer, are owned by the Company. The Issuer was created for the
exclusive purposes of (i) issuing and selling the Preferred Securities, (ii)
using the proceeds from the sale of the Preferred Securities to acquire the
Subordinated Debentures issued by the Company and (iii) engaging in only those
other activities necessary, advisable or incidental thereto (such as registering
the New Series B Preferred Securities). Accordingly, the Subordinated Debentures
will continue to be the sole assets of the Issuer, and payments under the
Subordinated Debentures will continue to be the sole revenue of the Issuer. The
principal executive office of the Issuer is 255 Alhambra Circle, Coral Gables,
Florida 33134 and its telephone number is (305) 569-2000.
13
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer.................... Up to $70,000,000 aggregate Liquidation
Amount of New Series B Preferred
Securities are being offered in exchange
for a like aggregate Liquidation Amount
of Old Series A Preferred Securities. Old
Series A Preferred Securities may be
tendered for exchange in whole or in part
in a Liquidation Amount of not less than
$100,000 (100 Old Series A Preferred
Securities) or any integral multiple of
$1,000 in excess thereof. The Company and
the Issuer are making the Exchange Offer
in order to satisfy their obligations
under the Registration Rights Agreements
relating to the Old Series A Preferred
Securities.
(For a description of the procedures for
tendering Old Series A Preferred
Securities, see "The Exchange
Offer--Procedures for Tendering Old
Series A Preferred Securities.")
Expiration Date....................... 5:00 p.m., New York City time, on May__,
1997 (such time on such date being
hereinafter called the "Expiration Date")
unless the Exchange Offer is extended by
the Company and the Issuer (in which case
the term "Expiration Date" shall mean the
latest date and time to which the
Exchange Offer is extended). (See "The
Exchange Offer--Expiration Date;
Extensions; Amendments.")
Conditions to the Exchange Offer...... The Exchange Offer is subject to certain
conditions, which may be waived by the
Company and the Issuer in their sole
discretion. The Exchange Offer is not
conditioned upon any minimum Liquidation
Amount of Old Series A Preferred
Securities being tendered. (See "The
Exchange Offer--Conditions to the
Exchange Offer.")
The Company and the Issuer reserve the
right in their sole and absolute
discretion, subject to applicable law, at
any time and from time to time, (i) to
delay the acceptance of the Old Series A
Preferred Securities for exchange, (ii)
to terminate the Exchange Offer if
certain specified conditions have not
been satisfied, (iii) to extend the
Expiration Date of the Exchange Offer and
retain all Old Series A Preferred
Securities tendered pursuant to the
Exchange Offer, subject, however, to the
right of holders of Old Series A
Preferred Securities to withdraw their
tendered Old Series A Preferred
Securities, or (iv) to
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<PAGE>
waive any condition or otherwise amend
the terms of the Exchange Offer in any
respect. (See "The Exchange
Offer--Expiration Date; Extensions;
Amendments.")
Withdrawal Rights..................... Tenders of Old Series A Preferred
Securities may be withdrawn at any time
on or prior to the Expiration Date by
delivering a written notice of such
withdrawal to the Exchange Agent (as
defined hereafter) in conformity with
certain procedures set forth below under
"The Exchange Offer--Withdrawal Rights."
Procedures for Tendering Old
Series A Preferred Securities........ Tendering holders of Old Series A
Preferred Securities must complete and
sign a Letter of Transmittal in
accordance with the instructions
contained herein and forward the same by
mail, facsimile or hand delivery,
together with any other required
documents, to the Exchange Agent, either
with the Old Series A Preferred
Securities to be tendered or in
compliance with the specified procedures
for guaranteed delivery of Old Series A
Preferred Securities. Certain brokers,
dealers, commercial banks, the Issuer and
other nominees may also effect tenders by
book-entry transfer, including an Agent's
message in lieu of the Letter of
Transmittal. Holders of Old Series A
Preferred Securities registered in the
name of a broker, dealer, commercial
bank, trust company or other nominee are
urged to contact such person promptly if
they wish to tender Old Series A
Preferred Securities pursuant to the
Exchange Offer. (See "The Exchange
Offer--Procedures for Tendering Old
Series A Preferred Securities.") Letters
of Transmittal and certificates
representing Old Series A Preferred
Securities should not be sent to the
Company or the Issuer. Such documents
should only be sent to the Exchange
Agent. Questions regarding how to tender
and requests for information should be
directed to the Exchange Agent. See "The
Exchange Offer--Exchange Agent."
Sales of New Series B Preferred
Securities........................... The Company and the Issuer believe that
New Series B Preferred Securities issued
pursuant to this Exchange Offer in
exchange for Old Series A Preferred
Securities may be offered for resale,
resold and otherwise transferred by a
holder thereof (other than a holder who
is a broker-dealer) without further
compliance with the registration and
prospectus
15
<PAGE>
delivery requirements of the Securities
Act, provided that such New Series B
Preferred Securities are acquired in the
ordinary course of such holder's business
and that such holder is not
participating, and has no arrangement or
understanding with any person to
participate, in a distribution (within
the meaning of the Securities Act) of
such New Series B Preferred Securities.
However, any holder of Old Series A
Preferred Securities who is an
"affiliate" of the Company or the Issuer
or who intends to participate in the
Exchange Offer for the purpose of
distributing the New Series B Preferred
Securities, or any broker-dealer who
purchased the Old Series A Preferred
Securities from the Issuer to resell
pursuant to Rule 144A or any other
available exemption under the Securities
Act, (a) will not be permitted or
entitled to tender such Old Series A
Preferred Securities in the Exchange
Offer and (b) must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any sale or other
transfer of such Old Series A Preferred
Securities unless such sale is made
pursuant to an exemption from such
requirements. In addition, as described
below, if any broker-dealer holds Old
Series A Preferred Securities acquired
for its own account as a result of
market-making or other trading activities
("Participating Broker-Dealers") and
exchanges such Old Series A Preferred
Securities for New Series B Preferred
Securities, then such broker-dealer must
deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resales of such New
Series B Preferred Securities.
Each holder of Old Series A Preferred
Securities who wishes to exchange Old
Series A Preferred Securities for New
Series B Preferred Securities in the
Exchange Offer will be required to
represent that (i) it is not an
"affiliate" of the Company or the Issuer,
(ii) any New Series B Preferred
Securities to be received by it are being
acquired in the ordinary course of its
business, (iii) it has no arrangement or
understanding with any person to
participate in a distribution (within the
meaning of the Securities Act) of such
New Series B Preferred Securities, and
(iv) if such holder is not a
broker-dealer, such holder is not engaged
in, and does not intend to engage in, a
distribution (within the meaning of the
Securities Act) of such New Series B
Preferred Securities. Each broker-dealer
that receives New Series B Preferred
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<PAGE>
Securities for its own account pursuant
to the Exchange Offer must acknowledge
that it acquired the Old Series A
Preferred Securities for its own account
as the result of market-making activities
or other trading activities and must
agree that it will deliver a prospectus
meeting the requirements of the
Securities Act in connection with any
resale of such New Series B Preferred
Securities. The Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. Participating
Broker-Dealers may fulfill their
prospectus delivery requirements with
respect to the New Series B Preferred
Securities received upon exchange of such
Old Series A Preferred Securities with a
Prospectus meeting the requirements of
the Securities Act, which may be this
Prospectus, as it may be amended or
supplemented from time to time, for a
period ending 90 days after the
Expiration Date or, if earlier, when all
such New Series B Preferred Securities
have been disposed of by such
Participating Broker-Dealer. (See "Plan
of Distribution.") Any Participating
Broker-Dealer who is an "affiliate" of
the Company or the Issuer and any
Participating Broker who purchased the
Old Series A Preferred Securities from
the Issuer to resell the Old Series A
Preferred Securities must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction.
(See "The Exchange Offer--Resales of New
Series B Preferred Securities.")
Exchange Agent........................ The exchange agent with respect to the
Exchange Offer is The Bank of New York
(the "Exchange Agent"). The addresses,
and telephone and facsimile numbers of
the Exchange Agent are set forth in "The
Exchange Offer--Exchange Agent" and in
the Letter of Transmittal.
Use of Proceeds....................... Neither the Company nor the Issuer will
receive any cash proceeds from the
issuance of the New Series B Preferred
Securities offered hereby. (See "Use of
Proceeds From Sale of Old Series A
Preferred Securities.")
17
<PAGE>
Certain United States Federal Income
Tax Considerations; ERISA
Considerations....................... Holders of Old Series A Preferred
Securities should review the information
set forth under "Certain Federal Income
Tax Consequences" and "ERISA
Considerations" prior to tendering Old
Series A Preferred Securities in the
Exchange Offer.
18
<PAGE>
THE NEW SERIES A PREFERRED SECURITIES
Securities Offered.................... Up to $70,000,000 aggregate Liquidation
Amount of the Issuer's 10 1/4%
Series B Preferred Securities which have
been registered under the Securities Act
(Liquidation Amount $1,000 per Series B
Preferred Security). The New Series B
Preferred Securities will be issued and
the Old Series A Preferred Securities
were issued under the Trust Agreement.
The New Series B Preferred Securities and
any Old Series A Preferred Securities
which remain outstanding after
consummation of the Exchange Offer will
vote together as a single class for
purposes of determining whether holders
of the requisite percentage in
outstanding Liquidation Amount thereof
have taken certain actions or exercised
certain rights under the Trust Agreement.
(See "Description of the New
Securities--Description of Preferred
Securities--General.") The terms of the
New Series B Preferred Securities are
identical in all material respects to the
terms of the Old Series A Preferred
Securities, except that the New Series B
Preferred Securities have been registered
under the Securities Act and therefore
are not subject to certain restrictions
on transfer applicable to
the Old Series A Preferred Securities and
will not provide for any increase in the
Distribution rate thereon. The Old
Securities provided for such increase if
they were not registered under the
Securities Act within the time period
specified by the Old Securities. (See
"The Exchange Offer--Purpose of the
Exchange Offer," "Description of the New
Securities" and "Description of the Old
Securities.")
Distribution Dates.................... June 30 and December 31 of each year,
commencing on the first such date
following the original issuance of the
New Series B Preferred Securities.
Extension Periods..................... Distributions on the New Series B
Preferred Securities will be deferred for
the duration of any Extension Period
elected by the Company with respect to
the payment of interest on the
Subordinated Debentures. No Extension
Period will exceed 10 consecutive
semi-annual periods or extend beyond the
19
<PAGE>
Stated Maturity. (See "Description of the
New Securities--Description of
Subordinated Debentures--Right to Defer
Interest Payment Obligation" and "Certain
Federal Income Tax Consequences--Original
Issue Discount.")
Ranking............................... The New Series B Preferred Securities
will rank pari passu, and payments
thereon will be made pro rata with the
Common Securities, except as described
under "Description of the New
Securities--Description of Preferred
Securities--Subordination of Common
Securities." The Subordinated Debentures
will rank pari passu with all of the
other junior subordinated debentures that
may be issued by the Company pursuant to
the Indenture (as hereinafter defined)
("Other Debentures"), which will be
issued and sold (if at all) to other
trusts to be established by the Company
(if any), in each case similar to the
Issuer ("Other Issuers"), and will be
unsecured, subordinate and junior in
right of payment to the extent and in the
manner set forth in the Indenture to all
Senior and Subordinated Debt (as defined
herein). (See "Description of the New
Securities--Description of Subordinated
Debentures.") The Guarantee will rank
PARI PASSU with all of the other
guarantees (if any), that may be issued
by the Company with respect to other
preferred securities (if any), that may
be issued by Other Issuers ("Other
Guarantees") and will constitute an
unsecured obligation of the Company and
will rank subordinate and junior in right
of payment to the extent and in the
manner set forth in the Guarantee
Agreement to all Senior and Subordinated
Debt. (See "Description of the New
Securities--Description of Guarantee.")
Redemption............................ The Preferred Securities are subject to
mandatory redemption in whole but not in
part (i) at the Stated Maturity upon
repayment of the Subordinated Debentures,
(ii) at any time contemporaneously with
the prepayment of the Subordinated
Debentures upon the occurrence and
continuation of a Tax Event at the
Tax Event Redemption Price and (iii) at
any time on or after December 30, 2006
contemporaneously with the optional
prepayment by the Company of the
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Subordinated Debentures at the Optional
Redemption Price. (See "Description of
the New Securities--Description of
Preferred Securities-- Redemption.")
Rating ............................. The New Series B Preferred Securities are
expected to be rated "b2" by Moody's
Investors Services, Inc. and "BB-" by
Thompson's Bank Watch, which are the
ratings of the Old Series A Preferred
Securities.
Absence of Market for the New
Series B Preferred Securities........ The New Series B Preferred Securities
will be a new issue of securities for
which there currently is no market.
Although Friedman, Billings, Ramsey &
Co., and Raymond James & Associates,
Inc., the initial purchasers of the Old
Series A Preferred Securities (the
"Initial Purchasers"), have informed the
Company and the Issuer that they
each currently intend to make a market in
the New Series B Preferred Securities,
they are not obligated to do so, and any
such market making may be discontinued at
any time without notice. Accordingly,
there can be no assurance as to the
development of any market or liquidity
for the New Series B Preferred
Securities. The Issuer and the
Company do not intend to apply for
listing of the New Series B Preferred
Securities on any securities exchange or
for quotation through the National
Association of Securities Dealers
Automated Quotation System.
RISK FACTORS
Holders tendering Old Series A Preferred Securities in the Exchange
Offer should carefully consider the matters set forth under "Risk Factors."
For further information regarding the New Series B Preferred
Securities, see "Description of the New Securities--Description of Preferred
Securities."
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the New Series B Preferred
Securities before deciding whether to accept the Exchange Offer. The risk
factors set forth below are generally applicable to the Old Series A Preferred
Securities as well as the New Series B Preferred Securities.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED
DEBENTURES
The obligations of the Company under the Guarantee issued by the
Company for the benefit of the holders of the Preferred Securities are unsecured
and rank subordinate and junior in right of payment to all Senior Debt of the
Company, which is generally defined to include all other current and future
indebtedness of the Company (except trade and other liabilities arising in the
ordinary course of business), unless such other indebtedness expressly provides
that it is not superior in right of payment to the Subordinated Debentures. The
obligations of the Company under the Subordinated Debentures are subordinate and
junior in right of payment to all of such Senior Debt of the Company. At
December 31, 1996, the Company had no outstanding Senior Debt. Because the
Company is a holding company, the right of the Company to participate in any
distribution of assets of any subsidiary, including the Bank, upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability of
holders of the Preferred Securities to benefit indirectly from such
distribution), is subject to the prior claims of creditors of that subsidiary,
except to the extent that the Company may itself be recognized as a creditor of
that subsidiary. Accordingly, the Subordinated Debentures and the Guarantee are
effectively subordinated to all existing and future liabilities of the Company's
subsidiaries and holders of the Subordinated Debentures should look only to the
assets of the Company for payments on the Subordinated Debentures. (See "The
Company.") None of the Indenture, the Guarantee, the Expense Agreement or the
Trust Agreement places any limitation on the amount of secured or unsecured
debt, including Senior Debt, that may be incurred by the Company. (See
"Description of the New Securities--Description of Guarantee--Status of the
Guarantee" and "Description of the New Securities--Description of Subordinated
Debentures--Subordination.")
The ability of the Issuer to pay amounts due on the Preferred
Securities is solely dependent upon the Company making payments on the
Subordinated Debentures as and when required.
COMPANY LIQUIDITY
As a savings and loan holding company, the Company conducts its
operations principally through its subsidiaries and, therefore, its principal
source of cash, other than its investing and financing activities, is the
receipt of dividends from the Bank. However, there are legal limitations on the
source and amount of dividends that a savings bank such as the Bank is permitted
to pay. The current Office of Thrift Supervision (the "OTS") regulation
applicable to the payment of dividends
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or other capital distributions by savings institutions imposes limits on capital
distributions based upon an institution's regulatory capital levels and net
income. An institution that meets or exceeds all of its fully phased-in capital
requirements (both before and after giving effect to the distribution) and is
not in need of more than normal supervision would be a "Tier 1 association." A
Tier 1 association may make capital distributions during a calendar year of up
to the greater of (i) 100% of net income for the current calendar year plus 50%
of its capital surplus or (ii) 75% of its net income over the most recent four
quarters. Any additional capital distributions would require prior regulatory
approval. The Bank currently exceeds its fully phased-in capital requirements
and qualifies as a Tier 1 association under the regulation.
An institution that meets the minimum regulatory capital requirements
but does not meet the fully phased-in capital requirements would be a "Tier 2
association," which may make capital distributions of between 25% and 75% of its
net income over the most recent four-quarter period, depending upon the
institution's risk-based capital level. A "Tier 3 association" is defined as an
institution that does not meet all of the minimum regulatory capital
requirements and therefore may not make any capital distributions without the
prior approval of the OTS.
Savings institutions must provide the OTS with at least 30 days written
notice before making any capital distributions. All such capital distributions
are also subject to the OTS' right to object to a distribution on safety and
soundness grounds.
RIGHT TO DEFER INTEREST PAYMENT OBLIGATION; TAX CONSEQUENCES; MARKET PRICE
CONSEQUENCES
So long as no event of default under the Indenture has occurred and is
continuing, the Company has the right under the Indenture to defer the payment
of interest on the Subordinated Debentures, at any time or from time to time,
for a period not exceeding 10 consecutive semi-annual periods with respect to
each Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Subordinated Debentures. As a consequence of any such
deferral, semi-annual Distributions on the Preferred Securities by the Issuer
will also be deferred (and the amount of Distributions to which holders of the
Preferred Securities are entitled will accumulate at the rate of 10 1/4% per
annum, compounded semi-annually from the relevant payment date for such
Distributions) during any such Extension Period. During any such Extension
Period, the Company may not, and may not permit any subsidiary of the Company
to, (i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock, (ii) make any payment of principal, interest or premium, if any,
on or repay, repurchase or redeem any debt securities of the Company that rank
PARI PASSU with or junior in interest to the Subordinated Debentures or (iii)
make any guarantee payments with respect to any guarantee by the Company of the
debt securities of any subsidiary of the Company if such guarantee ranks PARI
PASSU with or junior in interest to the Subordinated Debentures (other than (a)
dividends or distributions in common stock of the Company, (b) any declaration
of a dividend in connection with the implementation of a stockholders' rights
plan, or the issuance of stock under any such plan in the future or the
redemption or repurchase of any such rights pursuant thereto, (c) payments under
the Guarantee and (d) purchases of common stock related to the issuance of
common stock or rights under any of the Company's benefit plans for its
directors, officers or employees). Prior to the
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<PAGE>
termination of any such Extension Period, the Company may further defer the
payment of interest, provided that no Extension Period may exceed 10 consecutive
semi-annual periods or extend beyond the Stated Maturity of the Subordinated
Debentures. Upon the termination of any Extension Period and the payment of all
interest then accrued and unpaid on the Subordinated Debentures (together with
interest thereon at the annual rate of 10 1/4%, compounded semi-annually from
the relevant payment date for such interest, to the extent permitted by
applicable law), the Company may elect to begin a new Extension Period subject
to the above requirements. There is no limitation on the number of times that
the Company may elect to begin an Extension Period. (See "Description of the New
Securities--Description of Preferred Securities--Distributions" and "Description
of the New Securities--Description of Subordinated Debentures--Right to Defer
Interest Payment Obligation.")
Should an Extension Period occur, a holder of the Preferred Securities
will continue to accrue income (in the form of original issue discount) in
respect of its PRO RATA share of the Subordinated Debentures held by the Issuer
for United States federal income tax purposes. As a result, a holder of the
Preferred Securities will be required to include such income in gross income for
United States federal income tax purposes in advance of the receipt of cash and
will not receive the cash related to such income from the Issuer if the holder
disposes of the Preferred Securities prior to the record date for the payment of
Distributions. (See "Certain Federal Income Tax Consequences--Original Issue
Discount" and "--Sales or Redemption of the Preferred Securities.")
The Company has no current intention of exercising its right to defer
payments of interest on the Subordinated Debentures. However, should the Company
elect to exercise such right in the future, the market price of the Preferred
Securities is likely to be affected. A holder that disposes of its Preferred
Securities during an Extension Period, therefore, might not receive the same
return on its investment as a holder that continues to hold its Preferred
Securities. In addition, as a result of the existence of the Company's right to
defer interest payments, the market price of the Preferred Securities may be
more volatile than the market prices of other securities on which original issue
discount accrues and that are not subject to such deferrals.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The general provisions of the Indenture do not afford holders of
Subordinated Debentures protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction
involving the Company that may adversely affect the holders of the Subordinated
Debentures. Moreover, since the sole assets of the Issuer are the Subordinated
Debentures, any adverse effect on the Issuer would have a corresponding adverse
effect on the holders of the New Series B Preferred Securities.
TAX EVENT--REDEMPTION
Upon the occurrence and continuation of a Tax Event (whether occurring
before or after December 31, 2006), the Company has the right to redeem the
Subordinated Debentures in
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<PAGE>
whole (but not in part) within 90 days following the occurrence of such Tax
Event and therefore cause a mandatory redemption of the Preferred Securities.
(See "Description of the New Securities--Description of Subordinated
Debentures--Tax Event Redemption.")
A "Tax Event" means the receipt by the Issuer of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Issuer is, or will be within 90 days of the date
of such opinion, subject to United States federal income tax with respect to
income received or accrued on the Subordinated Debentures, (ii) interest payable
by the Company on the Subordinated Debentures is not, or within 90 days of the
date of such opinion will not be, deductible by the Company, in whole or in
part, for United States federal income tax purposes or (iii) the Issuer is, or
will be within 90 days of the date of such opinion, subject to more than a DE
MINIMIS amount of other taxes, duties or other governmental charges. (See
"Description of the New Securities--Description of Subordinated Debentures--Tax
Event Redemption.")
(See "Certain Federal Income Tax Consequences--Possible Tax Law
Changes" for a discussion of certain legislative proposals that, if adopted,
could give rise to a Tax Event, which would permit the Company to cause a
redemption of the Preferred Securities prior to December 31, 2006.)
LIQUIDATION OF THE ISSUER AND DISTRIBUTION OF THE SUBORDINATED DEBENTURES TO
HOLDERS
The Company will have the right at any time to terminate the Issuer
and, after satisfaction of liabilities to creditors of the Issuer as required by
applicable law, cause the Subordinated Debentures to be distributed to the
holders of the Preferred Securities in exchange therefor in liquidation of the
Issuer. (See "Description of the New Securities--Description of Preferred
Securities--Liquidation of the Issuer and Distribution of the Subordinated
Debentures to Holders.")
RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Preferred Securities the
following payments, to the extent not paid by the Issuer: (i) any accumulated
and unpaid Distributions required to be paid on the Preferred Securities, to the
extent that the Issuer has funds on hand available therefor at such time, (ii)
the redemption price with respect to any Preferred Securities called for
redemption, to the extent that the Issuer has funds on hand available therefor
at such time, and (iii) upon a voluntary or involuntary dissolution, winding-up
or liquidation of the Issuer (unless the Subordinated Debentures are distributed
to holders of the Preferred Securities in exchange therefor), the lesser of (a)
the
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<PAGE>
aggregate of the Liquidation Amount and all accumulated and unpaid Distributions
to the date of payment, to the extent that the Issuer has funds on hand
available therefor at such time, and (b) the amount of assets of the Issuer
remaining available for distribution to holders of the Preferred Securities
after payment of creditors of the Issuer as required by applicable law.
If the Company were to default on its obligation to pay amounts payable
under the Subordinated Debentures, the Issuer would lack funds for the payment
of Distributions or amounts payable on redemption of the Preferred Securities or
otherwise, and, in such event, holders of the Preferred Securities would not be
able to rely upon the Guarantee for payment of such amounts. The holders of not
less than a majority in aggregate Liquidation Amount of the Preferred Securities
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee in respect of the Guarantee or
to direct the exercise of any trust power conferred upon the Guarantee Trustee
under the Guarantee. Any holder of the Preferred Securities may institute a
legal proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer, the
Guarantee Trustee or any other person or entity. Instead, in the event that an
event of default under the Indenture shall have occurred and be continuing and
such event is attributable to the failure of the Company to pay interest on or
principal of the Subordinated Debentures on the applicable payment date, a
holder of the Preferred Securities may institute a legal proceeding directly
against the Company for enforcement of payment to such holder of the principal
of or interest on such Subordinated Debentures having a principal amount equal
to the aggregate Liquidation Amount of the Preferred Securities of such holder
(a "Direct Action"). In connection with such Direct Action, the Company will
have a right of set-off under the Indenture to the extent of any payment made by
the Company to such holder of the Preferred Securities in the Direct Action.
Except as described herein, holders of the Preferred Securities will not be able
to exercise directly any other remedy available to the holders of the
Subordinated Debentures or assert directly any other rights in respect of the
Subordinated Debentures. The Bank of New York will act as the guarantee trustee
under the Guarantee (the "Guarantee Trustee") and will hold the Guarantee for
the benefit of the holders of the Preferred Securities. The Bank of New York
will also act as Debenture Trustee for the Subordinated Debentures and as
Property Trustee, and The Bank of New York (Delaware) will act as Delaware
Trustee under the Trust Agreement. (See "Description of the New
Securities--Description of Subordinated Debentures--Enforcement of Certain
Rights by Holders of the Preferred Securities," "Description of the New
Securities--Description of Subordinated Debentures--Debenture Events of Default"
and "Description of the New Securities--Description of Guarantee.") The Trust
Agreement provides that each holder of the Preferred Securities by acceptance
thereof agrees to the provisions of the Guarantee and the Indenture.
LIMITED VOTING RIGHTS
Holders of the Preferred Securities will generally have limited voting
rights relating only to the modification of the Preferred Securities and the
exercise of the Issuer's rights as holder of the Subordinated Debentures and the
Guarantee. Holders of the
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Preferred Securities will not be entitled to vote to appoint, remove or replace
the Property Trustee, the Delaware Trustee or the Administrative Trustees, and
such voting rights are vested exclusively in the holder of the Series A Common
Securities except, with respect to the Property Trustee and the Delaware
Trustee, upon the occurrence of certain events described herein. The Property
Trustee, the Administrative Trustees and the Company may amend the Trust
Agreement without the consent of holders of the Preferred Securities to ensure
that the Issuer will be classified for United States federal income tax purposes
as a grantor trust even if such action adversely affects the interests of such
holders. (See "Description of the New Securities--Description of Preferred
Securities--Voting Rights; Amendment of the Trust Agreement" and "--Removal of
the Issuer Trustees.")
POSSIBLE TAX LAW CHANGES AFFECTING THE PREFERRED SECURITIES
On February 6, 1997, as a part of President Clinton's Fiscal 1998
Budget Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") that, among other things, would treat as equity for United States
federal income tax purposes certain debt instruments with a maximum term of more
than 15 years. The Proposed Legislation is proposed to be effective for debt
instruments issued on or after the date on which the first congressional
committee action is taken.
It is expected that, if the Proposed Legislation is enacted as
currently proposed, such legislation will not apply to the Old Series A
Subordinated Debentures since they were issued prior to the date of any
committee action. Moreover, if the Proposed Legislation is enacted with
effective-date provisions that are identical in all material respects (except
for the actual effective date) to the effective-date provisions for an earlier
version of the Proposed Legislation contained in the Revenue Reconciliation Bill
of 1996 (the "1996 Bill"), then, even if the Exchange Offer is consummated after
the actual effective date of such legislation, the exchange of the Old
Securities for the New Securities will not cause the New Series B Subordinated
Debentures to be subject to such legislation. However, there can be no
assurances that the effective date guidance contained in the Proposed
Legislation and the 1996 Bill will be incorporated in the legislation, if
enacted, or that other legislation enacted after the date hereof will not
otherwise adversely affect the tax treatment of the Series A Subordinated
Debentures or the Preferred Securities.
If the Proposed Legislation were enacted and applied to all or a
portion of the Subordinated Debentures, the Company would be unable to fully
deduct the interest on the Subordinated Debentures. Such a change could give
rise to a Tax Event, which would permit the Company to cause a redemption of the
Preferred Securities before, as well as after, December 31, 2006. See
"Description of the New Securities--Description of Subordinated
Debentures--Redemption" and "Description of the New Securities--Description of
Preferred Securities--Redemption." In addition, the income with respect to the
Preferred Securities would be treated as consisting entirely or partly of
distributions with respect to stock, which would constitute dividends to the
extent that they did not exceed the current and accumulated earnings and profits
of the Company. Dividends paid by a United States corporation to foreign persons
are generally subject to United States federal withholding tax. (See "Certain
Federal Income Tax Consequences--Possible Tax Law Changes.")
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COMPOSITION OF RESIDENTIAL AND COMMERCIAL REAL ESTATE LOAN PORTFOLIO
GEOGRAPHIC CONCENTRATION. The loans in the Company's portfolio are
predominantly secured by real estate. At December 31, 1996, 52.3% of the
Company's gross loans receivable were secured by properties located in Florida,
15.2% by properties located in California and the balance secured by properties
located throughout the country. Conditions in the real estate markets in which
the collateral for the Company's mortgage loans are located strongly influence
the level of the Company's non-performing loans and its results of operations.
Real estate values are affected by, among other things, changes in general or
local economic conditions, changes in governmental rules or policies, the
availability of loans to potential purchasers, and acts of nature. Although the
Company's underwriting standards are intended to protect the Company against
adverse local real estate trends, declines in real estate markets could
negatively impact the value of the collateral securing the Company's loans and
its results of operations. In this regard, as a result of the downturn in the
California real estate market in 1993, the Company believes that certain of its
loans secured by real estate in California have current loan to value ratios
that are higher than those when the loans were originated. (See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition--Credit Quality" and "Business of BankUnited
Financial Corporation--Lending Activities--Loan Portfolio" in the Company's
Annual Report on Form 10-K/A for the year ended September 30, 1996, contained in
Appendix A to this Prospectus.)
DIVERSIFIED LENDING RISKS. The Company's recent operating strategy has
included an increased emphasis on originating and/or purchasing commercial real
estate (including multi-family residential), real estate construction, and
commercial business loans. These lending categories are generally considered to
involve a higher degree of risk than that for traditional single-family
residential lending, because, among other factors, such loans involve larger
loan balances to a single borrower or groups of related borrowers. In addition,
some loans will default despite the Company's policies and procedures for loan
underwriting. At December 31, 1996, the Company had a balance of $122.9 million
in commercial real estate loans, $7.0 million in commercial business loans and
$11.9 million in real estate construction loans. (See "Business of BankUnited
Financial Corporation--Commercial Real Estate Lending," "--Real Estate
Construction Lending," and "--Commercial Business Lending" in the Company's
Annual Report on Form 10-K/A for the year ended September 30, 1996, contained in
Appendix A to this Prospectus.)
COMPETITION
The Company faces substantial competition in purchasing and originating real
estate loans and in attracting deposits. The Company's competition in
originating real estate loans is principally from banks, other thrifts, mortgage
banking companies, real estate financing conduits, and small insurance
companies. In purchasing real estate loans, the Company competes with other
participants in the secondary mortgage market. Many entities competing with the
Company enjoy competitive advantages over the Company relative to a potential
borrower or seller in terms of a prior business relationship, wide geographic
presence or more accessible branch office locations, the ability to offer
additional services or more favorable pricing alternatives, a lower origination
and operating cost structure, and other relevant items. The Company does not
have a significant market share of the real
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estate lending activities in the areas in which it conducts operations, and
increased competition in those areas from traditional competitors or new sources
could result in a decrease in the origination or purchase of mortgage loans and
could adversely affect the Company's results of operations. In its deposit
gathering activities, the Company competes with insured depository institutions
such as thrifts, credit unions, and banks, as well as uninsured investment
alternatives including money market funds. These competitors may offer higher
rates than the Company which either could result in the Company either
attracting fewer deposits or could require the Company to increase the rates it
pays to attract deposits. Increased deposit competition could adversely affect
the Company's ability to generate the funds necessary for its lending operations
and could adversely affect the Company's results of operations. (See "Business
of BankUnited Financial Corporation--Market Area and Competition" in the
Company's Annual Report on Form 10-K/A for the year ended September 30, 1996,
contained in Appendix A to this Prospectus.)
MARKET PRICES
There can be no assurance as to the market prices that may develop for
Preferred Securities or Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a termination of the Issuer occurs.
Accordingly, the Preferred Securities, or the Subordinated Debentures that a
holder of Preferred Securities may receive in liquidation of the Issuer, may
trade at a discount from the price that the investor paid to purchase the
Preferred Securities.
CONSEQUENCES OF A FAILURE TO EXCHANGE OLD SERIES A PREFERRED SECURITIES
The Old Series A Preferred Securities have not been registered under
the Securities Act or any state securities laws and therefore may not be
offered, sold or otherwise transferred except in compliance with the
registration requirements of the Securities Act and any other applicable
securities laws, or pursuant to an exemption therefrom or in a transaction not
subject thereto, and in each case in compliance with certain other conditions
and restrictions. Old Series A Preferred Securities which remain outstanding
after consummation of the Exchange Offer will continue to bear a legend
reflecting such restrictions on transfer. In addition, upon consummation of the
Exchange Offer, holders of Old Series A Preferred Securities which remain
outstanding will not be entitled to any rights to have such Old Series A
Preferred Securities registered under the Securities Act or to any similar
rights under the Registration Rights Agreements (subject to certain limited
exceptions). The Company and the Issuer do not intend to register under the
Securities Act any Old Series A Preferred Securities which remain outstanding
after consummation of the Exchange Offer (subject to limited exceptions, if
applicable).
A holder's ability to sell untendered Old Series A Preferred Securities
could be adversely affected. In addition, although the Old Series A Preferred
Securities have been designated for trading in the Private Offerings, Resale and
Trading through Automatic Linkages ("PORTAL") market, to the extent that Old
Series A Preferred Securities are tendered and accepted in connection with the
Exchange Offer, any trading market for Old Series A Preferred Securities which
remain outstanding after the Exchange Offer could be adversely affected.
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The New Series B Preferred Securities and any Old Series A Preferred
Securities which remain outstanding after consummation of the Exchange Offer
will vote together as a single class for purposes of determining whether holders
of the requisite percentage in outstanding Liquidation Amount thereof have taken
certain actions or exercised certain rights under the Trust Agreement. (See
"Description of the New Securities--Description of Preferred
Securities--General.")
The Old Series A Preferred Securities provide that, if the Exchange
Offer is not consummated by June 28, 1997, the Distribution rate borne by the
Old Series A Preferred Securities will increase by 0.25% per annum (not to
exceed in the aggregate 0.50%) commencing on June 29, 1997, until the Exchange
Offer is consummated. (See "Description of the Old Securities.") Following
consummation of the Exchange Offer, the Old Series A Preferred Securities will
not be entitled to any increase in the Distribution rate thereon. The New Series
B Preferred Securities will not be entitled to any such increase in the
Distribution rate thereon.
ABSENCE OF PUBLIC MARKET; TRADING CHARACTERISTICS OF THE PREFERRED SECURITIES
The Old Series A Preferred Securities were issued to, and the Company
believes are currently owned by, a relatively small number of beneficial owners.
The Old Series A Preferred Securities have not been registered under the
Securities Act and will be subject to restrictions on transferability to the
extent that they are not exchanged for the New Series B Preferred Securities.
Although the New Series B Preferred Securities will generally be permitted to be
resold or otherwise transferred by the holders (who are not affiliates of the
Company or the Issuer) without compliance with the registration requirements
under the Securities Act, they will constitute a new issue of securities with no
established trading market. Preferred Securities may be transferred by the
holders thereof only in blocks having a Liquidation Amount of not less than
$100,000 (100 Preferred Securities). The Company and the Issuer have been
advised by the Initial Purchasers that the Initial Purchasers presently intend
to make a market in the New Series B Preferred Securities. However, the Initial
Purchasers are not obligated to do so and any market-making activity with
respect to the New Series B Preferred Securities may be discontinued at any time
without notice. In addition, such market-making activity will be subject to the
limits imposed by the Securities Act and the Exchange Act and may be limited
during the Exchange Offer. Accordingly, no assurance can be given that an active
public or other market will develop for the New Series B Preferred Securities or
as to the liquidity of or the trading market for the New Series B Preferred
Securities. If an active public market does not develop, the market price and
liquidity of the New Series B Preferred Securities may be adversely affected.
The Company does not intend to have the Preferred Securities quoted on
the NASDAQ National Market System or listed on any securities exchange. The
Preferred Securities may trade at prices that do not fully reflect the value of
accrued but unpaid interest with respect to the underlying Subordinated
Debentures. A holder of the Preferred Securities that disposes of its Preferred
Securities between record dates for payments of Distributions (and consequently
does not receive a Distribution from the Issuer for the period
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prior to such disposition) will nevertheless be required to include accrued but
unpaid interest on the Subordinated Debentures through the date of disposition
in income as ordinary income and to add such amount to its adjusted tax basis in
the Preferred Securities that it sold. Such holder will recognize a capital loss
to the extent the selling price (which may not fully reflect the value of
accrued but unpaid interest) is less than its adjusted tax basis (which will
include accrued but unpaid interest). Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes. (See "Certain Federal Income Tax
Consequences--Sales or Redemption of the Preferred Securities.")
If a public trading market develops for the New Series B Preferred
Securities, future trading prices of such securities will depend upon many
factors, including, among other things, prevailing interest rates, the Company's
results of operations and the market for similar securities. Depending upon
prevailing interest rates, the market for similar securities and other factors,
including the financial condition of the Company, the New Series B Preferred
Securities may trade at a discount.
Notwithstanding the registration of the New Series B Preferred
Securities in the Exchange Offer, holders who are "affiliates" (as defined under
Rule 405 of the Securities Act) of the Company or the Trust may publicly offer
for sale or resell the New Series B Preferred Securities only in compliance with
the provisions of Rule 144 under the Securities Act.
Each broker-dealer that receives New Series B Preferred Securities for
its own account in exchange for Old Series A Preferred Securities, where such
Old Series A Preferred Securities were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Series B Preferred Securities. (See "Plan of Distribution.")
EXCHANGE OFFER PROCEDURES
Issuance of the New Series B Preferred Securities in exchange for Old
Series A Preferred Securities pursuant to the Exchange Offer will be made only
after a timely receipt by the Exchange Agent of such Old Series A Preferred
Securities, a properly completed and duly executed Letter of Transmittal or
Agent's Message in lieu thereof, and all other required documents. Therefore,
holders of the Old Series A Preferred Securities desiring to tender such Old
Preferred Securities in exchange for New Series B Preferred Securities should
allow sufficient time to ensure timely delivery. Neither the Company, the
Issuer, nor the Exchange Agent is under any duty to give notification of defects
or irregularities with respect to the tenders of Old Series A Preferred
Securities for exchange.
31
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges
of the Company for the respective periods indicated (unaudited).
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FOR THE YEARS ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------- ------------
1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges:
Excluding interest on deposits............ 1.83 1.87 1.07 1.52 1.05 1.13 1.33
Including interest on deposits............ 1.18 1.27 1.03 1.21 1.02 1.07 1.12
</TABLE>
For purposes of computing these ratios, earnings represent income
before income taxes and cumulative effect of changes in accounting principles
and fixed charges (excluding capitalized interest). Fixed charges, excluding
interest on deposits, include interest (other than on deposits but including
capitalized interest) and the portion deemed representative of the interest
factor of rents. Fixed charges, including interest on deposits, include all
interest (including capitalized interest) and the portion deemed representative
of the interest factor of rents.
USE OF PROCEEDS FROM SALE OF OLD SERIES A PREFERRED SECURITIES
Neither the Company nor the Issuer will receive any cash proceeds from
the issuance of the New Series B Preferred Securities offered hereby. In
consideration for issuing the New Series B Preferred Securities in exchange for
Old Series A Preferred Securities as described in this Prospectus, the Issuer
will receive Old Series A Preferred Securities in like Liquidation Amount. The
Old Series A Preferred Securities surrendered in exchange for the New Series B
Preferred Securities will be retired and cancelled.
The net proceeds to the Issuer from the offering of the Old Series A
Preferred Securities was approximately $69,700,000 million (before deducting
expenses associated with the offering). All of the proceeds from the sale of the
Old Series A Preferred Securities were invested by the Issuer in the Old Series
A Subordinated Debentures. The Company intends to use the proceeds from the sale
of the Subordinated Debentures for general corporate purposes, including, but
not limited to, capital contributions to the Bank.
32
<PAGE>
THE ISSUER
BANKUNITED CAPITAL
BankUnited Capital is a statutory business trust created under Delaware
law pursuant to (i) the Trust Agreement executed by the Company, as depositor,
The Bank of New York, as Property Trustee, The Bank of New York (Delaware), as
Delaware Trustee, and the Administrative Trustees named therein and (ii) the
filing of a certificate of trust with the Delaware Secretary of State on
December 13, 1996. The Trust Agreement was amended and restated in its entirety
as of December 30, 1996 and as of March 24, 1997 (as so amended and restated,
the "Trust Agreement"). The Issuer was formed for the exclusive purposes of (i)
issuing and selling the Preferred Securities, (ii) using the proceeds from the
sale of the Preferred Securities to acquire Subordinated Debentures issued by
the Company and (iii) engaging in only those other activities necessary,
advisable or incidental thereto (such as registering the New Series B Preferred
Securities). Accordingly, the Subordinated Debentures are the sole assets of the
Issuer, and payments under the Subordinated Debentures are the sole revenue of
the Issuer.
All of the Series A Common Securities are owned by the Company. The
Series A Common Securities rank PARI PASSU, and payments will be made thereon
PRO RATA, with the Preferred Securities, except that upon the occurrence and
continuance of an event of default under the Trust Agreement resulting from an
Event of Default under the Indenture, the rights of the Company as holder of the
Series A Common Securities to payment in respect of Distributions and payments
upon liquidation, redemption or otherwise will be subordinated to the rights of
the holders of the Preferred Securities. (See "Description of the New
Securities--Description of Preferred Securities--Subordination of the Series A
Common Securities.") The Company has acquired the Series A Common Securities in
an aggregate Liquidation Amount equal to 4% of the total capital of the Issuer.
The Issuer has a term of 55 years, but may terminate earlier as provided in the
Trust Agreement. The Issuer's business and affairs are conducted by its
trustees, each appointed by the Company as holder of the Series A Common
Securities. The trustees for the Issuer are The Bank of New York, as the
Property Trustee (the "Property Trustee"), The Bank of New York (Delaware), as
the Delaware Trustee (the "Delaware Trustee"), and two individual trustees (the
"Administrative Trustees") who are employees or officers of or affiliated with
the Company (collectively, the "Issuer Trustees"). The Bank of New York, as
Property Trustee, will act as sole indenture trustee under the Trust Agreement
for purposes of compliance with the Trust Indenture Act. The Bank of New York
will also act as guarantee trustee under the Guarantee and the Indenture. (See
"Description of the New Securities--Description of the Guarantee" and
"Description of the New Securities--Description of the Subordinated
Debentures.") The holder of the Series A Common Securities, or the holders of a
majority in Liquidation Amount of the Preferred Securities if an event of
default under the Trust Agreement resulting from an event of default under the
Indenture has occurred and is continuing, will be entitled to appoint, remove or
replace the Property Trustee and/or the Delaware Trustee. In no event will the
holders of the Preferred Securities have the right to vote to appoint, remove or
replace the Administrative Trustees; such voting rights are vested exclusively
in the holder of the Series A Common Securities. The duties and obligations of
the Issuer Trustees are governed by the Trust Agreement. The Company pays all
fees and expenses related to the Issuer and the offering of the Preferred
Securities and pays, directly or indirectly, all ongoing costs, expenses and
liabilities of the Issuer pursuant to the Expense Agreement.
33
<PAGE>
BANKUNITED FINANCIAL CORPORATION
The Company is a Florida corporation which is the savings and loan
holding company for BankUnited, FSB (the "Bank"). The Company became the holding
company for the Bank, which was originally chartered in 1984 as a Florida
savings association, in a reorganization which occurred in 1993, when the Bank
converted to a federally chartered stock savings bank. On November 15, 1996, the
Company completed its acquisition of Suncoast Savings and Loan Association, FSA
("Suncoast"), a federally chartered stock savings association headquartered in
Hollywood, Florida, which was merged into the Bank.
The Company's acquisition of Suncoast has resulted in the Company
becoming the fourth largest publicly held financial institution headquartered in
South Florida with over $1.3 billion in assets. The merger has increased the
Company's market share, particularly in Broward County, Florida, has allowed the
Company to achieve economies associated with an in-market merger, and enables
the Company to compete more effectively with larger financial institutions in
South Florida.
The Company currently has fifteen branch offices in South Florida, six
of which were acquired with Suncoast. The Company's business has traditionally
consisted of attracting deposits from the general public and using those
deposits, together with borrowings and other funds, to purchase and originate
single-family residential mortgage loans and to a lesser extent commercial real
estate, commercial business, and consumer loans. The Company also invests in tax
certificates and other permitted investments. As a result of the Suncoast
acquisition, the Company has greatly expanded its mortgage loan servicing
activities to include processing loan payments, remitting principal and interest
to investors, administering escrow funds and providing other services in the
administration of mortgage loans. The Company is an approved seller/servicer for
GNMA, the Federal Home Loan Mortgage Corporation ("FHLMC") and Fannie Mae. The
Company also services loans under contracts with the FDIC and other financial
institutions.
The Company's current strategy emphasizes strategic product niches
which the Company believes are being underserved as South Florida's banking
market consolidates. These products include commercial business and commercial
real estate lending and deposit services for small to mid-sized businesses. The
Company also focuses on attracting depositors that are seeking convenience,
competitive rates and personalized service.
The Company's executive offices are located at 255 Alhambra Circle,
Coral Gables, Florida 33134, telephone (305) 569-2000.
34
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1996 as adjusted to give effect to the consummation
of the sale of $20 million of the Old Series A Preferred Securities after
December 31, 1996 and the application of the proceeds thereof. The following
data should be read in conjunction with the consolidated financial statements
and notes thereto of the Company incorporated by reference herein and deemed to
be a part of this Prospectus. The issuance of the New Series B Preferred
Securities will have no effect on the capitalization of the Company.
<TABLE>
<CAPTION>
December 31, 1996
AS
ACTUAL ADJUSTED
------ --------
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Deposits......................................................................... $ 878,166 $ 878,166
FHLB advances.................................................................... 288,484 288,484
Subordinated notes............................................................... 775 775
----------- -----------
Total deposits and borrowed funds........................................... 1,167,425 1,167,425
----------- -----------
Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Junior Subordinated Deferrable Interest
Debentures of the Company (1)................................................. 50,000 70,000
----------- -----------
Stockholders' equity:
Preferred Stock, Series B, C, C-II, 8% Convertible and 9% Perpetual,
$.01 par value; authorized--10,000,000 shares; issued and outstanding--
3,584,547 shares(2)(3)........................................................ 36 36
Class A Common Stock, $.01 par value; authorized--15,000,000 shares;
issued and outstanding--7,656,953 shares (3).................................. 76 76
Class B Common Stock, $.01 par value; authorized--3,000,000 shares,
issued and outstanding--251,515 shares........................................ 3 3
Additional paid-in capital...................................................... 89,860 89,860
Retained earnings............................................................... 8,206 8,206
Net unrealized losses on securities available for sale, net of tax.............. (26) (26)
------------ -----------
Total stockholders' equity................................................... 98,155 98,155
----------- -----------
Total deposits, borrowed funds and stockholders' equity...................... $ 1,315,580 $ 1,335,580
=========== ===========
<FN>
- ----------
(1) As described herein, the sole asset of the Issuer as of December 31, 1996 is the $52 million of
Subordinated Debentures the Issuer acquired from the Company. After completion of the sale of the
additional Preferred Securities, the only asset of the Issuer will be $72.8 million aggregate principal
amount of the Subordinated Debentures issued by the Company to the Series A Issuer. The Subordinated
Debentures bear interest at the annual rate of 10-1/4% of the principal amount thereof, payable in
arrears on June 30 and December 31 of each year and will mature on December 31, 2026. The Company owns
all of the Common Securities of the Issuer.
(2) Such shares had an aggregate liquidation preference of $38.1 million at December 31, 1996.
(3) The above table does not reflect the February 13, 1997 conversion of all outstanding shares of the
Series C and Series C-II preferred stock into 822,889 shares of Class A Common Stock. The annual dividend on
the Series C and C-II Preferred Stock was $378,000.
</FN>
</TABLE>
35
<PAGE>
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer will be
included in the consolidated financial statements of the Company. The
Preferred Securities will be presented as part of a separate line item in the
consolidated statements of financial condition of the Company under the caption
"Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trust Holding Solely Junior Subordinated Deferrable Interest Debentures of the
Company," and appropriate disclosures about the Preferred Securities, will be
included in the notes to the consolidated financial statements. For financial
reporting purposes, the Company will record distributions payable on the
Preferred Securities as an expense in the consolidated statements of operations.
The Company has agreed that future financial reports of the Company
will: (i) present the Preferred Securities on the Company's statements of
financial condition as a separate line item entitled "Company Obligated
Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely
Junior Subordinated Deferrable Interest Debentures of the Company" (ii) include
in a footnote to the financial statements disclosure that the sole assets of the
Issuer are the New Series B Subordinated Debentures specifying the principal
amount, interest rate and maturity date of New Series B Subordinated Debentures
held; and (iii) if Staff Accounting Bulletin No. 53 treatment is sought,
include, in an audited footnote to the financial statements, disclosure that (a)
the Issuer is wholly owned, (b) the sole assets of the Issuer are its New Series
B Subordinated Debentures, (c) the obligations of the Company under the New
Series B Subordinated Debentures, the Indenture, the Trust Agreement and the
Guarantee, in the aggregate constitute a full and unconditional guarantee by the
Company of the Issuer's obligations under the Preferred Securities.
36
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Old Series A Preferred Securities,
the Company and the Issuer entered into the Registration Rights Agreements with
the Initial Purchasers, pursuant to which the Company and the Issuer agreed,
among other things, to file and to use their best reasonable efforts to cause to
become effective on or before April 29, 1997 with the Commission a registration
statement with respect to the exchange of the New Series B Preferred Securities,
with terms identical in all material respects to the terms of the Old Series A
Preferred Securities, for the Old Series A Preferred Securities. Copies of the
Registration Rights Agreements have been filed as Exhibits to the Registration
Statement of which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations
of the Company and the Issuer under the Registration Rights Agreements.
The form and terms of the New Series B Preferred Securities are the same as the
form and terms of the Old Series A Preferred Securities except that the New
Series B Preferred Securities have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable to
the Old Series A Preferred Securities and will not provide for any increase in
the Distribution rate thereon. In that regard, the Old Series A Preferred
Securities provide, among other things, that, if the Exchange Offer Registration
Statement is not declared effective by April 29, 1997, or the Exchange Offer is
not completed by June 28, 1997, the Distribution rate borne by the Old Series B
Preferred Securities commencing on the day after such date will increase by
0.25% per annum (not to exceed in the aggregate 0.50%) until the Exchange Offer
Registration Statement is declared effective or the Exchange Offer is completed,
as applicable. Upon consummation of the Exchange Offer, holders of Old Series A
Preferred Securities will not be entitled to any increase in the Distribution
rate thereon or any further registration rights under the Registration Rights
Agreements, except under limited circumstances. (See "--Resales of New Series B
Preferred Securities," "Risk Factors--Consequences of a Failure to Exchange Old
Series A Preferred Securities" and "Description of the Old Securities.")
In the event that any changes in law or the applicable interpretations
of the staff of the Commission do not permit the Issuer to effect the Exchange
Offer, if it is determined that the Exchange Offer would give rise to a Tax
Event, if for any other reason the Exchange Offer is not consummated on or
before June 28, 1997, or upon the request of an Initial Purchaser (under certain
circumstances), the Company and the Issuer will, at the Company's expense, (i)
as promptly as practicable, file a Shelf Registration Statement covering resales
of the Preferred Securities, (ii) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act as
promptly as practicable and (iii) use its best efforts to keep effective the
Shelf Registration Statement, with certain exceptions set forth in the
Registration Rights Agreements, until three years after its effective date or
such earlier date as all Preferred Securities shall have been disposed of or on
which all Preferred Securities held by persons that are not affiliates of the
Company or the Issuer may be resold without registration pursuant to Rule 144
under the Securities Act or as a result of any changes in the existing
registration requirements under the Securities Act which eliminate the holders'
need for the Shelf Registration Statement or upon receipt of an opinion of
counsel satisfactory to the Initial Purchasers which provides that all
37
<PAGE>
Preferred Securities may be resold without registration in a transaction that
would result in the Preferred Securities being freely tradable, provided
however, that the purchaser is not an affiliate of the Issuer or the Company
(the "Effectiveness Period"). In the event of the filing of a Shelf Registration
Statement, the Company will provide to each holder of Preferred Securities
copies of the prospectus which is a part of the Shelf Registration Statement,
notify each holder when the Shelf Registration Statement has become effective
and take certain other actions as are required to permit unrestricted resales of
the Preferred Securities. A holder of Preferred Securities that sells such
Preferred Securities pursuant to the Shelf Registration Statement will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement, including
certain indemnification obligations.
The Exchange Offer is not being made to, nor will the Company or the
Issuer accept tenders for exchange from, holders of Old Series A Preferred
Securities in any jurisdiction in which the Exchange Offer or the acceptance
thereof would not be in compliance with the securities or blue sky laws of such
jurisdiction.
Unless the context requires otherwise, the term "holder" with respect
to the Exchange Offer means any person in whose name the Old Series A Preferred
Securities are registered on the books of the Issuer, or any person whose Old
Series A Preferred Securities are held of record by The Depository Trust Company
who desires to deliver such Old Series A Preferred Securities by book-entry
transfer at The Depository Trust Company.
Pursuant to the Exchange Offer, the Company will exchange as soon as
practicable after the date hereof, the Old Guarantee for the New Guarantee and
all of the Old Series A Subordinated Debentures, of which $72,800,000 aggregate
principal amount is outstanding, for like aggregate principal of the New Series
B Subordinated Debentures. The New Guarantee and New Series B Subordinated
Debentures have been registered under the Securities Act.
TERMS OF THE EXCHANGE
The Company and the Issuer hereby offer, upon the terms and subject to
the conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, to exchange up to $70,000,000 aggregate Liquidation Amount of New
Series B Preferred Securities for a like aggregate Liquidation Amount of Old
Series A Preferred Securities properly tendered on or prior to the Expiration
Date (as defined below) and not properly withdrawn in accordance with the
procedures described below. The Issuer will issue, promptly after the Expiration
Date, an aggregate Liquidation Amount of up to $70,000,000 of New Series B
Preferred Securities in exchange for a like principal amount of outstanding Old
Series A Preferred Securities tendered and accepted in connection with the
Exchange Offer. Holders may tender their Old Series A Preferred Securities in
whole or in part in a Liquidation Amount of not less than $100,000 or any
integral multiple of $1,000 in excess thereof.
38
<PAGE>
The Exchange Offer is not conditioned upon any minimum Liquidation
Amount of Old Series A Preferred Securities being tendered. As of the date of
this Prospectus $70,000,000 aggregate Liquidation Amount of the Old Series A
Preferred Securities is outstanding.
Holders of the Old Series A Preferred Securities do not have any
appraisal or dissenters' rights in connection with the Exchange Offer. Old
Series A Preferred Securities which are not tendered for or are tendered but not
accepted in connection with the Exchange Offer will remain outstanding and be
entitled to the benefits of the Trust Agreement, but will not be entitled to any
further registration rights under the Registration Rights Agreements, except
under limited circumstances. See "Risk Factors--Consequences of a Failure to
Exchange Old Series A Preferred Securities" and "Description of the Old
Securities."
If any tendered Old Series A Preferred Securities are not accepted for
exchange because of an invalid tender, the occurrence of certain other events
set forth herein or otherwise, certificates for any such unaccepted Old Series A
Preferred Securities will be returned, without expense, to the tendering holder
thereof promptly after the Expiration Date.
Holders who tender Old Series A Preferred Securities in connection with
the Exchange Offer will not be required to pay brokerage commissions or fees or,
subject to the instructions in the Letter of Transmittal, transfer taxes with
respect to the exchange of the Old Series A Preferred Securities in connection
with the Exchange Offer. The Company will pay all charges and expenses, other
than certain applicable taxes described below, in connection with the Exchange
Offer. (See "--Fees and Expenses.")
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE TRUSTEE OF THE
ISSUER MAKES ANY RECOMMENDATION TO HOLDERS OF OLD SERIES A PREFERRED
SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION
OF THEIR OLD SERIES A PREFERRED SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN
ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF
OLD SERIES A PREFERRED SECURITIES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER
PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD SERIES A
PREFERRED SECURITIES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF
TRANSMITTAL AND CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR OWN
FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on May
__, 1997 unless the Exchange Offer is extended by the Company and the Issuer (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended).
39
<PAGE>
The Company and the Issuer expressly reserve the right in their sole
and absolute discretion, subject to applicable law, at any time and from time to
time, (i) to delay the acceptance of the Old Series A Preferred Securities for
exchange, (ii) to terminate the Exchange Offer (whether or not any of the Old
Series A Preferred Securities have theretofore been accepted for exchange) if
the Company and the Issuer determine, in their sole and absolute discretion,
that any of the events or conditions referred to under "--Conditions to the
Exchange Offer" have occurred or exist or have not been satisfied, (iii) to
extend the Expiration Date of the Exchange Offer and retain all of the Old
Series A Preferred Securities tendered pursuant to the Exchange Offer, subject,
however, to the right of holders of the Old Series A Preferred Securities to
withdraw their tendered Old Series A Preferred Securities as described under
"--Withdrawal Rights," and (iv) to waive any condition or otherwise amend the
terms of the Exchange Offer in any respect. If the Exchange Offer is amended in
a manner determined by the Company and the Issuer to constitute a material
change, or if the Company and the Issuer waive a material condition of the
Exchange Offer, the Company or the Issuer will promptly disclose such amendment
by means of a prospectus supplement that will be distributed to the registered
holders of the Old Series A Preferred Securities, and the Company and the Issuer
will extend the Exchange Offer to the extent required by Rule 14e-1 under the
Exchange Act.
Any such delay in acceptance, extension, termination or amendment will
be followed promptly by oral or written notice thereof to the Exchange Agent and
by making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Company or the Issuer may choose to make any public
announcement and subject to applicable law, neither the Company nor the Issuer
shall have any obligation to publish, advertise or otherwise communicate any
such public announcement other than by issuing a release to an appropriate news
agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW SERIES A PREFERRED SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company and the Issuer will exchange, and will issue to the Exchange Agent, the
New Series B Preferred Securities for the Old Series A Preferred Securities
validly tendered and not withdrawn (pursuant to the withdrawal rights described
under "--Withdrawal Rights") promptly after the Expiration Date.
In all cases, delivery of the New Series B Preferred Securities in
exchange for the Old Series A Preferred Securities tendered and accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) the Old Series A Preferred Securities or a
book-entry confirmation of a book-entry transfer of the Old Series A Preferred
Securities into the Exchange Agent's account at The Depository Trust Company
("DTC"), including an Agent's Message if the tendering holder has not delivered
a Letter of Transmittal, (ii) the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
or, in the case of a book-entry transfer, an Agent's Message in lieu of the
Letter of Transmittal, and (iii) any other documents required by the Letter of
Transmittal.
40
<PAGE>
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of the Old Series A Preferred Securities into the Exchange
Agent's account at DTC. The term "Agent's Message" means a message, transmitted
by DTC to and received by the Exchange Agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgement from
the tendering participant, which acknowledgement states that such participant
has received and agreed to be bound by the Letter of Transmittal and that the
Issuer and the Company may enforce such Letter of Transmittal against such a
participant.
Subject to the terms and conditions of the Exchange Offer, the Company
and the Issuer will be deemed to have accepted for exchange, and thereby
exchanged, the Old Series A Preferred Securities validly tendered and not
withdrawn as, if and when the Company or the Issuer gives oral or written notice
to the Exchange Agent of the Company's and the Issuer's acceptance of such Old
Series A Preferred Securities for exchange pursuant to the Exchange Offer. The
Exchange Agent will act as agent for the Company and the Issuer for the purpose
of receiving tenders of the Old Series A Preferred Securities, Letters of
Transmittal and related documents, and as agent for tendering holders for the
purpose of receiving the Old Series A Preferred Securities, Letters of
Transmittal and related documents and transmitting the New Series B Preferred
Securities to validly tendering holders. Such exchange will be made promptly
after the Expiration Date. If for any reason whatsoever, acceptance for exchange
or the exchange of any Old Series A Preferred Securities tendered pursuant to
the Exchange Offer is delayed (whether before or after the Company's and the
Issuer's acceptance for exchange of the Old Series A Preferred Securities) or
the Company or the Issuer extends the Exchange Offer or is unable to accept for
exchange or exchange the Old Series A Preferred Securities tendered pursuant to
the Exchange Offer, then, without prejudice to the Company or the Issuer's
rights set forth herein, the Exchange Agent may, nevertheless, on behalf of the
Company and the Issuer and subject to Rule 14e-1(c) under the Exchange Act,
retain tendered Old Series A Preferred Securities and such Old Series A
Preferred Securities may not be withdrawn except to the extent tendering holders
are entitled to withdrawal rights as described under "--Withdrawal Rights."
Pursuant to the Letter of Transmittal, or Agent's Message in lieu
thereof, a holder of the Old Series A Preferred Securities will warrant and
agree in the Letter of Transmittal that it has full power and authority to
tender, exchange, sell, assign and transfer the Old Series A Preferred
Securities, that the Issuer will acquire good, marketable and unencumbered title
to the tendered Old Series A Preferred Securities, free and clear of all liens,
restrictions, charges and encumbrances, and the Old Series A Preferred
Securities tendered for exchange are not subject to any adverse claims or
proxies. The holder also will warrant and agree that it will, upon request,
execute and deliver any additional documents deemed by the Company, the Issuer
or the Exchange Agent to be necessary or desirable to complete the exchange,
sale, assignment, and transfer of the Old Series A Preferred Securities tendered
pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING OLD SERIES A PREFERRED SECURITIES
VALID TENDER. Except as set forth below, in order for the Old Series A
Preferred Securities to be validly tendered pursuant to the Exchange Offer, a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees, or, in the case of a book-
41
<PAGE>
entry tender, an Agent's Message in lieu of the Letter of Transmittal, and
any other required documents, must be received by the Exchange Agent at one of
its addresses set forth under "--Exchange Agent," and either (i) tendered Old
Series A Preferred Securities must be received by the Exchange Agent, or (ii)
such Old Series A Preferred Securities must be tendered pursuant to the
procedures for book-entry transfer set forth below and a book-entry
confirmation, including an Agent's Message if the tendering holder has not
delivered a Letter of Transmittal, must be received by the Exchange Agent, in
each case on or prior to the Expiration Date, or (iii) the guaranteed delivery
procedures set forth below must be complied with.
If less than all of the Old Series A Preferred Securities are tendered,
but in no case less than $100,000 Liquidation Amount of Old Series A Preferred
Securities, a tendering holder should fill in the amount of the Old Series A
Preferred Securities being tendered in the appropriate box on the Letter of
Transmittal. The entire amount of the Old Series A Preferred Securities
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS, IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK ENTRY TRANSFER. The Exchange Agent will establish an account with
respect to the Old Series A Preferred Securities at DTC for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in DTC's book-entry transfer
facility system may make a book-entry delivery of the Old Series A Preferred
Securities by causing DTC to transfer such Old Series A Preferred Securities
into the Exchange Agent's account at DTC in accordance with DTC's procedures for
transfers. However, although delivery of Old Series A Preferred Securities may
be effected through book-entry transfer into the Exchange Agent's account at
DTC, the Letter of Transmittal (or facsimile thereof), properly completed and
duly executed, with any required signature guarantees, or an Agent's Message in
lieu of the Letter of Transmittal, and any other required documents, must in any
case be delivered to and received by the Exchange Agent at its address set forth
under "--Exchange Agent" on or prior to the Expiration Date, or the guaranteed
delivery procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES. Certificates for the Old Series A Preferred
Securities need not be endorsed and signature guarantees on the Letter of
Transmittal are unnecessary unless (a) a certificate for the Old Series A
Preferred Securities is registered in a name other than that of the person
surrendering the certificate or (b) such registered holder completes the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" in
the Letter of Transmittal. In the case of (a) or (b) above, such certificates
for Old Series A Preferred Securities must be duly endorsed or accompanied by a
properly executed bond power, with the endorsement or signature on the bond
power and on the
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Letter of Transmittal guaranteed by a firm or other entity identified in Rule
17Ad-15 under the Exchange Act as an "eligible guarantor institution," including
(as such terms are defined therein): (i) a bank; (ii) a broker, dealer,
municipal securities broker or dealer or government securities broker or dealer;
(iii) a credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association (an "Eligible Institution"),
unless surrendered on behalf of such Eligible Institution. See Instruction 1 to
the Letter of Transmittal.
GUARANTEED DELIVERY. If a holder desires to tender Old Series A
Preferred Securities pursuant to the Exchange Offer and the certificates for
such Old Series A Preferred Securities are not immediately available or time
will not permit all required documents to reach the Exchange Agent on or before
the Expiration Date, or the procedures for book-entry transfer cannot be
completed on a timely basis, such Old Series A Preferred Securities may
nevertheless be tendered, provided that all of the following guaranteed delivery
procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of
Transmittal, is received by the Exchange Agent, as provided
below, on or prior to Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing
all tendered Old Series A Preferred Securities, in proper form
for transfer, together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof or
Agent's Message in lieu thereof), with any required signature
guarantees and any other documents required by the Letter of
Transmittal, are received by the Exchange Agent within five
New York Stock Exchange trading days after the date of
execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or
transmitted by facsimile or mail, to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of the New
Series B Preferred Securities in exchange for the Old Series A Preferred
Securities tendered and accepted for exchange pursuant to the Exchange Offer
will in all cases be made only after timely receipt by the Exchange Agent of the
Old Series A Preferred Securities, or of a book-entry confirmation with respect
to such Old Series A Preferred Securities, and a properly completed and duly
executed Letter of Transmittal (or facsimile thereof or Agent's Message in lieu
thereof), together with any required signature guarantees and any other
documents required by the Letter of Transmittal. Accordingly, the delivery of
the New Series B Preferred Securities might not be made to all tendering holders
at the same time, and will depend upon when the Old Series A Preferred
Securities, book-entry confirmations with respect to the Old Series A Preferred
Securities and other required documents are received by the Exchange Agent.
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The Issuer's acceptance for exchange of the Old Series A Preferred
Securities tendered pursuant to any of the procedures described above will
constitute a binding agreement between the tendering holder, the Company and the
Issuer upon the terms and subject to the conditions of the Exchange Offer.
All questions as to the form of documents, validity, eligibility
(including time of receipt) and acceptance for exchange of any tendered Old
Series A Preferred Securities will be determined by the Issuer, in its sole
discretion, whose determination shall be final and binding on all parties. The
Company and the Issuer reserve the absolute right, in their sole and absolute
discretion, to reject any and all tenders determined by them not to be in proper
form or the acceptance of which, or exchange for, may, in the view of counsel to
the Company and the Issuer, be unlawful. The Company and the Issuer also reserve
the absolute right, subject to applicable law, to waive any of the conditions of
the Exchange Offer as set forth under "--Conditions to the Exchange Offer" or
any condition or irregularity in any tender of the Old Series A Preferred
Securities of any particular holder whether or not similar conditions or
irregularities are waived in the case of other holders.
The Company's and the Issuer's interpretation of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding. No tender of the Old Series A
Preferred Securities will be deemed to have been validly made until all
irregularities with respect to such tender have been cured or waived. Neither
the Company, the Issuer, any affiliates or assigns of the Company, the Issuer,
the Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in tenders or incur any liability for failure
to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of
attorney, or any other document required by the Letter of Transmittal is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Company or
the Issuer, proper evidence satisfactory to the Company or the Issuer, in its
sole discretion, of such person's authority to so act must be submitted.
A beneficial owner of the Old Series A Preferred Securities that are
held by or registered in the name of a broker, dealer, commercial bank, trust
company or other nominee or custodian is urged to contact such entity promptly
if such beneficial holder wishes to participate in the Exchange Offer.
RESALES OF NEW SERIES B PREFERRED SECURITIES
The Issuer is making the Exchange Offer for the Preferred Securities in
reliance upon the position of the staff of the Division of Corporation Finance
of the Commission as set forth in certain interpretive letters addressed to
third parties in other transactions. However, neither the Company nor the Issuer
sought its own interpretive letter and there can be no assurance that the staff
of the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based upon these interpretations by the staff of the
Division of Corporation Finance, and
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subject to the two immediately following sentences, the Company and the Issuer
believe that New Series B Preferred Securities issued pursuant to this Exchange
Offer in exchange for Old Series A Preferred Securities may be offered for
resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Series B Preferred Securities are acquired in the ordinary course of such
holder's business and that such holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such New Series B Preferred
Securities. However, any holder of Old Series A Preferred Securities who is an
"affiliate" of the Company or the Issuer or who intends to participate in the
Exchange Offer for the purpose of distributing New Series B Preferred
Securities, or any broker-dealer who purchased Old Series A Preferred Securities
from the Issuer to resell pursuant to Rule 144A or any other available exemption
under the Securities Act, (a) will not be permitted or entitled to tender such
old series a preferred securities in the exchange offer and (b) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Old Series A Preferred
Securities unless such sale is made pursuant to an exemption from such
requirements. In addition, as described below, if any broker-dealer holds Old
Series A Preferred Securities acquired for its own account as a result of
market-making or other trading activities and exchanges such Old Series A
Preferred Securities for New Series B Preferred Securities, then such
broker-dealer must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of such New Series B Preferred
Securities.
Each holder of Old Series A Preferred Securities who wishes to exchange
Old Series A Preferred Securities for New Series B Preferred Securities in the
Exchange Offer will be required to represent that (i) it is not an "affiliate"
of the Company or the Issuer, (ii) any New Series B Preferred Securities to be
received by it are being acquired in the ordinary course of its business, (iii)
it has no arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of such New Series B
Preferred Securities, and (iv) if such holder is not a broker- dealer, such
holder is not engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such New Series B Preferred
Securities. In addition, the Company and the Issuer may require such holder, as
a condition to participate in the Exchange Offer, to furnish to the Company and
the Issuer (or an agent thereof) in writing information as to the number of
"beneficial owners" (within the meaning of Rule 13d-3 under the Exchange Act) on
behalf of whom such holder holds the Preferred Securities to be exchanged in the
Exchange Offer. Each broker-dealer that receives New Series B Preferred
Securities for its own account pursuant to the Exchange Offer must acknowledge
that it acquired the Old Series A Preferred Securities for its own account as
the result of market-making activities or other trading activities and must
agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Series B Preferred
Securities. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. Broker-dealers who
acquired Old Series A Preferred Securities for their own accounts as a result of
market-making activities or other trading activities ("Participating
Broker-Dealers") may fulfill their prospectus delivery requirements with respect
to the New Series B Preferred Securities received upon exchange of such Old
Series A Preferred Securities with a prospectus meeting the requirements of the
Securities Act, which may be this Prospectus, as it may be amended or
supplemented from time
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to time for a period ending 90 days after the Expiration Date or, if earlier,
when all such New Series B Preferred Securities have been disposed of by such
Participating Broker-Dealer. See "Plan of Distribution." Any Participating
Broker-Dealer who is an "affiliate" of the Company or the Issuer and any
Participating Broker-Dealer who purchased the Old Series A Preferred Securities
from the Issuer to resell the Old Series A Preferred Securities may not use this
Prospectus and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Old
Series A Preferred Securities pursuant to the Exchange Offer will be deemed to
have agreed, by execution of the Letter of Transmittal, or delivery of an
Agent's Message in lieu thereof, that, upon receipt of notice from the Company
or the Issuer of the occurrence of any event or the discovery of any fact which
makes any statement contained or incorporated by reference in this Prospectus
untrue in any material respect or which causes this Prospectus to omit to state
a material fact necessary in order to make the statements contained or
incorporated by reference herein, in light of the circumstances under which they
were made, not misleading or of the occurrence of certain other events specified
in the Registration Rights Agreements, such Participating Broker-Dealer will
suspend the sale of the New Series B Preferred Securities (or the New Guarantee
or the New Series B Subordinated Debentures, as applicable) pursuant to this
Prospectus until the Company or the Issuer has amended or supplemented this
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented Prospectus to such Participating Broker-Dealer or
the Company or the Issuer has given notice that the sale of the New Series B
Preferred Securities (or the New Guarantee or the New Series B Subordinated
Debentures, as applicable) may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of the Old Series A
Preferred Securities may be withdrawn at any time on or prior to the Expiration
Date.
In order for a withdrawal to be effective, a written, or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth under "--Exchange Agent" on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Series A Preferred Securities to be
withdrawn, the aggregate principal amount of the Old Series A Preferred
Securities to be withdrawn, and, if certificates for such Old Series A Preferred
Securities have been tendered, the name of the registered holder of the Old
Series A Preferred Securities as set forth on the Old Series A Preferred
Securities, if different from that of the person who tendered such Old Series A
Preferred Securities. If the Old Series A Preferred Securities have been
delivered or otherwise identified to the Exchange Agent, then prior to the
physical release of such Old Series A Preferred Securities, the tendering holder
must submit the serial numbers shown on the particular Old Series A Preferred
Securities to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of Old Series A
Preferred Securities tendered for the account of an Eligible Institution. If the
Old Series A Preferred Securities have been tendered pursuant to the procedures
for book-entry transfer set forth in "--Procedures for Tendering Old Series A
Preferred Securities," the notice of
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withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawal of the Old Series A Preferred Securities, in which case a
notice of withdrawal will be effective if delivered to the Exchange Agent by
written or facsimile transmission. Withdrawals of tenders of the Old Series A
Preferred Securities may not be rescinded. Old Series A Preferred Securities
properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described above under
"--Procedures for Tendering Old Series A Preferred Securities."
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Company and the
Issuer, in their sole discretion, whose determination shall be final
and binding on all parties. Neither the Company, the Issuer, any
affiliates or assigns of the Company, the Issuer, the Exchange Agent
nor any other person shall be under any duty to give any notification of any
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. Any Old Series A Preferred Securities which have
been tendered but which are withdrawn will be returned to the holder thereof
promptly after withdrawal.
DISTRIBUTIONS ON THE NEW SERIES B PREFERRED SECURITIES
Holders of Old Series A Preferred Securities whose Old Series A
Preferred Securities are accepted for exchange will not receive accumulated
Distributions on such Old Series A Preferred Securities for any period from and
after the last Distribution Date with respect to such Old Series B Preferred
Securities prior to the original issue date of the New Series B Preferred
Securities or, if no such Distributions have been made, will not receive any
accumulated Distributions on such Old Series A Preferred Securities, and will be
deemed to have waived the right to receive any Distributions on such Old Series
A Preferred Securities accumulated from and after such Distribution Date or, if
no such Distributions have been paid or duly provided for, from and after
December 30, 1996. However, because Distributions on the New Series B Preferred
Securities will accumulate from December 30, 1996, the amount of the
Distributions received by holders whose Old Series A Preferred Securities are
accepted for exchange will not be affected by the exchange.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Issuer will not be required to accept for
exchange, or to exchange, any Old Series A Preferred Securities for any New
Series B Preferred Securities, and, as described below, may terminate the
Exchange Offer (whether or not any Old Series A Preferred Securities have
theretofore been accepted for exchange) or may waive any conditions to or amend
the Exchange Offer, if any of the following conditions have occurred or exists
or have not been satisfied:
(a) there shall occur a change in the current interpretation by
the staff of the Commission which permits the New Series B
Preferred Securities issued pursuant to the Exchange Offer in
exchange for Old Series A Preferred Securities to be offered
for resale, resold
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and otherwise transferred by holders thereof (other than
broker-dealers and any such holder which is an "affiliate" of
the Company or the Issuer within the meaning of Rule
405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the
Securities Act provided that such New Series B Preferred
Securities are acquired in the ordinary course of such
holders' business and such holders have no arrangement or
understanding with any person to participate in the
distribution of such New Series B Preferred Securities; or
(b) any action or proceeding shall have been instituted or
threatened in any court or by or before any governmental
agency or body with respect to the Exchange Offer which, in
the Company's and the Issuer's judgment, would reasonably be
expected to impair the ability of the Company or the Issuer to
proceed with the Exchange Offer;
(c) any law, statute, rule or regulation shall have been adopted
or enacted which, in the Company's and the Issuer's judgment,
would reasonably be expected to impair the ability of the
Company or the Issuer to proceed with the Exchange Offer;
(d) a banking moratorium shall have been declared by United States
federal or Florida or New York State authorities which, in the
Company's and the Issuer's judgment, would reasonably be
expected to impair the ability of the Company or the Issuer to
proceed with the Exchange Offer;
(e) trading in the United States over-the-counter market shall
have been suspended by order of the Commission or any other
governmental authority which, in the Company's and the
Issuer's judgment, would reasonably be expected to impair
the ability of the Company or the Issuer to proceed with the
Exchange Offer; or
(f) a stop order shall have been issued by the Commission or any
state securities authority suspending the effectiveness of the
Registration Statement or proceedings shall have been
initiated or, to the knowledge of the Company or the Issuer,
threatened for that purpose any governmental approval has not
been obtained, which approval the Issuer shall, in its sole
discretion, deem necessary for the consummation of the
Exchange Offer as contemplated hereby; or
(g) any change, or any development involving a prospective change,
in the business or financial affairs of the Company or the
Issuer or any of their subsidiaries have occurred which, in
the sole judgment of the Company and the Issuer, might
materially impair the ability of the Company or the Issuer
to proceed with the Exchange Offer.
If the Company and the Issuer determine in their sole and absolute
discretion that any of the foregoing events or conditions has occurred or exists
or has not been satisfied, the Company and the Issuer may, subject to applicable
law, terminate the Exchange Offer
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(whether or not any Old Series A Preferred Securities have theretofore been
accepted for exchange) or may waive any such condition or otherwise amend the
terms of the Exchange Offer in any respect. If such waiver or amendment
constitutes a material change to the Exchange Offer, the Company and the Issuer
will promptly disclose such waiver by means of a prospectus supplement that will
be distributed to the registered holders of the Old Series A Preferred
Securities, and the Company and the Issuer will extend the Exchange Offer to the
extent required by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent as follows:
<TABLE>
<S> <C> <C>
By Hand or Overnight Delivery: By Requested or Certified Mail:
The Bank of New York Telephone: (212) 815-2742 The Bank of New York
101 Barclay Street Facsimile: (212) 571-3080 101 Barclay Street, 7E
Corporate Trust Services New York, New York 10286
Ground Level Attention: Reorganization Section,
Attention: Reorganization Section, Enrique Lopez
Enrique Lopez
</TABLE>
Delivery to other than the above address or facsimile number will not constitute
a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. The Company will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus
and related documents to the beneficial owners of Old Series A Preferred
Securities, and in handling or tendering for their customers.
Holders who tender their Old Series A Preferred Securities for exchange
will not be obligated to pay any transfer taxes in connection therewith. If,
however, New Series B Preferred Securities are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of the Old
Series A Preferred Securities tendered, or if a transfer tax is imposed for any
reason other than the exchange of Old Series A Preferred Securities in
connection with the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
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Neither the Company nor the Issuer will make any payment to brokers,
dealers or others soliciting acceptances of the Exchange Offer.
DESCRIPTION OF THE NEW SECURITIES
DESCRIPTION OF PREFERRED SECURITIES
Pursuant to the terms of the Trust Agreement, the Issuer Trustees have
issued the Old Series A Preferred Securities and the Common Securities and will
issue the New Series B Preferred Securities. The New Series B Preferred
Securities will represent preferred undivided beneficial interests in the assets
of the Issuer and the holders thereof will be entitled to a preference in
certain circumstances with respect to Distributions and amounts payable on
redemption of the Trust Securities or liquidation of the Issuer over the Common
Securities. See "--Subordination of Series A Common Securities." The Trust
Agreement has been qualified under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). This summary of certain provisions of the Preferred
Securities, the Common Securities and the Trust Agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Trust Agreement, including the definitions therein of
certain terms.
DISTRIBUTIONS
The Preferred Securities represent undivided beneficial interests in
the assets of the Issuer. Distributions on such Preferred Securities will be
payable at the annual rate of 10 1/4% of the stated Liquidation Amount of
$1,000, payable semi-annually in arrears on June 30, and December 31 of each
year, to the holders of the Preferred Securities on the relevant record dates.
The record dates will be, for so long as the Preferred Securities remain in
book-entry form, one Business Day (as defined below) prior to the relevant
Distribution payment date and, in the event the Preferred Securities are not in
book-entry form, the 15th day of the month in which the relevant Distribution
payment date occurs. Subject to any applicable laws and regulations and the
provisions of the Trust Agreement, each such payment will be made as described
under "Book-Entry Issuance." Distributions will accumulate from December 30,
1996. The first Distribution payment date for the Preferred Securities will be
June 30, 1997. The amount of Distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. In the event
that any date on which Distributions are payable on the Preferred Securities is
not a Business Day, then payment of the Distributions payable on such date will
be made on the next succeeding day that is a Business Day (and without any
additional Distributions or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on the date such payment was originally payable
(each date on which Distributions are payable in accordance with the foregoing,
a "Distribution Date"). A "Business Day" shall mean any day other than a
Saturday or a Sunday, or a day on which banking institutions in the City of New
York are authorized or required by law or
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executive order to remain closed or a day on which the corporate trust office of
the Property Trustee or the Debenture Trustee is closed for business.
So long as no "Event of Default" under the Indenture has occurred and
is continuing, the Company has the right under the Indenture to defer the
payment of interest on the Subordinated Debentures at any time or from time to
time for a period not exceeding 10 consecutive semi-annual periods with respect
to each Extension Period, provided that no Extension Period may extend beyond
the Stated Maturity of the Subordinated Debentures. As a consequence of any such
deferral of interest, semi-annual Distributions on the Preferred Securities by
the Issuer will also be deferred during any such Extension Period. Distributions
to which holders of the Preferred Securities are entitled will accumulate
additional Distributions thereon at the rate per annum of 10 1/4% thereof,
compounded semi-annually from the relevant payment date for such Distributions.
The term "Distributions" as used herein shall include any such additional
Distributions. During any such Extension Period, the Company may not, and may
not permit any subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock, (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company that rank PARI PASSU with or junior in interest
to the Subordinated Debentures or (iii) make any guarantee payments with respect
to any guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks PARI PASSU with or junior in interest to the
Subordinated Debentures (other than (a) dividends or distributions in common
stock of the Company, (b) any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the issuance of stock under
any such plan in the future or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Guarantee and (d) purchases of common
stock related to the issuance of common stock or rights under any of the
Company's benefit plans for its directors, officers or employees). Prior to the
termination of any such Extension Period, the Company may further defer the
payment of interest on the Subordinated Debentures, provided that no Extension
Period may exceed 10 consecutive semi-annual periods or extend beyond the Stated
Maturity of the Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all interest then accrued and unpaid
(together with interest thereon at the rate of 10 1/4%, compounded
semi-annually, to the extent permitted by applicable law), the Company may elect
to begin a new Extension Period. There is no limitation on the number of times
that the Company may elect to begin an Extension Period. (See "Description of
the New Securities--Description of Subordinated Debentures--Right to Defer
Interest Payment Obligation" and "Certain Federal Income Tax
Consequences--Original Issue Discount.")
The revenue of the Issuer available for distribution to holders of its
Preferred Securities will be limited to payments under the Subordinated
Debentures in which the Issuer will invest the proceeds from the issuance and
sale of its Securities. ( See "Description of the New Securities--Description of
Subordinated Debentures.") If the Company does not make interest payments on the
Subordinated Debentures, the Property Trustee will not have funds available to
pay Distributions on the Preferred Securities. The payment of Distributions (if
and to the extent the Issuer has funds legally available for the payment of such
Distributions and cash sufficient to make such payments) is guaranteed by the
Company on a limited basis as set forth herein under "Description of New
Securities--Description of Guarantee."
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The Company has no current intention of exercising its right to defer
payments of interest on the Subordinated Debentures.
SUBORDINATION OF THE SERIES A COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Preferred
Securities and Series A Common Securities, as applicable, shall be made PRO RATA
based on the Liquidation Amount of the Preferred Securities and the Series A
Common Securities; PROVIDED, HOWEVER, that if on any Distribution Date or
Redemption Date an "Event of Default" under the Indenture shall have occurred
and be continuing, no payment of any Distribution on, or Redemption Price of,
any of the Series A Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of such Common Securities, shall be
made unless payment in full in cash of all accumulated and unpaid Distributions
on all of the outstanding Preferred Securities for all Distribution periods
terminating on or prior thereto, or, in the case of payment of the Redemption
Price, the full amount of such Redemption Price on all of the outstanding
Preferred Securities then called for redemption shall have been made or provided
for, and all funds available to the Property Trustee shall first be applied to
the payment in full in cash of all Distributions on, or Redemption Price of, the
Preferred Securities then due and payable.
In the case of any "Event of Default" under the Trust Agreement
resulting from an Event of Default under the Indenture, the Company as holder of
the Series A Common Securities will be deemed to have waived any right to act
with respect to any such Event of Default under the Trust Agreement until the
effect of all such Events of Default with respect to the Preferred Securities
shall have been cured, waived or otherwise eliminated. Until any such Events of
Default under the Trust Agreement shall have been so cured, waived or otherwise
eliminated, the Property Trustee shall act solely on behalf of the holders of
the Preferred Securities and not on behalf of the Company as holder of the
Series A Common Securities, and only the holders of the Preferred Securities
will have the right to direct the Property Trustee to act on their behalf.
REDEMPTION
The Preferred Securities are subject to mandatory redemption, in whole
or in part, upon repayment of the Subordinated Debentures at their Stated
Maturity or earlier redemption as provided in the Indenture. The proceeds from
such repayment or redemption shall be applied by the Property Trustee to redeem
a Like Amount (as defined below) of the Preferred Securities, upon not less than
30 nor more than 60 days notice prior to the date fixed for repayment or
redemption, at a redemption price equal to the aggregate Liquidation Amount of
such Preferred Securities plus accumulated and unpaid Distributions thereon to
the date of redemption (the "Redemption Date"), plus the related amount of the
premium, if any, paid by the Company upon the concurrent redemption of such
Subordinated Debentures (the "Redemption Price"). For a description of the
Stated Maturity and redemption provisions of the Subordinated Debentures, see
"Description of the New Securities--Description of Subordinated
Debentures--General," "--Optional Redemption" and "--Tax Event Redemption."
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The Company has the option to redeem the Subordinated Debentures prior
to maturity on or after December 31, 2006, in whole at any time or in part from
time to time, at the Optional Redemption Price and thereby cause a mandatory
redemption of a Like Amount (as defined below) of the Preferred Securities. (See
"Description of the New Securities--Description of Subordinated
Debentures--Optional Redemption.") If a Tax Event (as defined below) shall occur
and be continuing, the Company has the right to redeem the Subordinated
Debentures in whole (but not in part) at the Tax Event Redemption Price and
thereby cause a mandatory redemption of the Preferred Securities in whole (but
not in part). (See "Description of the New Securities--Description of
Subordinated Debentures--Tax Event Redemption.")
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date shall be redeemed
at the Redemption Price with the applicable proceeds from the contemporaneous
redemption of a Like Amount of the Subordinated Debentures. Redemptions of the
Preferred Securities shall be made and the Redemption Price shall be payable on
each Redemption Date only to the extent that the Issuer has funds on hand
available for the payment of such Redemption Price. (See also "--Subordination
of the Series A Common Securities.")
If the Issuer gives a notice of redemption in respect of the Preferred
Securities, then, by 10:00 a.m., New York City time, on the Redemption Date, to
the extent funds are available, the Property Trustee will deposit irrevocably
with DTC funds sufficient to pay the applicable Redemption Price and will give
DTC irrevocable instructions and authority to pay the Redemption Price to the
holders of such Preferred Securities. See "Book-Entry Issuance." If such
Preferred Securities are no longer in book-entry form, the Property Trustee, to
the extent funds are available, will irrevocably deposit with the paying agent
for the Preferred Securities funds sufficient to pay the applicable Redemption
Price and will give such paying agent irrevocable instructions and authority to
pay the Redemption Price to the holders thereof upon surrender of their
certificates evidencing such Preferred Securities. Notwithstanding the
foregoing, Distributions payable on or prior to the Redemption Date for the
Preferred Securities called for redemption shall be payable to the holders of
the Preferred Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then, upon the date of such deposit, all rights of the
holders of such Preferred Securities so called for redemption will cease, except
the right of the holders of such Preferred Securities to receive the Redemption
Price, but without interest on such Redemption Price, and such Preferred
Securities will cease to be outstanding.
In the event that any date fixed for redemption of the Preferred
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of the Preferred Securities called for redemption is
improperly withheld or refused and not paid either by the Issuer or by the
Company pursuant to the Guarantee as described under "Description of the New
Securities--Description of Guarantee," Distributions on such
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Preferred Securities will continue to accrue at the then applicable rate, from
the Redemption Date originally established by the Issuer for such Preferred
Securities to the date such Redemption Price is actually paid, in which case the
actual payment date will be the date fixed for redemption for purposes of
calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by private
agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of the Subordinated Debentures to holders of the Preferred
Securities shall be made to the applicable recordholders thereof as they appear
on the register for the Preferred Securities on the relevant record date, which
shall be one Business Day prior to the relevant Redemption Date or liquidation
date, as applicable; PROVIDED, HOWEVER, that in the event that any Preferred
Securities are not in book-entry form, the relevant record date for the
Preferred Securities shall be a date at least 15 days prior to the Redemption
Date or liquidation date, as applicable.
If less than all of the Preferred Securities and Series A Common
Securities issued by the Issuer are to be redeemed on a Redemption Date, then
the aggregate Liquidation Amount of the Preferred Securities and Series A Common
Securities to be redeemed shall be allocated PRO RATA to the Preferred
Securities and the Series A Common Securities based upon the relative
Liquidation Amounts of such classes. The particular Preferred Securities to be
redeemed shall be selected not more than 60 days prior to the Redemption Date by
the Property Trustee from the outstanding Preferred Securities not previously
called for redemption, by such method as the Property Trustee shall deem fair
and appropriate and which may provide for the selection for redemption of
portions (equal to $1,000 or an integral multiple of $1,000 in excess thereof)
of the Liquidation Amount of the Preferred Securities of a denomination larger
than $1,000. The Property Trustee shall promptly notify the trust registrar in
writing of the Preferred Securities selected for redemption and, in the case of
the Preferred Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of the Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of the
Preferred Securities shall relate, in the case of the Preferred Securities
redeemed or to be redeemed only in part, to the portion of the aggregate
Liquidation Amount of the Preferred Securities which has been or is to be
redeemed.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder of the Preferred
Securities to be redeemed at its registered address. Unless the Company defaults
in payment of the Redemption Price on the Subordinated Debentures, on and after
the Redemption Date interest will cease to accrue on the Subordinated Debentures
or portions thereof called for redemption.
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LIQUIDATION OF THE ISSUER AND DISTRIBUTION OF THE SUBORDINATED DEBENTURES TO
HOLDERS
The Company has the right at any time to terminate the Issuer and,
after satisfaction of the liabilities of creditors of the Issuer as provided by
applicable law, cause Subordinated Debentures to be distributed to the holders
of the Preferred Securities and Series A Common Securities in exchange therefor
upon liquidation of the Issuer.
After the liquidation date fixed for any distribution of the
Subordinated Debentures for Preferred Securities (i) such Preferred Securities
will no longer be deemed to be outstanding, (ii) DTC or its nominee, as the
record holder of the Preferred Securities, will receive a registered global
certificate or certificates representing the Subordinated Debentures to be
delivered upon such distribution and (iii) any certificates representing such
Preferred Securities not held by DTC or its nominee will be deemed to represent
Subordinated Debentures having a principal amount equal to the stated
Liquidation Amount of such Preferred Securities, and bearing accrued and unpaid
interest in an amount equal to the accumulated and unpaid Distributions on such
series of the Preferred Securities until such certificates are presented to the
Administrative Trustees or their agent for transfer or reissuance.
Under current United States federal income tax law and interpretations,
a distribution of the Subordinated Debentures should not be a taxable event to
holders of the Preferred Securities. Should there be a change in law, a change
in legal interpretation, a Tax Event or other circumstances, however, the
distribution could be a taxable event to holders of the Preferred Securities.
(See "Certain Federal Income Tax Consequences--Distribution of the Subordinated
Debentures to Holders of the Preferred Securities.")
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to the Trust Agreement, the Issuer shall automatically
terminate upon expiration of its term and shall terminate on the first to occur
of: (i) certain events of bankruptcy, dissolution or liquidation of the Company,
subject in certain instances to any such event remaining in effect for a period
of 60 consecutive days; (ii) the distribution of a Like Amount of the
Subordinated Debentures to the holders of its Preferred Securities, if the
Company, as depositor, has given written direction to the Property Trustee to
terminate the Issuer (which direction is optional and wholly within the
discretion of the Company, as depositor); (iii) redemption of all of the
Preferred Securities as described under "Description of the Preferred
Securities-- Redemption"; and (iv) the entry of an order for the dissolution of
the Issuer by a court of competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (iv)
above, the Issuer shall be liquidated by the Issuer Trustees as expeditiously as
the Issuer Trustees determine to be possible by distributing, after satisfaction
of liabilities to creditors of the Issuer, if any, as provided by applicable
law, to the holders of the Preferred Securities a Like Amount of the
Subordinated Debentures, unless such distribution is determined by the Property
Trustee not to be practical, in which event such holders will be entitled to
receive out of the assets of the Issuer available for distribution to holders,
after satisfaction of liabilities to
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creditors of the Issuer, if any, as provided by applicable law, an amount equal
to, in the case of holders of the Preferred Securities, the aggregate of the
Liquidation Amount plus accrued and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"). If such Liquidation
Distribution can be paid only in part because the Issuer has insufficient assets
available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by the Issuer on Preferred Securities shall be paid on
a PRO RATa basis. The holder(s) of the Series A Common Securities will be
entitled to receive distributions upon any such liquidation pro rata with the
holders of the Preferred Securities, except that if an event of default under
the Indenture has occurred and is continuing, the Preferred Securities shall
have a priority over the Series A Common Securities with respect to any such
distributions.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under
the Trust Agreement (an "Event of Default") with respect to the Preferred
Securities issued thereunder (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) the occurrence of an event of default under the
Indenture (see "Description of the Subordinated Debentures--Debenture
Events of Default"); or
(ii) default by the Property Trustee in the payment of any
Distribution when it becomes due and payable, and continuation of such
default for a period of 30 days; or
(iii) default by the Property Trustee in the payment of any
Redemption Price of any Preferred Security when it becomes due and
payable; or
(iv) default in the performance, or breach, in any material
respect, of any covenant or warranty of the Issuer Trustees in the
Trust Agreement (other than a covenant or warranty a default in the
performance of which or the breach of which is dealt with in clause
(ii) or (iii) above), and continuation of such default or breach for a
period of 60 days after there has been given, by registered or
certified mail, to the defaulting Issuer Trustee or Trustees by the
holders of at least 25% in aggregate Liquidation Amount preference of
the outstanding Preferred Securities, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or
insolvency with respect to the Property Trustee and the failure by the
Company to appoint a successor Property Trustee within 60 days thereof.
Within 90 days after the occurrence of any Event of Default actually
known to the Property Trustee, the Property Trustee shall transmit notice of
such Event of Default to the holders of the Preferred Securities, the
Administrative Trustees and the Company, as depositor, unless such
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Event of Default shall have been cured or waived. The Company, as depositor, and
the Administrative Trustees are required to file annually with the Property
Trustee a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If an event of default under the Indenture has occurred and is
continuing, the Preferred Securities shall have a preference over the Series A
Common Securities as described above. See "--Subordination of the Series A
Common Securities" and "--Liquidation Distribution Upon Termination." The
existence of an event of default does not entitle the holders of the Preferred
Securities to accelerate the maturity thereof.
REMOVAL OF THE ISSUER TRUSTEES
Unless an event of default under the Indenture shall have occurred and
be continuing, any Issuer Trustee may be removed at any time by the holder of
the Series A Common Securities. If an event of default under the Indenture has
occurred and is continuing, the Property Trustee and the Delaware Trustee may be
removed at such time by the holders of a majority in Liquidation Amount of the
outstanding Preferred Securities. In no event will the holders of the Preferred
Securities have the right to vote to appoint, remove or replace the
Administrative Trustees, which voting rights are vested exclusively in the
Company as the holder of the Series A Common Securities. No resignation or
removal of any Issuer Trustee and no appointment of a successor trustee shall be
effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at
any time or times, for the purpose of meeting the legal requirements of the
Trust Indenture Act, if applicable, or of any jurisdiction in which any part of
the Trust Property may at the time be located, the Company, as the holder of the
Series A Common Securities, and the Administrative Trustees shall have power to
appoint one or more persons either to act as a co-trustee, jointly with the
Property Trustee, of all or any part of such Trust Property, or to act as
separate trustee of any such property, in either case with such powers as may be
provided in the instrument of appointment, and to vest in such person or persons
in such capacity any property, title, right or power deemed necessary or
desirable, subject to the provisions of the Trust Agreement. In the event an
event of default under the Indenture has occurred and is continuing, the
Property Trustee alone shall have power to make such appointment.
MERGER OR CONSOLIDATION OF THE ISSUER TRUSTEES
Any entity into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which such Trustee shall be a party or any entity
succeeding to all or substantially all the corporate trust business
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of such Trustee, shall be the successor of such Trustee under the Trust
Agreement, provided such corporation shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER
The Issuer may not merge with or into, consolidate, amalgamate, be
replaced by, convey, transfer or lease its properties and assets substantially
as an entirety to any entity or other Person, except as described below or as
otherwise described in the Trust Agreement. The Issuer may, at the request of
the Company, with the consent of the Administrative Trustees and without the
consent of the holders of the Preferred Securities or any other trustee merge
with or into, consolidate, amalgamate, be replaced by, convey, transfer or lease
its properties and assets substantially as an entirety to, a trust organized as
such under the laws of any State: PROVIDED, that (i) such successor entity
either (a) expressly assumes all of the obligations of the Issuer with respect
to the Preferred Securities or (b) substitutes for the Preferred Securities
other securities having substantially the same terms as the Preferred Securities
(the "Successor Securities") so long as the Successor Securities rank the same
as the Preferred Securities in priority with respect to Distributions and
payments upon liquidation, redemption and otherwise, (ii) the Company expressly
appoints a trustee of such successor entity possessing the same powers and
duties as the Property Trustee as the holder of the Subordinated Debentures,
(iii) the Successor Securities are registered or listed, or any Successor
Securities will be registered or listed upon notification of issuance, with DTC
or on any national securities exchange or other organization on which the
Preferred Securities are then registered or listed, if any, (iv) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (v)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Preferred Securities (including any Successor Securities) in any
material respect, (vi) such successor entity has a purpose substantially
identical to that of the Issuer, (vii) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Company has
received an opinion from independent counsel to the Issuer experienced in such
matters to the effect that (a) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Issuer nor such successor entity will be required to register as an
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act") and (viii) the Company or any permitted successor or
assignee owns all of the Series A Common Securities or its equivalent of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, the Issuer shall not, except with the consent of
holders of 100% in Liquidation Amount of the Preferred Securities, consolidate,
amalgamate, merge with or into or be replaced by or convey, transfer or lease
its properties and assets substantially as an entirety to any other entity or
permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger, replacement,
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conveyance, transfer or lease would cause the Issuer or the successor entity to
be classified as an association taxable as a corporation for United States
federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of the New
Securities--Description of Guarantee--Amendments and Assignment" and as
otherwise required by law and the Trust Agreement, the holders of the Preferred
Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Company,
the Property Trustee and the Administrative Trustees, without the consent of the
holders of the Preferred Securities, to (i) cure any ambiguity, correct or
supplement any provisions in the Trust Agreement that may be inconsistent with
any other provision or to make any other provisions with respect to matters or
questions arising under the Trust Agreement, which shall not be inconsistent
with the other provisions of the Trust Agreement or (ii) modify, eliminate or
add to any provisions of the Trust Agreement to such extent as shall be
necessary to ensure that the Issuer will be classified for United States federal
income tax purposes as a grantor trust at all times that the Preferred
Securities are outstanding or to ensure that the Issuer will not be required to
register as an "investment company" under the Investment Company Act; provided,
however, that in the case of clause (i), such action shall not adversely affect
in any material respect the interests of any holder of the Preferred Securities,
and any amendments of the Trust Agreement shall become effective when notice
thereof is given to the holders of the Preferred Securities. The Trust Agreement
may be amended by the Issuer Trustees and the Company with (i) the consent of
holders representing not less than a majority (based upon Liquidation Amounts)
of the outstanding Preferred Securities and (ii) receipt by the Issuer Trustees
of an opinion of counsel to the effect that such amendment or the exercise of
any power granted to the Issuer Trustees in accordance with such amendment will
not affect the Issuer's status as a grantor trust for United States federal
income tax purposes or the Issuer's exemption from status as an "investment
company" under the Investment Company Act, provided that without the consent of
each holder of the Preferred Securities, the Trust Agreement may not be amended
to (a) change the amount or timing of any Distribution on the Preferred
Securities or otherwise adversely affect the amount of any Distribution required
to be made in respect of the Preferred Securities as of a specified date or (b)
restrict the right of a holder of the Preferred Securities to institute suit for
the enforcement of any such payment on or after such date.
So long as the Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee or
executing any trust or power conferred on the Property Trustee with respect to
the Subordinated Debentures, (ii) waive any past default that is available under
the Indenture, (iii) exercise any right to rescind or annul a declaration that
the principal of all the Subordinated Debentures shall be due and payable or
(iv) consent to any amendment, modification or termination of the Indenture or
the Subordinated Debentures, where such consent shall be required, without, in
each case, obtaining the prior approval of the holders of a majority in
aggregate Liquidation Amount of all outstanding Preferred Securities; provided,
however, that where a consent under the Indenture would require the consent
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of each holder of the Subordinated Debentures affected thereby, no such consent
shall be given by the Property Trustee without the prior consent of each holder
of the Preferred Securities. The Issuer Trustees shall not revoke any action
previously authorized or approved by a vote of the holders of the Preferred
Securities except by subsequent vote of the holders of the Preferred Securities.
The Property Trustee shall notify each holder of the Preferred Securities of any
notice of default with respect to the Subordinated Debentures. In addition to
obtaining the foregoing approvals of the holders of the Preferred Securities,
prior to taking any of the foregoing actions, the Issuer Trustees shall obtain
an opinion of counsel experienced in such matters to the effect that the Issuer
will not be classified as an association taxable as a corporation for United
States federal income tax purposes on account of such action.
Any required approval of holders of the Preferred Securities may be
given at a meeting of holders of the Preferred Securities convened for such
purpose or pursuant to written consent. The Property Trustee will cause a notice
of any meeting at which holders of the Preferred Securities are entitled to
vote, or of any matter upon which action by written consent of such holders is
to be taken, to be given to each holder of record of the Preferred Securities in
the manner as set forth in the Trust Agreement.
No vote or consent of the holders of the Preferred Securities will be
required for the Issuer to redeem and cancel the Preferred Securities in
accordance with the Trust Agreement.
Notwithstanding that holders of the Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Issuer Trustees or any
affiliate of the Company or the Issuer Trustees shall, for purposes of such vote
or consent, be treated as if they were not outstanding.
LIQUIDATION VALUE
The amount payable on the Preferred Securities in the event of any
liquidation of the Issuer is $1,000 per Preferred Security plus accumulated and
unpaid Distributions, which may be in the form of a distribution of such amount
in Subordinated Debentures, subject to certain exceptions. See "--Liquidation
Distribution Upon Termination."
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
In the event that Preferred Securities are issued in certificated form,
such Preferred Securities will be in blocks having a Liquidation Amount of not
less than $100,000 (100 Preferred Securities) and may be transferred or
exchanged in such blocks in the manner and at the offices described below.
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The New Series B Preferred Securities initially will be represented by
one or more Preferred Securities in registered, global form (collectively, the
"Global Preferred Securities"). The Global Preferred Securities will be
deposited upon issuance with the Property Trustee as custodian for The
Depository Trust Company ("DTC"), in New York, New York, and registered in the
name of DTC or its nominee, in each case for credit to an account of a direct or
indirect participant in DTC as described below.
Except as set forth below, the Global Preferred Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Preferred
Securities may not be exchanged for Preferred Securities in certificated form
except in the limited circumstances described below. See "--Depositary
Procedures."
DEPOSITARY PROCEDURES
DTC has advised the Issuer and the Company that DTC is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers (including the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Issuer and the Company that, pursuant to
procedures established by it, (i) upon deposit of the Global Preferred
Securities, DTC will credit the accounts of Participants designated by the
Initial Purchasers with portions of the principal amount of the Global Preferred
Securities and (ii) ownership of such interests in the Global Preferred
Securities will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with respect
to other owners of beneficial interests in the Global Preferred Securities).
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL PREFERRED
SECURITIES WILL NOT HAVE PREFERRED SECURITIES REGISTERED IN THEIR NAME, WILL NOT
RECEIVE PHYSICAL DELIVERY OF SERIES A PREFERRED SECURITIES IN CERTIFICATED FORM
AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE
TRUST AGREEMENT FOR ANY PURPOSE.
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Payments in respect of the Global Preferred Security registered in the
name of DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Trust Agreement. Under the terms of
the Trust Agreement, the Property Trustee will treat the persons in whose names
the Preferred Securities, including the Global Preferred Securities, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Property
Trustee nor any agent thereof has or will have any responsibility or liability
for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Preferred Securities, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Preferred Securities or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Issuer and the Company that its current practice, upon receipt of
any payment in respect of securities such as the Preferred Securities, is to
credit the accounts of the relevant Participants with the payment on the payment
date, in amounts proportionate to their respective holdings in Liquidation
Amount of beneficial interests in the relevant security as shown on the records
of DTC unless DTC has reason to believe it will not receive payment on such
payment date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Preferred Securities will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
DTC, the Property Trustee or the Issuer. Neither the Issuer nor the Property
Trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the Preferred Securities, and the Issuer
and the Property Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee for all purposes.
Interests in the Global Preferred Securities will trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its participants.
Transfers between Participants in DTC will be effected in accordance
with DTC's procedures, and will be settled in same-day funds.
DTC has advised the Issuer and the Company that it will take any action
permitted to be taken by a holder of Preferred Securities only at the direction
of one or more Participants to whose account with DTC interests in the Global
Preferred Securities are credited and only in respect of such portion of the
aggregate Liquidation Amount of the Preferred Securities as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Trust Agreement, DTC reserves the right to
exchange the Global Preferred Securities for legended Preferred Securities in
certificated form and to distribute such Preferred Securities to its
Participants.
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RATING
The Preferred Securities are expected to be rated "b2" by
Moody's Investor Services, Inc. and "BB-" by Thompson's Bank Watch, which are
the ratings of the Old Series A Preferred Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities shall be made
to DTC, which shall credit the relevant accounts at the Depository on the
applicable Distribution Dates or, if the Preferred Securities are not
held by DTC, such payments shall be made by check mailed to the address of the
holder entitled thereto as such address shall appear on the Register. The paying
agent (the "Paying Agent") shall initially be the Property Trustee and any
co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees and the Company. The Paying Agent shall be permitted to
resign as Paying Agent upon 30 days' written notice to the Property Trustee and
the Company. In the event that the Property Trustee shall no longer be the
Paying Agent, the Administrative Trustees shall appoint a successor (which shall
be a bank or trust company acceptable to the Administrative Trustees and the
Company) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Preferred Securities.
Registration of transfers of the Preferred Securities will be effected
without charge by or on behalf of the Issuer, but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Issuer will not be required to register or cause to be
registered the transfer of the Preferred Securities after the Preferred
Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance
of an Event of Default, undertakes to perform only such duties as are
specifically set forth in the Trust Agreement and, after such Event of Default,
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of the
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. If no Event of
Default has occurred and is continuing and the Property Trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the Trust Agreement or is unsure of the application of any provision of the
Trust Agreement, and the matter is not one on which holders of the Preferred
Securities are entitled under the Trust Agreement to vote, then the Property
Trustee shall
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take such action as is directed by the Company and if not so directed, shall
take such action as it deems advisable and in the best interests of the holders
of the Trust Securities and will have no liability except for its own bad faith,
negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Issuer in such a way that the Issuer will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the Company and the
Administrative Trustees are authorized to take any action, not inconsistent with
applicable law, the certificate of trust or the Trust Agreement, that the
Company and the Administrative Trustees determine in their discretion to be
necessary or desirable for such purposes, as long as such action does not
materially adversely affect the interests of the holders of the Preferred
Securities.
Holders of the Preferred Securities have no preemptive or
similar rights.
The Issuer may not borrow money or issue debt or mortgage or
pledge any of its assets.
DESCRIPTION OF SUBORDINATED DEBENTURES
The Old Series A Subordinated Debentures were issued and the New Series
B Subordinated Debentures will be issued as a separate series under the
Indenture entered into by the Company and The Bank of New York, as trustee (the
"Debenture Trustee"). The Indenture has been qualified under the Trust Indenture
Act. This summary of certain terms and provisions of the Subordinated Debentures
and the Indenture does not purport to be complete, and where reference is made
to particular provisions of the Indenture, such provisions, including the
definitions of certain terms, some of which are not otherwise defined herein,
are qualified in their entirety by reference to all of the provisions of the
Indenture and those terms made a part of the Indenture by the Trust Indenture
Act.
GENERAL
Concurrently with the issuance of the Preferred Securities, the Issuer
will invest the proceeds thereof, together with the consideration paid by the
Company for the Series A Common Securities, in the Subordinated Debentures
issued by the Company. The Subordinated Debentures will bear interest at the
annual rate of 10 1/4% of the principal amount thereof, payable semi-annually in
arrears on June 30 and December 31 of each year (each, an "Interest Payment
Date"), commencing June 30, 1997, to the person in whose name each Subordinated
Debenture is registered, subject to certain exceptions, at the close of business
on the Business Day next preceding such Interest Payment Date. It is anticipated
that, until the liquidation, if any, of the Issuer, the Subordinated Debentures
will be held in the name of the
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Property Trustee in trust for the benefit of the holders of the Preferred
Securities. The amount of interest payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months. In the event that any date
on which interest is payable on the Subordinated Debentures is not a Business
Day, then payment of the interest payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the date such payment was originally payable. Accrued interest that is not
paid on the applicable Interest Payment Date will bear additional interest on
the amount thereof (to the extent permitted by law) at the rate per annum of 10
1/4% thereof, compounded semi-annually from the relevant Interest Payment Date.
The term "interest" as used herein shall include semi-annual interest payments,
interest on semi-annual interest payments not paid on the applicable Interest
Payment Date and Additional Sums, as applicable.
The Subordinated Debentures will mature on December 31, 2026 (the
"Stated Maturity").
The Subordinated Debentures will be unsecured and will rank junior and
be subordinate in right of payment to all Senior Debt of the Company. Because
the Company is a holding company, the right of the Company to participate in any
distribution of assets of any subsidiary, including the Bank, upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the prior
claims of creditors of that subsidiary, except to the extent that the Company
may itself be recognized as a creditor of that subsidiary. Accordingly, the
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the Company's subsidiaries, and holders of the
Subordinated Debentures should look only to the assets of the Company for
payments on the Subordinated Debentures. The Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of the Company,
including Senior Debt, whether under the Indenture or any existing or other
indenture that the Company may enter into in the future or otherwise.
The Company is a legal entity separate and distinct from the Bank. A
major portion of the Company's revenues results from amounts paid as dividends
to the Company by the Bank. Savings institutions must provide the OTS with at
least 30 days written notice before making any capital distributions. All such
capital distributions are also subject to the OTS' right to object to a
distribution on safety and soundness grounds.
In addition, the Company and the Bank are subject to various general
regulatory policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital above regulatory minimums.
The current OTS regulation applicable to the payment of dividends or other
capital distributions by savings institutions imposes limits on capital
distributions based on an institution's regulatory capital levels and net
income. An institution that meets or exceeds all of its fully phased-in capital
requirements (both before and after giving effect to the distribution) and is
not in need of more than normal supervision would be a "Tier 1 association." A
Tier 1 association may make capital distributions during a calendar year of up
to the greater of (i) 100% of net income for the current calendar year plus 50%
of its capital surplus or (ii) 75% of its net income over the most recent four
quarters. Any additional capital distributions would require prior regulatory
approval.
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The Bank currently exceeds its fully phased-in capital requirements and
qualifies as a Tier 1 association under the regulation.
An institution that meets the minimum regulatory capital requirements
but does not meet the fully phased-in capital requirements would be a "Tier 2
association," which may make capital distributions of between 25% and 75% of its
net income over the most recent four-quarter period, depending on the
institution's risk-based capital level. A "Tier 3 association" is defined as an
institution that does not meet all of the minimum regulatory capital
requirements and therefore may not make any capital distributions without the
prior approval of the OTS.
RIGHT TO DEFER INTEREST PAYMENT OBLIGATION
So long as no event of default under the Indenture has occurred and is
continuing, the Company has the right under the Indenture at any time or from
time to time during the term of the Subordinated Debentures to defer the payment
of interest on the Subordinated Debentures for a period not exceeding 10
consecutive semi-annual periods with respect to each Extension Period, provided
that no Extension Period may extend beyond the Stated Maturity of the
Subordinated Debentures. At the end of such Extension Period, the Company must
pay all interest then accrued and unpaid on the Subordinated Debentures
(together with interest on such unpaid interest at the annual rate of 10 1/4%,
compounded semi-annually from the relevant Interest Payment Date, to the extent
permitted by applicable law). During an Extension Period, interest will continue
to accrue and holders of the Subordinated Debentures (or holders of the
Preferred Securities while outstanding) will be required to accrue interest
income for United States federal income tax purposes. See "Certain Federal
Income Tax Consequences--Original Issue Discount."
During any such Extension Period, the Company may not, and may not
permit any subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company that rank PARI PASSU with or junior in interest
to the Subordinated Debentures or make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks PARI PASSU with or junior in interest to the
Subordinated Debentures (other than (a) dividends or distributions in common
stock of the Company, (b) any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, the issuance of stock under any
such plan in the future or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Guarantee and (d) purchases of common
stock related to the issuance of common stock or rights under any of the
Company's benefit plans for its directors, officers or employees). Prior to the
termination of any such Extension Period, the Company may further defer the
payment of interest, provided that no Extension Period may exceed 10 consecutive
semi-annual periods or extend beyond the Stated Maturity of the Subordinated
Debentures. Upon the termination of any such Extension Period and the payment of
all interest then accrued and unpaid (together with interest thereon at the rate
of 10 1/4%, compounded semi-annually, to the extent permitted by applicable
law), the Company may elect to begin a new Extension Period subject to the above
requirements. No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company must give the Property Trustee, the
Administrative Trustees and the Debenture Trustee notice of its election of such
Extension Period at least one Business Day prior to the earlier of (i) the date
interest on the Subordinated Debentures would have been payable except for the
election to begin such Extension Period or (ii) the date the Administrative
Trustees are required to
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give notice to DTC or other applicable self-regulatory organization or to
holders of the Preferred Securities as of the record date or the date such
Distributions are payable, but in any event not less than one Business Day prior
to such record date. The Debenture Trustee shall give notice of the Company's
election to begin a new Extension Period to the holders of the Preferred
Securities. There is no limitation on the number of times that the Company may
elect to begin an Extension Period.
ADDITIONAL SUMS
If the Issuer is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the Subordinated Debentures such amounts as shall be
required so that the Distributions payable by the Issuer shall not be reduced as
a result of any such additional taxes, duties or other governmental charges.
OPTIONAL REDEMPTION
The Subordinated Debentures will be redeemable, in whole at any time or
in part from time to time, at the option of the Company on or after December 31,
2006, at a redemption price (the "Optional Redemption Price") equal to the
percentage of the outstanding principal amount of the Subordinated Debentures
specified below, plus, in each case, accrued interest thereon to the date of
redemption, if redeemed during the 12-month period beginning December 31, in the
year indicated:
OPTIONAL
REDEMPTION
DATE PRICE
---- -----
2006................................................... 105.125%
2007................................................... 104.613%
2008................................................... 104.100%
2009................................................... 103.588%
2010................................................... 103.075%
2011................................................... 102.563%
2012................................................... 102.050%
2013................................................... 101.538%
2014................................................... 101.025%
2015................................................... 100.513%
2016 and thereafter.................................... 100.000%
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TAX EVENT REDEMPTION
If a Tax Event (as defined below) shall occur and be continuing, the
Company may, at its option, redeem the Subordinated Debentures in whole (but not
in part) at any time within 90 days following the occurrence of such Tax Event,
at a redemption price (the "Tax Event Redemption Price") equal to the Make-Whole
Amount plus accrued and unpaid interest on the Subordinated Debentures to the
date fixed for redemption. The "Make-Whole Amount" shall be equal to the greater
of (i) 100% of the principal amount of the Subordinated Debentures or (ii) as
determined by Friedman, Billings, Ramsey & Co., Inc. (in this capacity, the
"Quotation Agent"), the sum of the present values of the principal amount and
premium payable as part of the Redemption Price with respect to an optional
redemption of such Subordinated Debentures on December 31, 2006, together with
scheduled payments of interest from the redemption date to December 31, 2006
(the "Remaining Life"), discounted to the redemption date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate.
"Adjusted Treasury Rate" means, with respect to any redemption date,
the Treasury Rate plus (i) 1.40% if such redemption date occurs on or before
December 31, 1997 or (ii) 0.80% if such redemption date occurs after December
31, 1997.
"Treasury Rate" means (i) the yield, under the heading which
represents the average for the immediately prior week, appearing in the most
recently published statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Federal Reserve and which
establishes yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities," for the
maturity corresponding to the Remaining Life (if no maturity is within three
months before or after the Remaining Life, yields for the two published
maturities most closely corresponding to the Remaining Life shall be determined
and the Treasury Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding to the nearest month) or (ii) if such release
(or any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date. The Treasury Rate shall be calculated on the third
Business Day preceding the redemption date.
"Comparable Treasury Issue" means with respect to any redemption date
the United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining
Life. If no United States Treasury security has a maturity which is within a
period from three months before to three months after December 31, 2006, the two
most closely corresponding United States Treasury securities shall be used as
the Comparable Treasury Issue, and the Treasury Rate shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using such
securities.
"Comparable Treasury Price" means (A) the average of five Reference
Treasury Dealer Quotations for such redemption date, after excluding the highest
and lowest such Reference Treasury
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Dealer Quotations, or (B) if the Debenture Trustee obtains fewer than three such
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such redemption date.
"Tax Event" means the receipt by the Issuer of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Issuer is, or will be within 90 days of the date
of such opinion, subject to United States federal income tax with respect to
income received or accrued on the Subordinated Debentures, (ii) interest payable
by the Company on the Subordinated Debentures is not, or within 90 days of the
date of such opinion will not be, deductible by the Company, in whole or in
part, for United States federal income tax purposes or (iii) the Issuer is, or
will be within 90 days of the date of such opinion, subject to more than a DE
MINIMIS amount of other taxes, duties or other governmental charges.
"Additional Sums" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Issuer on the
outstanding Preferred Securities and Series A Common Securities shall not be
reduced as a result of any additional taxes, duties and other governmental
charges to which the Issuer has become subject as a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of the Preferred
Securities, Preferred Securities having a Liquidation Amount equal to that
portion of the principal amount of the Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Series A Common Securities and to the Preferred Securities PRO RATA based upon
the relative Liquidation Amounts of such Securities and the proceeds of which
will be used to pay the Redemption Price of such Preferred Securities and (ii)
with respect to a distribution of the Subordinated Debentures to holders of the
Preferred Securities in exchange therefor in connection with a dissolution or
liquidation of the Issuer, Subordinated Debentures having a principal amount
equal to the Liquidation Amount of the Preferred Securities of the holder to
whom such Subordinated Debentures would be distributed.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of the Subordinated
Debentures to be redeemed at its registered address. Unless the Company defaults
in payment of the redemption price, on and after
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the redemption date interest ceases to accrue on the Subordinated Debentures or
portions thereof called for redemption.
RESTRICTIONS ON CERTAIN PAYMENTS
The Company will also covenant, as to the Subordinated Debentures, that
it will not, and will not permit any subsidiary of the Company to, (i) declare
or pay any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock, (ii)
make any payment of principal, interest or premium, if any, on or repay or
repurchase or redeem any debt securities of the Company that rank PARI PASSU
with or junior in interest to the Subordinated Debentures or (iii) make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks PARI PASSU
with or junior in interest to the Subordinated Debentures (other than (a)
dividends or distributions in common stock of the Company, (b) any declaration
of a dividend in connection with the implementation of a stockholders' rights
plan, the issuance of stock under any such plan in the future or the redemption
or repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee and (d) purchases of common stock related to the issuance of common
stock or rights under any of the Company's benefit plans for its directors,
officers or employees), if at such time (i) there shall have occurred any event
of which the Company has actual knowledge (a) that with the giving of notice or
the lapse of time, or both, would constitute an event of default under the
Indenture with respect to the Subordinated Debentures and (b) in respect of
which the Company shall not have taken reasonable steps to cure, (ii) if the
Subordinated Debentures are held by the Issuer, the Company shall be in default
with respect to its payment of any obligations under the Guarantee relating to
such Preferred Securities or (iii) the Company shall have given notice of its
selection of an Extension Period as provided in the Indenture with respect to
the Subordinated Debentures and shall not have rescinded such notice, or such
Extension Period, or any extension thereof, shall be continuing.
MODIFICATION OF INDENTURE
From time to time the Company and the Debenture Trustee may, without
the consent of the holders of the Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies, provided that any such action
does not materially adversely affect the interest of the holders of the
Subordinated Debentures or the ability to qualify, or maintain the qualification
of, the Indenture under the Trust Indenture Act. The Indenture contains
provisions permitting the Company and the Debenture Trustee, with the consent of
the holders of not less than a majority in principal amount of the Subordinated
Debentures affected, to modify the Indenture in a manner affecting the rights of
the holders of the Subordinated Debentures, provided that no such modification
may, without the consent of the holder of each outstanding Subordinated
Debenture so affected, (i) change the Stated Maturity of the Subordinated
Debentures, reduce the principal amount thereof or reduce the rate or extend the
time of payment of interest thereon or (ii) reduce the percentage of principal
amount of the Subordinated Debentures, the holders of which are required to
consent to any such modification of the Indenture.
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DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Subordinated Debentures that has occurred and is
continuing constitutes a "Debenture Event of Default":
(i) failure for 30 days to pay interest on the Subordinated
Debentures when due (subject to the deferral of any due date in the
case of an Extension Period); or
(ii) failure to pay any principal on the Subordinated
Debentures when due, whether at maturity, upon redemption by
declaration or otherwise; or
(iii) failure to observe or perform in any material respect
certain other covenants contained in the Indenture for 90 days after
written notice to the Company from the Debenture Trustee or the holders
of at least 25% in aggregate outstanding principal amount of the
outstanding Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or
reorganization of the Company, subject in certain instances to any such
event remaining in effect for a period of 60 consecutive days.
The holders of a majority in aggregate outstanding principal amount of
the Subordinated Debentures have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Debenture Trustee.
The Debenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Subordinated Debentures may declare the
principal due and payable immediately upon a Debenture Event of Default. The
holders of a majority in aggregate outstanding principal amount of the
Subordinated Debentures may annul such declaration and waive the default if the
default (other than the non-payment of the principal of the Subordinated
Debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of
the Subordinated Debentures affected thereby may, on behalf of the
holders of all the Subordinated Debentures, waive any past default,
except a default in the payment of principal or interest (unless such default
has been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Debenture Trustee) or a default in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Subordinated Debenture. The Company is
required to file annually with the Debenture Trustee a certificate as to whether
or not the Company is in compliance with all the conditions and covenants
applicable to it under the Indenture.
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ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE SERIES A PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or principal
on the Subordinated Debentures on the date such interest or principal is
otherwise payable, a holder of the Preferred Securities may institute a legal
proceeding directly against the Company for enforcement of payment to such
holder of the principal of or interest on the Subordinated Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Preferred
Securities of such holder (a "Direct Action"). The Company may not amend the
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Preferred Securities. If the
right to bring a Direct Action is removed, the Issuer may become subject to the
reporting obligations under the Exchange Act. The Company shall have the right
under the Indenture to set-off any payment made to such holder of the Preferred
Securities by the Company in connection with a Direct Action.
The holders of the Preferred Securities will not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Subordinated Debentures. See "Description of the
Preferred Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or
merge into any other entity or convey, transfer or lease its properties and
assets substantially as an entirety to any entity, and no entity shall
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless: (i)
in the event the Company consolidates with or merges into another entity or
conveys or transfers its properties and assets substantially as an entirety to
any entity, the successor entity is organized under the laws of the United
States or any state or the District of Columbia, and such successor entity
expressly assumes the Company's obligations on the Subordinated Debentures
issued under the Indenture; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time or
both, would become a Debenture Event of Default, shall have occurred and be
continuing; and (iii) certain other conditions as prescribed by the Indenture
are met.
The general provisions of the Indenture do not afford holders of the
Subordinated Debentures protection in the event of a highly leveraged
reorganization, restructuring, merger or other similar transaction involving the
Company that may adversely affect holders of the Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all of the
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
at their Stated Maturity within one year, and the
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Company deposits or causes to be deposited with the Debenture Trustee funds, in
trust, for the purpose and in an amount in the currency or currencies in which
the Subordinated Debentures are payable sufficient to pay and discharge the
entire indebtedness on the Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation, for the principal and interest to the
date of the deposit or to the Stated Maturity, as the case may be, then the
Indenture will cease to be of further effect (except as to the Company's
obligations to pay all other sums due pursuant to the Indenture and to provide
the officers' certificates and opinions of counsel described therein), and the
Company will be deemed to have satisfied and discharged the Indenture.
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that the
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Debt to the extent provided in the Indenture.
Upon any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding-up, reorganization, assignment for the benefit of
creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Senior Debt will first be
entitled to receive payment in full of principal of (and premium, if any) and
interest, if any, on such Senior Debt before the holders of the Subordinated
Debentures, or the Property Trustee on behalf of the holders, will be entitled
to receive or retain any payment in respect of the principal of or interest, if
any, on the Subordinated Debentures.
In the event of the acceleration of the maturity of any of the
Subordinated Debentures, the holders of all Senior Debt outstanding at the time
of such acceleration will first be entitled to receive payment in full of all
amounts due thereon (including any amounts due upon acceleration) before the
holders of the Subordinated Debentures will be entitled to receive or retain any
payment in respect of the principal of or interest, if any, on the Subordinated
Debentures.
No payments on account of principal or interest, if any, in respect of
the Subordinated Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior Debt or an event of
default with respect to any Senior Debt resulting in the acceleration of the
maturity thereof, or if any judicial proceeding shall be pending with respect to
any such default.
"Debt" means with respect to any Person, whether recourse is to all or
a portion of the assets of such Person and whether or not contingent: (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; (vi) all
indebtedness of such Person whether incurred on or
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prior to the date of the Indenture or thereafter incurred, for claims in respect
of derivative products, including interest rate, foreign exchange rate and
commodity forward contracts, options and swaps and similar arrangements; and
(vii) every obligation of the type referred to in clauses (i) through (vi) of
another Person and all dividends of another Person the payment of which, in
either case, such Person has guaranteed or is responsible or liable, directly or
indirectly, as obligor or otherwise.
"Senior Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Subordinated Debentures or to other Debt
which is PARI PASSU with, or subordinated to, the Subordinated Debentures;
provided, however, that Senior Debt shall not be deemed to include: (i) any Debt
of the Company which when incurred and without respect to any election under
Section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was
without recourse to the Company, (ii) any Debt of the Company to any of its
subsidiaries and (iii) Debt to any employee of the Company.
The Indenture places no limitation on the amount of Senior Debt or
subordinated debt which is PARI PASSU with the Subordinated Indentures, that may
be incurred by the Company. The Company expects from time to time to incur
additional indebtedness constituting Senior Debt.
GOVERNING LAW
The Indenture and the Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Debenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of the Subordinated Debentures, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby. The Debenture Trustee is not required to expend or risk its
own funds or otherwise incur personal financial liability in the performance of
its duties if the Debenture Trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it.
DISTRIBUTION OF THE SUBORDINATED DEBENTURES
As described under "Description of the Preferred
Securities--Liquidation of the Issuer and Distribution of the Subordinated
Debentures to Holders," under certain circumstances involving the termination of
the Issuer, Subordinated Debentures
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may be distributed to the holders of the Preferred Securities in exchange
therefor upon liquidation of the Issuer, after satisfaction of liabilities to
creditors of the Issuer as provided by applicable law. If distributed to holders
of the Preferred Securities in liquidation, the Subordinated Debentures will
initially be issued in the form of one or more global securities and DTC, or any
successor depositary for the Preferred Securities, will act as depositary for
the Subordinated Debentures. It is anticipated that the depositary arrangements
for the Subordinated Debentures would be substantially identical to those in
effect for the Preferred Securities. If the Subordinated Debentures are
distributed to the holders of the Preferred Securities upon the liquidation of
the Issuer, the Company will use its best efforts to register or list the
Subordinated Debentures with DTC or such other trading facilities, if any, on
which the Preferred Securities are then listed. There can be no assurance as to
the market price of any Subordinated Debentures that may be distributed to the
holders of the Preferred Securities.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the Subordinated Debentures
will be made at the offices of the Debenture Trustee in the city of New York or
at the offices of such Paying Agent or Paying Agents as the Company may
designate from time to time, except that at the option of the Company payment of
any interest may be made (i) except in the case of Global Subordinated
Debentures, by check mailed to the address of the Person entitled thereto as
such address shall appear in the Securities Register or (ii) by transfer to an
account maintained by the Person entitled thereto as specified in the Securities
Register, provided that proper transfer instructions have been received by the
Regular Record Date. Payment of any interest on the Subordinated Debentures will
be made to the Person in whose name the Subordinated Debenture is registered at
the close of business on the Regular Record Date for such interest, except in
the case of Defaulted Interest. The Company may at any time designate additional
Paying Agents or rescind the designation of any Paying Agent; however, the
Company will at all times be required to maintain a Paying Agent in each Place
of Payment for the Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or
then held by the Company in trust, for the payment of the principal of or
interest on the Subordinated Debentures and remaining unclaimed for two years
after such principal or interest has become due and payable shall, at the
written request of the Company, be repaid to the Company and the holders of the
Subordinated Debentures shall thereafter look, as general unsecured creditors,
only to the Company for payment thereof.
DESCRIPTION OF GUARANTEE
The Old Series A Guarantee was executed and delivered by the Company
concurrently with the issuance by the Issuer of the Old Series A Preferred
Securities for the benefit of the holders from time to time of the Series A
Preferred Securities. As soon as practicable after the date hereof, the Old
Guarantee will be exchanged by the Company for the New Guarantee. The Guarantee
Agreement has been qualified under the Trust Indenture Act.
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This summary of certain terms and provisions of the Guarantee Agreement does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the terms and provisions of the Guarantee Agreement,
including the definitions therein of certain terms, and the Trust Indenture Act.
The Guarantee Trustee will hold the Guarantee for the benefit of the holders of
the Preferred Securities.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth herein, the Guarantee Payments (as defined below)
to the holders of the Preferred Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Issuer may have or assert
other than the defense of payment. The following payments with respect to the
Preferred Securities, to the extent not paid by or on behalf of the Issuer (the
"Guarantee Payments"), will be subject to the Guarantee: (i) any accumulated and
unpaid Distributions required to be paid on the Preferred Securities, to the
extent that the Issuer has funds on hand available therefor at such time, (ii)
the Redemption Price with respect to the Preferred Securities called for
redemption, to the extent that the Issuer has funds on hand available therefor
at such time, or (iii) upon a voluntary or involuntary dissolution, winding up
or liquidation of the Issuer (unless the Subordinated Debentures are distributed
to holders of the Preferred Securities), the lesser of (a) the Liquidation
Distribution and (b) the amount of assets of the Issuer remaining available for
distribution to holders of the Preferred Securities after satisfaction of
liabilities to creditors of the Issuer as required by applicable law. The
Company's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Company to the holders of the Preferred
Securities or by causing the Issuer to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis
of the Issuer's obligations under the Preferred Securities, but will apply only
to the extent that the Issuer has funds sufficient to make such payments, and is
not a guarantee of collection.
If the Company does not make interest payments on the Subordinated
Debentures held by the Issuer, the Issuer will not be able to pay Distributions
on the Preferred Securities and will not have funds legally available therefor.
The Guarantee will rank subordinate and junior in right of payment to all Senior
Debt of the Company. (See "--Status of the Guarantee.") Because the Company is a
holding company, the right of the Company to participate in any distribution of
assets of any subsidiary upon such subsidiary's liquidation or reorganization or
otherwise is subject to the prior claims of creditors of that subsidiary, except
to the extent the Company may itself be recognized as a creditor of that
subsidiary. Accordingly, the Company's obligations under the Guarantee will be
effectively subordinated to all existing and future liabilities of the Company's
subsidiaries, and claimants should look only to the assets of the Company for
payments thereunder. The Guarantee does not limit the incurrence or issuance of
other secured or unsecured debt of the Company, including Senior Debt, whether
under the Indenture, any other indenture that the Company may enter into in the
future, or otherwise.
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The Company has, through the Guarantee, the Trust Agreement, the
Subordinated Debentures, the Indenture and the Expense Agreement, taken
together, fully, irrevocably and unconditionally guaranteed all of the Issuer's
obligations under the Preferred Securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of the
Issuer's obligations under the Preferred Securities. See "Relationship Among the
Preferred Securities, the Subordinated Debentures, the Expense Agreement and the
Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company
and will rank subordinate and junior in right of payment to all Senior Debt of
the Company in the same manner as the Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held for the benefit of the holders of the Preferred
Securities. The Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by the Issuer or upon
distribution to the holders of the Preferred Securities of the Subordinated
Debentures. The Guarantee does not place a limitation on the amount of
additional Senior Debt that may be incurred by the Company. The Company expects
from time to time to incur additional indebtedness constituting Senior Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely
affect the rights of holders of the Preferred Securities (in which case no vote
will be required), the Guarantee may not be amended without the prior approval
of the holders of not less than a majority of the aggregate Liquidation Amount
of such outstanding Preferred Securities. The manner of obtaining any such
approval will be as set forth under "Description of the New
Securities--Description of Preferred Securities--Voting Rights; Amendment of the
Trust Agreement." All guarantees and agreements contained in the Guarantee shall
bind the successors, assigns, receivers, trustees and representatives of the
Company and shall inure to the benefit of the holders of the Preferred
Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of
the Company to perform any of its payments or other obligations thereunder. The
holders of not less than a
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majority in aggregate Liquidation Amount of the Preferred Securities have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Guarantee Trustee in respect of such Guarantee or to
direct the exercise of any trust or power conferred upon the Guarantee Trustee
under such Guarantee.
Any holder of the Preferred Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Issuer, the Guarantee Trustee
or any other person or entity.
The Company, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance
of a default by the Company in the performance of the Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after default with respect to the Guarantee, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of his
or her own affairs. Subject to this provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of the Preferred Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
TERMINATION OF THE SERIES A GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Preferred Securities, upon full
payment of the amounts payable upon liquidation of the Issuer or upon
distribution of the Subordinated Debentures to the holders of the Preferred
Securities in exchange therefor. The Guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any holder of the
Preferred Securities must restore payment of any sums paid under the Preferred
Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the
laws of the State of New York.
THE EXPENSE AGREEMENT
Pursuant to the Expense Agreement entered into by the Company under the
Trust Agreement (the "Expense Agreement"), the Company will irrevocably and
unconditionally guarantee to each
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person or entity to whom the Issuer becomes indebted or liable, the full payment
of any costs, expenses or liabilities of the Issuer, other than obligations of
the Issuer to pay to the holders of the Preferred Securities the amounts due
such holders pursuant to the terms of the Preferred Securities.
DESCRIPTION OF THE OLD SECURITIES
The terms of the Old Securities are identical in all material respects
to the New Securities, except that (i) the Old Securities have not been
registered under the Securities Act, are subject to certain restrictions on
transfer and are entitled to certain rights under the applicable Registration
Rights Agreement (which rights will terminate upon consummation of the Exchange
Offer, except under limited circumstances); (ii) the New Series B Preferred
Securities will not provide for any increase in the Distribution rate thereon;
and (iii) the New Series B Subordinated Debentures will not provide for any
increase in the interest rate thereon. The Old Securities provide that, in the
event that the Exchange Offer Registration Statement is not declared effective
on or prior to April 29, 1997, or, in certain limited circumstances, in the
event the Exchange Offer is not consummated or a shelf registration statement
(the "Shelf Registration Statement") with respect to the resale of the Old
Series A Preferred Securities is not declared effective on or prior to June 28,
1997, then interest will accrue (in addition to the stated interest rate on the
Subordinated Debentures) at the rate per annum equal to an additional
one-quarter of one percent (0.25%) per Registration Default (not to exceed in
the aggregate 0.50%) of the principal amount, or the Liquidation Amount, as
applicable. The New Securities are not, and upon consummation of the Exchange
Offer the Old Securities will not be, entitled to any such additional interest
or Distributions. Accordingly, holders of Old Series A Preferred Securities
should review the information set forth under "Risk Factors--Certain
Consequences of a Failure to Exchange Old Series A Preferred Securities" and
"Description of the New Securities."
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE SUBORDINATED DEBENTURES, THE EXPENSE
AGREEMENT AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred
Securities (to the extent the Issuer has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of the Guarantee." Taken together, the Company's
obligations under the Subordinated Debentures, the Indenture, the Trust
Agreement, the Expense Agreement and the Guarantee provide, in the aggregate, a
full, irrevocable and unconditional guarantee of payments of distributions and
other amounts due on the Preferred Securities. No single document standing alone
or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the Issuer's obligations under the Preferred Securities. If and to the extent
that the Company does not make payments on the Subordinated
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Debentures, the Issuer will not pay Distributions or other amounts due on its
Preferred Securities. The Guarantee does not cover payment of Distributions when
the Issuer does not have sufficient funds to pay such Distributions. In such
event, the remedy of a holder of the Preferred Securities is to institute a
Direct Action against the Company for enforcement of payment of such
Distributions to such holder. The obligations of the Company under the Guarantee
are subordinate and junior in right of payment to all Senior Debt.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on
the Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Preferred Securities, primarily
because: (i) the aggregate principal amount of the Subordinated Debentures will
be equal to the sum of the aggregate stated Liquidation Amount of the Preferred
Securities and Series A Common Securities; (ii) the interest rate and interest
and other payment dates on the Subordinated Debentures will match the
Distribution rate and Distribution and other payment dates for the Preferred
Securities; (iii) the Company shall pay for all and any costs, expenses and
liabilities of the Issuer except the Issuer's obligations to holders of its
Preferred Securities; and (iv) the Trust Agreement further provides that the
Issuer will not engage in any activity that is not consistent with the limited
purposes of the Issuer.
Notwithstanding anything to the contrary in the Indenture, the Company
has the right to set off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently on
the date of making such payment, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF THE PREFERRED SECURITIES
A holder of a Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the Issuer
or any other person or entity.
A default or event of default under any Senior Debt of the Company
would not constitute a default or Event of Default under the Indenture. However,
in the event of payment defaults under, or acceleration of, Senior Debt of the
Company, the subordination provisions of the Indenture provide that no payments
may be made in respect of the Subordinated Debentures until such Senior Debt has
been paid in full or any payment default thereunder has been cured or waived.
Failure to make required payments on the Subordinated Debentures would
constitute an event of default under the Indenture.
LIMITED PURPOSE OF THE ISSUER
The Preferred Securities evidence a beneficial interest in the Issuer,
and the Issuer exists for the sole purpose of issuing its Preferred Securities
and Series A Common Securities and investing the proceeds thereof in
Subordinated Debentures. A
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principal difference between the rights of a holder of a Preferred Security and
a holder of a Subordinated Debenture is that a holder of a Subordinated
Debenture is entitled to receive from the Company the principal amount of and
interest accrued on Subordinated Debentures held, while a holder of the
Preferred Securities is entitled to receive Distributions from the Issuer (or
from the Company under the Guarantee) if, and to the extent, the Issuer has
funds available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or
liquidation of the Issuer involving the liquidation of the Subordinated
Debentures, after satisfaction of liabilities to creditors of the Issuer, if
any, as provided by applicable law, the holders of the Preferred Securities will
be entitled to receive, out of assets held by the Issuer, the Liquidation
Distribution in cash. See "Description of the Preferred Securities--Liquidation
Distribution Upon Termination." Upon any voluntary or involuntary liquidation or
bankruptcy of the Company, the Property Trustee, as holder of the Subordinated
Debentures, would be a subordinated creditor of the Company, subordinated in
right of payment to all Senior Debt as set forth in the Indenture, but entitled
to receive payment in full of principal and interest, before any stockholders of
the Company receive payments or distributions. Since the Company is the
guarantor under the Guarantee and has agreed to pay for all costs, expenses and
liabilities of the Issuer (other than the Issuer's obligations to the holders of
its Preferred Securities), the positions of a holder of such Preferred
Securities and a holder of the Subordinated Debentures relative to other
creditors and to stockholders of the Company in the event of liquidation or
bankruptcy of the Company are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal
income tax consequences of the purchase, ownership and disposition of the
Preferred Securities. This summary does not address the tax consequences to
persons that may be subject to special treatment under United States federal
income tax law, such as banks, insurance companies, thrift institutions,
regulated investment companies, real estate investment trusts, tax-exempt
organizations, dealers in securities or currencies, persons that hold Preferred
Securities as part of a position in a "straddle" or as part of a "hedging,"
"conversion" or other integrated investment transaction for federal income tax
purposes, persons whose functional currency is not the United States dollar or
persons that do not hold Preferred Securities as capital assets.
The statements of law or legal conclusions set forth in this summary
constitute the opinion of Kronish, Lieb, Weiner & Hellman LLP ("Kronish Lieb"),
special tax counsel to the Company and the Issuer. This summary is based upon
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, all of which are subject to change at any time. Such
changes may be applied retroactively in a manner that could cause the tax
consequences to vary substantially from the consequences described below,
possibly adversely affecting a beneficial owner of the Preferred Securities. In
particular, legislation has been proposed that could adversely affect the
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Company's ability to deduct interest on the Subordinated Debentures, which would
in turn permit the Company to cause a redemption of the Preferred Securities.
(See "--Possible Tax Law Changes.") The authorities on which this summary is
based are subject to various interpretations, and it is therefore possible that
the federal income tax treatment of the purchase, ownership and disposition of
the Preferred Securities may differ from the treatment described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX
ADVISORS IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF PREFERRED SECURITIES
The exchange of Old Securities for New Securities will not be a taxable
event to beneficial owners of Preferred Securities ("Securityholders") for
federal income tax purposes. The exchange of Old Securities for New Securities
pursuant to the Exchange Offer will not be treated as an "exchange" for federal
income tax purposes because the New Securities will not differ materially in
kind or extent from the Old Securities and because the exchange will occur by
operation of the terms of the Old Securities. Accordingly, the New Series B
Subordinated Debentures will have the same issue date and issue price as the Old
Series A Subordinated Debentures, and a Securityholder will have the same
adjusted tax basis and holding period in the New Series B Preferred Securities
as the Securityholder had in the Old Series A Preferred Securities immediately
before the exchange.
CLASSIFICATION OF THE ISSUER
In the opinion of Kronish Lieb, under current law, the Issuer will not
be classified as an association taxable as a corporation for United States
federal income tax purposes. As a result, each Securityholder will be required
to include in its gross income its PRO RATA share of the original issue discount
accrued with respect to the Subordinated Debentures whether or not cash is
actually distributed to the Securityholders. (See "--Original Issue Discount.")
Under current law, no amount included in income with respect to the Preferred
Securities will be eligible for the dividends-received deduction.
ORIGINAL ISSUE DISCOUNT
Under the Indenture, the Company has the right to defer the payment of
interest on the Subordinated Debentures at any time or from time to time for a
period not exceeding 10 consecutive semi-annual periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Subordinated Debentures. Because of this option, all interest
payable on the Subordinated Debentures will be treated as "original issue
discount" ("OID") for federal income tax purposes. Accordingly, a Securityholder
will recognize income (in the form of OID) on a daily basis under a constant
yield method over the term of the Subordinated Debentures (including during any
Extension Period), regardless of the
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receipt of cash with respect to the period to which such income is attributable.
(Subsequent uses of the term "interest" in this summary include income in the
form of OID.) The amount of OID that accrues in any semi-annual period (other
than during an Extension Period) will equal approximately the amount of the
interest that accrues on the Subordinated Debentures in that semi-annual period
at the stated interest rate. Securityholders that did not acquire Preferred
Securities on their original issue at their original offering price will be
required to determine for themselves the amount of OID they must include in
gross income for federal income tax purposes.
In the event that the interest payment period is extended,
Securityholders will include interest in gross income in advance of the receipt
of cash, and any Securityholders that dispose of the Preferred Securities prior
to the record date for the payment of Distributions following such Extension
Period will include interest in gross income but will not receive any cash
related thereto from the Issuer. Any amount of OID included in a
Securityholder's gross income (whether or not during an Extension Period) will
increase such Securityholder's tax basis in its Preferred Securities, and the
amount of Distributions received by a Securityholder will reduce such
Securityholder's tax basis in its Preferred Securities.
DISTRIBUTION OF THE SUBORDINATED DEBENTURES TO HOLDERS OF THE PREFERRED
SECURITIES
Under current law, a distribution by the Issuer of the Subordinated
Debentures as described under the caption "Description of the New
Securities--Description of Preferred Securities--Liquidation of the Issuer and
Distribution of the Subordinated Debentures to Holders" will be non-taxable and
will result in a Securityholder's receiving directly its PRO RATA share of the
Subordinated Debentures previously held indirectly through the Issuer, with a
holding period and aggregate tax basis equal to the holding period and aggregate
tax basis such Securityholder had in its Preferred Securities before such
distribution. A Securityholder will accrue interest in respect of the
Subordinated Debentures received from the Issuer in the manner described above
under "--Original Issue Discount."
SALES OR REDEMPTION OF THE PREFERRED SECURITIES
Gain or loss will be recognized by a Securityholder on a sale of the
Preferred Securities (including a redemption for cash) in an amount equal to the
difference between the amount realized and the Securityholder's adjusted tax
basis in the Preferred Securities sold or so redeemed. Gain or loss recognized
by a Securityholder on Preferred Securities held for more than one year will
generally be taxable as long-term capital gain or loss.
The Preferred Securities may trade at a price that does not fully
reflect the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. A Securityholder that disposes of its Preferred
Securities between record dates for payments of Distributions (and consequently
does not receive a Distribution from the Issuer for the period prior to such
disposition) will nevertheless be required to include in income as ordinary
income accrued but unpaid interest on the Subordinated Debentures through the
date of disposition and to add such amount to its adjusted tax basis in its
Preferred Securities disposed of. Such
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Securityholder will recognize a capital loss on the disposition of its Preferred
Securities to the extent the selling price (which may not fully reflect the
value of accrued but unpaid interest) is less than the Securityholder's adjusted
tax basis in the Preferred Securities (which will include accrued but unpaid
interest). Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for federal income tax purposes.
POSSIBLE TAX LAW CHANGES
On February 6, 1997, as part of President Clinton's Fiscal 1998 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") that, among other things, would treat as equity for federal income
tax purposes a corporate debt instrument with a term of more than 15 years
issued to a related party (other than a corporation), where the instrument is
not shown on the issuer's balance sheet because the holder is consolidated with
the issuer on such balance sheet and the holder or some other related party
issues a related instrument not shown as indebtedness on such balance sheet. The
Proposed Legislation is proposed to be effective for instruments issued on or
after the date on which the first congressional committee action is taken.
It is expected that, if the Proposed Legislation is enacted as
currently proposed, such legislation will not apply to the Old Series A
Subordinated Debentures since they were issued prior to the date of any
committee action. Moreover, if the Proposed Legislation is enacted with
effective-date provisions that are identical in all material respects (except
for the actual effective date) to the effective-date provisions for an earlier
version of the Proposed Legislation contained in the Revenue Reconciliation Bill
of 1996 (the "1996 Bill"), then, even if the Exchange Offer is consummated after
the actual effective date of such legislation, the exchange of the Old
Securities for the New Securities will not cause the New Series B Subordinated
Debentures to be subject to such legislation. However, there can be no
assurances that the effective date guidance contained in the Proposed
Legislation and the 1996 Bill will be incorporated in the legislation, if
enacted, or that other legislation enacted after the date hereof will not
otherwise adversely affect the tax treatment of the Subordinated Debentures or
the Preferred Securities.
If the Proposed Legislation were enacted and applied to all or a
portion of the Subordinated Debentures, the Company would be unable to fully
deduct the interest on the Subordinated Debentures. Such a change could give
rise to a Tax Event, which would permit the Company to cause a redemption of the
Preferred Securities, as described more fully under "Description of the New
Securities--Description of Preferred Securities--Redemption." In addition, the
income with respect to the Preferred Securities would be treated as consisting
entirely or partly of distributions with respect to stock, which would
constitute dividends to the extent they did not exceed the current and
accumulated earnings and profits of the Company. Dividends paid by a United
States corporation to foreign persons are generally subject to United States
federal withholding tax.
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UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a non-resident alien individual, a foreign
partnership or a non-resident fiduciary of a foreign estate or trust.
Under present United States federal income tax law: (i) payments by the
Issuer or any of its paying agents to any Securityholder who or which is a
United States Alien Holder will not be subject to United States federal
withholding tax; provided, that (a) the Securityholder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote, (b) the Securityholder is not a
controlled foreign corporation that is related to the Company through stock
ownership and (c) either (A) the Securityholder certifies to the Issuer or its
agent, under penalties of perjury, that it is not a United States holder and
provides its name and address or (B) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "Financial Institution") certifies to the
Issuer or its agent, under penalties of perjury, that such statement has been
received from the Securityholder by it or by a Financial Institution holding
such security for the Securityholder and furnishes the Issuer or its agent with
a copy thereof; and (ii) a United States Alien Holder of a Preferred Security
will not be subject to United States federal withholding tax on any gain
realized upon the sale or other disposition of a Preferred Security.
Proposed Treasury regulations (the "Proposed Regulations") would
provide alternative methods for satisfying the certification requirement
described in clause (i)(c) above. The Proposed Regulations also would require,
in the case of Preferred Securities held by a foreign partnership, that (x) the
certification described in clause (i)(c) above be provided by the partners
rather than by the foreign partnership and (y) the partnership provide certain
information, including a United States taxpayer identification number. A
look-through rule would apply in the case of tiered partnerships. The Proposed
Regulations are proposed to be effective for payments made after December 31,
1997. There can be no assurance that the Proposed Regulations will be adopted or
as to the provisions that they will include if and when adopted in temporary or
final form.
INFORMATION REPORTING TO SECURITYHOLDERS
Generally, income on the Preferred Securities will be reported to
Securityholders on Forms 1099, which should be mailed to Securityholders by
January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the Securityholder
complies with certain certification requirements. Any withheld amounts will be
allowed as a credit against the Securityholder's United States federal income
tax, provided the required information is provided to the Internal Revenue
Service on a timely basis.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements on those employee benefit plans to which
it applies ("Plans") and on those persons who are fiduciaries with respect to
such Plans. In accordance with ERISA's general fiduciary standards, before
purchasing the Preferred Securities a Plan fiduciary should determine whether
such an investment is permitted under the governing Plan instruments and is
appropriate for the Plan in view of its overall investment policy and the
composition and diversification of its portfolio. Other provisions of ERISA and
the Code require that certain reporting and disclosure be made with respect to
plan assets and investments, and still other provisions of ERISA and the Code
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan ("parties in interest" within
the meaning of ERISA or "disqualified persons" within the meaning of the Code).
Thus, a Plan fiduciary considering an investment in the Series A Preferred
Securities should consult with its legal counsel concerning the legal
implications of investing in the Preferred Securities, especially the issues
discussed in the immediately succeeding paragraphs.
An investment in Preferred Securities by a Plan might result in the
Subordinated Debentures and any other assets of the Issuer being deemed to
constitute in whole or in part Plan assets, which in turn would mean that such
assets would be subject to the reporting and disclosure rules of ERISA and the
Code, might mean that the Plan fiduciary who decided to invest in the Preferred
Securities had delegated asset management responsibility and might mean that the
purchase and certain underlying aspects of such investment, including the
operation of the Issuer, might be deemed prohibited transactions under ERISA and
the Code. Neither ERISA nor the Code defines "plan assets." The U.S. Department
of Labor has published regulations (the "Plan Asset Regulations") concerning
whether or not a Plan's assets would be deemed to include an interest in the
underlying assets of an entity (such as a trust) for purposes of ERISA and the
Code, if the Plan acquires an "equity interest" in such entity (such as by
acquiring the Preferred Securities). Under the Plan Asset Regulations the
underlying assets of an entity will not be considered "plan assets" if,
immediately after the most recent acquisition of any equity interest in the
entity, whether or not from the issuer or an underwriter, less than 25% of the
value of each class of equity interest is held by "benefit plan investors,"
which are defined as Plans, individual retirement accounts and certain employee
benefit plans not subject to ERISA (for example, non-U.S. or governmental
plans). Neither the initial sales of the Preferred Securities nor any subsequent
transfers thereof will be monitored to insure that the investment by "benefit
plan investors" is below the 25% limit described above and, accordingly, an
investing Plan's assets may be deemed to include the assets of the Trust.
Also under the Plan Asset Regulations, the underlying assets of an
entity will not be considered "plan assets" if the Plan's interest in the entity
qualified as "publicly offered securities" when the Plan acquired its interest.
The New Series B Preferred Securities may qualify as "publicly offered
securities" if at the time of the consummation of the Exchange Offer they are
"widely held" and "freely transferable." Under the Plan Asset Regulations, a
class of securities is "widely held" only if it is a class of securities that is
owned by 100 or more investors independent of the issuer and of one another.
Since it will not be possible to determine whether the New Series B Preferred
Securities are "widely held," it will not be possible to determine whether the
New Series B Preferred Securities qualify as "publicly offered securities."
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<PAGE>
In light of the possibility of prohibited transactions, Plans cannot
purchase the Preferred Securities unless (i) they are represented in this regard
by a "qualified professional asset manager" ("QPAM") as that term is defined in
U.S. Department of Labor Prohibited Transaction Exemption ("PTE") 84-14, and
other conditions to the applicability of PTE 84-14 to the purchase and holding
of the Preferred Securities are satisfied, or (ii) the conditions to the
applicability of (a) PTE 90-1 (for insurance company pooled separate accounts),
(b) PTE 91-38 (for bank collective funds), (c) PTE 95-60 (for insurance company
general accounts) or (d) PTE 96-23 (for in-house asset managers) to the purchase
and holding of the Preferred Securities are satisfied. By purchasing the
Preferred Securities, the investing Plan is deemed to represent and agree that
it is so represented and that such conditions are satisfied.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) are not subject to ERISA requirements but may be subject
to somewhat similar provisions of other applicable federal or state law or legal
restrictions on their ability to invest in the Preferred Securities.
Accordingly, governmental plans should consult with legal counsel prior to
making an investment.
THE SALE OF INVESTMENTS TO PLANS IS IN NO RESPECT A REPRESENTATION BY
THE INITIAL PURCHASERS, THE ISSUER, THE COMPANY, THE PROPERTY TRUSTEE OR ANY
OTHER PERSON ASSOCIATED WITH THE SALE OF THE SERIES A PREFERRED SECURITIES THAT
SUCH INVESTMENTS MEET ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO
INVESTMENTS BY PLANS GENERALLY OR ANY PARTICULAR PLAN, OR THAT SUCH INVESTMENTS
ARE OTHERWISE APPROPRIATE FOR PLANS GENERALLY OR ANY PARTICULAR PLAN.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Series B Preferred Securities for
its own account in connection with the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such New Series B
Preferred Securities. This Prospectus, as it may be amended or supplemented from
time to time, may be used by Participating Broker-Dealers during the period
referred to below in connection with resales of New Series B Preferred
Securities received in exchange for Old Series A Preferred Securities if such
Old Series A Preferred Securities were acquired by such Participating
Broker-Dealers for their own accounts as a result of market-making activities or
other trading activities. The Company has agreed that this Prospectus, as it may
be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such New Series B Preferred
Securities for a period ending 90 days after the Expiration Date (subject to
extension under certain limited circumstances described herein) or, if earlier,
when all such New Series B Preferred Securities have been disposed of by such
Participating Broker-Dealer. See "The Exchange Offer--Resales of New Series B
Preferred Securities." Neither the Company nor the Trust will receive any cash
proceeds from the issuance of the New Series B Preferred Securities offered
hereby. New Series B Preferred Securities received by broker-dealers for their
own accounts in connection with the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Series B Preferred
Securities or a combination of such
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<PAGE>
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such New Series B Preferred
Securities. Any broker-dealer that resells New Series B Preferred Securities
that were received by it for its own account in connection with the Exchange
Offer and any broker or dealer that participates in a distribution of such New
Series B Preferred Securities may be deemed to be an "underwriter" within the
meaning of the Securities Act, and any profit on any such resale of New Series B
Preferred Securities and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
VALIDITY OF THE NEW SECURITIES
Certain matters of Delaware law relating to the validity of the New
Series B Preferred Securities, the enforceability of the Trust Agreement and the
formation of the Issuer will be passed upon by Richards, Layton & Finger, P.A.,
Wilmington, Delaware, special Delaware counsel to the Company and the Issuer.
The validity of the Guarantee and the Subordinated Debentures will be passed
upon for the Company by Stuzin and Camner, P.A., who will rely on the opinion of
Richards, Layton & Finger as to matters of Delaware law. Alfred R. Camner,
Chairman of the Board, Chief Executive Officer, President, and a director of the
Company is the senior managing director and a shareholder of Stuzin and Camner,
P.A. and Mark Lipsitz, a director of the Company, is the managing director of
Stuzin and Camner, P.A. Certain matters relating to United States federal income
tax considerations will be passed upon for the Company by Kronish, Lieb, Weiner
& Hellman LLP.
EXPERTS
The financial statements incorporated in this Prospectus by reference
to the Annual Report on Form 10-K/A of BankUnited Financial Corporation for the
year ended September 30, 1996 have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent certified public accountants, given
on the authority of said firm as experts in auditing and accounting.
The financial statements incorporated in this Prospectus by reference
to the Annual Report on Form 10-K of Suncoast Savings and Loan Association, FSA
for the year ended June 30, 1996 have been so incorporated in reliance on
the report of Price Waterhouse LLP, independent certified public accountants,
given on the authority of said firm as experts in auditing and accounting.
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APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21850
BANKUNITED FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-037773
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
255 ALHAMBRA CIRCLE, CORAL GABLES, FLORIDA 33134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (305) 569-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A COMMON STOCK, $.01 PAR VALUE
8% NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES 1996
8% NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES 1993
9% NONCUMULATIVE PERPETUAL PREFERRED STOCK
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [ ]
The aggregate market value of the Class A Common Stock held by
non-affiliates of the Registrant, based upon the average price on December
11, 1996, was $68,776,342.* The other voting securities of the Registrant are
not publicly traded.
The shares of the Registrant's common stock outstanding as of December 11,
1996 were as follows:
CLASS NUMBER OF SHARES
----- ----------------
Class A Common Stock, $.01 par value 7,675,931
Class B Common Stock, $.01 par value 251,515
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the fiscal year covered by this Form
10-K pursuant to Rule G(3) of the General Instructions for Form 10-K.
Information from such Definitive Proxy Statement will be incorporated by
reference into Part III, Items 10, 11, 12 and 13 hereof.
1
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- -----------------------------------------------------------------------------
* Based on reported beneficial ownership of all directors and executive
officers of the Registrant; this determination does not, however,
constitute an admission of affiliated status for any of these individual
stockholders.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
1
<PAGE>
PART I
ITEM 1. BUSINESS
BUSINESS OF BANKUNITED FINANCIAL CORPORATION
BankUnited Financial Corporation (the "Company" or "BankUnited") is a
Florida corporation organized in December 1992 for the purpose of becoming
the savings and loan holding company for BankUnited, FSB (the "Bank"). This
holding company reorganization, together with BankUnited's conversion from a
Florida-chartered stock savings bank to a federally chartered stock savings
bank, became effective in March 1993. Unless the context requires otherwise,
all references herein to the Company include the Company, the Bank and their
subsidiaries on a consolidated basis, and before March 15, 1993, include the
Bank and its subsidiaries only.
The Company currently has 15 branch offices in Dade, Broward and Palm
Beach counties, Florida ("South Florida") and anticipates opening three or
more additional branches there in the next 18 months. The Company's business
has traditionally consisted of attracting deposits from the general public
and using those deposits, together with borrowings and other funds, to
purchase nationwide and to originate in its market area single-family
residential mortgage loans, and to a lesser extent, to purchase and originate
commercial real estate, commercial business and consumer loans. The Company's
revenues are derived principally from interest earned on loans,
mortgage-backed securities and investments. The Company's primary expenses
arise from interest paid on savings deposits and borrowings and overhead
expenses incurred in its operations.
The Company's operating plan emphasizes (i) concentrating lending
activities on the origination of single-family residential mortgage loans and
purchasing such loans as favorable market opportunities arise; (ii) expanding
the Company's deposit base by providing convenience, competitive rates and
personalized service in its market area; (iii) continuing expansion of the
Company's branch network through de novo branching or the acquisition of
branches of, and mergers with, existing financial institutions, although
there are no current plans, arrangements, understandings, or agreements
regarding such acquisitions; (iv) expanding the Company's commercial and
multi-family real estate, commercial business, and real estate construction
lending; and (v) managing exposure to interest rate risk, while optimizing
operating results through effective asset/liability management and investment
policies.
In 1995, the Company redefined its strategy to increase its emphasis on
strategic product niches which management believes are being underserved as
South Florida's banking market consolidates. These products include
commercial business and commercial real estate lending and deposit services
for small to mid-size businesses. The Company has also focused on attracting
depositors who are seeking convenience, competitive rates and personalized
service. In order to accomplish this strategy, the Company has attracted
management with expertise in developing and managing its new product lines.
The Bank is a member of the Federal Home Loan Bank ("FHLB") system and is
subject to comprehensive regulation, examination and supervision by the
Office of Thrift Supervision (the "OTS") and the Federal Deposit Insurance
Corporation (the "FDIC"). Deposits at the Bank are insured by the Savings
Association Insurance Fund of the FDIC (the "SAIF") for up to $100,000 for
each insured account holder, which is the maximum permitted by law.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-K or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will
likely result", "are expected to", "will continue", "is anticipated",
"estimate", "project", "believe" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
2
<PAGE>
Securities Litigation Reform Act of 1995. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made, and to advise readers that various
factors, including regional and national economic conditions, changes in
levels of market interest rates, credit risks of lending activities, and
competitive and regulatory factors, could affect the Company's financial
performance and could cause the Company's actual results for future periods
to differ materially from those anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
SUNCOAST ACQUISITION
As part of the Company's plan to expand within South Florida, on November
15, 1996, the Company completed the purchase of Suncoast Savings & Loan
Association, FSA ("Suncoast"), a federally chartered savings association with
assets of $409.0 million at September 30, 1996 and merged Suncoast into the
Bank (the "Merger"). Suncoast had six branch offices in the South Florida
market of which at least five will continue to operate and one may be
consolidated with an existing Bank branch office. In addition, as of
September 30, 1996, Suncoast serviced or subserviced approximately $1.2
billion in loans for others. The Company is currently exploring the
possibility of selling a portion of Suncoast's servicing portfolio and
discontinuing certain of Suncoast's subservicing activities. Such actions
could substantially reduce the income derived from servicing as well as the
related expenses from the income and expenses previously reported by
Suncoast.
For additional information, see "Unaudited Pro Forma Condensed Combined
Financial Statements" and Note 18 of Notes to the Consolidated Financial
Statements.
MARKET AREA AND COMPETITION
The Company conducts operations in South Florida, which at June 30, 1996
had a total of approximately $73 billion in deposits in commercial banks,
savings institutions, and credit unions (41% of the total of $178 billion of
deposits in Florida). The Company intends to continue to establish or acquire
branches in its market area where the Company can service its customer base.
In 1995, the Company sold its three branches on the west coast of Florida,
including their deposits which totaled $130 million at the date of sale. The
sale was part of a shift in growth strategy to focus on South Florida and
take advantage of consolidation trends in banking there. Also, as part of
this strategy, the Company opened branches in Boca Raton, Florida in December
1995, Delray Beach, Florida in June 1996 and West Palm Beach, Florida in
September 1996. On March 29, 1996, the Company acquired the Bank of Florida
with total assets of $28.1 million which was merged into the Company's South
Miami Branch. Then on November 15, 1996, as discussed above, the Company
acquired Suncoast.
The Company encounters strong competition in attracting deposits and in
its lending activities. Its most direct competition for deposits historically
has been from commercial banks, brokerage houses, other savings associations,
and credit unions located in the Company's market area, and the Company
expects continued strong competition from such financial institutions in the
foreseeable future. Within the Company's market area are branches of several
commercial banks and savings associations that are substantially larger and
that have more extensive operations than does the Company. In addition, many
financial institutions based in South Florida have recently been acquired by
larger institutions based in other parts of the state or based out of state.
The Company's goal is to compete for savings and other deposits by offering
depositors a higher level of personal service and expertise, together with a
wide range of financial services offered at competitive rates. The Company
believes that this strategy will enable it to attract depositors as the
number of local institutions remaining declines and depositors who desire
more personal service, particularly retirees, relocate their accounts.
The competition in originating real estate and other loans comes
principally from commercial banks, mortgage banking companies and other
savings associations. The Company competes for loan
3
<PAGE>
originations primarily through the interest rates and loan fees it charges,
the type of loans it offers, and the efficiency and quality of service it
provides. The Company purchases residential first mortgage loans in the
existing secondary mortgage market and competes with other mortgage
purchasers in the secondary market primarily on the basis of price. While the
Company has been, and intends to continue to be, primarily a residential
lender, the Company has recently placed more emphasis on commercial real
estate, construction and commercial lending, as discussed more fully below.
Factors that affect competition in lending include general and local economic
conditions, current interest rates and volatility of the mortgage markets. As
with its deposit products, the Company's strategy is to promote its greater
level of personal service and to position itself as a small-to-middle-market
lender to businesses left underserved by larger institutions.
Management's strategy has included and continues to include evaluation of
market needs and offering products to meet those needs. The Company will
continue to offer products and services that will allow it to control the
growth of its assets and liabilities. These new products and services will
allow the Company to properly position itself to its customers as a community
bank.
FACTORS AFFECTING EARNINGS
The results of the Company's operations are affected by many factors
beyond the Company's control, including general economic conditions and the
related monetary and fiscal policies of the federal government. Lending
activities are affected by the demand for mortgage financing and other types
of loans, which is in turn affected by the interest rates at which such
financing may be offered, and other factors affecting the supply of housing
and the availability of funds. Deposit flows and costs of funds are
influenced by yields available on competing investments and by general market
rates of interest.
ASSET AND LIABILITY MANAGEMENT. The Company's net earnings depend
primarily on its net interest income, which is the difference between
interest income received on its interest-earning assets (principally loans,
short-term and long-term investments, and mortgage-backed securities) and
interest expense paid on its interest-bearing liabilities (principally
deposits and FHLB advances). The Company's net interest income is
significantly affected by (i) the difference (the "interest rate spread")
between yields received on its interest-earning assets and the rates paid on
its interest-bearing liabilities and (ii) the relative amounts of its
interest-earning assets and interest-bearing liabilities. When
interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The more
such liabilities exceed such assets, the greater the positive interest rate
spread and/or non-interest income must be in order to produce net income.
Non-interest sources of income and non-interest expenses also affect the
Company's net income. The higher non-interest expenses are, the greater the
positive interest rate spread and/or non-interest sources of income must be
to produce net income.
To reduce the adverse impact of rapid increases in market interest rates
on the Company's net interest income, the Company has emphasized the
origination and purchase of adjustable-rate mortgage loans. At September 30,
1996, 69.8% of the Company's net loans receivable and mortgage-backed
securities carried adjustable interest rates. The Company has from time to
time acquired longer term fixed-rate mortgage loans when the yields on these
interest-earning assets have been deemed advantageous by management. As a
part of its asset and liability management program, and as market conditions
permit, the Company attempts to lengthen the maturities of its
interest-bearing liabilities (i) with longer term deposits or (ii) when
advantageous, with borrowed funds. The Company's ability to manage interest
rate risk in its loan and investment portfolios depends upon a number of
factors, such as competition for loans and deposits in its market area and
conditions prevailing in the secondary mortgage market.
The Company has rate-sensitive (due or subject to repricing within one
year) liabilities that exceed its rate-sensitive assets, resulting in a
negative cumulative one-year gap position of 6.4% of total assets as of
September 30, 1996. This imbalance, when coupled with the deregulation of the
restrictions
4
<PAGE>
previously imposed on the types of savings products that financial
institutions are permitted to offer, subjects the Company's earnings to
change based on fluctuations in interest rates and affects the ability of the
Company to maintain adequate liquidity levels. The Company constantly
attempts to reduce the sensitivity of its earnings to fluctuations in
interest rates by adjusting the average maturities of its interest-bearing
liabilities and interest-earning assets. There can be no assurance, however,
of the degree to which the Company will be able to effectively maintain the
balance of its short-term interest-earning assets as compared to its
short-term interest-bearing liabilities and manage the risks to liquidity
associated therewith.
5
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GAP TABLE. The following table sets forth the amount of interest-earning
assets and interest-bearing liabilities outstanding at September 30, 1996,
which are expected to reprice or mature in each of the future time periods
shown.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
INTEREST SENSITIVITY
PERIOD(1)
--------------------------
OVER
6 MONTHS 6 MONTHS
OR LESS -1 YEAR
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest-earning assets:
Investments, tax certificates,
Federal funds sold, FHLB overnight
deposits and other interest earning
assets, at cost .................... $ 62,988 $ 20,892
Mortgage-backed securities ........... 10,738 7,491
Loans:
Adjustable-rate mortgages ............ 383,997 61,532
Fixed-rate mortgages ................. 14,207 9,428
Commercial and consumer loans ....... 6,995 547
---------- -----------
Total loans ......................... 405,199 71,507
---------- -----------
Total interest-earning assets ...... 478,925 99,890
Total non-interest-earning assets .. -- --
---------- -----------
Total assets ........................ $478,925 $ 99,890
========== ===========
Interest-bearing liabilities:
Customer deposits:
Money market and NOW accounts ...... $ 33,821 $ --
Passbook accounts ................... 73,780 --
Certificate accounts ................ 229,225 87,337
---------- -----------
Total customer deposits ............... 336,826 87,337
Borrowings:
FHLB advances ........................ 162,000 45,000
Other borrowings ..................... -- --
---------- -----------
Total borrowings .................... 162,000 45,000
---------- -----------
Total interest-bearing liabilities . 498,826 132,337
---------- -----------
Total non-interest-bearing liabilities -- --
Stockholders' equity .................. -- --
---------- -----------
Total liabilities and stockholders'
equity ............................ $498,826 $132,337
========== ===========
Total interest-earning assets less
interest-bearing liabilities ("GAP") $(19,901) $(32,447)
========== ===========
Ratio of GAP to total assets .......... -2.41% -3.94%
========== ===========
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities ........ $(19,901) $(52,348)
========== ===========
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities, as a
percentage of total assets .......... -2.41% -6.35%
========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NON-
OVER 1 - OVER 5 - OVER 10 - INTEREST
5 YEARS 10 YEARS YEARS EARNING TOTAL
------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Investments, tax certificates,
Federal funds sold, FHLB overnight
deposits and other interest earning
assets, at cost .................... $ 3,782 $ -- $ -- $ -- $ 87,662
Mortgage-backed securities ........... 36,734 10,353 4,849 -- 70,165
Loans:
Adjustable-rate mortgages ............ 45,940 -- -- 4,600 496,069
Fixed-rate mortgages ................. 56,630 30,949 32,466 324 144,004
Commercial and consumer loans ....... 897 16 -- 15 8,470
---------- ---------- ----------- ------------ -----------
Total loans ......................... 103,467 30,965 32,466 4,939 648,543
6
<PAGE>
NON-
OVER 1 - OVER 5 - OVER 10 - INTEREST
5 YEARS 10 YEARS YEARS EARNING TOTAL
------------ ----------- ------------ ------------ -----------
------------ ----------- ------------ ------------ -----------
Total interest-earning assets ...... 143,983 41,318 37,315 4,939 806,370
Total non-interest-earning assets .. -- -- -- 17,990 17,990
---------- ---------- ----------- ------------ -----------
Total assets ........................ $143,983 $41,318 $37,315 $ 22,929 $824,360
========== ========== =========== ============ ===========
Interest-bearing liabilities:
Customer deposits:
Money market and NOW accounts ...... $ -- $ -- $ -- $ 7,301 $ 41,122
Passbook accounts ................... -- -- -- -- 73,780
Certificate accounts ................ 74,642 -- -- -- 391,204
---------- ---------- ----------- ------------ -----------
Total customer deposits ............... 74,642 -- -- 7,301 506,106
Borrowings:
FHLB advances ........................ 30,000 -- -- -- 237,000
Other borrowings ..................... -- 460 315 -- 775
---------- ---------- ----------- ------------ -----------
Total borrowings .................... 30,000 460 315 -- 237,775
---------- ---------- ----------- ------------ -----------
Total interest-bearing liabilities . 104,642 460 315 7,301 743,881
---------- ---------- ----------- ------------ -----------
Total non-interest-bearing liabilities -- -- -- 11,368 11,368
Stockholders' equity .................. -- -- -- 69,111 69,111
---------- ---------- ----------- ------------ -----------
Total liabilities and stockholders'
equity ............................ $104,642 $ 460 $ 315 $ 87,780 $824,360
========== ========== =========== ============ ===========
Total interest-earning assets less
interest-bearing liabilities ("GAP") $ 39,341 $40,858 $37,000 $(64,851) $ --
========== ========== =========== ============ ===========
Ratio of GAP to total assets .......... 4.77% 4.96% 4.49% -7.87% --
========== ========== =========== ============ ===========
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities ........ $(13,007) $27,851 $64,851 $ -- $ --
========== ========== =========== ============ ===========
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities, as a
percentage of total assets .......... -1.58% 3.38% 7.87% -- --
========== ========== =========== ============ ===========
</TABLE>
- -----------------------------------------------------------------------------
(1) In preparing the table above, certain assumptions have been made with
regard to the repricing or maturity of certain assets and liabilities.
Assumptions as to prepayments on first and second mortgage loans and
mortgage-backed securities were obtained from prepayment rate tables that
provide assumptions correlating to recent actual repricing experienced in
the marketplace. Assumptions have also been made with regard to payments
on tax certificates based on historical experience. Money market, NOW and
passbook accounts are assumed to be rate sensitive in six months or less.
The rates paid in these accounts, however, are determined by management
based on market conditions and other factors and may reprice more slowly
than assumed. All other assets and liabilities have been repriced based
on the earlier of repricing or contractual maturity. The mortgage
prepayment rate tables, deposit decay rates and the historical
assumptions used regarding payments on tax certificates should not be
regarded as indicative of the actual repricing that may be experienced by
the Company.
6
<PAGE>
ASSET AND LIABILITY MANAGEMENT. The Company's net earnings depend
primarily on its net interest income, which is the difference between
interest income received on its interest-earning assets (principally loans,
short-term and long-term investments, and mortgage-backed securities) and
interest expense paid on its interest-bearing liabilities (principally
deposits and FHLB advances).
NET PORTFOLIO VALUE. The OTS adopted a final rule in August of 1993
incorporating an interest rate risk ("IRR") component into the risk-based
capital rules (see "Regulations"). The IRR component is a dollar amount that
is deducted from total capital for the purpose of calculating an
institution's risk-based capital requirement and is measured in terms of the
sensitivity of its net portfolio value ("NPV") to changes in interest rates.
An institution's NPV is the difference between incoming and outgoing
discounted cash flows from assets, liabilities, and off-balance sheet
contracts. An institution's IRR component is measured as the change in the
ratio of NPV to the present value of total assets as a result of a
hypothetical 200 basis point change in market interest rates. A resulting
decline in this ratio of more than 2% of the estimated market value of an
institution's assets will require the institution to deduct from its capital
50% of that excess decline. Implementation of the rule has been postponed
indefinitely.
The following table presents the Company's ratio of NPV to the present
value of total assets as of September 30, 1996, as calculated by the OTS,
based on information provided to the OTS by the Company.
<TABLE>
<CAPTION>
CHANGE IN INTEREST RATES RATIO OF NPV
IN BASIS POINTS PRESENT VALUE OF TO THE PRESENT VALUE OF
(RATE SHOCK) NPV TOTAL ASSETS TOTAL ASSETS CHANGE
- ------------------------- ---------- ----------------- ------------------------ ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
+400 $19,142 $763,216 2.51% (5.92)%
+200 48,290 798,031 6.05 (2.38)
Static 69,597 825,359 8.43 --
-200 79,063 841,628 9.39 .96
-400 87,288 856,792 10.19 1.76
</TABLE>
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes
in market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets, such as
adjustable-rate mortgage loans, have features that restrict changes in
interest rates on a short-term basis and over the life of the asset. Further,
in the event of a change in interest rates, prepayment and early withdrawal
levels would likely deviate significantly from those assumed in calculating
the tables. Finally, the ability of many borrowers to service their debt may
decrease in the event of an interest rate increase.
In addition, the previous table does not necessarily indicate the impact
of general interest rate movements on the Company's net interest income
because the repricing of certain categories of assets and liabilities is
subject to competitive and other pressures beyond the Company's control. As a
result, certain assets and liabialities indicated as maturing or otherwise
repricing within a stated period may in fact mature or reprice at different
times and at different volumes.
7
<PAGE>
YIELDS EARNED AND RATES PAID. The following table sets forth certain
information relating to the categories of the Company's interest-earning
assets and interest-bearing liabilities for the periods indicated. All yield
and rate information is calculated on an annualized basis. Yield and rate
information for a period is average information for the period calculated by
dividing the income or expense item for the period by the average balances
during the period of the appropriate balance sheet item. Net interest margin
is net interest income divided by average interest-earning assets.
Non-accrual loans are included in asset balances for the appropriate periods,
whereas recognition of interest on such loans is discontinued and any
remaining accrued interest receivable is reversed, in conformity with federal
regulations. The yields and net interest margins appearing in the following
table have been calculated on a pre-tax basis.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------
1996
---------------------------------------
AS OF
9/30/96 AVERAGE
YIELD/RATE BALANCE INTEREST
------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable, net ........... 7.97% $540,313 $41,313
Mortgage-backed securities ..... 6.82 62,711 4,250
Short-term investments(1) ...... 5.30 41,240 2,359
Tax certificates ................ 8.96 34,831 3,018
Long-term investments and FHLB
stock, net .................... 6.98 17,352 1,192
--------- --------- ---------
Total interest-earning assets . 7.80 696,447 52,132
--------- --------- ---------
Interest-bearing liabilities:
NOW/Money Market ................ 2.45 33,148 775
Savings ......................... 4.40 59,965 2,627
Certificate of deposits ......... 5.52 313,521 17,389
FHLB advances and other
borrowings .................... 5.74 235,264 13,831
--------- --------- ---------
Total interest-bearing
liabilities .................. 5.31 641,898 34,622
--------- --------- ---------
Excess of interest-earning assets
over interest-bearing
liabilities .................... $ 54,549
========= ---------
Net interest income .............. $17,510
=========
Interest rate spread ............. 2.49%
=============
Net interest margin .............. 2.90%
=============
Ratio of interest-earning assets
to interest-bearing liabilities 108.50%
=========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1995 1994
----------------------------------- ----------------------------------------------
YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- ----------- ----------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net ........... 7.65% $419,501 $30,171 7.19% $364,224 $23,513 6.46%
Mortgage-backed securities ..... 6.78 59,204 4,093 6.91 35,215 2,308 6.55
Short-term investments(1) ...... 5.72 23,844 1,491 6.25 21,101 803 3.81
Tax certificates ................ 8.66 37,377 3,087 8.26 39,228 3,207 8.17
Long-term investments and FHLB
stock, net .................... 6.87 7,930 577 7.29 10,041 590 5.89
------- ----------- ----------- --------- ----------- ----------- ---------
Total interest-earning assets . 7.49 547,856 39,419 7.20 469,809 30,421 6.48
------- ----------- ----------- --------- ----------- ----------- ---------
Interest-bearing liabilities:
NOW/Money Market ................ 2.34 41,196 875 2.12 51,860 1,102 2.12
Savings ......................... 4.38 55,950 2,420 4.33 46,925 1,716 3.66
Certificate of deposits ......... 5.55 276,564 14,554 5.26 221,074 8,526 3.86
FHLB advances and other
borrowings .................... 5.88 144,052 8,456 5.87 120,604 4,951 4.11
------- ----------- ----------- --------- ----------- ----------- ---------
Total interest-bearing
liabilities .................. 5.39 517,762 26,305 5.08 440,463 16,295 3.70
------- ----------- ----------- --------- ----------- ----------- ---------
Excess of interest-earning assets
over interest-bearing
liabilities .................... $ 30,094 $ 29,346
<PAGE>
1995 1994
----------------------------------- -----------------------------------------------
YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- ----------- ----------- --------- ----------- ----------- ---------
--------- =========== ----------- --------- ===========
Net interest income .............. $13,114 $14,126
--------- =========== ===========
Interest rate spread ............. 2.10% 2.12% 2.78%
========= ========= =========
Net interest margin .............. 2.51% 2.39% 3.01%
========= ========= =========
Ratio of interest-earning assets
to interest-bearing liabilities 105.81% 106.66%
========= =========== ===========
</TABLE>
- --------------
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
8
<PAGE>
RATE/VOLUME ANALYSIS. The following table presents, for the periods
indicated, the changes in interest income and the changes in interest expense
attributable to the changes in interest rates and the changes in the volume
of interest-earning assets and interest-bearing liabilities. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to: (i) changes in volume
(change in volume multiplied by prior year rate); (ii) changes in rate
(change in rate multiplied by prior year volume); (iii) changes in
rate/volume (change in rate multiplied by change in volume); and (iv) total
changes in rate and volume.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1996 V. 1995
--------------------------------------
INCREASE (DECREASE)
DUE TO
--------------------------------------
CHANGES CHANGES CHANGES
IN IN IN
VOLUME RATE RATE/VOLUME
---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income attributable to:
Loans .............................. $ 8,689 $1,905 $548
Mortgage-backed securities and
collateralized mortgage obligations 242 (81) (4)
Short-term investments(1) .......... 1,088 (127) (93)
Tax Certificates ................... (210) 152 (11)
Long-term investments and
FHLB stock ....................... 687 (33) (39)
--------- --------- -----------
Total interest-earning assets .... 10,496 1,816 401
--------- --------- -----------
Interest expense attributable to:
NOW/Money Market ................. (171) 88 (17)
Savings ............................ 173 31 3
Certificates of Deposit ............ 1,946 785 104
FHLB advances and other borrowings 5,354 13 8
--------- --------- -----------
Total interest-bearing liabilities 7,302 917 98
--------- --------- -----------
Increase (decrease) in net interest
income ........................... $ 3,194 $ 899 $303
========= ======== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------
1995 V. 1994
------------------------------------------------------------------
INCREASE (DECREASE)
DUE TO
------------------------------------------------------------------
TOTAL CHANGES CHANGES CHANGES TOTAL
INCREASE IN IN IN INCREASE
(DECREASE) VOLUME RATE RATE/VOLUME (DECREASE)
----------- ---------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Interest income attributable to:
Loans .............................. $11,142 $3,568 $ 2,683 $ 407 $ 6,658
Mortgage-backed securities and
collateralized mortgage obligations 157 1,572 126 87 1,785
Short-term investments(1) .......... 868 104 517 67 688
Tax Certificates ................... (69) (151) 33 (2) (120)
Long-term investments and
FHLB stock ....................... 615 (124) 140 (29) (13)
--------- --------- ----------- ---------- ---------
Total interest-earning assets .... 12,713 4,969 3,499 530 8,998
--------- --------- ----------- ---------- ---------
Interest expense attributable to:
NOW/Money Market ................. (100) (227) -- -- (227)
Savings ............................ 207 330 314 60 704
Certificates of Deposit ............ 2,835 2,140 3,108 780 6,028
FHLB advances and other borrowings 5,375 963 2,128 414 3,505
--------- --------- ----------- ---------- ---------
Total interest-bearing liabilities 8,317 3,206 5,550 1,254 10,010
--------- --------- ----------- ---------- ---------
Increase (decrease) in net interest
income ........................... $ 4,396 $1,763 $(2,051) $ (724) $(1,012)
========= ========= =========== ========== =========
</TABLE>
- ---------
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
9
<PAGE>
LENDING ACTIVITIES
GENERAL. The Company focuses its lending activity on purchasing and
originating single-family residential mortgage loans. The Company's lending
strategy also includes expanding its commercial real estate, commercial
business, and real estate construction lending. The Company also currently
offers consumer loans, such as automobile loans and boat loans, primarily as
an accommodation to existing customers.
LOAN PORTFOLIO. The Company's loan portfolio primarily consists of
adjustable-rate mortgage loans and, to a lesser extent, fixed-rate mortgage
loans secured by one-to-four-family residential and commercial real estate.
As of September 30, 1996, the Company's loan portfolio totaled $646.4
million, of which $570.8 million or 88.3% consisted of one-to-four-family
residential first mortgages. At the present time, the Company's residential
real estate loans are primarily "conventional" loans, which means that these
loans are not insured by the Federal Housing Administration (the "FHA") or
guaranteed by the Veterans Administration (the "VA"). The Company is,
however, approved to originate FHA and VA loans. The average yield on the
Company's mortgage loans, of which 76.7% had adjustable rates and 23.3% had
fixed rates, was 7.65%, 7.19% and 6.46% for the fiscal years ended September
30, 1996, 1995 and 1994, respectively. The remainder of the Company's loan
portfolio consisted of $49.2 million of commercial real estate loans (7.6% of
total loans); five or more unit
9
<PAGE>
residential loans of $12.6 million (1.9% of total loans); $2.7 million of
second mortgage loans (0.4% of total loans); $2.6 million of consumer loans
(0.4% of total loans); $5.8 million of commercial business loans (0.9% of
total loans); and $2.7 million of other loans (0.4% of total loans).
At September 30, 1996, the Company's loan portfolio included $38.2 million
of residential mortgage loans to nonresident aliens. See "Mortgage Loan
Purchases and Originations" for additional information on the Company's loans
to non-resident aliens.
Set forth below is a table showing the Company's loan origination,
purchase and sale activity for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1996 1995 1994
------------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total loans receivable, net, at beginning of period(1) ..... $ 453,350 $413,287 $310,441
Loans originated:
Residential real estate .................................... 65,954 54,438 72,108
Commercial, business and consumer .......................... 16,705 7,556 3,885
------------ ----------- -----------
Total loans originated .................................... 82,659 61,994 75,993
Loans purchased ............................................. 250,215 76,081 150,502
Loans sold .................................................. (4,356) (2,449) (21,867)
Principal payments and amortization of discounts and
premiums .................................................. (133,836) (93,787) (96,214)
Loans charged off ........................................... (493) (594) (1,582)
Transfers to real estate owned .............................. (1,154) (1,182) (3,986)
------------ ----------- -----------
Total loans receivable, net, at end of period(1) ........ $ 646,385 $453,350 $413,287
============ =========== ===========
</TABLE>
- ---------
(1) Includes loans held for sale.
10
<PAGE>
The following table sets forth certain information with respect to the
composition of the Company's loan portfolio, including mortgage loans held
for sale and mortgage-backed securities, as of the dates indicated. For
additional information as to the Company's mortgage-backed securities,
including carrying values and approximate market values of such securities,
see Notes 1 and 4 of the Notes to the Company's Consolidated Financial
Statements included in Appendix D hereto.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------------------
1996 1995
----------------------- -----------
AMOUNT PERCENT AMOUNT
----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
First mortgage loans:
One-to-four-family residential $570,890 79.7% $433,122
Five-or-more-unit residential . 12,559 1.7 1,124
Commercial ..................... 49,318 6.9 10,223
Second mortgage loans ........... 2,748 0.4 2,412
---------- ---------- -----------
Total first and second mortgage
loans ........................... 635,515 88.7 446,881
---------- ---------- -----------
Consumer loans .................. 2,648 0.4 920
Commercial business loans ...... 5,822 0.8 3,632
---------- ---------- -----------
Total loans receivable ......... 643,985 89.9 451,433
---------- ---------- -----------
Deferred loan fees, premiums and
(discounts) ..................... 4,558 0.6 3,386
Allowance for loan losses ...... (2,158) (0.3) (1,469)
---------- ---------- -----------
Loans receivable, net(1) ........ 646,385 90.2 453,350
---------- ---------- -----------
Mortgage-backed securities, net 70,165 9.8 52,998
---------- ---------- -----------
Total loans receivable, net
and mortgage-backed
securities .................. $716,550 100.0% $506,348
========== ========== ===========
Weighted average yield on total
loan losses receivable, net, and
mortgage-backed securities ..... 7.86%
==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1994 1993 1992
----------------------- ----------------------- -----------------------
PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
First mortgage loans:
One-to-four-family residential 85.5% $395,028 84.0% $301,689 93.3% $224,707 89.7%
Five-or-more-unit residential . 0.2 2,164 0.5 705 0.2 856 0.3
Commercial ..................... 2.0 4,469 0.9 748 0.2 350 0.1
Second mortgage loans ........... 0.5 2,616 0.6 623 0.2 631 0.3
-------- ---------- -------- ---------- ---------- -------- --------
Total first and second mortgage
loans ........................... 88.2 404,277 86.0 303,765 93.9 226,544 90.4
-------- ---------- -------- ---------- ---------- -------- --------
Consumer loans .................. 0.2 2,336 0.5 2,786 0.9 2,664 1.1
Commercial business loans ...... 0.7 4,732 1.0 3,665 1.1 2,143 0.8
-------- ---------- -------- ---------- ---------- -------- --------
Total loans receivable ......... 89.1 411,345 87.5 310,216 95.9 231,351 92.3
-------- ---------- -------- ---------- ---------- -------- --------
Deferred loan fees, premiums and
(discounts) ..................... 0.7 2,783 0.6 1,409 0.4 (437) (0.2)
Allowance for loan losses ...... (0.3) (841) (0.2) (1,184) (0.4) (265) (0.1)
-------- ---------- -------- ---------- ---------- -------- --------
Loans receivable, net(1) ........ 89.5 413,287 87.9 310,441 95.9 230,649 92.0
-------- ---------- -------- ---------- ---------- -------- --------
Mortgage-backed securities, net 10.5 57,155 12.1 13,156 4.1 19,957 8.0
-------- ---------- -------- ---------- ---------- -------- --------
Total loans receivable, net
and mortgage-backed
securities .................. 100.0% $470,442 100.0% $323,597 100.0% $250,606 100.0%
======== ========== ======== ========== ========== ======== ========
Weighted average yield on total
loan losses receivable, net, and
mortgage-backed securities ..... 7.53% 6.60% 6.37% 7.90%
======== ======== ========== ========
</TABLE>
- ---------
(1) Includes loans held for sale.
The following table sets forth, as of September 30, 1996 the amount of
11
<PAGE>
loans, mortgage loans held for sale and mortgage-backed securities held in
the Company's portfolio by category and expected principal repayments by
year. As of September 30, 1996, the total amount of loans with contractual
maturities greater than one year with fixed and adjustable interest rates
totaled approximately $119.0 million and $368.3 million, respectively.
<TABLE>
<CAPTION>
OUTSTANDING ON
SEPTEMBER 30,
1996 1997 1998
--------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
First Mortgage Loans:
One-to-four-family residential $570,890 $133,259 $ 96,871
Five-or-more-unit residential . 12,559 3,763 2,973
Commercial ..................... 49,318 13,415 10,668
Second Mortgage loans ........... 2,748 792 736
--------------- ----------- -----------
Total first and second mortgage
loans ........................ 635,515 151,229 111,248
Consumer ....................... 2,648 1,552 1,096
Commercial business loans ..... 5,822 3,885 1,937
--------------- ----------- -----------
Total loans receivable ......... 643,985 156,666 114,281
Mortgage-backed securities ..... 70,002 17,099 14,128
--------------- ----------- -----------
Total ......................... $713,987 $173,765 $128,409
=============== =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
2001- 2003- 2006 AND
1999 2000 2002 2006 THEREAFTER
---------- ---------- ---------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
First Mortgage Loans:
One-to-four-family residential $72,613 $55,069 $42,273 $109,147 $61,658
Five-or-more-unit residential . 2,331 1,810 1,390 292 --
Commercial ..................... 8,431 6,614 10,190 -- --
Second Mortgage loans ........... 686 534 -- -- --
--------- ---------- ---------- ---------- -----------
Total first and second mortgage
loans ........................ 84,061 64,027 53,853 109,439 61,658
Consumer ....................... -- -- -- -- --
Commercial business loans ..... -- -- -- -- --
--------- ---------- ---------- ---------- -----------
Total loans receivable ......... 84,061 64,027 53,853 109,439 61,658
Mortgage-backed securities ..... 11,738 6,943 3,951 10,718 5,425
--------- ---------- ---------- ---------- -----------
Total ......................... $95,799 $70,970 $57,804 $120,157 $67,083
========= ========== ========== ========== ===========
</TABLE>
Applicable regulations permit the Company to engage in various categories
of secured and unsecured commercial and consumer lending, in addition to
residential real estate financing, subject to limitations on the percentage
of total assets attributable to certain categories of loans. An additional
11
<PAGE>
limitation imposed by regulation requires that certain types of loans only be
made in aggregate amounts that do not exceed specified percentages of the
institution's capital. As of September 30, 1996, 19.5% of the Company's gross
loans receivable (15.3% of total assets) were secured by properties located
in California and 40.8% of gross loans receivable (31.9% of total assets)
were secured by properties located in Florida. Because of this concentration,
regional economic circumstances in those states could affect the level of the
Company's non-performing loans. The following table sets forth, as of
September 30, 1996 the distribution of the amount of the Company's loans
(including mortgage loans held for sale) by state.
<TABLE>
<CAPTION>
OUTSTANDING ON
STATE SEPTEMBER 30, 1996
- ---------------------------- -------------------
(IN THOUSANDS)
<S> <C>
Florida(1) ................. $262,747
California ................. 125,802
Ohio ....................... 27,808
New Jersey ................. 20,411
Maryland ................... 19,346
Colorado ................... 19,099
Virginia ................... 19,038
New York ................... 18,363
Illinois ................... 16,261
Arizona .................... 12,275
Michigan ................... 11,179
Minnesota .................. 10,996
Connecticut ................ 10,661
Massachusetts .............. 10,274
Texas ...................... 6,884
Georgia .................... 5,679
Washington ................. 5,492
Pennsylvania ............... 4,475
Nevada ..................... 2,762
Utah ....................... 1,915
District of Columbia ....... 1,839
Missouri ................... 1,816
Tennessee .................. 1,704
South Carolina ............. 1,664
North Carolina ............. 1,485
Oregon ..................... 1,458
New Hampshire .............. 1,357
Oklahoma ................... 1,331
Kentucky ................... 1,280
Arkansas ................... 1,250
Alabama .................... 1,154
Indiana .................... 1,036
Kansas ..................... 1,036
Wisconsin .................. 1,010
Maine ...................... 858
Louisana ................... 831
Rhode Island ............... 792
Hawaii ..................... 731
Idaho ...................... 641
Others(2) .................. 775
Not secured by real estate 8,470
-------------------
Total ..................... $643,985
===================
</TABLE>
- ---------
(1) Does not include $40.1 million of tax certificates representing liens
secured by properties in Florida.
(2) Less than $500,000 in any one state.
12
<PAGE>
RESIDENTIAL MORTGAGE LOAN PURCHASES AND ORIGINATIONS. The Company's
lending primarily involves purchasing in the secondary mortgage market and
originating loans secured by first mortgages on real estate improved with
single-family dwellings. The Company services loans in its portfolio that it
originates. The Company attempts to purchase loans servicing-released, when
available, although at September 30, 1996, the Company's loan portfolio
included $320.0 million of loans that were serviced by others. As of
September 30, 1996, the Company was servicing a total of approximately $318.8
million in mortgage loans, including $3.8 of loans serviced for others.
The Company's first mortgage loans purchased or originated are generally
repayable over 15 or 30 years. Additionally, the Company offers second
mortgage residential loans with maturities ranging from five to 15 years.
Residential loans typically remain outstanding for shorter periods than their
contractual maturities because borrowers prepay the loans in full upon sale
of the mortgaged property or upon refinancing of the original loan. The
Company currently originates and purchases fixed-rate and adjustable-rate
first mortgage loans secured by owner-occupied residences with 15-year term
or 30-year term amortization, and second mortgage loans with 15-year term
amortization or 30-year term amortization with a balloon payment after five
years.
The Company's adjustable-rate mortgage loans ("ARMs") generally have
interest rates that adjust monthly, semi-annually or annually at a margin
over the weekly average yield on U.S. Treasury securities adjusted to a
constant maturity of one year published by the Federal Reserve or the FHLB
11th District cost-of-funds index ("COFI") published by the FHLB of San
Francisco. The maximum interest rate adjustment of the Company's ARMs is
generally 1% semi-annually and 6% over the life of the loan, above or below
the initial rate on the loan for semi-annual adjustables, or 2% annually and
6% over the life of the loan, above or below the initial rate on the loan for
annual adjustables. The Company's COFI loans with monthly adjustable interest
rates also provide for a 7.5% cap on monthly payment increases from one
annual payment adjustment to the next, except at the end of five years, when
monthly payments may be adjusted by more than the payment increase cap in
order to provide for the complete amortization by maturity. Because of the
payment cap and the different times at which interest rate adjustments and
payment adjustments are made on these loans, monthly payments on these loans
may not be sufficient to pay the interest accruing on the loan. The amount of
any shortage is added to the principal balance of the loan to be repaid
through future monthly payments to the Company ("negative amortization"). If
the loan-to-value ratio is high, negative amortization could significantly
increase the risk associated with the loan; the Company's management,
however, believes that this risk is mitigated due to the relative stability
of the index used and to conservative underwriting policies.
The Company sometimes purchases or originates loans with "teaser" rates
that are below market rates during an initial period after the loan is x
originated. For loans with teaser rates, the borrower's ability to repay is
determined upon fully indexed rates.
Applicable regulations permit the Company to lend up to 100% of the
appraised value of the real property securing a loan ("loan-to-value ratio").
The Company, however, generally does not make or acquire loans with
loan-to-value ratios that exceed 80% at origination. When terms are
favorable, the Company will purchase or originate single-family mortgage
loans with loan-to value ratios between 80% and 95%. In most of these cases,
the Company will, as a matter of policy, require the borrower to obtain
private mortgage insurance that insures that portion of the loan exceeding
the 80% loan-to-value ratio, thereby reducing the risk to no more than 80% of
appraised value.
The Company generally applies the same underwriting criteria to
residential mortgage loans purchased or originated. In its loan purchases,
the Company generally reserves the right to reject particular loans from a
loan package being purchased and does reject loans in a package that do not
meet its underwriting criteria. In determining whether to purchase or
originate a loan, the Company assesses both the borrower's ability to repay
the loan and the adequacy of the proposed collateral. On originations, the
Company obtains appraisals of the property securing the loan. On purchases,
the Company reviews the appraisal obtained by the loan seller or originator
and arranges for an updated
13
<PAGE>
review appraisal before purchasing the loan. On purchases and originations,
the Company reviews information concerning the income, financial condition,
employment and credit history of the applicant. On purchases, the Company
generally obtains a credit report on the borrower separate from that provided
by the loan seller.
The Company has adopted written, non-discriminatory underwriting standards
for use in the underwriting and review of every loan considered for
origination or purchase. These underwriting standards are reviewed and
approved annually by the Company's Board of Directors. The Company's
underwriting standards for residential mortgage loans generally conform to
(except as to principal balance and with regard to certain loans discussed
below, as to the borrower's citizenship and related factors) standards
established by Fannie Mae ("FNMA") and the Federal Home Loan Mortgage
Corporation (the "FHLMC"). A loan application is obtained or reviewed by the
Company's underwriters to determine the borrower's ability to repay, and
confirmation of the more significant information is obtained through the use
of credit reports, financial statements, and employment and other
verifications.
The Company generally uses appraisals to determine the value of collateral
for all loans it originates. When originating a real estate mortgage loan,
the Company obtains a new appraisal of the property from an independent third
party to determine the adequacy of the collateral, and such appraisal is
reviewed by one of the underwriters. With respect to a substantial percentage
of loans purchased, the collateral value is determined by reference to a
review appraisal. Otherwise, the collateral value is determined by reference
to the documentation contained in the original file. Borrowers are required
to obtain casualty insurance and, if applicable, flood insurance in amounts
at least equal to the outstanding loan balance or the maximum amount allowed
by law.
The Company also requires that a survey be conducted and title insurance
be obtained, insuring the priority of its mortgage lien. Pursuant to its
underwriting standards, the Company generally requires private mortgage
insurance policies on newly originated mortgage loans with loan-to-value
ratios greater than 80%. All loans are reviewed by the Company's underwriters
to ensure that its guidelines are met or that waivers are obtained in limited
situations where offsetting factors exist.
With regard to loan purchases, a legal review of every loan file is
conducted to determine the adequacy of the legal documentation. The Company
receives various representations and warranties from the sellers of the loans
regarding the quality and characteristics of the loans.
Approximately $38.2 million, or 5.9%, of the Company's gross loans
receivable are first mortgage loans to non-resident aliens secured by
single-family residences located in Florida. These loans are purchased and
originated by the Company in a manner similar to that described above for
other residential loans. Loans to non-resident aliens generally afford the
Company an opportunity to receive rates of interest higher than those
available from other single-family residential loans. Nevertheless, such
loans generally involve a greater degree of risk than other single-family
residential mortgage loans. The ability to obtain access to the borrower is
more limited for non-resident aliens, as is the ability to attach or verify
assets located in foreign countries. The Company has attempted to minimize
these risks through its underwriting standards for such loans (including
generally lower loan-to-value ratios and qualification based on verifiable
assets located in the United States).
COMMERCIAL REAL ESTATE LENDING. The Company's commercial real estate
lending division originates or purchases multi-family and commercial real
estate loans from $250,000 to $4.0 million. The Company's strategy is to
promote commercial lending together with private banking (see "Private
Banking" below), as both areas seek to develop long-term relationships with
select businesses, real estate borrowers, and professionals. At September 30,
1996, the Company had $49.3 million of commercial real estate loans,
representing a total of 7.7% of the Company's loan portfolio before net
items. The Company's commercial real estate loan portfolio includes loans
secured by apartment buildings, office buildings, warehouses, retail stores
and other properties, which are located in the Company's primary market area.
Commercial real estate loans generally are originated in amounts up
14
<PAGE>
to 75% of the appraised value of the property securing the loan. In
determining whether to originate or purchase multi-family or commercial real
estate loans, the Company also considers such factors as the financial
condition of the borrower and the debt service coverage of the property.
Commercial real estate loans are made at both fixed and adjustable interest
rates for terms of up to 10 years.
Appraisals on properties securing commercial real estate loans originated
by the Company are performed at the time the loan is made by an independent
appraiser. In addition, the Company's underwriting procedures generally
require verification of the borrower's credit history, income and financial
statements, banking relationships, references and income projections for the
property. Personal guarantees are generally obtained for the Company's
commercial real estate loans.
Management's expansion into this area reflects its business strategy to
obtain seasoned loan product divested by the super-regional financial
companies in South Florida and its belief that commercial real estate loans
are generally of short-to moderate-term with higher-yielding variable
interest rates as compared to residential loans. In December 1995, the
Company purchased approximately $32.0 million of commercial real estate loans
in Florida from another financial institution. The loan package comprised 23
loans with principal balances ranging from $376,000 to $4.7 million.
Management believes that with the recent acquisition of several Florida-based
financial institutions by out-of-state regional banks, the Company will be
able to expand its commercial real estate business.
Commercial real estate lending affords the Company an opportunity to
receive interest at rates higher than those generally available from
one-to-four-family residential lending. Nevertheless, loans secured by such
properties are generally larger and involve a greater degree of risk than
one-to-four-family residential mortgage loans. Because payments on loans
secured by commercial real estate properties are often dependent on the
successful operation or management of the properties, repayment of such loans
may be subject to adverse conditions in the real estate market or the
economy. If the cash flow from the project is reduced (for example, if leases
are not obtained or renewed), the borrower's ability to repay the loan may be
impaired. In addition, adjustable-rate commercial real estate loans are
subject to increased risk of delinquency or default as interest rates
increase. The Company has attempted to minimize these risks through its
underwriting standards.
REAL ESTATE CONSTRUCTION LENDING. The Company has commenced a program to
make real estate construction loans to individuals for the construction of
their residences, as well as to builders and real estate developers for the
construction of one-to-four-family residences and commercial and multi-family
real estate, although at September 30, 1996, the Company had no construction
loans.
Construction loans to individuals for their residences may be, but would
not be required to be, structured to be converted to permanent loans with the
Company at the end of the construction phase. Such residential construction
loans would generally be underwritten pursuant to the same guidelines used
for originating permanent residential loans. The Company's construction loans
would typically have terms of up to nine months and have rates higher than
permanent one-to-four-family loans offered by the Company. During the
construction phase, the borrower would pay interest only. Generally, the
maximum loan-to-value ratio of owner-occupied, single-family construction
loans would be 75%.
The Company may from time to time make construction loans on commercial
real estate projects secured by apartments, shopping centers, industrial
properties, small office buildings, medical facilities or other property.
Such loans would generally be structured to be converted to permanent loans
at the end of the construction phase, which generally runs from 12 to 18
months. These construction loans would have rates and terms that match any
permanent commercial real estate loan then offered by the Company, except
that during the construction phase, the borrower would pay interest only.
These loans would generally provide for the payment of interest and loan fees
from loan proceeds.
Because of the uncertainties inherent in estimating construction costs and
the market for the project upon completion, it is relatively difficult to
evaluate accurately the total loan funds that would be required to complete a
project, the related loan-to-value ratios, and the likelihood of ultimate
15
<PAGE>
success of a project. Construction loans to borrowers other than
owner-occupants also involve many of the same risks discussed above regarding
commercial real estate loans and tend to be more sensitive to general
economic conditions than many other types of loans. Also, the funding of loan
fees and interest during the construction phase makes the monitoring of the
progress of the project particularly important, as customary early warning
signals of project difficulties may not be present.
COMMERCIAL BUSINESS LENDING. Commercial business loans totaled $5.8
million as of September 30, 1996, representing .9% of total loans. In its
commercial business loan underwriting, the Company evaluates the value of the
collateral securing the loan and assesses the borrower's creditworthiness and
ability to repay. While commercial business loans generally are made for
shorter terms and at higher yields than one-to-four-family residential loans,
such loans generally involve a higher level of risk than one-to-four-family
residential loans because the risk of borrower default is greater and the
collateral may be more difficult to liquidate and more likely to decline in
value.
LOAN PORTFOLIO QUALITY. Federal regulations require a savings institution
to review its assets on a regular basis and, if appropriate, to classify
assets as "substandard," "doubtful", or "loss" depending on the likelihood of
loss. General allowances for loan losses are required to be established for
assets classified as substandard or doubtful. For assets classified as loss,
the institution must either establish specific allowances equal to the amount
classified as a loss or charge off such amount. Assets that do not require
classification as substandard but that possesses credit deficiencies or
potential weaknesses deserving management's close attention are required to
be designated as "special mention." The deputy director of the appropriate
OTS regional office may approve, disapprove or modify any classifications of
assets and any allowance for loan losses established.
Additionally, under standard banking practices, an institution's asset
quality is also measured by the level of non-performing loans in the
institution's portfolio. Non-performing loans consist of (i) non-accrual
loans; (ii) loans that are more than 90 days contractually past due as to
interest or principal but that are well-secured and in the process of
collection or renewal in the normal course of business; and (iii) loans that
have been renegotiated to provide a deferral of interest or principal because
of a deterioration in the financial condition of the borrower. The Company
provides delinquency notices to borrowers when loans are 30 or more days past
due. The Company places conventional mortgage loans on non-accrual status
when more than 90 days past due. When a loan is placed on non-accrual status,
the Company reverses all accrued and uncollected interest. The Company also
begins appropriate legal procedures to obtain repayment of the loan or
otherwise satisfy the obligation.
As of September 30, 1996, the Company had $8.3 million in substandard
assets of which $7.8 million are included in non-performing assets.
Substandard assets consisted of the following:
AS OF
SEPTEMBER 30, 1996
-------------------
(IN THOUSANDS)
One-to-four-family residential loans ........ $6,409
Consumer and business loans ................ 15
REO ......................................... 632
Tax certificates ............................ 1,264
------
Total Substandard Assets ................... $8,320
======
In addition, $259,000 of tax certificates were classified as loss as of
September 30, 1996 and have been specifically reserved for.
16
<PAGE>
The following table sets forth information regarding the Company's
allowance for loan losses for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses balance (at beginning of period $1,469 $ 841 $ 1,184 $ 265 $195
Provisions (credit) for loan losses ...................... (120) 1,221 1,187 1,052 70
Allowance from Bank of Florida ........................... 183 -- -- -- --
Allocation from discounts on loans purchased ............. -- -- -- 90 --
Loans charged off:
One-to four-family residential loans ..................... (493) (535) (1,582) (223) --
Commercial and other ..................................... -- (59) -- -- --
-------- --------- ---------- ---------- --------
Total (493) (594) (1,582) (223) --
-------- --------- ---------- ---------- --------
Recoveries:
One-to four-family residential loans ..................... 1,119 1 52 -- --
-------- --------- ---------- ---------- --------
Allowance for loan losses, balance (at end of period) ... $2,158 $1,469 $ 841 $1,184 $265
======== ========= ========== ========== ========
</TABLE>
Historically, recoveries of charged off loans have been minimal since
charged off loans have been primarily one-to-four family residential loans
and typically the only substantial asset available to the Company is the real
estate securing the loan which is acquired through foreclosure and sold.
However, in its fiscal year ended September 30, 1996, the Company received a
recovery of approximately $1.0 million as settlement of litigation the
Company initiated against a seller of residential mortgage loans. The Company
is not aware of any significant liability related to REO or loans that may be
foreclosed.
The following table sets forth the allocation of general allowance for
loan losses by loan category for the periods indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------------------------------------------------
1996 1995 1994
------------------------ ------------------------ ---------------------------
% OF LOANS % OF LOANS % OF LOANS
IN EACH IN EACH IN EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
--------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to: ..................
One-to-four-family residential
mortgages ....................... $1,381 88.6% $1,207 95.9% $766 96.0%
Commercial and other loans ..... 739 11.4% 168 4.1% 75 4.0%
Unallocated ..................... 38 N/A 94 N/A -- N/A
-------- --------- ------- -------- -------- ------
Total allowances for loan losses $2,158 100.0% $1,469 100.0% $841 100.0%
======== ========= ======= ======== ======== ======
</TABLE>
For additional information regarding the Company's allowance for loan
losses and the credit quality of the Company's assets, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition--Credit Quality" in Appendix C hereto.
PRIVATE BANKING
The Company's Private Banking Division focuses on the diverse lending and
deposit needs of professionals and executives in South Florida. Private
banking is customer-oriented, not transaction-oriented, with an emphasis on
building a total banking relationship. The Private Banking target market
includes the upscale markets of metropolitan Miami with emphasis on the Coral
Gables and southwest Dade County areas.
Currently, the Company's commercial business loans and
non-interest-bearing demand deposit accounts are originated primarily by the
Private Banking Division. The Company is developing its
17
<PAGE>
capability to deliver loan services to businesses in communities served by
its branch offices. The Private Banking Division is also responsible for a
portion of the residential real estate loans originated by the Company,
particularly the loans with higher balances, which usually generate higher
fees. The Company's consumer lending business is also generated by this
division.
MORTGAGE BANKING
The Company has established a correspondent mortgage banking operation for
the origination of single-family residential mortgage loans in its market
area. This correspondent operation consists of a network of mortgage brokers
and lenders in South Florida that generate mortgage loans for the Company.
Originations in the correspondent program, together with branch lending,
reached $54.0 million in fiscal 1996.
INVESTMENTS
The Company maintains an investment portfolio consisting primarily of
federal agency securities, FHLB overnight deposits, securities purchased
under agreements to resell and tax certificates. Federal regulations limit
the instruments in which the Company may invest its funds. The Company's
current investment policy permits purchases only of investments (with the
exception of tax certificates) rated in one of the three highest grades by a
nationally recognized rating agency and does not permit purchases of
securities of non-investment grade quality (such as so-called "junk bonds").
The Company's portfolio also includes tax certificates issued by various
counties in the State of Florida. Tax certificates represent tax obligations
that are auctioned by county taxing authorities on an annual basis in order
to collect delinquent real estate taxes. Although tax certificates have no
stated maturity, the certificate holder has the right to collect the
delinquent tax amount, plus interest, and can file for a tax deed if the
delinquent tax amount is unpaid at the end of two years. Tax certificates
have a claim superior to most other liens. If the holder does not file for
deed within seven years, the certificate becomes null and void. The Company
has adopted detailed policies with regard to its investment in tax
certificates, which specify due diligence procedures, purchasing procedures
(including parameters for the location, type and size of tax certificates
acceptable for purchase) and procedures for managing the portfolio after
acquisition.
The following table sets forth information regarding the Company's
investments as of the dates indicated. Amounts shown are historical amortized
cost. For additional information regarding the Company's investment
securities, including the carrying values and approximate market values of
such investment securities, see Notes 1 and 4 of the Notes to the Company's
Consolidated Financial Statements included in Appendix D hereto.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
----------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Securities purchased under agreements to
resell ........................................ $ -- $ -- $ 700
Federal funds sold ............................ 400 400 375
Federal agency securities ..................... 4,985 4,675 2,003
FHLB overnight deposits ....................... 28,253 31,813 11,212
Tax certificates .............................. 40,088 39,544 42,612
Other ......................................... 1,711 11 11
--------- --------- ---------
Total investment securities .................. $75,437 $76,443 $56,913
========= ========= =========
Weighted average yield ....................... 7.35% 7.88% 7.61%
========= ========= =========
</TABLE>
18
<PAGE>
The following table sets forth information regarding the maturities of the
Company's investments as of September 30, 1996. Amounts shown are book
values.
<TABLE>
<CAPTION>
PERIODS TO MATURITY
FROM SEPTEMBER 30, 1996
------------------------------------
WITHIN 1 THROUGH OVER
1 YEAR 5 YEARS 5 YEARS
---------- ------------ -----------
<S> <C> <C> <C>
Federal agency securities $ 2,004 $2,981 $ --
FHLB overnight deposits .. 28,253 -- --
Tax certificates(1) ....... 40,088 -- --
Federal funds sold ........ 400 -- --
Other ..................... 910 765 36
--------- --------- -------
Total .................... $71,655 $3,746 $ 36
========= ========= =======
Weighted average yield .. 7.36% 7.15% 6.76%
========= ========= =======
</TABLE>
- ----------
(1) Maturities are based on historical experience.
OTHER INTEREST-EARNINGS ASSETS
Included in other interest-earning assets is stock of the FHLB of Atlanta,
which totaled $12.2 million, $12.3 million and $7.9 million as of September
30, 1996, 1995 and 1994, respectively. The Company also had a $25,000 equity
investment in the Community Reinvestment Group as of September 30, 1996 and
1995. Carrying value, which is par, is estimated to be the fair market value
of these assets.
SOURCES OF FUNDS
The Company's primary sources of funds for its investment and lending
activities are customer deposits, loan repayments, funds from operations, the
Company's capital and FHLB advances.
DEPOSITS. The Company offers a full variety of deposit accounts ranging
from passbook accounts to certificates of deposit with maturities of up to
five years. The Company also offers transaction accounts, which include
commercial checking accounts, negotiable order of withdrawal ("NOW")
accounts, super NOW accounts and money market deposit accounts. The rates
paid on deposits are established periodically by management based on the
Company's need for funds and the rates being offered by the Company's
competitors with the goal of remaining competitive without offering the
highest rates in the market area. The Company has not utilized brokered
deposits.
The Company has placed increasing reliance on passbook accounts, money
market accounts, certificates of deposit and other savings alternatives that
are more responsive to market conditions than long-term, fixed-rate
certificates. While market-sensitive savings vehicles permit the Company to
reduce its cost of funds during periods of declining interest rates, such
savings alternatives also increase the Company's vulnerability to periods of
high interest rates. There are no regulatory interest rate ceilings on the
Company's accounts.
19
<PAGE>
The following table sets forth information concerning the Company's
deposits by account type and the weighted average nominal rates at which
interest is paid thereon as of the dates indicated:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------------------------------------------------------
1996 1995 1994
--------------------- --------------------- -----------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
----------- -------- ----------- -------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts:
Regular ............................... $ 73,741 4.44% $ 50,327 3.04% $ 44,533 3.04%
Holiday club .......................... 39 2.00 46 2.00 50 1.75
----------- ---------- -------------
Total passbook accounts .............. 73,780 50,373 44,583
----------- ---------- -------------
Checking:
Insured money market .................. 16,556 3.87 7,733 2.68 18,006 1.51
NOW and non-interest-bearing accounts 24,566 1.49 18,157 2.17 29,805 1.67
----------- -------- ---------- ------------
Total transaction accounts ........... 41,122 25,890 47,811
----------- ---------- ------------
Total passbook and checking accounts 114,902 76,263 92,394
----------- ---------- ------------
Certificates:
30-89-day certificates of deposit .... 91 2.73 166 3.01
3-5-month certificates of deposit .... 7,114 4.67 1,465 4.78 4,552 3.95
6-8-month certificates of deposit .... 159,850 5.40 93,684 5.65 87,071 4.23
9-11-month certificates of deposit ... 20,279 5.45 5,654 5.55 1,302 3.53
12-17-month certificates of deposit .. 124,637 5.49 79,637 5.90 71,115 4.44
18-23-month certificates of deposit .. 12,375 5.79 12,382 5.37 33,282 4.31
24-29-month certificates of deposit .. 42,875 5.94 18,593 5.57 24,453 4.36
30-35-month certificates of deposit .. 1,774 5.57 2,868 4.99 4,867 4.66
36-60-month certificates of deposit .. 22,300 5.93 19,437 5.81 28,593 5.46
----------- -------- ---------- ----------- --------
Total certificates ................... 391,204 233,811 255,401
----------- ---------- -----------
Total ............................... $506,106 $310,074 $347,795
=========== ========== ===========
Weighted average rate .............. 5.11% 4.99% 3.88%
======== ======== ========
</TABLE>
The following table sets forth information by various rate categories
regarding the amounts of the Company's certificate accounts (under $100,000)
as of September 30, 1996 that mature during the periods indicated:
<TABLE>
<CAPTION>
PERIODS TO MATURITY
FROM SEPTEMBER 30, 1996
-------------------------------------------------
AS OF WITHIN 1 TO 2 TO MORE THAN
SEPTEMBER 30, 1996 1 YEAR 2 YEARS 3 YEARS 3 YEARS
------------------- ----------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Certificate accounts:
3.00% to 3.99% ................... $ 93 $ 93 $ -- $ -- $ --
4.00% to 4.99% ................... 6,700 6,182 366 152 --
5.00% to 5.99% ................... 309,070 257,517 43,406 3,965 4,182
6.00% to 6.99% ................... 21,555 8,819 6,762 2,405 3,569
7.00% to 7.99% ................... 862 368 -- 48 446
8.00% to 8.99% ................... -- -- -- -- --
------------------- ----------- ---------- ---------- ------------
Total certificate accounts (under
$100,000) ....................... $338,280 $272,979 $50,534 $6,570 $8,197
=================== =========== ========== ========== ============
</TABLE>
20
<PAGE>
The following table sets forth information by various rate categories
regarding the amounts of the Company's jumbo ($100,000 and over) certificate
accounts as of September 30, 1996 that mature during the periods indicated:
<TABLE>
<CAPTION>
PERIODS TO MATURITY
FROM SEPTEMBER 30, 1996
------------------------------------------------
AS OF WITHIN 1 TO 2 TO MORE THAN
SEPTEMBER 30, 1996 1 YEAR 2 YEARS 3 YEARS 3 YEARS
------------------- ---------- ---------- ---------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Jumbo certificate accounts:
2.00% to 2.99% .................. $ 100 $ 100 $ 135 $ -- $ --
4.00% to 4.99% .................. 1,733 1,598 6,308 331 219
5.00% to 5.99% .................. 46,969 40,111 1,076 631 540
6.00% to 6.99% .................. 4,021 1,774 -- -- --
7.00% to 7.99% .................. 101 -- -- -- 101
------------------- ---------- ---------- ---------- ------------
Total jumbo certificate accounts $52,924 $43,583 $7,519 $962 $860
=================== ========== ========== ========== ============
</TABLE>
Of the Company's total deposits at September 30, 1996, 1995 and 1994,
10.5%, 8.6% and 10.3%, respectively, were deposits of $100,000 or more issued
to the public. Although jumbo certificates of deposit are generally more rate
sensitive than smaller size deposits, management believes that the Company
will retain these deposits.
In 1995, the Company sold its three branches on the west coast of Florida,
including their deposits which totaled $130 million at the date of sale. The
sale was part of a shift in growth strategy to focus on South Florida and
take advantage of consolidation trends in banking there. Also, as part of
this strategy, the Company opened branches in Boca Raton, Florida in December
1995, Delray Beach, Florida in June 1996 and West Palm Beach, Florida in
September 1996. On March 29, 1996, the Company acquired the Bank of Florida
whose single branch with total deposits of $27.3 million was consolidated
with the Company's South Miami branch. On November 15, 1996, as discussed
above, the Company acquired Suncoast which had six branches.
BORROWINGS. When the Company's primary sources of funds are not sufficient
to meet deposit outflows, loan originations and purchases and other cash
requirements, the Company may borrow funds from the FHLB of Atlanta and from
other sources. The FHLB system acts as an additional source of funding for
savings institutions. In addition, the Company uses subordinated notes and
agreements to repurchase in order to increase funds.
FHLB borrowings, known as "advances," are made on a secured basis, and the
terms and rates charged for FHLB advances vary in response to general
economic conditions. As a shareholder of the FHLB of Atlanta, the Bank is
authorized to apply for advances from this bank. A wide variety of borrowing
plans are offered by the FHLB of Atlanta, each with its own maturity and
interest rate. The FHLB of Atlanta will consider various factors, including
an institution's regulatory capital position, net income, quality and
composition of assets, lending policies and practices, and level of current
borrowings from all sources, in determining the amount of credit to extend to
an institution. In addition, an institution that fails to meet the qualified
thrift lender test may have restrictions imposed on its ability to obtain
FHLB advances. BankUnited currently meets the qualified thrift lender test.
See "Regulation--Savings Institution Regulation--Qualified Thrift Lender
Test."
21
<PAGE>
The following tables set forth information as to the Company's borrowings
as of the dates and for the periods indicated.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------------------------------------------------------------
1996 1995 1994
------------------------ ------------------------ --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PERIOD END BALANCES:
FHLB advances(1) ................... $237,000 5.73% $241,000 5.92% $136,000 5.17%
Subordinated notes ................. 775 9.00 775 9.00 775 9.00
Securities sold under agreements to
repurchase (2) ..................... -- -- -- -- 21,400 4.49
----------- ----------- ----------- ---------- ----------- --------
Total borrowings .................. $237,775 5.74% $241,775 5.93% $158,175 5.10%
========== ========= =========== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
1996 1995 1994
------------------------ ------------------------ --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AVERAGE BALANCES:
FHLB advances(1) ................... $234,489 5.77% $136,706 5.86% $116,493 4.03%
Subordinated notes ................. 775 9.00 775 9.00 775 9.00
Securities sold under agreements to
repurchase (2) ................... -- -- 6,571 5.59 3,224 5.68
----------- --------- ----------- ------- --------- -----
Total borrowings .................. $235,264 5.78% $144,052 5.86% $120,492 4.11%
=========== ========= =========== ======= ========= ====
</TABLE>
- ----------
(1) The maximum amount of FHLB advances outstanding during the years ended
September 30, 1996, 1995 and 1994 was $244.0 million, $246.0 million and
$149.0 million, respectively.
(2) The maximum amount of securities sold under agreements to repurchase at
any month-end during the years ended September 30, 1995 and 1994 was
$33.6 million and $21.4 million.
ACTIVITIES OF SUBSIDIARY.
T&D Properties of South Florida, Inc., a Florida corporation ("T&D"), is a
wholly owned operating subsidiary of the Bank, organized in 1991 to invest in
tax certificates. T&D also holds title to, maintains, manages and supervises
the disposition of real property acquired through tax deeds.
Bay Holdings, Inc., a Florida corporation ("Bay Holding") is a wholly
owned operating subsidiary of the Bank that holds title to, maintains,
manages and supervises the disposition of real property acquired through
foreclosure. Bay Holdings was established in 1994 for the purpose of
insulating the Bank from risk of liability concerning maintenance, management
and disposition of real property.
BU Ventures, Inc., a Florida corporation ("BU Ventures") is a wholly owned
operating subsidiary of the Company organized in 1994 to assume from T&D the
responsibility for the maintenance, management and disposition of real
property acquired through tax deeds.
EMPLOYEES
At September 30, 1996, the Company had 126 full-time equivalent employees.
The Company's employees are not represented by a collective bargaining group,
and the Company considers its relations with its employees to be excellent.
The Company provides employee benefits customary in the
22
<PAGE>
savings industry, which include group medical and life insurance, a 401(k)
savings plan and paid vacations. The Company also provides stock awards and a
profit sharing plan for certain officers, directors and employees.
REGULATION
RECENT LEGISLATIVE DEVELOPMENTS
In recent years, measures have been taken to reform the thrift and banking
industries and to strengthen the insurance funds for depository institutions.
The most significant of these measures for savings institutions was the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (the
"FIRREA"), which has had a major impact on the operation and regulation of
savings associations generally. In 1991, the Federal Deposit Insurance
Corporation Improvement Act of 1991 (the "FDICIA"), became law. Although the
FDICIA's primary purpose was to recapitalize the Bank Insurance Fund (the
"BIF") of the FDIC, which insures the deposits of commercial banks, the
FDICIA also affected the supervision and regulation of all federally insured
depository institutions, including federal savings banks such as the Bank.
More recent legislation has attempted to resolve the problems of the SAIF in
meeting its minimum required reserve ratio and the related concern facing
SAIF-insured institutions, such as the Bank, of paying significantly higher
deposit insurance premiums than BIF-insured institutions. The following
discussion is a summary of the significant provisions of the recent
legislation affecting the banking industry.
THE FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT OF 1989.
The FIRREA, which was enacted in response to concerns regarding the soundness
of the thrift industry, brought about a significant regulatory restructuring,
limited savings institutions' business activities, and increased their
regulatory capital requirements. The FIRREA abolished the Federal Home Loan
Bank Board and the Federal Savings and Loan Insurance Corporation (the
"FSLIC"), and established the OTS as the primary federal regulator for
savings institutions. Deposits at the Bank are insured through the SAIF, a
separate fund managed by the FDIC for institutions whose deposits were
formerly insured by the FSLIC. Regulatory functions relating to deposit
insurance are generally exercised by the FDIC. The Resolution Trust
Corporation (the "RTC") was created to manage conservatorships and
receiverships of insolvent thrifts.
THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. The
FDICIA authorizes regulators to take prompt corrective action to solve the
problems of critically undercapitalized institutions. As a result, the
banking regulators are required to take certain supervisory actions against
undercapitalized institutions, the severity of which increases as an
institution's level of capitalization decreases. Pursuant to the FDICIA, the
federal banking agencies have established the levels at which an insured
institution is considered to be "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." See "--Savings Institution Regulations--Prompt Corrective
Action" below for a discussion of the applicable capital levels.
The FDICIA requires that the federal banking agencies revise their
risk-based capital requirements to include components for interest rate risk,
concentration of credit risk and the risk of non-traditional activities. See
"--Savings Institution Regulations--Regulatory Capital Requirements" below
for a description of the final rule adopted by the OTS that incorporates an
interest rate risk component in the risk-based capital requirement. Although
adopted, implementation of this rule has been postponed indefinitely.
In addition, the FDICIA requires each federal banking agency to establish
standards relating to internal controls, information systems, and internal
audit systems that are designed to assess the financial condition and
management of the institution; loan documentation; credit underwriting;
interest
23
<PAGE>
rate exposure; asset growth; and compensation, fees and benefits. The FDICIA
lowered the qualified thrift lender ("QTL") investment percentage applicable
to SAIF-insured institutions. See "--Savings Institution
Regulations--Qualified Thrift Lender Test" below. The FDICIA also provided
that a risk-based assessment system for insured depository institutions must
be established before January 1, 1994. See "--Savings Institution
Regulations--Insurance of Accounts" below. These requirements have been
implemented. The FDICIA further requires annual on-site full examinations of
depository institutions, with certain exceptions, and annual reports on
institutions' financial and management controls.
THE RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994.
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Branching Act") became law. Savings
associations, whose primary federal regulator is the OTS, generally are not
directly affected by the Interstate Branching Act except for a provision that
allows an insured savings association that was an affiliate of a bank on July
1, 1994, to act as the bank's agent as though it were an insured bank
affiliate of the bank.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified
as well capitalized (i.e., a core capital ratio of at least 5%, a ratio of
Tier 1 or core capital to risk-weighted assets ("Tier 1 risk-based capital")
of at least 6% and a risk-based capital ratio of at least 10%) and considered
healthy pay the lowest premium while institutions that are less than
adequately capitalized (i.e., core or Tier 1 risk-based capital ratios of
less than 4% or a risk-based capital ratio of less than 8%) and considered of
substantial supervisory concern pay the highest premium. Risk classification
of all insured institutions is made by the FDIC for each semi-annual
assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than
the designated reserve ratio of 1.25% of SAIF insured deposits. In setting
these increased assessments, the FDIC must seek to restore the reserve ratio
to that designated reserve level, or such higher reserve ratio as established
by the FDIC. The FDIC may also impose special assessments on SAIF members to
repay amounts borrowed from the United States Treasury or for any other
reason deemed necessary by the FDIC.
For the first six months of 1995, the assessment schedule for members of
the Bank Insurance Fund ("BIF") of the FDIC and SAIF members ranged from .23%
to .31% of deposits. As is the case with the SAIF, the FDIC is authorized to
adjust the insurance premium rates for banks that are insured by the BIF of
the FDIC in order to maintain the reserve ratio of the BIF at 1.25% of BIF
insured deposits. As a result of the BIF reaching its statutory reserve ratio
the FDIC revised the premium schedule for BIF insured institutions to provide
a range of .04% to .31% of deposits. The revisions became effective in the
third quarter of 1995. In addition, the BIF rates were further revised,
effective January 1996, to provide a range of 0% to .27%. The SAIF rates,
however, were not adjusted. At the time the FDIC revised the BIF premium
schedule, it noted that, absent legislative action (as discussed below), the
SAIF would not attain its designated reserve ratio until the year 2002. As a
result, SAIF insured members would continue to be generally subject to higher
deposit insurance premiums than BIF insured institutions until, all things
being equal, the SAIF attained its required reserve ratio.
In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provides for a one-time assessment to be imposed on all
deposits assessed at the SAIF rates, as of March 31, 1995, in order to
recapitalize the SAIF. It also provides for the merger of the BIF and the
SAIF on January 1, 1999 if no savings associations then exist. The special
assessment rate has been established at .657% of deposits by the FDIC and the
resulting assessment of $2.6 million (exclusive of an additional $2.3 million
payment which relates to Suncoast deposits) was paid in November 1996. This
special assessment significantly increased noninterest expense and adversely
affected the Bank's results of operations for the year ended September 30,
1996. As a result of the special assessment, the Bank's deposit insurance
premiums were
24
<PAGE>
reduced to .067% based upon its current risk classification and the new
assessment schedule for SAIF insured institutions. These premiums are subject
to change in future periods.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations
issued by a federally chartered corporation to provide financing ("FICO") for
resolving the thrift crisis in the 1980's. Although the FDIC has proposed
that the SAIF assessment be equalized with the BIF assessment schedule,
effective October 1, 1996, SAIF-insured institutions will continue to be
subject to a FICO assessment as a result of this continuing obligation.
Although the legislation also now requires assessments to be made on
BIF-assessable deposits for this purpose, effective January 1, 1997, that
assessment will be limited to 20% of the rate imposed on SAIF assessable
deposits until the earlier of December 31, 1999 or when no savings
association continues to exist, thereby imposing a greater burden on SAIF
member institutions such as the Bank. Thereafter, however, assessments on
BIF-member institutions will be made on the same basis as SAIF-member
institutions. The rates to be established by the FDIC to implement this
requirement for all FDIC-insured institutions is uncertain at this time, but
are anticipated to be about a 6.5 basis points assessment on SAIF deposits
and 1.5 basis points on BIF deposits until BIF insured institutions
participate fully in the assessment.
SAVINGS AND LOAN HOLDING COMPANY REGULATIONS
TRANSACTIONS WITH AFFILIATES. The Company is a unitary savings and loan
holding company and is subject to the OTS regulations, examination,
supervision and reporting requirements pursuant to certain provisions of the
Home Owners' Loan Act (the "HOLA") and the Federal Deposit Insurance Act. As
an insured institution and a subsidiary of a savings and loan holding
company, the Bank is subject to restrictions in its dealings with companies
that are "affiliates" of the Company under the HOLA, certain provisions of
the Federal Reserve Act that were made applicable to savings institutions by
the FIRREA, and the OTS regulations.
As a result of the FIRREA, savings institutions' transactions with its
affiliates are subject to the limitations set forth in the HOLA and the OTS
regulations, which incorporate Sections 23A, 23B, 22(g) and 22(h) of the
Federal Reserve Act and Regulation O adopted by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). Under Section 23A, an
"affiliate" of an institution is defined generally as (i) any company that
controls the institution and any other company that is controlled by the
company that controls the institution, (ii) any company that is controlled by
the shareholders who control the institution or any company that controls the
institution, or (iii) any company that is determined by regulation or order
to have a relationship with the institution (or any subsidiary or affiliate
of the institution) such that "covered transactions" with the company may be
affected by the relationship to the detriment of the institution. "Control"
is determined to exist if a percentage stock ownership test is met or if
there is control over the election of directors or the management or policies
of the company or institution. "Covered transactions" generally include loans
or extensions of credit to an affiliate, purchases of securities issued by an
affiliate, purchases of assets from an affiliate (except as may be exempted
by order or regulation), and certain other transactions. The OTS regulations
and Sections 23A and 23B require that covered transactions and certain other
transactions with affiliates be on terms and conditions consistent with safe
and sound banking practices or on terms comparable to similar transactions
with non-affiliated parties, and imposes quantitative restrictions on the
amount of and collateralization requirements on covered transactions. In
addition, a savings institution is prohibited from extending credit to an
affiliate (other than a subsidiary of the institution), unless the affiliate
is engaged only in activities that the Federal Reserve Board has determined,
by regulation, to be permissible for bank holding companies. Sections 22(g)
and 22(h) of the Federal Reserve Act impose limitations on loans and
extensions of credit from an institution to its executive officers, directors
and principal stockholders and each of their related interests.
ACTIVITIES LIMITATIONS. A unitary savings and loan holding company, such
as the Company, whose sole insured institution subsidiary qualifies as a QTL
(described below) generally has the broadest authority to engage in various
types of business activities. A holding company that acquires
25
<PAGE>
another institution and maintains it as a separate subsidiary or whose sole
subsidiary fails to meet the QTL test will become subject to the activities
limitations applicable to multiple savings and loan holding companies.
In general, a multiple savings and loan holding company (or subsidiary
thereof that is not an insured institution) may not commence, or continue for
more than a limited period of time after becoming a multiple savings and loan
holding company (or a subsidiary thereof), any business activity other than
(i) furnishing or performing management services for a subsidiary insured
institution, (ii) conducting an insurance agency or an escrow business, (iii)
holding, managing or liquidating assets owned by or acquired from a
subsidiary insured institution, (iv) holding or managing properties used or
occupied by a subsidiary insured institution, (v) acting as trustee under
deeds of trust, (vi) those activities previously directly authorized by the
OTS by regulation as of March 5, 1987 to be engaged in by multiple savings
and loan holding companies, or (vii) subject to prior approval of the OTS,
those activities authorized by the Federal Reserve Board as permissible for
bank holding companies. These restrictions do not apply to a multiple savings
and loan holding company if (a) all, or all but one, of its insured
institution subsidiaries were acquired in emergency thrift acquisitions or
assisted acquisitions and (b) all of its insured institution subsidiaries are
QTLs.
SAVINGS INSTITUTION REGULATIONS
Federal savings institutions such as the Bank are chartered by the OTS,
are members of the FHLB system, and have their deposits insured by the SAIF.
They are subject to comprehensive OTS and FDIC regulations that are intended
primarily to protect depositors. SAIF-insured, federally chartered
institutions may not enter into certain transactions unless applicable
regulatory tests are met or they obtain necessary approvals. They are also
required to file reports with the OTS describing their activities and
financial condition, and periodic examinations by the OTS test compliance by
institutions with various regulatory requirements, some of which are
described below.
INSURANCE OF ACCOUNTS. The Bank's deposits are insured by the SAIF up to
$100,000 for each insured account holder, the maximum amount currently
permitted by law. Under the FDIC regulations implementing risk-based
insurance premiums, institutions are divided into three groups--well
capitalized, adequately capitalized and undercapitalized--based on criteria
consistent with those established pursuant to the prompt corrective action
provisions of the FDICIA. See "--Prompt Corrective Action" below. Each of
these groups is further divided into three subgroups, based on a subjective
evaluation of supervisory risk to the insurance fund posed by the
institution.
As an insurer, the FDIC issues regulations and conducts examinations of
its insured members. SAIF insurance of deposits may be terminated by the
FDIC, after notice and hearing, upon a finding that an institution has
engaged in unsafe and unsound practices, cannot continue operations because
it is in an unsafe and unsound condition, or has violated any applicable law,
regulation, rule, order or condition imposed by the OTS or FDIC. When
conditions warrant, the FDIC may impose less severe sanctions as an
alternative to termination of insurance. The Bank's management does not know
of any present condition pursuant to which the FDIC would seek to impose
sanctions on the Bank or terminate insurance of its deposits.
REGULATORY CAPITAL REQUIREMENTS. As mandated by the FIRREA, the OTS
adopted capital standards under which savings institutions must currently
maintain (i) a tangible capital requirement of 1.5% of tangible assets, (ii)
a leverage (or core capital) ratio of 3.0% of adjusted tangible assets, and
(iii) a risk-based capital requirement of 8.0% of risk-weighted assets. These
requirements (which cannot be less stringent than those applicable to
national banks) apply to the Bank. Under current law and regulations, there
are no capital requirements directly applicable to the Company. See also
"--Changes to Capital Requirements" below.
Under the current OTS regulations, "tangible capital" includes common
stockholders' equity, noncumulative perpetual preferred stock and related
paid-in capital, certain qualifying non-withdrawable accounts and pledged
deposits, and minority interests in fully consolidated subsidiaries,
26
<PAGE>
less intangible assets (except certain purchased mortgage servicing rights)
and specified percentages of debt and equity investments in certain
subsidiaries. "Core capital" is tangible capital plus limited amounts of
intangible assets meeting marketability criteria. The "risk-based capital"
requirement provides that an institution's total capital must equal 8% of
risk-weighted assets. Certain institutions will be required to deduct an
interest rate risk component from their total capital, as described below.
"Total capital" equals core capital plus "supplementary capital" (which
includes specified amounts of cumulative preferred stock, certain
limited-life preferred stock, subordinated debt and other capital
instruments) in an amount equal to not more than 100% of core capital.
"Risk-weighted assets" are determined by assigning designated risk weights
based on the credit risk associated with the particular asset. As provided by
OTS regulations, representative risk weights include: 0% for cash and assets
that are backed by the full faith and credit of the United States; 20% for
cash items in the process of collection, FHLB stock, agency securities not
backed by the full faith and credit of the United States and certain
high-quality mortgage-related securities; 50% for certain revenue bonds,
qualifying mortgage loans, certain non-high-quality mortgage-related
securities and certain qualifying residential construction loans; and 100%
for consumer, commercial and other loans, repossessed assets, assets that are
90 or more days past due, and all other assets.
As of September 30, 1996, the Bank's tangible, core and risk-based capital
ratios were 7.0%, 7.0% and 14.2%, respectively.
The OTS regulatory capital regulations take into account a savings
institution's exposure to the risk of loss from changing interest rates.
Under the regulations, a savings institution with an above normal level of
interest rate risk exposure will be required to deduct an interest rate risk
("IRR") component from its total capital when determining its compliance with
the risk-based capital requirements. An "above normal" level of interest rate
risk exposure is a projected decline of 2% in the net present value of an
institution's assets and liabilities resulting from a 2% swing in interest
rates. The IRR component will equal one-half of the difference between the
institution's measured interest rate exposure and the "normal" level of
exposure. Savings institutions are required to file data with the OTS that
the OTS will use to calculate, on a quarterly basis, the institutions'
measured interest rate risk and IRR components. The IRR component to be
deducted from capital is the lowest of the IRR components for the preceding
three quarters. The OTS may waive or defer an institution's IRR component on
a case-by-case basis. Implementation of the IRR requirements have been
delayed. As of September 30, 1996, the Company would have been required to
deduct an IRR component from its total capital when determining its
compliance with the Bank's risk-based capital requirements; however, the Bank
would continue to be well capitalized.
If an institution becomes categorized as "undercapitalized" under the
definitions established by the "prompt corrective action" provisions of the
FDICIA, it will become subject to certain restrictions imposed by the FDICIA.
See "--Prompt Corrective Action" below.
PROMPT CORRECTIVE ACTION. The OTS and other federal banking regulators
have established capital levels for institutions to implement the "prompt
corrective action" provisions of the FDICIA. Based on these capital levels,
insured institutions will be categorized as well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized or critically
undercapitalized. The FDICIA requires federal banking regulators, including
the OTS, to take prompt corrective action to solve the problems of those
institutions that fail to satisfy their applicable minimum capital
requirements. The level of regulatory scrutiny and restrictions imposed
become increasingly severe as an institution's capital level falls.
A "well capitalized" institution must have risk-based capital of 10% or
more, core capital ratio of 5% or more and Tier 1 risk-based capital (based
on the ratio of core capital to risk-weighted assets) of 6% or more and may
not be subject to any written agreement, order, capital directive, or prompt
corrective action directive issued by the OTS. The Bank is a well capitalized
institution under the definitions as adopted. An institution will be
categorized as "adequately capitalized" if it has total risk-based capital of
8% or more, Tier 1 risk-based capital of 4% or more, and core capital of 4%
or
27
<PAGE>
more; "undercapitalized" if it has total risk-based capital of less than 8%,
Tier 1 risk-based capital of less than 4%, or core capital of less than 4%;
"significantly undercapitalized" if it has total risk-based capital of less
than 6%, Tier 1 risk-based capital of less than 3%, or core capital of less
than 3%; and "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to less than 2%.
In the case of an institution that is categorized as "undercapitalized,"
such an institution must submit a capital restoration plan to the OTS. An
undercapitalized depository institution generally will not be able to acquire
other banks or thrifts, establish additional branches, pay dividends, or
engage in any new lines of business unless consistent with its capital plan.
A "significantly undercapitalized" institution will be subject to additional
restrictions on its affiliate transactions, the interest rates paid by the
institution on its deposits, the institution's asset growth, compensation of
senior executive officers, and activities deemed to pose excessive risk to
the institution. Regulators may also order a significantly undercapitalized
institution to hold elections for new directors, terminate any director or
senior executive officer employed for more than 180 days prior to the time
the institution became significantly undercapitalized, or hire qualified
senior executive officers approved by the regulators.
The FDICIA provides that an institution that is "critically
undercapitalized" must be placed in conservatorship or receivership within 90
days of becoming categorized as such unless the institution's regulator and
the FDIC jointly determine that some other course of action would result in a
lower resolution cost to the institution's insurance fund. Thereafter, the
institution's regulator must periodically reassess its determination to
permit a particular critically undercapitalized institution to continue to
operate. A conservator or receiver must be appointed for the institution at
the end of an approximately one-year period following the institution's
initial classification as critically undercapitalized unless a number of
stringent conditions are met, including a determination by the regulator and
the FDIC that the institution has positive net worth and a certification by
such agencies that the institution is viable and not expected to fail.
The final rules establishing the capital levels for purposes of the FDICIA
also indicate that the federal regulators intend to lower or eliminate the
core capital requirement from the definitions of well capitalized, adequately
capitalized and undercapitalized after the requirement to deduct an IRR
component from total capital becomes effective. This action has not yet been
taken. See "--Regulatory Capital Requirements" above.
In addition to the foregoing prompt corrective action provisions, the
FDICIA also sets forth requirements that the federal banking agencies,
including the OTS, review their capital standards every two years to ensure
that their standards require sufficient capital to facilitate prompt
corrective action and to minimize loss to the SAIF and the BIF.
RESTRICTIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. The current OTS
regulation applicable to the payment of dividends or other capital
distributions by savings institutions imposes limits on capital distributions
based on an institution's regulatory capital levels and net income. An
institution that meets or exceeds all of its capital requirements (both
before and after giving effect to the distribution) and is not in need of
more than normal supervision would be a "Tier 1 association." A Tier 1
association may make capital distributions during a calendar year of up to
the greater of (i) 100% of net income for the current calendar year plus 50%
of its capital surplus or (ii) or the amount permitted for a "Tier 2
association" which is 75% of its net income over the most recent four
quarters. Any additional capital distributions would require prior regulatory
approval. The Bank currently exceeds its fully phased-in capital requirements
and qualifies as a Tier 1 association under the regulation. A "Tier 3
association" is defined as an institution that does not meet all of the
minimum regulatory capital requirements and therefore may not make any
capital distributions without the prior approval of the OTS.
Savings institutions must provide the OTS with at least 30 days' written
notice before making any capital distributions. All such capital
distributions are also subject to the OTS' right to object to a distribution
on safety and soundness grounds.
28
<PAGE>
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association may make
a capital distribution without notice to the OTS (unless it is a subsidiary
of a holding company) provided that it has a CAMEL 1 or 2 rating, is not of
supervisory concern, and would remain adequately capitalized (as defined in
the OTS prompt corrective action regulations) following the proposed
distribution. Savings associations that would remain adequately capitalized
following the proposed distribution but do not meet the other noted
requirements must notify the OTS 30 days prior to declaring a capital
distribution. The OTS stated it will generally regard as permissible that
amount of capital distributions that do not exceed 50% of the institution's
excess regulatory capital plus net income to date during the calendar year.
As under the current rule, the OTS may object to a capital distribution if it
would constitute an unsafe or unsound practice. No assurance may be given as
to whether or in what form the regulations may be adopted.
QUALIFIED THRIFT LENDER TEST. Pursuant to amendments effected by the
FDICIA, a savings institution will be a QTL if its qualified thrift
investments equal or exceed 65% of its portfolio assets on a monthly average
basis in nine of every 12 months. Qualified thrift investments, under the
revised QTL test, include (i) certain housing-related loans and investments,
(ii) certain obligations of the FSLIC, the FDIC, the FSLIC Resolution Fund
and the RTC, (iii) loans to purchase or construct churches, schools, nursing
homes and hospitals (subject to certain limitations), (iv) consumer loans
(subject to certain limitations), (v) shares of stock issued by any FHLB, and
(vi) shares of stock issued by the FHLMC or the FNMA (subject to certain
limitations). Portfolio assets under the revised test consist of total assets
minus (a) goodwill and other intangible assets, (b) the value of properties
used by the savings institution to conduct its business, and (c) certain
liquid assets in an amount not exceeding 20% of total assets.
Any savings institution that fails to become or remain a QTL must either
convert to a national bank charter or be subject to restrictions specified in
the OTS regulations. Any such savings institution that does not become a bank
will be: (i) prohibited from making any new investment or engaging in
activities that would not be permissible for national banks; (ii) prohibited
from establishing any new branch office in a location that would not be
permissible for a national bank in the institution's home state; (iii)
ineligible to obtain new advances from any FHLB; and (iv) subject to
limitations on the payment of dividends comparable to the statutory and
regulatory dividend restrictions applicable to national banks. Also,
beginning three years after the date on which the savings association ceases
to be a QTL, the savings association would be prohibited from retaining any
investment or engaging in any activity not permissible for a national bank
and would be required to repay any outstanding advances to any FHLB. A
savings institution may requalify as a QTL if it thereafter complies with the
QTL test. At September 30, 1996, the Bank exceeded the QTL requirements.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB system,
which consists of 12 regional Federal Home Loan Banks governed and regulated
by the Federal Housing Finance Board. The Federal Home Loan Banks provide a
central credit facility for member institutions. The Bank, as a member of the
FHLB of Atlanta, is required to acquire and hold shares of capital stock in
the FHLB of Atlanta in an amount at least equal to the greater of 1% of the
aggregate principal amount of its unpaid residential mortgage loans, home
purchase contracts and similar obligations as of the close of each calendar
year, or 5% of its borrowings from the FHLB of Atlanta (including advances
and letters of credit issued by the FHLB on the Bank's behalf). The Bank is
currently in compliance with this requirement, with a $12.2 million
investment in stock of the FHLB of Atlanta as of September 30, 1996.
The FHLB of Atlanta makes advances to members in accordance with policies
and procedures periodically established by the Federal Housing Finance Board
and the Board of Directors of the FHLB of Atlanta. Currently outstanding
advances from the FHLB of Atlanta are required to be secured by a member's
shares of stock in the FHLB of Atlanta and by certain types of mortgages and
other assets. The FIRREA further limited the eligible collateral in certain
respects. Interest rates charged for advances vary depending on maturity, the
cost of funds to the FHLB of Atlanta and the purpose of the borrowing. As of
September 30, 1996, advances from the FHLB of Atlanta totaled $237.0 million.
See Note 8 of the Notes to the Company's Consolidated Financial Statements.
The FIRREA restricted the amount of FHLB advances that a member institution
may obtain, and in some
29
<PAGE>
circumstances requires repayment of outstanding advances, if the institution
does not meet the QTL test. See "--Qualified Thrift Lender Test," above.
LIQUIDITY. OTS regulations currently require member savings institutions
to maintain for each calendar month an average daily balance of liquid assets
(cash and certain time deposits, securities of certain mutual funds, bankers'
acceptances, corporate debt securities and commercial paper, and specified
U.S. government, state government and federal agency obligations) equal to at
least 5% of its average daily balance during the preceding calendar month of
net withdrawable deposits and short-term borrowings (generally borrowings
having maturities of one year or less). An institution must also maintain for
each calendar month an average daily balance of short-term liquid assets
(generally those having maturities of one year or less) equal to at least 1%
of its average daily balance during the preceding calendar month of net
withdrawable accounts and short-term borrowings. The Director of the OTS may
vary this liquidity requirement from time to time within a range of 4% to
10%. Monetary penalties may be imposed for failure to meet liquidity
requirements. For the month of September 1996, the Bank's liquidity ratio was
3.80%, and its short-term liquidity ratio, which must be at least 1%, was
6.75%.
COMMUNITY REINVESTMENT ACT. Under the Community Reinvestment Act (the
"CRA"), as implemented by the OTS regulations, a savings institution has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including
low and moderate income neighborhoods. The CRA does not establish specific
lending requirements or programs for financial institutions nor does it limit
an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with its examination of a
financial institution, to assess the institution's record of meeting the
credit needs of its community and to take such records into account in its
evaluation of certain applications. The FIRREA amended the CRA to require
public disclosure of an institution's CRA rating and to require that the OTS
provide a written evaluation of an institution's CRA performance utilizing a
four-tiered descriptive rating system in lieu of the existing five-tiered
numerical rating system. Based upon an OTS examination in fiscal 1995, the
Bank's CRA rating is satisfactory.
Effective July 1, 1995, the OTS together with the other federal banking
agencies, adopted a joint rule amending each of their regulations concerning
the CRA. Subject to certain exceptions and elections, the new regulations
prescribe three tests for the evaluation of a savings institution's
performance. The lending test evaluates a savings institution's record of
helping to meet the credit needs of its assessment area through its lending
activities by considering an institution's home mortgage, small business,
small farm, and community development lending. The investment test evaluates
a savings institution's record of helping to meet the credit needs of its
assessment area through qualified investments that benefit its assessment
area or a broader statewide or regional area including the assessment area.
Finally, the service test evaluates a savings institution by analyzing both
the availability and the effectiveness of the institution's systems for
delivering retail banking services and the extent and innovativeness of its
community development services. Based upon the savings institution's
performance under the lending, investment and service tests, and any other
tests which may be applicable to the institution under the new regulations,
the OTS will assign the savings institution one of the same four ratings
prescribed under current regulations. Additionally, under the new
regulations, the OTS will continue to consider an institution's record of
performance under the CRA in the same manner and for the same purposes as
required under current regulations.
These new regulations, while effective July 1, 1995, will be implemented
over a two-year time frame. A savings institution may elect to be evaluated
under the revised performance tests beginning January 1, 1996, although the
Company has not made such election. Absent such an election, these revised
performance tests will not become mandatory and will not be deemed to replace
the current regulations described above until July 1, 1997.
30
<PAGE>
LOANS-TO-ONE-BORROWER LIMITATIONS
The FIRREA provided that loans-to-one borrower limits applicable to
national banks apply to savings institutions. Generally, under current
limits, loans and extensions of credit outstanding at one time to a single
borrower shall not exceed 15% of the savings institution's unimpaired capital
and unimpaired surplus. Loans and extensions of credit fully secured by
certain readily marketable collateral may represent an additional 10% of
unimpaired capital and unimpaired surplus. As of September 30, 1996, the Bank
was in compliance with the loans-to-one-borrower limitations.
PORTFOLIO POLICY GUIDELINES
The Federal Financial Institutions Examination Council issued a
Supervisory Policy Statement on Securities Activities (the "Policy"), which
provides guidance to an institution in developing its portfolio policy,
specifies factors that must be considered when evaluating an institution's
investment portfolio, and provides guidance on the suitability of acquiring
and holding certain products, such as mortgage derivative products, in its
investment portfolio. The Policy, among other things, defines "high-risk
mortgage securities" and provides that such securities are not suitable
investment portfolio holdings for depository institutions and that they may
only be acquired to reduce interest rate risk. The determination of a
high-risk mortgage security will be based upon a quantitative calculation of
the average life of the security, and the change in the average life and
market price sensitivity of the security based on a 300-basis-point shift in
the yield curve. Currently, the Bank does not hold any high-risk mortgage
securities. The Policy, however, is applicable to all depository institutions
and will affect the Bank's ability to invest in certain mortgage securities,
primarily collateralized mortgage obligations, in the future.
GENERAL LENDING REGULATIONS
The Bank's lending activities are subject to federal and state regulation,
including the Equal Credit Opportunity Act, the Truth in Lending Act, the
Real Estate Settlement Procedures Act, the Community Reinvestment Act and the
laws of Florida, California and other jurisdictions governing discrimination,
lender disclosure to borrowers, foreclosure procedures and anti-deficiency
judgments, among other matters.
FEDERAL RESERVE SYSTEM
The Bank is subject to certain regulations promulgated by the Federal
Reserve Board. Pursuant to such regulations, savings institutions are
required to maintain reserves against their transaction accounts (primarily
interest-bearing checking accounts) and non-personal time deposits. The
balances maintained to meet the reserve requirements imposed by the Federal
Reserve Board may be used to satisfy liquidity requirements imposed by the
OTS. In addition, Federal Reserve Board regulations limit the periods within
which depository institutions must provide availability for and pay interest
on deposits to transaction accounts. Depository institutions are required to
disclose their check-hold policies and any changes to those policies in
writing to customers. The Bank is in compliance with all such Federal Reserve
Board regulations.
TAXATION
The Company reports its income and expenses under an accrual method of
accounting and has been filing federal income tax returns on a calendar year
basis. For 1994 and thereafter, the Company and its subsidiaries have elected
to file consolidated tax returns on a fiscal year basis ended September 30.
The Tax Reform Act of 1986 (the "1986 Act"), which was signed into law on
October 22, 1986, revised the income tax laws applicable to corporations in
general and to savings institutions, such as the Bank, in particular. Except
as specifically noted, the discussion below relates to taxable years
beginning after December 31, 1986.
31
<PAGE>
The Company has not been notified of a proposed examination by the
Internal Revenue Service (the "IRS") of its federal income tax returns.
BAD DEBT RESERVES
DEDUCTIONS. The Internal Revenue Code of 1986, as amended (the "Code"),
currently permits savings institutions, such as the Bank, to establish a
reserve for bad debts and to make annual additions thereto, which additions
may, within specified formula limits, be deducted in determining taxable
income. The bad debt reserve deduction is generally based upon a savings
institution's actual loss experience (the "experience method"). In addition,
provided that certain definitional tests relating to the composition of
assets and sources of income are met, a savings institution was permitted to
elect annually to compute the allowable addition to its bad debt reserve for
losses on qualifying real property loans (generally loans secured by improved
real estate) by reference to a percentage of its taxable income (the
"percentage of taxable income method").
Under the percentage of taxable income method, a savings institution was
permitted, in general, to claim a deduction for additions to bad debt
reserves equal to 8% of the savings institution's taxable income. Taxable
income for this purpose is defined as taxable income before the bad debt
deduction, but reduced for any addition to the reserve for non-qualifying
loans. For this purpose, the taxable income of a savings institution for a
taxable year is calculated after utilization of net operating loss
carryforwards.
In August 1996, legislation was enacted that repeals the reserve method of
accounting (including the percentage of taxable income method) used by many
thrifts, including the Bank, to calculate their bad debt reserve for federal
income tax purposes. As a result, large thrifts such as the Bank must
recapture that portion of the reserve that exceeds the amount that could have
been taken under the specific charge-off method for post-1987 tax years. The
legislation also requires thrifts to account for bad debts for federal income
tax purposes on the same basis as commercial banks for tax years beginning
after December 31, 1995. The recapture will occur over a six-year period, the
commencement of which will be delayed until the first taxable year beginning
after December 31, 1997, provided the institution meets certain residential
lending requirements. The management of the Company does not believe that the
legislation will have a material impact on the Company or the Bank.
DISTRIBUTIONS. Under the Code, a portion of the Bank's bad debt reserves
may be reduced on account of a "non-dividend" distribution. A distribution is
a non-dividend distribution to the extent that, for federal income tax
purposes, (i) it is in redemption of shares, (ii) it is pursuant to a
liquidation of the institution, or (iii) in the case of a current
distribution it, together with all other such distributions during the
taxable year, exceeds the Bank's current and post-1951 accumulated earnings
and profits. The amount charged against the Bank's bad debt reserves in
respect of a distribution will be includable in its gross income and will
equal the amount of such distribution, increased by the amount of federal
income tax resulting from such inclusion.
ALTERNATIVE MINIMUM TAX
In addition to the income tax, corporations are generally subject to an
alternative minimum tax at a rate of 20%. The alternative minimum tax is
imposed on the sum of regular taxable income (with certain adjustments) and
tax preference items, less any available exemption ("AMTI"). The alternative
minimum tax is imposed to the extent that it exceeds a corporation's regular
income tax liability. The items of tax preference that constitute AMTI for
1990 and thereafter include 75% of the excess of the taxpayer's adjusted
current earnings over AMTI (determined without regard to this preference and
prior to any deduction for net operating loss carryforwards or carrybacks).
Another item of tax preference is the excess of the bad debt deduction over
the amount allowable under the actual loss experience method. In addition,
net operating loss carryforwards cannot offset more than 90% of AMTI.
32
<PAGE>
INTEREST ALLOCABLE TO TAX-EXEMPT OBLIGATIONS
The 1986 Act eliminates for financial institutions the deduction for
interest expense allocable to the purchase or carrying of most tax-exempt
obligations for taxable years ending after December 31, 1986, with respect to
tax-exempt obligations acquired after August 7, 1986 excluding certain
financial institution-qualified issues. For all qualified issues and for
non-qualified tax-exempt obligations acquired after 1982 and before August 7,
1986, 20% of allocable interest expense deductions will be disallowed.
STATE TAXATION
The State of Florida imposes a corporate franchise tax on the Company, at
a rate of 5% of the Company's taxable income as determined for Florida
franchise tax purposes. Taxable income for this purpose is based on federal
taxable income with certain adjustments. A credit against the franchise tax,
for Florida intangible taxes paid, is allowable in an amount equal to the
lesser of (i) the amount of such intangible taxes paid or (ii) 65% of the
franchise tax.
33
<PAGE>
ITEM 2. PROPERTIES.
The executive and administrative offices of the Company and the Bank and
the Coral Gables branch are located at 255 Alhambra Circle, Coral Gables,
Florida 33134. On November 15, 1996 the Company completed the purchase of
Suncoast Savings and Loan Association FSA ("Suncoast"). Suncoast had six
branch offices, two mortgage origination offices and several other facilities
which were acquired by the Company. The Company owns electronic data
processing equipment for its exclusive use, which consists of personal
computers and peripherals and software having an aggregate net book value of
approximately $330,000 as of September 30, 1996.
The following table sets forth the location of, and certain additional
information regarding, the Company's and the Bank's executive and
administrative offices and branches, including Suncoast properties. The total
net book value of the Company's premises as of September 30, 1996 which
excludes the Suncoast properties was approximately $1.1 million.
<TABLE>
<CAPTION>
NET BOOK VALUE OF LEASE EXPIRATION DATE
LOCATION LEASEHOLD IMPROVEMENTS AND RENEWAL TERMS SQUARE FOOTAGE
- ----------------------------------- ----------------------- ---------------------- -----------------
<S> <C> <C> <C>
Executive and
administrative offices, and
savings branches ..................
Boca Raton branch ................. $80,637 1999 2,442
21222 St. Andrews Boulevard #11 (3 options to renew
Boca Raton, Florida 33434 for 3 years each)
Boynton Beach branch .............. $139,182 2001 2,933
117 North Congress Avenue ........ (2 options to renew
Boynton Beach, Florida 33426 .... for 5 years each)
Coral Gables branch ............... $543,891 2004 14,097
255 Alhambra Circle (2 options to renew
Coral Gables, Florida 33134 for 5 years)
Coral Springs branch .............. $22,901 2001 2,805
1307 University Drive (2 options to renew
Coral Springs, Florida 33071 for 5 years each)
Deerfield Beach branch
and Commercial Real Estate office $217,268 1998 4,000
2201 West Hillsboro Boulevard (2 options to renew
Deerfield Beach, Florida 33442 for 5 years each)
Delray Beach branch ............... $16,135 1995 4,000
7431-39 West Atlantic Avenue (3 options to renew
Delray Beach, Florida 33446 for 5 years each)
East Delray Beach branch .......... (5) 2001 4,059
1177 George Bush Boulevard, #102 (1 option to renew
Delray Beach, Florida for 5 years)
Hallandale branch ................. (5) -- (1)(3) 4,500
501 Golden Isles Drive
Hallandale, Florida
Hollywood branch .................. (5) -- (1)(2) 12,200
4350 Sheridan Street
Hollywood, Florida
Lauderdale-by-the-Sea branch ..... (5) -- (1) 5,000
227 Commercial Boulevard
Lauderdale-by-the-Sea, Florida
34
<PAGE>
NET BOOK VALUE OF LEASE EXPIRATION DATE
LOCATION LEASEHOLD IMPROVEMENTS AND RENEWAL TERMS SQUARE FOOTAGE
- ----------------------------------- ----------------------- ---------------------- ------------------
Pembroke Pines branch ............. (5) 2,000 3,500
100 South Flamingo Road (1 option to renew
Pembroke Pines, Florida for 5 years)
Pompano Beach branch .............. (5) -- (1) 7,600
1313 North Ocean Boulevard
Pompano Beach, Florida ...........
South Miami branch ................ $43,059 1998 6,100
6075 Sunset Drive
South Miami, Florida 33143
Tamarac branch .................... $32,148 2002 3,531
5779 North University Drive (1 option to renew
Tamarac, Florida 33321 for 5 years)
West Palm Beach branch ............ $36,379 2001 3,740
2911C North Military Trail ...... (2 options to renew
West Palm Beach, Florida 33409 for 5 years each)
Mortgage Origination office ...... (5) 1998 1,129
7700 North Kendall Drive, #506
Miami, Florida ...................
Mortgage Origination office ...... (5) 2000 32,850
Presidential Circle (2 options to renew
4000 Hollywood Boulevard for 5 years each)
Hollywood, Florida ...............
Storage Warehouses ................ (5) 1996 1,500
1009 South 21st Avenue
Hollywood, Florida
1017 South 21st Avenue (5) 1996 2,322
Hollywood, Florida
Other ............................. (5) 1998 5,371
1177 George Bush Boulevard, #200 (1 option to renew
Delray Beach, Florida ............ for 3 years)(4)
4340 Sheridan Street .............. (5) -- (1)(4) 4,764
Hollywood, Florida
6101 Sunset Drive
South Miami, Florida 33143 ...... -- 1998 4,000
</TABLE>
- --------
(1) The Bank owns the facility.
(2) A savings branch occupies 3,100 square feet. The remainder of the
building is leased by unrelated parties.
(3) The Bank leases 1,400 square feet to unrelated parties.
(4) The entire space is currently sub-leased to an unrelated party
(5) Prior Suncoast properties acquired on November 15, 1996.
35
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company and its subsidiaries, from time to time, are involved as
plaintiff or defendant in various legal actions arising in the normal course
of their businesses. While the ultimate outcome of any such proceedings
cannot be predicted with certainty, it is the opinion of management that no
proceeding exist, either individually or in the aggregate, that, if
determined adversely to the Company and its subsidiaries, would have a
material adverse effect on the Company's consolidated financial condition,
results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended September 30, 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the executive
officers and directors of the Company and the Bank.
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY
NAME AGE AND BUSINESS EXPERIENCE
---- --- -----------------------
<S> <C> <C>
Alfred R. Camner 52 Director, Chairman of the Board, Chief Executive Officer and President
of the Company (1993 to present); Director, Chairman of the Board and Chief
Executive Officer and President (1984 to present) of the Bank; Senior Managing
Director (1996 to present) and Managing Director of Stuzin and Camner,
Professional Association, attorneys-at-law (1973 to present); Director
and member of the executive committee of the Board of Directors of Loan
America Financial Corporation, a national mortgage banking company (1985
to 1994); Director of CSW Associates, Inc., an asset management firm (1990
to 1995).
Lawrence H. Blum 53 Director and Vice Chairman of the Board of the Company (1993 to present)
and the Bank (1984 to present); Managing Director (1992 to present) and
partner (1974 to present) of Rachlin, Cohen & Holtz, certified public
accountants.
Albert J. Finch(1) 59 Director and Vice Chairman of the Company and the Bank (November 1996 to
present); President and sole owner of Finch Financial, Inc., a financial
consulting firm (November 1996 to present); Director, Chairman of the Board
and Chief Executive Officer of Suncoast (1985 to November 1996); Chief
Operating Officer and President of Suncoast (1992 to November 1996).
James A. Dougherty 46 Director (December 1995 to present) and Executive Vice President of the
Company (1994 to present); Director, Executive Vice President and Chief
Operating Officer of the Bank (1994 to present); Executive Vice President
of Retail Banking of Intercontinental Bank (1989 to 1994).
36
<PAGE>
POSITIONS WITH COMPANY
NAME AGE AND BUSINESS EXPERIENCE
---- --- -----------------------
Earline G. Ford 53 Director, Executive Vice President and Treasurer of the Company (1993 to
present); Director (1984 to present), Executive Vice President (1990 to
present), Senior Vice President--Administration (1988 to 1990), Treasurer
(1984 to present) and Vice President--Administration (1984 to 1988) of
the Bank; Legal Administrator of Stuzin and Camner, Professional Association,
attorneys-at-law (1973 to 1996); Vice Chairman of CSW Associates, Inc.,
an asset management firm (1990 to 1995).
Marc D. Jacobson 54 Director and Secretary of the Company (1993 to present) and the Bank (1984
to present); Vice President of Head-Beckham Insurance Agency, Inc. (1990
to present); President and principal owner of American Central Insurance
Agency, Inc. (1969 to 1990).
Allen M. Bernkrant 65 Director of the Company (1993 to present) and the Bank; private investor
in Miami, Florida (1990 to present); Chairman, President and principal
owner of Southern General Diversified, Inc., manufacturer and distributor
of recreational equipment (1960 to 1990).
Irving P. Cohen(1) 55 Director of the Company and the Bank (November 1996 to present); Director
of Suncoast (1988 to 1996); Partner, Thompson Hine & Flory, attorneys at
law (1995 to present); Partner, Semmes Bowen & Semmes, attorneys at law
(1990 to 1995).
Bruce Friesner 71 Director of the Company (1996 to present) and the Bank (1996 to present);
Director of Loan America Financial Corporation (1990-1994); Partner of
F&G Associates, a commercial real estate development company (1972 to
present).
Patricia L. Frost 58 Director of the Company (1993 to present) and the Bank; private investor
in Miami, Florida; Principal of West Laboratory School, Coral Gables, Florida
(1970 to 1993).
Sandra Goldstein 55 Director of the Company and the Bank (1993 to present); Real estate broker,
Sandra Goldstein & Associates, Inc. (1995 to present); Codina-Klein Realty,
Inc. (1989 to 1995); Broker/salesperson with L.J. Hooker International,
Inc., a real estate agency (1986 to 1989).
Elia J. Gusti(1) 62 Director of the Company and the Bank (November 1996 to present); Director
of Suncoast (1990 to 1996); President and principal owner of Lee Guisti
Realty, Inc., a real estate and mortgage brokerage firm (1982 to present).
Marc Lipsitz 55 Director of the Company (1996 to present); Managing Director (1996 to present)
of Stuzin & Camner, P.A.; General Counsel of Jefferson National Bank
(1993-1996); Partner, Stroock Stroock & Lavan, attorneys at law (1991-1993).
Robert D. Lurie 50 Director of the Company (1993 to present) and the Bank (1993-1996); Chairman,
President and principal owner of Resources for Child Care Management, Inc.,
a provider of child care services to companies (1985 to 1995); Chairman
of Corporate Childcare, Inc. (beginning in 1995).
37
<PAGE>
POSITIONS WITH COMPANY
NAME AGE AND BUSINESS EXPERIENCE
---- --- -----------------------
Norman E. Mains(1) 53 Director of the Company and the Bank (November 1996 to present); Director
of Suncoast (1985 to 1986); Chief Economist and Director of Research for
the Chicago Mercantile Exchange (1994 to present); President and Chief
Operating Officer of Rodman & Renshaw Capital Group, Inc., a securities
broker/dealer firm (1991 to 1994).
Neil Messinger 58 Director of the Company (1996 to present) and the Bank (1996 to present);
radiologist; President (1986 to present), Radiological Associates, P.A.;
Chairman (1986 to present) of Imaging Services of Baptist Hospital.
Christina Cuervo Migoya 31 Director of the Company and the Bank (1995 to present); Assistant City
Manager and Chief of Staff of the City of Miami (1992 to present); Assistant
Vice President of United National Bank (1992); Assistant Vice President,
First Union National Bank/Southeast Bank (1986 to 1992).
Anne W. Solloway 79 Director of the Company and the Bank (1993 to present); private investor
in Miami, Florida.
OFFICERS OF THE COMPANY
AND/OR THE BANK WHO
ARE NOT DIRECTORS:
Charles A. Arnett 48 Executive Vice President of the Bank (beginning in 1995); Executive Vice
President of Intercontinental Bank (1991 to 1995); President and Chief
Executive Officer of Northridge Bank (1990-1991).
Samuel A. Milne 46 Executive Vice President (1996 to present) and Senior Vice President and
Chief Financial Officer of the Company and the Bank (May 1995 to present);
Senior President and Chief Financial Officer, Consolidated Bank (1992 to
1995); Senior Vice President, Southeast Bank (1984 to 1991)
Donald Putnam 40 Executive Vice President of the Bank (1996 to present); Senior Vice President
and Regional Sales Manager, NationsBank of Florida, N.A. (1996); Senior
Vice President of Citizens Federal Bank, a Federal Savings Bank (1994 to
1996); First Vice President (1987-1994).
Nancy L. Ashton 42 Senior Vice President and Assistant Secretary of the Company (1993 to present);
Senior Vice President (1990 to present), Vice President (1988 to 1990),
and Assistant Vice President (1984 to 1988) of the Bank.
Jessica Atkinson 44 Senior Vice President of the Bank (beginning in 1995); Vice President (1991
to 1995) and Southeast Regional Director (1989 to 1991) of American Savings
of Florida, F.S.B.
Pedro J. Gomez 42 Senior Vice President of the Bank (beginning in 1995); Vice President,
First Union National Bank of Florida (1991 to 1995); Vice President of
Southeast Bank, N.A. (1978 to 1991).
Anne Lehner-Garcia 35 Senior Vice President and Secretary of the Bank (1993 to present); Senior
Vice President (1990 to present), Vice President (1987 to 1990) and Assistant
Vice President (1986 to 1987) of the Bank.
38
<PAGE>
POSITIONS WITH COMPANY
NAME AGE AND BUSINESS EXPERIENCE
---- --- -----------------------
Teresa Pacin 42 Senior Vice President of the Bank (beginning in 1995); Vice President,
NationsBank of Florida, N.A. (1994 to 1995); Vice President, First Union
National Bank of Florida (1985 to 1994).
</TABLE>
- -----------
(1) Under the merger agreement with Suncoast, Messrs. Mains, Guisti, and
Cohen were appointed directors of the Company and the Bank, and Mr. Finch
was appointed as a Director and a Vice Chairman of the Company and
BankUnited.
--------------
All executive officers serve at the discretion of the Board of Directors
and are elected annually by the Board.
39
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS
MATTERS
STOCK INFORMATION
The Company's Class A Common Stock, $.01 par value ("Class A Common
Stock"), is traded in the over-the-counter market and quoted in the Nasdaq
Stock Market, ("Nasdaq"). The Company's Class B Common Stock, $.01 par value
("Class B Common Stock"), is not currently traded on any established public
market.
At December 11, 1996, there were 430 and 19 holders of record of the
Company's Class A Common Stock and Class B Common Stock, respectively. The
number of holders, of record of the Class A Common Stock includes nominees of
various depository trust companies for an undeterminable number of individual
stockholders. Class B Common Stock is convertible into Class A Common Stock
at a ratio (subject to adjustment on the occurrence of certain events) of one
share of Class A Common Stock for each Class B share surrendered for
conversion.
There were no common stock dividends declared or paid in fiscal 1996 or
1995. See Note 11 to the Company's Consolidated Financial Statements for a
discussion of restrictions on the Bank's payment of dividends to the Company.
The following tables set forth, for the periods indicated, the range of
hgh and low bid prices for the Class A Common Stock quoted on Nasdaq. Stock
price data in the Nasdaq reflects inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
CLASS A COMMON
STOCK
------------------
PRICE
------------------
HIGH LOW
-------- --------
<S> <C> <C>
Fiscal Year Ended September 30, 1996:
1st Quarter ........................ $8.75 $6.00
2nd Quarter ........................ $8.50 $6.50
3rd Quarter ........................ $8.50 $7.25
4th Quarter ........................ $8.25 $7.25
Fiscal Year Ended September 30, 1995:
1st Quarter ........................ $7.00 $4.50
2nd Quarter ........................ $6.25 $4.75
3rd Quarter ........................ $7.00 $5.00
4th Quarter ........................ $8.75 $7.13
</TABLE>
40
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF OR FOR THE YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA
Interest income ..................................... $ 52,132 $ 39,419 $ 30,421 $ 25,722 $ 24,243
Interest expense .................................... 34,622 26,305 16,295 12,210 14,022
----------- ------------ ------------- ----------- ------------
Net interest income ................................. 17,510 13,114 14,126 13,512 10,221
Provision for loan losses ........................... (120) 1,221 1,187 1,052 70
----------- ------------ ------------- ----------- ------------
Net interest income after provision for loan losses 17,630 11,893 12,939 12,460 10,151
----------- ------------ ------------- ----------- ------------
Non-interest income:
Service fees ........................................ 597 423 358 221 142
Gain on sales of loans and mortgage-backed
securities, net ................................... 5 239 150 1,496 94
Gain (loss) on sales of other assets, net(2) ....... (6) 9,569 -- -- 2
Other ............................................... 53 6 46 2 25
----------- ------------ ------------- ----------- ------------
Total non-interest income ......................... 649 10,237 554 1,719 263
----------- ------------ ------------- ----------- ------------
Non-interest expense:
Employee compensation and benefits ................. 4,275 3,997 3,372 2,721 1,986
Occupancy and equipment ............................ 1,801 1,727 1,258 978 940
Insurance(1) ....................................... 3,610 1,027 844 835 697
Professional fees .................................. 929 1,269 833 543 542
Other .............................................. 3,421 4,129 3,579 2,746 2,002
----------- ------------ ------------- ----------- ------------
Total non-interest expense ........................ 14,036 12,149 9,886 7,823 6,167
----------- ------------ ------------- ----------- ------------
Income before income taxes .......................... 4,243 9,981 3,607 6,356 4,247
Provision for income taxes(3) ....................... 1,657 3,741 1,328 2,318 1,538
----------- ------------ ------------- ----------- ------------
Net income before Preferred Stock dividends ........ 2,586 6,240 2,279 4,038 2,709
Preferred stock dividends:
Bank ............................................... -- -- 198 787 515
Company ............................................ 2,145 2,210 1,871 726 360
----------- ------------ ------------- ----------- ------------
Net income after preferred stock dividends ......... $ 441 $ 4,030 $ 210 $ 2,525 $ 1,834
=========== ============ ============= =========== ============
FINANCIAL CONDITION DATA
Total assets ........................................ $ 824,360 $ 608,415 $ 551,075 $ 435,378 $ 345,931
Loans receivable, net, and mortgage-backed
securities(5) ..................................... 716,550 506,132 470,154 313,899 250,606
Investments, overnight deposits, tax certificates,
reverse purchase agreements, certificates of
deposits and other earning assets ................. 87,662 88,768 64,783 100,118 83,445
Total liabilities ................................... 755,249 562,670 509,807 397,859 322,907
Deposits ............................................ 506,106 310,074 347,795 295,108 275,026
Borrowings .......................................... 237,775 241,775 158,175 97,775 42,241
Total stockholders' equity .......................... 69,111 45,745 41,268 30,273 16,797
Common stockholders' equity ......................... 42,350 21,096 16,667 17,162 11,134
PER COMMON SHARE DATA
Primary earnings per common share and common
equivalent share .................................. $ .10 $ 1.77 $ .10 $ 1.42 $ 1.27
=========== ============ ============= =========== ============
Earnings per common share assuming full dilution ... $ .10 $ 1.26 $ .10 $ 1.00 $ .92
=========== ============ ============= =========== ============
Weighted average number of common shares and common
equivalent shares assumed outstanding during the
period:
Primary .......................................... 4,558,521 2,296,021 2,175,210 1,773,264 1,448,449
Fully diluted ...................................... 4,558,521 4,158,564 2,175,210 3,248,618 2,376,848
Equity per common share ............................. $ 7.85 $ 10.20 $ 8.33 $ 8.86 $ 8.51
Fully diluted equity per common share ............... $ 6.83 $ 7.81 $ 6.87 $ 7.07 $ 6.40
Cash dividends per common share
Class A ............................................ $ -- $ -- $ .075 $ .094 $ .10
Class B ............................................ $ -- $ -- $ .03 $ .038 $ --
</TABLE>
(CONTINUED ON NEXT PAGE)
41
<PAGE>
<TABLE>
<CAPTION>
AS OF OR FOR THE YEARS ENDED SEPTEMBER 30,
----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS
Performance ratios:
Return on average assets(6) ...................................... .36% 1.10% .46% 1.12% .92%
Return on average common equity .................................. 1.30 22.60 1.21 18.55 17.68
Return on average total equity ................................... 4.30 14.70 5.84 14.07 14.72
Interest rate spread ............................................. 2.10 2.12 2.78 3.59 3.34
Net interest margin .............................................. 2.51 2.39 3.01 3.87 3.63
Dividend payout ratio(7) ......................................... 82.95 35.42 96.79 40.66 34.97
Ratio of earnings to combined fixed charges and preferred stock
dividends(8):
Excluding interest on deposits ................................ 1.05 1.52 1.07 1.87 1.83
Including interest on deposits .................................. 1.02 1.21 1.03 1.27 1.18
Total loans, net, and mortgage-backed securities to total
deposits ......................................................... 141.58 163.13 134.40 109.65 91.12
Non-interest expenses to average assets .......................... 1.97 2.14 2.04 2.18 2.09
Efficiency ratio(9) .............................................. 76.45 14.58 66.06 45.17 57.76
ASSET QUALITY RATIOS:
Ratio of non-performing loans to total loans ..................... .99% 1.02% 1.07% 1.54% .45%
Ratio of non-performing assets to total loans, real estate owned
and tax certificates ........................................... 1.14 1.35 1.41 1.78 .66
Ratio of non-performing assets to total assets ................... .95 1.10 1.17 1.46 .50
Ratio of charge-offs to total loans .............................. .08 .13 .39 .07 --
Ratio of loan loss allowance to total loans ...................... .34 .32 .20 .38 .11
Ratio of loan loss allowance to non-performing loans ............ 33.74 31.54 18.89 24.70 25.41
CAPITAL RATIOS:
Ratio of average common equity to average total assets .......... 4.78% 3.14% 3.58% 3.79% 3.51%
Ratio of average total equity to average total assets ........... 8.44 7.47 8.05 7.99 6.24
Tangible capital-to-assets ratio(10) ............................. 7.01% 7.09% 6.65% 7.56% 6.66%
Core capital-to-assets ratio(10) ................................. 7.01 7.09 6.65 7.56 6.66
Risk-based capital-to-assets ratio(10) ........................... 14.19 15.79 14.13 15.85 14.42
</TABLE>
- -----------
(1) In 1996 the Company recorded a one-time SAIF special assessment of $2.6
million ($1.6 million after tax).
(2) In 1995, the Company recorded a $9.3 million gain ($5.8 million after
tax) from the sale of its branches on the west coast of Florida. See
"Risk Factors--Effect of Non-interest Income."
(3) Amount reflects expense from change in accounting principle of $194,843
for fiscal 1994. See Note 15 to Consolidated Financial Statements.
(4) Amount is 1991 reflects extraordinary loss of $50,390 from early
extinguishment of debt.
(5) Does not include mortgage loans held for sale.
(6) Return on average assets is calculated before payment of Preferred Stock
dividends.
(7) The ratio of total dividends declared during the period (including
dividends on the Bank's and the Company's preferred stock and the
Company's Class A and Class B Common Stock) to total earnings for the
period before dividends.
(8) The ratio of earnings to combined fixed charges and Preferred Stock
dividends excluding interest on deposits is calculated by dividing
income before taxes and extraordinary items by interest on borrowings
plus 33% of rental expense plus Preferred Stock dividends on a pretax
basis. The ratio of earnings to combined fixed charges and Preferred
Stock dividends including interest on deposits is calculated by dividing
income before taxes and extraordinary items by interest on deposits plus
interest on borrowings plus 33% of rental expense plus Preferred Stock
dividends on a pretax basis.
(9) Efficiency ratio is calculated by dividing non-interest expenses less
non-interest income by net interest income.
(10) Regulatory capital ratio of the Bank.
42
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion and the related financial data contained herein are
presented to assist the reader in the understanding and evaluating the
financial condition, results of operations and future prospects of BankUnited
Financial Corporation (the "Company") and are intended to supplement, and
should be read in conjunction with, the Consolidated Financial Statements and
related Notes and other financial information presented herein.
The Company's income is derived primarily from its loans and other
investments. Funding for such loans and investments is derived principally
from deposits, loan repayments, and borrowings. Consequently, the Company's
net income depends, to a large extent, on the interest rate spread between
the average yield earned on loans and investments and the average rate paid
on deposits and borrowings. Results of operations are also dependent on the
dollar volume and asset quality of the Company's loans and investments.
The results of the Company's operations, like those of other financial
institution holding companies, are affected by the Company's asset and
liability management policies, as well as factors beyond the Company's
control, such as general economic conditions and the monetary and fiscal
policies of the federal government. Lending activities are affected by the
demand for mortgage financing and other types of loans, which is in turn
affected by the interest rates at which such financing may be offered and
other factors affecting the supply of housing and the availability of funds.
Deposit flows and costs of funds are influenced by yields available on
competing investments and by general market rates of interest.
ACQUISITION OF SUNCOAST SAVINGS & LOAN ASSOCIATION, FSA AND THE BANK OF
FLORIDA.
On November 15, 1996, the Company completed its acquisition of Suncoast
Savings & Loan Association, FSA ("Suncoast"). Suncoast had total assets of
$409.4 million, net loans of $335.0 million, deposits of $298.5 million and
stockholders' equity of $24.7 million as of September 30, 1996. The cost of
the acquisition to the Company was $27.8 million, representing the fair value
of consideration given to Suncoast shareholders as well as option and warrant
holders. See Note 18 of Notes to Consolidated Financial Statements for
additional information regarding this acquisition.
In March 1996, the Company also acquired for cash consideration of $2.8
million, The Bank of Florida, a one branch state commercial bank which had
assets of $28.1 million and deposits of $27.3 million on the date of
acquisition.
RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
NET INCOME. Net income before preferred stock dividends for fiscal 1996
was $2.6 million compared to $6.2 million in 1995. The decrease in net income
was primarily attributable to the pretax gain recorded in the fourth quarter
of 1995 of $9.3 million ($5.8 million after tax) from the sale of the
Company's three branches on the west coast of Florida and the expense of a
one-time special assessment by the Savings Association Insurance Fund
("SAIF") of $2.6 million ($1.6 million after tax) in the fourth quarter of
1996. The SAIF special assessment became effective on September 30, 1996, in
connection with the federal government's plan to recapitalize the SAIF. Many
banks and thrifts were levied a 65.7 basis point charge against their SAIF
deposit base to help meet the 1.25% mandated deposit reserve ratio. See
"Non-Interest Expenses" below.
Primary earnings per share were $0.10 in 1996 compared to $1.77 in 1995.
Fully diluted earnings per share totaled $0.10 in 1996 compared to $1.26 in
1995. There were no common stock dividends declared in fiscal 1996 or 1995.
In the fourth quarter of fiscal 1994 the Company suspended common stock
dividends for the foreseeable future in order to use funds to support managed
and controlled growth.
NET INTEREST INCOME. Net interest income before provision for loan losses
increased $4.4 million or 33.6% to $17.5 million in fiscal 1996 from $13.1
million in fiscal 1995. The increase was attributable to an
43
<PAGE>
increase in the average interest-earning assets of $148.6 million, or 27.1%,
to $696.4 million in 1996 from $547.9 million in 1995, offset by a decline in
the net interest rate spread of two basis points, to 2.10% for 1996 from
2.12% for 1995. Average interest earning assets increased primarily because
of purchases of loans which were funded by an increase in certificates of
deposit. The average yield on interest-earning assets increased 29 basis
points to 7.49% for 1996 from 7.20% for fiscal 1995, and the average cost of
interest-bearing liabilities increased 31 basis points to 5.39% for 1996 from
5.08% for 1995.
The increase in interest income of $12.7 million, or 32.2%, to $52.1
million for fiscal 1996 from $39.4 million for 1995 reflects increases in
interest and fees on loans of $11.1 million or 36.9%. The average yield on
loans increased to 7.65% for 1996 from 7.19% for 1995 and the average balance
of loans receivable increased $120.8 million, or 28.8%, to $540.3 million for
fiscal 1996. The increase in average loans receivable was primarily due to
purchases of residential loans. In order to diversify its portfolio and
improve yields on loans receivable, the Company intends to increase
significantly through purchases and originations the amount of
non-residential loans in its portfolio. In this regard the Company acquired
$108.0 million as part of the Suncoast acquisition subsequent to year end.
The increase in interest expense of $8.3 million, or 31.6% to $34.6
million for fiscal 1996 from $26.3 million for 1995 primarily reflects an
increase in interest on deposits of $2.9 million or 16.5% to $20.8 million
for 1996, and an increase in interest on borrowings of $5.4 million, or
63.6%, to $13.8 million for 1996. The average cost of interest bearing
deposits increased 61 basis points to 5.39% in fiscal 1996 compared with
4.78% in fiscal 1995. The average cost of interest bearing deposits increased
primarily because higher rate certificates of deposit represent a greater
percentage of interest bearing liabilities. The average balance of interest
bearing deposits increased $32.9 million or 8.8% to $406.6 million for fiscal
1996. The average cost of borrowings remained relatively unchanged at 5.88%
in fiscal 1996 versus 5.87% in fiscal 1995, however the average balance of
borrowings increased $91.2 million, or 63.3%, to $235.3 million for 1996.
Borrowings increased in the fourth quarter of fiscal 1995 to replace deposits
sold with the Company's branches on the west coast of Florida.
PROVISION FOR LOAN LOSSES. In fiscal 1996, the Company recorded a credit
for loan losses of $120,000 as compared to a provision of $1.2 million in
fiscal 1995. The credit for loan losses recorded in fiscal 1996 was primarily
due to a recovery of $1.0 million as a result of a legal settlement reached
in October, 1995 with a seller/servicer of loans from which the Company had
previously purchased approximately $38.7 million of loans. The Company
experienced unusually large losses on these purchased loans and as a result
instituted a lawsuit against the seller for breach of warranty. Total charge
offs in fiscal 1996 were $493,000 and recoveries were $1.1 million compared
with charge offs of $594,000 and recoveries of $1,000 in fiscal 1995. For a
detailed discussion of the Company's asset quality and allowance for loan
losses, see "Financial Condition-Credit Quality".
NON-INTEREST INCOME. Other income for fiscal 1996 was $0.6 million
compared with $10.2 million in fiscal 1995. Fiscal 1995 included a gain of
$9.3 million from the sale of the Company's branches on the west coast of
Florida, a gain of $263,000 from the sale of $23.7 million of mortgage
servicing rights and gains of $239,000 from the sale of loans and
mortgage-backed securities. There were no significant gains or losses from
the sale of assets in 1996.
NON-INTEREST EXPENSES. Operating expenses increased $1.9 million or 15.7%
to $14.0 million for fiscal 1996 compared to $12.1 million for fiscal 1995
primarily as a result of a $2.6 million ($1.6 million after tax) accrual for
the one time SAIF special assessment. The SAIF special assessment was a 65.7
basis point charge on deposits that were insured by the SAIF of the FDIC on
March 31, 1995. There will be a significant reduction in deposit insurance
premiums in fiscal 1997.
The reduction of operating expenses as a result of the sale of the
Company's three branches on the west coast of Florida in July 1995 were
substantially offset by the opening of three new branches in Palm Beach
County on the east coast of Florida in fiscal 1996.
Employee compensation and benefits increased $278,000 or 7.0% to $4.3
million in fiscal 1996 from $4.0 million in fiscal 1995. The increase
primarily represents increased personnel resulting from the Company's growth.
44
<PAGE>
Insurance expense increased 251.5% due to the one time SAIF special
assessment of $2.6 million. Insurance expense is expected to decrease because
the annual insurance rate will decline to 6.7 basis points in 1997.
Expenses associated with real estate owned ("REO") decreased to $73,000 in
fiscal 1996 from $559,000 in fiscal 1995, a decrease of $486,000. This
decrease reflected net gains on the sale of REO of $178,000 in fiscal 1996,
compared with net losses of $172,000 in fiscal 1995.
Other operating expenses decreased $420,000 or 17.1%, to $2.0 million for
fiscal 1996 from $2.4 million for fiscal 1995. The decrease primarily
reflects a decrease in the provision for losses on tax certificates. In
fiscal 1995, the Company recorded an additional provision on tax certificates
previously purchased, which have not been redeemed and on which the Company
elected not to seek tax deeds.
INCOME TAX PROVISION. The income tax provision was $1.7 million for fiscal
1996 compared to $3.7 million for fiscal 1995. The difference primarily
results in the difference in income before income taxes. The effective tax
rate was 39.1% in 1996 and 37.5% in 1995.
PREFERRED STOCK DIVIDENDS. Total preferred stock dividends were $2.1
million in fiscal 1996 compared to $2.2 million in fiscal 1995. This decrease
was because the Company declared a special dividend in the fourth quarter of
fiscal 1995 on the Series A and Series B Non-Cumulative Convertible Preferred
Stock of $1.25 and $0.92 per share, respectively, payable in Class A Common
Stock. The special dividend represented five quarters of unpaid dividends.
Regular dividends were paid on all other classes of preferred stock for both
fiscal 1996 and 1995.
FINANCIAL CONDITION
Total assets increased $216.0 million, or 35.5% to $824.4 million at
September 30, 1996 from $608.4 million at September 30, 1995, as compared to
$551.1 million at September 30, 1994.
LOANS. The Company's net loans receivable increased by $193.3 million, or
42.6%, to $646.4 million, at September 30, 1996 from $453.1 million at
September 30, 1995. The increase was primarily the result of $218.9 million
of purchased residential loans, a $32.0 million purchase of a commercial real
estate loan package, and $82.7 million of loan originations, partially offset
by principal repayments of $133.8 million, sales of $4.4 million, and
principal charge-offs and transfers to REO of $1.1 million. The commercial
real estate loan package was comprised of 23 loans in South Florida with
principal balances ranging from $376,000 to $4.7 million. Loans receivable
increased $40.2 million from September 30, 1994 to September 30, 1995, a 9.8%
change, primarily due to $76.1 million in residential loans purchased in
fiscal 1995.
Of the new loans originated or purchased during fiscal 1996 totaling
$332.9 million, $207.1 million or 62.3% represented adjustable-rate
residential loans. Of the Company's total net loans receivable of $646.4
million, at September 30, 1996, $448.7 million or 69.4% were adjustable-rate
mortgage loans ("ARM's"). Of this amount the Company had at September 30,
1996 $155.7 million in ARM's tied to the 11th District Federal Home Loan Bank
cost of funds index ("COFI"). COFI is a lagging index in that it does not
change as quickly as market rates.
CREDIT QUALITY. At September 30, 1996 non-performing assets totaled $7.8
million as compared to $6.7 million and $6.4 million at September 30, 1995
and 1994, respectively. Expressed as a percentage of total assets,
non-performing assets declined to 0.95% as of September 30, 1996 as compared
to 1.10% as of September 30, 1995. The declines in fiscal 1996 and fiscal
1995 were due to asset growth.
Prior to 1993, the Company did not experience significant loan losses.
However, beginning late in 1993, the Company began to charge off loans,
particularly in Southern California where real estate values declined. Real
estate values in Southern California had declined because of i) a slowing in
the economy due to plant closings and layoffs in certain industries, ii)
natural disasters in the area, and
45
<PAGE>
iii) an over-valuation of the real estate market, in general, prior to the
decline. While real estate values in Southern California stabilized during
1996, the Company believes that real estate values there have declined
sufficiently since 1993 for there to be a continuing risk that borrowers
faced with home mortgage payments based on 1993 values would default on their
home mortgages. From late 1993 through September 30, 1996 the Company
recorded a total of $2.4 million in charge offs for residential loans secured
by property in Southern California. Of these Southern California charge offs,
$1.0 million or 41.7% (an unusually high charge off rate) were for loans
purchased from a single seller. As a result, the Company instituted legal
action against the seller for breach of warranty to recover the Company's
losses. In October 1995, this legal action was settled, which resulted in a
recovery of $1.0 million. Taking into account this $1.0 million recovery, the
Company recorded net charge offs of $1.7 million for the period from late
1993 through September 30, 1996, of which $1.4 million or 82.4% were for
residential loans secured by real properties in Southern California.
Beginning in fiscal 1993, management began to reduce the percentage of new
loans acquired in California and ceased acquiring all but de minimis amounts
of such loans in April 1994. As of September 30, 1996 the Company had $125.8
million of residential loans in California which constituted 15.3% of its
assets. This compares to $183.6 million, or 33.3% of its assets as of
September 30, 1994, and $147.2 million or 24.2% as of September 30, 1995.
Effective in fiscal 1997, after taking into account the improved economic
conditions in Southern California, management has discontinued this policy
and may purchase additional recently originated residential loans secured by
property located in California.
The allowance for loan losses was $2.2 million, $1.5 million, and $0.8
million at September 30, 1996, 1995, and 1994, respectively. The allowance
for loan losses as a percentage of total loans increased to 0.34% at fiscal
year end 1996, as compared to 0.32% at fiscal year end 1995, and .20% at
fiscal year end 1994. The increase in non-performing assets to $7.8 million
as of September 30, 1996 from $6.7 million as of September 30, 1995 was due
to increases in non-performing loans of $1.7 million and non-accrual tax
certificates of $226,000, partially offset by a decrease in REO of $821,000.
The increase in non-accrual tax certificates was due primarily to
certificates purchased in 1993 which were not redeemed and on which the
Company determined not to apply for tax deeds. REO declined from $1.5 million
as of September 30, 1995 to $632,000 as of September 30, 1996. The decrease
in REO was due to sales of properties in fiscal 1996 with net book values
totaling $2.3 million, partially offset by new additions to REO of $1.4
million during the year. As a percentage of non-performing loans, the
allowance for loan losses increased from 18.9% at September 30, 1994, to
31.5% at September 30, 1995 and 33.7% at September 30, 1996. At September 30,
1996, $2.8 million, or 43.4%, of the Company's non-performing loans were
secured by Southern California properties as compared to $1.5 million or
37.6%, as of September 30, 1995. This level of Southern California
non-performing loans reflected the longer time period required for
foreclosures to be completed on California properties, as compared to that
for foreclosures in other states .
Effective October 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan" as amended by SFAS No. 118. "Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosures ("SFAS No.
114"). There was no impact on the consolidated statement of operations upon
implementation due to the composition of the Company's loan portfolio
(primarily residential or collateral dependent loans) and the Company's
policy for establishing the allowance for loan losses. The only impact to the
consolidated statement of financial condition and to non-performing assets
was to reclassify three loans totaling $522,000 previously classified as in
substance foreclosures in real estate owned to non accrual loans. These loans
were reclassified because the Company did not have possession of the
collateral which, under SFAS No. 114 is required for a loan to be classified
as real estate owned. SFAS No. 114 does not apply to large groups of smaller
balance homogenous loans that are collectively evaluated for impairment.
Loans collectively reviewed by the Company for impairment include all
residential and consumer loans that are past due not more than 60 days. All
other loans are reviewed based on specific criteria such as delinquency or
other factors that may come to the attention of management. The Company's
impaired loans within the scope of SFAS No. 114 include all non-performing
loans.
46
<PAGE>
The Company's process for evaluating the adequacy of the allowance for
loans losses has three basic elements: first is the identification of
impaired loans; second is the establishment of an appropriate loan loss
allowance once individual specific impaired loans are identified; and third
is a methodology for establishing loans losses based on the inherent risk in
the remainder of the loan portfolio, past loan loss experience, specific
loans which could have loss potential, geographic and industry concentration,
delinquency trends, economic conditions, the views of its regulators, and
other relevant factors.
The identification of impaired loans is achieved mainly through individual
reviews of all loans 60 or more days past due. Loss allowances are
established for specifically identified impaired loans based on the fair
value of the underlying collateral in accordance with SFAS No. 114.
Impairment losses are included in the allowance for loan losses through a
charge to the provision for loan losses. Adjustments to impairment losses
resulting from changes in the fair value of an impaired loan's collateral are
included in the provision for loan losses. Upon disposition of an impaired
loan any related valuation allowance is removed from the allowance for loan
losses. The allowance for loan losses is adjusted by additions charged to
operations as a provision for loan losses and by loan recoveries, with actual
losses charged as reductions to the allowance.
Management believes that the allowance for loan losses is adequate given
the strength of the Company's collateral position and the attention given to
loan review and classifications. There can be no assurance that additional
provisions for loan losses will not be required in future periods.
The following table sets forth information concerning the Company's
non-performing assets for the periods indicated:
<TABLE>
<CAPTION>
SEPEMBER 30,
--------------------------------------------------------
1996 1995 1994 1993 1992
------------ --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans(1) ........................ $4,939(3) $3,496 $3,918 $4,225 $1,043
Restructured loans(2) ....................... 1,457 1,070 533 569 --
Loans past due 90 days and still accruing .. -- 92 -- -- --
------------ --------- -------- -------- ---------
Total non-performing loans ................. 6,396 4,658 4,451 4,794 1,043
Non-accrual tax certificates ................ 800 574 -- -- --
Real estate owned ........................... 632 1,453 1,983 1,581 680
------------ --------- -------- -------- ---------
Total non-performing assets ................ $7,828 $6,685 $6,434 $6,375 $1,723
============ ========= ======== ======== =========
Allowance for losses on tax certificates ... $ 614 $ 569 $ 85 $ -- $ --
Allowance for loan losses ................... 2,158 1,469 841 1,184 265
------------ --------- -------- -------- ---------
Total allowance ............................ $2,772 $2,038 $ 926 $1,184 $ 265
============ ========= ======== ======== =========
Non-performing assets as a percentage
of total assets ........................... .95% 1.10% 1.17% 1.46% .50%
Non-performing loans as a percentage
of total loans(4) ......................... .99% 1.02% 1.07% 1.54% .45%
Allowance for loan losses as a percentage
of total loans(4) ......................... .34% .32% .20% .38% .11%
Allowance for loan losses as a percentage of
non-performing loans ...................... 33.74% 31.54% 18.89% 24.70% 25.41%
</TABLE>
- ----------
(1) Gross interest income that would have been recorded on non-accrual loans
had they been current in accordance with original terms was $217,000,
$128,000, $52,000, $295,000, and $127,000, for the years ended September
30, 1996, 1995, 1994, 1993, and 1992, respectively. The amount of
interest income on such non-accrual loans included in net income for
years ended September 30, 1996, 1995, and 1994 was $145,000, $113,000 and
$15,000, respectively.
(2) All restructured loans were accruing.
(3) In addition to the above, management has concerns as to the borrower's
ability to comply with present repayment terms on $109,000 of accruing
loans as of September 30, 1996.
(4) Based on balances prior to deductions for allowance for loan losses.
47
<PAGE>
TAX CERTIFICATES. The Company's investment in tax certificates increased
$544,000, or 1.4%, to $40.1 million at September 30, 1996 from $39.5 million
at September 30, 1995. The increase was primarily the result of $30.4 million
in certificate purchases during fiscal 1996 which exceeded $29.9 million in
certificate redemptions and repayments.
MORTGAGE-BACKED SECURITIES. The Company's held-to-maturity mortgage-backed
securities portfolio decreased $36.2 million, or 71.1%, to $14.7 million at
September 30, 1996 from $50.9 million at September 30, 1995, primarily as a
result of the Company's reclassifying $31.8 million of held-to-maturity
mortgage-backed securities to available-for-sale in accordance with "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in
Debt and Equity Securities" issued by the Financial Accounting Standards
Board which permitted a one-time reclassification. The reclassified
securities had a market value of $916,000 in excess of their book value at
the time of the transfer.
The Company's available for sale mortgage-backed securities portfolio
increased $53.4 million to $55.5 million as of September 30, 1996 from $2.1
million as of September 30, 1995: $31.8 million of the increase was due to
the reclassification from held to maturity discussed above; $9.1 million of
the increase was due to securities acquired with the Bank of Florida; and the
remainder of the increase was due to purchases made during the 1996 fiscal
year.
DEPOSITS. Deposits increased by $196.0 million, or 63.2%, to $506.1
million at September 30, 1996 from $310.1 million at September 30, 1995.
Management believes the increase in deposits was attributable to the Company
offering competitive interest rates and personalized service. In addition,
the Company acquired deposits of $27.3 million in the purchase of the Bank of
Florida and opened branches in Boca Raton, Florida in December, 1995, Boynton
Beach, Florida in June 1996 and West Palm Beach, Florida in September, 1996.
In July 1995, the Company sold its three branches on the west coast of
Florida with total deposits of $130.3 million. The Company has shifted its
deposit growth strategy to focus on Dade, Broward and Palm Beach Counties.
STOCKHOLDERS' EQUITY. Stockholders' equity was $69.1 million at September
30, 1996, an increase of $23.4 million or 51.1% from $45.7 million at
September 30, 1995. The increase was due primarily to the issuance of
3,565,000 shares of Class A Common Stock pursuant to a stock offering
completed in February 1996. Net proceeds from the offering were approximately
$23.0 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's most significant sources of funds are deposits, Federal Home
Loan Bank ("FHLB") advances, amortization and pre-payment of mortgage loans
and securities, maturities of investment securities and other short term
investments, and earnings and funds provided from operations. While FHLB
advances, scheduled mortgage loan repayments and securities repayments are
relatively predicable sources of funds, deposit flows and prepayments on
loans and mortgage-backed securities are greatly influenced by general
interest rates, economic conditions and competition. The Company manages the
pricing of its deposits to maintain a desired balance. In addition, the
Company invests excess funds in federal funds and other short-term
interest-earning assets which provide liquidity to meet lending requirements.
The Bank is required under applicable federal regulations to maintain
specified levels of liquid investments in cash, United States government
securities and other qualifying investments. Regulations currently in effect
require the Bank to maintain liquid assets of not less than 5.0% of its net
withdrawable accounts plus short-term borrowings, of which short-term liquid
assets must consist of not less than 1.0%. As of September 30, 1996, the Bank
had liquid assets and short-term liquid assets of 6.75% and 3.80%,
respectively, which was in compliance with these requirements.
The Company's primary use of funds is to purchase or originate loans and
to purchase mortgage-backed and investment securities. In fiscal 1996, 1995,
and 1994, loans increased $192.8 million, $43.1
48
<PAGE>
million, and $117.6 million, respectively, and the Company purchased $22.7
million, $16.6 million, and $61.4 million, respectively, of mortgage-backed
and investment securities. In addition, in 1995, the Company sold branches
having $130.3 million of deposits. Funding for the above came primarily from
increases in deposits of $196.0 million in 1996, increases in FHLB advances
of $83.6 million in 1995 and increases in both deposits and FHLB advances of
$52.7 million and $60.4 million, respectively in 1994.
Federal savings banks such as BankUnited, FSB (the "Bank") are also
required to maintain capital at levels specified by applicable minimum
capital ratios. For a detailed discussion of these requirements, see Note 11
of Notes to Consolidated Financial Statements. At September 30, 1996, the
Bank was in compliance with all capital requirements and met the definition
of a "well capitalized" institution under applicable federal regulations.
The Company is exploring several alternative public and/or private
financings that would provide the Bank with a significant increase in
liquidity and Tier 1 capital to permit additional growth.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements presented herein have been prepared
in accordance with generally accepted accounting principles, which require
the measurements of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing
power of money over time due to inflation. Savings institutions have asset
and liability structures that are essentially monetary in nature, and their
general and administrative costs constitute relatively small percentages of
total expenses. Thus, increases in the general price levels for goods and
services have a relatively minor effect on the total expenses of the Company.
Interest rates have a more significant impact on the Company's financial
performance than the effect of general inflation. Interest rates do not
necessarily move in the same direction or change in the same magnitude as the
prices of goods and services, although periods of increased inflation may
accompany a rising interest rate environment.
RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
NET INCOME. Net income before preferred stock dividends for fiscal 1995
was $6.2 million compared to $2.3 million in 1994. The increase in net income
was primarily attributed to the pretax gain recorded in the fourth quarter of
1995 of $9.3 million ($5.8 million after tax) from the sale of the Company's
three branches on the west coast of Florida
Primary earnings per share were $1.77 in 1995 compared to $0.10 in 1994.
Fully diluted earnings per share totaled $1.26 compared to $0.10 in 1994.
There were no common stock dividends declared in fiscal 1995 compared to
dividends of $0.075 per share of Class A Common Stock and $0.03 per share of
Class B Common Stock declared in fiscal 1994.
NET INTEREST INCOME. Net interest income before provision for loan losses
was $13.1 million in fiscal 1995 as compared to $14.1 million in fiscal 1994.
The $1.0 million, or 7.2%, decrease was attributable to a decline in the net
interest rate spread to 2.12% for fiscal 1995, from 2.78% for fiscal 1994,
which was only partially offset by an increase in the average balance of
interest-earning assets. The average yield on interest-earning assets
increased to 7.20% in fiscal 1995 from 6.48% in fiscal 1994 and the average
cost of interest-bearing liabilities increased to 5.08% in fiscal 1995
compared to 3.70% in fiscal 1994.
The net interest rate spread was negatively impacted by the 300 basis
point rise in market interest rates in 1994 and early 1995, resulting in
interest rate adjustments that were limited by the caps on the Company's
ARMs. In addition, the Company had at September 30, 1995, $156.4 million in
ARMs tied to COFI. Also, in fiscal 1995, in order to mitigate the loss of
deposits from the sale of the west coast branches, the Company paid higher
than usual rates on deposits in an effort to attract new deposits in its
remaining branches, and utilized these new funds and higher cost FHLB
advances in order to maintain its asset size.
49
<PAGE>
The increase in interest income of $9.0 million, or 29.6%, to $39.4
million for fiscal 1995 from $30.4 million for fiscal 1994 reflects increases
in interest and fees on loans of $6.7 million, or 28.3%, and interest on
mortgage-backed securities of $1.8 million, or 77.3%. The yield on loans
increased to 7.19% in fiscal 1995 from 6.46% in fiscal 1994 and the average
balance of loans receivable increased $55.3 million, or 15.2%, to $419.5
million for fiscal 1995. The yield on mortgage-backed securities increased to
6.91% in fiscal 1995 from 6.55% in fiscal 1994 and the average balance of
mortgage-backed securities increased $24.0 million, or 68.1%, to $59.2
million for fiscal 1995. In order to diversify its loan portfolio and improve
yields on loans receivable, the Company intends to increase significantly
through purchases and originations the amount of non-residential loans in its
portfolio. In December 1995, the Company purchased $32.0 million of
commercial real estate loans.
The increase in interest expense of $10.0 million, or 61.4%, to $26.3
million in fiscal 1995 from $16.3 million in fiscal 1994 reflects increases
in interest on deposits of $6.5 million, or 57.3%, to $17.8 million for
fiscal 1995 and an increase in interest on borrowings of $3.5 million, or
70.8%, to $8.4 million in fiscal 1995. The average cost of interest-bearing
deposits increased from 3.55% to 4.78%, and the average balance of
interest-bearing deposits increased $53.9 million, or 16.8%, to $373.7
million for fiscal 1995. The average cost of borrowings increased to 5.87% in
fiscal 1995 from 4.11% in fiscal 1994, and the average balance of borrowings
increased $23.5 million, or 19.4%, to $144.1 million for fiscal 1995.
PROVISIONS FOR LOAN LOSSES. The provision for loan losses increased
$34,000, or 2.9%, to $1.2 million in fiscal 1995. Net charge offs for fiscal
1995 were $593,000 compared to $1.5 million in fiscal 1994. for a detailed
discussion of the Company's asset quality and allowance for loan losses, see
"Financial Condition--Credit Quality."
NON-INTEREST INCOME. Other income for fiscal 1995 was $10.2 million
compared with $0.6 million in fiscal 1994. Fiscal 1995 included a gain of
$9.3 million from the sale of Company's branches on the west coast of
Florida, a gain of $263,000 from the sale of $23.7 million in mortgage
servicing rights and gains of $239,000 from sale of loans and mortgage-backed
securities. Fiscal 1994 included gains of $150,000 from the sale of loans and
mortgage-backed securities.
NON-INTEREST EXPENSES. Operating expenses increased $2.3 million, or
22.9%, to $12.1 million for fiscal 1995 compared to $9.9 million for fiscal
1994. Expenses increased in nearly every major category. The sale of the
Company's west coast branches did not significantly impact expenses because
it occurred late in the year.
Employee compensation and benefits increased $625,000 or 18.5% to $4.0
million in fiscal 1995 from $3.4 million in fiscal 1994. The increase
primarily represents a carryover from 1994, when the Company opened a new
branch in Deerfield Beach, Florida and a mortgage origination center in
Plantation, Florida.
Occupancy and equipment expense increased $469,000, or 37.2%, as a result
of the opening of the new branch and lending office in 1994 and increased
rent expense paid while the new space for the Company's executive and
administrative offices was being prepared for occupancy.
Insurance expense increased $183,000, or 21.7%, due to FDIC insurance paid
on the Company's increased deposits.
Professional fees--legal and accounting increased $436,000, or 52.3%, due
primarily to a legal action to recover losses on loans purchased from a
single seller which was settled in October 1995 and the payment of disputed
prior year legal fees.
Expenses associated with REO increased to $559,000 in fiscal 1995, from
$230,000 in fiscal 1994, an increase of $329,000. Net losses on the sale of
REO increased $117,000 primarily because of losses on
50
<PAGE>
property in Southern California. REO operating expenses increased $213,000
for fiscal 1995, due to higher levels of REO during the year.
INCOME TAX PROVISION. The income tax provision was $3.7 million for fiscal
1995 compared to $1.3 million for fiscal 1994. The difference primarily
resulted from the difference in income before income taxes. The effective tax
rate was 37.5% in 1995 and 31.4% in 1994; 1994 includes a $195,000 expense
for the cumulative effect of a change in accounting principle as a result of
the Company's adoption of Statement of Financial Accounting Standards No.
109-"Accounting for Income Taxes."
PREFERRED STOCK DIVIDENDS. Total preferred stock dividends were $2.2
million in fiscal 1995 compared to $1.9 million in fiscal 1994. In the fourth
quarter of fiscal 1995, the Company declared a special dividend on the Series
A and Series B Non-Cumulative Convertible Preferred Stock of $1.25 and $0.92
per share, respectively, payable in Class A Common Stock. The dividend
represented five quarters of unpaid dividends. In fiscal 1994, the Company
paid cash dividends of $0.75 and $0.55 on the Series A and Series B
Non-Cumulative Convertible Preferred Stock, respectively. Dividends of $0.55,
$0.80, and $0.80 were paid on the Company's Series C, Series C-II, and Series
1993, Non Cumulative Convertible Preferred Stock respectively for both years.
Dividends on the 9% Non Cumulative Perpetual Preferred Stock which was issued
in the first quarter of fiscal 1994, were $0.90 and $0.675 per share in
fiscal 1995 and 1994, respectively. In 1994, the Bank paid $198,000 in
preferred stock dividends on stock redeemed with the issuance of the
Non-Cumulative Perpetual Preferred Stock, Series 1993.
51
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Set forth below is selected quarterly data for the fiscal years ended
September 30, 1996 and 1995.
<TABLE>
<CAPTION>
1996
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C>
Net interest income .................................... $3,538 $3,758 $4,723 $5,491
Provision (credit)for loan losses ...................... (300) (--) 75 105
Non-interest income .................................... 158 129 198 164
Non-interest expense ................................... 2,528 2,764 3,006 5,738
-------- ---------- ---------- ----------
Income (loss) before taxes and preferred stock
dividends .............................................. 1,468 1,123 1,840 (188)
Income taxes ........................................... 557 430 706 (36)
-------- ---------- ---------- ----------
Net income (loss) before preferred stock dividends .... 911 693 1,134 (152)
Preferred stock dividends .............................. 536 536 537 536
-------- ---------- ---------- ----------
Net income (loss) applicable to common stock .......... $ 375 $ 157 $ 597 $ (688)
======== ========== ========== ==========
Primary earnings (loss) per share ...................... $ 0.16 $ 0.04 $ 0.10 $(0.12)
======== ========== ========== ==========
Fully diluted earnings (loss) per share ................ $ 0.15 $ 0.04 $ 0.10 $(0.12)
======== ========== ========== ==========
</TABLE>
In the fourth quarter of 1996, the Company recorded an expense of $2.6
million for a one-time special assessment by the Savings Association
Insurance Fund ("SAIF"). The SAIF special assessment required by the FDIC
became effective on September 30, 1996, in connection with the federal
government's plan to recapitalize the SAIF.
<TABLE>
<CAPTION>
1995
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C>
Net interest income ............................. $3,455 $3,497 $3,177 $2,985
Provision for loan losses ....................... 150 115 75 881
Non-interest income ............................. 369 232 215 9,421
Non-interest expense ............................ 2,856 2,919 2,822 3,552
---------- ---------- ---------- ----------
Income before taxes and preferred stock
dividends ....................................... 818 695 495 7,973
Income taxes .................................... 296 254 181 3,010
---------- ---------- ---------- ----------
Net income before preferred stock dividends .... 522 441 314 4,963
Preferred stock dividends ....................... 502 502 502 704
---------- ---------- ---------- ----------
Net income (loss) applicable to common stock ... $ 20 $ (61) $ (188) $4,259
========== ========== ========== ==========
Primary earnings (loss) per share ............... $ 0.01 $(0.03) $(0.09) $ 1.80
========== ========== ========== ==========
Fully diluted earnings (loss) per share ........ $ 0.01 $(0.03) $(0.09) $ 1.11
========== ========== ========== ==========
</TABLE>
In the fourth quarter of 1995, the Company sold its three branches on the
west coast of Florida and recorded a gain of $9.3 million. In addition, the
Company increased its allowance for loan losses from $720,000 at June 30,
1995 to $1.5 million at September 30, 1995, which required a fourth quarter
provision of $881,000. The additional allowance was required primarily due to
continued deterioration in the Southern California real estate market. The
Company also paid in the fourth quarter approximately $272,000 in previously
disputed legal fees and as part of its annual filings for tax deeds on tax
certificates, recorded approximately $350,000 for losses on tax certificates
primarily for certificates purchased in June 1992, for which the deeds will
not be applied.
52
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BANKUNITED FINANCIAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
---------
Report of Independent Certified Public Accountants ........................ 54
Consolidated Statements of Financial Condition as of September 30, 1996
and September 30, 1995 .................................................... 55
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1995 and 1994 ......................................... 56
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 1996, 1995 and 1994 ......................................... 57
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994 ......................................... 59
Notes to Consolidated Financial Statements ................................ 61
Unaudited Pro Forma Condensed Combined Financial Statements .............. 88
</TABLE>
53
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
BankUnited Financial Corporation:
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of operations, of
stockholders' equity, and of cash flows present fairly, in all material
respects, the financial position of BankUnited Financial Corporation and its
subsidiaries at September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
As discussed in Notes 1 and 15 to the consolidated financial statements,
the Company changed its method of accounting for income taxes as of October
1, 1993.
PRICE WATERHOUSE LLP
Miami, Florida
November 4, 1996, except as to Note 18,
which is as of November 15, 1996
54
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash ........................................................................ $ 5,483 $ 2,517
Federal Home Loan Bank overnight deposits ................................... 28,253 31,813
Federal funds sold .......................................................... 400 400
Tax certificates, (net of reserves of $614 and $569 at September 30, 1996
and 1995, respectively) ................................................... 40,088 39,544
Investments held to maturity, (market value of approximately $11 and $4,686
at September 30, 1996 and 1995, respectively) ............................. 11 4,686
Investments available for sale, at market ................................... 6,685 --
Mortgage-backed securities held to maturity, (market value of approximately
$14,274 and $50,670 at September 30, 1996 and 1995, respectively) ......... 14,698 50,934
Mortgage-backed securities available for sale, at market .................... 55,467 2,064
Loans receivable, net ....................................................... 646,385 453,134
Mortgage loans held for sale (market value of approximately $217 at
September 30, 1995) ....................................................... -- 216
Other interest earning assets ............................................... 12,225 12,325
Office properties and equipment, net ........................................ 2,608 2,119
Real estate owned, net ...................................................... 632 1,453
Accrued interest receivable ................................................. 7,023 5,573
Prepaid expenses and other assets ........................................... 4,402 1,637
---------- -----------
Total assets .............................................................. $824,360 $608,415
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ................................................................... $506,106 $310,074
Advances from Federal Home Loan Bank ....................................... 237,000 241,000
Subordinated notes ......................................................... 775 775
Interest payable (primarily on deposits and advances from Federal Home Loan
Bank) .................................................................... 1,244 1,169
Advance payments by borrowers for taxes and insurance ...................... 4,292 3,732
Accrued expenses and other liabilities ..................................... 5,832 5,920
---------- -----------
Total liabilities ......................................................... 755,249 562,670
---------- -----------
Commitments and contingencies (Notes 6 and 16)
Stockholders' equity:
Preferred stock, Series B, C, C-II, 1993 and 9%, $0.01 par value.
Authorized shares--10,000,000; issued and outstanding shares--2,664,547
and 2,679,107 at September 30, 1996 and 1995, respectively ............... 27 27
Class A Common Stock, $.01 par value. Authorized shares--15,000,000; issued
and outstanding shares--5,454,201 and 1,835,170 at September 30, 1996 and
1995, respectively ....................................................... 54 18
Class B Common Stock, $.01 par value. Authorized shares--3,000,000; issued
and outstanding shares--251,515 and 232,324 at September 30, 1996 and
1995, respectively ....................................................... 3 2
Additional paid-in capital .................................................. 62,055 38,835
Retained earnings ........................................................... 7,279 6,838
Net unrealized (losses) gains on securities available for sale, net of tax . (307) 25
---------- -----------
Total stockholders' equity ................................................ 69,111 45,745
---------- -----------
Total liabilities and stockholders' equity ................................ $824,360 $608,415
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
55
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
----------------------------------
1996 1995 1994
---------- ---------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C>
Interest income:
Interest and fees on loans ........................................... $41,313 $30,171 $23,513
Interest on mortgage-backed securities ............................... 4,250 4,093 2,308
Interest on short-term investments ................................... 2,359 1,491 803
Interest and dividends on long-term investments and other
interest-earning assets ............................................ 4,210 3,664 3,797
---------- ---------- ----------
Total interest income ............................................... 52,132 39,419 30,421
---------- ---------- ----------
Interest expense:
Interest on deposits ................................................. 20,791 17,849 11,344
Interest on borrowings ............................................... 13,831 8,456 4,951
---------- ---------- ----------
Total interest expense .............................................. 34,622 26,305 16,295
---------- ---------- ----------
Net interest income before provision (credit) for loan losses ....... 17,510 13,114 14,126
Provision (credit) for loan losses .................................... (120) 1,221 1,187
---------- ---------- ----------
Net interest income after provision (credit) for loan losses ........ 17,630 11,893 12,939
---------- ---------- ----------
Non-interest income:
Service fees ......................................................... 597 423 358
Gain on sale of loans and mortgage-backed securities ................. 5 239 150
Gain (loss) on sale of other assets .................................. (6) 9,569 --
Other ................................................................ 53 6 46
---------- ---------- ----------
Total non-interest income ........................................... 649 10,237 554
---------- ---------- ----------
Non-interest expenses:
Employee compensation and benefits ................................... 4,275 3,997 3,372
Occupancy and equipment .............................................. 1,801 1,727 1,258
Insurance ............................................................ 3,610 1,027 844
Professional fees--legal and accounting .............................. 929 1,269 833
Data processing ...................................................... 340 356 335
Loan servicing expense ............................................... 979 765 672
Real estate owned operations ......................................... 73 559 230
Other operating expenses ............................................. 2,029 2,449 2,342
---------- ---------- ----------
Total non-interest expenses ......................................... 14,036 12,149 9,886
---------- ---------- ----------
Income before income taxes and cumulative effect of change in
accounting principle .............................................. 4,243 9,981 3,607
Income taxes .......................................................... 1,657 3,741 1,133
---------- ---------- ----------
Income before cumulative effect of change in accounting principle
and preferred stock dividends ..................................... 2,586 6,240 2,474
Cumulative effect of change in accounting principle ................... -- -- 195
---------- ---------- ----------
Net income before preferred stock dividends ......................... 2,586 6,240 2,279
Preferred stock dividends of BankUnited, FSB .......................... -- -- 198
Preferred stock dividends of the Company .............................. 2,145 2,210 1,871
---------- ---------- ----------
Net income after preferred stock dividends .......................... $ 441 $ 4,030 $ 210
========== ========== ==========
Primary earnings per share before cumulative effect of change in
accounting principle ................................................ $ 0.10 $ 1.77 $ 0.19
Expense from change in accounting principle ........................... -- -- 0.09
---------- ---------- ----------
Primary earnings per share ............................................ $ 0.10 $ 1.77 $ 0.10
========== ========== ==========
Fully diluted earnings per share before cumulative effect of change in
accounting principle ................................................ $ 0.10 $ 01.26 $ 0.19
Expense from change in accounting principle ........................... -- -- 0.09
---------- ---------- ----------
Fully diluted earnings per share ...................................... $ 0.10 $ 1.26 $ 0.10
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
56
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A
COMMON
PREFERRED STOCK STOCK
----------------------- ------------
SHARES AMOUNT SHARES
------------ --------- -------------
<S> <C> <C> <C>
Balance at September 30, 1993 .. 1,529,107 $16 1,721,325
Underwritten public offering of
the Company's preferred stock
Series 9% .................... 1,150,000 11 --
Issuance costs of the Company's
preferred stock, Series 9% ... -- -- --
Issuance of Class A and Class B
Common Stock ................. -- -- 57,179
Conversion of Class B
Common Stock to Class A Common
Stock ........................ -- -- 8,514
Payment of dividends on
Company's preferred stock .... -- -- --
Payment of dividends on
BankUnited, FSB's
noncumulative
preferred stock .............. -- -- --
Dividend payment of $.075 per
Class A Common Stock and $.03
per Class B Common Stock ..... -- -- --
Net income for the year ended
September 30, 1994 ........... -- -- --
------------ --------- ------------
Balance at September 30, 1994 .. 2,679,107 27 1,787,018
Issuance of Class A and Class B
Common Stock ................. -- -- 22,418
Conversion of Class B
Common Stock to Class A Common
Stock ........................ -- -- 742
Payment of dividends on
Company's preferred stock .... -- -- 24,992
Net unrealized gain on
investments available
for sale ..................... -- -- --
Net income for the year ended
September 30, 1995 ........... -- -- --
------------ --------- ------------
Balance at September 30, 1995 .. 2,679,107 27 1,835,170
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
CLASS B SECURITIES
COMMON STOCK AVAILABLE TOTAL
------------------------------- PAID-IN RETAINED FOR SALE, STOCKHOLDERS'
AMOUNT SHARES AMOUNT CAPITAL EARNINGS NET OF TAX EQUITY
--------- ---------- --------- ----------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993 .. $17 215,765 $ 2 $27,503 $ 2,735 $-- $30,273
Underwritten public offering of
the Company's preferred stock
Series 9% .................... -- -- -- 11,489 -- -- 11,500
Issuance costs of the Company's
preferred stock, Series 9% ... -- -- -- (876) -- -- (876)
Issuance of Class A and Class B
Common Stock ................. 1 7,583 -- 297 -- -- 298
Conversion of Class B
Common Stock to Class A Common
Stock ........................ -- (8,514) -- -- -- -- --
Payment of dividends on
Company's preferred stock .... -- -- -- -- (1,871) -- (1,871)
Payment of dividends on
BankUnited, FSB's
noncumulative
preferred stock .............. -- -- -- -- (198) -- (198)
Dividend payment of $.075 per
Class A Common Stock and $.03
per Class B Common Stock ..... -- -- -- -- (137) -- (137)
Net income for the year ended
September 30, 1994 ........... -- -- -- -- 2,279 -- 2,279
------ ---------- -------- --------- ----------- --------- --------------
Balance at September 30, 1994 .. 18 214,834 2 38,413 2,808 -- 41,268
Issuance of Class A and Class B
Common Stock ................. -- 18,232 -- 222 -- -- 222
Conversion of Class B
Common Stock to Class A Common
Stock ........................ -- (742) -- -- -- -- --
57
<PAGE>
UNREALIZED
GAIN ON
CLASS B SECURITIES
COMMON STOCK AVAILABLE TOTAL
------------------------------- PAID-IN RETAINED FOR SALE, STOCKHOLDERS'
AMOUNT SHARES AMOUNT CAPITAL EARNINGS NET OF TAX EQUITY
--------- ---------- --------- ----------- ----------- ------------- ------------
Payment of dividends on
Company's preferred stock .... -- -- -- 200 (2,210) -- (2,010)
Net unrealized gain on
investments available
for sale ..................... -- -- -- -- -- 25 25
Net income for the year ended
September 30, 1995 ........... -- -- -- -- 6,240 -- 6,240
------ --------- ----- ------- ------- ------- ---------
Balance at September 30, 1995 .. 18 232,324 2 38,835 6,838 25 45,745
</TABLE>
(TABLE CONTINUED ON NEXT PAGE)
57
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A
COMMON
PREFERRED STOCK STOCK
----------------------- ------------
SHARES AMOUNT SHARES
------------ --------- ------------
<S> <C> <C> <C>
Conversion of Preferred Stock
to Common Stock Class A .... (14,560) -- 21,340
Issuance of Class A and Class
B Common Stock ............. -- -- 25,210
Underwritten public offering
of the Company's Common
Class A, net ............... -- -- 3,565,000
Payment of dividends on the
Company's Preferred Stock .. -- -- 7,481
Net change in unrealized loss
on investments available
for sale ................... -- -- --
Net income for the year ended
September 30, 1996 ......... -- -- --
----------- ------- ---------
Balance at September 30, 1996 2,664,547 $27 5,454,201
=========== ======= =========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
CLASS B SECURITIES
COMMON STOCK AVAILABLE TOTAL
------------------------------- PAID-IN RETAINED FOR SALE, STOCKHOLDERS'
AMOUNT SHARES AMOUNT CAPITAL EARNINGS NET OF TAX EQUITY
--------- ---------- --------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Conversion of Preferred Stock
to Common Stock Class A .... -- -- -- -- -- -- --
Issuance of Class A and Class
B Common Stock ............. -- 19,191 1 330 -- -- 331
Underwritten public offering
of the Company's Common
Class A, net ............... 36 -- -- 22,831 -- -- 22,867
Payment of dividends on the
Company's Preferred Stock .. -- -- -- 59 (2,145) -- (2,086)
Net change in unrealized loss
on investments available
for sale ................... -- -- -- -- -- (332) (332)
Net income for the year ended
September 30, 1996 ......... -- -- -- -- 2,586 -- 2,586
------ --------- ------ --------- --------- --------- -----------
Balance at September 30, 1996 $54 251,515 $ 3 $62,055 $ 7,279 $(307) $69,111
====== ========= ====== ========= ========= ========= ===========
</TABLE>
The beginning balance at September 30, 1993 of each series of the
Company's preferred stock were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
------------ ---------
<S> <C> <C>
Series A ..... 55,000 $ 1
Series B ..... 142,378 2
Series C ..... 363,636 4
Series C-II . 222,223 2
Series 1993 . 745,870 7
----------- -------
Total ...... 1,529,107 $16
=========== =======
</TABLE>
The ending balance at September 30, 1996 of Preferred Stock were as
follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
------------ ---------
<S> <C> <C>
Series B ..... 183,818 $ 2
Series C ..... 363,636 4
Series C-II . 222,223 2
Series 1993 . 744,870 7
Series 9% .... 1,150,000 12
----------- -------
Total ...... 2,664,547 $27
=========== =======
</TABLE>
Effective September 30, 1995, the Series A Preferred Stock was exchanged
for Series B Preferred Stock.
See accompanying notes to consolidated financial statements.
58
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................... $ 2,586 $ 6,240 $ 2,279
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision (credit) for loan losses ........................ (120) 1,221 1,187
Provision for losses on tax certificates .................... 76 484 85
Depreciation and amortization ............................... 674 526 308
Amortization of discounts and premiums on investments ...... 20 3 32
Amortization of discounts and premiums on
mortgage-backed securities ................................ 144 84 92
Amortization of discounts and premiums on loans ............ (2,332) (784) 138
Loans originated for sale ................................... (4,141) (2,376) (12,387)
Increase in accrued interest receivable ..................... (1,239) (320) (859)
Increase in interest payable on deposits and FHLB advances . 31 685 61
Increase (decrease) in accrued expenses ..................... 213 (68) 121
Increase (decrease) in accrued taxes ........................ (2,960) 3,065 (547)
Increase (decrease) in deferred taxes ....................... (469) 33 (174)
Increase (decrease) in other liabilities .................... 2,841 1,763 (800)
(Increase) decrease in prepaid expenses and other assets ... (224) 566 (962)
Gain on sales of mortgage-backed securities ................. -- (231) (221)
Proceeds from sale of loans ................................. 4,362 2,456 21,797
Recovery on loans ........................................... 1,119 1 52
(Gain) loss on sales of loans ............................... (5) (8) 71
(Gain) loss on real estate owned operations ................. (185) 94 63
(Gain) on sales of tax certificates ......................... -- (3) (1)
(Gain) loss on sale of other assets ......................... 7 -- --
Gain on sale of loan servicing rights ....................... -- (265) --
Gain on sale of branches .................................... -- (9,304) --
----------- ---------- -----------
Net cash provided by (used in) operating activities ....... (398) 3,862 10,335
----------- ---------- -----------
Cash flows from investing activities:
Net increase in loans ....................................... (185,457) (44,744) (117,689)
Proceeds from sale of real estate owned ..................... 2,661 4,607 3,522
Purchase of investment securities ........................... (3,510) (4,675) (4,180)
Purchase of mortgage-backed securities ...................... (19,228) (11,931) (57,188)
Purchases of other earning assets ........................... (650) (9,580) --
Proceeds from sale of loan servicing rights ................. -- 265 --
Proceeds from repayments of investment securities .......... 5,675 2,000 7,150
Proceeds from repayments of mortgage-backed securities ..... 10,523 6,326 7,021
Proceeds from repayments of other earning assets ........... 750 5,125 --
Proceeds from sales of investment securities ................ 2,097 -- --
Proceeds from sale of mortgage-backed securities ........... -- 9,947 6,297
Purchases of office properties and equipment ................ (1,170) (742) (1,109)
Net decrease (increase) in tax certificates ................. (620) 2,587 1,682
Purchase of Bank of Florida, net of acquired cash
equivalents ............................................... 1,521 -- --
----------- ---------- -----------
Net cash used in investing activities ...................... (187,408) (40,815) (154,494)
----------- ---------- -----------
</TABLE>
(CONTINUED ON NEXT PAGE)
59
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
--------------------------------------
1996 1995 1994
----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits ...................................... $168,744 $ 92,555 $ 52,687
Net (decrease) in deposits from sale of branches .............. -- (130,276) --
Net (decrease) increase in Federal Home Loan Bank advances ... (4,000) 105,000 39,000
Net (decrease) increase in other borrowings ................... -- (21,400) 21,400
Premium on sale of branches ................................... -- 9,304 --
Underwritten public offering of Company's 9%
Preferred Stock ............................................. -- -- 5,873
Redemption of preferred stock--minority interests ............ -- -- (2,496)
Net proceeds from issuance of common stock .................... 23,198 222 298
Cash dividends paid on the Bank's noncumulative
preferred stock ............................................. -- -- (198)
Dividends paid on the Company's preferred stock ............... (2,086) (2,010) (1,871)
Cash dividends on common stock ................................ -- -- (137)
Increase in advances from borrowers for taxes and insurance .. 560 1,526 200
---------- ---------- --------
Net cash provided by financing activities .................... 186,416 54,921 114,756
---------- ---------- --------
Increase (decrease) in cash and cash equivalents .............. (594) 17,968 (29,403)
Cash and cash equivalents at beginning of year ................ 34,730 16,762 46,165
---------- ---------- --------
Cash and cash equivalents at end of year ...................... $ 34,136 $ 34,730 $ 16,762
========== ========== ========
Supplemental Disclosures:
Interest paid on deposits and borrowings ...................... $ 34,547 $ 25,617 $ 16,235
========== ========== ========
Income taxes paid ............................................. $ 4,626 $ 676 $ 1,888
========== ========== ========
Transfers from loans to real estate owned ..................... $ 1,154 $ 1,182 $ 3,986
========== ========== ========
Transfer of mortgage-backed securities from held for sale to
held to maturity at the lower of cost or market ............. $ -- $ -- $ 3,627
========== ========== ========
Transfer of mortgage-backed securities from held to maturity
to available for sale ....................................... $ 31,780 $ -- $ --
========== ========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
60
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of BankUnited Financial Corporation
(the "Company") and subsidiaries conform to generally accepted accounting
principles and to general practices within the savings and loan industry.
Presented below is a description of the Company and its principal accounting
policies.
(A) BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, BankUnited, FSB ("the Bank"), a federally chartered
savings bank and BU Ventures, Inc. and the Bank's wholly-owned subsidiaries,
T&D Properties of South Florida, Inc. ("T&D") and Bay Holdings Company, Inc.,
("Bay Holdings"). The Bank provides a full range of banking services to
individual and corporate customers through its branches in South Florida. The
Bank is subject to the regulations of certain federal agencies and undergoes
periodic examinations by those regulatory authorities. T&D invests in tax
certificates and holds title to, maintains, manages and supervises the
disposition of real property acquired through tax deeds. Bay Holdings holds
title to, maintains, manages and supervises the disposition of real estate
acquired through foreclosure. All significant intercompany transactions and
balances have been eliminated.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
the date of the consolidated statements of financial condition and operations
for the period.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowances for loan
losses and the allowance for losses on tax certificates and the valuation of
real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowances for loan losses
and real estate owned, management obtains independent appraisals for all
properties.
(B) MORTGAGE-BACKED SECURITIES AND INVESTMENTS
The Company adopted Statement of Financial Accounting Standards No. 115
("SFAS No. 115"), "Accounting for Certain Investments in Debt and Equity
Securities," effective October 1, 1994. In accordance with SFAS No. 115,
mortgage-backed securities and other investments available for sale are
carried at fair value (market value), inclusive of unrealized gains and/or
losses, and net of discount accretion and premium amortization computed using
the level yield method. Net unrealized gains and losses are reflected as a
separate component of stockholders' equity, net of applicable deferred taxes.
Prior to adoption of SFAS No. 115, mortgage-backed securities and other
securities designated as held for sale were carried at the lower of cost or
market value, determined in the aggregate. Net unrealized losses were
recognized in a valuation allowance by charges to income.
Mortgage-backed securities and investments held to maturity are carried at
amortized cost. Under the guidance of SFAS No. 115, mortgage-backed
securities and investment securities that the Company has the positive intent
and ability to hold to maturity are designated as held-to-maturity
securities.
Gain or losses on sales of mortgage securities and investments are
recognized on the specific identification basis.
61
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Tax certificates are considered investments held to maturity and,
accordingly, are carried at cost less a valuation allowance. Interest is
accrued on tax certificates until payoff or until it appears uncollectible.
When deemed uncollectible, accrued but uncollected interest is reversed.
Applicable law permits application for tax deeds to be applied for two years
after the effective date of the acquisition of the tax certificate. Tax deeds
applied for are carried at the cost adjusted for accrued interest. Tax deeds
applied for carry an annual interest rate of 18%.
(C) ALLOWANCE FOR LOAN LOSSES
A provision for losses on loans is charged to operations when, in
management's opinion, the collectibility of the balances is doubtful and the
carrying value is greater than the estimated net realizable value of the
collateral. The provision is based upon a review of the nature, volume,
delinquency status and inherent risk of the loan portfolio in relation to the
allowance for loan losses.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the allowance for loan losses.
Such agencies may require additions to the allowance based on their judgments
about information available to them at the time of their examination.
The Company's non-accrual policy provides that all loans are placed on
non-accrual status when they are 90 days past due as to either principal or
interest, unless the loan is fully secured and in the process of collection.
Loans are returned to accrual status when they become less than 90 days
delinquent.
Payments received on impaired loans are generally applied to principal and
interest based on contractual terms.
See Note 5 for information regarding the Company's adoption of Statement
of Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan".
(D) LOANS RECEIVABLE
Loans receivable are considered long-term investments and, accordingly,
are carried at historical cost. Loans held for sale are recorded at the lower
of cost or market, determined in the aggregate. In determining cost, deferred
loan origination fees are deducted from principal balances of the related
loans.
(E) LOAN-ORIGINATION FEES, COMMITMENT FEES AND RELATED COSTS
Loan origination fees are accounted for in accordance with SFAS No. 91,
"Accounting for Non-refundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases." Loan origination fees
and certain direct loan origination costs are deferred, and the net fee or
cost is recognized as an adjustment to interest income using the interest
method over the contractual life of the loans, adjusted for estimated
prepayments based on the Company's historical prepayment
62
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
experience. Commitment fees and costs relating to commitments, of which the
likelihood of exercise is remote, are recognized over the commitment period
on a straight-line basis. If the commitment is subsequently exercised during
the commitment period, the remaining unamortized commitment fee at the time
of exercise is recognized over the life of the loan as an adjustment of
yield.
(F) OTHER INTEREST EARNING ASSETS
Other interest earning assets include Federal Home Loan Bank of Atlanta
stock and an equity investment in the Community Reinvestment Group. The fair
value is estimated to be the carrying value which is par.
(G) OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation is provided using the estimated
service lives of the assets for furniture, fixtures and equipment (7 to 10
years), and computer equipment and software (3 to 5 years), or with leases,
the term of the lease or the useful life (10 years), whichever is shorter.
Repair and maintenance costs are charged to operations as incurred, and
improvements are capitalized.
(H) ACCRUED INTEREST RECEIVABLE
Recognition of interest on the accrual method is generally discontinued
when interest or principal payments are greater than 90 days in arrears,
unless the loan is well secured and in the process of collection. At the time
a loan is placed on nonaccrual status, previously accrued and uncollected
interest is reversed against interest income in the current period.
(I) INCOME TAXES
The Company and its subsidiaries file consolidated income tax returns.
Deferred income taxes have been provided for elements of income and expense
which are recognized for financial reporting purposes in periods different
than such items are recognized for income tax purposes. Effective October 1,
1993, the Company implemented Statement of Financial Accounting Standards No.
109 ("SFAS No. 109"), "Accounting for Income Taxes." SFAS No. 109 requires
accounting for deferred taxes utilizing the liability method, which applies
the enacted statutory rates in effect at the statement of financial condition
date to differences between the book and tax bases of assets and liabilities.
The resulting deferred tax liabilities and assets are adjusted to reflect
changes in tax laws. Prior to implementing SFAS No. 109, the Company
accounted for income taxes in accordance with Accounting Principles Board
Opinion No. 11, which provided for deferred taxes based on differences
between taxable income and book income.
The implementation of SFAS No. 109 on October 1, 1993 resulted in an
increase of the net deferred tax liability of $195,000. This amount was
reported separately as a cumulative effect of a change in the method of
accounting for income taxes in the Consolidated Statement of Operations.
(J) EARNINGS PER SHARE
Primary earnings per common and common equivalent share is computed on a
weighted average number of common shares and common share equivalents
outstanding during the year. Common share
63
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
equivalents include the dilutive effect of stock options using the treasury
stock method. The weighted average number of common share equivalents assumed
outstanding for the years ended September 30, 1996, 1995 and 1994 were
4,559,000, 2,296,000, and 2,175,000, respectively. Earnings per common share,
assuming full dilution, assume the maximum dilutive effect of the average
number of shares from stock options and the conversion equivalents of
preferred stocks. The weighted average number of fully diluted common shares
outstanding during the years ended September 30, 1996, 1995 and 1994 were
4,559,000, 4,159,000, and 2,175,000, respectively. Stock dividends have been
included in the calculation of earnings per share for all years presented.
(K) REAL ESTATE OWNED
Property acquired through foreclosure, deeds in lieu of foreclosures, or
loans judged to be in-substance foreclosures are recorded at the lower of the
related principal balance at foreclosure or estimated fair value less
estimated costs to sell the property. Any excess of the loan balance over the
net realizable value is charged to the allowance for loan losses when the
property is classified as real estate owned. The net realizable value is
reviewed periodically and, when necessary, any decline in the value of the
real estate is charged to expense. Significant property improvements which
enhance the salability of the property are capitalized to the extent that the
carrying values do not exceed their estimated realizable values. Maintenance
and carrying costs on the property are charged to operations as incurred.
(L) STOCK OPTIONS
At the time stock options are granted to employees and directors, no
accounting entries are made, as the options are granted at the fair market
value of the Company's common stock. The proceeds from the exercise of
options are credited to common stock for the par value of the shares issued,
and the excess, net of any tax benefit is credited to paid-in capital.
(M) IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In May 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 122 ("SFAS No. 122")
"Accounting for Mortgage Servicing Rights" an amendment of FASB Statement No.
65. SFAS No. 122 requires that the Company recognize rights to service
mortgage loans for others as a separate asset, regardless of how those
servicing rights were acquired. The value of the mortgage servicing rights
should be recorded at their relative fair values. SFAS No. 122 was adopted
prospectively beginning October 1, 1995. The impact of adopting SFAS No. 122
was not material.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes financial accounting and reporting
standards for stock based employee compensation plans. The statement defines
a "fair value based method" of accounting for employee stock options or
similar equity instruments and encourages all entities to adopt that method
of accounting for all of their employee stock compensation plans. However,
SFAS No. 123 also allows an entity to continue to measure compensation costs
for those plans using the "intrinsic value based method" of accounting, which
the Company currently uses. The Company currently intends to continue to use
the "intrinsic value based method" and disclose in the notes to the
consolidated financial statements, the required information using the "fair
value based method."
64
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125 ("SFAS 125"), "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." SFAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities based on a financial-components approach that
focuses on control. SFAS 125 is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring after December
31, 1996 and is to be prospectively applied. Management is currently
evaluating the impact of adoption of SFAS 125 on its financial position and
results of operations.
(N) FINANCIAL STATEMENT RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
September 30, 1996 consolidated financial statements.
(2) TAX CERTIFICATES
Tax certificates are certificates representing delinquent real estate
taxes owed to the respective counties. A substantial percentage of tax
certificates are for properties located in southeast Florida. The Company's
policy is to purchase tax certificates only for properties located in
Florida.
The net carrying value of tax certificates was $40.0 million and $39.5
million at September 30, 1996 and 1995, respectively. Included in these
amounts at September 30, 1996 and 1995 were $1.9 million and $3.9 million,
respectively of tax certificates for which the Company had made application
for the tax deeds. The Company maintains loss reserves for tax certificates
which were $614,000 and $569,000 at September 30, 1996 and 1995,
respectively.
The estimated market values of the Company's tax certificates are the same
as the carrying values, since historically the tax certificates have had
relatively short lives and their yields approximate market rates.
(3) SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Interest income from securities purchased under agreements to resell
aggregated approximately $1.2 million and $701,000 for the years ended
September 30, 1995 and 1994, respectively.
65
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
The following sets forth information concerning the Company's securities
purchased under agreements to resell for the periods indicated:
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1996 1995 1994
------- ---------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Maximum amount of outstanding agreements at
any month end during the period ............ -- $ 700 $ 6,800
Average amount outstanding during the period -- $20,262 $18,283
Weighted average interest rate for the period -- 6.10% 3.83%
Maturity ..................................... -- -- Oct. 1, 1994
</TABLE>
(4) INVESTMENTS AND MORTGAGE-BACKED SECURITIES
Pursuant to the provisions of SFAS No. 115, securities designated as
available for sale are carried at market value with the resultant after-tax
appreciation or depreciation from amortized cost reflected as an addition to,
or deduction from, stockholders' equity. In December of 1995 the Company
reclassified $31.8 million of held-to-maturity mortgage-backed securities to
available-for-sale in accordance with "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities"
issued by the Financial Accounting Standard Board. The reclassified
securities had a market value of $916,000 in excess of their book value at
the time of transfer.
INVESTMENTS
Presented below is an analysis of the carrying values and approximate
market values of investments held to maturity.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
----------- ------------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
State of Israel
bonds ............... $11 $-- $-- $11
----------- ------------ ------------- ---------
Total .............. $11 $-- $-- $11
=========== ============= ============= =========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
----------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
----------- ------------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government agency securities $4,675 $-- $-- $4,675
State of Israel bonds ............ 11 -- -- 11
----------- ------------- ------------- ---------
Total ........................... $4,686 $-- $-- $4,686
=========== ============= ============= =========
</TABLE>
All investments held to maturity at September 30, 1996 and 1995 had
maturities between one and five years.
66
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(4) INVESTMENTS AND MORTGAGE-BACKED SECURITIES--(CONTINUED)
Presented below is an analysis of the investments designated as available
for sale.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------------------------
GROSS GROSS
HISTORICAL UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury notes .............. $2,005 $-- $ (1) $2,004
U.S. government agency securities 2,999 -- (18) 2,981
Other ............................ 1,702 -- (2) 1,700
------------- ------------- ------------- -----------
Total ........................... $6,706 $-- $(21) $6,685
============= ============= ============= ===========
</TABLE>
The Company had no investments classified as available for sale in 1995.
MORTGAGE-BACKED SECURITIES
The carrying value and historical cost of mortgage-backed securities
available for sale are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------------------------
GROSS GROSS
HISTORICAL UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA mortgage-backed securities $24,943 $207 $(338) $24,812
FNMA mortgage-backed securities 6,055 61 (2) 6,114
FHLMC mortgage-backed
securities ..................... 22,172 33 (432) 21,773
Other .......................... 2,772 6 (10) 2,768
------------- ------------- ------------- -----------
Total ......................... $55,942 $307 $(782) $55,467
============= ============= ============= ===========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
--------------------------------------------------------
GROSS GROSS
HISTORICAL UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FHLMC mortgage-backed securities $2,025 $39 $-- $2,064
------------- ------------- ------------- -----------
Total .......................... $2,025 $39 $-- $2,064
============= ============= ============= ===========
</TABLE>
67
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(4) INVESTMENTS AND MORTGAGE-BACKED SECURITIES--(CONTINUED)
The market value and historical cost of mortgage-backed securities held to
maturity are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
----------- ------------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA ............................... $ 83 $ 5 $ -- $ 88
FHLMC .............................. 4,144 -- (118) 4,026
Collateralized mortgage obligations 8,802 -- (289) 8,513
Mortgage pass-through certificates 1,669 -- (22) 1,647
----------- ------------- ------------- ---------
Total ............................. $14,698 $ 5 $(429) $14,274
=========== ============= ============= =========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
-----------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
----------- ------------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA ............................... $25,644 $453 $(143) $25,954
FNMA ............................... 4,761 126 -- 4,887
FHLMC .............................. 7,406 -- (231) 7,175
Collateralized mortgage obligations 3,580 -- (84) 3,496
Mortgage pass-through certificates 9,543 -- (385) 9,158
----------- ------------- ------------- ----------
Total ............................. $50,934 $579 $(843) $50,670
=========== ============= ============= ==========
</TABLE>
The mortgage-backed securities have contractual maturities which range
from the years 1996 to 2026, however, expected maturities will differ from
contractual maturities as borrowers have the right to prepay obligations with
or without prepayment penalties.
There were no sales of mortgage-backed securities and collateralized
mortgage obligations in 1996, however, gross proceeds on sales of
mortgage-backed securities and collateralized mortgage obligations were $10.0
million and $6.3 million during the years ended September 30, 1995 and 1994,
respectively. Gross realized gains were $231,000 and $221,000 on sales of
mortgage-backed securities during the years ended September 30, 1995 and
1994, respectively. There were no realized losses during the years ended
September 30, 1995 and 1994.
At September 30, 1995 and 1994, GNMA, FHLMC and FNMA mortgage-backed
securities with carrying values of approximately $3.0 million and $5.4
million, respectively, were pledged as collateral for public funds on
deposit. There were none pledged in 1996. At September 30, 1994, FNMA and
GNMA mortgage-backed securities with a carrying value of approximately $25.0
million and a market value of approximately $23.7 million were pledged as
collateral for a $21.4 million reverse repurchase agreement. The securities
underlying the agreement were held in safekeeping by a trustee.
68
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(5) LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------
1996 1995
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mortgage loans--conventional .................... $263,757 $224,160
Mortgage loans--conventional serviced by others 317,103 209,339
Mortgage loans--other ........................... 53,817 12,381
Commercial loans:
Secured ........................................ 5,618 3,372
Unsecured ...................................... 787 260
Line of credit loans ............................ 1,254 892
Share loans ..................................... 648 218
Installment loans ............................... 1,001 595
----------- -----------
Total .......................................... 643,985 451,217
Less allowance for loan losses .................. (2,158) (1,469)
Deferred loan fees, discounts and premiums ..... 4,558 3,386
----------- -----------
Loans receivable, net .......................... $646,385 $453,134
=========== ===========
</TABLE>
Of the total gross loans receivable of $644.0 million at September 30,
1996, approximately $262.7 million, or 40.8%, represents residential loans
secured by properties in Florida, $125.8 million, or 19.5% represents loans
in California and $255.5 million, or 39.7% represents loans in other states.
See Note 8 for loans collateralized for Federal Home Loan Bank Advances.
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1996 1995 1994
--------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of the period $1,469 $ 841 $ 1,184
Provision (credit) ................ (120) 1,221 1,187
Allowance from Bank of Florida ... 183 -- --
Loans charged-off ................. (493) (594) (1,582)
Recoveries ........................ 1,119 1 52
--------- --------- ----------
Balance at end of the period ..... $2,158 $1,469 $ 841
========= ========= ==========
</TABLE>
Effective October 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan" as amended by SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan Income Recognition and Disclosures" ("SFAS No.
114"). There was no impact on the consolidated statement of operations upon
implementation due to the composition of the Company's loan portfolio
(primarily residential or collateral dependent loans) and the Company's
policy for establishing the allowance for loan losses. The only impact to the
consolidated statement of financial condition and to non-performing assets
was to reclassify three loans totaling $522,000 previously classified as
insubstance foreclosures in real estate owned to non-accrual
69
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(5) LOANS RECEIVABLE--(CONTINUED)
loans. These loans were reclassified because the Company did not have
possession of the collateral which, under SFAS No. 114, is required for a
loan to be classified as real estate owned.
As of September 30, 1996 and 1995, the Company had impaired or non-accrual
loans of $4.9 million and $3.5 million, respectively, and had recorded
specific reserves on these loans of $801,000 and $802,000, respectively. For
the years ended September 30, 1996, 1995 and 1994 the average amounts of
impaired loans were $4,808,000, $2,251,000 and $2,576,000, respectively. No
income is recognized on loans during the period for which the loan is deemed
impaired.
(6) OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
----------------------
1996 1995
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Leasehold improvements .............. $ 1,640 $ 1,068
Furniture, fixtures and equipment .. 1,881 1,409
Computer equipment and software .... 1,124 1,016
--------- ----------
Total ............................... 4,645 3,493
Less: accumulated depreciation ..... (2,037) (1,374)
--------- ----------
Office properties and equipment, net $ 2,608 $ 2,119
========= ==========
</TABLE>
Depreciation expense was $674,000, $526,000, and $308,000 for the years
ended September 30, 1996, 1995, and 1994, respectively.
The Company has entered into non-cancelable leases with approximate
minimum future rentals as follows:
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30, AMOUNT
- --------------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C>
1997 ..................... $1,002
1998 ..................... 917
1999 ..................... 837
2000 ..................... 809
2001 ..................... 754
Thereafter ............... 1,538
---------------------
Total ................... $5,857
=====================
</TABLE>
Rent expense for the years ended September 30, 1996, 1995, and 1994 was
$905,000, $959,000, and $768,000, respectively.
70
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(7) DEPOSITS
The weighted average nominal interest rate payable on all deposit accounts
at September 30, 1996 and 1995 was 5.11% and 5.14%, respectively.
Types of deposits and related range of interest rates were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------------------------------
1996 1995
------------------------------------- -------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing deposits .......... --% - --% $ 7,301 --% - --% $ 2,804
Passbook and statement savings deposits 2.00% - 4.97% 73,780 2.00% - 4.97% 50,373
Super NOW deposits ..................... .00% - 3.00% 17,265 0.00% - 3.00% 15,353
Money market deposits .................. .00% - 4.65% 16,556 0.00% - 3.10% 7,733
Certificates of deposit ................ 3.92% - 6.16% 391,204 2.71% - 6.65% 233,811
--------- ----------
Total ................................. $506,106 $310,074
========= ==========
</TABLE>
Deposit accounts with balances of $100,000 or more totaled approximately
$69.4 million and $33.4 million at September 30, 1996 and 1995, respectively.
Interest expense on deposits for the years ended September 30, 1996, 1995
and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Super NOW and money market deposits ... $ 775 $ 875 $ 1,102
Passbook and statement savings deposits 2,627 2,420 1,716
Certificates of deposit ................ 17,389 14,554 8,526
--------- ---------- ---------
Total ................................. $20,791 $17,849 $11,344
========= ========== =========
</TABLE>
Early withdrawal penalties on deposits are recognized as a reduction of
interest on deposits. For the years ended September 30, 1996, 1995 and 1994,
early withdrawal penalties totaled $42,000, $110,000, and $27,000,
respectively.
The amounts of scheduled maturities of certificate accounts at September
30, 1996 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30, AMOUNT
- --------------------------- -------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
1997 ..................... $316,562
1998 ..................... 58,053
1999 ..................... 7,532
Thereafter ............... 9,057
---------------------
Total: .................. $391,204
=====================
</TABLE>
71
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(8) ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank of Atlanta (FHLB) incur interest
and are repayable as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
REPAYABLE DURING YEAR ENDING SEPTEMBER 30, INTEREST RATE 1996 1995
- ------------------------------------------- ---------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1996 ..................................... 4.27% -6.80% $ -- $179,000
1997 ..................................... 4.56% -6.07% 192,000 57,000
1998 ..................................... 6.13% 5,000 5,000
2001(1) .................................. 5.33% -5.61% 40,000 --
---------- --------
$237,000 $241,000
========== ========
</TABLE>
- ------------------
(1) Advances for $15 million are callable by the FHLB in 1997 and $25 million
are callable in 1998.
The terms of a security agreement with the FHLB of Atlanta include a
blanket floating lien that requires the maintenance of qualifying first
mortgage loans as pledged collateral with unpaid principal amounts at least
equal to 100% of the FHLB advances, when discounted at 65% of the unpaid
principal balance. The FHLB of Atlanta stock, which is recorded at cost, is
also pledged as collateral for these advances.
(9) SECURITIES SOLD UNDER AN AGREEMENT TO REPURCHASE
Interest expense on securities sold under an agreement to repurchase
aggregated $367,000 and $183,000 for the years ended September 30, 1995 and
1994, respectively.
The following sets forth information concerning repurchase agreements for
the periods indicated:
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEARS ENDED SEPTEMBER 30,
------------------------------------
1996 1995 1994
-------- ---------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Maximum amount of outstanding agreements at
any
month-end during the period ................. $ -- $33,600 $21,400
Average amount outstanding during the period . $-- $ 6,572 $ 3,856
Weighted average interest rate for the period $-- 5.59% 4.49%
Maturity ...................................... $-- -- Dec. 19, 1994
</TABLE>
At September 30, 1996 and 1995, the Company had no pledged securities
under repurchase agreements. At September 30, 1994, the Company had pledged
$25.0 million of FNMA and GNMA mortgage-backed securities as collateral for
the above repurchase agreements.
(10) SUBORDINATED NOTES
At September 30, 1996 and 1995, the Bank had outstanding $775,000, of
subordinated notes which, pursuant to the regulations of the Office of Thrift
Supervision (the "OTS"), are included in the Bank's risk-based capital. The
subordinated notes bear interest at 9% and mature from August 31, 2003 to
June 10, 2009.
72
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(11) REGULATORY CAPITAL
The Bank is required by federal regulations to maintain minimum levels of
capital as follows:
<TABLE>
<CAPTION>
REGULATORY CAPITAL
REQUIREMENT ACTUAL CAPITAL EXCESS CAPITAL
---------------------- ---------------------- ----------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital ... $12,196 $ 9,101 $56,967 $43,010 $44,771 $33,909
1.5% 1.5% 7.0% 7.1% 5.5% 5.6%
Core Capital ........ $24,392 $18,201 $56,967 $43,010 $32,575 $24,809
3.0% 3.0% 7.0% 7.1% 4.0% 4.1%
Risked-based capital $33,927 $23,008 $60,164 $45,426 $26,237 $22,418
8.0% 8.0% 14.2% 15.8% 6.2% 7.8%
</TABLE>
Under the OTS regulations adopted to implement the "prompt corrective
action" provisions of the Federal Deposit Insurance Corporation Improvement
Act of 1991 (the "FDICIA"), a "well capitalized" institution must have a
risk-based capital ratio of 10%, a core capital ratio of 5% and a Tier 1
risk-based capital ratio of 6%. (The "Tier 1 risk-based capital" ratio is the
ratio of core capital to risk-weighted assets.) The Bank is a well
capitalized institution under the definitions as adopted. Regulatory capital
and net income amounts as of and for the years ended September 30, 1996, 1995
and 1994 did not differ from regulatory capital and net income amounts
reported to the OTS.
On August 31, 1993, the OTS adopted an amendment to its regulatory capital
regulations to take into account a savings institution's exposure to the risk
of loss from changing interest rates. Under the regulation as amended, a
savings institution with an above normal level of interest rate risk exposure
will be required to deduct an interest rate risk ("IRR") component from its
total capital when determining its compliance with the risk-based capital
requirements. An "above normal" level of interest rate risk exposure is a
projected decline of 2% in the net present value of an institution's assets
and liabilities resulting from a 2% swing in interest rates. The IRR
component will equal one-half of the difference between the institution's
measured interest rate exposure and the "normal" level of exposure. Savings
institutions will be required to file data with the OTS that the OTS will use
to calculate, on a quarterly basis (but with a two-quarter lag),
institutions' measured interest rate risk and IRR components. Implementation
of the IRR requirements have been delayed pending the testing of the OTS
appeals process. If the IRR component had been required as of September 30,
1996, the Bank would have been required to deduct an IRR component from its
total capital when determining its compliance with its risk based capital
requirements, however the Bank would continue to be well capitalized.
Payment of dividends by the Bank is limited by federal regulations, which
provide for certain levels of permissible dividend payments depending on the
Bank's regulatory capital and other relevant factors.
(12) MINORITY INTERESTS--PREFERRED STOCK OF BANKUNITED, FSB
As part of a plan to simplify the Company's capital structure, the Company
commenced an offer in November 1993 to exchange 2.5 shares of its 9%
Noncumulative Perpetual Preferred Stock for each share of the Bank's
Noncumulative Preferred Stock, Series D, E, F and G ("BankUnited Preferred
Stock"). Upon the closing of the exchange offer, all shares of BankUnited
Preferred Stock that remained outstanding were redeemed at $25.00 per share
plus declared but unpaid dividends. The exchange closed on December 28, 1993.
73
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(12) MINORITY INTERESTS--PREFERRED STOCK OF BANKUNITED, FSB--(CONTINUED)
(13) STOCKHOLDERS' EQUITY
The Company has the following capital structure:
PREFERRED STOCK--issuable in series with rights and preferences to be
designated by the Board of Directors. As of September 30, 1996, 7,259,141
shares were authorized but not designated to a particular series.
NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A:
Effective September 30, 1995, pursuant to an Offer to Exchange Preferred
Stock, the holders of the Non-cumulative Convertible Preferred Stock, Series
A, agreed to exchange each of the 55,000 shares of the Series A Preferred
stock for one share of the Company's Non-cumulative Convertible Preferred
Stock, Series B. Because the dividend rate, redemption price, and the
liquidation preference for the Series B Preferred Stock are lower than those
for the Series A Preferred Stock, the Company agreed not to redeem the shares
of Series B Preferred Stock issued pursuant to the exchange offer for a
period of three years and for three years thereafter, such Series B Preferred
Stock shall only be redeemed at a 50% premium or $11.0625 per share.
NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES B:
Authorized shares--200,000 shares.
Issued and outstanding shares--183,818 shares as of September 30, 1996 and
197,378 shares as of September 30, 1995.
Dividends--noncumulative cash dividends payable quarterly at the fixed
annual rate of $0.7375 per share.
Preference on liquidation--voluntary liquidation at the applicable
redemption price per share and involuntary liquidation at $7.375 per share.
Redemption--except for the shares converted from Series A discussed above,
at the option of the Company at $7.59625 per share at September 30, 1994,
declining thereafter at $.07375 per share during each year through January
31, 1998, and thereafter the redemption price remains at $7.375 per share.
Voting rights--two-and-one-half votes per share. If the Company fails to
pay dividends for six quarters, whether or not consecutive, the holders shall
have the right to elect two additional directors until dividends have been
paid for four consecutive quarters.
Convertibility--convertible into 1.50 shares (adjusted for all stock
dividends) of Class B Common Stock for each share of Noncumulative
Convertible Preferred Stock, Series B, surrendered for conversion, subject to
adjustment on the occurrence of certain events.
NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES C:
Authorized shares--363,636 shares.
Issued and outstanding shares--363,636 shares.
74
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(13) STOCKHOLDERS' EQUITY--(CONTINUED)
Dividends--noncumulative cash dividends payable quarterly at the fixed
annual rate of $0.550 per share.
Preference on liquidation--voluntary liquidation at the applicable
redemption price per share and involuntary liquidation at $5.50 per share.
Redemption--at the option of the Company, at $5.50 per share.
Voting rights--nonvoting.
Convertibility--convertible into 1.45 shares (adjusted for all stock
dividends) of Class A Common Stock for each share of Noncumulative Preferred
Stock, Series C, surrendered for conversion, subject to adjustment on the
occurrence of certain events.
NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES C-II:
Authorized shares--222,223 shares.
Issued and outstanding shares--222,223 shares.
Dividends--noncumulative cash dividends payable quarterly at the fixed
annual rate of $0.80 per share.
Preference on liquidation--voluntary liquidation at the applicable
redemption price per share and involuntary liquidation at $9.00 per share.
Redemption--at the option of the Company, at $9.00 per share.
Voting rights--nonvoting.
Convertibility--convertible into 1.32 shares (adjusted for all stock
dividends) of Class A Common Stock for each share of Noncumulative Preferred
Stock, Series C-II, surrendered for conversion, subject to adjustment on the
occurrence of certain events.
8% NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES 1993:
Authorized shares--805,000 shares.
Issued and outstanding--744,870 shares as of September 30, 1996 and
745,870 shares as of September 30, 1995.
Dividends--noncumulative cash dividends payable quarterly at the fixed
annual rate of $.80 per share.
Preference on liquidation--voluntary liquidation at the applicable
redemption price per share and involuntary liquidation at $10.00 per share.
75
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(13) STOCKHOLDERS' EQUITY--(CONTINUED)
Redemption--not redeemable prior to July 1, 1998, unless certain criteria
are met, in which case the redemption price would be $10.00 per share;
subsequent to June 30, 1998, redemption is at the option of the Company at a
redemption price of $10.40 per share, declining thereafter at $0.08 per share
during each year through July 1, 2003, and thereafter the redemption price
remains $10.00 per share.
Voting rights--nonvoting. However, if the Company fails to pay dividends
for six quarters, whether or not consecutive, the holders shall have the
right to elect two additional directors until dividends have been paid for
four consecutive quarters.
Convertibility--convertible into one share of Class A Common Stock for
each share of non-cumulative Convertible Preferred Stock, Series 1993,
surrendered for conversion, subject to adjustment on the occurrence of
certain events.
9% NONCUMULATIVE PERPETUAL PREFERRED STOCK:
Authorized shares--1,150,000 shares.
Issued and outstanding--1,150,000 shares.
Dividends--noncumulative cash dividends payable quarterly at the fixed
annual rate of $0.90 per share.
Preference on liquidation--voluntary liquidation at the applicable
redemption price per share and involuntary liquidation at $10.00 per share.
Redemption--not redeemable prior to October 1, 1998; subsequent to
September 30, 1998, redemption is at the option of the Company at a
redemption price of $10.00 per share.
Voting rights--nonvoting. However, if the Company fails to pay dividends
for six quarters, whether or not consecutive, the holders shall have the
right to elect two additional directors until dividends have been paid for
four consecutive quarters.
Convertibility--none.
CLASS A COMMON STOCK:
Issuable in series with rights and preferences to be designated by the
Board of Directors:
As of September 30, 1996, 5,000,000 shares of Class A Common Stock were
authorized but not designated to a series.
SERIES I CLASS A COMMON STOCK:
Authorized shares--10,000,000.
Issued and outstanding--5,454,201 shares as of September 30, 1996 and
1,835,170 shares as of September 30, 1995.
76
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(13) STOCKHOLDERS' EQUITY--(CONTINUED)
Dividends--as declared by the Board in the case of a dividend on the Class
A Common Stock alone or not less than 110% of the amount per share of any
dividend declared on the Class B Common Stock.
Voting rights--one tenth of one vote per share.
CLASS B COMMON STOCK:
Authorized shares--3,000,000.
Issued and outstanding--251,515 shares as of September 30, 1996 and
232,324 shares as of September 30, 1995.
Dividends--as declared by the Board of Directors.
Voting rights--one vote per share.
Convertibility--convertible into one share of Class A Common Stock for
each share of Class B Common Stock surrendered for conversion, subject to
adjustment on the occurrence of certain events.
(14) STOCK BONUS PLAN, OPTION AGREEMENTS AND OTHER BENEFIT PLANS
Pursuant to stockholder approval in 1992, the Company maintains the 1992
Stock Bonus Plan. In January 1994, stockholders approved an amendment of this
plan to increase the amount of stock issuable under the plan to 125,000
shares and to allow directors of the Company who are not employees to
participate in the plan and receive stock in partial payment of their
director's fees. As of September 30, 1996, 22,252 shares of Class A Common
Stock and 54,779 shares of Class B Common Stock have been issued under the
1992 Stock Bonus Plan. As of September 30, 1996, there were 47,969 shares
available for grant under the 1992 Stock Bonus Plan.
Pursuant to stockholder approval in 1987, the Company maintains a
non-statutory stock option plan for certain officers, directors and employees
to receive options to purchase shares of Class A and Class B Common Stock.
The stockholders approved an increase in the total number of shares for which
options may be granted under the plan to 750,000 in January 1994. The Board
of Directors approved an increase in the total number of shares for which
options may be granted under the plan to 825,000 (a non-material increase) in
1996. The options are for a period of 10 years and are exercisable at the
fair market value of the stock at the grant date. As of September 30, 1996,
758,718 options have been granted under this plan and 66,412 options have
been exercised.
Pursuant to stockholder approval in January 1994, the Company also
maintains an incentive stock option plan under which options for up to
250,000 shares of Class A and Class B Common Stock may be granted. As of
September 30, 1996, 92,500 options have been granted under this plan.
During October 1984, BankUnited's Board of Directors approved several
non-qualified stock option agreements (the "Agreements") under which options
to purchase shares of Class B Common Stock were granted at the fair market
price of the Class B Common Stock on the date of the grant. The Agreements,
which originally expired on October 23, 1994, have been extended pursuant to
Stockholders' approval to October 23, 1999. As of September 30, 1996, the
Agreements are exercisable for a total of 155,367 shares at the exercise
price of $4.64 per share; none have been exercised.
77
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(14) STOCK BONUS PLAN, OPTION AGREEMENTS AND OTHER BENEFIT PLANS--(CONTINUED)
The following table presents additional data concerning the Company's
outstanding stock options:
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OPTION PRICE OPTION
OF SHARES PER SHARE PRICE
------------ --------------- -------------
<S> <C> <C> <C>
Options outstanding, September 30, 1993 549,174 $3.11 -$10.98 $2,669,272
Options granted ........................ 113,088 7.00 -8.10 846,671
Options exercised ...................... (45,675) 3.21 -3.78 (154,371)
---------- -------------- ------------
Options outstanding, September 30, 1994 616,587 3.11 -10.98 3,361,572
Options granted ........................ 208,671 4.95 -7.95 1,139,902
Options exercised ...................... (6,695) 3.21 -5.73 (23,958)
---------- -------------- ------------
Options outstanding, September 30, 1995 818,563 3.11 -10.98 4,477,516
Options granted ........................ 121,610 7.24 -8.26 926,638
---------- -------------- ------------
Options outstanding, September 30, 1996 940,173 $3.11 -$10.98 $5,404,154
========== ============
</TABLE>
In 1992, the Company adopted a 401(k) savings plan pursuant to which
eligible employees are permitted to contribute up to 15% of their annual
salary to the savings plan. The Company will provide matching contributions
at a rate of 33% of such contributions, up to a maximum of 2% of an
employee's salary. The amount of such matching by the Company for the years
ended September 30, 1996, 1995 and 1994 totaled approximately $7,000,
$30,000, and $29,000, respectively. Employees are eligible to participate in
the plan after one year of service and become vested in the Company's
contribution after two years participation in the plan at the rate of 25% per
year up to 100%.
In September 1995, the Company's Board of Directors adopted a Profit
Sharing Plan. Under the terms of the plan, the Company, at the discretion of
the Board of Directors, may contribute Class A Common Stock to the plan. The
contributions are allocated to the account of eigible employees based upon
their salaries. Employees become eligible for the plan after one year of
service and become vested at the rate of 20% per year up to 100%. The Board
of Directors authorized a contribution of $100,000 and $75,000 in 1996 and
1995, respectively.
(15) INCOME TAXES
As discussed in Note 1, the Company adopted SFAS No. 109 as of October 1,
1993 resulting in a cumulative adjustment of $195,000 to 1994 earnings and
stockholders' equity.
78
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(15) INCOME TAXES--(CONTINUED)
The Company's effective tax rate differs from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------
1996 1995 1994
------------------- ------------------- ---------------------
AMOUNT % AMOUNT % AMOUNT %
--------- -------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tax at federal income tax rate ... $1,443 34.0% $3,394 34.0% $1,262 35.0%
Increase (decrease) resulting
from:
State tax ....................... 154 3.6 362 3.6 (46) (1.3)
Other, net ...................... 60 1.5 (15) (0.1) (83) (2.3)
-------- -------- --------- -------- --------- --------
Total .......................... $1,657 39.1% $3,741 37.5% $1,133 31.4%
======== ======== ========= ======== ========= ========
</TABLE>
The components of the provision for income taxes for the years ended
September 30, 1996, 1995 and 1994 as computed in accordance with SFAS No.
109, are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
-------------------------------
1996 1995 1994
--------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current--federal . $1,324 $3,590 $1,354
Current--state ... 227 620 (53)
Deferred--federal 90 (400) (151)
Deferred--state .. 16 (69) (17)
--------- --------- ---------
Total ............ $1,657 $3,741 $1,133
========= ========= =========
</TABLE>
The tax effects of significant temporary differences included in the net
deferred tax asset as of September 30, 1996 and 1995 were:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Non-accrual interest ......... $185 $178
Loan loss and other reserves 431 587
Fixed assets ................. 5 --
Deferrals and amortization .. 19 --
------ -------
Gross deferred tax asset ... 640 765
------ -------
Deferred tax liability:
FHLB Atlanta stock dividends 167 167
Fixed assets ................. -- 5
Deferrals and amortization .. -- 14
Other ........................ 13 13
------ -------
Gross deferred tax liability 180 199
------ -------
Net deferred tax asset ..... $460 $566
====== =======
</TABLE>
79
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(15) INCOME TAXES--(CONTINUED)
The components of deferred income tax provision (benefit) relate to the
following:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------
1996 1995 1994
-------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Differences in book/tax depreciation $(10) $ (21) $ (10)
Delinquent interest .................. (7) (80) --
FHLB Stock dividends ................. -- (144) 23
Loan fees ............................ -- -- 169
Loan loss and other reserves ......... 156 (164) (363)
Deferrals and amortization ........... (33) (60) 13
------ --------- --------
Total deferred taxes ................ $106 $(469) $(168)
====== ========= ========
</TABLE>
(16) COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company enters into instruments that
are not recorded in the consolidated financial statements, but are required
to meet the financing needs of its customers and to reduce its own exposure
to fluctuations in interest rates. These financial instruments include
commitments to extend credit and standby letters of credit. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the consolidated statements of financial
condition. The contract or notional amounts of those instruments reflect the
extent of involvement the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party on the financial instrument for commitments to extend credit
and standby letters of credit by the other party is represented by the
contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Total commitments to extend credit
at September 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------------------------------------------
1996 1995
---------------------------------- -----------------------------------
FIXED VARIABLE FIXED VARIABLE
RATE RATE TOTAL RATE RATE TOTAL
--------- ----------- ---------- --------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commitments to fund loans ... $2,575 $ 7,057 $ 9,632 $3,801 $ 7,140 $10,941
Loans in process ............. 607 1,033 1,640 1,795 6,707 8,502
Letters of credit ............ 518 -- 518 45 -- 45
Commitments to purchase loans -- 12,260 12,260 -- -- --
-------- --------- --------- -------- --------- --------
Total ....................... $3,700 $20,350 $24,050 $5,641 $13,847 $19,488
======== ========= ========= ======== ========= ========
</TABLE>
The Company evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Company,
upon extension of credit is based on
80
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(16) COMMITMENTS AND CONTINGENCIESS--(CONTINUED)
management's credit evaluation of the customer. Collateral varies but may
include accounts receivable, property, plant and equipment, residential real
estate, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Company requires collateral to support those commitments.
The Company is a party to certain other claims and litigation arising in
the ordinary course of business. In the opinion of management, the resolution
of such claims and litigation will not materially affect the Company's
consolidated financial position or results of operations.
(17) RELATED PARTY TRANSACTIONS
The Company employs the services of a law firm, of which the Company's
Chairman of the Board and President is senior managing director and of which
another director of the Company is managing director; and the services of an
insurance company, of which a member of the Board of Directors is a vice
president. For the years ended September 30, 1996, 1995 and 1994, total fees
(a portion of which were capitalized) paid to this law firm totaled
approximately $986,000, $1.1 million, and $803,000, respectively, and amounts
paid to this insurance company totaled approximately $147,000, $129,000, and
$151,000, respectively.
(18) SUBSEQUENT EVENT
On November 15, 1996, the Company acquired Suncoast Savings & Loan
Association, FSA ("Suncoast"). The Company issued one share of its Class A
Common Stock for each share of Suncoast common stock of which 2,199,930 were
outstanding and one share of newly created 8% non-cumulative convertible
preferred stock, Series 1996 for each share of Suncoast preferred stock of
which 920,000 shares were outstanding. The newly created 8% non-cumulative
convertible preferred stock, Series 1996 has substantially the same terms and
conditions as the Suncoast preferred stock. The cost of the acquisition,
which will be accounted for as a purchase was $27.8 million, representing the
fair value of the consideration given to the Suncoast common and preferred
stockholders as well as the option and warrant holders. In addition, the
Company incurred approximately $925,000 of costs directly related to the
merger. The balance sheet and results of operations of Suncoast will be
included with those of BankUnited as of and for periods subsequent to
November 15, 1996.
81
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(18) SUBSEQUENT EVENTS--(CONTINUED)
The unaudited proforma combined condensed statements of financial
condition and operations as of and for the year ended September 30, 1996
after giving effect to certain proforma adjustments are as follows:
Proforma combined condensed Statement of Financial Condition as of
September 30, 1996 (in thousands):
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Loans receivable ................... $ 980,444
Other interest earning assets ..... 195,528
Goodwill and other intangibles .... 9,657
Other assets ....................... 53,282
-------------
$1,238,911
=============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits ........................... $ 804,567
Other liabilities .................. 337,420
Stockholders' equity ............... 96,924
-------------
$1,238,911
=============
</TABLE>
Proforma combined condensed Statement of Operations for the year ended
September 30, 1996 (in thousands except per share data):
Interest income ........................... $81,752
Interest expense .......................... 52,423
Provision for loan losses ................. 45
Non-interest income ....................... 9,193
Non-interest expense ...................... 31,885
Income tax expense ........................ 2,654
----------
Net income before preferred stock
dividends .............................. 3,938
Preferred stock dividends ................. 3,249
----------
Net income after preferred stock
dividends .............................. $ 689
==========
Earnings per share
Primary .................................. $ .10
Fully-diluted ............................ $ .10
The proforma combined condensed statement of operations assumes the
acquisition occurred as of October 1, 1995.
A summary of the terms of the newly created 8% non-cumulative convertible
preferred stock, Series 1996 are as follows:
Authorized shares --1,000,000.
Issued and outstanding shares--920,000 shares as of November 15, 1996.
82
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(18) SUBSEQUENT EVENT--(CONTINUED)
Dividends--non-cumulative cash dividends payable quarterly at the fixed
annual rate of $1.20 per share.
Preference on liquidation--voluntary liquidation at the applicable
redemption price per share and involuntary liquidation at $15.00 per share.
Redemption--not redeemable prior to July, 1998, unless certain criteria
are met, in which case the redemption price would be $15.00 per share,
subsequent to June 30, 1998, redemption is at the option of the Company at a
redemption price of $16.20 per share, declining thereafter at $0.20 per share
during each year through July 1, 2003, and thereafter the redemption price
remains at $15.00 per share.
Voting rights--nonvoting except under certain circumstances.
Convertibility--convertible into 1.67 shares of Class A Common Stock for
each share of 8% non-cumulative convertible preferred stock, Series 1996,
surrendered for conversion, subject to adjustment on the occurrence of
certain events.
As part of the purchase of Suncoast, the Company issued warrants to
Suncoast's warrant holders to purchase 80,000 shares of the newly created 8%
non-cumulative convertible preferred stock, Series 1996, and assumed
Suncoast's outstanding stock options. The warrants are exercisable at a price
of $18.00 for each share of the 8% non-cumulative convertible preferred
stock, Series 1996 or each warrant could be exercised to purchase 1.67
shares, subject to adjustment, of Class A Common Stock at a per share price
of $10.80, also subject to adjustment under certain conditions. The warrants
expire on July 8, 1998. The Company assumed 119,000 of Suncoast's options
with option prices ranging from $3.00 to $7.38 per share of Class A Common
Stock with an aggregate exercise price of $610,000.
83
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(19) BANKUNITED FINANCIAL CORPORATION
The following summarizes the major categories of the Company's (parent
company only) financial statements:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
----------------------
1996 1995
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Assets:
Cash ............................................................... $ 88 $ 48
FHLB overnight deposits ............................................ 7,889 37
Tax certificates ................................................... 312 457
Investments, net (market value of approximately $10 and $10 at
September 30, 1996 and 1995, respectively) ....................... 10 10
Investments available for sale ..................................... 155 --
Mortgage-backed securities, held to maturity (market value of
approximately $1,727 at September 30, 1995) ...................... -- 1,676
Mortgage-backed securities, available for sale ..................... 1,309 --
Accrued interest receivable ........................................ 132 252
Investment in the Bank ............................................. 59,443 43,062
Other assets ....................................................... 248 236
--------- ----------
Total ............................................................. $69,586 $45,778
========= ==========
Liabilities ......................................................... $ 475 $ 33
--------- ----------
Stockholders' equity:
Preferred stock ................................................... 27 27
Common stock ...................................................... 57 20
Paid-in capital ................................................... 62,055 38,835
Retained earnings ................................................. 7,279 6,838
Net unrealized gains on securities available for sale, net of
taxes ........................................................... (307) 25
--------- ----------
Total stockholders' equity ...................................... 69,111 45,745
--------- ----------
Total liabilities and stockholders' equity ...................... $69,586 $45,778
========= ==========
</TABLE>
84
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(19) BANKUNITED FINANCIAL CORPORATION--(CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER
30,
------------------------------
1996 1995 1994
--------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income .............. $ 803 $ 307 $ 296
Interest expense ............. 17 36 24
Equity income of the Bank ... 2,406 6,587 2,443
Operating expenses ........... 491 818 529
-------- --------- --------
Income before income taxes .. 2,701 6,040 2,186
Income tax expense
(benefit) .................... 115 (200) (93)
-------- --------- --------
Net income ................. $2,586 $6,240 $2,279
======== ========= ========
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------
1996 1995 1994
----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income ........................................... $ 2,586 $ 6,240 $ 2,279
Less: Undistributed income of the Bank ............... (406) (6,587) (901)
Other ................................................ 242 156 (1,682)
---------- ---------- -----------
Net cash provided by (used in) in operating
activities ............................................ 2,422 (191) (304)
---------- ---------- -----------
Cash from investing activities:
Equity contributions to the Bank ..................... (16,000) -- (10,447)
Purchase of investment securities .................... (155) -- (10)
Purchase of mortgage-backed securities ............... -- -- (1,960)
Proceeds from repayments of mortgage-backed
securities ......................................... 368 181 103
Net decrease (increase) in tax certificates ......... 145 732 (379)
---------- ---------- -----------
Net cash provided by (used in) investing activities . (15,642) 913 (12,693)
---------- ---------- -----------
Cash flow from financing activities:
Public offering of Company's 9% Preferred Stock ..... -- -- 10,625
Public offering of Company's Class A Common Stock ... 22,867 -- --
Net proceeds from issuance of common stock .......... 331 222 298
Dividends paid on preferred stock .................... (2,086) (2,010) (1,871)
Dividends paid on common stock ....................... -- -- (137)
---------- ---------- -----------
Net cash provided by (used in) financing activities . 21,112 (1,788) 8,915
Decrease (increase) in cash and cash equivalents .... 7,892 (1,066) (4,082)
Cash and cash equivalents at beginning of year ...... 85 1,151 5,233
---------- ---------- -----------
Cash and cash equivalents at end of year ............. $ 7,977 $ 85 $ 1,151
========== ========== ===========
</TABLE>
85
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(20) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The information set forth below provides disclosure of the estimated fair
value of the Company's financial instruments presented in accordance with the
requirements of SFAS No. 107 (and as amended by SFAS No. 119) issued by the
Financial Accounting Standards Board. Management has made estimates of fair
value discount rates that it believes to be reasonable. However, because
there is no market for many of these financial instruments, management has no
basis to determine whether the fair value presented would be indicative of
the value negotiated in an actual sale. The fair value estimates do not
consider the tax effect that would be associated with the disposition of the
assets or liabilities at their fair value estimates.
Fair values are estimated for loan portfolios with similar financial
characteristics. Loans are segregated by category, such as commercial,
commercial real estate, residential mortgage, second mortgages, and other
installment. Each loan category is further segmented into fixed and
adjustable rate interest terms and by performing and non-performing status.
The fair value of loans, except residential mortgage and adjustable rate
loans, is calculated by discounting scheduled cash flows through the
estimated maturity using estimated market discount rates that reflect the
credit and interest rate risk inherent in the loan. The estimate of average
maturity is based on historical experience with prepayments for each loan
classification, modified, as required, by an estimate of the effect of
current economic and lending conditions.
For residential mortgage loans, fair value is estimated by discounting
contractual cash flows adjusted for national historical prepayment estimates
using discount rates based on secondary market sources adjusted to reflect
differences in servicing and credit costs.
For adjustable-rate loans, the fair value is estimated at book value after
adjusting for credit risk inherent in the loan. The Company's interest rate
risk is considered insignificant since the majority of the Company's
adjustable rate loans are based on the average cost of funds for the Eleventh
District of the Federal Home Loan Bank System ("COFI") or one-year Constant
Maturity Treasuries ("CMT") rates and adjust monthly or at intervals
generally over a period not exceeding one year.
The fair value of the tax certificates is estimated at book value as these
investments historically have had relatively short lives and their yields
approximate market rates. The fair value of mortgage-backed securities and
investment securities is estimated based on bid prices available from
securities dealers.
Under SFAS No. 107, the fair value of deposits with no stated maturity,
such as non-interest-bearing demand deposits, savings and NOW accounts, and
money market accounts, is equal to the amount payable on demand. The fair
value of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using the Company's
current rates for deposits of similar maturities adjusted for insurance
costs.
The fair value of subordinated notes is estimated by discounting
contractual cash flows using estimated market rates. The contract amounts and
related fees of the Company's commitments to extend credit approximate the
fair value of these commitments.
86
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
(20) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENT--(CONTINUED)
The following table presents information for the Company's financial
instruments at September 30, 1996 and 1995:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-------------------------------
CARRYING VALUE FAIR VALUE
---------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Financial assets:
Cash and overnight investments ...... $ 34,136 $ 34,136
Tax certificates and other
investments ............................ 46,784 46,784
Mortgage-backed securities ........... 70,165 69,741
Loans receivable ..................... 646,385 646,507
Other interest-earning assets ....... 12,225 12,225
Financial liabilities:
Deposits ............................. $506,106 $506,025
Advances from the FHLB ............... 237,000 237,218
Subordinated notes ................... 775 859
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1995
------------------------------
CARRYING VALUE FAIR VALUE
--------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Financial assets:
Cash and overnight investments ....... $ 34,730 $ 34,730
Tax certificates and other investments 44,230 44,230
Mortgage-backed securities ............ 52,998 52,734
Loans receivable ...................... 453,350 458,681
Other interest-earning assets ........ 12,325 12,325
Financial liabilities:
Deposits .............................. $310,074 $311,424
Advances from the FHLB ................ 241,000 240,675
Subordinated notes .................... 775 899
</TABLE>
87
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Statement of
Financial Condition as of September 30, 1996, and the Unaudited Pro Forma
Condensed Combined Statement of Operations for the year ended September 30,
1996 give effect to the Merger accounted for as a purchase of Suncoast by the
Company. Under the purchase method of accounting, all assets and liabilities
of Suncoast at September 30, 1996 have been adjusted to their current
estimated fair values and combined with the asset and liability book values
of the Company. The Unaudited Pro Forma Condensed Combined Statement of
Financial Condition assumes the Merger was effective on September 30, 1996.
The Unaudited Pro Forma Condensed Combined Statement of Operations give
effect to the Merger as if the Merger had occurred at the beginning of the
period presented.
The pro forma information is based on the historical consolidated
financial statements of the Company and of Suncoast, as adjusted, as set
forth in the accompanying Notes to the Unaudited Pro Forma Condensed Combined
Financial Statements. Suncoast's fiscal year-end is June 30, and thus
Suncoast's financial statements have been adjusted to reflect an unaudited
fiscal year ending September 30, 1996. The Unaudited Pro Forma Condensed
Combined Financial Statements do not give effect to any anticipated cost
savings or potential revenue enhancements in connection with the Merger.
The information shown below should be read in conjunction with the
consolidated historical financial statements of the Company and of Suncoast,
including the respective notes thereto, which are included or incorporated by
reference in this Annual Report on Form 10-K. The pro forma data is presented
for comparative purposes only and is not necessarily indicative of the
combined financial position or results of operations in the future or of the
combined financial position or results of operations which would have been
realized had the Merger been consummated during the periods or as of the
dates for which the pro forma data is presented.
Pro forma per share amounts for the Company giving effect to the Merger
are based on the exchange ratio of one share of the Company Class A Common
Stock for each share of the Suncoast common stock and the issuance of New
Company Preferred Stock having substantially similar terms as the Suncoast
preferred stock.
88
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMBINED
BANKUNITED SUNCOAST ADJUSTMENTS PRO FORMA
------------- ----------- -------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks .......................... $ 5,483 $ 4,588 $ -- $ 10,071
FHLB overnight deposits and federal funds sold .. 28,653 1,430 -- 30,083
Repurchase Agreements ............................ -- 15,000 -- 15,000
Tax certificates, net ............................ 40,088 -- -- 40,088
Investments, available for sale, at market ...... 6,696 -- -- 6,696
Mortgage-backed securities, held to maturity .... 14,698 -- -- 14,698
Mortgage-backed securities, available for sale,
at market ...................................... 55,467 18,196 -- 73,663
Loans receivable, net ............................ 646,385 330,781 (930)(1) 976,236
Mortgage loans held for sale ..................... -- 4,208 -- 4,208
Other interest earning assets .................... 12,225 3,075 -- 15,300
Loan servicing assets ............................ -- 11,454 (1,822)(1) 9,632
Office properties and equipment, net ............. 2,608 6,787 700 (1) 10,095
Real estate owned, net ........................... 632 245 -- 877
Accrued interest receivable ...................... 7,023 3,065 -- 10,088
Cost over fair value of net assets acquired and
other intangible assets ........................ 2,457 -- 7,200 (1) 9,657
Prepaid expenses and other assets ................ 1,945 10,574 -- 12,519
----------- ---------- ------------ ----------
Total assets ................................... $824,360 $409,403 $ 5,148 $1,238,911
=========== ========== ============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ........................................ $506,106 $298,461 $ -- $ 804,567
Advances from FHLB and other borrowings ........ 237,000 73,310 -- 310,310
Subordinated notes .............................. 775 -- -- 775
Advance payments by borrowers for taxes
and insurance ................................. 4,292 4,063 -- 8,355
Accrued expenses and other liabilities ......... 7,076 8,899 3,200 (3) 17,980
(1,195)(6)
----------- ----------- -------------- ----------
Total liabilities .............................. $755,249 $384,733 $ 2,005 $1,141,987
----------- ----------- -------------- ----------
Stockholders' Equity:
Preferred stock ................................. $ 27 $ 4,600 $ (4,591)(2)$ 36
Class A Common Stock ............................ 54 2,418 (2,396)(2) 76
Class B Common Stock ............................ 3 -- -- 3
Additional paid-in capital ...................... 62,055 17,657 10,125 (2) 89,837
Retained earnings ............................... 7,279 301 (301)(2) 7,279
Net unrealized gains on securities
available for sale ............................ (307) (306) 306 (307)
----------- ----------- ----------- ----------
Total stockholders' equity ..................... 69,111 24,670 3,143 96,924
----------- ----------- ----------- ----------
Total liabilities and stockholders' equity .... $824,360 $409,403 $ 5,148 $1,238,911
=========== =========== ============ ==========
Book value per common share ...................... $ 7.85 $ 7.44
Tangible book value per common share ............. $ 7.42 $ 6.22
Fully converted tangible book value per share ... $ 7.13 $ 6.64
</TABLE>
89
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMBINED
BANKUNITED SUNCOAST ADJUSTMENTS(1) PRO FORMA
------------- ----------- --------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
OPERATIONS DATA:
Interest income .............................................. $ 52,132 $28,501 $ 1,119 (1) $ 81,752
Interest expense ............................................. 34,622 17,781 20 (1) 52,423
------------ ---------- -------------- ---------
Net interest income before provision for loan losses ........ 17,510 10,720 1,099 29,329
Provision for loan losses .................................... (120) 165 -- 45
------------ ---------- -------------- ---------
Net interest income after provision for loan losses ......... 17,630 10,555 1,099 29,284
------------ ---------- -------------- ---------
Non-interest income:
Loan servicing income, net .................................. -- 4,109 364 (1) 4,473
Gain on sale of assets ...................................... -- 2,870 -- 2,870
Other ....................................................... 649 1,201 -- 1,850
------------ ---------- -------------- ---------
Total non-interest income .................................. 649 8,180 364 9,193
------------ ---------- -------------- ---------
Non-interest expense:
Employee compensation and benefits .......................... 4,275 7,328 (300)(4) 11,303
Occupancy and equipment ..................................... 1,801 2,874 35 (1) 4,710
SAIF special assessment ..................................... 2,614 2,317 -- 4,931
Other operating expenses .................................... 5,346 5,215 280 (1) 10,941
100 (4)
------------ ---------- -------------- ---------
Total non-interest expenses ................................ 14,036 17,734 115 31,885
------------ ---------- -------------- ---------
Income before income taxes and preferred stock dividends .... 4,243 1,001 1,348 6,592
Provision for income taxes ................................... 1,657 371 626 (6) 2,654
------------ ---------- -------------- ---------
Net income before preferred stock dividends .................. 2,586 630 722 3,938
Preferred stock dividends .................................... 2,145 1,104 -- 3,249
------------ ---------- -------------- ---------
Net income after preferred stock dividends ................... $ 441 $ (474) $ 722 $ 689
============ ========== ============== =========
PER COMMON SHARE DATA:
Primary earnings per common share and common
equivalent share ........................................... $ .10 $ .10
Earnings per common share assuming full dilution ............ .10 .10
Weighted average number of common shares and common
equivalent shares assumed outstanding during the period:
Primary .................................................. 4,558,521 6,695,848
Fully diluted .............................................. 4,558,521 6,695,848
OPERATIONS DATA (EXCLUDING SAIF SPECIAL ASSESSMENT):
SAIF special assessment, net of tax ........................ $ 1,621 $1,437 -- $ 3,058
============ ========== ============== =========
Net income before preferred stock dividends and excluding
SAIF special assessment .................................... $ 4,207 $ 2,067 $ 722 $ 6,996
============ ========== ============== =========
Net income after preferred stock dividends and excluding SAIF
special assessment ......................................... $ 2,062 $ 963 $ 722 $ 3,747
============ ========== ============== =========
PER COMMON SHARE DATA (EXCLUDING SAIF SPECIAL ASSESSMENT): ..
Primary earnings per common share and common
equivalent share ......................................... $ .45 $ .56
Earnings per common share assuming full dilution ............ .45 .50
Weighted average number of common shares and common
equivalent shares assumed outstanding during the period:
Primary .................................................. 4,558,521 6,695,848
Fully diluted .............................................. 4,558,521 7,498,847
</TABLE>
90
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(1) Adjustments to fair value for Suncoast's assets and liabilities are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
AMORTIZATION ANNUAL IMPACT ON
ADJUSTMENTS PERIOD AND METHOD STATEMENT OF OPERATIONS
-------------- ------------------------ ------------------------
<S> <C> <C> <C>
Commercial loans .................. $(2,000) 18 months/straight line $1,333
Residential loans ................. 1,070 5 years/straight line (214)
-------------- ------------------------
Total loans ..................... (930) 1,119
Deposits premium .................. 200 10 years/straight line (20)
Loan servicing assets ............. (1,822) 5 years/straight line 364
Land and buildings ................ 700 20 years/straight line (35)
Cost over fair value of net assets
acquired (goodwill) ............. 7,000 25 years/straight line (280)
</TABLE>
(2) The purchase price of $27,590,000 represents the issuance of 2,199,930
shares of BankUnited Class A Common stock at a price of $7.00 per share
(the closing bid price on the day of the Merger Agreement) and the
issuance of 920,000 shares of New BankUnited Preferred stock having an
estimated value of $13.25 per share. Also, $223,000, representing the
fair value of Suncoast's outstanding stock options and warrants which
will be exchanged for BankUnited stock options and warrants having
similar terms and conditions, was credited to paid-in capital.
The following summarizes the entries to Stockholders' Equity (dollars in
thousands):
<TABLE>
<CAPTION>
ENTRY TO
ENTRIES TO ENTRIES TO RECORD STOCK
ELIMINATE SUNCOAST'S RECORD STOCK OPTIONS AND
EQUITY TO BE ISSUED WARRANTS TOTAL
--------------------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
Preferred Stock ................... $ (4,600) $ 9 $ -- $(4,591)
Class A Common Stock .............. (2,418) 22 -- (2,396)
Class B Common Stock .............. -- -- -- --
Additional Paid-in Capital ........ (17,657) 27,559 223 10,125
Retained Earnings ................. (301) -- -- (301)
Net unrealized gains on securities
available for sale .............. 306 -- -- 306
--------------- ----------- --------- ---------
Total Stockholders' Equity ..... $(24,670) $27,590 $223 $ 3,143
=============== =========== ========= =========
</TABLE>
(3) The total purchase price includes $3.2 million of accrued liabilities as
follows:
/bullet/ $1.35 million in severance costs.
/bullet/ $1.85 million for direct acquisition costs such as legal,
accounting, investment banking and other professional fees and
expenses.
(4) The pro forma statements of operations include an annual reduction in
salary expense of $300,000 and an annual increase in professional fees of
$100,000 representing the change in status and compensation of Mr. Finch
in accordance with the terms of his change-of-control agreement.
(5) The pro forma adjustments do not include the effect of any potential
expense reductions, revenue enhancements or restructuring charges.
(6) The statutory income tax rate is assumed to be 38%. Amortization of the
cost over fair value of net assets acquired (goodwill) is not deductible
for tax purposes.
91
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information contained under the caption "Election of Directors" to
appear in the Company's definitive proxy statement relating to the Company's
1997 Annual Meeting of Stockholders, which definitive proxy statement will be
filed with the Securities and Exchange Commission not later than 120 days
after the end of the Company's fiscal year covered by this report on Form
10-K (hereinafter referred to as the "Annual Meeting Proxy Statement"), is
incorporated herein by reference. Information concerning the executive
officers of the Company is included in Part I of this Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the caption "Executive Compensation" to
appear in the Annual Meeting Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" to appear in the Annual Meeting Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the captions "Compensation Committee
Interlocks and Insider Participation" and "Certain Relationships and Related
Transactions" to appear in the Annual Meeting Proxy Statement is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) Financial Statements.
The following consolidated financial statements of the Company and the
report of the independent certified public accountants thereon have been
filed with this report:
Report of Independent Certified Public Accountants (Price
Waterhouse LLP).
Consolidated Statements of Financial Condition as of September
30, 1996 and 1995.
Consolidated Statements of Operations for the years September
30, 1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity for the years
ended September 30, 1996, 1995 and 1994.
92
<PAGE>
Consolidated Statements of Cash Flows for the years ended
September 30, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules.
Schedules are omitted because the conditions requiring their filing
are not applicable or because the required information is provided in
the Consolidated Financial Statements, including the Notes thereto.
(3) Exhibits.*
(3.1) Articles of Incorporation of the Company (Exhibit 3.1 to the
Company's Form 10-K Report for the year ended September 30, 1996).
(3.2) Statement of Designation of Series I Class A Common Stock and
Class B Common Stock of the Company, as amended (Exhibit 4.9 to the
Company's Form S-8 Registration Statement [File No. 333-43211]. as
filed with the Securities and Exchange Commission on November 14,
1996).
(3.3) Bylaws of the Company (Exhibit 4.5 to the Company's Form S-8
Registration Statement [File No. 333-43211], as filed with the
Securities and Exchange Commission on November 14, 1996).
(3.4) Statement of Designation of 8% Noncumulative Convertible
Preferred Stock, Series 1996 (Exhibit 4.8 to the Company's Form S-8
Registration Statement [File No. 333-43211], as filed with the
Securities and Exchange Commission on November 14, 1996).
(4.1) Agreement for Advances and Security Agreement with Blanket
Floating Lien dated as of September 25, 1992, between the Bank and
the FHLB of Atlanta (Exhibit 4.1 to the Bank's Form 10-K for the year
ended September 30, 1992, filed with the Securities and Exchange
Commission as an exhibit to the Company's Form 8-K dated March 25,
1993).
(4.2) Forms of Series 15A-F, Series 18E and Series 20A-F of
Subordinated Notes of the Bank (Exhibit 4.3 to the Company's Form S-4
Registration Statement, File No. 33-55232, as filed with the
Securities and Exchange Commission on December 2, 1992).
(10.1) Non-Statutory Stock Option Plan, as amended (Exhibit 4.9 to
the Company's Form S-8 Registration Statement [File No. 33-76882], as
filed with the Securities and Exchange Commission on March 24,
1994).**
(10.2) 1992 Stock Bonus Plan, as amended. (Exhibit 10.2 to the
Company's Form 10-K Report for the year ended September 30, 1994 [the
"1994 10-K"]).**
(10.3) 1994 Incentive Stock Option Plan. (Exhibit 10.3 to the 1994
10-K).**
(10.4) Profit Sharing Plan of the Bank (Exhibit 10.4 to the Company's
Form 10-K Report for the year ended September 30, 1995).
(10.5) 1996 Incentive Compensation and Stock Award Plan
(Exhibit 10.5 to the Company's Form 10-K Report for the year ended
September 30, 1996).**
(10.6) Purchase and Assumption Agreement dated March 20, 1995 by and
among the Company, the Bank, SouthTrust Corporation, SouthTrust of
Florida, Inc., and SouthTrust Bank of the Suncoast (Exhibit 10.1 to
the Company's Form 10-Q Report for the quarter ended March 31, 1995
[the "March 31, 1995 10-Q"]).
93
<PAGE>
(10.7) Purchase and Assumption Agreement dated March 20, 1995 by and
among the Company, the Bank, SouthTrust Corporation, SouthTrust of
Florida, Inc., and SouthTrust Bank of Southwest Florida, N.A.
(Exhibit 10.2 to the March 31, 1995 10-Q).
(10.8) First Amendment to Purchase and Assumption Agreement dated
July 27, 1995 by and among the Company, the Bank, SouthTrust
Corporation, SouthTrust of Florida, Inc., and SouthTrust Bank of the
Suncoast (Exhibit 10.1 to the Company's Form 10-Q Report for the
quarter ended June 30, 1995 [the "June 30, 1995 10-Q"]).
(10.9) First Amendment to Purchase and Assumption Agreement dated
July 27, 1995 by and among the Company, the Bank, SouthTrust
Corporation, SouthTrust of Florida, Inc., and SouthTrust of Southwest
Florida, N.A. (Exhibit 10.2 to the June 30, 1995 10-Q).
(10.10) Form of Employment Agreement between the Company and Alfred
R. Camner (Exhibit 10.10 to the Company's 10-K Report for the year
ended September 30, 1996).
(10.11) Form of Employment Agreement between the Company and Earline
G. Ford (Exhibit 10.11 to the Company's 10-K Report for the year
ended September 30, 1996).
(10.12) Form of Employment Agreement between the Company and certain
of its senior officers (Exhibit 10.12 to the Company's 10-K Report
for the year ended September 30, 1996).
(11.1) Statement regarding calculation of earnings per common share
(Exhibit 11.1 to the Company's 10-K Report for the year ended
September 30, 1996).
(12.1) Statement regarding calculation of ratios (Exhibit 12.1 to the
Company's 10-K Report for the year ended September 30, 1996).
(21.1) Subsidiaries of the Company (Exhibit 21.1 to the Company's
10-K Report for the year ended September 30, 1996).
(23.1) Consent of Price Waterhouse LLP.
(24.1) Power of Attorney (set forth on the signature page of the
Annual Report on Form 10-K filed for the year ended September 30,
1996).
- ----------------------
* Exhibits followed by a parenthetical reference are incorporated herein by
reference from the documents described therein.
** Exhibits 10.1--10.4 are compensatory plans or arrangements.
(B) REPORTS ON FORM 8-K.
During the quarter ended September 30, 1996, the Company filed a Current
Report on Form 8-K dated July 15, 1996 with the Securities and Exchange
Commission.
94
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized on
December 23, 1996.
BANKUNITED FINANCIAL CORPORATION
By: /s/ ALFRED R. CAMNER
---------------------------------
Alfred R. Camner
Chairman of the Board,
President and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Alfred R. Camner, Earline G. Ford and Marc
Jacobson and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments to
this report on Form 10-K and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or his substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on December 23, 1996 on behalf of the Registrant by
the following persons and in the capacities indicated.
<TABLE>
<CAPTION>
/S/ ALFRED R. CAMNER
- -------------------------------- CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
ALFRED R. CAMNER OFFICER, PRESIDENT AND DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
<S> <C>
/s/ EARLINE G. FORD
- -------------------------------- Executive Vice President, Treasurer and
Earline G. Ford Director
/s/ JAMES A. DOUGHERTY Executive Vice President and Director
- --------------------------------
James A. Dougherty
/s/ SAMUEL A. MILNE
- -------------------------------- Executive Vice President and Chief Financial
Samuel A. Milne Officer (Principal Financial Officer and
Principal Accounting Officer)
/s/ MARC D. JACOBSON Director
- --------------------------------
Marc D. Jacobson
/s/ ALLEN M. BERNKRANT Director
- --------------------------------
Allen M. Bernkrant
/s/ LAWRENCE H. BLUM Director
- --------------------------------
Lawrence H. Blum
95
<PAGE>
Director
- --------------------------------
Patricia L. Frost
Director
- --------------------------------
Sandra Goldstein
Director
- --------------------------------
Robert D. Lurie
/s/ ANNE W. SOLLOWAY Director
- --------------------------------
Anne W. Solloway
/s/ CHRISTINA CUERVO MIGOYA Director
- --------------------------------
Christina Cuervo Migoya
/s/ NEIL MESSINGER Director
- --------------------------------
Neil Messinger
Director
- --------------------------------
Bruce Friesner
Director
- --------------------------------
Albert J. Finch
Director
- --------------------------------
Irving P. Cohen
Director
- --------------------------------
Elia J. Giusti
Director
- --------------------------------
Norman E. Mains
/s/ MARC LIPSITZ Director
- --------------------------------
Marc Lipsitz
</TABLE>
96
<PAGE>
BANKUNITED FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED SEPTEMBER 30, 1996
INDEX TO EXHIBITS*
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. PAGE
- ---------------- -----------------
<S> <C> <C>
23.1 Consent of Price Waterhouse LLP
</TABLE>
- -------------
* All other exhibits listed under Item 14 of Part IV of the Form 10-K are
incorporated by reference to documents previously filed, as indicated
therein.
97
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-76878, No. 33-76884, No. 33-76882 and
333-432111) of BankUnited Financial Corporation of our report dated December
14, 1996 appearing on page 54 of this Form 10-K/A.
/s/ PRICE WATERHOUSE LLP
- -------------------------
PRICE WATERHOUSE LLP
Miami, Florida
December 14, 1996
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21850
BANKUNITED FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-037773
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
255 ALHAMBRA CIRCLE, CORAL GABLES, FLORIDA 33134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (305) 569-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A COMMON STOCK, $.01 PAR VALUE
8% NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES 1996
8% NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES 1993
9% NONCUMULATIVE PERPETUAL PREFERRED STOCK
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [ ]
The aggregate market value of the Class A Common Stock held by
non-affiliates of the Registrant, based upon the average price on December
11, 1996, was $68,776,342.* The other voting securities of the Registrant are
not publicly traded.
The shares of the Registrant's common stock outstanding as of December 11,
1996 were as follows:
CLASS NUMBER OF SHARES
----- ----------------
Class A Common Stock, $.01 par value 7,675,931
Class B Common Stock, $.01 par value 251,515
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the fiscal year covered by this Form
10-K pursuant to Rule G(3) of the General Instructions for Form 10-K.
Information from such Definitive Proxy Statement will be incorporated by
reference into Part III, Items 10, 11, 12 and 13 hereof.
1
<PAGE>
- -----------------------------------------------------------------------------
* Based on reported beneficial ownership of all directors and executive
officers of the Registrant; this determination does not, however,
constitute an admission of affiliated status for any of these individual
stockholders.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized on
January 29, 1997.
BANKUNITED FINANCIAL CORPORATION
By: /s/ ALFRED R. CAMNER
---------------------------------
Alfred R. Camner
Chairman of the Board,
President and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Alfred R. Camner, Earline G. Ford and Marc
Jacobson and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments to
this report on Form 10-K and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or his substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on January 29, 1997 on behalf of the Registrant by
the following persons and in the capacities indicated.
<TABLE>
<CAPTION>
/S/ ALFRED R. CAMNER
- -------------------------------- CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
ALFRED R. CAMNER OFFICER, PRESIDENT AND DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
<S> <C>
/s/ EARLINE G. FORD
- -------------------------------- Executive Vice President, Treasurer and
Earline G. Ford Director
/s/ JAMES A. DOUGHERTY Executive Vice President and Director
- --------------------------------
James A. Dougherty
/s/ SAMUEL A. MILNE
- -------------------------------- Executive Vice President and Chief Financial
Samuel A. Milne Officer (Principal Financial Officer and
Principal Accounting Officer)
/s/ MARC D. JACOBSON Director
- --------------------------------
Marc D. Jacobson
/s/ ALLEN M. BERNKRANT Director
- --------------------------------
Allen M. Bernkrant
/s/ LAWRENCE H. BLUM Director
- --------------------------------
Lawrence H. Blum
2
<PAGE>
Director
- --------------------------------
Patricia L. Frost
Director
- --------------------------------
Sandra Goldstein
Director
- --------------------------------
Robert D. Lurie
/s/ ANNE W. SOLLOWAY Director
- --------------------------------
Anne W. Solloway
/s/ CHRISTINA CUERVO MIGOYA Director
- --------------------------------
Christina Cuervo Migoya
/s/ NEIL MESSINGER Director
- --------------------------------
Neil Messinger
Director
- --------------------------------
Bruce Friesner
Director
- --------------------------------
Albert J. Finch
Director
- --------------------------------
Irving P. Cohen
Director
- --------------------------------
Elia J. Giusti
Director
- --------------------------------
Norman E. Mains
/s/ MARC LIPSITZ Director
- --------------------------------
Marc Lipsitz
</TABLE>
3
<PAGE>
BANKUNITED FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED SEPTEMBER 30, 1996
INDEX TO EXHIBITS*
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. PAGE
- ---------------- -----------------
<S> <C> <C>
27.1 Financial Data Schedule
</TABLE>
- -------------
* All other exhibits listed under Item 14 of Part IV of the Form 10-K are
incorporated by reference to documents previously filed, as indicated
therein.
<PAGE>
EXHIBIT 27
ARTICLE 9
LEGEND
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BANK UNITED, FSB FOR THE TWELVE MONTHS ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
/LEGEND
TABLE
PERIOD-TYPE 12-MOS
FISCAL-YEAR-END SEP-30-1996
PERIOD-END SEP-30-1996
CASH 5,483
INT-BEARING-DEPOSITS 28,253
FED-FUNDS-SOLD 400
TRADING-ASSETS 0
INVESTMENTS-HELD-FOR-SALE 62,152
INVESTMENTS-CARRYING 59,797
INVESTMENTS-MARKET 0
LOANS 648,543
ALLOWANCE 2,158
TOTAL-ASSETS 824,360
DEPOSITS 506,106
SHORT-TERM 237,000
LIABILITIES-OTHER 11,368
LONG-TERM 0
PREFERRED-MANDATORY 0
PREFERRED 27
COMMON 57
OTHER-SE 69,027
TOTAL-LIABILITIES-AND-EQUITY 824,360
INTEREST-LOAN 41,313
INTEREST-INVEST 10,819
INTEREST-OTHER 0
INTEREST-TOTAL 52,132
INTEREST-DEPOSIT 20,791
INTEREST-EXPENSE 34,622
INTEREST-INCOME-NET 17,510
LOAN-LOSSES (120)
SECURITIES-GAINS 0
EXPENSE-OTHER 14,036
INCOME-PRETAX 4,243
INCOME-PRE-EXTRAORDINARY 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME 2,586
EPS-PRIMARY .10
EPS-DILUTED .10
YIELD-ACTUAL 2.52
LOANS-NON 6,396
LOANS-PAST 0
LOANS-TROUBLED 1,457
LOANS-PROBLEM 0
ALLOWANCE-OPEN 2,135
CHARGE-OFFS 160
RECOVERIES 78
ALLOWANCE-CLOSE 2,158
ALLOWANCE-DOMESTIC 0
ALLOWANCE-FOREIGN 0
ALLOWANCE-UNALLOCATED 0
/TABLE
/TEXT
<PAGE>
APPENDIX B
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 5-43936
BANKUNITED FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 65-0377773
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
255 ALHAMBRA CIRCLE, CORAL GABLES 33134
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(305) 569-2000
----------------------------------------------------
(Registrant's telephone number, including area code)
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 ___
The number of shares outstanding of the registrant's common stock at the close
of business on February 11, 1997 was 7,703,477 shares of Class A Common Stock,
$.01 par value, and 275,685 shares of Class B Common Stock, $.01 par value.
This Form 10-Q contains 19 pages.
The Index to Exhibits appears on page 17.
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
Form 10-Q Report for the Quarter Ended December 31, 1996
INDEX
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition as of
December 31, 1996 (unaudited) and September 30, 1996 3
Consolidated Statements of Operations (unaudited)
for the Three Months Ended December 31, 1996
and December 31, 1995 4
Consolidated Statements of Cash Flows (unaudited)
for the Three Months Ended December 31, 1996 and
December 31, 1995 5
Condensed Notes to Consolidated Financial
Statements (unaudited) 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES 15
Item 5. OTHER INFORMATION 15
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 15
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
December 31, September 30,
1996 1996
- --------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
ASSETS
Cash and due from banks $ 15,095 $ 5,483
Federal funds sold and Federal Home Loan Bank overnight deposits 69,323 28,653
Tax certificates (net of reserves of $631 at December 31, 1996
and $614 at September 30, 1996) 33,789 40,088
Investments, available for sale, net at market 6,702 6,685
Mortgage-backed securities, held to maturity, net (market
value of approximately $13,728 at December 31, 1996
and $14,274 at September 30, 1996) 13,906 14,698
Mortgage-backed securities available for sale, net at market 72,206 55,467
Loans receivable, net 1,046,770 646,385
Other interest earning assets 15,136 12,236
Office properties and equipment, net 9,857 2,608
Accrued interest receivable 11,073 7,023
Mortgage servicing rights 8,883 --
Goodwill 11,934 2,457
Prepaid expenses and other assets 14,370 2,577
---------- --------
Total assets $1,329,044 $824,360
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 878,166 $506,106
Advances from Federal Home Loan Bank 288,484 237,000
Subordinated notes 775 775
Accrued expenses and other liabilities 13,464 11,368
---------- --------
Total liabilities 1,180,889 755,249
---------- --------
Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Junior Subordinated Deferrable Interest
Debentures of the Company 50,000 --
---------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, Series B,C,C-II, 1993, 1996 and 9%, $.01 par value.
Authorized shares - 10,000,000; issued and outstanding shares - 3,584,547
at December 31, 1996 and 2,664,547 at September 30, 1996 36 27
Class A Common Stock, $.01 par value. Authorized shares
30,000,000; issued and outstanding shares - 7,656,953
at December 31, 1996 and 5,454,201 at September 30, 1996 76 54
Class B Common Stock, $.01 par value. Authorized shares
3,000,000; issued and outstanding shares - 251,515 at
December 31, 1996 and 251,515 at September 30, 1996 3 3
Additional paid-in capital 89,860 62,055
Retained earnings 8,206 7,279
Net unrealized losses on securities available for sale, net of tax (26) (307)
---------- --------
Total stockholders' equity 98,155 69,111
---------- --------
Total liabilities and stockholders' equity $1,329,044 $824,360
========== ========
</TABLE>
SEE CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
<TABLE>
<CAPTION>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
(Unaudited)
1996 1995
------- -------
(In thousands, except earnings per share)
<S> <C> <C>
Interest income:
Interest and fees on loans $16,616 $ 8,766
Interest on mortgage-backed securities 1,309 889
Interest on short-term investments 467 603
Interest and dividends on long-term investments
and other earning assets 1,099 1,066
------- -------
Total interest income 19,491 11,324
------- -------
Interest expense:
Interest on deposits 8,882 4,223
Interest on borrowings 3,505 3,563
------- -------
Total interest expense 12,387 7,786
------- -------
Net interest income before provision (credit) for loan losses 7,104 3,538
Provision (credit) for loan losses 250 (300)
------- -------
Net interest income after provision (credit) for loan losses 6,854 3,838
------- -------
Non-interest income:
Service fees, net 575 151
Other 25 7
------- -------
Total non-interest income 600 158
------- -------
Non-interest expenses:
Employee compensation and benefits 1,915 967
Occupancy and equipment 886 363
Insurance 361 226
Professional fees - legal and accounting 222 246
Other operating expenses 1,449 726
------- -------
Total non-interest expenses 4,833 2,528
------- -------
Income before income taxes and preferred stock dividends 2,621 1,468
Income taxes 1,022 557
------- -------
Net income before preferred stock dividends 1,599 911
Preferred stock dividends 672 536
------- -------
Net income after preferred stock dividends $ 927 $ 375
======= =======
Earnings Per Share
Primary $ 0.13 $ 0.16
======= =======
Fully-diluted $ 0.13 $ 0.15
======= =======
Weighted average number of common share equivalents assumed outstanding
during the period:
Primary 7,155 2,369
======= =======
Fully diluted 8,045 3,172
======= =======
</TABLE>
SEE CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
<TABLE>
<CAPTION>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
(Unaudited)
1996 1995
-------- --------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,599 $ 911
Adjustments to reconcile net income to net cash used in
operating activities:
Provision (credit) for loan losses 250 (300)
Provision for losses on tax certificates 18 38
Depreciation and amortization 313 126
Amortization of discounts and premiums on investments 8 --
Amortization of discounts and premiums on mortgage-backed securities 30 34
Amortization of discounts and premiums on loans (23) (353)
Loans originated for sale (5,193) (3,057)
Increase in accrued interest receivable (1,097) (653)
(Decrease) increase in interest payable on deposits and FHLB advances (845) 53
Increase in accrued expenses 2,347 4
Decrease in accrued taxes (937) (2,589)
Increase (decrease) in deferred taxes 17 (469)
(Decrease) increase in other liabilities (27,320) 835
Decrease in prepaid expenses and other assets 2,039 972
Proceeds from sale of loans 3,657 1,521
Recovery on loans 11 941
Loss (gain) on sales of loans 11 (4)
Loss (gain) on sales of real estate owned 23 (52)
-------- --------
Net cash used in operating activities (25,092) (2,042)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (58,864) (34,126)
Proceeds from sale of real estate owned 488 650
Purchase of other earning assets (2,650) --
Proceeds from repayments of mortgage-backed securities 3,136 1,555
Proceeds from repayments of other earning assets 3,000 750
Proceeds from sale of investment securities -- 3,000
Purchases of premises and equipment (338) (159)
Net decrease in tax certificates 6,281 8,060
Purchase of Suncoast's cash equivalents 32,803 --
-------- --------
Net cash used in investing activities (16,144) (20,270)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 48,323 42,970
Net decrease in other borrowings (16) (10,000)
Net proceeds from issuance of preferred stock 9 --
Net proceeds from issuance of common stock 14 88
Net proceeds from issuance of trust guaranteed preferred
beneficial interest in the Company's debenture 48,350 --
Dividends paid on the Company's preferred stock (672) (536)
Decrease in advances from borrowers for taxes and insurance (4,490) (2,661)
-------- --------
Net cash provided by financing activities 91,518 29,861
-------- --------
Increase in cash and cash equivalents 50,282 7,549
Cash and cash equivalents at beginning of period 34,136 34,730
-------- --------
Cash and cash equivalents at end of period $ 84,418 $ 42,279
======== ========
SUPPLEMENTAL DISCLOSURES:
Transfer from loans to real estate owned $ 1,160 $ --
======== ========
Transfers from real estate owned to loans $ -- $ 184
======== ========
Transfers of mortgage-backed securities from held-to-maturity to
available for sale $ -- $ 31,780
======== ========
</TABLE>
SEE CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements have been prepared
in conformity with Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and therefore do not include information or footnotes necessary for a
complete presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles ("GAAP").
However, all adjustments (consisting of normal recurring accruals) which, in the
opinion of management, are necessary for a fair presentation of the financial
statements of BankUnited Financial Corporation and its subsidiaries (the
"Company") have been included. Operating results for the three month period
ended December 31, 1996 are not necessarily indicative of the results which may
be expected for the year ended September 30, 1997. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K/A for fiscal year ended September 30,
1996.
2. REGULATORY CAPITAL
The Office of Thrift Supervision ("OTS") requires that BankUnited, FSB (the
"Bank") meet minimum regulatory tangible, core and risk-based capital
requirements. Currently, the Bank exceeds all regulatory capital requirements.
The Bank's required, actual and excess regulatory capital levels as of December
31, 1996 were as follows:
<TABLE>
<CAPTION>
REQUIRED ACTUAL EXCESS
------------------- -------------------- ---------------------
% OF % OF % OF
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
--------- ------ --------- ------ --------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $ 19,786 1.5% $ 102,841 7.7% $ 83,055 6.2%
Core Capital $ 39,573 3.0% $ 102,841 7.7% $ 63,268 4.7%
Risk-Based Capital $ 58,464 8.0% $ 106,758 14.6% $ 48,294 6.6%
</TABLE>
3. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE INTEREST
DEBENTURES OF THE COMPANY
On December 30, 1996, a newly formed trust subsidiary created under the laws of
Delaware, BankUnited Capital, issued $50 million of 10 1/4% Trust Preferred
Securities, Series A (the "Trust Preferred Securities") and $2 million of common
securities, which are wholly owned by the Company. In connection with this
transaction, BankUnited Capital simultaneously purchased $52 million of 10 1/4%
Junior Subordinated Deferrable Interest Debentures, Series A issued by
BankUnited Financial Corporation with terms similar to the Trust Preferred
Securities.
These securities mature December 31, 2026 and pay a preferential cumulative cash
distribution at an annual rate of 10 1/4%. The Company and BankUnited Capital
have the right to defer payment of interest for up to 5 years. BankUnited
Financial Corporation has guaranteed all of the obligations of the Trust
Preferred Securities, including costs, expenses and liabilities of BankUnited
Capital.
6
<PAGE>
4. ACQUISITION
On November 15, 1996, the Company acquired Suncoast Savings & Loan Association,
FSA ("Suncoast"). The Company issued one share of its Class A Common Stock for
each share of Suncoast common stock of which 2,199,930 were outstanding and one
share of newly created 8% non-cumulative convertible preferred stock, Series
1996 for each share of Suncoast preferred stock of which 920,000 shares were
outstanding. The newly created 8% non-cumulative convertible preferred stock,
Series 1996 has substantially the same terms and conditions as the Suncoast
preferred stock. The cost of the acquisition, which will be accounted for as a
purchase was $27.8 million, representing the fair value of the consideration
given to the Suncoast common and preferred stockholders as well as the option
and warrant holders. In addition, the Company incurred approximately $1.3
million of costs directly related to the merger. At the date of the acquisition,
the fair value of the assets acquired (including goodwill of approximately $9.6
million) and liabilities assumed totaled approximately $436 million and $408
million, respectively.
The unaudited proforma combined condensed statements of operations for the three
month periods ended December 31, 1996, and 1995 assumes the acquisition occurred
as of the beginning of the period presented and, after giving effect to certain
proforma adjustments, are as follows:
Proforma combined condensed Statement of Operations (in thousands except per
share data):
Three Months Ended December 31,
(Unaudited)
1996 1995
--------- --------
Interest Income $ 23,359 $ 18,228
Interest expense 14,695 11,971
Provision (credit) for loan losses 356 (179)
Non-interest income 1,254 1,592
Non-interest expense 6,641 6,446
Income tax provision 1,155 617
-------- --------
Net income before preferred stock dividends 1,766 965
Preferred stock dividends 810 812
-------- --------
Net income after preferred stock dividends $ 956 $ 153
======== ========
Earnings per share
Primary $ 0.12 $ 0.03
Fully-diluted $ 0.11 $ 0.03
7
<PAGE>
5. CONTINGENCIES
The Company is a party to certain claims and litigation arising in the ordinary
course of business. In the opinion of management, the resolution of such claims
and litigation will not materially affect the Company's consolidated financial
position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis presents a review of the consolidated
operating results and financial condition of the Company for the three month
periods ended December 31, 1996 and 1995. This discussion and analysis should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
contained in the Company's Annual Report on Form 10-K/A for the year ended
September 30, 1996.
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM SEPTEMBER 30, 1996 TO
DECEMBER 31, 1996.
ASSETS
Total assets increased by $505 million, or 61.2%, from $824 million at September
30, 1996, to $1.3 billion at December 31, 1996, principally due to the
acquisition of Suncoast Savings and Loan Association, FSA ("Suncoast") on
November 15, 1996. On the date of the acquisition, Suncoast had total assets of
$435.7 million.
Cash and due from banks increased $9.6 million from $5.5 million as of September
30, 1996 to $15.1 million at December 31, 1996. This increase is primarily due
to additional cash requirements as a result of the acquisition of Suncoast's
mortgage loan servicing operations.
The Company's short-term investments, consisting of Federal Home Loan Bank
("FHLB") overnight deposits and federal funds sold, increased by $40.7 million,
or 141.9%, to $69.3 million at December 31, 1996, from $28.6 million at
September 30, 1996. This increase is due primarily to investing the proceeds
from the sale of $50 million of Company Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated
Deferrable Interest Debentures of the Company (See Note 3 of Condensed Notes to
Consolidated Financial Statements.)
Mortgage-backed securities available for sale increased $16.7 million or 30.1%
from $55.5 million at September 30, 1996 to $72.2 million at December 31, 1996,
due primarily to the $18.7 million of mortgage-backed securities acquired with
Suncoast.
The Company's net loan portfolio increased by $400.4 million, or 61.9%, to $1.05
billion at December 31, 1996, from $646.4 million at September 30, 1996,
primarily due to the acquisition of $360.1 million of loans with Suncoast and
the purchase of $68.0 million of residential loans.
The increase in mortgage servicing rights, goodwill and prepaid expenses and
other assets of $8.9 million, $9.6 million and $11.8 million, respectively,
relate to the acquisition of Suncoast.
8
<PAGE>
Non-performing assets as of December 31, 1996 were $9.4 million which represents
an increase of $1.5 million or 19.7% from $7.8 million as of September 30, 1996.
Non-performing assets as a percentage of total assets declined 25 basis points
from .95% as of September 30, 1996 to .70% as of December 31, 1996. $2.4 million
of non-performing assets were acquired with Suncoast.
The allowance for loan losses increased $733,000 from $2.2 million as of
September 30, 1996 to $2.9 million as of December 31, 1996. The increase was
attributable primarily to the growth of the loan portfolio including loans
acquired with Suncoast. On the date of acquisition, Suncoast's loan loss
allowance was $775,000.
The following table sets forth information concerning the Company's
non-performing assets for the periods indicated.
December 31, September 30,
1996 1996
------------ -------------
(Dollars in thousands)
Non-accrual loans (1) $5,558 $4,939
Restructured loans 1,691 1,457
Loans past due 90 days and still accruing 52 --
------ ------
Total non-performing loans 7,301 6,396
Non-accrual tax certificates 610 800
REO 1,457 632
------ ------
Total non-performing assets $9,368 $7,828
====== ======
Allowance for tax certificates $ 631 $ 614
Allowance for loan losses 2,891 2,158
------ ------
Total allowance $3,522 $2,772
====== ======
Non-performing assets as a percentage of
total assets .70% .95%
Non-performing loans as a percentage of
total loans .70% .99%
Allowance for loan losses as a percentage of
total loans .28% .34%
Allowance for loan losses as a percentage of
non-performing loans 39.60% 33.74%
- -----------
(1) In addition to the above, management had concerns as to the borrower's
ability to comply with present repayment terms on $540,000 and $109,000
of accruing loans as of December 31, 1996 and September 30, 1996,
respectively.
LIABILITIES
Deposits increased by $372.1 million, or 73.5%, to $878.2 million at December
31, 1996 from $506.1 million at September 30, 1996. $323.7 million of the
increase in deposits represents accounts acquired with Suncoast. Additionally,
$26.2 million of the increase represents growth in branches opened in the last
year. The
9
<PAGE>
Company intends to open 3 or more branches in the next 12 months. Management
believes the remaining increase is attributable to the Company offering
competitive interest rates and personalized service.
FHLB advances were $288.5 million at December 31, 1996, up $51.5 million from
$237.0 million at September 30, 1996. This increase was the result of the $51.5
million of FHLB advances assumed by BankUnited in connection with the
acquisition of Suncoast.
CAPITAL
The Company's total stockholders' equity was $98.2 million at December 31, 1996,
an increase of $29.1 million, or 42.1%, from $69.1 million at September 30,
1996. The increase is due primarily to the issuance of 2,199,930 shares of
Series A Common Stock and 920,000 shares of 8% Non-cumulative Convertible
Preferred Stock, Series 1996, issued in connection with the Suncoast
acquisition. The estimated value of the stock issued to acquire Suncoast was
$27.8 million.
On December 30, 1996, the Company's subsidiary, BankUnited Capital, issued $50
million of Trust Preferred Securities (see Note 3 of the condensed notes to
consolidated financial statements). The net proceeds from the sale of the Trust
Preferred Securities was $48 million. These funds may be used to provide
additional capital to the Bank and enables the Bank to continue its rapid
expansion. As of December 31, 1996, BankUnited Financial Corporation had
contributed $25 million additional capital to the Bank.
In February 1997, the holder of the Company's Series C and Series C-II classes
of preferred stock exercised the right to convert both classes to Class A common
stock at exchange ratios of 1.45 shares of Class A common stock for each share
of Series C preferred stock and 1.32 shares of Class A common stock for each
share of Series C-II preferred stock. The Company had previously exercised its
right to call both classes of preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
OTS regulations require that savings institutions, such as the Bank, maintain
specified levels of liquid investments in cash, United States government
securities and other qualifying investments. Regulations currently in effect
require the Bank to maintain liquid assets of not less than 5.0% of its net
withdrawal deposit accounts plus short term borrowings, of which short term
liquid assets must consist of not less than 1%. As of December 31, 1996 the Bank
had liquid assets and short term liquid assets of 16.9% and 12.10%,
respectively, which was in compliance with these requirements.
The Company is considering several allternative public and/or private financings
that would provide the Bank with a significant increase in liquidity and Tier 1
capital to permit additional growth.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND
1995.
NET INCOME AFTER PREFERRED STOCK DIVIDENDS
The Company had net income after preferred stock dividends of $927,000 for the
three months ended December 31, 1996, compared to net income after preferred
stock dividends of $375,000 for the three months ended December 31, 1995. All
major categories of income and expense increased significantly in the three
months ended December 31, 1996 as compared to the three months ended December
31, 1995 and reflect the significant growth the Company has experienced in the
last year. A significant factor in such growth was the
10
<PAGE>
acquisition of Suncoast, which was completed on November 15, 1996. The Company's
Consolidated Statement of Operations for the three months ended December 31,
1996 reflects the Suncoast operations from the date of acquisition forward.
Below is a more detailed discussion of each major category of income and
expenses.
NET INTEREST INCOME
Net interest income increased $3.6 million, or 100.8%, to $7.1 million for the
three months ended December 31, 1996 from $3.5 million for the three months
ended December 31, 1995. This increase is attributable to an expansion of the
net interest rate spread of 56 basis points, to 2.60% for the three months ended
December 31, 1996 from 2.04% for the three months ended December 31, 1995 and an
increase in average interest-earning assets of $396.0 million, or 65.7%, to
$998.3 million for the three months ended December 31, 1996 from $602.3 million
for the three months ended December 31, 1995, offset by an increase in average
interest-bearing liabilities of $384.6 million, or 68.7%, to $944.6 million for
the three months ended December 31, 1996 from $560.0 million for the three
months ended December 31, 1995. Approximately $200 million of the increase in
average earning assets for the three months ended December 31, 1996 is a result
of the acquisition of Suncoast. The remaining increase in average earning assets
is due primarily to loan purchases. The average yield on interest-earning assets
increased 27 basis points to 7.78% for the three months ended December 31, 1996
from 7.51% for the three months ended December 31, 1995. The increase in average
yield is attributable to an increase in the yield on loans receivable relating
primarily to commercial real estate and construction loans acquired with
Suncoast. Suncoast had a greater percentage of higher yielding commercial real
estate and construction loans than BankUnited.
The increase in interest income of $8.2 million, or 72.1%, to $19.5 million for
the three months ended December 31, 1996 from $11.3 million for the three months
ended December 31, 1995, reflects increases in interest and fees on loans of
$7.9 million. The average yield on loans receivable increased to 7.97% for the
three months ended December 31, 1996 from 7.66% for the three months ended
December 31, 1995 and the average balance of loans receivable increased $372.7
million, or 81.5%, to $830.2 million for the three months ended December 31,
1996. Approximately $180 million of the increase in loans is due to the
acquisition of Suncoast and, as stated above, the increase in the yield on loans
is also attributed to Suncoast.
The increase in interest expense of $4.6 million, or 59.1%, to $12.4 million for
the three months ended December 31, 1996 from $7.8 million for the three months
ended December 31, 1995 primarily reflects an increase in interest expense on
interest bearing deposits of $4.7 million, or 110%, from $4.2 million for the
three months ended December 31, 1995, to $8.9 million for the three months ended
December 31, 1996. This increase is due to an increase in average interest
bearing deposits of $376 million, or 116%, from $323 million for the three
months ended December 31, 1995 to $699 million for the three months ended
December 31, 1996. Approximately $150 million of this increase represents
deposits acquired with Suncoast. The average rate paid on interest bearing
deposits declined 13 basis points from 5.17% for the three months ended December
31, 1995 to 5.04% for the three months ended December 31, 1996. The decline in
the average rate paid on interest bearing deposits is due to a decline in the
average rate paid on certificates of deposits from 5.69% to 5.51%.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended December 31, 1996 was
$250,000 as compared with a credit for loan losses of $300,000 for the three
months ended December 31, 1995. The credit in 1995 was due to a recovery of
approximately $1 million as a result of a legal settlement relating to certain
loans previously purchased. The provision (credit) for loan losses represents
management's estimate of the charge
11
<PAGE>
to operations after reviewing the nature, volume, delinquency status,
and inherent risk in the loan portfolio in relation to the allowance for loan
losses.
NON-INTEREST INCOME
Non-interest income for the three months ended December 31, 1996 was $600,000
compared with $158,000 for the three months ended December 31, 1995, an increase
of $442,000. Of this increase, $262,000 represents loan servicing fees (net of
amortization of capitalized servicing rights) acquired with Suncoast. The
remaining increase is primarily attributable to service fees on deposits
reflecting the increase in the amount of deposits outstanding.
NON-INTEREST EXPENSES
Operating expenses increased $2.3 million, or 91.2%, to $4.8 million for the
three months ended December 31, 1996 compared to $2.5 million for the three
months ended December 31, 1995. The increase in expenses is attributable to the
growth the Company has experienced and includes the expenses of Suncoast after
November 15, 1996.
INCOME TAXES
The income tax provision was $1.0 million for the three months ended December
31, 1996, compared to $557,000 for the three months ended December 31, 1995. The
increase in income taxes is the result of the Company's higher pre-tax earnings
during the three months ended December 31, 1996, compared to the three months
ended December 31, 1995.
PREFERRED STOCK DIVIDENDS
Preferred stock dividends for the three months ended December 31, 1996 were
$672,000 an increase of $136,000, or 25.4%, as compared to $536,000 for the
three months ended December 31, 1995. This increase is the result of dividends
paid on the 8% Noncumulative Convertible Preferred Stock, Series 1996 issued in
connection with the acquisition of Suncoast.
YIELDS EARNED AND RATES PAID
The following tables set forth certain information relating to the categories of
the Company's interest-earning assets and interest-bearing liabilities for the
periods indicated. All yield and rate information is calculated on an annualized
basis. Yield and rate information for a period is average information for the
period calculated by dividing the income or expense item for the period by the
average balances during the period of the appropriate balance sheet item. Net
interest margin is net interest income divided by average interest-earning
assets. Non-accrual loans are included in asset balances for the appropriate
period, whereas recognition of interest on such loans is discontinued and any
remaining accrued interest receivable is reversed, in conformity with federal
regulations. The yields and net interest margins appearing in the following
table have been calculated on a pre-tax basis.
12
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
------------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
-------- -------- ---------- -------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net $830,157 $16,616 7.97% $457,493 $ 8,766 7.66%
Mortgage-backed securities 78,721 1,309 6.65 52,344 889 6.79
Short-term investments (1) 33,021 467 5.53 39,719 603 5.94
Tax certificates 36,681 756 8.24 35,876 762 8.49
Long-term investments and
FHLB stock, net 19,736 343 6.89 16,907 304 7.08
-------- ------- ---- -------- -------- ----
Total interest-earning assets 998,316 19,491 7.78 602,339 11,324 7.51
-------- ------- ---- -------- -------- ----
Interest-bearing liabilities:
NOW/money market 73,103 413 2.24 25,086 126 1.99
Savings 106,209 1,254 4.68 52,450 575 4.35
Certificates of deposit 519,785 7,215 5.51 245,711 3,522 5.69
FHLB advances and other
borrowings 245,520 3,505 5.59 236.775 3,563 5.86
-------- ------- ---- -------- -------- ----
Total interest-bearing
liabilities 944,617 12,387 5.18 560,022 7,786 5.47
-------- ------- ---- -------- -------- ----
Excess of interest-earning assets
over interest-bearing liabilities $ 53,699 $ 42.317
======== ========
Net interest income $ 7,104 $ 3,538
======= ========
Interest rate spread 2.60% 2.04%
===== =====
Net interest margin 2.87% 2.41%
===== =====
Ratio of interest-earning assets to
interest-bearing liabilities 105.68% 107.56%
======== ========
<FN>
- --------
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
</FN>
</TABLE>
13
<PAGE>
RATE/VOLUME ANALYSIS
The following table presents, for the periods indicated, the change in interest
income and the changes in interest expense attributable to the changes in
interest rates and the changes in the volume of interest-earning assets and
interest-bearing liabilities. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable
to: (i) changes in volume (change in volume multiplied by prior year rate); (ii)
changes in rate (change in rate multiplied by prior year volume); (iii) changes
in rate/volume (change in rate multiplied by change in volume); and (iv) total
changes in rate and volume.
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
--------------------------------------------------------------
1996 VS. 1995
--------------------------------------------------------------
INCREASE (DECREASE) DUE TO
--------------------------------------------------------------
CHANGES CHANGES CHANGES TOTAL
IN IN IN INCREASE/
VOLUME RATE RATE/VOLUME (DECREASE)
------- ------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest income attributable to:
Loans $ 7,673 $ 143 $ 34 $ 7,850
Mortgage-backed securities 448 (19) (9) 420
Short-term investments (1) (102) (41) 7 (136)
Tax certificates 17 (22) (1) (6)
Long-term investments and FHLB
stock 48 (6) (3) 39
------- ----- ------ -------
Total interest-earning assets 8,084 55 28 8,167
------- ----- ------ -------
Interest expense attributable to:
NOW/money market 241 16 30 287
Savings 590 44 45 679
Certificates of deposit 3,928 (111) (124) 3,693
FHLB advances and other
borrowings 131 (182) (7) (58)
------- ----- ------ -------
Total interest-bearing liabilities 4,890 (233) (56) 4,601
------- ----- ------ -------
Increase in net interest income $ 3,194 $ 288 $ 84 $ 3,566
======= ===== ====== =======
<FN>
- ------------
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
</FN>
</TABLE>
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On November 15, 1996, the Company acquired Suncoast Savings and
Loan Association, FSA which was merged with its wholly owned
bank subsidiary, BankUnited, FSB. In connection with the
acquisition, the Company issued 2,199,930 shares of Class A
Common Stock and 920,000 shares of 8% Non-cumulative
Convertible Preferred Stock, Series 1996. (See Note 4 of
Condensed Notes to Consolidated Financial Statements)
On December 30, 1996, the Company's subsidiary, BankUnited
Capital, a trust created under the laws of the state of
Delaware, sold through private placement, $50 million of
redeemable trust preferred securities. The trust preferred
securities were offered by Friedman, Billings, Ramsey & Co.,
Inc., and Raymond James & Associates, Inc., as compensation for
arranging such sales, an amount of $30.00 per preferred
security ($1.5 million in aggregate) was paid. The preferred
securities were offered and sold only to qualified
institutional buyers ("Qualified Institutional Buyers") as
defined under Rule 144A under the Securities Act and other
"accredited investors" (as defined in Rule 501 under the
Securities Act) ("Accredited Investors") in a private sale
exempt from the registration requirements of the Securities
Act. (See Note 3 of Condensed Notes to Consolidated Financial
Statements)
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11 Calculation of Earnings Per Share.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a current report on Form 8-K dated
December 2, 1996 under item 2 and 7 thereof reporting
BankUnited Financial Corporation's acquisition of
Suncoast Savings and Loan Association, FSA.
The Company filed a current report on Form 8-K dated
January 8, 1997 reporting the Company's subsidiary,
BankUnited Capital, a trust created under the laws of
Delaware, sold through private placement, $50 million
of redeemable trust preferred securities.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
BANKUNITED FINANCIAL CORPORATION
Date: February 14, 1997 By: /s/ SAMUEL A. MILNE
--------------------------------------
Samuel A. Milne
Executive Vice President
and Chief Financial Officer
16
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
Form 10-Q for the Quarter Ended December 31, 1996
INDEX TO EXHIBITS
EXHIBIT NO.
- -----------
11 Calculation of Earnings Per Share
27.1 Financial Data schedule
17
<PAGE>
EXHIBIT 11
Calculation of Earnings Per Share
(In thousands, except per share data)
FOR THE THREE MONTHS
ENDED DECEMBER 31,
-----------------------
CALCULATION OF PRIMARY EARNINGS PER COMMON SHARE 1996 1995
- ------------------------------------------------ --------- ---------
Net income before preferred stock dividends $ 1,599 $ 911
Preferred stock dividends (672) (536)
Reduction of interest expense due to assumed
exercise of stock options, net of taxes -- 3
------- -------
Net income available to common shares $ 927 $ 378
======= =======
Weighted average number of common shares outstanding
during the period 6,807 2,078
Assumed exercise of stock options (Modified Treasury
Stock Method) 348 291
------- -------
Weighted average number of common share equivalents
assumed outstanding during the period 7,155 2,369
======= =======
Primary earnings per share $ 0.13 $ 0.16
======= =======
FOR THE THREE MONTHS
ENDED DECEMBER 31,
-----------------------
CALCULATION OF FULLY DILUTED EARNINGS PER COMMON SHARE 1996 1995
- ------------------------------------------------------ --------- ---------
Net income before preferred stock dividends $ 1,599 $ 911
Preferred stock dividends (588) (452)
Reduction of interest expense due to assumed
exercise of stock options, net of taxes -- 3
------- -------
Net income available to common shares $ 1,011 $ 462
======= =======
Weighted average number of common shares outstanding
during the period 6,807 2,078
Assumed exercise of stock options (Modified Treasury
Stock Method) 436 291
Conversion of Preferred Stock 803 803
Weighted average number of fully diluted common shares
assumed outstanding during the period 8,046 3,172
======= =======
Fully diluted earnings per share $ 0.13 $ 0.15
======= =======
<PAGE>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BANK UNITED, FSB FOR THE THREE MONTHS ENDED DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
/LEGEND
MULTIPLIER 1,000
TABLE
PERIOD-TYPE 3-MOS
FISCAL-YEAR-END SEP-30-1997
PERIOD-END DEC-31-1996
CASH 15,095
INT-BEARING-DEPOSITS 69,323
FED-FUNDS-SOLD 0
TRADING-ASSETS 0
INVESTMENTS-HELD-FOR-SALE 78,098
INVESTMENTS-CARRYING 47,706
INVESTMENTS-MARKET 0
LOANS 1,049,661
ALLOWANCE 2,891
TOTAL-ASSETS 1,329,044
DEPOSITS 506,106
SHORT-TERM 288,484
LIABILITIES-OTHER 13,464
LONG-TERM 0
PREFERRED-MANDATORY 0
PREFERRED 36
COMMON 79
OTHER-SE 98,040
TOTAL-LIABILITIES-AND-EQUITY 1,329,044
INTEREST-LOAN 16,616
INTEREST-INVEST 2,875
INTEREST-OTHER 0
INTEREST-TOTAL 19,491
INTEREST-DEPOSIT 8,882
INTEREST-EXPENSE 12,387
INTEREST-INCOME-NET 7,104
LOAN-LOSSES 250
SECURITIES-GAINS 0
EXPENSE-OTHER 4,833
INCOME-PRETAX 2,621
INCOME-PRE-EXTRAORDINARY 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME 2,621
EPS-PRIMARY .13
EPS-DILUTED .13
YIELD-ACTUAL 2.88
LOANS-NON 5,558
LOANS-PAST 52
LOANS-TROUBLED 1,691
LOANS-PROBLEM 0
ALLOWANCE-OPEN 2,158
CHARGE-OFFS 303
RECOVERIES 12
ALLOWANCE-CLOSE 2,891
ALLOWANCE-DOMESTIC 0
ALLOWANCE-FOREIGN 0
ALLOWANCE-UNALLOCATED 0
/TABLE
/TEXT
<PAGE>
APPENDIX C
OFFICE OF THRIFT SUPERVISION
WASHINGTON, D.C. 20552
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal year ended: June 30, 1996
OTS file number: 8147
SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-2383531
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
4000 HOLLYWOOD BOULEVARD, HOLLYWOOD, FLORIDA 33021
- -------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 981-6400
Securities registered pursuant to Section 12(b) of the Act: None
<TABLE>
<S> <C> <C>
Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $1.10 Per Share
8% Noncumulative Preferred Stock, Series A, Par
Value $5.00 Per Share
</TABLE>
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 [
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Registration S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting Common Stock held by non-affiliates of
the Registrant as of September 23, 1996, was approximately $11,982,000. (1)
The number of shares outstanding of the Registrant's Common Stock as of
September 23, 1996 was 2,195,930.
DOCUMENTS INCORPORATED BY REFERENCE
None.
(1) The aggregate market value of the voting stock set forth equals the
amount of Common Stock outstanding at September 23, 1996, reduced
by the amount of Common Stock held by all officers and directors of
the Registrant multiplied by the NASDAQ closing price for the
Common Stock on September 23, 1996.
<PAGE>
ITEM 1. BUSINESS
GENERAL
Suncoast Savings and Loan Association, FSA ("Suncoast" or "the
Association") is a federally chartered stock savings association headquartered
in Hollywood, Florida that engages principally in the business of community
banking and mortgage loan servicing. Community banking consists primarily of
attracting checking and savings deposits from the public and investing such
deposits, together with borrowings and other funds, in various types of loans
and other permitted investments. In connection with its community banking
activities, Suncoast originates and purchases, for its own portfolio, both
residential and commercial real estate loans.
Suncoast's mortgage loan servicing activities include processing loan
payments, remitting principal and interest to investors, administering escrow
funds and providing other services in the administration of mortgage loans.
Suncoast is an approved seller/servicer for the Government National Mortgage
Association ("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and
Fannie Mae ("FNMA"). Suncoast also services loans under contracts with the
Federal Deposit Insurance Corporation ("FDIC") and other financial institutions.
Suncoast operates six savings branches in Broward and Palm Beach
County, Florida. It is regulated and examined by the Office of Thrift
Supervision ("OTS") and the FDIC and its deposit accounts are insured up to the
applicable limits by the FDIC.
PROPOSED MERGER
On July 15, 1996, Suncoast and BankUnited Financial Corporation, a
Florida corporation ("BankUnited"), entered into an Agreement and Plan of Merger
(the "Agreement and Plan of Merger"), providing for the merger (the "Merger") of
Suncoast into BankUnited, FSB, a wholly-owned subsidiary of BankUnited. Pursuant
to the terms of the Agreement and Plan of Merger, BankUnited, FSB will be the
surviving corporation in the Merger.
Upon completion of the Merger, (i) each issued and outstanding share
of Common Stock, par value $1.10 per share, of Suncoast (the "Suncoast Common
Stock") will be converted into the right to receive one share of Series I Class
A BankUnited Common Stock ("BankUnited Common Stock") and (ii) each issued and
outstanding share of Series A NonCumulative Convertible Preferred Stock of
Suncoast (the "Suncoast Preferred Stock") will be converted into the right to
receive one share of a new series of preferred stock of BankUnited to be
authorized by the Board of Directors of BankUnited and to have rights and
preferences substantially similar to those of the Suncoast Preferred Stock ("New
BankUnited Preferred Stock").
Completion of the Merger is subject to certain conditions, including:
(a) approval by the shareholders of Suncoast and BankUnited, (b) approvals of
the Office of Thrift Supervision and other regulatory authorities, (c) the
effectiveness under the Securities Act of 1933, as amended of the Registration
Statement registering the BankUnited Common Stock and the New BankUnited
Preferred Stock to be issued in the Merger, (d) receipt by Suncoast of an
2
<PAGE>
opinion of counsel that the Merger constitutes a tax-free reorganization under
the provisions of Section 368 of the Internal Revenue Code of 1986, as amended,
(e) the absence of any event, occurrence or circumstance that would constitute a
Material Adverse Effect (as defined in the Agreement and Plan of Merger) on
either Suncoast or BankUnited and (f) other conditions to closing customary in a
transaction of this type.
In order to induce BankUnited to enter into the Agreement and Plan of
Merger, Suncoast has agreed in the Agreement and Plan of Merger to pay a
termination fee to BankUnited upon the occurrence of certain events. If the
Agreement and Plan of Merger is terminated by Suncoast in connection with an
Acquisition Proposal (as defined in the Agreement and Plan of Merger), Suncoast
has agreed to pay to BankUnited $1,000,000 plus BankUnited's out-of-pocket
expenses up to $300,000. If the Agreement and Plan of Merger is terminated
because the shareholders of Suncoast fail to approve the Merger, Suncoast has
agreed to pay to BankUnited $100,000 plus BankUnited's out-of-pocket expenses up
to $10,000.
In addition, if the Agreement and Plan of Merger is terminated (i) by
BankUnited pursuant to a willful breach by Suncoast and an Acquisition Event (as
defined in the Agreement and Plan of Merger) occurs within the twelve months
following the termination or (ii) because the shareholders of Suncoast fail to
approve the Merger and an Acquisition Event occurs within the four months
following the termination, Suncoast has agreed to pay BankUnited $1,000,000 (or
$900,000 if Suncoast has already paid the $100,000 termination fee referred to
above). One effect of the agreement by Suncoast to pay the termination fees is
to increase the likelihood that the Merger will be completed by BankUnited by
making it more difficult and more expensive for another party to obtain control
of or acquire Suncoast.
Under the terms of the Agreement and Plan of Merger, if the Agreement
and Plan of Merger is terminated (i) because the required regulatory approvals
have not been obtained, (ii) because the regulatory approvals contain conditions
that in the judgment of BankUnited would restrict the operations or activities
of BankUnited or (iii) because the Merger has not been consummated by February
28, 1997, BankUnited has agreed to pay Suncoast $100,000 plus Suncoast's
out-of-pocket expenses up to $10,000.
BUSINESS SEGMENTS
Suncoast's operations consist of activities in three principal
business segments: banking, loan servicing and mortgage banking. Revenues in the
banking segment consist primarily of interest on mortgage loans and investment
securities. Loan servicing activities derive revenues primarily from the
collection of fees on loans serviced. During 1995, Suncoast shifted its primary
business emphasis from mortgage banking to banking. The following is segment
information for the fiscal years ended June 30 (in thousands):
3
<PAGE>
1996 1995 1994
------ ------ ------
BANKING
Revenues:
Interest income $ 23,949 $ 25,011 $ 9,358
Gains on the sale of
mortgage-backed securities 2,950 1,388 0
Other income 731 1,117 1,154
-------- -------- --------
27,630 27,516 10,512
-------- -------- --------
Expenses:
Interest expense 16,489 18,499 6,449
Employee compensation
and benefits 3,048 1,918 1,311
Depreciation 396 212 178
Provision for losses on real
estate 95 68 150
Provision for loan losses 153 95
Other expenses 2,700 2,318 1,557
-------- -------- --------
22,881 23,110 9,645
-------- -------- --------
Banking income before income
taxes $ 4,749 $ 4,406 $ 867
======== ======== ========
MORTGAGE BANKING
Revenues:
Interest income $ 1,654 $ 300 $ 5,526
Gains on the sale of loans and
loan servicing assets, net 304 560 14,963
Loan origination and other income 331 336 6,212
-------- -------- --------
2,289 1,196 26,701
-------- -------- --------
Expenses:
Interest expense 1,009 236 3,703
Employee compensation
and benefits 1,272 2,438 13,347
Depreciation 134 412 564
Other expenses 1,050 2,667 8,249
-------- -------- --------
3,465 5,753 25,863
-------- -------- --------
Mortgage banking income (loss)
before income taxes $ (1,176) $ (4,557) $ 838
======== ======== ========
4
<PAGE>
LOAN SERVICING
Revenues:
Loan servicing fees $ 6,016 $ 7,450 $ 8,088
Amortization of loan
servicing assets (1,617) (1,175) (3,508)
--------- --------- ---------
Loan servicing income 4,399 6,275 4,580
Interest income 2,355 2,544 3,727
Gain on sale of loans and
loan servicing assets, net 621
Other income 190 254 264
--------- --------- ---------
7,565 9,073 8,571
--------- --------- ---------
Expenses:
Interest expense 439 283 758
Employee compensation
and benefits 2,920 3,649 3,704
Depreciation 610 784 559
Other expenses 3,356 3,275 2,147
--------- --------- ---------
7,325 7,991 7,168
--------- --------- ---------
Loan servicing income (loss)
before income taxes $ 240 $ 1,082 $ 1,403
========= ========= =========
Assets:
Banking $ 372,861 $ 439,175 $ 297,926
Mortgage banking 8,844 6,356 43,827
Loan servicing 20,864 16,822 17,337
--------- --------- ---------
$ 402,569 $ 462,353 $ 359,090
========= ========= =========
Capital dispositions (expenditures), net:
Banking $ (447) $ 8 $ (81)
Mortgage banking (188) 64 (1,760)
Loan servicing (860) 8 (86)
--------- --------- ---------
$ (1,495) $ 80 $ (1,927)
========= ========= =========
References in this document to the fiscal years ended June 30, 1996,
1995 and 1994 are stated as "Fiscal 1996", "Fiscal 1995" and "Fiscal 1994",
respectively.
OPERATING STRATEGY
Suncoast's current operative strategy reflects a fundamental shift in
Suncoast's business from a mortgage bank to a community bank. Prior to 1994,
Suncoast was primarily engaged in the mortgage banking business. Historically
low interest rates in 1992 and 1993 generated record volumes of loan origination
and resale activity, primarily refinancings, leading Suncoast to expand its
lending operations nationally to fifteen loan production offices.
5
<PAGE>
Beginning in January 1994, rising interest rates halted refinancings making it
unprofitable for Suncoast to continue its mortgage banking operation. Suncoast
downsized its mortgage banking operation by closing all but one of its
production offices and by reducing related staff and overhead expenses.
During Fiscal 1994 and 1995, Suncoast changed its operating strategy
to that of community bank and focused on enhancing its net interest income and
servicing revenues. Suncoast initially replaced its mortgage banking assets,
primarily its inventory of loans available for sale, with investments in
mortgage-backed securities, repurchase agreements, and loans originated for
portfolio. Suncoast's strategy was to restructure its assets initially into
interest bearing assets with minimal credit risk until Suncoast could reinvest
funds previously used to finance its mortgage banking activities into portfolio
loans. In addition, this strategy allowed Suncoast to shift its assets to those
with lower risk weights under the risk based capital regulations enabling
Suncoast to increase both its assets and deposits and, accordingly, its net
interest income, while remaining well capitalized under such regulations.
During Fiscal 1995 and Fiscal 1996, Suncoast sold portions of its
mortgage-backed securities portfolio due to its ability to reinvest the proceeds
in the purchase and origination of high quality commercial and residential real
estate loans for investment. In completing this restructuring, Suncoast not only
reduced its interest rate risk, but increased its net interest income by
shifting from longer term fixed rate mortgage-backed securities to higher
yielding adjustable rate loans receivable. As its assets were shifted into
portfolio loans, Suncoast was required to reduce the overall volume of both its
interest-earning assets and its interest-bearing liabilities in order to remain
well capitalized under the applicable regulations, since its asset mix shifted
from mortgage-backed securities and short term liquid investments, generally
bearing 0 to 20% risk weights, to commercial and residential loans bearing 50%
and 100% risk weights, respectively, for purposes of its risk-based capital
ratio.
From the period January 1990 through June 1995, Suncoast did not
purchase or accumulate any servicing assets due in part to regulatory changes
which placed restrictions on the amount of servicing rights which could be
included in the calculation of regulatory capital. During this period, Suncoast
concentrated on expanding its subservicing activities, as subservicing
contracts, unlike servicing generally, are not considered an investment in loan
servicing rights for financial reporting or regulatory capital purposes. During
Fiscal 1996, however, Suncoast's operating strategy with respect to its
servicing business has been to increase its servicing portfolio through the
purchase of servicing rights and the retention of servicing rights on loans
which have been sold. Despite these efforts to increase the servicing portfolio,
loan servicing income declined during Fiscal 1996 primarily due to declines in
the volume of loans serviced under government contracts and the repayment of
loans in the servicing portfolio. Management intends to continue to acquire and
accumulate servicing rights within applicable regulatory limitations as
opportunities arise. Investments in servicing rights in excess of $25,000,
however, are subject to the consent of BankUnited while the Agreement and Plan
of Merger is pending. Loan servicing income may continue to decline as loans in
the servicing portfolio are repaid and subservicing contracts are not renewed.
6
<PAGE>
LENDING ACTIVITIES
GENERAL. Prior to January 1994, it was Suncoast's policy, as a mortgage banker,
to sell in the secondary market substantially all residential first mortgage
loans it originated or purchased. With Suncoast's change in operating strategy
from mortgage banking to community banking, the Association has concentrated on
the purchase and origination, for its own portfolio of residential first
mortgage loans, commercial and multi-family real estate loans and construction
loans. During Fiscal 1995, Suncoast originated and purchased for portfolio $7.3
million and $45.0 million of single family residential loans and commercial and
multi-family real estate loans, respectively. In comparison, during Fiscal 1996,
Suncoast originated and purchased for portfolio $232.8 million and $48.0 million
of single family residential loans and commercial and multi-family real estate
loans, respectively.
The following chart describes the composition of Suncoast's loans
receivable as of June 30, 1996 and 1995:
1996 1995
--------- ---------
(in Thousands)
Loans in portfolio:
Real estate loans:
Commercial, collateralized by--
Undeveloped land $ 3,115 $ 5,256
Office buildings 8,287 7,625
Hotel property 21,692 9,082
Retail stores 21,552 17,245
Multi-family residential and other 43,836 34,099
--------- ---------
Total commercial 98,482 73,307
Residential (one to four family) 215,044 55,449
Construction 8,491 7,085
Consumer loans 1,917 1,750
--------- ---------
323,934 137,591
Allowance for loan losses (657) (504)
Deferred loan fees, net (617) (493)
Undisbursed portion of loans in process (4,354) (7,137)
Premiums paid on loans held in portfolio 2,522 329
--------- ---------
$ 320,828 $ 129,786
Loans held for sale:
Residential real estate loans $ 6,675 $ 2,962
Deferred loan fees, net (31) (19)
Premiums paid on loans held for sale 86 35
--------- ---------
$ 6,730 $ 2,978
========= =========
Total loans receivable, net $ 327,558 $ 132,764
========= =========
At June 30, 1996, 66.4% of Suncoast's loan portfolio consisted of
residential loans, and 33.6% consisted of commercial, construction and consumer
loans.
7
<PAGE>
COMMERCIAL REAL ESTATE LENDING. Suncoast's commercial real estate and
construction loan portfolio at June 30, 1996 is comprised of the following
percentages by loan type: 41.0% are permanent mortgage loans on multi-family
properties, 48.2% commercial property loans, 7.9% are construction loans secured
by residential or income producing properties and 2.9% are land loans. Suncoast
generally lends not more than 75% of the securing property's appraised value for
multi-family loans, 70% of the appraised value for all other commercial real
estate loans and 60% for land loans. Construction and permanent commercial real
estate lending is generally considered to have higher credit risk than
single-family residential lending because repayment typically is dependent on
the successful operation of the related real estate project and thus may be
subject, to a greater extent, to adverse conditions in the real estate market or
the economy. Construction loans involve additional risks because loan funds are
advanced based on the security of the project under construction, which is of
uncertain value prior to completion, and because it is relatively difficult to
evaluate accurately the total amount required to complete a project. As a
general rule, Suncoast also requires that all loans be personally guaranteed by
one or more individuals who have made a significant equity investment in the
property and that appropriate escrow accounts for the payment of taxes and
insurance be maintained at Suncoast. Suncoast's lending area is primarily within
the State of Florida, with 91% of its commercial real estate loans
collateralized by property located in the State of Florida at June 30, 1996.
Suncoast also has originated commercial loans in Maryland, South Carolina and
California.
In making lending decisions, Suncoast generally considers, among
other things, the overall quality of the loan, the credit of the borrower, the
location of the real estate, the projected income stream of the property and the
reputation and quality of management constructing or administering the property.
No one factor is determinative and such factors may be accorded different
weights in any particular lending decision. Commercial real estate loans
generally have shorter terms, adjust more rapidly to interest rate fluctuations
and bear higher rates of interest than alternative investments. Income from this
type of loan is more responsive to changes in the general level of interest
rates.
SINGLE-FAMILY RESIDENTIAL REAL ESTATE LENDING. A substantial portion
of the loans originated and purchased by the Association are conventional
mortgage loans (i.e., not guaranteed or insured by agencies of the federal
government) which are secured by residential properties and which conform with
the requirements for sale to FNMA or FHLMC (i.e., conforming loans), or which
would otherwise conform, except that they exceed the maximum amount to qualify
for sale to FNMA or FHLMC or they are made to non-resident alien borrowers.
Loans which do not comply with FNMA or FHLMC underwriting requirements are
referred to as non-conforming loans.
The majority of loans originated by the Association have been derived
from a correspondent program. Participants in the correspondent program are
independent and unaffiliated mortgage brokers who must satisfy certain
requirements established by the Association pertaining to experience, size of
business and the holding of various licenses and approvals.
The Association also purchases mortgage loans on properties located
throughout the United States from other lenders. The Association's loan
origination activities have been funded from deposits, loan sales and
borrowings. Suncoast originates and purchases for
8
<PAGE>
portfolio primarily adjustable rate first mortgage loans and, to a
lesser extent, fixed rate loans, generally repayable over 30 years. Residential
loans typically remain outstanding for shorter periods than their contractual
maturities because borrowers prepay the loans in full upon sale of the mortgaged
property or upon refinancing of the original loan. Suncoast's adjustable-rate
mortgage loans ("ARMS") generally have interest rates that adjust semi-annually
or annually at a margin over the weekly average yield on U.S. Treasury
securities adjusted to a constant maturity or at a margin over the one year
weekly average of secondary market interest rates on six month negotiable
certificates of deposit. Both indices are published by the Federal Reserve. The
maximum interest rate adjustment of the Association's ARMs is generally 1%
semi-annually and 6% over the life of the loan, above or below the initial rate
of the loan for semi-annual adjustable loans, or 2% annually and 6% over the
life of the loan, above or below the initial rate on the loan for annual
adjustable loans. Suncoast's policy is to require private mortgage insurance on
all residential loans with a loan-to-value ratio in excess of 80%.
Generally, ARM loans pose credit risks somewhat greater than the
risks inherent in fixed rate loans primarily because as interest rates rise, the
underlying payments of the borrower rise, thereby increasing the potential for
default. At the same time, the marketability of the underlying property may be
adversely affected by higher interest rates. In order to minimize these risks,
borrowers of ARM loans are qualified at the fully indexed rate. The Association
does not originate ARM loans which provide for negative amortization of deferred
interest.
At June 30, 1996 and 1995, loans due after one year with fixed and
adjustable interest rates, including loans held for resale, totaled $305.1
million and $129.0 million, respectively. The average remaining term to maturity
of the Association's loan portfolio, including loans held for resale, was 20.0
years at June 30, 1996.
The following table shows the scheduled principal payments of the
Association's loans receivable (including loans held for resale) prior to the
allowance for loan losses, deferred loan fees, premiums paid on loans and
undisbursed portion of loans in process, but without estimation of prepayment
expectations, at June 30, 1996:
9
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR(S) ENDING JUNE 30,
--------------------------------------------------------------------------------------------------
(In thousands)
2000- 2002- 2007- AFTER DUE AFTER
1997 1998 1999 2001 2006 2011 2011 TOTAL ONE YEAR
---- ---- ---- ---- ---- ---- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans held for sale (1):
Residential first mortgage
loans - adjustable $ 196 $ - $ - $ - $ - $ - $ - $ 196 $ -
Residential first mortgage
loans - fixed 6,479 - - - - - - 6,479 -
--------------------------------------------------------------------------------------------------
6,675 - - - - - - 6,675 -
--------------------------------------------------------------------------------------------------
Loans in portfolio:
Residential first mortgage
loans - adjustable 2,460 2,657 2,869 6,446 20,930 27,479 122,433 185,274 182,814
Residential first mortgage
loans - fixed 612 662 715 1,608 5,302 7,829 13,042 29,770 29,158
Commercial real estate
loans - adjustable 7,200 10,209 7,500 14,531 46,929 3,995 0 90,364 83,164
Commercial real estate
loans - fixed 1,592 1,680 1,805 1,453 1,588 8,118 6,526
Construction loans (2) 6,244 750 435 432 630 8,491 2,247
Consumer loans - adjustable 691 67 456 504 1,718 1,027
Consumer loans - fixed 18 181 0 199 181
------------------------------------------------------------------------------------------------
18,817 16,206 13,780 24,974 75,379 39,303 135,475 323,934 305,117
------------------------------------------------------------------------------------------------
Total loans receivable $ 25,492 $16,206 $13,780 $24,974 $75,379 $39,303 $135,475 $330,609 $305,117
================================================================================================
</TABLE>
(1) Since loans held for sale are to be delivered within two months,
they are categorized within 1996 and not according to their
contractual maturities.
(2) All loans are adjustable rate.
10
<PAGE>
The table below shows Suncoast's mortgage and other loan originations
by geographic location for the periods indicated:
YEAR ENDED JUNE 30,
-------------------------------------------
1996 1995 1994
----------- ---------- ----------
(In thousands)
Florida $ 84,362 $ 57,889 $ 515,511
California 13,630 1,149,803
North Carolina 112,463
Massachusetts 340,339
Washington 18,531
Virginia 9,641
Nevada 1,958 117
---------- ---------- ----------
84,362 73,477 2,146,405
Streamlined refinances 34,258
Other loans originated 43,139 45,015 23,176
---------- ---------- ----------
$ 127,501 $ 118,492 $2,203,839
========== ========== ==========
The table below shows Suncoast's conforming and non-conforming
mortgage loan originations for the periods indicated:
YEAR ENDED JUNE 30,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
(In thousands)
Residential one-to-four conforming $ 65,520 $ 25,519 $1,405,167
Non-conforming 18,842 47,958 775,496
---------- ---------- ----------
Mortgage loans originated $ 84,362 $ 73,477 $2,180,663
========== ========== ==========
UNDERWRITING STANDARDS AND REVIEW. Suncoast's commercial and
residential real estate mortgage lending is subject to its written underwriting
standards and to loan origination procedures prescribed by its Board of
Directors. These procedures require that detailed loan applications be obtained
to determine the prospective borrower's ability to repay the loan, and that the
more significant items on the applications be verified through the use of credit
reports, financial statements and confirmations. Loan applications are processed
and reviewed for approval pursuant to such standards and procedures as well as
applicable state and federal laws and regulations. Suncoast uses outside
appraisers and requires title insurance with respect to the security property.
In addition, residential loans are generally originated and underwritten in
accordance with standards established by FNMA, FHLMC and other third party
investors in the secondary market. Applications for loans originated by Suncoast
are processed by its staff and reviewed by its underwriting department based on
the application package presented. Conforming residential loans, those complying
with the requirements for sale to FNMA or FHLMC or conversion to mortgage-backed
securities and thus readily saleable in the secondary market, may be approved by
the underwriting department. Residential loans above prescribed lending limits
are referred to Suncoast's Loan Committee, consisting of the Chief Executive
Officer, the Executive Vice President-Lending and Servicing, Senior Vice
President-Loan Servicing, and the Vice President-Loan Production. All loans
referred to Loan Committee must be approved by the Chief Executive Officer and
two other members of Loan Committee. Purchases of residential loans that are
newly
11
<PAGE>
originated are subject to the same documentation requirements and
underwriting review and standards as those originated by Suncoast. Purchases of
residential loans that are more than one year old are subject to more limited
underwriting review which includes a review of a current credit and payment
history of the borrower, a current market valuation of the collateral, as well
as the original underwriting decision and documentation.
Commercial and multi-family loans under $2,000,000 are referred to
Suncoast's Major Loan Committee consisting of the Chief Executive Officer,
General Counsel and the Executive Vice President-Lending and Servicing.
Commercial loans in excess of $2,000,000 are approved by the entire Board of
Directors. Loan approvals by all loan committees are ratified by the Board of
Directors. All approved loans are closed for Suncoast by approved closing
agents.
Suncoast requires title, fire and extended casualty insurance to be
obtained by the borrower and, where appropriate, flood insurance. The
Association typically requires builders' risk insurance on construction loans.
Mortgage loans originated by Suncoast generally include a "due-on-sale" clause
giving the Association the right to declare a loan immediately due and payable
in the event, among other things, that the borrower sells or otherwise disposes
of the real property subject to the mortgage and the loan is not repaid.
ASSET QUALITY
COLLECTION PROCEDURES. With respect to loans receivable as well as
loans in the servicing portfolio, when a borrower fails to make a required
payment on a loan, Suncoast attempts to cause the deficiency to be cured. In
most cases, deficiencies are cured promptly; however, if a residential loan
payment is contractually delinquent for more than 30 days, additional collection
procedures are implemented. If the delinquency is not cured, Suncoast will
institute appropriate legal action. If foreclosed, the property may be sold at a
public or private sale or purchased by Suncoast.
CLASSIFIED ASSETS. OTS regulations provide for a method of
classifying all assets and re-evaluation of real estate owned by the OTS
examination staff. Under the regulations, assets may be classified as (i)
"Substandard", (ii) "Doubtful" or (iii) "Loss". Assets classified as Substandard
or Doubtful may have allowances for loan losses of an appropriate amount and
assets classified as Loss must have either valuation allowances up to 100% of
the book value of the assets or be charged off. Any such valuation allowance
would be drawn from, and thereby lower, the institution's capital as determined
under generally accepted accounting principles ("GAAP") which is the foundation
for the institution's regulatory capital computation. Assets that do not
currently expose a savings association to a sufficient degree of risk to warrant
classification but possess credit deficiencies or potential weaknesses deserving
management's attention are designated as "special mention". At June 30, 1996,
Suncoast had $208,000 in assets designated as "special mention", compared to
zero at June 30, 1995. Suncoast currently conducts weekly reviews of (a) its
real estate owned in order to determine whether to reduce the carrying value of
such real estate and (b) its residential mortgage loan portfolio, its consumer
loans and each of its commercial real estate and construction loans, in order to
determine whether to establish or increase any allowance for loan losses or
charge off loans or portions of loans that are determined to be uncollectible.
12
<PAGE>
Set forth below is information on classified assets as of the dates
indicated:
JUNE 30,
-------------------
1996 1995
------ ------
(Dollars in Thousands)
Substandard $1,182 $ 633
Doubtful - -
Loss - -
------ ------
Total classified assets $1,182 $ 633
====== ======
Percent of total assets 0.29% 0.14%
====== ======
At June 30, 1996, substandard assets consisted of two residential
loans, one residential foreclosed property and one commercial real estate loan
in bankruptcy proceedings. At June 30, 1995, all substandard assets were
residential loans.
NON-PERFORMING ASSETS. Suncoast generally ceases accruing interest
when a loan is 90 or more days delinquent. The following table sets forth
information regarding the Association's non-performing assets as of the dates
indicated:
<TABLE>
<CAPTION>
% OF % OF % OF
JUNE 30, TOTAL JUNE 30, TOTAL JUNE 30, TOTAL
1996 ASSETS 1995 ASSETS 1994 ASSETS
-------- ------ -------- ------ -------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans $ 466 0.12% $ 36 0.01% $ 563 0.16%
Accruing loans
90 days or more
past due - - - - - -
Restructured loans 455 0.11 115 0.03 947 0.26
Real estate
acquired through
foreclosure 261 0.06 523 0.11 428 0.12
In-substance
foreclosure - - - - - -
------ ---- ------ ---- ------ --
$1,182 0.29% $ 674 0.15% $1,938 0.54%
====== ==== ====== ==== ====== ====
</TABLE>
Non-performing assets are generally classified by Suncoast as
substandard. Information on classified assets is shown net of specific reserves
attributable to such assets while information on non-performing assets is shown
before allowances for specific reserves. During the years ended June 30, 1996,
1995 and 1994, interest income of $19,807, $6,700 and $5,100, respectively, was
recorded on non-accrual loans prior to their being placed on non-accrual status.
If non-accrual loans had been accruing interest, additional interest income of
$54,000, $10,000 and $42,000 would have been recorded during Fiscal 1996, 1995
and 1994, respectively.
ALLOWANCE FOR LOAN AND LEASE LOSSES. The allowance for loan and lease
losses is maintained at an amount management deems adequate to cover estimated
losses.
13
<PAGE>
The following table sets forth the breakdown of the allowance for
loan losses by loan category at the dates indicated.
JUNE 30,
---------------------
1996 1995
------ ------
(In thousands)
Real estate mortgages:
One-to-four family residential loans $131 $ 48
Multi-family loans 68 38
Commercial real estate loans 410 304
Unimproved land loans 31 53
Consumer loans 16 14
Unallocated 1 47
---- ----
Total allowance for loan losses $657 $504
==== ====
Suncoast provides for future losses based on management's assessment
of risk inherent in the portfolio and provides for losses on specific loans, if
necessary. Provisions for losses on specific loans are charged to earnings when,
in the opinion of management, it is probable that the loan has been impaired and
the amount of the loss can be reasonably estimated. Secondly, an allowance for
loan losses is established based upon loan type as well as the classification of
loans as substandard, doubtful or loss, or their designation as special mention.
Provisions for the allowance for loan losses are based on a management analysis
that incorporates a number of factors, including historical loss experience,
current economic conditions and management's ongoing assessment of risk inherent
in each type of loan and in the aggregate portfolio.
The process of updating the allowance for loan losses begins with the
application of a formula developed by Suncoast that calls for a fixed percent to
be applied against each loan type as well as loans designated as non-performing,
classified or subject to special mention. The percent varies based on the
expected risk of loss for each type of loan and level of classification or
designation. The allowance for loan losses is increased or decreased with an
offsetting charge or credit to earnings when dictated by the formula. When the
formula requires less than a minimum allowance balance established by Suncoast's
Board of Directors, the difference is labeled as "unallocated". Management
reviews the results of this formula-driven approach and where appropriate
changes factors used in the formula and amounts produced by the formula to
result in an allowance for loan losses that is adequate. While management uses
the best information available to make evaluations, future adjustments to the
allowance may be necessary if economic conditions differ substantially from the
assumptions used in making the evaluations.
The following table sets forth the activity in the Association's
allowance for loan losses during the periods indicated:
14
<PAGE>
JUNE 30,
---------------------------
1996 1995 1994
------ ------ -----
(In thousands)
Balance at beginning of period $504 $504 $521
---- ---- ----
Loans charged-off:
One-to-four family residential loans ( 0) (95) (17)
Multi-family loans - - -
Commercial real estate loans - - -
Unimproved land loans - - -
Consumer loans - -
----- ----- ---
( 0) (95) (17)
----- ----- -----
Recoveries:
One-to-four family residential loans - - -
Multi-family loans - - -
Commercial real estate loans - - -
Land loans - - -
Consumer loans - - -
---- ---- ---
- - -
---- ---- ---
Net charge-offs: (difference between
charge-offs and recoveries) ( 0) (95) (17)
----- ----- -----
Provision for loan losses(1) 153 95 -
----- ---- ---
Balance at end of period $657 $504 $504
===== ==== ====
Write-downs and reserves for Real Estate Owned:
Balance at beginning of period $ - $ - $ -
Net charge-offs ( 0) (68) (150)
Provision for REO losses 80 68 150
---- ---- ----
Balance at end of period $ 80 $ - $ -
==== ==== ===
(1) The provision for loan losses is the amount required to maintain a
total reserve balance that is the result of the current level of
loans and classified assets and the percentage reserve factors
applied against each type of loan and classified asset as discussed
above.
Effective July 1, 1995, Suncoast adopted Statement of Financial
Accounting Standards No. 114, ("FAS 114") "Accounting by Creditors for
Impairment of a Loan", subsequently amended by FAS 118. Loans within the scope
of FAS 114 are measured for impairment based on (a) the present value of
expected future cash flows discounted at the loan's effective interest rate, (b)
the market price, or (c) if collateral dependent, the fair value of the
collateral. If the value of the loan so determined is less than the loan's
recorded value, then the creditor must recognize a loss for the difference by
creating a valuation allowance or adjusting an existing valuation allowance with
a corresponding charge to bad debt expense. FAS 118 amended certain income
recognition and disclosure provisions of FAS 114. The adoption of FAS 114 and
FAS 118 did not have a significant effect on Suncoast's financial condition and
results of operations due to the composition of its loan portfolio and its
policy for establishing its allowance for loan losses. Notwithstanding FAS 114,
effective March 31, 1995, OTS policy requires the classification and valuation
of troubled, collateral dependent loans for purposes of regulatory reporting to
be based on the fair value of the collateral. This change in OTS policy has had
an insignificant effect on Suncoast.
15
<PAGE>
LOAN SERVICING ACTIVITIES
Prior to January 1990, Suncoast emphasized its mortgage servicing
activities and developed a substantial loan servicing portfolio by purchasing
from various originators the servicing rights to originated or purchased first
mortgage residential loans on properties located in all 50 states, although
predominantly in California, and retaining servicing rights to loans that it
sold in the secondary market. The Association continues to service the loans
from these prior years and also subservices loans for others.
From the period January 1990 through June 1995, Suncoast did not
purchase or accumulate any servicing assets due in part to regulatory changes
which placed restrictions on the amount of servicing rights which could be
included in the calculation of regulatory capital. During this period, Suncoast
concentrated on expanding its subservicing activities, as subservicing
contracts, unlike servicing generally are not considered an investment in loan
servicing rights for financial reporting or regulatory capital purposes. During
Fiscal 1996, however, Suncoast's operating strategy with respect to its
servicing business has been to increase its servicing portfolio through the
purchase of servicing rights and the retention of servicing rights on loans
which have been sold. The principal amount of loans for which Suncoast performed
servicing or subservicing as of June 30, 1996 was $1.5 billion. Suncoast has the
capacity to service up to $5.0 billion of loans without significantly increasing
its operational hardware and other equipment.
Suncoast's capitalized mortgage servicing rights ("MSRs") consist of
purchased mortgage servicing rights ("PMSRs"), originated mortgage servicing
rights ("OMSRs"), and premiums on the sale of loans. MSRs generate cash revenues
in the form of servicing fees, which are determined based on a percentage of the
declining principal amount of the loans serviced, and collected from a portion
of each mortgage loan payment received, plus any late charges or other ancillary
fees. Servicing income is reduced by the amortization of premiums on the sale of
loans and costs incurred to purchase loan servicing rights. Retention or
purchase of servicing rights creates a stream of payments which lasts throughout
the period during which a mortgage loan remains outstanding. The value of
servicing to the Association is dependent upon the expected income stream
associated with the underlying loans. Factors which may affect this value
include servicing fees, stated mortgage interest rates, loan balances, loan
types, estimated average loan life, escrow balances, delinquency and foreclosure
history, projected servicing costs and existing or expected liabilities related
to borrower delinquencies. See "Item 8. Financial Statements and Supplementary
Data - Note A to the Consolidated Financial Statements."
During the period from January 1990 through June 1995, Suncoast did
not accumulate or purchase MSRs resulting in a corresponding decrease in loan
principal balances and servicing revenue. To offset this decline in revenue,
starting in Fiscal 1992, Suncoast began to utilize its capacity to subservice
loans for other financial institutions for a mutually agreed monthly fee per
loan. The subservicing of loans utilizes the same operational capabilities as
are utilized with normal servicing, but does not require the capital investment
necessary for the purchase or retention of a normal servicing asset. It does,
however, generate a slightly lower yield than servicing loans directly because
an investor in servicing rights also has the ability to realize appreciation of
servicing assets and increased servicing income due to lower than expected loan
prepayments in periods of rising interest rates. At
16
<PAGE>
June 30, 1996, Suncoast was subservicing approximately 1,400 loans
with a principal value of $254.6 million for fifteen other financial
institutions. At June 30, 1995, Suncoast was subservicing approximately 3,100
loans with a principal value of $370.2 million for ten other financial
institutions. During Fiscal 1996, 1995, and 1994, Suncoast recorded servicing
fees related to these contracts of $247,000, $412,000, and $333,000,
respectively.
In addition, during Fiscal 1992, Suncoast expanded its subservicing
capabilities by entering into an agreement with the RTC to service residential
and commercial mortgage loans that came under the RTC's authority. Although this
agreement expired in October 1995, Suncoast entered into another agreement with
the RTC to service residential loans. As of December 31, 1995, the RTC ceased
operations, and the FDIC assumed responsibility for RTC functions, including the
administration of the contract with Suncoast ("the RTC Contract"). Loans under
the RTC Contract are serviced for a fixed monthly fee for each loan plus any
late charges or other ancillary fees collected. The Association also receives
fees under the RTC Contract to perform various other services related to the
loans. As of June 30, 1996 and 1995, Suncoast was subservicing over 600 and
6,600 loans, respectively, with a principal value of $43.9 million and $433.7
million, respectively, under the RTC Contract, including $26.9 million and
$127.0 million, respectively, under a master subservicing coordination agreement
for other FDIC servicers which obligates Suncoast to review reports of other
servicers for the FDIC and to consolidate cash remittances to the FDIC.
In January and October 1995, respectively, Suncoast signed national
contracts with the FDIC to service residential real estate loans and consumer
loans, respectively. Under the residential contract, Suncoast receives monthly
fees based on the declining principal balance of loans which do not exceed
certain delinquency requirements. Under the consumer servicing contract,
Suncoast receives a fixed monthly fee for certain performing loans and a
percentage of amounts collected related to non-performing loans. As of June 30,
1996 and 1995, Suncoast was subservicing approximately 5,000 loans and 2,000
loans, respectively, with a principal value of $164.3 million and $78.1 million,
respectively, for the FDIC.
Loan servicing fees related to RTC Contract and FDIC contracts for
the years ended June 30, 1996, 1995 and 1994 amounted to $1.8 million, $2.7
million, and $2.5 million, respectively. The amount of subservicing fees
generated by Suncoast from the RTC Contract and the FDIC contracts is dependent
upon the amount of assets which come under these entities' control, the length
of time which they are owned, and other factors. These factors are based upon
economic and other conditions which are generally beyond Suncoast's control.
Management anticipates that subservicing fees related to the RTC Contract will
continue to decrease as the FDIC continues to liquidate the inventory of loans
under its control.
During Fiscal 1996, in an effort to offset reduced servicing income
as a result of repayments of loans underlying the servicing assets and as a
result of decreased levels of loans subserviced, Suncoast resumed the purchase
and accumulation of servicing rights. Suncoast purchased $2.3 million of PMSRs,
representing approximately $286.8 million in principal loan balances. On July 1,
1995, Suncoast adopted Statement of Financial Accounting Standards No 122 ("FAS
122") "Accounting for Mortgage Servicing Rights", as discussed in "Item 8.
Financial Statements and Supplementary Data - Notes to the Consolidated
Financial Statements." With the adoption of FAS 122, Suncoast has reinitiated
its prior practice of retaining the servicing rights on most of the loans it
originates and sells
17
<PAGE>
and capitalizes as OMSRs the normal servicing fee to be received over the life
of each loan at its fair value. During Fiscal 1996, Suncoast capitalized
$860,000 of OMSRs representing $62.0 million in loan principal balances.
Management intends to continue to acquire PMSRs and generate OMSRs within
applicable regulatory guidelines as opportunities arise, subject, however, to
those restrictions contained in the Agreement and Plan of Merger.
The following table sets forth certain information regarding the loan
servicing portfolio of Suncoast for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------
1996 1995 1994
---------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Loan servicing portfolio (beginning of period) $1,639,069 $2,009,762 $2,688,629
Servicing for loans originated and purchased 178,511 118,492 2,203,839
Loan servicing rights purchased 286,827 7,027 -
Run-off (1) (186,043) (169,252) (398,744)
Sale of servicing rights (55,235) (90,812) (2,313,543)
Subservicing added (transferred out) during the year (318,841) (142,381) 305,825
Loans serviced under temporary subservicing
agreements, net (2) (55,235) (93,767) (476,244)
---------- ---------- ----------
Loan servicing portfolio (end of period) $1,489,053 $1,639,069 $2,009,762
========== ========== ==========
Number of loans serviced (end of period) 22,822 22,524 22,421
Average loan balance (end of period) $ 65 $ 73 $ 90
Servicing fees (gross) $ 6,016 $ 7,450 $ 8,088
Servicing fees (net) (3) $ 4,399 $ 6,275 $ 4,580
</TABLE>
- ----------------------------
(1) Run-off refers to normal amortization of loans and prepayments.
(2) Represents net change in servicing rights sold prior to fiscal year
end which rights were transferred to the purchasers subsequent to the
fiscal year end.
(3) Net of amortization of the carrying value of PMSRs, OMSRs and
premiums on the sale of loans and of any valuation adjustments due to
changes in prepayment assumptions.
The following table sets forth, by type of servicing rights, the loan
principal serviced and related asset balances as of the dates indicated:
18
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1995
--------------------------- ---------------------------
(In thousands)
LOAN ASSET LOAN ASSET
PRINCIPAL BALANCE PRINCIPAL BALANCE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PMSRs $ 652,727 $ 9,525 $ 467,700 $ 8,572
Premiums on the sale of loans 55,692 1,359 65,393 1,533
OMSRs 46,148 834
FDIC, as successor to RTC 43,856 433,712
FDIC 164,299 78,112
Private 11,323 28,425
FHLMC/FNMA 16,772 54,952
Subservicing rights 199,355 370,222
Loans serviced under temporary
subservicing agreements 55,235
---------- ---------- ---------- ----------
Subtotal 1,245,407 11,718 1,498,516 10,105
Suncoast loans serviced 243,646 140,553
---------- ---------- ---------- ----------
Total $1,489,053 $ 11,718 $1,639,069 $ 10,105
========== ========== ========== ==========
</TABLE>
The following tables set forth, by category of investor, the
composition of the loan servicing portfolios of Suncoast as of the dates
indicated:
JUNE 30,
--------------------------
1996 1995
---------- ----------
(In thousands)
Investor:
FNMA $ 114,624 $ 79,256
GNMA 317,280 384,195
FHLMC 297,451 107,620
FDIC, as successor to RTC (1) 43,856 433,712
FDIC (1) 164,299 78,112
Private 53,307 45,399
Other financial institutions(1) 254,590 370,222
---------- ----------
Sub-total 1,245,407 1,498,516
Suncoast portfolio loans serviced 243,646 140,553
---------- ----------
Total loans serviced $1,489,053 $1,639,069
========== ==========
(1) Consists of subservicing.
19
<PAGE>
The following table sets forth, by location of the underlying loans,
the composition of the servicing portfolio of Suncoast as of June 30, 1996
(principal amounts in thousands):
STATE NUMBER OF LOANS PRINCIPAL AMOUNTS
- ----- --------------- -----------------
Florida 4,493 $ 477,628
California 4,380 345,648
Texas 2,060 75,730
Massachusetts 1,563 68,894
Michigan 1,044 93,032
New Jersey 742 34,544
Pennsylvania 532 24,911
New York 498 25,918
Indiana 435 36,101
Missouri 386 28,661
Illinois 343 24,411
Kentucky 315 5,384
Arizona 280 18,295
Ohio 256 19,247
Maryland 241 17,658
Connecticut 238 10,699
Georgia 233 8,465
Louisiana 220 8,860
Washington 194 11,737
Minnesota 165 14,859
Nevada 157 8,502
Virginia 153 10,719
Kansas 152 12,514
Connecticut 127 8,227
Tennessee 105 3,803
New Hampshire 105 7,802
Oklahoma 85 3,101
North Carolina 82 5,235
Hawaii 82 6,004
Puerto Rico 74 976
Oregon 74 3,714
South Carolina 68 6,158
All others (1) 636 32,246
Master Servicing FDIC and others (2) 2,304 29,370
------ ----------
Total 22,822 $1,489,053
====== ==========
- --------------------
(1) No other state accounted for more than 50 loans.
(2) Individual loans are serviced by others for FDIC, as successor to
RTC. Suncoast acts as coordinator of the servicing functions and
reports activity on these loans to FDIC on a combined basis based
upon reports from the various servicers.
Servicing agreements with FNMA, FHLMC and GNMA generally provide for
loan servicing fees ranging from 0.25% to 0.50% per annum of the declining
principal amount of the loans, plus any late charges or other ancillary fees.
Loan servicing fees for loans serviced under mortgage-backed securities programs
are either subject to negotiation with the sponsoring agency or in certain
instances set by the sponsoring agency. Servicing fees for loans sold to private
investors are determined by agreement with the investor, and also range from
0.25% to 0.50% per annum. In addition to the contractual fee, Suncoast also
receives excess servicing fees equal to the excess of the stated servicing fee
(the difference between the yield paid to the purchaser of the loan and the rate
paid by the borrower) over the
20
<PAGE>
contractual servicing fee under the servicing agreement. Income from
servicing is calculated based upon the contractual servicing fee plus any excess
servicing fee, net of amortization of the carrying value of the acquired loan
servicing rights or the premiums on the sale of loans. See "Item 8. Financial
Statements and Supplementary Data - Note A of the Notes to the Consolidated
Financial Statements."
Suncoast is subject to certain costs and risks related to servicing
delinquent loans. Servicing agreements relating to the mortgage-backed security
programs of FNMA, FHLMC and GNMA require the servicer to advance funds to make
scheduled payments of interest, taxes and insurance, and in some instances
principal, if such payments have not been received from the borrowers. However,
Suncoast recovers almost all of the advanced funds related to FNMA and FHLMC
servicing agreements upon cure of default by the borrower, or through
foreclosure proceedings and claims against agencies or companies that have
insured or guaranteed the loans. During the years ended June 30, 1996, 1995, and
1994, Suncoast incurred foreclosure losses related to primarily GNMA servicing
of $995,000, $614,000, and $487,000, respectively. The amount of foreclosure
losses increased in Fiscal 1996 as compared to 1995 and 1994 due to a higher
level of loan foreclosure actions. Certain servicing agreements for loans sold
directly to other investors require Suncoast to remit funds to the loan
purchaser only upon receipt of payments from the borrower and, accordingly, the
investor bears the risk of loss. Suncoast, however, is subject to the risk that
declines in the interest rates for mortgage loans or other economic conditions
will result in a revaluation of its servicing assets as borrowers refinance or
otherwise prepay higher rate loans.
The following table sets forth certain information for Suncoast by
interest rate range, regarding the principal balance and percentage of the total
servicing portfolio and the weighted average interest rate of residential first
mortgage loans serviced as of the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1995
-------------------------------------- ---------------------------------------
PERCENT OF PERCENT OF
MORTGAGE LOAN PRINCIPAL TOTAL SERVICING PRINCIPAL TOTAL SERVICING
INTEREST RATE BALANCE PORTFOLIO BALANCE PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Below 5.00% $ 3,456 0.2% $ 17,525 1.1%
5.0 to 5.99 11,333 0.8 39,679 2.4
6.0 to 6.99 132,227 8.9 122,525 7.5
7.0 to 7.99 352,879 23.7 226,115 13.8
8.0 to 8.99 458,280 30.8 397,861 24.3
9.0 to 9.99 264,071 17.7 382,088 23.3
10.0 to 10.99 169,090 11.3 237,342 14.5
11.0 to 11.99 37,004 2.5 46,269 2.8
12.0 to 12.99 16,572 1.1 20,610 1.3
13.0 and above 14,771 1.0 22,083 1.3
---------- ------ ------------ ------
1,459,683 98.0% 1,512,097 92.3%
Master servicing
coordinated for
the FDIC
and others 29,370 2.0% 126,972 7.7%
---------- ------ ------------ -------
$1,489,053 100.00% $1,639,069 100.0%
========== ======= ========== ======
Weighted average rate 8.63% 8.72%
===== =====
</TABLE>
21
<PAGE>
At June 30, 1996 and 1995, 12.12% and 9.10%, respectively, of
mortgage loans in Suncoast's total servicing portfolio were 30 days or more past
due and 4.72% and 3.52%, respectively, were 90 days or more past due. At such
dates, 1.17% and 1.88% of mortgage loans, respectively, totaling $18.0 million
and $30.9 million, respectively, were in foreclosure. The delinquency ratios in
the aggregate servicing portfolio include high delinquency rates on FDIC loans
serviced. Suncoast has no risk of loss on these delinquent loans. The above
percentages do not include the population of FDIC consumer loans classified by
the FDIC as charged-off assets on which Suncoast receives a fee based on a
percentage of amounts collected from the borrower. Suncoast's overall loan
servicing portfolio, exclusive of subserviced loans, reflected that 2.61% and
1.18% of mortgage loans were 30 days or more past due at June 30, 1996 and 1995,
respectively.
MORTGAGE BANKING ACTIVITIES
Suncoast's mortgage banking activities consist primarily of
originating, purchasing, warehousing and selling one-to-four family residential
first mortgage loans without recourse. The income derived from mortgage banking
activities includes gains on the sale of mortgage loans and servicing rights in
the secondary market. Until January 1994, it had been Suncoast's policy to sell
in the secondary market substantially all the residential first mortgage loans
that it originated or purchased. As previously discussed, Suncoast changed its
operating strategy, beginning in January 1994, to emphasize community banking
activities over mortgage banking activities.
Suncoast originates and purchases fixed-rate and adjustable-rate
residential first mortgage loans for sale in the secondary market primarily to
FHLMC and private investors. To a lesser extent, the Association also
periodically originates FHA-insured and VA-guaranteed mortgage loans for sale in
the form of pass-through mortgage-backed securities guaranteed by GNMA. The
Association and its subsidiary, SCG Mortgage Corporation ("SCG"), are approved
Federal Housing Authority ("FHA") and Veterans Administration ("VA") supervised
mortgagees and approved seller-servicers with GNMA, FNMA and FHLMC.
Suncoast sells on a non-recourse basis substantially all fixed rate
residential first mortgage loans which it originates or purchases for resale.
Loans are held pending their delivery in the secondary market, as discussed
below, and sold either in pools through FHLMC participation certificates, FNMA
mortgage-backed securities, GNMA-guaranteed mortgage-backed securities or on a
loan by loan basis to FHLMC, FNMA or private investors. During Fiscal 1996 and
1995, 82.5% and 34.7%, respectively, of the principal amount of the
Association's loan sales were made in pools through FHLMC, FNMA or Residential
Funding Corporation, a private investor.
Loans originated for sale, whether as whole loans or subject to the
creation of mortgage-backed securities held for sale, are sold pursuant to
agreements which are established while the loans are in the processing stage,
thus reducing market risk. Suncoast primarily sells loans under agreements which
are binding on the investor, but non-binding on Suncoast, which delivers the
loans on a "best efforts" basis.
In the ordinary course of business, the Association makes
representations and warranties to the purchasers and insurers of mortgage loans
and the purchasers of servicing rights. When the Association sells mortgage
loans to FNMA, FHLMC or independent
22
<PAGE>
institutional investors, it makes certain representations and warranties that
the mortgage loans comply with applicable eligibility guidelines. The
Association may become required to repurchase loans if there has been a breach
of representations or warranties. Flaws with respect to repurchased loans may be
corrected and, if possible, such loans are resold. In addition, the Association
has the right to require the correspondent mortgage broker or seller of a loan
for which a repurchase has been requested to repurchase such loan from the
Association. The Association attempts to limit its exposure to this risk through
appropriate underwriting of mortgages prior to origination.
The table below shows real estate and other loan origination,
purchase, sale and repayment data for Suncoast for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995 1994
----------- ----------- -------
(In thousands)
<S> <C> <C> <C>
Loans originated and purchased:
Held for sale:
Mortgage loans originated $ 62,962 $ 60,334 $2,084,145
Mortgage loans purchased 62,335 - -
---------- ---------- -------
Total held for sale $ 125,297 60,334 2,084,145
---------- ---------- ----------
Portfolio:
Residential mortgage
loans originated 21,400 13,143 96,518
Other loans originated 43,139 45,015 23,176
Mortgage and other loans purchased 154,015 - -
---------- ---------- -------
Total portfolio 218,554 58,158 119,694
---------- ---------- ----------
Total loans originated and purchased 343,851 118,492 2,203,839
---------- ---------- ----------
Mortgage loans, participations and mortgage-
backed securities sold:
Residential loans (one-to-four family units) 111,963 51,081 865,093
Mortgage-backed securities (1) - 28,232 1,301,587
Commercial loans participated 5,649 - -
---------- ---------- -------
Total loans sold 117,612 79,313 2,166,680
---------- ---------- ----------
Portfolio loans securitized (2) - (16,596) (45,461)
Loan principal reductions (43,533) (8,982) (16,916)
GNMA early buyouts and transfers 7,350
Decrease (increase) in loans in process 2,783 (5,424) (865)
Accretion of deferred loan fees 223 178 88
Increase in deferred fees (347) (406) (264)
Increase (decrease) in premiums paid on
portfolio loans 2,193 (327) 656
Increase (decrease) in premiums paid on
loans held for sale, net of deferrals 39 (122) (1,799)
(Increase) decrease in provision
for loan losses (153) - 17
----------- ----------- ----------
Net increase (decrease) in loans receivable $ 194,794 $ 7,500 $ (27,385)
=========== =========== ==========
</TABLE>
- ------------------------
(1) Securities were formed by utilizing loans in the held for sale
category originated and purchased by Suncoast.
(2) Securities were formed using loans originated for portfolio which
securities were transferred to the mortgage-backed securities asset
category.
23
<PAGE>
In connection with its mortgage banking and servicing operations, the
Association is subject to the rules and regulations of, and examinations by,
FNMA, FHLMC, FHA, VA and GNMA with respect to originating, processing, selling
and servicing mortgage loans. Those rules and regulations, among other things,
prohibit discrimination, provide for inspection and appraisals of properties,
require credit reports on prospective borrowers and in some cases establish
maximum interest rates, fees and loan amounts.
INVESTMENT ACTIVITIES
Suncoast also invests in mortgage-backed securities and, from time to
time, related Real Estate Mortgage Investment Conduit ("REMIC") securities,
which are derived by reallocating cash flows from mortgage-backed securities
held by a trust. Suncoast's REMIC investments were sold during Fiscal 1996. As
discussed in "Item 8. Financial Statements and Supplementary Data - Notes A and
E of the Notes to the Consolidated Financial Statements", mortgage-backed
securities are classified as either held to maturity, available for sale, or
held for trading purposes. At June 30, 1996, all of Suncoast's mortgage-backed
securities were adjustable rate instruments classified as available for sale.
Due to this classification, fluctuations in the interest rate environment and
other factors may cause significant changes in the unrealized gain or loss on
mortgage-backed securities which is recorded as an adjustment, net of deferred
tax, to stockholders' equity.
During Fiscal 1996 and 1995, Suncoast sold mortgage-backed securities
and REMICs with a book value of $355.7 million and $265.2 million, respectively,
and realized net gains of $3.0 million and $1.4 million, respectively. During
Fiscal 1995, Suncoast sold its $138.7 million portfolio of fixed-rate
mortgage-backed securities previously classified as held to maturity, realizing
a gain of approximately $486,000. Mortgage-backed securities were sold due to
favorable market conditions, and Suncoast's ability to apply the proceeds to the
purchase and origination of primarily adjustable rate residential and commercial
loans, increasing Suncoast's yield and reducing its interest rate risk. Due to
the dependence of such gains on changes in interest rates, there is no assurance
that market conditions will continue to be favorable or that Suncoast will
continue to generate such revenue in the future.
Suncoast maintains an investment in stock of the Federal Home Loan
Bank of Atlanta ("FHLB Atlanta"), which is required for membership in the
Federal Home Loan Bank ("FHLB") system. Suncoast also periodically invests in
short term repurchase agreements to improve the yield on excess cash.
The following table shows the yields and maturity of Suncoast's
investments at June 30, 1996 and 1995:
<TABLE>
<CAPTION>
MATURITY
------------------------------------
NO STATED WITHIN MORE THAN
TYPE OF INVESTMENT YIELD MATURITY ONE MONTH TEN YEARS TOTALS
- ------------------ ------ ---------- --------- --------- -----------
<S> <C> <C> <C> <C>
June 30, 1996:
FHLB stock 7.25 % $3,875,000 $ 3,875,000
June 30, 1995:
FHLB stock 5.94% $3,758,400 $ 3,758,400
Repurchase Agreements 6.04% $75,000,000 75,000,000
</TABLE>
24
<PAGE>
DEPOSIT ACTIVITIES
Suncoast has several types of savings programs designed to attract
core checking and both short-term and long-term deposits from the general public
by providing an assortment of accounts, terms and rates. The Association
attempts to control its cost of funds by adjusting the rates and terms of its
accounts. The emphasis on specific accounts, which varies from time-to-time, is
intended to permit the Association to take advantage of pre-selected investment
opportunities. The Association utilizes newspaper and direct mail advertising to
targeted market groups to attract deposits. The communities in which the
Association's branch offices are located generally contain a high concentration
of retirees and others who have had a history of maintaining substantial deposit
balances. In addition, Suncoast is the repository for mortgage escrow trust
funds (non-interest-bearing or low-interest-bearing custodial accounts) which
relate to the servicing and subservicing of mortgage loans by Suncoast.
The following table reflects the principal types of deposit accounts
offered by the Association, the rates of interest and effective yield as of June
30, 1996:
MINIMUM EFFECTIVE
TYPE OF ACCOUNT DEPOSIT RATE (1) ANNUAL YIELD
- --------------- ------- -------- ------------
Non-interest bearing checking account $ 500 - % - %
NOW account 500 2.03 (2) 2.05
NOW account 5,000 3.93 (2) 4.00
Savings account 50 2.03 (2) 2.05
Savings account 5,000 5.35 (2) 5.50
Daily money market account 1,000 2.23 (2) 2.25
Preferred money market account 5,000 4.17 (2) 4.25
Preferred money market account 10,000 4.41 (2) 4.50
Preferred money market account 25,000 4.89 (3) 5.00
3 month certificate 1,000 5.02 5.15
6 month certificate 1,000 5.06 5.20
9 month certificate 1,000 5.11 5.25
12 month certificate 1,000 5.35 5.50
18 month certificate 1,000 5.35 5.50
24 month certificate 1,000 5.54 5.70
30 month certificate 1,000 5.63 5.80
36 month certificate 1,000 5.73 5.90
60 month certificate 1,000 5.82 6.00
Jumbo certificate (4) 100,000 (5) (5)
- ------------------------
(1) Rates established by the Association based upon market conditions.
(2) Balances below minimum deposit earn no interest.
(3) Balances from $10,000 to $24,999.99 earn interest at $10,000 minimum
balance rate. Balances below $10,000 earn no interest.
(4) Term set by the Association.
(5) Rates on jumbo certificates correspond to rates on non-jumbo
certificates of a similar term.
25
<PAGE>
The following table sets forth the deposit activities of Suncoast
during the following periods:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1996 1995 1994
---------- --------- ----------
(In thousands)
<S> <C> <C> <C>
Deposits $ 701,442 $ 903,374 $1,268,439
Withdrawals 748,238 834,690 1,223,309
---------- ---------- ----------
Net (decrease) increase in deposits
before interest credits ( 46,796) 68,684 45,130
Interest credited 10,143 8,735 4,220
Beginning balance 337,854 260,435 211,085
---------- ---------- ----------
Ending balance $ 301,201 $ 337,854 $ 260,435
========== ========== ==========
</TABLE>
The following table sets forth Suncoast's certificates of deposit by
interest rate range at the dates indicated:
JUNE 30,
-----------------------------
1996 1995
-------- --------
(In thousands)
Interest rate:
2.00% - 2.99% $ 204 $ 0
3.00% - 3.99% 4 411
4.00% - 4.99% 29,464 11,212
5.00% - 5.99% 146,965 104,003
6.00% - 6.99% 26,194 108,712
7.00% - 7.99% 2,783 3,801
8.00% - 8.99% - 2
-------- --------
Total $205,614 $228,141
======== ========
The following table sets forth the scheduled maturities of Suncoast's
certificates of deposit at June 30, 1996:
<TABLE>
<CAPTION>
AFTER
TWELVE MONTHS ENDED JUNE 30, JUNE 30,
-----------------------------------------
1997 1998 1999 2000 TOTAL
-------- -------- ------- -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest rate:
2.00% - 2.99% $ 204 $ - $ - $ - $ 204
3.00% - 3.99% 4 - - 0 4
4.00% - 4.99% 28,488 625 318 33 29,464
5.00% - 5.99% 135,089 8,820 2,417 639 146,965
6.00% - 6.99% 11,317 10,016 220 4,641 26,194
7.00% - 7.99% 1,856 238 0 689 2,783
-------- ------- ------- -------- --------
Total certificates
of deposit $176,958 $19,699 $ 2,955 $ 6,002 $205,614
======== ======= ======= ======== ========
</TABLE>
26
<PAGE>
The following table sets forth the terms and weighted-average
interest rate of deposit accounts (excluding interest earned and not credited)
at the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1995
-------------------------------------- ------------------------------------
CONTRACTUAL CONTRACTUAL
PERCENT WEIGHTED PERCENT WEIGHTED
OF TOTAL AVERAGE OF TOTAL AVERAGE
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
-------- ------ ----- -------- ----- ----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
No minimum term:
Non-interest bearing
checking accounts $ 874 0.30% 0.00% $ 556 0.16% 0.00%
Custodial accounts 24,198 8.03 .01 37,275 11.03 0.01
NOW accounts 17,751 5.89 2.42 6,418 1.90 2.42
Passbook accounts 40,959 13.60 4.08 48,605 14.39 5.27
Money market accounts 11,805 3.92 3.19 16,859 4.99 3.57
-------- ------ ----- -------- ----- ----
Total 95,587 31.74 2.85 109,713 32.47 3.03
-------- ------ ----- -------- ----- ----
Fixed term:
Certificates maturing in:
Six months or less 116,214 38.58 5.36 134,680 39.86 5.61
More than six months
to one year 60,743 20.17 5.51 53,003 15.69 6.10
More than one year
to three years 22,654 7.52 6.14 33,304 9.86 6.13
More than three years
to five years 6,003 1.99 6.34 7,154 2.12 6.27
-------- ------ ----- -------- ------ ----
Total 205,614 68.26 5.52 228,141 67.53 5.83
-------- ------ ----- -------- ------ ----
Total deposits $301,201 100.00% 4.55% $337,854 100.00% 4.92%
======== ======= ====== ======== ======= =====
</TABLE>
The following table presents the dollar amounts of certificate
accounts with balances equal to or greater than $100,000 at June 30, 1996,
maturing during the periods listed:
WEIGHTED
AVERAGE
MATURITY AMOUNT RATE
- -------- -------------- ----
(In thousands)
Three months or less $2,998 5.28%
Over three months through six months 1,599 5.59
Over six months through one year 2,792 5.60
Over one year 1,240 6.04
------ ----
Total $8,629 5.55%
====== ====
Suncoast's deposits are obtained primarily from the communities
surrounding its branch offices. Suncoast does not advertise for deposits outside
of Florida and has used brokered deposits only to facilitate the matching of
asset and liability maturities. At the end of each reporting period, deposits
from out-of-state sources represented an insignificant portion of the total
deposit accounts. There were no deposits obtained through brokers at either June
30, 1996 or June 30, 1995.
BORROWINGS
Suncoast borrows funds from the FHLB on the security of
mortgage-backed securities which are pledged as collateral and based upon the
security of a blanket floating lien on
27
<PAGE>
certain eligible residential mortgage loan collateral. The Association also
obtains funds through agreements to repurchase securities with broker/dealers,
which are considered secured borrowings and typically outstanding from seven to
thirty days. See "Item 8. Financial Statements and Supplementary Data - Note L
of the Notes to the Consolidated Financial Statements."
SUBSIDIARY ACTIVITIES
SFC and SCS Management are Delaware corporations formed in connection
with the sale of collateralized mortgage obligations. SCG Mortgage Corporation
is a Delaware subsidiary corporation through which title to GNMA servicing
rights is held. SCG Holdings, Inc., a Florida corporation, serves as the holding
company for SFC, SCS Management and SCG Mortgage Corporation.
SCS Ventures, is a Florida subsidiary corporation through which the
Association has participated as a limited partner or otherwise in real estate
ventures and through which the Association takes title to certain real estate
acquired by foreclosure. This corporation is presently inactive.
COMPETITION
Suncoast faces substantial competition in attracting and retaining
deposits as well as in its lending, servicing and mortgage banking operations.
The most direct competition for deposits comes from other savings institutions,
commercial banks, out-of-state financial institutions with Florida offices
located in the Association's market area and credit unions. Additional
competition for deposits comes from government and corporate securities and
money market funds. Suncoast competes for deposits through a highly focused
marketing program and by offering a wide variety of deposit accounts and deposit
incentives. However, the ability of the Association to attract and retain
deposits also depends on its ability to provide investment opportunities meeting
the requirements of depositors as to rate of return, liquidity, risk and other
factors. Generally, Suncoast's rates for both deposits and mortgages and loans
are in the mid-range for similar products in its market area.
Competition for the purchase, origination, sale and servicing of real
estate loans continues to intensify and comes predominantly from other savings
institutions, commercial banks, mortgage bankers, insurance companies and
governmental agencies. Factors that affect competition in the mortgage banking
operation include, among other things, the general availability of funds and
credit to make real property related investments and the demand therefor;
general and local economic conditions; current long-term and short-term interest
rates; government regulations; volatility in the mortgage markets; and rates of
inflation.
Legislative developments related to interstate branching and banking
are expected to continue the consolidation of small thrifts and banks, and also
provide easier access to large financial institutions in the marketplace.
Accordingly, Suncoast expects increased competition in the immediate future.
28
<PAGE>
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC
Suncoast is a member of the Savings Association Insurance Fund
("SAIF"), which is administered by the FDIC. Deposits are insured up to
applicable limits by the FDIC and such insurance is backed by the full faith and
credit of the United States Government. As insurer, the FDIC imposes deposit
insurance premiums and is authorized to conduct examinations of and to require
reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured
institution from engaging in any activity the FDIC determines by regulation or
order to pose a serious risk to the FDIC. The FDIC also has the authority to
initiate enforcement actions against savings associations, after giving the OTS
an opportunity to take such action, and may terminate the deposit insurance if
it determines that the institution has engaged or is engaging in unsafe or
unsound practices, or is in an unsafe or unsound condition.
Under the FDIC risk-based deposit insurance assessment system, all
insured depository institutions are placed into one of nine categories and
assessed insurance premiums based upon their level of capital and supervisory
evaluation. Under the system, institutions classified as well-capitalized and
requiring little supervision would pay the lowest premium while institutions
that are classified as undercapitalized and considered of substantial
supervisory concern would pay the highest premium. Risk classification of all
insured institutions is made by the FDIC for each semi-annual assessment period.
With respect to the SAIF, the FDIC is authorized to increase
assessment rates, on a semi-annual basis, if it determines that the reserve
ratio of the SAIF will be less than the designated reserve ratio of 1.25% of
SAIF-insured deposits. In setting these increased assessments, the FDIC must
seek to restore the reserve ratio to that designated reserve level, or such
higher reserve ratio as established by the FDIC. In addition, the FDIC may
impose special assessments on SAIF members to repay amounts borrowed from the
United States Treasury or for any other reason deemed necessary by the FDIC.
Similarly, with respect to deposits insured by the Bank Insurance
Fund ("BIF"), the FDIC is authorized to adjust the assessment rates in order to
maintain the reserve ratio at 1.25% of BIF-insured deposits. The FDIC reported
that the BIF reached the required reserve ratio during May 1995 and as a result,
the FDIC reduced BIF assessment rates. The FDIC initially reduced the BIF
assessment rates, effective June 1, 1995 to rates ranging from 0.04% to 0.27% of
deposits. Subsequently, having determined that the BIF had sufficient reserves
in excess of the required 1.25% ratio, the FDIC further reduced the BIF
assessment rates. Effective January 1, 1996, the FDIC reduced the assessment
rate for "well capitalized" institutions without any significant supervisory
concerns to the statutory minimum of $2,000 annually, and reduced the rates for
other BIF-insured institutions to a range from 0.03% to 0.27% of deposits.
The FDIC has noted that the SAIF is not expected to attain the
designated reserve ratio until the year 2001. The SAIF rates were therefore not
adjusted. The FDIC has determined that SAIF-insured institutions should continue
to pay assessments at the current SAIF assessment rates, which range from 0.23%
of deposits to 0.31% of deposits. The Association's assessment rate for Fiscal
1996 was 0.23% of deposits.
As a result of the revisions to the deposit insurance assessment
rates, BIF members will generally pay lower premiums. This disparity is likely
to provide institutions paying only the BIF assessments with certain competitive
advantages in the pricing of loans and deposits,
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and in lowered operating costs. In order to eliminate this disparity, a number
of proposals to recapitalize the SAIF have been recently considered. The plan
under current consideration provides for a one-time assessment, anticipated to
range from .85% to .90%, to be imposed on all SAIF assessable deposits of each
insured depository institution as of March 31, 1995, and for BIF deposit
insurance premiums to be used to pay the FICO bond interest on a pro rata basis
together with SAIF premiums. The BIF and SAIF would be merged into one fund as
soon as practicable, but no later than January 1, 1998.
EMPLOYEES
As of June 30, 1996, the Association had 150 employees. Employees are
provided with various benefits, including a stock bonus/401(k) plan and life,
health and hospital insurance. The employees are not represented by a collective
bargaining group, and the Association considers its employee relations to be
good.
REGULATION AND SUPERVISION
Set forth below is a brief description of certain laws and
regulations which relate to the regulation of the Association. This description
does not purport to be complete and is qualified in its entirety by reference to
applicable laws and regulations.
GENERAL. The Association is a federally chartered stock savings
association with its deposits insured through the SAIF by the FDIC up to
applicable limits. The Association is also a member of the FHLB system. The
Association is subject to supervision, extensive regulation and periodic
examination by the OTS and to a lesser extent by the FDIC as the insurer of its
deposits. In addition, the Association is subject to certain of the regulations
of the Board of Governors of the Federal Reserve System ("FRB") governing
reserves to be maintained against deposits and certain other matters. Suncoast
must file reports with the OTS concerning its activities and financial
condition, in addition to obtaining regulatory approvals from the OTS and the
FDIC prior to entering into certain transactions. There are periodic
examinations by the OTS and the FDIC to examine Suncoast's compliance with
various regulatory requirements.
The Association's business, operations, financial condition and
results of operations are directly affected by the tax, fiscal and monetary
policies of the federal government and its agencies, particularly the FRB. These
policies affect all financial institutions, and any change in such policies that
primarily impacts savings institutions may affect their ability to compete with
other financial institutions. The Association is subject to extensive
supervision and regulation, which is intended primarily for the protection of
depositors rather than the Association's stockholders. As an integral part of
their supervisory role, the OTS and FDIC periodically review the Association's
policies and practices. As a result of these reviews, the Association could be
required to recognize changes in the valuation or classification of its assets
or liabilities. In addition, the Association is subject to changes in federal
and state law, as well as changes in regulations, governmental policies and
accounting principles. The effects of any such potential changes cannot be
accurately predicted at this time but could materially adversely affect the
Association and its operations.
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REGULATORY CAPITAL. Federally insured savings associations are
required to maintain minimum levels of regulatory capital. The OTS has
established regulations setting forth three capital standards for savings
institutions--a risk-based capital requirement, a leverage or core capital
requirement and a tangible capital requirement. At June 30, 1996, Suncoast
exceeded all applicable capital requirements.
RISK- BASED CAPITAL REQUIREMENT. The risk-based standards of the OTS
currently require maintenance of core capital equal to at least 4% of
risk-weighted assets and total capital equal to at least 8% of risk-weighted
assets. Total capital includes core capital plus supplementary capital but
supplementary capital that may be included in computing total capital for this
purpose may not exceed core capital. Supplementary capital includes cumulative
perpetual preferred stock, allowable subordinated debt and general loan loss
allowances, within specified limits. Such general loss allowances may not exceed
1.25% of risk-weighted assets. Additionally, since July 1, 1994, investments in
non-includable subsidiaries have been subject to a 100% exclusion from
risked-based capital.
In determining the required amount of risk-based capital, total
assets, including certain off-balance sheet items, are multiplied by a
risk-weight based on the risks inherent in the types of assets. The risk-weights
assigned by the OTS for principal categories of assets are (i) 0% for cash and
securities issued by the U.S. Government or unconditionally backed by the full
faith and credit of the U.S. Government; (ii) 20% for securities (other than
equity securities) issued by U.S. Government sponsored agencies and
mortgage-backed securities issued by, or fully guaranteed as to principal and
interest by the FNMA or the FHLMC, except for those classes with residual
characteristics or stripped mortgage-related securities; (iii) 50% for prudently
underwritten permanent one-to-four family first lien mortgage loans and
qualifying multi-family mortgage loans not more than 90 days delinquent and
having a loan-to-value ratio of not more than 80% at origination unless insured
to such ratio by an insurer approved by the FNMA or the FHLMC; and (iv) 100% for
all other loans and investments, including purchased and excess servicing
rights, foreclosed property, unsecured consumer loans, commercial loans, and
one-to-four family residential loans more than 90 days delinquent.
At June 30, 1996, the Association's risk-based requirement was $18.5
million and its actual risk-based capital was $25.6 million, or 11.09% of
risk-adjusted assets.
In August 1993, the OTS adopted a final rule incorporating an
interest rate risk ("IRR") component into the risk-based capital requirement.
Under the final rule, a savings association's risk-based capital requirement
would have two components: (i) a credit risk component, and (ii) an IRR
component. The credit risk component would remain at 8% and the IRR would be
measured in terms of the sensitivity of the market value of portfolio equity
("MVPE") to changes in interest rates. MVPE is defined as the net present value
of an association's assets, liabilities and off-balance sheet contracts. Savings
associations with "above normal" IRR would be required to have capital in
addition to their credit risk capital of 8%. An "above normal" IRR would exist
if the decline in the savings association's MVPE would exceed 2% of the savings
association's assets in the event of a 200 basis point change in interest rates.
The amount of additional capital required of an institution with "above normal"
IRR exposure would be equal to (i) one-half of the difference between its
measured interest rate risk ("MIRR") and 2%, multiplied by (ii) the market value
of its assets. For purposes of this calculation, MIRR means the decline in the
institution's MVPE resulting from the 200 basis point change in interest rates,
expressed as a percentage of the market value
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of the assets. The OTS would calculate the MIRR for each institution, and
institutions with MIRR of 2% or less would not be required to maintain
additional capital for IRR. The rule also authorizes the director of the OTS,
or his designee, to waive or defer an institution's IRR component on a
case-by-case basis. In August 1995, the OTS again delayed the implementation
of an automatic IRR component capital deduction pending the testing of an OTS
appeals process for certain institutions subject to such deductions. The
appeals process is contained in OTS Thrift Bulletin 67, which describes how and
under what circumstances an institution may seek an adjustment to the IRR
component generated by the OTS model or, alternatively, may seek prior approval
to use its own internal IRR model to calculate its IRR component. At June 30,
1996, Suncoast's interest rate risk exposure was within normal levels as
calculated by the OTS model.
LEVERAGE OR CORE CAPITAL REQUIREMENT. The leverage or core capital
requirement mandates that a savings institution maintain "core capital" of not
less than 3% of adjusted total assets. "Core capital" generally includes common
stockholders' equity, noncumulative perpetual preferred stock and related
surplus, less specified intangible assets (a percentage of MSRs in excess of
applicable limits). Generally, a portion of MSRs may be included in core capital
equal to the lower of (i) 90% of the fair market value of readily marketable
MSRs or (ii) the current amortized book value as determined under GAAP. However,
the amount of MSRs included in core capital is limited to a maximum of 50% of
core capital. At June 30, 1996, Suncoast's carrying value totaled $10.4 million,
and based upon a market valuation of MSR's at that date, Suncoast was required
to deduct $720,000 from assets and capital for regulatory capital purposes. At
June 30, 1996, the Association's core capital requirement was $12.0 million and
its actual core capital was $25.0 million, or 6.22% of its adjusted total
assets.
Additionally, the Office of the Comptroller of the Currency (the
"OCC"), which is the primary regulator for national banks, has adopted a final
rule increasing the leverage ratio requirements for all but the most highly
rated national banks. Pursuant to FIRREA, the OTS is required to issue capital
standards for savings institutions that are no less stringent than those
applicable to national banks. Accordingly, savings institutions must maintain a
leverage ratio (defined as the ratio of core capital to adjusted total assets)
of between 4% and 5%.
TANGIBLE CAPITAL REQUIREMENT. FIRREA requires a savings association
to maintain "tangible capital" in an amount not less than 1.5% of adjusted total
assets. Tangible capital is defined in the same manner as core capital except
that all intangible assets, except MSRs, must be deducted. The percentage of
MSRs which may be included in tangible capital is equal to the lesser of i) 100%
of the amount of tangible capital that exists before the deduction of any
disallowed MSRs or (ii) the amount of MSRs allowed to be included in core
capital. At June 30, 1996, the Association's tangible capital requirement was
$6.0 million and its actual tangible capital was $25.0 million, or 6.22% of its
adjusted total assets.
PROMPT REGULATORY ACTION. The OTS and other federal banking
regulators have established capital levels for institutions to implement the
"prompt regulatory action" provisions of the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). Capital levels have been
established for which an insured institution will be categorized as well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized or critically undercapitalized. The FDICIA requires federal
banking regulators, including the OTS, to take prompt corrective action to solve
the problems of those institutions that fail to satisfy their
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applicable minimum capital requirements. The level of regulatory scrutiny and
restrictions imposed become increasingly severe as an institution's capital
level falls.
A "well capitalized" institution must have risk-based capital of 10%
or more, core capital of 5% or more and Tier 1 risk-based capital (based on the
ratio of core capital to risk- weighted assets) of 6% or more and may not be
subject to any written agreement, order, capital directive or prompt corrective
action directive issued by the OTS to meet and maintain a specific capital
measure. An institution will be categorized as "adequately capitalized" if it
has a total risk-based capital of 8% or more, Tier 1 risk-based capital of 4% or
more and core capital of 4% or more; "undercapitalized" if it has total
risk-based capital of less than 8%, Tier 1 risk-based capital of less than 4% or
core capital of less 4%; "significantly undercapitalized" if it has total
risk-based capital of less than 6%, Tier 1 risk-based capital of less than 3% or
core capital of less than 3%; and "critically undercapitalized" if it has
tangible capital of less than 2%. Any savings institution that fails its
regulatory capital requirement is subject to enforcement action by the OTS or
the FDIC. At June 30, 1996, Suncoast meets the definition of a "well
capitalized" institution.
At each successive downward level of capital, institutions are
subject to more restrictions and regulators are given less flexibility in
deciding how to deal with the bank or thrift. For example, undercapitalized
institutions will be subject to asset growth restrictions and will be required
to obtain prior approval for acquisitions, branching and engaging in new lines
of business. As to significantly undercapitalized institutions, the appropriate
agency must require the institution to sell shares in order to raise capital,
must restrict interest rates, and must restrict transactions with affiliates
unless the agency determines that such actions would not further the purposes of
the prompt corrective action system. In addition, the agency may require prior
agency approval for any transaction outside the ordinary course of business.
Critically undercapitalized institutions must obtain prior agency approval for
transactions outside the ordinary course of business, and must be placed in
receivership or conservatorship unless the OTS and the FDIC make certain
affirmative findings regarding the viability of the institution, which findings
must be reviewed every 90 days.
FDICIA prohibits any insured institution (regardless of its
capitalization category) from making capital distributions to anyone or paying
management fees to any persons having control of the institution if after such
transaction the institution would be undercapitalized. Any undercapitalized
institution must submit an acceptable capital restoration plan to the
appropriate agency within 45 days of becoming undercapitalized.
A capital restoration plan will be acceptable only if each company
having control over an undercapitalized institution guarantees that the
institution will comply with the capital restoration plan until the institution
has been adequately capitalized for four consecutive calendar quarters and
provides adequate assurances of performance. The aggregate liability of such
guarantee is limited to the lesser of (i) an amount equal to 5% of the
institution's total assets at the time the institution became undercapitalized
or (ii) the amount which is necessary to bring the institution into compliance
with all capital standards applicable with respect to such institution as of the
time the institution fails to comply with its capital restoration plan.
INDIVIDUAL CAPITAL REQUIREMENTS. In addition to the capital
requirements set forth in the OTS regulations, the OTS has delegated to its
Regional Directors the authority to establish higher individual minimum capital
requirements for savings institutions based upon a
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determination that the institution's capital is or may become inadequate
in view of its circumstances. For example, circumstances which may be considered
by the Regional Directors include situations where the institution needs special
supervisory attention, has or is expected to have losses resulting in capital
inadequacy, has a high degree of interest rate risk, prepayment risk,
off-balance sheet risk, or has poor liquidity, excessive growth or a portfolio
with weak credit quality. No such individual capital requirement has been
established for the Association.
REGULATORY RESTRICTIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS.
Current regulations applicable to the payment of cash dividends and other
capital distributions by savings institutions impose limits on capital
distributions based on an institution's regulatory capital levels and net
income. An institution that meets or exceeds all of its fully phased-in capital
requirements (both before and after giving effect to the distribution) and is
not in need of more than normal supervision would be a "Tier 1 Association." A
Tier 1 association may make capital distributions during a calendar year up to
the greater of (i) 100% of net income for the current calendar year plus 50% of
its capital surplus or (ii) 75% of its net income over the most recent four
quarters. Any additional capital distributions would require prior regulatory
approval.
An institution that meets the minimum regulatory capital requirements
but does not meet the fully phased-in capital requirements would be a "Tier 2
association," which may make capital distributions of between 25% and 75% of its
net income over the most recent four-quarter period, depending on the
institution's risk-based capital level. A "Tier 3 association" is defined as an
institution that does not meet all of the minimum regulatory capital
requirements and therefore may not make any capital distributions without the
prior approval of the OTS.
Savings institutions must provide the OTS with at least 30 days
written notice before making any capital distributions. All capital
distributions are subject to the OTS' right to object to a distribution on
safety and soundness grounds.
The OTS has proposed amendments to its capital distribution
regulations to conform the regulations to the "prompt corrective action"
provisions of FDICIA. As proposed, adequately or well capitalized savings
associations that (i) are not held by savings and loan holding companies; (ii)
have a composite rating of "1" or "2"; (iii) are not deemed to be in "troubled
condition"; and (iv) will remain at least adequately capitalized after the
proposed capital distribution, will not be required to provide notice to the OTS
before making capital distributions.
LIQUIDITY. OTS regulations currently require a savings institution to
maintain for each calendar month an average daily balance of liquid assets
(including cash, certain time deposits, bankers' acceptances and specified
United States government, state and federal agency obligations) equal to at
least 5% of the average daily balance of net withdrawable accounts plus
short-term borrowings during the preceding calendar month. This liquidity
requirement varies from time to time (between 4% to 10%) by OTS regulation
depending upon economic conditions and the deposit flows of savings
institutions. OTS regulations also require each member institution to maintain
for each calendar month an average daily balance of short-term liquid assets
(generally those having maturities of 12 months or less) equal to at least 1% of
the average daily balance of net withdrawable accounts plus short-term
borrowings during the preceding calendar month. Monetary penalties may be
imposed for failure to meet liquidity
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ratio requirements. The liquidity and short-term liquidity ratios of
the Association at June 30, 1996 were each 5.42%, exceeding the applicable
requirements.
QUALIFIED THRIFT LENDER TEST. All savings associations, including the
Association, are required to meet a qualified thrift lender ("QTL") test to
avoid certain restrictions on their operations.
The QTL test requires a savings association to have at least 65% of
its portfolio assets (which consist of total assets less intangibles, properties
used to conduct the savings association's business and liquid assets not
exceeding 20% of total assets) in qualified thrift investments and continue to
meet that test on a monthly average basis in nine out of every twelve months.
Loans and mortgage-backed securities secured by domestic residential housing, as
well as certain obligations of the FDIC and certain other related entities, may
be included in qualifying thrift investments without limit.
Certain other housing-related and non-residential real estate loans
and investments, including loans to purchase or develop churches, nursing homes,
hospitals and schools, and consumer loans and investments in subsidiaries
engaged in housing-related activities may also be included, in varying amounts,
up to 20% of portfolio assets. The Association was in compliance with the QTL
test as of June 30, 1996.
COMMUNITY REINVESTMENT ACT. The Community Reinvestment Act ("CRA")
requires each savings institution, as well as other lenders, to identify the
communities served by the institution's offices and to identify the types of
credit the institution is prepared to extend within such communities. The CRA
also requires the OTS to assess, as part of its examination of a savings
institution, the performance of the institution in meeting the credit needs of
its community and to take such assessments into consideration in reviewing
applications for mergers, acquisitions and other transactions. A
less-than-satisfactory CRA rating may be the basis for denying such an
application. In connection with the assessment of a savings institution's CRA
performance, the OTS will assign a rating of "outstanding," "satisfactory,"
"needs to improve" or "substantial noncompliance." Based on an examination
conducted as of June 1995, the Association was rated "satisfactory."
Effective July 1, 1995, the OTS together with the other federal
banking agencies, adopted a joint rule amending each of their regulations
concerning the CRA. Subject to certain exceptions and elections, the new
regulations prescribe three tests for the evaluation of a savings association's
performance. The lending test evaluates a savings association's record of
helping to meet the credit needs of its assessment area through its lending
activities by considering an association's home mortgage, small business, small
farm, and community development lending. The investment test evaluates a savings
association's record of helping to meet the credit needs of its assessment area
through qualified investments that benefit its assessment area or a broader
statewide or regional area including the assessment area. Finally, the service
test evaluates a savings association by analyzing both the availability and the
effectiveness of the association's systems for delivering retail banking
services and the extent and innovativeness of its community development
services. Based upon the savings association's performance under the lending,
investment, and service tests, and any other tests which may be applicable to
the association under the new regulations, the OTS will assign the savings
association one of the same four ratings prescribed under current regulations.
Additionally, under the new regulations, the OTS will continue to consider an
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association's record of performance under the CRA in the same manner
and for the same purposes as required under current regulations.
These new regulations, while effective July 1, 1995, will be
implemented over a two-year time frame. A savings association may elect to be
evaluated under the revised performance tests beginning January 1, 1996. Absent
such an election, these revised performance tests will not become mandatory and
will not be deemed to replace the current regulations described above until July
1, 1997.
LOANS TO ONE BORROWER LIMITATIONS. Savings associations are subject
to the same loans to one borrower limitations that are applicable to national
banks. Savings associations generally are not permitted to make loans to a
single borrower in excess of 15% of the association's unimpaired capital and
unimpaired surplus (depending upon the type of loan), plus an additional 10% for
loans fully secured by readily marketable collateral. A savings association
which meets its fully phased-in capital requirements may make loans to one
borrower to develop domestic residential housing units, up to the lesser of $30
million or 30% of the savings association's unimpaired capital and unimpaired
surplus, if certain other conditions are satisfied. At June 30, 1996, the
Association was in compliance with the loans to one borrower limitations. At
that same date, its loan to one borrower limit was $3.9 million.
LIMITATION ON COMMERCIAL REAL ESTATE LOANS. FIRREA provides that,
absent an exemption, loans by a federal savings association that are secured by
non-residential real property may not exceed 400% of the Association's capital.
Such a restriction is not considered to materially affect the Association's
operations due to the availability of other loan products.
CERTAIN INVESTMENTS. In general, savings associations may not invest
directly in equity securities, noninvestment grade debt securities, or real
estate. Federal savings associations may invest in the stock of subsidiaries
that engage in activities reasonably related to the activities of federal
associations, including real estate development, subject to limitations based
generally on the institution's asset size. Investments in subsidiaries engaged
as principals in activities that are not permissible for national banks, such as
real estate development, must be deducted from regulatory capital.
A savings institution seeking to establish a new subsidiary, acquire
control of an existing company or conduct a new activity through an existing
subsidiary must provide 30 days prior notice to the FDIC and the OTS and must
conduct any activities of the subsidiary in accordance with regulations and
orders of the OTS. The OTS has the power to require a savings institution to
divest any subsidiary or terminate any activity conducted by a subsidiary that
the OTS determines to be a serious threat to the financial safety, soundness or
stability of the savings institution or to be otherwise inconsistent with sound
banking practices. See "Item 1. Business--Subsidiary Activities" for a
description of the Association's subsidiaries.
GENERAL LENDING POLICIES. The Association's lending activities are
subject to federal and state regulation, including the Equal Credit Opportunity
Act, the Truth in Lending Act, the Real Estate Settlement Procedures Act, the
Community Reinvestment Act and the laws of California, Florida and other
jurisdictions governing discrimination, lender disclosure to borrowers,
foreclosure procedures and anti- deficiency judgments, among other matters.
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TAXATION
FEDERAL. For federal income tax purposes, Suncoast reports its income
and expenses on the accrual basis of accounting on a fiscal year basis ending
June 30. Suncoast files consolidated federal income tax returns.
Suncoast is subject to the rules of federal income taxation
applicable to corporations in general, and savings institutions, in particular,
under the Internal Revenue Code of 1986 (the "Code"). The Code reduced the
maximum tax rate from 46% to 34%. Except as specifically noted, the discussion
below relates to taxable years beginning after June 30, 1987. The Code provides
that net operating losses of a thrift institution incurred in taxable years
beginning after 1981 and before 1986 may be carried back ten years and forward
eight years. Other net operating losses of thrift institutions now come under
the general three year carryback and the 15-year carryover rules.
Under the Code, savings associations that meet certain conditions may
qualify for a bad debt reserve deduction to reduce taxable income. For the year
ended June 30, 1996, Suncoast did not qualify for this deduction.
Suncoast is subject to the corporate alternative minimum tax which is
imposed to the extent it exceeds Suncoast's regular income tax for the year. The
alternative minimum tax will be imposed at the rate of 20% of a specially
computed tax base. Included in this base will be a number of preference items
including the following: (i) 100% of the excess of a thrift institution's bad
debt deduction over the amount that would have been allowable on the basis of
actual experience; and (ii) interest on certain tax-exempt bonds issued after
August 7, 1986. In addition, for purposes of the new alternative minimum tax,
the amount of alternative minimum taxable income that may be offset by net
operating losses is limited to 90% of alternative minimum taxable income.
Suncoast accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). FAS 109 utilizes an asset and liability approach for financial accounting
and reporting for income taxes and requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of other assets and
liabilities. Suncoast adopted FAS 109 as of July 1, 1991 on a prospective basis.
See "Item 8. Financial Statements and Supplementary Data-Notes A and O to the
Consolidated Financial Statements" for a discussion of the effect of SFAS 109 on
the Association.
Legislation provisions was recently passed which eliminate the
preferential tax treatment for deducting additions to the tax bad debt reserves
previously available to thrifts in tax years beginning prior to December 31,
1995. These provisions require that all thrift institutions recapture all or a
portion of their tax bad debt reserves added since the last taxable year
beginning before January 1, 1988. This legislation has no impact on Suncoast
since it utilizes the direct write-off method for deducting bad debts for tax
purposes.
STATE. Florida has a corporate income tax which subjects Suncoast's
Florida taxable income to a 5.5% tax. This tax is deductible in determining
federal taxable income. For purposes of the Florida corporate income tax, tax
benefits from net operating losses may not be carried back to prior years, but
may be carried forward.
No tax returns of Suncoast have been audited by federal or state
authorities since inception.
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ITEM 2. PROPERTIES
The following schedule sets forth the location of the current offices of the
Association as well as certain additional information relating to these offices
and/or leases at June 30, 1996.
<TABLE>
<CAPTION>
NET BOOK VALUE OF
PREMISES OR LEASEHOLD
OFFICE DESCRIPTION LEASE SQUARE IMPROVEMENTS &
CORPORATE HEADQUARTERS AND EXPIRES (1) FOOTAGE EQUIPMENT
------------------ ------------ ------------------------
<S> <C> <C> <C>
Mortgage Origination Office
Presidential Circle 2/28/00 32.850 2.089.356Pts
4000 Hollywood Boulevard
Hollywood, Florida
Savings Branches
4350 Sheridan Street - (2)(3) 12.200 1.436.041
Hollywood, Florida
501 Golden Isles Drive - (2)(4) 4.500 656.816
Hallandale, Florida
227 Commercial Boulevard - (2) 5.000 784.737
Lauderdale-by-the-Sea, Florida
100 South Flamingo Road 12/31/96 3.500 49.687
Pembroke Pines, Florida
1177 George Bush Boulevard, #102 12/31/01 (5) 4.059 197.454
Delray Beach, Florida
1313 North Ocean Boulevard - (2)(6) 7.600 624.354
Pompano Beach, Florida
Mortgage Origination Office
7700 North Kendall Drive, #506 9/30/98 1.129 14.011
Miami, Florida
Storage Warehouses
1009 South 21st Avenue 3/31/98 1.500 --
Hollywood, Florida
1017 South 21st Avenue 12/31/96 2.322 --
Hollywood, Florida
Other
1177 George Bush Boulevard, #200 1/31/98 (7) 5.371 185.040
Delray Beach, Florida
4340 Sheridan Street - (2)(8) 4.764 602.203
Hollywood, Florida
</TABLE>
- -------------------------------------
(1) Certain of these leases have an option to renew.
(2) The Association owns the facility.
(3) A savings branch occupies 3,100 square feet. The remainder of the building
is leased by unrelated parties.
(4) The Association leases 1,400 square feet to unrelated parties.
(5) The Association is currently renovating this space to accommodate its
savings branch which is temporarily located in another suite at this
location (see note 6 below). The Association plans to relocate its savings
branch to this space in September, 1996.
(6) The Association opened this savings branch in August, 1996.
(7) The Association's savings branch at this location temporarily occupies
approximately 300 square feet (see note 5 above). The remainder of the
space is sub-leased to an unrelated party.
(8) The entire space is currently sub-leased to an unrelated party.
For further information regarding lease payments as of June 30, 1995, see "Item
8. - Financial Statements and Supplementary Data - Note M of Notes to
Consolidated Financial Statements."
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ITEM 3. LEGAL PROCEEDINGS
The Association and its subsidiaries are parties to routine legal
proceedings which arise in the normal course of the Association's business.
There are no material pending legal proceedings to which the Association or any
subsidiary is a party or to which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of
Suncoast during the three months ended June 30, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Suncoast's Common Stock is traded over-the-counter and is quoted
on NASDAQ/NMS under the symbol SCSL. The table reflects the actual high and low
closing prices for the quarters of the fiscal years ended June 30, 1995 and
1996.
QUARTER ENDED COMMON STOCK
HIGH LOW
- -----------------------------------------------------------
September 30, 1994 $7.63 $6.50
December 31, 1994 $7.88 $5.50
March 31, 1995 $9.06 $6.44
June 30, 1995 $6.75 $5.50
September 30, 1995 $7.19 $6.25
December 31, 1995 $7.00 $5.88
March 31, 1996 $6.88 $6.25
June 30, 1996 $6.50 $5.75
No cash dividends have been paid on Suncoast's Common Stock since the fiscal
year ended June 30, 1990. Any cash dividend on the Common Stock will be
determined by future income and regulatory requirements. Suncoast has no current
plans to pay dividends on the Common Stock.
At September 23, 1996, 2,195,930 shares of Common Stock were
outstanding, held by approximately 700 beneficial stockholders of record.
39
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial and other data
provides information for the five year period ended June 30, 1996.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) AS OF AND FOR THE YEARS ENDED JUNE 30,
----------------------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Interest income 27,958 27,855 18,611 12,892 15,979
Interest expense 17,937 19,018 10,910 7,799 11,688
----------------------------------------------------------------
Net interest income before provision for loan losses 10,021 8,837 7,701 5,093 4,291
Provision for loan losses 153 95 - 537 55
Loan servicing income before valuation adjustments 4,399 6,275 4,580 3,768 3,510
Valuation adjustments - - - 6,021 5,514
Gains on the sale of loans and loan servicing assets, net 925 560 14,963 22,458 15,131
Gains on the sale of mortgage-backed securities, net 2,950 1,388 - - -
Other non-interest income 1,252 1,707 7,630 9,619 4,573
Non-interest expenses 15,581 17,741 31,766 31,167 20,564
Provision for income taxes 1,411 330 1,005 928 141
----------------------------------------------------------------
Net income 2,402 601 2,103 2,285 1,231
----------------------------------------------------------------
Earnings (loss) per share, primary 0.61 (0.26) 0.63 1.11 0.66
Earnings (loss) per share, fully diluted 0.61 * 0.59 1.10 0.66
Common Stock cash dividends per share $ - $ - $ - $ - $ -
Preferred Stock cash dividends per share 1.20 1.20 0.85 $ $ -
Weighted average common and common
equivalent shares, fully diluted 3,675 3,652 3,589 2,079 1,853
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Total assets $ 402,569 $ 462,353 $ 359,090 $ 226,931 $ 187,529
Loans receivable in portfolio 320,828 129,786 101,783 36,480 42,931
Loans receivable held for sale 6,730 2,978 23,481 116,169 36,296
Mortgage-backed securities 18,391 136,856 162,149 - -
Loan servicing assets 11,718 10,105 11,248 14,999 30,422
Real estate owned 261 523 428 533 1,852
Total liabilities 377,031 437,569 334,524 216,020 179,056
Deposits 301,201 337,854 260,435 211,085 173,296
Borrowings 68,500 88,623 69,000 - -
Stockholders' equity 25,538 24,784 24,566 10,911 8,473
- ----------------------------------------------------------------------------------------------------------------------------
REGULATORY CAPITAL RATIOS:
Tangible 6.22% 5.12% 6.57% 4.81% 4.04%
Core 6.22% 5.12% 6.57% 4.81% 4.04%
Risk-based 11.09% 13.43% 16.06% 11.01% 8.68%
- ----------------------------------------------------------------------------------------------------------------------------
OTHER:
Return on average assets 0.56% 0.15% 0.72% 1.10% 0.58%
Return on average equity 9.55% 2.44% 11.85% 23.58% 15.67%
Interest rate spread 2.66% 2.13% 2.69% 3.25% 2.77%
Loan servicing portfolio $1,489,053 $1,639,069 $2,009,762 $2,688,629 $2,402,915
Mortgages originated $ 127,504 $ 118,492 $2,203,839 $2,684,251 $1,659,336
Mortgages sold $ 117,615 $ 79,313 $2,166,937 $2,615,188 $1,691,410
Number of:
Savings branches 6 4 4 4 4
Mortgage origination offices 2 1 4 14 10
</TABLE>
40
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Suncoast is engaged primarily in community banking and loan
servicing activities. Suncoast provides community banking services primarily in
Dade, Broward and Palm Beach counties in Florida. Community banking consists
primarily of attracting checking and savings deposits from the public in a
localized market area and investing such deposits, together with borrowings and
other funds, in various types of loans and other permitted investments. In
connection with its community banking activities. Suncoast originates and
purchases, for its own portfolio, both residential and commercial real estate
loans. Suncoast services loans secured by real property located throughout the
United States. Suncoast's results of operations and financial condition over the
past three fiscal years reflect a fundamental shift in Suncoast's business from
a mortgage bank to a community bank. Prior to 1994, Suncoast was engaged
primarily in the mortgage banking business, which involves the origination or
purchase of single family residential loans for resale in the secondary mortgage
market. Historically low interest rates in 1992 and 1993 generated record
volumes of loan origination and resale activity, primarily refinancings, leading
Suncoast to expand its lending operations nationally to 15 loan production
offices. Beginning in January 1994, however, rising interest rates halted
refinancings, making it unprofitable for Suncoast to continue its mortgage
banking operation. Suncoast downsized its mortgage banking operations by closing
all but one of its loan production offices, and by reducing related staff and
overhead expenses.
During fiscal 1994 and 1995, Suncoast changed its operating
strategy to that of a community bank and focused on enhancing its net interest
income and servicing revenues. As a result of this change in strategy,
Suncoast's net interest income and loan servicing income have grown in relation
to mortgage banking income in the years ended June 30, 1995 and 1996. Suncoast
initially replaced its mortgage banking assets, primarily its inventory of loans
available for sale, with investments in mortgage-backed securities, repurchase
agreements, and loans originated for portfolio. Suncoast's strategy was to
restructure its assets initially into interest bearing assets with minimal
credit risk until Suncoast could reinvest funds previously used to finance its
mortgage banking activities into portfolio loans. In addition, this strategy
allowed Suncoast to shift its assets to those with lower risk weights under the
risk based capital regulations enabling Suncoast to increase both its assets and
deposits and, accordingly, its net interest income, while remaining well
capitalized under such regulations.
During fiscal 1995 and fiscal 1996, Suncoast sold portions of its
mortgage-backed securities portfolio due to favorable market conditions and its
ability to apply the proceeds to the purchase and origination of high quality
residential and commercial real estate loans for investment. At June 30, 1996,
$18.4 million of mortgage-backed securities remained available for sale. In
completing this restructuring, Suncoast not only reduced its interest rate risk,
but increased its net interest income by shifting from longer term fixed rate
mortgage-backed securities to higher yielding adjustable rate loans receivable.
As its assets were shifted into portfolio loans, Suncoast was required to reduce
the overall levels of both its interest-earning assets and its interest-bearing
liabilities in order to remain well capitalized under the applicable
regulations, since its asset mix shifted from mortgage-backed securities and
short term liquid investments, generally bearing 0 to 20% risk weights, to
residential and commercial loans bearing 50% and 100% risk weights,
respectively, for purposes of its risk- based capital ratio.
41
<PAGE>
The following table sets forth for the periods indicated the
amounts and percentages of Suncoast's total income represented by each source
(dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1996 1995 1994
---- ---- ----
AMOUNT % AMOUNT % AMOUNT %
--------- --- -------- ---- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Net interest
income before
provision for
loan losses..................... $ 10,021 51.3% $ 8,837 47.1% $ 7,701 22.1%
Loan servicing
income.......................... 4,399 22.5 6,275 33.4 4,580 13.1
Gains on the sale
of loans and
loan servicing
assets, net..................... 925 4.7 560 3.0 14,963 42.9
Gains on the sale
of mortgage-backed
securities..................... 2,950 15.1 1,388 7.4 -- --
Loan origination
income.......................... 435 2.2 391 2.1 6,075 17.4
Other............................ 817 4.2 1,316 7.0 1,555 4.5
--------- --- -------- ---- ------- ---
Total............................ $ 19,547 100.0% $ 18,767 100.0% $34,874 100.0%
======== ===== ======= ===== ====== =====
</TABLE>
Net interest income is the difference between interest income received
on Suncoast's interest-earning assets (principally loans, investments,
mortgage-backed securities, and premiums on the sales of loans) and interest
expense paid on its interest-bearing liabilities (principally deposits, FHLB
advances, and other borrowings). Loan servicing income includes fees received
for servicing loans, less amortization or valuation adjustments of loan
servicing assets. Mortgage banking income includes gains on the sale of loans
and loan servicing assets, interest on loans held in inventory for sale, and
loan origination income. Loan origination income includes fees collected for
document preparation and the processing of loans originated for sale in the
secondary market. Suncoast has also periodically realized other income from its
other mortgage-related and real estate activities, which is included in the
"Other" category in the table above.
FACTORS AFFECTING EARNINGS
ASSET/LIABILITY MANAGEMENT. The assets and liabilities of Suncoast
are managed to provide an optimum and stable net interest margin, after-tax
return on assets and return on equity capital. Management, in implementing
Suncoast's asset/liability management policy, attempts to minimize the interest
rate risk, credit risk, solvency risk and liquidity risk to Suncoast. Suncoast's
Asset/Liability Committee, which meets on a weekly basis and conducts scheduled
reviews of various indicators and other risk criteria, has the responsibility to
monitor
42
<PAGE>
interest rate risk, devise strategies to adjust interest rate risk and enhance
capital and operational effectiveness, monitor and set targets for loan
originations, purchases and sales and securities purchases, and establish
pricing on all deposit products. Suncoast's asset and liability strategy seeks
to achieve an optimum return on assets while assuming acceptable amounts of
credit and interest rate risk with the goal of reasonable returns on investments
relative to the risks assumed. Management balances these goals by minimizing
credit risk through strict underwriting standards and policies while accepting
moderate interest rate risk. While Suncoast accepts moderate levels of interest
rate risk in its loan and investment portfolio, it generally seeks to limit
interest rate risk by maintaining adjustable-rate assets and, in its mortgage
banking operation, through the ongoing sale into the secondary mortgage market
of all loans originated or purchased for sale.
The Suncoast Board of Directors has established an interest rate risk
policy to monitor the effect of interest rate risk in accordance with rules
issued by the OTS. Management has implemented this policy with quarterly
measurements. Management considers these measurements in its strategies to
enhance capital and operational effectiveness. See "Item 8. Financial Statements
and Supplementary Data - Note B of the Notes to Consolidated Financial
Statements" for additional discussion of OTS rules regarding interest rate risk.
GAP TABLE. The interest rate sensitivity of Suncoast can also be
measured by matching its assets and liabilities, analyzing the extent to which
such assets and liabilities are interest rate sensitive and by monitoring the
resulting "gap" position. An asset or liability is rate sensitive within a
specific time period if it will mature or reprice within that period. The
interest sensitivity gap is defined as the difference between the amount of
interest-earning assets anticipated, based upon certain assumptions, to mature
or reprice within a specific time period and the amount of interest-bearing
liabilities anticipated to mature within that time period. A gap is considered
positive when the amount of interest rate sensitive assets maturing within a
specific time frame exceeds the amount of interest rate sensitive liabilities
maturing within that same time frame. Accordingly, in a rising interest rate
environment, an institution with a positive gap would generally be expected,
absent the effects of other factors, to experience a greater increase in the
yield of its assets relative to the cost of its liabilities. Conversely, the
cost of funds for an institution with a positive gap would generally be expected
to decline less quickly than the yield on its assets in a falling interest rate
environment. Changes in interest rates generally have the opposite effect on an
institution with a "negative" gap. As of June 30, 1996, Suncoast had a negative
cumulative one-year gap of $21.5 million or 5.3% of total assets. During a
rising interest rate environment, Suncoast's negative gap position would
generally be expected, absent the effect of other factors, to result in
decreased net interest income as the increase in the cost of its liabilities
would exceed the increase in the yield on its assets.
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at June 30, 1996, which are
anticipated, based upon certain assumptions described in the following
paragraph, to reprice or mature in each of the future time periods shown.
Certain weaknesses are inherent in this method of analysis. As an example,
certain assets and liabilities may have similar maturity and repricing periods,
but may react in different degrees to changes in market interest rates.
Prepayment and early withdrawal penalties would likely deviate significantly
from those assumed in calculating the table in the event of a change in interest
rates.
43
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands)
OVER OVER OVER OVER
ONE THREE FIVE SEVEN
WITHIN YEAR TO YEARS TO YEARS TO YEARS TO
ONE THREE FIVE SEVEN THIRTY
YEAR(1) YEARS YEARS YEARS YEARS
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest-earning assets
First mortgage loans:
Adjustable-rate..................... $ 211,992 $ 63,990 $ 9,522 $ -- $ --
Fixed-rate and balloon.............. 12,239 3,995 6,044 4,052 13,189
Second mortgage loans................ 48 33 67 34 22
Consumer loans....................... 1,545 -- -- -- --
Non-performing loans.................
--------- --------- --------- --------- ---------
Loans receivable..................... 225,824 68,018 15,633 4,086 13,211
--------- --------- --------- --------- ---------
Mortgage-backed securities:
Adjustable.......................... 18,391 -- -- -- --
Unrealized gain on assets
available for sale................. -- -- -- -- --
--------- --------- --------- --------- ---------
Total mortgage-backed securities:.... 18,391 -- -- -- --
--------- --------- --------- --------- ---------
Amounts due from purchasers of loans,
MBS, and loan servicing assets:
Loans ............................ -- -- -- -- --
Mortgage-backed securities & REMICS -- -- -- --
Loan servicing assets.............. -- -- -- -- --
--------- --------- --------- --------- ---------
-- -- -- -- --
-------- ------ ------ ------ -----
PMSRs ............................ -- -- -- -- --
Originated Servicing Rights - FAS 122 -- -- -- -- --
Premiums on the sale of loans........ 1,359 -- -- -- --
FHLB stock and
interest-earning deposits........... 4,497 -- -- -- --
--------- --------- --------- --------- ---------
5,856 -- -- -- --
--------- --------- ------ ------ -----
Total interest-earning assets........ 250,071 68,018 15,633 4,086 13,211
Non-interest earning assets.......... -- -- -- -- --
--------- --------- --------- --------- ---------
Total assets......................... 250,071 68,018 15,633 4,086 13,211
========= ========= ========= ========= =========
Interest-bearing liabilities
Fixed-maturity deposit accounts..... 176,991 22,653 5,970 -- --
NOW accounts........................ 6,568 6,012 1,609 1,108 2,454
Money market accounts............... 4,723 4,533 1,632 587 330
Passbook accounts................... 6,963 10,576 6,895 4,303 12,222
Custodial and business accounts..... 9,277 8,492 2,272 1,565 3,466
--------- --------- --------- --------- ---------
Deposits............................. 204,522 52,266 18,378 7,563 18,472
---------- --------- --------- --------- ----------
FHLB advances........................ 67,000 -- -- -- 1,500
Other borrowings
............................ -- -- -- -- --
--------- --------- --------- --------- ---------
Total interest-bearing liabilities... 271,522 52,266 18,378 7,563 19,972
Non-interest bearing liabilities..... -- -- -- -- --
Stockholders' equity................. -- -- -- -- --
--------- --------- --------- --------- ---------
Total liabilities and
Stockholders' equity................ 271,522 52,266 18,378 7,563 19,972
========= ========= ========= ========= =========
Excess (deficit) of interest-earning
assets over interest-bearing
liabilities......................... (21,451) 15,752 (2,745) (3,477) (6,761)
========== ========= ========= --------- ==========
Cumulative excess (deficit).......... (21,451) (5,699) (8,444) (11,921) (18,682)
========= ========= ========= ========= =========
Cumulative excess (deficit) as a
percent of total assets............. -5.32% -1.41% -2.09% -2.96% -4.64%
</TABLE>
44
<PAGE>
(Dollars in thousands)
NON-
SUB- INTEREST
TOTAL SENSITIVE TOTAL
--------- ------- ---------
Interest-earning assets
First mortgage loans:
Adjustable-rate..................... 285,504 $ -- $ 285,504
Fixed-rate and balloon.............. 39,519 -- 39,519
Second mortgage loans................ 204 -- 204
Consumer loans....................... 1,545 -- 1,545
Non-performing loans................. 786 786
--------- ------- ---------
Loans receivable..................... 326,772 786 327,558
--------- ------- ---------
Mortgage-backed securities:
Adjustable.......................... 18,391 -- 18,391
Unrealized gain on assets
available for sale................. -- -- --
--------- ------- ---------
Total mortgage-backed securities:.... 18,391 -- 18,391
--------- ------- ---------
Amounts due from purchasers of loans,
MBS, and loan servicing assets:
Loans ............................ -- -- --
Mortgage-backed securities & REMICS -- -- --
Loan servicing assets.............. -- -- --
--------- ------- ---------
-- -- --
------- ------ ------
PMSRs ............................ -- 9,525 9,525
Originated Servicing Rights - FAS 122 -- 834 834
Premiums on the sale of loans........ 1,359 -- 1,359
FHLB stock and
interest-earning deposits........... 4,497 -- 4,497
--------- ------- ---------
5,856 10,359 16,215
---------- ---------- ----------
Total interest-earning assets........ 351,019 11,145 362,164
Non-interest earning assets.......... -- 40,405 40,405
--------- ------- ---------
Total assets......................... 351,019 51,550 402,569
========= ======= =========
Interest-bearing liabilities
Fixed-maturity deposit accounts..... 205,614 -- 205,614
NOW accounts........................ 17,751 -- 17,751
Money market accounts............... 11,805 -- 11,805
Passbook accounts................... 40,959 -- 40,959
Custodial and business accounts..... 25,072 -- 25,072
--------- ------- ---------
Deposits............................. 301,201 -- 301,201
--------- ------- ---------
FHLB advances........................ 68,500 -- 68,500
Other borrowings
............................ -- -- --
--------- ------- ---------
Total interest-bearing liabilities... 369,701 -- 369,701
Non-interest bearing liabilities..... -- 7,330 7,330
Stockholders' equity................. -- 25,538 25,538
--------- ------- ---------
Total liabilities and
Stockholders' equity................ 369,701 32,868 402,569
========= ======= =========
Excess (deficit) of interest-earning
assets over interest-bearing
liabilities......................... (18,682)
========
Cumulative excess (deficit).......... (18,682)
=========
Cumulative excess (deficit) as a
percent of total assets............. -4.64%
44 (CONTINUED)
<PAGE>
(1) Loans held for sale are included in this category because they are
held by Suncoast for less than six months. The maturity dates of the
loans range from seven to 30 years.
On June 30, 1996 and 1995, respectively, approximately 68.9% and 59.3%,
respectively, of Suncoast's total loans receivable were loans which mature or
reprice within one year.
Within the preceding table, interest-earning assets and
interest-bearing liabilities with no contractual maturities are included in the
"within one year" category. Premiums on the sales of loans are recorded as an
interest earning asset in the gap table, but do not have a stated contractual
yield. The investment in PMSRs and OMSRs which yield servicing fee income, and
escrow and custodial accounts deposited with Suncoast, are included in the
non-interest sensitive column.
In preparing the preceding table, certain assumptions have been made
with regard to prepayments on first mortgage loans and mortgage-backed
securities. The prepayment assumptions used were obtained from publicly
available mortgage prepayment rate tables. These sources provide assumptions
which correlate to recent actual repricings experienced in the marketplace.
These assumptions are that fixed-rate, single-family residential loans will
reprice according to their scheduled amortization and that Suncoast will
experience average annual prepayments of approximately the following percentages
on fixed-rate loans according to the original term to maturity as follows:
30-year maturity, 8%; 15-year maturity, 10%; and seven and five year balloon,
15%. The assumptions provided by the mortgage prepayment rate tables should not
be regarded as indicative of the actual repricings that may be experienced by
Suncoast. Decay rates are assumed to indicate the annual rate at which an
interest-bearing liability will be withdrawn in favor of an account with a more
favorable interest rate. Decay rates have been assumed by Suncoast for NOW
accounts, passbook and money market deposits and are the most recent national
assumptions published by the OTS. The assumptions used at the dates indicated,
although standardized, may not be indicative of actual withdrawals and repricing
experienced by Suncoast. Annual percentage decay rate assumptions used in the
table are as follows:
MORE
WITHIN 1-3 3-5 5-7 THAN
1 YEAR YEARS YEARS YEARS 7 YEARS
------ ----- ----- ----- - -----
Passbook..................... 17% 17% 16% 16% 14%
NOW.......................... 37 32 17 17 17
Money market................. 40 40 40 40 40
All other assets and liabilities have been repriced based on the
earlier of repricing or contractual maturity.
YIELDS EARNED AND RATES PAID. The following table provides
information relating to the categories of Suncoast's interest-earning assets and
interest-bearing liabilities for the periods indicated. All yield and rate
information is calculated on an annualized basis. Yield and rate information for
a period is average information for the period calculated by dividing the income
45
<PAGE>
or expense item for the period by the average balances during the period of the
appropriate balance sheet item. Net interest margin is net interest income
divided by average interest-earning assets. Non-accrual loans are included in
asset balances for the appropriate periods, whereas recognition of interest on
such loans is discontinued and any remaining accrued interest receivable is
reversed in conformity with federal regulations. The yields and net interest
margins appearing in the following table have been calculated on a pre-tax
basis.
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995
---- ----
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- --------- ------ --------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
FHLB stock and interest-earning deposits $25,426 $1,488 5.85% $ 8,892 $ 558 6.28%
Overnight investments and repurchase
agreements......................... 20,366 1,165 5.72% 18,361 1,062 5.78%
-------- ------ -------- -------
Sub-total............................. 45,792 2,653 5.79% 27,253 1,620 5.94%
-------- ------ -------- -------
Loans receivable...................... 242,063 19,902 8.22% 117,401 9,359 7.97%
Mortgage-backed securities............ 77,096 5,276 6.84% 260,924 16,731 6.41%
Other interest-earning assets......... 1,405 127 9.00% 1,611 145 9.00%
--------- ------ -------- -------
Total interest-earning assets......... $366,356 $27,958 7.63% $407,189 $27,855 6.84%
======== ======= ======== =======
Interest-bearing liabilities:
Deposits.............................. $308,768 $14,891 4.82% $316,979 $14,087 4.44%
-------- ------- -------- -------
Advances from FHLB.................... 47,330 2,772 5.86% 57,065 3,155 5.53%
Other borrowings...................... 4,611 274 5.95% 29,672 1,776 5.99%
-------- ------ -------- -------
Sub-total............................. 51,941 3,046 5.86% 86,737 4,931 5.69%
-------- ------ -------- -------
Total interest-bearing liabilities.... $360,709 $17,937 4.97% $403,716 $19,018 4.71%
======== ======= ======== =======
Net interest income/interest rate spread $10,021 2.66% $ 8,837 2.13%
======= =======
Net interest-earning assets/net
interest margin....................... $366,356 $10,021 2.74% $407,189 $ 8,837 2.17%
======== ======= ======== =======
</TABLE>
48
<PAGE>
(Dollars in thousands)
1994
----
AVERAGE YIELD/
BALANCE INTEREST RATE
-------- -------- --------
Interest-earning assets:
FHLB stock and interest-earning deposit $25,061 $839 3.35%
Overnight investments and repurchase
agreements......................... 22,621 822 3.63%
-------- ------
Sub-total............................. 47,682 1,661 3.47%
-------- ------
Loans receivable...................... 223,764 15,220 6.80%
Mortgage-backed securities............ 23,894 1,575 6.59
Other interest-earning assets......... 1,727 155 8.98%
-------- ------
Total interest-earning assets......... $297,067 $18,611 6.26%
======== =======
Interest-bearing liabilities:
Deposits.............................. $277,185 $9,406 3.39%
-------- ------
Advances from FHLB.................... 8,898 349 3.92%
Other borrowings...................... 19,158 1,155 6.03%
-------- ------
Sub-total............................. 28,056 1,504 5.36%
-------- ------
Total interest-bearing liabilities.... $305,241 $10,910 3.57%
======== =======
Net interest income/interest rate spread $ 7,701 2.69%
=======
Net interest-earning assets/net
interest margin....................... $297,067 $7,701 2.59%
======== ======
48 (CONTINUED)
- ----------------------------
The increase in the interest rate spread for fiscal 1996 from that of
fiscal 1995 is primarily attributable to a change in Suncoast's asset mix as
funds previously invested in mortgage-backed securities were reinvested in
higher yielding primary adjustable rate residential and commercial mortgages.
Suncoast's yields and costs, however, have generally followed the financial
markets.
RATE/VOLUME ANALYSIS. The following table describes the extent to
which changes in interest rates and changes in volume of interest-related assets
and liabilities have affected Suncoast's interest income and expense during
Fiscal 1996, 1995 and 1994. For each category of interest-earning asset and
interest-bearing liability, information is provided on changes attributable to
changes in volume (changes in volume multiplied by prior year rates) and changes
in rate (changes in rate multiplied by prior year volume). Rate-volume variances
46
<PAGE>
(change in rate multiplied by the change in volume) have been allocated to the
change in volume. All amounts are in thousands.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 YEAR ENDED JUNE 30, 1995
VS. YEAR ENDED JUNE 30, 1995 VS YEAR ENDED JUNE 30, 1994
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ------- ------ ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans ................................... $10,249 $ 294 $10,543 $(8,479) $2,618 $(5,861)
Mortgage-backed securities.................. (12,580) 1,125 (11,455) 15,199 ( 43) 15,156
Premiums on the sale of loans............... ( 18) -- ( 18) ( 10) -- ( 10)
FHLB stock and interest-earning deposits.... 1,074 ( 41) 1,033 (1,214) 1,173 ( 41)
------ ------- ------ ------- ----- -------
Net increase (decrease) in interest on
interest-earning assets.................... (1,275) 1,378 103 5,496 3,748 9,244
------ ------- ------ ------- ----- -------
Interest-bearing liabilities:
Deposits................................... ( 396) 1,200 804 1,769 2,912 4,681
Borrowings and FHLB advances............... (2,041) 156 (1,885) 3,336 91 3,427
------ ------- ------ ------- ----- -------
Net increase(decrease) in interest
on interest-bearing liabilities........... (2,437) 1,356 (1,081) 5,105 3,003 8,108
------ ------- ------ ------- ----- -------
Net increase (decrease) in net
interest income before provision
for loan losses........................... $1,162 $ 22 $1,184 $ 391 $ 745 $ 1,136
====== ======= ====== ======= ===== =======
</TABLE>
LOAN SERVICING INCOME. Loan servicing income includes fees received for
servicing loans less amortization and valuation adjustments of loan servicing
assets. Loan servicing assets consist of PMSRs, OMSRs and premiums on the sale
of loans. Premiums on the sales of loans represent the present value of the
future cash flows to be received in excess of the normal servicing fee, which
are recorded as gains on the sale of loans at the time the sales occur.
The value of loan servicing assets can be materially affected by
economic forces not within the control of Suncoast. For example, Suncoast is
subject to the risk that declines in the interest rates for mortgage loans will
diminish its servicing portfolio as borrowers refinance or otherwise prepay
higher rate loans. Management, however, seeks to reduce the risk of declining
interest rates on its loan servicing portfolio by implementing various
asset/liability management techniques and amortizing the assets. See "Asset and
Liability Management," above.
For the period from January 1990 through June 1995, Suncoast did not
purchase or accumulate any servicing assets due in part to regulatory changes
which placed restrictions on the value and amount of PMSRs that could be
included in the calculation of regulatory capital. PMSRs and premiums on the
sale of loans remaining from prior years, however, have continued to be
amortized over the remaining anticipated life of the loans. In amortizing its
loan servicing assets, and determining the carrying value of these assets,
Suncoast uses certain assumptions, including the estimated prepayment rate on
the mortgage loans being serviced. These estimates are reviewed in connection
with the preparation of quarterly and year-end financial statements, and, if the
estimated prepayment rates are too low, the values of the assets are adjusted
downward and the adjustments are recorded as an expense. On
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<PAGE>
an annual basis, PMSRs and OMSRs are also valued by an independent
firm with the necessary expertise to perform such valuation and, if required by
the valuation, the carrying value of the PMSRs and OMSRs is reduced to fair
market value. No adjustments of PMSRs, OMSRs or premiums on the sale of loans
were required in fiscal 1996, 1995 or 1994.
On July 1, 1995, Suncoast adopted FAS 122, as discussed in "Item 8.
Financial Statements and Supplementary Data - Notes to Suncoast's Consolidated
Financial Statements." With its adoption of FAS 122, Suncoast has reinitiated
its prior practice of retaining the servicing rights on most of the loans that
it originates and sells, and capitalizes as OMSRs the normal servicing fee to be
received over the life of each loan at its fair value. The adoption of FAS 122
resulted in aggregate additional realized net gains of approximately $600,000
($380,000, net of tax) on the sale of loans during the year ended June 30, 1996.
Suncoast's loan servicing portfolio (including subservicing, but
excluding loans owned by Suncoast) at June 30, 1996 decreased to $1.2 billion as
compared to $1.5 billion at June 30, 1995, primarily due to a decrease in the
amount of loans subserviced for the FDIC and other entities. Unlike servicing
generally, subservicing contracts are not considered an investment in loan
servicing rights for financial reporting purposes. Subservicing contracts allow
Suncoast to utilize existing operational capabilities without incurring
additional capital investment in servicing rights or the interest rate risk
associated with these rights.
The amount of subservicing fees generated by Suncoast from the FDIC is
dependent upon the amount of assets which come under its control, the length of
time such assets are owned by the FDIC and other factors generally beyond the
control of Suncoast. The amount of subservicing fees from the FDIC declined due
to the sale by the Resolution Trust Corporation, the FDIC's predecessor, of the
majority of the loans under its control prior to the phase out of the RTC's
operations in December 1995. At June 30, 1996, the subservicing portfolio
declined to approximately $462.7 million from $881.0 million at June 30, 1995,
with FDIC loans serviced declining from $511.8 million to $208.2 million.
Included in the subservicing portfolio at June 30, 1996 is approximately $55.2
million of loans serviced under a sales agreement the servicing rights of which
will be transferred to the purchaser in the first quarter of fiscal 1997.
The portfolio of Suncoast owned servicing rights increased from $467.7
million at June 30, 1995 to $698.9 million at June 30, 1996 primarily as a
result of servicing purchases. During the year ended June 30, 1996, Suncoast
purchased approximately $2.3 million of loan servicing rights, representing
approximately $286.8 million in principal loan balances, and capitalized
approximately $860,000 in OMSRs, representing $62.0 million in principal loan
balances. During fiscal 1996, Suncoast also recorded $107,000 in premiums on the
sales of loans in connection with the sale of participation interests in certain
commercial real estate loans.
Repayments of loans underlying the servicing assets increased from
$72.7 million in fiscal 1995 to $95.5 million in fiscal 1996 due to declining
interest rates between the two periods. Suncoast intends to continue to generate
loan servicing fees in connection with its existing portfolio of loan servicing
rights and subservicing contracts, but loan servicing income may continue to
decrease as loans in the existing portfolio are repaid and subservicing
contracts are not renewed.
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<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
NET INCOME. Suncoast's net income for fiscal 1996 was $2.4 million,
representing earnings per common share of $.61, as compared to net income of
$601,000, representing a loss per common share of $.26, for fiscal 1995. The
increase in net income and earnings per share available to common stockholders
during fiscal 1996 is primarily attributable to the $1.1 million increase in
Suncoast's net interest income after provision for loan losses, combined with
the $2.2 million decrease in non-interest expenses primarily from downsizing of
Suncoast's mortgage banking operations and offices. The fiscal 1995 financial
results were materially impacted by the costs of closing these unprofitable
offices. These non-recurring costs, including employee separation and office
lease termination expenses, totalled $1.6 million before income tax during
fiscal 1995. Results of operations in fiscal 1996 and 1995 were favorably
impacted by gains on the sale of mortgage-backed securities of $3.0 and $1.4
million, respectively.
NET INTEREST INCOME. Net interest income before provision for loan
losses increased to $10.0 million in fiscal 1996, as compared to $8.8 million in
fiscal 1995, an increase of 13.4%. Although average interest earning assets were
reduced by 10.0% from fiscal 1995 to fiscal 1996, interest income remained
unchanged due to the shift in the asset mix from mortgage backed securities into
higher yielding loans. During fiscal 1996, Suncoast originated or purchased for
portfolio approximately $232.8 million of primarily adjustable rate single
family residential loans, and $48.0 million of commercial and multi-family real
estate loans. Interest expense decreased 5.7% in fiscal 1996, as compared to the
prior fiscal years, primarily as a result of a decrease in the average balances
of other borrowings and deposits. The average balance of such items decreased
during fiscal 1996 as Suncoast repaid higher cost borrowings and reduced higher
cost deposits. Both assets and liabilities were reduced during fiscal 1996 in
order for Suncoast to remain in the well capitalized category.
PROVISION FOR LOAN LOSSES. A provision for loan losses is recorded when
available information indicates that it is probable that an asset has been
impaired and the amount of the loss can be reasonably estimated. The adequacy of
the allowance for loan losses is evaluated monthly by application of a formula
developed by Suncoast that applies to outstanding loan balances percentages that
vary based on the expected risk of loss for each type of loan and the
designation of specific loans as classified assets, as well as management's
further consideration of the inherent risk in the portfolio. The allowance is
further based upon management's systematic and detailed evaluation of the
potential loss exposure in Suncoast's loan portfolio considering such factors as
historical loss experience, the borrower's ability to repay, repayment
performance, estimated collateral value and mortgage insurance coverage. The
evaluation process resulted in a provision for loan losses of $153,000 during
fiscal 1996 as compared to $95,000 for fiscal 1995, due to the 247.2% increase
in portfolio loan balances from June 30, 1995 to June 30, 1996.
Effective July 1, 1995, Suncoast adopted Statement of Financial
Accounting Standards No. 114 ("FAS 114") "Accounting by Creditors or Impairment
of a Loan," subsequently amended by FAS 118, as discussed in Notes to Suncoast's
Consolidated Financial Statements. FAS 114 did not have any significant effect
on Suncoast's financial condition and results of operations.
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<PAGE>
LOAN SERVICING INCOME. Loan servicing fees decreased from $7.5 million
for fiscal 1995 to $6.0 million for fiscal 1996 primarily as a result of a
decline in the number of loans subserviced and the reduction of loan balances in
Suncoast's servicing portfolio due to loan repayments and pay offs.
The amount of subservicing fees generated by Suncoast from the FDIC
depends upon the amount of assets which come under its control, the length of
time such assets are owned by the FDIC and other factors generally beyond the
control of Suncoast.
Amortization of loan servicing assets increased $440,000 from fiscal
1995 to fiscal 1996 primarily as a result of lower interest rates which
increased loan prepayment activity during fiscal 1996. As a result, Suncoast's
loan servicing income during fiscal 1996 was $4.4 million, compared to $6.3
million in the prior fiscal year.
GAINS ON THE SALE OF LOANS AND LOAN SERVICING ASSETS, NET. Gains on
sale of loans and loan servicing assets for fiscal 1996 amounted to $925,000
compared to $560,000 in the prior year. During fiscal 1996 and fiscal 1995,
Suncoast sold the servicing rights to $54.9 million and $14.0 million of
conventional loans, respectively, and recorded gains of $591,000 and $150,000,
respectively. These servicing rights, which had no carrying value for Suncoast ,
were sold to take advantage of favorable market conditions. Also included in
other income in fiscal 1996 is $151,000 of gains on the sale of participation
interests in certain commercial loans. Suncoast's loan sales amounted to $117.6
million and $79.3 million during fiscal 1996 and 1995, respectively.
GAINS ON THE SALE OF MORTGAGE-BACKED SECURITIES. During the years ended
June 30, 1996 and 1995, Suncoast sold mortgage-backed securities with a book
value of $355.7 million and $265.2 million, respectively, and realized gains of
$3.0 million and $1.4 million, respectively. Suncoast sold these securities in
order to restructure its assets, reduce its interest rate sensitivity and take
advantage of market opportunities. Due to the dependence of such gains on
changes in interest rates, there is no assurance that market conditions will
continue to be favorable for such sales or that Suncoast will be able to
continue generating such revenue in the future. As of June 30, 1996, Suncoast
had $18.4 million in available for sale securities.
LOAN ORIGINATION INCOME. In fiscal 1996, loan origination income was
$435,000 as compared to $391,000 in fiscal 1995 due to an increase in the number
of loans originated in fiscal 1996 as compared to fiscal 1995. Total loan
originations were $127.5 million and $118.5 million during fiscal 1996 and 1995,
respectively.
OTHER INCOME. Suncoast earned other income of $817 thousand and $1.3
million in fiscal 1996 and fiscal 1995, respectively. During fiscal 1995, the
principal component of other income was fees earned from contracts with the RTC
to underwrite, process and close certain loans that the RTC made in connection
with the resale of properties acquired by the RTC. These fees declined and
ultimately stopped as the RTC liquidated its inventory of acquired properties
and phased out its operations. No further revenue is expected from this source.
During fiscal 1996, other income was principally comprised of $306,000 in rental
income from branch office properties owned by Suncoast.
50
<PAGE>
NON-INTEREST EXPENSES. Non-interest expenses for fiscal 1996 were $15.6
million as compared to $17.7 million for fiscal 1995, a 12.2% decrease. This
overall decrease was principally due to the reduction in compensation, benefit,
overhead and occupancy expenses resulting from the closing of loan production
offices. In fiscal 1995, $1.6 million of these expenses were a one-time expense
incurred in connection with office closings, including employee separation and
office lease termination expenses.
Employee compensation and benefits is the largest component of
non-interest expenses and decreased from $8.0 million in fiscal 1995 to $7.2
million in fiscal 1996, a 9.6% decrease. Occupancy and equipment expenses
decreased 29.4% in fiscal 1996 as compared to fiscal 1995.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994
NET INCOME. Suncoast's net income for fiscal 1995 was $601,000,
representing a loss per common share of $.26, as compared to net income of $2.1
million, or earnings of $.59 per share, for fiscal 1994. The decrease in net
income and earnings per share available to common stockholders was primarily
attributable to $1.6 million in non-recurring costs of closing unprofitable loan
origination offices during fiscal 1995. Loan sales amounted to $79.3 million and
$2.2 billion during fiscal 1995 and 1994, respectively.
NET INTEREST INCOME. Net interest income before provision for loan
losses increased to $8.8 million in fiscal 1995, as compared to $7.7 million in
fiscal 1994, an increase of 14.8%. Interest income increased 49.7% primarily due
to the increase in the outstanding balances of mortgage-backed securities and
other interest earning assets. The average balance of total interest earning
assets increased as a part of Suncoast's strategy to shift its focus from the
generation of mortgage banking income to the enhancement of net interest income.
Interest expense increased 74.3% in fiscal 1995, as compared to the prior fiscal
year primarily as a result of higher deposits and borrowings which were used to
finance the increase in assets discussed above.
PROVISION FOR LOAN LOSSES. During fiscal 1995, Suncoast recorded a
provision for loan losses of $95,000 compared to no such provision during fiscal
1994. The increased provision during fiscal 1995 was a result of management's
systematic and detailed evaluation of the potential loss exposure in Suncoast's
loan portfolio.
LOAN SERVICING INCOME. Loan servicing fees decreased from $8.1 million
for fiscal 1994 to $7.5 million for fiscal 1995. Fees earned on the servicing
portfolio owned by Suncoast decreased due to the repayment and pay off of the
underlying loans. Fees earned on originated servicing rights pending delivery
under servicing sale agreements declined due to significantly reduced loan
origination activity in fiscal 1995 as compared to Fiscal 1994. Amortization of
loan servicing assets decreased $2.3 million between Fiscal 1995 and 1994
primarily as a result of higher interest rates which reduced loan prepayment
activity during Fiscal 1995. As a result, Suncoast's loan servicing income
during Fiscal 1995 was $6.3 million, compared to income of $4.6 million in the
prior fiscal year.
GAINS ON THE SALE OF LOANS AND LOAN SERVICING ASSETS, NET. Gains on
sale of loans and loan servicing assets for Fiscal 1995 amounted to $560,000
compared to $15.0 million in the
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<PAGE>
prior year. This decrease was attributable to the significant decline in
mortgage banking activity.
GAINS ON THE SALE OF MORTGAGE-BACKED SECURITIES. During the year ended
June 30, 1995, Suncoast sold mortgage-backed securities with a book value of
$265.2 million and realized gains of $1.4 million. No similar transactions were
recorded in Fiscal 1994. Included in these sales was the sale of the $138.7
million portfolio of fixed-rate mortgage backed securities consisting of $56.6
million of seven-year balloon, $59.0 million of five-year balloon, $13.3 million
of fifteen-year and $9.8 million of thirty-year securities. Suncoast sold these
securities in order to restructure its assets, reduce its interest rate
sensitivity and take advantage of market conditions.
LOAN ORIGINATION INCOME. In Fiscal 1995, loan origination income
declined to $391,000 as compared to $6.1 million in Fiscal 1994, due to the
significant decrease in the number of originated loans. Total loan originations
were $118.5 million and $2.2 billion during fiscal 1995 and 1994, respectively.
OTHER INCOME. Suncoast derived other income of $1.3 million and $1.6
million in Fiscal 1995 and Fiscal 1994, respectively, principally consisting of
fees earned from contracts previously made with the RTC to underwrite, process
and close certain loans that the RTC made in connection with the resale of
properties acquired by the RTC. These fees stopped as a result of the phase out
of the RTC's operations in December 1995.
NON-INTEREST EXPENSES. Non-interest expenses for Fiscal 1995 and 1994
were $17.7 million and $31.8 million, respectively, a 44.2% decrease. The
overall decrease was principally due to closing of the loan production offices
and the scale back of the mortgage banking operation. Employee compensation and
benefits, the largest component of non-interest expenses, decreased from $18.4
million in Fiscal 1994 to $8.0 million in Fiscal 1995, a 56.4% decrease.
Occupancy and equipment expenses decreased 3.6% in Fiscal 1995 as compared to
Fiscal 1994.
Other expenses decreased from $9.0 million in Fiscal 1994 to $5.6
million in Fiscal 1995. This decrease was primarily attributable to operating
efficiencies, including decreased foreclosure losses experienced in the loan
servicing operations and lower real estate owned maintenance expenses, as well
as the loan production office closings.
FINANCIAL CONDITION
Suncoast's total assets decreased by $59.8 million to $402.6 million
at June 30, 1996 from $462.4 million at June 30, 1995, or 12.9%, primarily due
to changes in asset mix. The decrease in assets was part of Suncoast's strategy
to shift its assets from lower yielding assets with lower risk weights under the
capital regulations to higher yielding assets with higher risk weights and still
remain well capitalized. Interest earning deposits, mortgage-backed securities
and amounts due from purchasers of loans, loan servicing rights and
mortgage-backed securities decreased in the aggregate $185.5 million from June
30, 1995 to June 30, 1996 as funds previously invested in these assets were used
to originate or acquire loans receivable, reduce deposits and repay borrowings.
Loans receivable increased $194.8 million as Suncoast continued to implement its
strategy of replacing lower yielding
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mortgage-backed securities with higher yielding loans receivable.
Deposits and advances from the FHLB and other borrowings decreased $36.7 and
$20.1 million, respectively, between June 30, 1995 and June 30, 1996 as Suncoast
reduced deposits and repaid borrowings with higher costs and reduced its total
assets. Other assets increased by $2.1 million primarily as a result of
increased foreclosure advances related to loans serviced for others, primarily
GNMA.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management requires that funds be available to meet the daily
financial commitments of Suncoast. These commitments consist primarily of loan
originations, savings deposit withdrawals, and repayments of borrowed funds.
Suncoast is required by federal regulations to maintain a minimum average daily
balance of cash and qualifying liquid assets equal to 5.0% of the aggregate of
the prior month's daily average savings deposits and short-term borrowings.
Suncoast's average liquidity ratio decreased from 22.9% at June 30, 1995 to
5.42% at June 30, 1996, as liquid assets were redeployed into residential loan
investments. Suncoast must also maintain an average daily balance of short-term
liquid assets equal to at least 1% of its prior month's average daily balance of
net withdrawable accounts plus short-term debt. At June 30, 1996 and June 30,
1995, Suncoast's short-term liquidity percentage was 5.42% and 22.9%,
respectively. Suncoast maintains minimum levels of liquid assets in order to
maximize net interest income.
Suncoast's primary sources of funds consist of retail savings deposits
bearing market rates of interest. Suncoast also obtains funds through interest
and principal repayments on loans and from FHLB advances and other borrowings,
including reverse repurchase and dollar reverse repurchase agreements with
brokerage firms.
Under the regulatory capital regulations of the OTS, Suncoast is
required to maintain minimum levels of capital as measured by three ratios.
Savings institutions are currently required to maintain tangible capital of at
least 1.5% of tangible assets, core capital of at least 3.0% of adjusted
tangible assets and risk based capital of at least 8.0% of risk-weighted assets
(at least half of which must be comprised of core capital). Each of the capital
requirements of the OTS that are applicable to Suncoast were exceeded at June
30, 1996. The tangible and core capital ratios were 6.22% and the risk-based
capital ratio was 11.09%. The minimum capital requirements are $6.0 million for
tangible capital, $12.1 million for core capital and $18.6 million for
risk-based capital. At June 30, 1996, Suncoast's regulatory capital exceeded
minimum requirements by $18.9 million for tangible capital, $12.9 million for
core capital and $7.1 million for risk-based capital. Details of the computation
of regulatory capital are provided in Note B of the Notes to Suncoast's
Consolidated Financial Statements.
IMPACT OF INFLATION
The Consolidated Statements of Financial Condition and related
consolidated financial data presented herein have been prepared in accordance
with generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money
over time due to inflation. The primary impact of inflation and changing prices
on the
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operations of Suncoast is reflected in increased operating costs. Unlike
most industrial companies, virtually all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates have a
more significant impact on a financial institution's performance than the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or change in the same magnitude as the price of goods and
services, although periods of increased inflation may accompany a rising
interest rate environment.
NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board (" FASB")
issued Statement of Financial Accounting Standards No. 123 ("FAS 123"),
"Accounting for Stock- Based Compensation." This statement requires certain
disclosures about stock-based employee compensation arrangements, regardless of
the method used to account for them, and defines a fair value based method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost for stock based compensation plans using the
intrinsic value method of accounting prescribed by existing principles. Suncoast
has elected to remain with the existing principles and will make pro forma
disclosures of net income and earnings per share, as if the fair value method of
accounting defined in FAS 123 had been applied. Under the fair value method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
Under the intrinsic value based method, compensation cost is the excess, if any,
of the quoted market price of the stock at grant date or other measurement date
over the amount an employee must pay to acquire the stock. The disclosure
requirements of FAS 123 are effective for financial statements for Suncoast's
fiscal years beginning after June 30, 1996.
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125 ("FAS 125"), "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." FAS 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities based on a financial- components
approach that focuses on control. FAS 125 is effective for transfers and
servicing of financial assets and extinguishment of liabilities occurring after
December 31, 1996 and is to be prospectively applied. Management is currently
evaluating the impact of adoption of FAS 125 on its financial position and
results of operations.
CONTINGENCY RELATING TO RECAPITALIZATION OF THE SAVINGS ASSOCIATION INSURANCE
FUND
Suncoast pays deposit insurance premiums to the Savings Association
Insurance Fund ("SAIF"). SAIF and its counterpart for commercial banks, the Bank
Insurance Fund ("BIF"), were previously assessed deposit insurance premiums at
the same rate. However, in 1995, the FDIC has twice reduced deposit insurance
premiums for most BIF-insured banks so the minimum annual assessment applicable
to BIF deposits effective January 1, 1996 is $2,000 as compared to a 23 basis
point assessment rate for SAIF deposits. This disparity between BIF and SAIF in
assessment rates may place Suncoast at a competitive disadvantage to
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institutions whose deposits are exclusively or primarily BIF-insured (such as
most commercial banks).
Several alternatives to mitigate the effect of the BIF/SAIF premium
disparity have been proposed by the U.S. Congress, federal regulators, industry
lobbyists and the Clinton Administration. One plan to recapitalize the SAIF that
has gained support of several sponsors would require all SAIF member
institutions, including Suncoast, to pay a one-time fee of approximately 85
basis points on the amount of deposits held by the member institution at March
31, 1995. This fee would amount to approximately $1.9 million on an after tax
basis to Suncoast and, if this proposal is enacted into law, the effect would be
to immediately reduce the capital of the SAIF-member institutions by the amount
of the fee, and such amount would be an immediate charge to earnings.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Suncoast Savings and Loan Association, FSA
In our opinion, the accompanying consolidated statements of financial condition
and the related consolidated statements of income, of stockholders' equity and
of cash flows present fairly, in all material respects, the financial position
of Suncoast Savings and Loan Association, FSA and its subsidiaries ("Suncoast")
at June 30, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Suncoast's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note A to the consolidated financial statements, Suncoast
changed its method of accounting for mortgage servicing rights during 1996.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Miami, Florida
August 12, 1996
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<TABLE>
<CAPTION>
SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA AND SUBSIDIARIES
Consolidated Statements of Financial Condition June 30,
------------------------------
1996 1995
---------- -----------
<S> <C>
ASSETS (In thousands)
Cash and cash equivalents:
Cash and amounts due from depository institutions $ 1,260 $ 157
Interest-earning deposits 622 43,613
---------- -----------
Total cash and cash equivalents 1,882 43,770
---------- -----------
Repurchase agreements 75,000
Federal Home Loan Bank Stock 3,875 3,758
Loans receivable:
In portfolio 320,828 129,786
Held for sale, sold under commitments 6,730 2,978
---------- -----------
Total loans receivable, net 327,558 132,764
---------- -----------
Mortgage-backed securities available for sale 18,391 136,856
Loan servicing assets:
Purchased mortgage servicing rights 9,525 8,572
Originated mortgage servicing rights 834
Premiums on the sale of loans 1,359 1,533
---------- -----------
Total loan servicing assets 11,718 10,105
---------- -----------
Accrued interest and dividends receivable 3,042 2,123
Real estate owned, net 261 523
Amounts due from purchasers of loans, loan
servicing rights and mortgage-backed securities 19,883 43,941
Office properties and equipment 6,640 6,285
Other assets 9,319 7,228
---------- -----------
$ 402,569 $ 462,353
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 301,201 $ 337,854
Advances by borrowers for taxes and insurance 3,138 1,642
Advances from Federal Home Loan Bank and other borrowings 68,500 88,623
Deferred income taxes 107 115
Principal and interest payable on loans serviced for others 274 576
Other liabilities 3,811 8,759
---------- -----------
Total liabilities 377,031 437,569
---------- -----------
Commitments and contingencies (Notes D, M and N)
Stockholders' equity:
Preferred stock - $5.00 par value; 1,000,000 shares authorized;
920,000 shares issued and outstanding 4,600 4,600
Common stock - $1.10 par value; 5,000,000 shares authorized; 1,996,930 shares
and 1,982,530 shares, respectively, issued and outstanding 2,197 2,181
Additional paid-in capital 17,295 17,252
Retained earnings 1,642 344
---------- -----------
25,734 24,377
Unrealized gain (loss) on mortgage-backed securities available
for sale, net of deferred income taxes (196) 407
---------- -----------
Total stockholders' equity 25,538 24,784
---------- -----------
$ 402,569 $ 462,353
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Income Year Ended June 30,
------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest income: (In thousands, except per share data)
Loans $ 19,902 $ 9,359 $ 15,220
Mortgage-backed securities 5,276 16,731 1,575
Premiums on the sale of loans 127 145 155
Repurchase agreements and investments 1,463 1,344 941
Other 1,190 276 720
--------- --------- ---------
27,958 27,855 18,611
--------- --------- ---------
Interest expense:
Deposits 14,891 14,087 9,406
Short-term borrowings 2,982 4,931 1,504
Long-term borrowings 64
--------- --------- ---------
17,937 19,018 10,910
--------- --------- ---------
Net interest income before provision for loan losses 10,021 8,837 7,701
Provision for loan losses 153 95
--------- --------- ---------
Net interest income after provision for loan losses 9,868 8,742 7,701
--------- --------- ---------
Other income (expense):
Loan servicing fees 6,016 7,450 8,088
Amortization of loan servicing assets (1,617) (1,175) (3,508)
--------- --------- ---------
Loan servicing income 4,399 6,275 4,580
Gains on the sale of loans and loan servicing assets, net 925 560 14,963
Gains on the sale of mortgage-backed securities, net 2,950 1,388
Loan origination income 435 391 6,075
Other 817 1,316 1,555
--------- --------- ---------
9,526 9,930 27,173
--------- --------- ---------
Non-interest expenses:
Employee compensation and benefits 7,240 8,005 18,362
Occupancy and equipment 2,866 4,057 4,209
Provision for losses on real estate 95 68 150
Other 5,380 5,611 9,045
--------- --------- ---------
15,581 17,741 31,766
--------- --------- ---------
Income before taxes 3,813 931 3,108
Provision for income taxes 1,411 330 1,005
--------- --------- ---------
Net income $ 2,402 $ 601 $ 2,103
========= ========= =========
Net income $ 2,402 $ 601 $ 2,103
Preferred stock dividends 1,104 1,104 780
--------- --------- ---------
Earnings (loss) available to common stockholders $ 1,298 $ (503) $ 1,323
========= ========= =========
Earnings (loss) per common share:
Primary $ 0.61 $ (0.26) $ 0.63
Fully diluted (omitted in 1995 due to anti-dilution) $ 0.61 $ 0.59
Weighted-average common and common equivalent shares:
Primary 2,137,327 1,940,275 2,105,358
Fully diluted 3,674,730 3,652,457 3,588,620
</TABLE>
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Unrealized
gain (loss)
on mortgage-
backed
Additional securities Total
Preferred Common paid-in Retained available Stockholders'
stock stock capital earnings for sale, net equity
---------- --------- ------------ --------- ------------- --------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 $ -- $ 2,085 $ 9,302 $ (476) $ -- $ 10,911
Issuance of common stock 27 42 69
Issuance of preferred stock 4,600 7,628 12,228
Tax benefit on disqualification of
stock options 35 35
Net income 2,103 2,103
Cash dividends on preferred stock (780) (780)
------- ------- --------- ------- --------- ---------
Balance, June 30, 1994 4,600 2,112 17,007 847 -- 24,566
Common stock issued in acquisition 33 143 176
Issuance of common stock 36 47 83
Tax benefit on disqualification of
stock options 55 55
Net income 601 601
Cash dividends on preferred stock (1,104) (1,104)
Net change in unrealized gain (loss) on
mortgage-backed securities available
for sale 407 407
------- ------- --------- ------- --------- ---------
Balance, June 30, 1995 4,600 2,181 17,252 344 407 24,784
Issuance of common stock 16 25 41
Tax benefit on disqualification of
stock options 18 18
Net income 2,402 2,402
Cash dividends on preferred stock (1,104) (1,104)
Net change in unrealized gain (loss) on
mortgage-backed securities available
for sale (603) (603)
------- ------- --------- ------- --------- ---------
Balance, June 30, 1996 $ 4,600 $ 2,197 $ 17,295 $ 1,642 $ (196) $ 25,538
======= ======= ========= ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
59
<PAGE>
SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flow Year Ended June 30,
-------------------------------------
1996 1995 1994
----------- --------- ----------
<S> <C> <C> <C>
(In thousands)
Cash flows from operating activities:
Net income $ 2,402 $ 601 $ 2,103
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization of office properties and equipment 1,140 1,409 1,330
Provision for income taxes 1,411 330 1,005
Accretion of deferred loan fees (223) (178) (88)
Amortization of purchased and originated mortgage servicing rights 1,336 990 3,090
Amortization of premiums on the sale of loans 281 185 418
Amortization of discounts and premiums, net (488) (1,419) (18)
Net (increase) decrease in loans receivable held for sale (3,002) 21,039 98,494
Provision for loan losses 153 95
Provision for losses on real estate 95 68 150
Net decrease (increase) in amounts due from purchasers of loans,
loan servicing rights and mortgage-backed securities 24,058 (35,441) 8,329
Federal Home Loan Bank stock dividends (64)
Gains on the sale of loans and loan servicing assets, net (925) (560) (14,963)
Gains on the sale of mortgage-backed securities (2,950) (1,388)
Increase in accrued interest and dividends receivable (919) (460) (918)
(Increase) decrease in other assets (2,122) 4,627 (2,463)
(Decrease) increase in other liabilities (6,314) 5,121 (890)
Other 31 33
----------- -------- ----------
Net cash provided by (used in) operating activities 13,964 (4,948) 95,515
----------- -------- ----------
Cash flows from investing activities:
Net increase in loans receivable in portfolio (191,821) (29,089) (65,905)
Principal repayments of mortgage-backed securities 7,016 18,897 715
Purchase of mortgage-backed securities (244,701) (256,711) (162,846)
Proceeds from sales of mortgage-backed securities 358,630 266,560
Purchase of repurchase agreements (2,110,000) (307,000) (2,968,000)
Proceeds from maturities of repurchase agreements 2,185,000 252,000 2,948,000
Capital (expenditures) dispositions, net (1,495) 80 (1,927)
Increase in originated mortgage servicing rights (863)
Payments for purchased mortgage servicing rights (2,260) (51)
Proceeds from sales of purchased servicing rights and premiums on the
sale of loans 621 380 9,576
Proceeds from sale of real estate owned 463 650 469
Purchase of Federal Home Loan Bank stock (3,417) (3,075) (3,840)
Proceeds from redemption of Federal Home Loan Bank stock 3,300 2,867 1,731
----------- -------- ----------
Net cash provided by (used in) investing activities 473 (54,492) (242,027)
----------- -------- ----------
Cash flows from financing activities:
Net (decrease) increase in deposits (36,653) 77,419 49,350
Increase in advances by borrowers for taxes and insurance 1,496 335 39
Advances from Federal Home Loan Bank 43,500 69,000
Repayments of advances and other borrowings from Federal Home Loan Bank, net (44,000)
(Repayments of) proceeds from other borrowings, net (63,623) 63,623
Proceeds from issuance of common stock 59 138 104
Proceeds from issuance of preferred stock 12,228
Cash dividends paid on preferred stock (1,104) (1,104) (780)
----------- -------- ----------
Net cash (used in) provided by financing activities (56,325) 96,411 129,941
----------- -------- ----------
Net (decrease) increase in cash and cash equivalents (41,888) 36,971 (16,571)
Cash and cash equivalents at beginning of year 43,770 6,799 23,370
----------- -------- ----------
Cash and cash equivalents at end of year $ 1,882 $ 43,770 $ 6,799
=========== ======== ==========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 18,088 $ 18,683 $ 10,782
Cash paid for income taxes, net of refunds received 1,208 120 841
Supplemental non-cash activities:
REO obtained through foreclosure $ 199 $ 1,133 $ 537
</TABLE>
The accompanying notes are an integral part of these financial statements.
60
<PAGE>
Suncoast Savings and Loan Association, FSA and
Subsidiaries Notes To Consolidated Financial Statements
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of Suncoast Savings and Loan Association, FSA
("Suncoast") conform to generally accepted accounting principles ("GAAP") and
to general practices within the savings and loan industry. The following
summarizes the most significant of those policies and procedures.
1. Principles of Consolidation--The consolidated financial
statements include the accounts of Suncoast and its wholly-owned subsidiaries.
All significant intercompany transactions and balances are eliminated in
consolidation.
In April, 1995, Suncoast issued common stock to acquire Intra-Coastal
Mortgage Company, Inc., a licensed lender/broker. The acquisition was
accounted for using the purchase method of accounting, and the effect of the
acquisition on the financial statements for the year ended June 30, 1995 was
not significant.
2. Cash and cash equivalents--Cash and amounts due from banks and
interest-earning deposits with original maturities of three months or less are
considered cash and cash equivalents for cash flow reporting purposes.
3. Repurchase Agreements, Mortgage-Backed Securities and
Investment Securities--On July 1, 1994, Suncoast adopted Statement of Financial
Accounting Standards No. 115 ("FAS 115"), "Accounting for Certain Investments
in Debt and Equity Securities". Under FAS 115, investments in debt and equity
securities which Suncoast has a positive intent and ability to hold to maturity
are classified as "securities held to maturity" and are carried at cost,
adjusted for discounts and premiums which are accreted or amortized to
estimated maturity under the interest method. In accordance with FAS 115, a
security cannot be classified as held to maturity if it might be sold in
response to changes in market interest rates, related changes in the security's
prepayment risk, liquidity needs, changes in the availability of and the yield
on alternative investments, and changes in funding sources and terms. Debt and
equity securities purchased or sold for the purpose of a short-term profit are
classified as "trading account securities" and are recorded at fair value, with
unrealized gains and losses reflected in operations. Suncoast does not have
trading account securities. Debt and equity securities not classified as held
to maturity or trading account securities are classified as "available for
sale". Debt and equity securities available for sale are carried at fair
value, with the related unrealized appreciation or depreciation, net of
deferred income taxes, reported as a separate component of stockholders'
equity. Realized gain or loss on sales of securities is based on the specific
identification method.
At June 30, 1996 and 1995, the portfolio of mortgage-backed securities
was classified as available for sale with an unrealized loss (net of taxes) of
$196,000 and an unrealized gain (net of taxes) of $407,000, respectively,
recorded as a separate component of stockholders' equity.
61
<PAGE>
The portfolio was classified as such because management restructured Suncoast's
assets in fiscal 1995 and sold its entire $138.7 million portfolio of fixed
rate securities, previously classified as held to maturity, realizing a gain of
approximately $486,000.
4. Mortgage Banking Activities--Suncoast originates mortgage
loans for portfolio investment or sale in the secondary market. Mortgage loans
are designated as either available for sale or held in portfolio. Mortgage
loans held in the portfolio are stated at unpaid principal balances, less the
allowance for loan losses, and net deferred loan origination fees and
discounts. Mortgage loans available for sale are carried at the lower of cost
or fair market value, determined on an aggregate basis, and net unrealized
losses, if any, are recognized in a valuation allowance with a corresponding
charge to income. Suncoast recognizes gains or losses on the sales of
servicing rights when the related sales contract has been executed and legal
title and substantially all risks and rewards of ownership of the servicing
asset has passed to the buyer. Gains or losses are computed by deducting any
associated deferred excess servicing rights, mortgage servicing rights, and
other related expenses from the sales proceeds.
Suncoast minimizes its interest rate risk on loan commitments
expected to close and the inventory of mortgage loans held for sale through
commitments to permanent investors.
Effective July 1, 1995, Suncoast adopted Statement of Financial
Accounting Standards No. 114, ("FAS 114") "Accounting by Creditors for
Impairment of a Loan", subsequently amended by FAS 118. Loans within the scope
of FAS 114 are measured for impairment based on (a) the present value of
expected future cash flows discounted at the loan's effective interest rate,
(b) the market price, or (c) if collateral dependent, the fair value of the
collateral. If the value of the loan so determined is less than the loan's
recorded value, Suncoast recognizes a loss for the difference by creating a
valuation allowance or adjusting an existing valuation allowance with a
corresponding charge to operations. FAS 118 amended certain income recognition
and disclosure provisions of FAS 114. The adoption of FAS 114 and FAS 118 did
not have any significant effect on Suncoast's financial condition and results
of operations, due to the composition of the loan portfolio and its policy for
establishing its allowance for loan losses.
At June 30, 1996, 1995 and 1994, Suncoast was servicing loans
amounting to approximately $1.5 billion, $1.6 billion and $2.0 billion,
respectively. Servicing loans generally consists of collecting mortgage
payments, maintaining custodial accounts, disbursing payments to investors and
foreclosure processing. Loan servicing income is recorded on the accrual basis
and includes servicing fees from investors and certain charges collected from
borrowers, such as late payment fees. In connection with loans serviced for
others, Suncoast held in non-interest or low-interest bearing deposit accounts
borrowers' custodial balances of approximately $24.2 million and $37.3 million
at June 30, 1996 and 1995, respectively. Suncoast makes a provision for
expected unreimbursed costs, which are incurred as a result of Suncoast's
responsibility as servicer of Federal Housing Administration (FHA) insured,
Veterans Administration (VA) guaranteed, and other loans for investors. The
provision is determined based on a number of variables, including the amount of
delinquent loans serviced for other investors, the length of delinquency, and
the amounts previously advanced on behalf of the borrower that Suncoast does
not expect to recover. Actual cost incurred may vary from Suncoast's estimate
due to a number of factors beyond Suncoast's control.
62
<PAGE>
Effective July 1, 1995, Suncoast adopted Statement of Financial
Accounting Standards No. 122 ("FAS 122") "Accounting for Mortgage Servicing
Rights." FAS 122 requires that rights to service mortgage loans for others
acquired through either purchase or origination of mortgage loans be recognized
as separate assets if the related mortgage loan is intended to be sold with
servicing retained. The adoption of FAS 122 resulted in aggregate realized net
gains of approximately $600,000 ($380,000, net of income taxes) on the sale of
loans during the year ended June 30, 1996. Purchased mortgage servicing rights
("PMSRs") represent the cost of acquiring the rights to service mortgage loans,
and such cost is capitalized and amortized in proportion to, and over the
period of, estimated net servicing income.
Premiums on the sale of loans represent the present value of the cash
flows associated with the portion of estimated future interest income retained
on loans sold (based upon certain prepayment rate and interest rate assumptions
and net of a normal servicing fee), which are recognized as gains on the sale
of loans at the time the sales occur. As the cash flows are collected, Suncoast
amortizes the premiums and recognizes a normal servicing fee and interest
income on the premiums at the rate assumed in determining the present value of
the premiums. Such premiums are amortized in proportion to and over the
estimated period such cash flows will be collected.
Suncoast periodically makes an assessment of capitalized mortgage
servicing rights for impairment based on the fair value of those rights. The
carrying values of Suncoast's servicing assets, and the amortization thereon,
are evaluated in relation to estimated future net servicing cash flows
(discounted) to be received and retained. Such carrying values are adjusted
for indicated impairments based on management's best estimate of remaining cash
flows. Such estimates may vary from the actual remaining cash flows due to
prepayments of the underlying mortgage loans and increases in servicing costs.
Changes in open market values do not directly affect the expected cash flows
used in determining the carrying values.
5. Office Properties and Equipment--Land is carried at cost.
Office properties and equipment are carried at cost less accumulated
depreciation. Depreciation and amortization are computed on the straight-line
method over the estimated useful lives of the related assets, which range from
3 to 30 years; amortization of leasehold improvements is computed over the
terms of the respective leases (including renewal periods which management
intends to exercise) or their estimated useful lives, whichever is shorter.
6. Loan Fees--Suncoast defers loan origination fees (after
offsetting certain direct costs of originating the loans) and recognizes these
fees using the interest method over the life of the loans as an adjustment of
the loans' yield. Loan origination fees received on loans sold are recorded as
income upon the sale of the loans. Loan commitment fees received are deferred
and recognized similarly over the life of the loan or at the expiration of the
commitment if the commitment expires unexercised.
7. Provisions for Losses--Provisions for loan losses and losses
on real estate owned (included in non- interest expenses) include charges to
adjust the recorded balances of loans receivable and real estate owned to their
estimated net realizable value, as applicable. Such provisions are
63
<PAGE>
based on management's estimate of fair market value of the collateral,
considering the current and anticipated future operating or sales conditions.
Recovery of the carrying value of such loans and real estate owned is dependent
to a great extent on economic, operating and other conditions that may be
beyond Suncoast's control. Suncoast also provides an allowance for loan losses
based upon historical loss experience, delinquency trends, the value of
underlying collateral, known and inherent risks in the assets, prepayment rates
and the general state of the real estate market.
8. Provision for Uncollected Interest--When a loan becomes ninety
days or more delinquent, Suncoast stops the accrual of interest income and
reverses any interest previously accrued but uncollected. Such interest, if
ultimately collected, is credited to income in the period of recovery.
9. Real Estate Owned--Real estate owned represents property
acquired by foreclosure or deed in lieu of foreclosure. Real estate owned is
initially recorded at the fair market value less estimated selling expenses of
the property at date of foreclosure. Subsequent adjustments to the fair market
value at date of foreclosure are recorded as an expense. Sales of real estate
are recorded under the accrual method of accounting. Under this method, a sale
is not recognized until payments received aggregate a specific required
percentage of the contract sales price. Until a contract qualifies as a sale,
all collections are recorded as deposits.
The ability of Suncoast to recover the carrying value of its
investment in real estate owned is based upon future sales. The ability to
complete such sales is subject to market conditions and other factors, all of
which are beyond Suncoast's control.
10. Income Taxes--Suncoast uses the asset and liability approach
to account for income taxes. Deferred tax assets and liabilities are
recognized for the expected future tax consequences attributable to differences
between the financial statement carrying amounts and the tax bases of assets
and liabilities.
11. Earnings (Loss) Per Share--Earnings (loss) per share is
computed on the basis of the weighted average number of shares of common stock
outstanding during the period plus common stock equivalents applicable to stock
options. When dilutive, fully diluted earnings per common share is derived as
follows: Earnings (loss) available to common stockholders are increased by
preferred dividends paid eliminated upon conversion of preferred shares to
common shares. This remainder is divided by the sum of the average number of
common shares outstanding for the period plus the added common shares that
would have been outstanding if: (a) all of the outstanding preferred shares
had been converted into common shares at the beginning of the period and (b)
all stock options granted that have economic value were exercised at the
beginning of the period, and the related funds that would have been received by
Suncoast upon such exercise were used to repurchase outstanding common shares.
12. Use of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
64
<PAGE>
expenses during the reporting period. Actual results could differ from those
estimates. Estimates that are particularly susceptible to significant change
in the near term are the adequacy of reserves available for loan losses and the
present value of the estimated future cash flows utilized to calculate loan
servicing assets.
13. New Accounting Standards--In October 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation." This
statement requires certain disclosures about stock-based employee compensation
arrangements, regardless of the method used to account for them, and defines a
fair value based method of accounting for an employee stock option or similar
equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it
also allows an entity to continue to measure compensation cost for stock based
compensation plans using the intrinsic value method of accounting prescribed by
existing principles. Suncoast has elected to remain with the existing
principles and will make pro forma disclosures of net income and earnings per
share, as if the fair value method of accounting defined in FAS 123 had been
applied. Under the fair value method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The disclosure requirements of FAS 123 are
effective for financial statements for Suncoast's fiscal years beginning after
June 30, 1996.
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125 ("FAS 125"), "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." FAS 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities based on a financial-components
approach that focuses on control. FAS 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996 and is to be prospectively applied. Management is
currently evaluating the impact of adoption of FAS 125 on its financial
position and results of operations.
14. Reclassifications--Certain amounts reported in prior periods'
financial statements have been reclassified to conform to current
classifications.
B. REGULATORY CAPITAL REQUIREMENTS
Under the regulatory capital regulations of the Office of Thrift
Supervision ("OTS"), Suncoast is required to maintain minimum levels of capital
as measured by three ratios. Savings institutions are currently required to
maintain tangible capital of at least 1.5% of tangible assets, core capital of
at least 3.0% of adjusted tangible assets and risk based capital of at least
8.0% of risk-weighted assets.
65
<PAGE>
At June 30, 1996 Suncoast exceeded all three of its current capital
requirements. The status of the capital requirements of Suncoast at June 30,
1996 is as follows (dollars are in thousands and are unaudited):
<TABLE>
<CAPTION>
Percentage Percentage Risk- Percentage of
Tangible of Core of based risk-based
capital assets(1) capital assets(1) capital assets (1)
-------- ---------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity before adjustments $ 25,538 6.36% $ 25,538 6.36% $ 25,538 11.05%
Regulatory adjustments:
General valuation reserves 657 .28
Non-qualifying PMSRs (720) (.18) (720) (.18) (720) (.30)
Goodwill (47) (.01) (47) (.01) (47) (.02)
Unrealized loss on mortgage-backed
securities available for sale, net 196 .05 196 .05 196 .08
--------- ---- --------- ---- ---------- ----
Regulatory capital 24,967 6.22 24,967 6.22 25,624 11.09
Minimum capital requirement 6,024 1.50 12,048 3.00 18,486 8.00
--------- ---- --------- ---- ---------- ----
Regulatory capital excess $ 18,943 4.72% $ 12,919 3.22% $ 7,138 3.09%
========= ==== ========= ==== ========== ====
Assets for capital calculation $ 401,605 $ 401,605 $ 231,069
========= ========= ==========
</TABLE>
- - -------------------------------
(1) Tangible and core capital percentages are computed as a percentage of
tangible and adjusted tangible assets, respectively. The risk-based
capital percentage is computed as a percentage of risk-adjusted
assets.
Under current OTS capital rules, PMSRs and OMSRs (collectively,
"MSRs") may be included in regulatory capital only to the extent that, in the
aggregate, they do not exceed 50% of core capital. For purposes of calculating
core capital, MSRs are valued at the lesser of 90 percent of fair market value
or 100 percent of their book value (net of any valuation allowance). Any
excess amounts are deducted from assets and core capital. The estimated fair
market value of MSRs must be determined at least quarterly. Suncoast also uses
the services of an independent expert to perform an annual market valuation in
accordance with guidance issued by the OTS. The amount of MSRs that may be
included in tangible capital is the same as that permitted in core capital.
At June 30, 1996, Suncoast's book value of MSRs was $10.4 million, and based
upon a market valuation of MSRs at that date, a deduction from assets and
capital for regulatory capital purposes in the amount of $720,000 was
necessary.
The OTS amended risk-based capital rules to incorporate interest-rate
risk ("IRR") requirements which require a savings association to hold
additional capital if it is projected to experience an excessive decline in net
portfolio value in the event interest rates increase or decrease by two
percentage points. The additional capital required is equal to one-half of the
amount by which any decline in net portfolio value exceeds 2 percent of the
savings association's total net portfolio value. Suncoast does not expect the
interest-rate risk requirements to have a material impact on its required
capital levels at the present time.
The OTS rules establish the capital levels for which an insured
institution will be categorized as: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized or critically
undercapitalized. A well capitalized institution must have risk-based capital
of 10% or more, core capital of 5% or more and Tier 1 risk- based capital
(based on the ratio of core capital to risk-weighted assets ) of 6% or more and
may not be subject to any written agreement, order, capital directive or prompt
corrective action directive issued by the OTS. The
66
<PAGE>
OTS and other federal banking agencies are required to take prompt corrective
action to resolve the problems of critically undercapitalized financial
institutions. Suncoast is a well capitalized institution under the definitions
as adopted.
C. REPURCHASE AGREEMENTS AND FEDERAL HOME LOAN BANK STOCK
During the years ended June 30, 1996 and 1995, Suncoast invested in
repurchase agreements but had no such investment at June 30, 1996. These
investments were collateralized by U.S. Government securities through agency
agreements with a national brokerage firm (the "counter-party"). The
securities underlying the agreements are book- entry securities. The
securities were delivered by appropriate entry with a third-party custodian as
per agreement between Suncoast and the counter-party. Based on month-end
balances for the years ended June 30, 1996 and 1995 repurchase agreements
averaged $16.7 million and $21.3 million, respectively, the maximum amount
outstanding at any month-end in each year was $75.0 million, and the maximum
amount outstanding in each year with any single counter-party was $75.0
million. The market values of these agreements approximated their carrying
value.
Federal Home Loan Bank ("FHLB") stock ownership is required for
membership in the bank system. Its carrying value approximates market value.
D. LOANS RECEIVABLE
Loans receivable at June 30 are comprised of (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Loans in portfolio:
Real estate loans:
Commercial, collateralized by--
Undeveloped land $ 3,115 $ 5,256
Office buildings 8,287 7,625
Hotel property 21,692 9,082
Retail stores 21,552 17,245
Multi-family residential and other 43,836 34,099
------------ -------------
Total commercial 98,482 73,307
Residential (one to four family) 215,044 55,449
Construction 8,491 7,085
Consumer loans 1,917 1,750
------------ -------------
323,934 137,591
Allowance for loan losses (657) (504)
Deferred loan fees, net (617) (493)
Undisbursed portion of loans in process (4,354) (7,137)
Premiums paid on loans held in portfolio 2,522 329
------------ -------------
$ 320,828 $ 129,786
============ =============
</TABLE>
67
<PAGE>
<TABLE>
<S> <C> <C>
Loans held for sale:
Residential real estate loans $ 6,675 $ 2,962
Deferred loan fees, net (31) (19)
Premiums paid on loans held for sale 86 35
------------ -------------
$ 6,730 $ 2,978
============ =============
Total loans receivable, net $ 327,558 $ 132,764
============ =============
</TABLE>
At June 30, 1996, Suncoast had pledged approximately $163.5 million of
first mortgage loans as collateral for FHLB advances (see Note L).
The commercial real estate loans are primarily in the State of Florida
and are considered by management to be of somewhat greater risk of
uncollectibility due to the dependency on income production or future
development of real estate. Loans not accruing interest were $853,000 and
$151,000 at June 30, 1996 and 1995, respectively. If non-accrual loans had been
accruing interest, interest income of $54,000, $10,000 and $42,000 would have
been recorded during the years ended June 30, 1996, 1995 and 1994,
respectively.
The OTS regulatory capital regulations require that the portion of
nonresidential construction and land loans in excess of 80% loan-to-value ratio
be deducted from total capital for purposes of the risk-based capital standard.
At June 30, 1996, Suncoast had no loans subject to this regulation.
Suncoast originates and purchases both adjustable and fixed interest
rate loans. At June 30, 1996, the composition of these loans was approximately
as follows (in thousands):
<TABLE>
<CAPTION>
Fixed-rate Adjustable-rate
- - ------------------------------------------- ----------------------------------------
<S> <C> <C> <C>
Term to Term to
maturity Carrying value rate adjustment Carrying value
- - -------- -------------- --------------- --------------
1mo.-1 yr. $ 353 1 mo.-1 yr. $ 217,509
1 yr.-3 yr. 3,138 1 yr.-3 yr. 65,967
3 yr.-5 yr. 4,261 3 yr.-5 yr 8,542
5 yr.-10 yr. 3,016
10 yr.-20 yr. 7,204
Over 20 years 13,944
----------- -----------
Total loans
in portfolio 31,916 292,018
Total loans held
for sale 6,480 195
----------- -----------
$ 38,396 $ 292,213
=========== ===========
</TABLE>
The adjustable-rate loans have interest rate adjustment limitations
and are generally indexed to U.S. Treasury Bill rates. Future market factors
may affect the correlation of the interest rate adjustment with the rates
Suncoast pays on the short-term deposits that have been primarily utilized to
fund these loans.
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<PAGE>
The following summarizes the activity in the allowance for loan losses
for the years ended June 30 (in thousands):
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
------ ----- ------
Balance, at beginning of year $504 $504 $521
Provision for loan losses 153 95
Chargeoffs and recoveries, net (95) (17)
------ ------ ------
Balance, at end of year $ 657 $ 504 $ 504
====== ====== ======
</TABLE>
At June 30, 1996, Suncoast had commitments to originate and purchase
loans, excluding the undisbursed portion of loans in process, of approximately
$3.7 million. These commitments are scheduled to be disbursed within one year.
Suncoast had also entered into commitments to sell loans of approximately $7.6
million at June 30, 1996 of which approximately $1.0 million are binding on the
investor but not on Suncoast. At June 30, 1996, Suncoast had no floating
market rate commitments outstanding.
Loans to executive officers, directors and principal holders of equity
securities were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions
with other customers (unless they were in effect under regulations prior to
1989) and do not involve more than the normal risk of collectibility. The
activity regarding these loans is as follows (in thousands):
<TABLE>
<CAPTION>
Beginning New Ending
Year Ended June 30, Balance Loans Repayments Balance
- - ------------------- --------- ----- ---------- -------
<S> <C> <C> <C> <C>
1996 $2,199 $ 328 $ 336 $2,191
1995 1,083 1,365 249 2,199
1994 2,693 1,610 1,083
</TABLE>
E. MORTGAGE-BACKED SECURITIES
At June 30, 1996, mortgage-backed securities with an aggregate book
value of $11.8 million were pledged as collateral for FHLB advances (see Note
L). Summarized below are the amortized costs and market value of
mortgage-backed securities at June 30, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Market
costs gains losses value
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
June 30, 1996:
Adjustable rate:
GNMA $ 14,659 $ - $ (312) $ 14,347
Private Issue 4,044 4,044
-------- --------- ------- --------
Total mortgage-backed
securities $ 18,703 $ - $ (312) $ 18,391
======== ========= ======= ========
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
June 30, 1995:
<S> <C> <C> <C> <C>
FHLMC $ 59,015 $ 414 $ (80) $ 59,349
FNMA 51,069 363 (51) 51,381
FNMA Real Estate Mortgage
Investment Conduit 26,126 26,126
-------- -------- ------ --------
Total mortgage-backed
securities $136,210 $ 777 $ (131) $136,856
======== ======== ====== ========
</TABLE>
Mortgage-backed securities as of June 30, 1996 and 1995 were
adjustable-rate securities with a term to rate adjustment not exceeding one
year.
F. LOAN SERVICING ASSETS
1. Purchased mortgage servicing rights--The following table sets
forth the activities of Suncoast's PMSRs for the years ended June 30 (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -------------
<S> <C> <C> <C>
Balance, at beginning of year $ 8,572 $ 9,511 $ 12,830
Cost of acquiring servicing rights 2,260 51
Sales of servicing rights (229)
Amortization charged against loan
servicing fee income (1,307) (990) (3,090)
----------- ------------ -------------
Balance, at end of year $ 9,525 $ 8,572 $ 9,511
=========== ============ =============
</TABLE>
2. Originated mortgage servicing rights ("OMSR")--The following
table sets forth the activities of Suncoast's OMSR's for the years ended June
30 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Balance, at beginning of year $ - $ - $ -
Servicing rights originated 863
Amortization charged against loan
servicing fee income ( 29)
----------- ----------- ----------
Balance, at end of year 834 $ - $ -
=========== =========== ==========
</TABLE>
The fair value of Suncoast's PMSRs and OMSRs is determined annually by
an independent firm which has the necessary expertise to perform such valuation
studies. At June 30, 1996, the fair value of Suncoast's PMSRs and OMSRs was
approximately $10.0 million and $949,000, respectively.
70
<PAGE>
Fair value has been estimated by using a discounted cash flow model,
the most significant assumptions of which are as follows:
Prepayment Rate--The average "Dealer Prepayment Estimates" as of July
8, 1996 as published by Bloomberg Financial Markets.
Discount Rate--A base rate of 10.5%, adjusted for loan type, size and
remaining term. Cost of Service--$45 incremental per loan per year.
Ancillary Income--Suncoast's actual ancillary income was utilized for
the portfolio purchased prior to 1995 and $10 annually per loan was
utilized on the portfolio purchased subsequent to 1995.
Escrow Balances--Determined using a twelve month weighted average
multiple calculated by state.
For purposes of evaluating and measuring PMSRs and OMSRs for
impairment, Suncoast stratifies the population by product type, investor type
and interest rate. No valuation allowance for the impairment of PMSRs or OMSRs
was required at June 30, 1996.
The ability of Suncoast to recover the carrying value of the PMSRs and
OMSRs is dependent upon certain factors including future prepayment experience,
which is influenced by economic and other conditions that may be beyond
Suncoast's control. If actual future prepayment experience exceeds the rate
anticipated in the valuation study, a reduction in the carrying value of the
PMSRs and OMSRs may be required.
3. Premiums on the sale of loans--The following table sets forth
the activities of Suncoast's premiums on the sale of loans for the years ended
June 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Balance, at beginning of year $ 1,533 $ 1,737 $ 2,169
Premium on sales 107 14
Sales of servicing rights (19) (28)
Amortization charged against loan
servicing fee income (281) (185) (418)
----------- ----------- ----------
Balance, at end of year $ 1,359 $ 1,533 $ 1,737
=========== =========== ==========
</TABLE>
Management has estimated the future constant prepayment rates ("CPRs")
used to determine the above premiums based upon an analysis of the actual
historical CPRs, comparative industry CPRs and market conditions. Suncoast
calculates premiums using the present value model, which calculates present
values based upon estimated annual cash inflows.
71
<PAGE>
G. ACCRUED INTEREST AND DIVIDENDS RECEIVABLE
Interest and dividends receivable at June 30 are accrued for (in
thousands):
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Loans receivable $ 2,782 $ 885
Mortgage-backed securities 164 1,041
Federal Home Loan Bank Stock 88 68
Repurchase agreements 121
Interest-earning deposits 8 8
----------- -----------
$ 3,042 $ 2,123
=========== ===========
</TABLE>
H. REAL ESTATE OWNED
At June 30, 1996, real estate owned consisted of one single-family
residence. The following summarizes the activity in the allowance for losses on
real estate owned for the years ended June 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Balance, at beginning of year $ - $ - $ -
Provision for losses on real estate 95 68 150
Chargeoffs and recoveries, net (15) (68) (150)
------- ------- --------
Balance, at end of year 80 $ - $ -
======= ======= ========
</TABLE>
I. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at June 30 are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land $ 1,204 $ 827
Buildings 3,971 3,630
Leasehold improvements 839 669
Furniture, fixtures and equipment 6,890 7,341
--------- ---------
12,904 12,467
Less accumulated depreciation and
amortization 6,264 6,182
--------- ---------
$ 6,640 $ 6,285
========= =========
</TABLE>
72
<PAGE>
J. OTHER ASSETS
Other assets at June 30 are comprised of (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Foreclosure advances $ 3,821 $ 1,633
Other receivables 2,978 1,404
Escrow advances on serviced loans 1,036 1,580
Prepaid income taxes 1,145 302
All other 339 2,309
--------- ---------
$ 9,319 $ 7,228
========= =========
</TABLE>
K. DEPOSITS
The nominal interest rates paid on deposits and related balances are as
follows (amounts in thousands):
<TABLE>
<CAPTION>
Weighted June 30, 1996 June 30, 1995
Average Rate at ------------------------ -----------------------
June 30, 1996 Amount Percent Amount Percent
--------------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Negotiable
order of
withdrawal
("NOW")
accounts 2.42% $ 17,751 5.9% $ 6,418 1.9%
Non-interest
bearing 874 0.3% 556 0.2
Money market 3.19% 11,805 3.9% 16,859 5.0
Passbook 4.08% 40,959 13.6% 48,605 14.3
-------- ------ -------- ------
71,389 23.7% 72,438 21.4
-------- ------ -------- ------
Custodial
accounts 0% 24,198 8.0% 37,275 11.0
-------- ------ -------- ------
Certificates of
deposit:
2.00%-2.99% 204 0.1%
3.00%-3.99% 4 411 0.1
4.00%-4.99% 29,464 9.8% 11,212 3.3
5.00%-5.99% 146,965 48.8% 104,003 30.8
6.00%-6.99% 26,194 8.7% 108,712 32.2
7.00%-7.99% 2,783 0.9% 3,801 1.1
8.00%-8.99% 2 0.1
--------- ------ -------- -----
Total certificates
of deposit 5.46% 205,614 68.3% 228,141 67.6%
--------- ------ -------- -----
4.55% $ 301,201 100.0% $337,854 100.0%
========= ====== ======== =====
</TABLE>
73
<PAGE>
The amounts of scheduled maturities of certificate accounts, including
those with balances exceeding $100,000, at June 30, 1996 for future fiscal
years ending June 30 are summarized below (in thousands):
<TABLE>
<CAPTION>
Certificates
Exceeding Total
$100,000 Certificates
----------- ------------
<S> <C> <C>
1997 $7,389 $176,957
1998 824 19,699
1999 209 2,955
2000 106 4,430
2001 101 1,573
------- --------
$8,629 $205,614
====== ========
</TABLE>
Interest on deposits for the years ended June 30 is summarized below
(in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Certificate accounts $ 12,537 $ 11,893 $ 7,849
Money market accounts 565 420 748
NOW accounts 272 451 92
Passbook accounts 1,368 1,226 27
----------- ----------- ----------
Deposit accounts 14,742 13,990 8,716
----------- ----------- ----------
Interest on custodial accounts:
Escrow accounts 82 78 105
Serviced loans paid off 67 19 585
----------- ----------- ----------
149 97 690
----------- ----------- ----------
Total interest on deposits $ 14,891 $ 14,087 $ 9,406
=========== =========== ==========
</TABLE>
L. ADVANCES FROM FEDERAL HOME LOAN BANK AND OTHER BORROWINGS
Advances from the Federal Home Loan Bank and other borrowings at June
30 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
At June 30, 1996 During Year Ended June 30, 1996
--------------------------------------------------- -------------------------------
Average Maximum
Balance Weighted
Outstanding Average Rate Maturity Outstanding Outstanding
----------- ------------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Advances from FHLB
Short term $67,000 5.30% 7/96-2/97 $50,963 $117,000
Long term 1,500 6.65 12/05 1,000 1,500
Borrowings under reverse
repurchase agreements 850 10,199
Borrowings under fixed coupon
dollar reverse repurchase0
agreements 2,631 31,572
-------- ----
$ 68,500 5.30%
======== ====
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
At June 30, 1995 During Year Ended June 30, 1995
----------------------------------------------------- --------------------------------
Average Maximum
Balance Weighted Balance Balance
Outstanding Average Rate Maturity Outstanding Outstanding
----------- ------------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Advances from
FHLB - short term $ 25,000 6.13% 5/96 $ 61,371 $ 108,000
Borrowings under
reverse
repurchase
agreements 32,051 6.09 7/95-8/95 20,821 62,766
Borrowings under
fixed coupon
dollar reverse
repurchase
agreements 31,572 5.77 7/95 10,025 35,148
-------- ----
$ 88,623 5.99%
======== ====
</TABLE>
At June 30, 1996, Suncoast is a party to two advance agreements with
the FHLB whereby the FHLB will provide borrowings as requested by Suncoast when
such borrowings are secured by specific collateral. Under the first agreement,
advances are secured by government securities and U.S. government agency
securities with a market value of 103% of the advance amount. Under the second
agreement, advances are secured by a blanket floating loan on eligible single
family residential mortgage loan collateral. In determining the amount of
advances available under the second agreement, the unpaid principal balance of
eligible collateral is discounted to 75% (see note D). The stock of the FHLB
owned by Suncoast is also pledged as collateral for advances under this
agreement. After meeting all of its collateral requirements, Suncoast had
excess qualifying assets eligible as collateral for additional borrowings under
this agreement of approximately $54.1 million at June 30, 1996.
Suncoast enters into sales of securities under agreements to
repurchase, which are treated as financings. The obligations to repurchase
securities sold are reflected as a liability and the carrying amount of the
securities underlying the agreements is included in mortgage-backed securities
available for sale in the Consolidated Statements of Financial Condition.
Mortgage-backed securities sold under reverse repurchase agreements are
delivered to the broker- dealers who arrange the transactions. The
broker-dealers may sell, loan, or otherwise dispose of such securities to other
parties in the normal course of their operation, and agree to resell to
Suncoast the identical securities at the maturities of the agreements. As of
June 30, 1996, no such financings were outstanding.
Suncoast also enters into fixed coupon dollar reverse repurchase
agreements, which are treated as financings. Under a fixed coupon dollar
reverse repurchase agreement, Suncoast sells a security and agrees to
repurchase another security which is substantially the same as the one sold.
These agreements are accounted for in the same manner as reverse repurchase
agreements. As of June 30, 1996, no such financings were outstanding.
During the period from July 1, 1993 to February 28, 1995, RFC, a
lender, provided Suncoast with a revolving warehouse credit facility for as
much as $100.0 million which bore interest either at the prime rate or at
tiered rates over the U.S. Dollar London Interbank Offered Rate. Suncoast drew
advances on this line of credit to fund its mortgage originations and the
advances were collateralized by specific mortgages originated and awaiting sale
by Suncoast.
75
<PAGE>
Commitment fees of $41,666 and $58,800 were paid during Fiscal 1995 and 1994,
respectively, to RFC by Suncoast to use the credit line. Upon expiration, this
credit line was not renewed by Suncoast.
Interest expense on borrowed funds for the years ended June 30 is
summarized below (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Advances from:
FHLB $ 2,772 $ 3,155 $ 349
RFC 1,155
Reverse repurchase agreements 159 1,283
Dollar reverse repurchase agreements 115 493
--------- -------- --------
$ 3,046 $ 4,931 $ 1,504
========= ======== ========
</TABLE>
M. LEASES
Suncoast leases space for its administrative offices, two savings
branch offices, storage facilities and certain equipment. All office leases
have escalation clauses tied either to a fixed schedule or to increases in the
Consumer Price Index. The following is a schedule of approximate future minimum
payments required under these operating leases at June 30, 1996 for future
fiscal years ending June 30 (in thousands):
1997 $1,078
1998 906
1999 881
2000 610
2001 66
Thereafter -
------
3,541
Less:
Income from subleases 147
------
$3,394
======
Rent expense was $1.2 million, $2.0 million and $2.1 million for the
years ended June 30, 1996, 1995, and 1994, respectively.
N. STOCKHOLDERS' EQUITY
Suncoast has an incentive stock option plan approved by its Board of
Directors and stockholders. There are 467,500 total shares in the plan, and a
total of 349,760 shares of common stock are reserved and authorized for
issuance under this plan. Transactions relating to this stock option plan for
the three year period ended June 30, 1996 are as follows:
76
<PAGE>
<TABLE>
<CAPTION>
Options Option Price
Outstanding Per Share
----------- ------------
<S> <C> <C>
Balance, June 30, 1993 349,400 $ 2.00-3.00
Exercised (24,400) 2.00-3.00
Cancelled (8,200) 2.00-3.00
---------- ------------
Balance, June 30, 1994 316,800 2.00-3.00
Granted 84,000 7.19-7.38
Exercised (33,000) 2.00-3.00
Cancelled (11,600) 2.00-7.38
---------- ------------
Balance, June 30, 1995 356,200 2.00-7.38
Granted 7,000 6.94
Exercised (14,400) 2.00-3.00
Cancelled (26,800) 2.00-7.38
---------- ------------
Balance, June 30, 1996 322,000 $ 2.00-7.38
========== ============
</TABLE>
At June 30, 1996 and 1995, options for 284,600 and 274,800 shares were
exercisable at an average price per share of $3.26 and $3.12, respectively.
Suncoast has an Employee Stock Bonus/401K Plan (Stock Bonus Plan) for
the benefit of certain eligible employees of Suncoast. Contributions to the
Stock Bonus Plan by Suncoast are at the discretion of Suncoast's Board of
Directors. No contributions were made to the Stock Bonus Plan for the years
ended June 30, 1996 and 1995. Suncoast expensed $224,400 for contributions made
to the Stock Bonus Plan for the year ended June 30, 1994.
There are various regulatory limitations on the extent to which
Suncoast can pay dividends. Suncoast is required to comply with the OTS capital
distribution regulations, which condition Suncoast's ability to make certain
dividend distributions on Suncoast's capital level and supervisory condition.
The OTS has established a three-tiered qualification system, and gives savings
associations meeting their fully phased-in capital requirements greater
flexibility to pay dividends than associations that must build their capital
levels to reach the fully phased-in capital requirement. Even though Suncoast
presently meets its fully phased-in capital requirements, dividends cannot be
paid if Suncoast does not meet its capital requirements at a future date or if
payment of dividends would cause Suncoast not to meet its capital requirements.
The payment of dividends is also prohibited if after such payment Suncoast
would be considered undercapitalized. Moreover, the OTS has the authority to
prohibit the payment of dividends even if Suncoast meets its capital
requirements if such payments would affect the safety and soundness of the
institution.
On July 9, 1993, Suncoast issued 920,000 shares of its 8%
Noncumulative Convertible Preferred Stock, Series A (the "Preferred Stock") in
a public offering which added net proceeds of approximately $12.2 million to
stockholders' equity. The Preferred Stock is convertible by the holder into
Suncoast Common Stock at any time, unless previously redeemed by Suncoast, at a
conversion price of $9.00 per share of Common Stock. Suncoast can redeem the
Preferred Stock after July 1, 1995, at a redemption price of $15.00 per share
if the Common Stock is trading at a minimum price of $10.80 per share for 20 to
30 trading days prior to redemption.
77
<PAGE>
The Preferred Stock is otherwise redeemable from July 1, 1998 to June 30, 1999
at $16.20 per share and at declining premiums thereafter. Dividends on the
Preferred Stock are payable at an annual rate of $1.20 per share if, when and
as declared by Suncoast's Board of Directors. Dividends are not cumulative and
are payable quarterly in arrears. Dividends on the Preferred Stock were paid
each quarter after the issuance of the stock and amounted to $1.1 million in
each of the years ended June 30, 1996 and 1995. In connection with this stock
offering, Suncoast issued warrants to the offering underwriters to purchase an
aggregate of 80,000 shares of Preferred Stock. These warrants are exercisable
at a price per share of $18.00 in the case of Preferred Stock or at $10.80 in
the case of Common Stock for a period of four years after July 9, 1994. At
June 30, 1996, none of these warrants had been exercised and none of the
Preferred Stock had been converted or redeemed.
Suncoast has a deferred compensation plan to provide its President
with a supplemental retirement benefit. Under this plan, Suncoast funded an
irrevocable trust with a lump sum of $213,000, which has been invested in
corporate- owned life insurance. The President will be fully vested in the
plan in 1997. Suncoast recorded an expense of $49,000 and $108,000 under this
Plan in Fiscal 1996 and Fiscal 1995, respectively.
O. INCOME TAXES
The provision for income taxes for the years ended June 30 differs
from the amount of income tax determined by applying the applicable U.S.
statutory federal income tax rate to pretax income as a result of the following
differences (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- -------------------- ---------------------
% Amount % Amount % Amount
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S.
tax rates 35.0 $1,335 35.0 $326 35.0 $1,088
Increase (decrease)
in rates resulting
from:
Benefit of Federal
surtax exemption (1.0) (31)
State tax (net of
Federal benefit) 3.7 141 3.7 34 3.2 100
Other (1.7) (65) (3.3) (30) (4.9) (152)
---- ------ ---- ---- ---- -------
37.0 $1,411 35.4 $330 32.3 $ 1,005
==== ====== ==== ==== ==== =======
</TABLE>
The components of the provision for income taxes for the years ended
June 30, 1996, 1995 and 1994 consist of (in thousands):
78
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Current:
Federal $ 950 $ 24 $ 555
State 95 61 153
----------- ----------- ----------
Total current 1,045 85 708
----------- ----------- ----------
Deferred:
Federal 326 209 267
State 22 (19) (5)
----------- ----------- ----------
Total deferred 348 190 262
----------- ----------- ----------
Tax benefit for disqualification of
stock options credited to stockholders'
equity 18 55 35
----------- ----------- ----------
Total provision 1,411 $ 330 $ 1,005
=========== =========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of June 30, 1996 and 1995
are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax asset:
Capitalized servicing costs $ 375 $ 442
Deferred loan fees 243 191
Deferred gain on sale of servicing 38
Accrued vacation 76 81
Reserves 278 189
Unrealized loss on mortgage-backed
securities available for sale 117
Alternative minimum tax credit carryover 66
Other 87 40
-------- --------
Gross deferred tax asset 1,176 1,047
-------- --------
Deferred tax liability:
Deferred premium on loans sold 468 573
Deferred premium on loans in portfolio 230 123
Fixed assets 199 137
Book over tax basis for originated
mortgage servicing rights 312
Unrealized gain on mortgage-backed
securities available for sale 239
Other 74 90
-------- --------
Gross deferred tax liability 1,283 1,162
-------- --------
Deferred tax asset valuation allowance -- ---
-------- --------
Net deferred tax (liability) asset $ (107) $ (115)
======== ========
</TABLE>
79
<PAGE>
Management believes, based on Suncoast's earnings history and its
future expectations, that Suncoast will have sufficient taxable income in
future years to realize the net deferred income tax asset. In evaluating the
expectation of sufficient future taxable income, management considered future
reversal of temporary differences and available tax planning strategies that
could be implemented, if required. A valuation allowance was not required as of
June 30, 1996 and 1995 as it was management's assessment that, based on
available information, it is more likely than not that the deferred tax asset
will be realized. A valuation will be established if there is a change in
management's assessment of the amount of the net deferred tax asset that is
expected to be realized.
P. OTHER INCOME
The following is a computation of Suncoast's gains on the sale of
loans and loan servicing rights for the years ended June 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- -----------
<S> <C> <C> <C>
Proceeds from sales of loans
and loan servicing rights $ 117,818 $ 79,873 $ 2,181,886
Carrying value of loans sold (117,000) (79,313) (2,166,937)
----------- ---------- -----------
Cash before premiums
on the sale of loans 818 560 14,949
Premiums on the sale of loans 107 14
----------- ---------- -----------
$ 925 $ 560 $ 14,963
=========== ========== ===========
</TABLE>
Other income for the years ended June 30 consists of (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Loan processing and other
fees from RTC contracts $ 169 $ 573 $1,004
Rental income 306 310 180
Other 342 433 371
------ ------ ------
$ 817 $1,316 $1,555
====== ====== ======
</TABLE>
Q. OTHER EXPENSES
Other expenses for the years ended June 30 consists of (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Loan expenses $ 375 $ 824 $ 2,162
Federal deposit insurance 859 773 772
Foreclosure expenses on servicing
portfolio 995 614 487
Data processing 645 535 634
Telephone 329 469 1,247
Business insurance 421 463 640
</TABLE>
80
<PAGE>
<TABLE>
<S> <C> <C> <C>
Professional and legal 356 381 294
Postage and overnight delivery 172 240 736
Stationery and supplies 240 210 502
Bank service charges and fees 109 95 207
Other 879 1,007 1,364
------- --------- --------
$ 5,380 $ 5,611 $ 9,045
======= ========= ========
</TABLE>
R. BUSINESS SEGMENTS
Suncoast's operations consist of activities in three principal
business segments: banking, mortgage banking and loan servicing. Revenues in
the banking segment consist primarily of interest on mortgage loans and
investment securities. Mortgage banking activities derive revenues primarily
from the interest on loans held for sale, sales of loans in the secondary
mortgage market, sale of loan servicing rights and loan origination income.
Loan servicing activities derive revenues primarily from the collection of fees
on loans serviced. During 1995, Suncoast shifted its primary business emphasis
from mortgage banking to banking. The following is segment information for the
fiscal years ended June 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
BANKING
Revenues:
Interest income $ 23,949 $ 25,011 $ 9,358
Gains on the sale of
mortgage-backed securities 2,950 1,388
Other income 731 1,117 1,154
-------- -------- --------
27,630 27,516 10,512
-------- -------- --------
Expenses:
Interest expense 16,489 18,499 6,449
Employee compensation
and benefits 3,048 1,918 1,311
Depreciation 396 212 178
Provision for losses on real
estate 95 68 150
Provision for loan losses 153 95
Other expenses 2,700 2,318 1,557
-------- -------- --------
22,881 23,110 9,645
-------- -------- --------
Banking income before income
taxes $ 4,749 $ 4,406 $ 867
======== ======== ========
MORTGAGE BANKING
Revenues:
Interest income $ 1,654 $ 300 $ 5,526
Gains on the sale of loans and
loan servicing assets, net 304 560 14,963
Loan origination and other income 331 336 6,212
-------- -------- --------
2,289 1,196 26,701
-------- -------- --------
</TABLE>
81
<PAGE>
<TABLE>
<S> <C> <C> <C>
Expenses:
Interest expense 1,009 236 3,703
Employee compensation
and benefits 1,272 2,438 13,347
Depreciation 134 412 564
Other expenses 1,050 2,667 8,249
-------- -------- --------
3,465 5,753 25,863
-------- -------- --------
Mortgage banking income (loss)
before income taxes $ (1,176) $ (4,557) $ 838
======== ======== ========
LOAN SERVICING
Revenues:
Loan servicing fees $ 6,016 $ 7,450 $ 8,088
Amortization of loan
servicing assets (1,617) (1,175) (3,508)
-------- -------- --------
Loan servicing income 4,399 6,275 4,580
Interest income 2,355 2,544 3,727
Gain on sale of loans and
loan servicing assets, net 621
Other income 190 254 264
-------- -------- --------
7,565 9,073 8,571
-------- -------- --------
Expenses:
Interest expense 439 283 758
Employee compensation
and benefits 2,920 3,649 3,704
Depreciation 610 784 559
Other expenses 3,356 3,275 2,147
-------- -------- --------
7,325 7,991 7,168
-------- -------- --------
Loan servicing income (loss)
before income taxes $ 240 $ 1,082 $ 1,403
======== ======== ========
Assets:
Banking $372,861 $439,175 $297,926
Mortgage banking 8,844 6,356 43,827
Loan servicing 20,864 16,822 17,337
-------- -------- --------
$402,569 $462,353 $359,090
======== ======== ========
Capital dispositions
(expenditures), net:
Banking $ (447) $ 8 $ (81)
Mortgage banking (188) 64 (1,760)
Loan servicing (860) 8 (86)
-------- -------- --------
$ (1,495) $ 80 $ (1,927)
======== ======== ========
</TABLE>
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<PAGE>
S. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate fair value:
-- The book value was used as a reasonable estimate of fair value for
cash and amounts due from depository institutions, interest-bearing
deposits, variable rate loans and fixed rate loans with maturities
less than one year, demand and savings deposits, and short-term time
deposits.
-- The book value was used as a reasonable estimate of fair value for
stock issued by the Federal Home Loan Bank and short-term repurchase
agreements maturing within one month.
-- Fair values of fixed rate loans and certificates of deposit with
maturities greater than one year are estimated by discounting the
future cash flows using the current rates at which similar instruments
would be issued with comparable credit ratings and terms.
-- The fair values of commitments, letters of credit and guarantees are
equal to their contractual amount based on the assumptions that
Suncoast will be required to perform on all such instruments existing.
-- The fair value of loan servicing assets is determined by independent
valuation or discounted cash flow analysis as discussed in Note F.
Since the reported fair values of financial instruments are based on a
variety of factors, they may not represent actual values that could have been
realized or that will be realized in the future.
The estimated fair values of Suncoast's financial instruments for
which fair value differed from book value are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
---------------------------- ----------------------------
Book Value Fair Value Book Value Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Loans receivable in portfolio $ 31,563 $ 31,635 $ 16,568 $ 16,634
Loan servicing assets $ 11,718 $ 12,140 $ 10,105 $ 10,186
Certificates of deposit $ 28,657 $ 29,103 $ 40,458 $ 40,758
</TABLE>
T. CONTINGENCIES
In order to increase the Savings Association Insurance Fund ("SAIF")
of the Federal Deposit Insurance Corporation to its minimum required reserve
ratio of 1.25%, a proposal has been made to impose a special one-time
assessment of 65 to 90 basis points on all SAIF-insured deposits as of March
31, 1995. This one-time assessment may be payable in 1997 at which point the
Association's annual premium would thereafter be reduced. If the assessment is
made at the currently proposed rate, the effect on the Bank would be an
after-tax charge of approximately $1.9 million.
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<PAGE>
U. SUBSEQUENT EVENT
On July 15, 1996, Suncoast entered into a definitive agreement to be
acquired by BankUnited Financial Corporation ("BankUnited"). Under terms of
the agreement one share of BankUnited Class A Common Stock will be issued for
each share of Suncoast Common Stock. Each share of Suncoast Preferred Stock
will be exchanged for a new issue of BankUnited Preferred Stock having
substantially similar terms as the Suncoast Preferred Stock. The transaction
is subject to stockholder and regulatory approvals and other conditions and is
expected to close by December 1996.
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<PAGE>
SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA AND SUBSIDIARIES
- - -----------------------------------------------------------------------------
Consolidated Quarterly Results (Unaudited)
- - -----------------------------------------------------------------------------
The following table summarizes the quarterly results of operations for the
fiscal years ended June 30, 1996 and 1995 (in thousands, except per share data):
<TABLE>
<CAPTION>
First Quarter Second Quarter
Ended September 30, Ended December 31,
--------------------- ---------------------
1995 1994 1995 1994
------ ------ ------ -------
<S> <C> <C> <C> <C>
Income $9,510 $8,502 $9,333 $9,371
Expense 8,804 8,201 8,613 9,170
------ ------ ------ ------
Net income 706 301 720 201
Preferred stock dividends 276 276 276 276
------ ------ ------ ------
Earnings (loss) available to common stockholders $ 430 $ 25 $ 444 $ (75)
====== ====== ====== ======
Earnings (loss) per share - primary $ 0.20 $ 0.01 $ 0.21 $(0.04)
Earnings per share - fully diluted $ 0.19 * $ 0.20 *
====== ====== ====== ======
<CAPTION>
Third Quarter Fourth Quarter
Ended March 31, Ended June 30,
---------------------- ---------------------
1996 1995 1996 1995
------ ------- ------ -------
<S> <C> <C> <C> <C>
Income $9,136 $9,755 $9,505 $10,157
Expense 8,633 9,926 9,032 9,887
------ ------ ------ -------
Net income (loss) 503 (171) 473 270
Preferred stock dividends 276 276 276 276
------ ------ ------ -------
Earnings (loss) available to common stockholders $ 227 $ (447) $ 197 $ (6)
====== ====== ====== =======
Earnings (loss) per share - primary $ 0.10 $(0.23) $ 0.10 $ -
Earnings per share - fully diluted $ 0.10 * $ 0.10 *
====== ====== ====== =======
</TABLE>
* Omitted due to anti-dilution.
85
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
AGE AT YEAR
SEPTEMBER 12, POSITIONS HELD DIRECTOR OFFICE
1995 WITH ASSOCIATION SINCE EXPIRES
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Albert J. Finch 59 Chairman of the 1985 1998
Board, Chief
Executive Officer,
President and Chief
Operating Officer
Paul B. Fay, Jr. 78 Director 1985 1998
Norman E. Mains 53 Director 1985 1998
William E. Hammonds 45 Vice Chairman 1985 1997
of the Board
Irving P. Cohen 55 Director 1988 1997
Sumner G. Kaye 57 Director 1986 1996
Elia J. Giusti 62 Director 1990 1996
Walter Sweeting 44 Director 1996 1996
</TABLE>
The following provides the principal occupation or employment of each
Director and executive officer for the past five years and, as to each Director,
directorships in companies having securities registered pursuant to the
Securities Exchange Act of 1934, as amended.
Albert J. Finch has served as Chairman of the Board of Directors and
Chief Executive Officer of the Association since its founding in May 1985 and as
Chief Operating Officer and President since July 1992. Mr. Finch is Chairman of
the Executive Committee.
Paul B. Fay, Jr. has served as President and Chief Executive Officer
of The Fay Improvement Co., a financial consulting firm located in San
Francisco, California since 1975. He also serves as a director of Vestaur
Securities, Inc., First American Financial, Inc., and Compensation Resource
Group, Inc. Mr. Fay is also a trustee emeritus for the Naval War College
Foundation. Mr. Fay is the father-in-law of Mr. Hammonds. Mr. Fay has served as
a Director of the Association since it opened for business in May 1985 and is a
member of the Compensation, Deferred Compensation and Audit Committees.
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<PAGE>
Norman E. Mains has served as the Chief Economist and Director of
Research for the Chicago Mercantile Exchange since October 1994. From January
1994 to October 1994, he was self-employed as an economic consultant. He
previously served as President and Chief Operating Officer of Rodman & Renshaw
Capital Group, Inc., the holding company for a securities broker/dealer firm
located in Chicago, Illinois, from February 1991 to January 1994. Mr. Mains has
served as a Director of the Association since its founding in May 1985 and is a
member of the Audit Committee.
William E. Hammonds has served as Chairman of the Board and Chief
Executive Officer of the Hammonds Ranch, Inc., an agricultural concern located
in Firebaugh, California, since June 1991. He also served as President of SCS
Mortgage Corporation, the Association's wholly-owned California subsidiary, from
September 1990 to June 1994. From May 1985 to June 1992, he was Chief Operating
Officer of the Association and from December 1988 to June 1992, its President.
Mr. Hammonds is a member of the California Bar and the son-in-law of Mr. Fay.
Since July 1992, Mr. Hammonds has served as Vice Chairman of the Board of
Directors and since May 1985, as a member of the Board of Directors. Mr.
Hammonds is a member of the Executive Committee.
Irving P. Cohen is an attorney in private practice. Since May 1995,
he has been a partner in the Washington, D.C. office of the law firm of Thompson
Hine and Flory. From June 1990 to May 1995, he was a partner in the Washington,
D.C. office of the firm of Semmes, Bowen & Semmes, Baltimore, Maryland. Mr.
Cohen joined the Association as a Director in July 1988 and is Chairman of the
Audit Committee.
Sumner G. Kaye has served as Director of the Southeast Region for the
American Committee for the Shaare-Zedek Medical Center of Jerusalem, Israel,
since September 1992. From 1974 to June, 1992, he served as executive director
of the Jewish Federation of South Broward located in Hollywood, Florida. Mr.
Kaye has served as Director of the Association since May 1986. He is Chairman of
the Compensation, Deferred Compensation and Fair Lending Committees.
Elia J. Giusti has served as President of Lee Giusti Realty, Inc., a
real estate and mortgage brokerage firm located in Fort Lauderdale, Florida
since 1982. Mr. Giusti joined the Association as a Director in July 1990 and is
a member of the Compensation, Deferred Compensation, Fair Lending and Executive
Committees.
Walter Sweeting, since 1980 has served as President and Chief
Operating Officer of Nadia Homes, Inc. the Sweeting Group, LTD., Sweet-Flick,
Inc. and Walter Sweeting & Associates, companies involved in real estate
construction and development located in Miami, Florida . Mr. Sweeting has served
as a Director of the Association since March 1996 and is a member of the Fair
Lending and Audit Committees.
Richard L. Browdy, 44, is Executive Vice President and Chief
Financial Officer of the Association. He joined the Association in 1985 as Vice
President and Controller of the Association. In 1988, he was appointed a Senior
Vice President and Chief Financial Officer, and in August 1994, Executive Vice
President.
87
<PAGE>
Thomas L. Clark, 50, is Executive Vice President of the Association.
He joined the Association in January 1994 as a Senior Vice President, and in
August 1994, was appointed Executive Vice President. Prior to his service with
the Association, from February 1993 to December 1993, he was Executive Vice
President of America's Lending Network, Inc., a mortgage banking subsidiary of
Standard Federal Savings Bank, a Federal savings bank located in Gaithersburg,
Maryland.
Wendy M. Mitchler, 42, is Senior Vice President, General Counsel and
Secretary of the Association. She joined the Association in September 1989 as a
Vice President and Corporate Counsel and was appointed Senior Vice President,
General Counsel and Secretary in July 1990.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Federal securities laws require the Association's Directors, certain
of its officers, and persons owning beneficially more than ten percent of a
registered class of the Association's equity securities, to file initial reports
of ownership and reports of changes in ownership with OTS and NASDAQ. The
Association is required to disclose in this 10-K any failure of persons, who, at
any time during the fiscal year, were Directors, officers required to report, or
more than ten-percent beneficial owners, to file timely those reports during the
year ended June 30, 1996 or prior years. To the Association's knowledge, based
solely upon information furnished to the Association by its Directors and
certain of its officers, during the fiscal year ended June 30, 1996, all of the
Association's Directors, officers required to report, and greater than 10%
beneficial owners made all such filings timely, except for the following: (1)
One report for each of the Association's officers required to report relating to
the reallocation of both common and preferred shares under the Association's
Employee Stock Bonus/401(k) Plan due to employee forfeitures and terminations
was filed late; (2) One report relating to one transaction and one report
relating to three transactions were filed late on behalf of Director Irving
Cohen; and (3) One report relating to three transactions was filed late on
behalf of Director Elia Giusti.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid for services
rendered to the Association in all capacities during the fiscal years ended June
30, 1994, 1995 and 1996 (i) to the chief executive officer of the Association,
and (ii) to the other most highly compensated executive officers whose Fiscal
1996 salary and bonuses exceeded $100,000 (collectively hereinafter referred to
as the "named executive officers").
88
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
LONG TERM
COMPENSATION ALL OTHER
YEAR SALARY BONUS OPTION AWARDS (#) COMPENSATION(1)
---- -------- ------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Albert J. Finch, 1996 $300,000 $35,000 -0- $ 50,448
Chairman of the Board 1995 300,000 -0- 10,000 106,538
Chief Executive Officer, 1994 300,000 43,100 -0- 16,631
Chief Operating Officer
and President
Richard L. Browdy, 1996 $137,500 $30,000 -0- $ 1,346
Chief Financial Officer 1995 132,500 -0- 5,000 7,773
and Exec. Vice President 1994 130,000 9,000 -0- 8,119
Thomas L. Clark, 1996 $140,000 $15,000 -0- $ 1,346
Executive Vice President 1995 137,500 -0- 10,000 -0-
1994 65,131 -0- -0- -0-
Wendy M. Mitchler, 1996 $118,000 $ 5,000 -0- $ 1,042
General Counsel, Secretary 1995 114,000 -0- -0- 6,276
and Senior Vice President 1994 110,000 4,700 -0- 6,242
Thomas A. Dean, (2) 1996 $136,897 $15,000 -0- $ -0-
Executive Vice President 1995 69,013 -0- 20,000 -0-
</TABLE>
- --------------------------
(1) For Messrs. Browdy and Clark, and Ms. Mitchler, amounts consist of
employer allocations to the executive officer under the Association's
Employee Stock Bonus/401(k) Plan. For Mr. Finch, $1,346, $8,975 and
$13,516 of the amounts for 1996, 1995 and 1994, respectively, consist
of allocations to Mr. Finch under the Association's Employee Stock
Bonus/401(k) Plan. For 1996, 1995 and 1994, $49,102, $97,563 and
$3,115, respectively, of the amounts set forth for Mr. Finch reflect
vested amounts credited by the Association to Mr. Finch's account
under his deferred compensation plan.
(2) Mr. Dean's employment as Executive Vice President with Suncoast ended
in May 1996.
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning stock options
exercised by the named executive officers during the 1996 fiscal year, including
the value realized upon exercise. This table also describes the number of
unexercised options and the value of unexercised in-the-money options at the end
of the 1996 fiscal year held by the named executive officers.
89
<PAGE>
<TABLE>
<CAPTION>
SHARES VALUE OF
ACQUIRED VALUE NUMBER OF UNEXERCISED UNEXERCISED IN-THE-MONEY
ON EXERCISE REALIZED OPTIONS AT 6/30/96 (#) OPTIONS AT 6/30/96 ($) (1)
------- -- ------- --- ------- -- ------- --- ---
(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--- --- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Albert J. Finch - - 104,000 6,000 $293,750 $ -0-
Richard L. Browdy - - 15,000 3,000 $ 41,188 $ -0-
Thomas L. Clark - - 4,000 6,000 -0- -0-
Wendy M. Mitchler - - 15,000 -0- $ 49,063 $ -0-
</TABLE>
(1) Based on a fair market value of the Common Stock which was $5.9375
per share on June 30, 1996, minus the exercise price.
COMPENSATION OF DIRECTORS
Each outside director receives a fee of $500 for each month of
service, as well as a fee of $500 for each Board meeting attended and $200 for
each Board committee meeting attended. Those directors who are salaried
employees of the Association receive no additional compensation for serving as a
director. Pursuant to the Association's Stock Option Plan, each non-employee
director serving on May 1, 1991, received an option to purchase 22,000 shares of
the Association's Common Stock at an option price of $3.00 per share but
voluntarily surrendered the option to purchase 7,000 of those shares. Any newly
elected member of the Board after May 1, 1991 will receive an option to purchase
22,000 shares as of the January 1st following his or her election to the Board
at a share price not less than the fair market value of a share of Common Stock
at the date of the grant, provided, however, that sufficient shares are
available for grant under the Option Plan.
The Bylaws of Suncoast Savings provide for a Board of Directors with
seven members serving staggered terms of three years each, resulting in the
election of approximately one-third of the Board of Directors each year. A
Director who is appointed to fill a vacancy on the Board of Directors serves
only until the next election of Directors by the shareholders.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
In January 1991, the Association entered into a Split-Dollar Life
Insurance Agreement (the "Insurance Agreement") with Mr. Finch. Under the
Insurance Agreement, as amended, the Association has purchased for Mr. Finch a
life insurance policy with a one-time premium of $690,000 and a death benefit of
$2,362,482. Mr. Finch vests 20% annually in the cash surrender value of the
policy in excess of $690,000 (the "excess policy interest"), except upon the
acquisition generally by any person of 20% of the combined voting power of the
Association's then outstanding stock, in which case he vests immediately in 100%
of the excess policy interest. On November 15, 1995, Mr. Finch vested fully in
the excess policy interest. The Insurance Agreement will terminate on the first
to occur of the following events: (i) after ten years; (ii) surrender of the
policy by Mr. Finch, which may be made only with Suncoast's consent; (iii)
termination of Mr. Finch's employment for cause or in connection with a
conservatorship or receivership by federal or state regulators; or (iv)
voluntary
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<PAGE>
termination of Mr. Finch's employment by Mr. Finch, except as a result
of disability. In the event of such termination, the policy is to be split into
two policies--one owned by Suncoast and having a cash surrender value equal to
the amount of premium paid by Suncoast and any non-vested excess policy interest
and one owned by Mr. Finch and having a cash surrender value equal to the vested
excess policy interest. The death benefit value of each separate policy is equal
to an amount that bears the same proportional relationship to the cash surrender
value of that policy on the date of the split as the death benefit value of the
undivided policy bears to the cash surrender value of the undivided policy on
the date of the split. Upon the death of Mr. Finch, prior to the termination of
the Insurance Agreement, his beneficiary receives the entire death benefit less
$690,000, which is paid to Suncoast to reimburse the premium payment.
In September 1993 the Association entered into a nonqualified
deferred compensation plan ("DCP") with Mr. Finch, which is intended to provide
Mr. Finch with a supplemental retirement benefit. Under the DCP, Suncoast has
funded an irrevocable trust with a lump sum of $213,000 which has been invested
in corporate-owned life insurance. In November 1994, Mr. Finch vested 40% in the
account balance, and will vest an additional 20% on each November 1st thereafter
so that he will be fully vested in the DCP in November 1997 at age 59. The
account balance includes interest credited annually at a rate which is
determined by the Deferred Compensation Committee, but which generally equals
130% of the Moody's Corporate Bond rate. In the event of Mr. Finch's termination
of employment due to disability, the acquisition generally by any person of 20%
of the combined voting power of the Association's then outstanding stock, or
termination of Mr. Finch's employment without cause, Mr. Finch would vest
immediately in the DCP and receive his entire account balance within sixty (60)
days. Notwithstanding the above, the following events would trigger a
termination of Mr. Finch's account vesting and a sixty (60) day payout of his
vested account balance: (i) termination of Mr. Finch's employment for cause or
in connection with a conservatorship or receivership by federal or state
regulators; or (ii) voluntary termination of Mr. Finch's employment by Mr.
Finch, except as a result of disability.
As part of the Merger, the Suncoast Board approved an amendment to
the DCP in which Mr. Finch is the participant, to clarify the original intent of
the DCP that a participant becomes 100% vested upon a change in control. The
amendment further provides that, after a change in control or upon termination
of employment, benefits under the DCP are not paid in a lump sum but rather are
paid in accordance with the election made by the participant with respect to the
payment of retirement benefits under the DCP, which, in the case of Mr. Finch,
was for equal monthly payments over a period of 60 months. In addition, the
amendment provides that the crediting rate for earnings on the participant's
account balance for the three-year period following a change in control shall be
9% per annum, with benefits determined by applying this rate without reduction
for present value. After the three-year period following the change in control,
the amendment provides that the crediting rate shall be zero. The amendment also
provides that, prior to the change in control, Suncoast will make a contribution
to the trust maintained pursuant to the DCP to the extent necessary to fully
fund the trust to provide the benefits to which participants are entitled under
the DCP.
The Merger Agreement provides that at the Effective Time of the
merger, Albert J. Finch, Chairman of the Board, Chief Executive Officer, and
President of Suncoast, will be
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<PAGE>
appointed as a Vice-Chairman of the Board of Directors of BankUnited and
BankUnited, FSB and as a member of the BankUnited Board for three years.
Suncoast has entered into severance and/or employment continuation
agreements (the "Change in Control Agreements") with each of Albert J. Finch,
Richard L. Browdy, and Wendy M. Mitchler, each of whom is an executive officer
of Suncoast. The benefits payable to them under the Change in Control Agreements
include a severance payment to Mr. Finch in the amount of $150,000, a payment to
Mr. Finch in an amount equal to the amount of compensation that Suncoast
otherwise would have paid to Mr. Finch for the period from the Effective Time
through the end of the month in which the Effective Time occurs (but only in the
event the Effective Time is prior to November 30, 1996) and an employment
continuation payment to Mr. Finch in the amount of $150,000 at the Effective
Time, and employment continuation payments to Mr. Browdy in the amount of
$280,000 and to Ms. Mitchler in the amount of $110,000, on the Effective Time or
the later of January 2, 1997. The severance payment to Mr. Finch is in lieu of
the payment to which he would otherwise be entitled under Suncoast's senior
officer severance policy. The employment continuation payments to Mr. Finch and
Ms. Mitchler are to be made for their remaining in the employ of Suncoast
through the Effective Time, or in the event of Suncoast's prior termination of
their employment other than for cause. The employment continuation payment to
Mr. Browdy is to be made for his remaining in the employ of Suncoast through the
Effective Time and for two subsequent three-month periods (terminable by either
upon thirty days' notice during the second three-month period), or in the event
of Suncoast's prior termination of his employment other than for cause. For
these purposes, "cause" includes any action or inaction of the executive
involving personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform his or
her duties, willful violation of any law, rule or regulation (other than traffic
violation or similar offenses), or final cease-and-desist order, or material
breach of any provision of the Change in Control Agreements. Under the Merger
Agreement, BankUnited has agreed to provide after the Effective Time the
benefits and perform the obligations of Suncoast set forth in the Change in
Control Agreements in accordance with the terms thereof.
In addition, under the Merger Agreement, BankUnited has agreed to
enter into a consulting agreement with Albert J. Finch, effective as of the
Effective Time. The terms of such consulting agreement include payment of a
monthly consultant fee at the rate of $100,000 per year for a three-year period
for consulting services of up to 600 hours per year. In addition, BankUnited
will pay all out-of-pocket expenses incurred by Mr. Finch in performance of his
consulting duties, and will, through April 1998, make the lease payments on a
leased automobile to be used by Mr. Finch. In addition, BankUnited will provide
health insurance coverage to Mr. Finch to the same extent and on the same terms
and conditions as that provided for BankUnited employees for the greater of
three years or as long as he remains a director of BankUnited, with continuation
coverage for 18 months thereafter. The consulting agreement further provides
that, as long as Mr. Finch remains willing to stand for election as a director,
whether or not he is elected, the Split Dollar Agreement between Suncoast and
Mr. Finch, dated January 28, 1991, as amended, shall remain in full force and
effect in accordance with its terms. BankUnited has the right to terminate the
consulting agreement only for cause, as defined above.
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<PAGE>
Options granted under Suncoast Savings' stock option plan will
generally become fully and automatically exercisable, to the extent not already
exercisable, upon the acquisition by any person of 20% or more of the combined
voting power of the Association's then outstanding stock.
Under the Stock Bonus/401(k) Plan, in the event the Plan is
terminated in connection with a merger, plan participants shall become 100%
vested as to employer contribution amounts.
REPORT OF THE COMPENSATION COMMITTEE
Suncoast's Compensation Committee (the "Compensation Committee")
reviews and recommends to the full Board of Directors all aspects of the
compensation program for the executive officers of Suncoast. The Compensation
Committee is comprised of three outside, independent directors: Sumner G. Kaye
(Committee Chairman), Paul B. Fay, Jr. and Elia J. Giusti.
The goal of the compensation program is to attract, motivate, reward
and retain the management talent required to achieve corporate objectives and
increase shareholder value. Toward that end, the program attempts to provide
competitive levels of total compensation, incentive compensation that varies
with the financial performance of Suncoast, and incentive compensation that
effectively rewards individual performance.
Each year, the Compensation Committee conducts a thorough review of
its executive officer compensation program. This review includes a market survey
provided by the Wyatt Company, an independent, internationally recognized
compensation and benefits consulting firm. Suncoast's executive compensation
program is analyzed by component of pay (i.e., base salary and bonus), and in
the aggregate, to measure its competitiveness with other comparable financial
institutions. Each year, the Compensation Committee reviews the criteria used
for the selection of peer companies included in the market survey data.
The three key components of Suncoast's executive officer compensation
program are generally base salaries, incentive bonuses, and long term incentive
stock options. Each component of executive compensation is discussed below.
BASE SALARIES
The base salaries of executive management are set annually based on a
consideration of survey group data provided by the Cole Survey published by the
Wyatt company, Mortgage Bankers Association and/or other in-house surveys.
Consideration is also given to the individual achievements of each officer over
the past year, the financial performance of Suncoast and, with the exception of
the Chief Executive Officer's salary, the recommendations of the Chief Executive
Officer. The executive officers' base salaries established for the 1996 fiscal
year, on average, were substantially equivalent to the average salaries of
Suncoast's peer group contained in the survey group data.The Compensation
Committee has established a goal of providing base salaries for executive
management that
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<PAGE>
are comparable to the average salaries of Suncoast's peer group as company
performance warrants.
INCENTIVE BONUSES
Discretionary incentive bonuses may be paid from time to time to
executive officers based on the Chief Executive Officer's recommendation (with
the exception of the Chief Executive Officer's bonus, which will be based on the
Compensation Committee's recommendation). Any such recommendations will be based
on a discretionary evaluation of the individual's contribution to the financial
performance of the Association, his or her level of responsibility, the
financial performance of Suncoast and survey group data. All incentive bonus
payments are payable at the discretion of the Compensation Committee and the
Board of Directors.
STOCK OPTION PLAN
Suncoast has included stock options as a key element in its total
compensation package. The stock option awards are intended to offer the
executive officers significant incentives to increase their efforts on behalf of
Suncoast and to focus managerial efforts on enhancing long-term shareholder
value. Each year the Compensation Committee determines the level of stock option
awards to be granted to executive officers. The awards take into account the
following factors:
/bullet/ total aggregate grants to officers and directors as a
percentage of the total outstanding common stock;
/bullet individual level of responsibility and current performance;
and
/bullet/ prior grants of awards to each individual
Stock options are granted with an exercise price equal to the market
price of Suncoast's common stock on the date of grant, generally vest over five
years and expire ten years from the date of grant. Benefits to an executive
officer from stock options will be realized only in the event of an increase in
the market value of Suncoast's Common Stock. The Stock Option Plan currently has
minimal options available for issuance; accordingly, no current grants are
contemplated by the Compensation Committee until additional options become
available either through forfeitures or an increase in the number of shares
reserved for issuance under the Stock Option Plan.
BASES FOR CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Finch's base salary and annual incentive bonus were determined
using the criteria described above which were applied to all executive officers.
Mr. Finch's base salary for Fiscal 1996 remained the same as his base salary for
the prior fiscal year and 11% less than the average salary of his peer group as
determined by a Financial Institutions Compensation
94
<PAGE>
Survey performed by Watson Wyatt Data Service for the Association's
Compensation Committee. No salary adjustment was recommended in recognition of
the need to contain administrative expenses during the transition of Suncoast
from a national mortgage banking operation to a community bank. In maintaining
Mr. Finch's base salary at its previous level, the Committee also considered Mr.
Finch's leadership role in completing the restructuring of the assets and
operations during the year. Mr. Finch received an incentive bonus during Fiscal
1996 based on a review of the contribution that he made to the financial
performance of Suncoast during such fiscal year.
The Compensation Committee
Sumner G. Kaye, Chairman
Paul B. Fay, Jr.
Elia J. Giusti
95
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the
cumulative total shareholder return on the Association's Common Stock with the
NASDAQ Stock Market Index and the NASDAQ Financial Index for the five year
period beginning July 1, 1991 and ending June 30, 1996. This graph assumes that
$100 was invested on July 1, 1990 in the Association's Common Stock and in the
other indices, and that all dividends were reinvested.
COMPARISON OF FIVE-YEAR CUMULTIVE TOTAL RETURN
AMONG SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA,
NASDAG STOCK MARKET INDEX AND NASDAQ FINANCIAL INDEX
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Indices as of June 30, 1991 1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------------
Suncoast 100 123 304 267 246 232
- ------------------------------------------------------------------------------------
NASDAQ Stock Market Index 100 120 252 253 204 261
- ------------------------------------------------------------------------------------
NASDAQ Financial Index 100 139 183 206 236 307
- ------------------------------------------------------------------------------------
</TABLE>
96
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth information as of September 23, 1996
with respect to the ownership of shares of Common Stock by (i) such persons who
are believed by management to be beneficial owners of more than five percent of
the Association's outstanding Common Stock, which includes certain Directors,
(ii) all other Directors of the Association, (iii) all named executive officers,
and (iv) all Directors and officers as a group:
97
<PAGE>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME AND ADDRESS OF OWNERSHIP OF TOTAL
OUTSTANDING
BENEFICIAL OWNER COMMON STOCK (1) COMMON STOCK (2)
- -------------------------------------------------------------------------------
Albert J. Finch, Chairman 153,634 (3)(4) 6.98%
4000 Hollywood Blvd.
Hollywood, FL 33021
Suncoast Savings Employee 136,198 (5) 6.14
Stock Bonus/401(k) Plan
and Trust
4000 Hollywood Blvd.
Hollywood, FL 33021
Paul B. Fay, Jr., Director 135,257 (3)(6) 6.07
3766 Clay Street
San Francisco, CA 94118
E. J. Giusti, Director 113,198 (3)(7) 5.12
3101 N. Federal Hwy. #503
Fort Lauderdale, FL 33306
William E. Hammonds, Vice Chairman 101,604 (3) 4.63
47375 West Dakota Avenue
Firebaugh, CA 93622
Norman E. Mains, Director 44,833 (3) 2.02
Irving P. Cohen, Director 46,370 (3)(8) 2.09
Sumner G. Kaye, Director 2,110 (3) *
Richard L. Browdy, 23,483 (3) 1.07
Chief Financial Officer and
Executive Vice President
Thomas L. Clark 6,148 (3) *
Executive Vice President
Wendy M. Mitchler, 20,954 (9) *
General Counsel, Secretary
and Senior Vice President
All directors and 707,948 (10) 30.63
officers as a group
(16 persons)
- --------------------
* Less than one percent of outstanding Common Stock
(1) Includes shares of Common Stock held of record individually by such
persons as well as jointly with their spouses. In accordance with
Rule 13d-3 under the Securities Exchange Act of 1934, as amended, a
person is deemed to be the beneficial owner of a security for
purposes of the Rule if that person has or shares voting power or
98
<PAGE>
investment power with respect to such security or has the right to
acquire such ownership within 60 days. Each individual, for purposes
of the regulations under the Securities Exchange Act of 1934, as
amended, and for all other purposes, disclaims beneficial
ownership of any shares owned by any other person or entity,
including immediate family members, unless otherwise noted below, and
disclaims being a member of any "group", as that term is defined in
regulations issued under that statute.
(2) Percentage based upon (a) 2,195,930 outstanding shares of Common
Stock; plus (b) the number of shares of Common Stock considered
potentially outstanding based on (i) options currently exercisable
(within 60 days of September 23, 1996) by such individual or group
under the Association's Stock Option Plan, and (ii) the conversion of
the Association's Noncumulative Convertible Preferred Stock
("Preferred Stock") into Common Stock by such individual or group;
plus (c) the number of shares of Common Stock and the number of
shares of Common Stock convertible from Preferred Stock allocated to
such individual or group under the Association's Employee Stock
Bonus/401(k) Plan.
(3) For Messrs. Finch, Hammonds, Browdy and Clark, and Ms. Mitchler,
includes 4,000, -0-, 2,000, 4,000 and -0- shares, respectively,
subject to options under the Association's Stock Option Plan which
are presently exercisable, and 18,659, 11,745, 8,483, 148 and 5,621
shares, allocated under the Association's Employee Stock Bonus/401(k)
Plan. For Messrs. Cohen, Fay, Kaye, Mains, Giusti and Sweeting
includes 8,000, 15,000, 1,000, 15,000, 15,000 shares and -0- shares,
respectively, subject to options under the Association's Stock Option
Plan which are presently exercisable and 10,970, 18,417, 1,110,
8,333, -0- and -0- shares, respectively, which such persons or their
immediate family members have the right to acquire through the
conversion of their Preferred Stock into Common Stock.
(4) Includes 165 shares held by Mr. Finch's son, as to which shares Mr.
Finch does not disclaim beneficial ownership.
(5) Includes 21,291 shares which the Employee Stock Bonus/401(k) Plan has
the right to acquire through the conversion of Preferred Stock into
Common Stock, and 26,720 shares held in the 401(k) portion of the
Plan as to which the employee participants have sole voting and
investment power.
(6) Includes 59,640 shares of Common Stock held by a pension plan of a
company controlled by Mr. Fay and 6,666 shares which such pension
plan has the right to acquire through the conversion of Preferred
Stock into Common Stock.
(7) Includes 49,581 shares held by an individual retirement account for
the benefit of Mr. Giusti's wife.
(8) Includes 1,100 shares held by an individual retirement account for
the benefit of Mr. Cohen's wife, and 1,110 shares and 555 shares
which Mr. Cohen's wife and Mr. Cohen's wife and son, respectively,
have the right to acquire through the conversion of Preferred Stock
into Common Stock.
99
<PAGE>
(9) Includes 333 shares which Ms. Mitchler has the right to acquire
through the conversion of Preferred Stock into Common Stock.
(10) Includes 76,200 shares subject to options under the Association's
Stock Option Plan which are presently exercisable; 55,611 shares, and
7,960 shares convertible from Preferred Stock, allocated under the
Association's Employee Stock Bonus/401(k) Plan; and 39,330 shares
which officers and Directors have the right to acquire through the
conversion of Preferred Stock into Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Elia Giusti is a director and principal stockholder of the
Association and a member of the Compensation Committee. In the ordinary course
of its business, the Association has made loans secured by real estate to Mr.
Giusti and members of his immediate family on the same basis as comparable
transactions with non-affiliated persons, including interest rates and
collateral. At June 30, 1996, Mr. Giusti and members of his immediate family
were indebted to the Association in the aggregate amount of $2,096,305.
Under its former director and employee lending program, the
Association made a preferential rate $920,000 first mortgage home loan to Mr.
Fay. As part of its asset restructuring, the Association sold this loan to a
third party investor in the fiscal year ended June 30, 1991 and agreed with Mr.
Fay to pay the investor, on a monthly basis, an amount equal to the interest
differential between the preferential rate paid by Mr. Fay (currently at 6 7/8%)
and the stated note rate, which was a market rate at the time the loan was
originated. The amount paid in the fiscal year ended June 30, 1996 by the
Association to the third party investor for Mr. Fay was $13,326.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Irving P. Cohen, a director of the Association, is a partner in the
law firm of Thompson Hine & Flory P.L.L. Thompson Hine & Flory has performed
legal services for the Association during the fiscal year ended June 30, 1996
for which the law firm received $975.
Under its former director and employee lending program, the
Association made a $791,200 first mortgage home loan at a preferential rate to
Norman E. Mains, a Director of the Association. As part of its asset
restructuring, the Association sold this loan to a third party investor in the
fiscal year ended June 30, 1991, and agreed with Mr. Mains to pay the investor,
on a monthly basis, an amount equal to the interest differential between the
preferential rate paid by Mr. Mains (currently at 6-7/8%) and the stated note
rate, which was a market rate at the time the loan was originated. The amount
paid in the fiscal year ended June 30, 1996 by Suncoast to a third party
investor for Mr. Mains was $10,614.
For information relating to certain transactions with members of the
Compensation Committee, see "Compensation Committee Interlocks and Insider
Participation".
100
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements, including notes in Item 8:
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Supplementary Data
2. Financial Statement Schedules
None
3. Exhibits:
2.1 Federal Home Loan Bank of Atlanta (the "Bank") Agreement
for Advances and Security Agreement with Blanket Floating
Lien between Suncoast and the Bank dated January 18, 1996
3.1 Federal Stock Charter (1)
3.1.1 First Supplemental Section to Section 5.B of Federal Stock
Charter (7)
3.2.1 By-laws, as amended
3.2.2 Amendment to By-laws dated February 5, 1996
4.1 Specimen Preferred Stock Certificate (6)
4.2 Suncoast Underwriters' Warrant Agreement, dated July 9,
1993, between Josephthal Lyon & Ross Incorporated,
Southeast Research Partners, Inc., Rodman & Renshaw Inc.,
and Suncoast (7)
10.2 Lease between Hollywood Corporate Circle Associates and
Suncoast dated June 19, 1989 (2)
10.3 Fourth Addendum to Lease between Hollywood Corporate
Circle Associates and Suncoast dated September 20, 1994
(8)
10.3.1 Fifth Addendum to Lease between Hollywood Corporate Circle
Associates and Suncoast dated December 5, 1994 (9)
10.3.2 Sixth Amendment to Lease between Hollywood Corporate
Circle Associates and Suncoast dated April 1, 1996
10.4 Electronic Data Processing Agreement for Remote Processing
Services between Computer Power, Inc. and SCG Mortgage
Corporation dated December 12, 1989 (4)
10.4.1 Microcomputer Software Maintenance and Support Agreement
between Computer Power, Inc. and SCG Mortgage Corporation
dated December 12, 1989 (4)
101
<PAGE>
10.4.2 Microcomputer Software License Agreement between Computer
Power, Inc. and Mortgage Corporation dated December 12,
1989 (4)
10.4.3 Master Agreement for Hardware Purchase between Computer
Power, Inc. and SCG Mortgage Corporation dated December
12, 1989 (4)
10.5 Master Agreement between Data-Link Systems, L.L.C. d/b/a
Fiserv Mortgage Products Division and Suncoast, dated June
17, 1996
10.5.1 Master Software System License Agreement, between
Servantis Systems Inc. and Suncoast, dated June 26, 1996
10.6 Deferred Compensation Plan Agreement between Suncoast and
Albert J. Finch dated September 30, 1993 (8)
10.7 Trust Agreement between Suncoast and Imperial Trust
Company dated September 30, 1993 for Albert J. Finch
Deferred Compensation Plan (8)
10.7.1 Life Insurance Policy on Albert J. Finch issued by
Connecticut Mutual Life Insurance Company dated July 1,
1994 (9)
10.7.2 Amendment to Deferred Compensation Plan Agreement for
Albert J. Finch dated July 15, 1996
10.8 Restated Stock Option Plan (5)
10.8.1 Amendment Number One to Complete Restatement of Stock
Option Plan dated June 4, 1993 (7)
10.9 Employee Stock Bonus/401(k) Plan (8)
10.9.1 First Amendment to Employee Stock Bonus/401(k) Plan dated
December 20, 1994 (9)
10.10 Split Dollar Insurance Plan between Suncoast and Albert J.
Finch dated January 8, 1991 (5)
10.10.1 Life Insurance Policy on Albert J. Finch issued by General
American Life Insurance Company on November 15, 1990 (5)
10.10.2 Amendment to Split Dollar Insurance Plan between Suncoast
and Albert J. Finch dated January 28, 1992 (3)
10.11 Supplemental Health Benefit Plan for Senior Officers (5)
10.12 Residential Loan Servicing Agreement between Federal
Deposit Insurance Corporation ("FDIC") and Suncoast
effective February 1, 1995, as amended (9)
10.13 Employment Continuation and Severance Agreement between
Suncoast and Albert J. Finch dated August 28, 1996
10.13.1 Employment Continuation Agreement between Suncoast and
Richard L. Browdy dated August 28, 1996
10.13.2 Employment Continuation Agreement between Suncoast and
Wendy Mitchler dated August 28, 1996
10.13.3 Amendment to Employment Continuation and Severance
Agreement between Suncoast and Albert J. Finch dated
September 26, 1996
10.14 Residential Mortgage Loan Servicing Agreement between
Federal Deposit Insurance Corporation and Suncoast dated
January 30, 1995 (9)
10.14.1 Modification Number One of Residential Mortgage Loan
Servicing Agreement between FDIC and Suncoast dated March
14, 1995 (9)
10.14.2 Modification Number Two of Residential Mortgage Loan
Servicing Agreement between FDIC and Suncoast dated June
15, 1995 (9)
10.14.3 Modification Number Three of Residential Mortgage Loan
Servicing Agreement between FDIC and Suncoast dated June
27, 1995 (9)
102
<PAGE>
10.15 Agreement and Plan of Merger, as Amended, between
BankUnited Financial Corporation and Suncoast Savings and
Loan Association, FSA, dated July 15, 1996
11.1 Computation of Shares Used for Earnings Per Share
Calculation
21.1 Statement of Subsidiaries of the Association
- ------------------------------------------
(1) Previously filed in the Exhibits to Pre-Effective Form OC
(Docket Number 8147) filed May 20, 1993.
(2) Previously filed in the Exhibits to Form 10-K for the
Fiscal Year ended June 30, 1989 (Docket Number 8147) on
September 28, 1989.
(3) Previously filed in the Exhibits to the Form 10-K for the
Fiscal Year ended June 1992 (Docket Number 8147) on
September 28, 1992.
(4) Previously filed in the Exhibits to Form 10-K for the
Fiscal Year ended June 30, 1989 (Docket Number 8147) on
October 30, 1990.
(5) Previously filed in the Exhibits to the Form 10-K for the
Fiscal Year ended June 30, 1991 (Docket Number 8147) on
October 4, 1991.
(6) Previously filed in the Exhibits to Pre-Effective
Amendment No. 1 (Docket Number 8147) to Form OC on June
22, 1993.
(7) Previously filed in the Exhibits to the Form 10-K for the
Fiscal Year Ended June 30, 1993 (Docket Number 8147) on
September 28, 1993.
(8) Previously filed in the Exhibits to the Form 10-K for the
Fiscal Year Ended June 30, 1994 (Docket Number 8147) on
September 28, 1994.
(9) Previously filed in the Exhibits to the Form 10-K for the
Fiscal Year Ended June 30, 1995 (Docket Number 8147) on
September 28, 1995.
(b) The Association filed one report on Form 8-K during the quarter ended
September 30, 1996. The Form 8-K was filed on July 19, 1996 to report
the execution by Suncoast and BankUnited of a Merger Agreement dated
July 15, 1996.
103
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Suncoast Savings and Loan Association, FSA
By: S/ ALBERT J. FINCH Date: SEPTEMBER 26, 1996
------------------------------------ ------------------
Albert J. Finch
President
Chairman of the Board of Directors
and Chief Executive Officer
By: S/ RICHARD L. BROWDY Date: SEPTEMBER 26, 1996
------------------------------------ ------------------
Richard L. Browdy
Senior Vice President,
Chief Financial Officer and
Chief Accounting Officer
104
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Suncoast Savings and Loan Association, FSA
By: S/ ALBERT J. FINCH Date: SEPTEMBER 26, 1996
------------------------------------- ------------------
Albert J. Finch
President
Chairman of the Board of Directors
and Chief Executive Officer
By: S/ ELIA J. GIUSTI Date: SEPTEMBER 26, 1996
------------------------------------- ------------------
Elia J. Giusti
Director
By: S/ SUMNER G. KAYE Date: SEPTEMBER 26, 1996
------------------------------------- ------------------
Sumner G. Kaye
Director
105
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Suncoast Savings and Loan Association, FSA
By: S/ WILLIAM E. HAMMONDS Date: SEPTEMBER 26, 1996
------------------------------------- ------------------
William E. Hammonds
Vice Chairman
106
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Suncoast Savings and Loan Association, FSA
By: S/ IRVING P. COHEN Date: SEPTEMBER 26, 1996
------------------------------------- ------------------
Irving P. Cohen
Director
107
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Suncoast Savings and Loan Association, FSA
By: S/ PAUL B. FAY, JR. Date: SEPTEMBER 26, 1996
--------------------------------- ------------------
Paul B. Fay, Jr.
Director
108
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Suncoast Savings and Loan Association, FSA
By: S/ NORMAN E. MAINS Date: SEPTEMBER 26, 1996
---------------------------------- ------------------
Norman E. Mains
Director
109
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Suncoast Savings and Loan Association, FSA
By: S/ WALTER SWEETING Date: SEPTEMBER 26, 1996
---------------------------------- ------------------
Walter Sweeting
Director
110
<PAGE>
APPENDIX D
OFFICE OF THRIFT SUPERVISION
WASHINGTON, D.C. 20552
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended: September 30, 1996 Docket Number 8147
SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA
------------------------------------------
(Exact name of registrant as specified in charter)
Florida 59-2383531
------------ -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4000 Hollywood Boulevard, Hollywood, Florida 33021
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 981-6400
Former name, former address and former fiscal year, if changed since last
report:
(Not Applicable}
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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[ ]
On November 1, 1996, 2,197,930 shares of common stock of the Registrant were
outstanding.
<PAGE>
SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA
FORM 10-Q
INDEX
DESCRIPTION
PAGE
Part I. FINANCIAL INFORMATION ----
Item 1. Financial Statements:
1. Consolidated Statements of Financial
Condition as of September 30, 1996 (Unaudited)
and June 30, 1996 3
2. Consolidated Statements of Operations [Unaudited),
Three months ended September 30,1996
and 1995 4
3. Consolidated Statements of Cash Flow (Unaudited),
Three months ended September 30,1996 and 1995 5
4. Notes to Unaudited Consolidated Financial
Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-20
Part II. OTHER INFORMATION 21
SIGNATURE PAGE 22
<PAGE>
<TABLE>
<CAPTION>
SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPT. 30,
1996 JUNE 30,
(UNAUDITED) 1996
---------- ---------
ASSETS (In thousands)
<S> <C> <C>
Cash and cash equivalents:
Cash and amounts due from depository institutions $ 4,588 $ 1,260
Interest-earning deposits 1,430 622
---------- ---------
Total cash and cash equivalents 6,018 1,882
---------- ---------
Repurchase agreements 15,000
Federal Home Loan Bank Stock 3,075 3,875
Loans receivable:
In portfolio 330,781 320,828
Held for sale, sold under commitments 4,208 6,730
---------- ---------
Total loans receivable, net 334,989 327,558
---------- ---------
Mortgage-backed securities available for sale 18,196 18,391
Loan servicing assets:
Purchased mortgage servicing rights 9,396 9,525
Originated mortgage servicing rights 747 834
Premiums on the sale of loans 1,311 1,359
---------- ---------
Total loan servicing assets 11,454 11,718
---------- ---------
Accrued interest and dividends receivable 3,065 3,042
Real estate owned, net 245 261
Amounts due from purchasers of loans and loan servicing rights 128 19,883
Office properties and equipment 6,787 6,640
Other assets 10,446 9,319
---------- ---------
$ 409,403 $ 402,569
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 298,461 $ 301,201
Advances by borrowers for taxes and insurance 4,063 3,138
Advances from Federal Home Loan Bank and other borrowings 73,310 68,500
Deferred income taxes 0 107
Principal and interest payable on loans serviced for others 105 274
Other liabilities 8,794 3,811
---------- ---------
Total liabilities 384,733 377,031
---------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock - $5.00 par value; 1,000,000 shares authorized;
920,000 shares issued and outstanding 4,600 4,600
Common stock - $1.10 par value; 5,000,000 shares authorized; 2,197,930 shares
and 1,996,930 shares, respectively, issued and outstanding 2,418 2,197
Additional paid-in capital 17,657 17,295
Retained earnings 301 1,642
---------- ---------
24,976 25,734
Unrealized gain (loss) on mortgage-backed securities available for sale, net of
deferred income taxes (306) (196)
---------- ---------
Total stockholders' equity 24,670 25,538
---------- ---------
$ 409,403 $ 402,569
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
-------- --------
(In thousands, except per share data)
<S> <C> <C>
Interest income:
Loans $ 6,600 $ 3,138
Mortgage-backed securities 379 2,738
Repurchase agreements and investments 256 561
Premiums on the sale of loans 30 34
Other 48 299
-------- --------
7,313 6,770
-------- --------
Interest expense:
Deposits 3,442 3,981
Short-term borrowings 972 614
Long-term borrowings 25
-------- --------
4,439 4,595
-------- --------
Net interest income before provision for loan losses 2,874 2,175
Provision for loan losses 12
-------- --------
Net interest income after provision for loan losses 2,862 2,175
-------- --------
Other income (expense):
Loan servicing fees 1,412 1,536
Amortization of loan servicing assets (466) (300)
-------- --------
Loan servicing income 946 1,236
Gains on the sale of loans and loan servicing assets, net 222 14
Gains on the sale of mortgage-backed securities, net 1,213
Other 226 277
-------- --------
1,394 2,740
-------- --------
Non-interest expenses:
Employee compensation and benefits 1,715 1,627
Occupancy and equipment 739 731
Provision for losses on real estate 16
Other 1,161 1,437
Assessment to recapitalize Savings Association Insurance Fund 2,317
-------- --------
5,948 3,795
-------- --------
Income before taxes (1,692) 1,120
(Benefit from) provision for income taxes (626) 414
-------- --------
Net (loss) income $ (1,066) $ 706
======== ========
Net (loss) income (1,066) 706
Preferred stock dividends 276 276
-------- --------
(Loss) earnings available to common stockholders $(1,342) $ 430
======== ========
(Loss) earnings per common share:
Primary $ (0.62) $ 0.20
Fully diluted $ (0.62) $ 0.19
Weighted-average common and common equivalent shares:
Primary 2,160 2,140
Fully diluted 3,710 3,680
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNUADITED)
Three months ended
September 30
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
<S> <C> <C>
Net (loss) income $ (1,065) $ 706
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization of office properties and equipment 296 283
(Benefit from) provision for income taxes (626) 414
Accretion of deferred loan fees (61) (45)
Amortization of purchased and originated mortgage servicing rights 379 255
Amortization of premiums on the sale of loans 48 45
Amortization of discounts and premiums, net 67 (136)
Net decrease (increase) in loans receivable held for sale 2,532 (2,304)
Provision for loan losses 12
Provision for losses on real estate 16
Net decrease in amounts due from purchasers of loans and loan servicing rights 19,755 254
Increase in amounts due for purchases of mortgage securities 48,634
Gains on the sale of loans and loan servicing assets, net (222) (14)
Gains on the sale of mortgage-backed securities (1,212)
Increase in accrued interest and dividends receivable (23) (496)
Increase in other assets ( 1,135) (231)
Increase (decrease) in other liabilities 5,398 (3,412)
Other 8 8
--------- ---------
Net cash provided by (used in) operating activities 25,379 42,749
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans receivable in portfolio (9,909) (34,379)
Principal repayments of mortgage-backed securities 20 4,361
Purchase of mortgage-backed securities (149,307)
Proceeds from sales of mortgage-backed securities 117,158
Purchase of repurchase agreements (15,000) (1,870,000)
Proceeds from maturities of repurchase agreements 1,935,000
Capital (expenditures) dispositions, net (443) (115)
(Decrease) increase in originated mortgage servicing rights 45 (68)
Payments for purchased mortgage servicing rights (208)
Proceeds from sales of purchased servicing rights and premiums on the sale of loans 150
Proceeds from sale of real estate owned 285
Purchase of Federal Home Loan Bank stock 2,900
Proceeds from redemption of Federal Home Loan Bank stock (2,100)
--------- ---------
Net cash provided by (used in) investing activities (24,545) 2,935
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (2,740) (21,529)
Increase in advances by borrowers for taxes and insurance 925 318
Advances from Federal Home Loan Bank 108,500
Repayments of advances and other borrowings from Federal Home Loan Bank, net (118,000)
Proceeds from (repayments of) other borrowings, NET 14,310 (63,623)
Proceeds from issuance of common stock 583 14
Cash dividends paid on preferred stock (276) (276)
--------- ---------
Net cash (used in) provided by financing activities 3,302 (85,096)
--------- ---------
Net (decrease) increase in cash and cash equivalents 4,136 (39,412)
Cash and cash equivalents at beginning of period 1,882 43,770
--------- ---------
Cash and cash equivalents at end of period $ 6,018 $ 4,358
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 4,293 $ 4,867
Cash paid for income taxes, net of refunds received -0- 1
Supplemental non-cash activities:
REO obtained through foreclosure $ -0- $ -0-
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
( 1 ) ACCOUNTING PRINCIPLES
The unaudited interim consolidated financial statements of Suncoast
Savings and Loan Association, FSA ("Suncoast") presented herein should be read
in conjunction with the audited consolidated financial statements of Suncoast
for the fiscal year ended June 30, 1996 and the footnotes to such statements.
The Consolidated Statement of Financial Condition as of September
30, 1996 and the Consolidated Statements of Operations for the three months
ended September 30, 1996 and 1995 and the Consolidated Statements of Cash Flows
for the three months ended September 30, 1996 and 1995 are unaudited, but in the
opinion of management reflect all adjustments (none of which was other than a
normal recurring accrual) which are necessary to a fair statement of the results
for the interim periods presented. Interim results are not necessarily
indicative of the results to be expected for the entire year.
Certain amounts reported in prior periods' financial statements have
been reclassified to conform to classifications used for the period ended
September 30, 1996.
(2) EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per share is computed on the basis of the weighted
average number of common shares outstanding during the period plus common stock
equivalents applicable to stock options. When dilutive, fully diluted earnings
(loss) per common share is derived as follows: Earnings (loss) available to
common shareholders are increased by preferred dividends paid eliminated upon
conversion of the preferred shares to common shares. This remainder is divided
by the sum of the average number of common shares outstanding for the period
plus the added common shares that would have been outstanding if: (a) all of the
outstanding preferred shares had been converted into common shares at the
beginning of the period and (b) all stock options granted that have economic
value were exercised at the beginning of the period, and the related funds that
would have been received by Suncoast upon such exercise were used to repurchase
outstanding common shares.
(3) ASSESSMENT TO RECAPITALIZE THE SAVINGS ASSOCIATION INSURANCE FUND ("SAIF")
On September 30, 1996, Congressional legislation was enacted to
recapitalize the SAIF and to merge the fund into the Bank Insurance Fund
("BIF"). Both SAIF and BIF are administered by the Federal Deposit Insurance
Corporation ("FDIC"). As a result of the legislation, Suncoast
6
<PAGE>
has been assessed $2,317,000 which has been accrued as an expense at September
30, 1996 and will be paid on November 27, 1996.
(4) PENDING MERGER
On July 15, 1996, Suncoast entered into a definitive agreement to be
acquired by BankUnited Financiai Corporation ("BankUnited"). Under terms of the
agreement one share of BankUnited Class A Common Stock will be issued for each
share of Suncoast Common Stock. Each share of Suncoast Preferred Stock will be
exchanged for a new issue of BankUnited Preferred Stock having substantially
similar terms as the Suncoast Preferred Stock. The transaction has now been
approved by stockholders of both Suncoast and BankUnited and has received all
regulatory approvals. The merger is expected to be effective on November 15,
1996.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Suncoast Savings and Loan Association, FSA ("Suncoast") is engaged
primarily in community banking and loan servicing activities. Suncoast provides
community banking services primarily in Dade, Broward and Palm Beach counties in
Florida. Community banking consists primarily of attracting checking and savings
deposits from the public in a localized market area and investing such deposits,
together with borrowings and other funds, in various types of loans and other
permitted investments. In connection with its community banking activities,
Suncoast originates and purchases for its own portfolio both residential and
commercial real estate loans.
Suncoast's mortgage loan servicing activities include processing
loan payments, remitting principal and interest to investors, administering
escrow funds and providing other services in the administration of mortgage
loans. Suncoast is an approved seller/servicer for the Government National
Mortgage Association ("GNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC") and Fannie Mae ("FNMA"). Suncoast also services loans under contracts
with the Federal Deposit Insurance Corporation ("FDIC") and other financial
institutions.
Suncoast operates six savings branches in Broward and Palm Beach
County, Florida. It is regulated and examined by the Office of Thrift
Supervision ("OTS") and the FDIC, and its deposit accounts are insured up to the
applicable limits by the FDIC.
Suncoast's fiscal years ended on June 30, 1997 and 1996 are referred
to as "Fiscal 1997" and "Fiscal 1996" in this discussion.
PROPOSED MERGER
On July 15, 1996, Suncoast and BankUnited Financiai Corporation, a
Florida corporation ("BankUnited"), entered into an Agreement and Plan of Merger
(the "Agreement and Plan of Merger"), providing for the merger (the "Merger") of
Suncoast into BankUnited, FSB, a wholly-owned subsidiary of BankUnited. Pursuant
to the terms of the Agreement and Plan of Merger, BankUnited, FSB will be the
surviving corporation of the Merger.
Upon completion of the Merger, (i) each issued and outstanding share
of Common Stock, par value $1.10 per share, of Suncoast (the "Suncoast Common
Stock") will be converted into the RIGHT TO RECEIVE one share of Series I Class
A BankUnited Common Stock ("BankUnited Common Stock") and (ii) each issued and
outstanding share of Series A NonCumulative Convertible Preferred Stock of
Suncoast (the "Suncoast Preferred Stock") will be converted into the right to
receive one share of a new series of preferred stock of BankUnited to be
authorized by the Board of Directors of BankUnited and to have rights and
preferences substantially similar to those of the Suncoast Preferred Stock ("New
BankUnited Preferred Stock").
The Merger has been approved by the Office of Thrift Supervision
("OTS"), and by the stockholders of both Suncoast and BankUnited and is
scheduled to occur on November 15, 1996. Completion of the Merger is subject to
certain conditions, including: (a) the absence of
8
<PAGE>
any event, occurrence or circumstance that would constitute a Material Adverse
Effect (as defined in the Agreement and Plan of Merger) on either Suncoast or
BankUnited and (b) other conditions to closing customary in a transaction of
this type.
FACTORS AFFECTING EARNINGS
Suncoast's operating strategy is that of a community bank and
focuses on enhancing net interest income and servicing revenues. As a result of
this strategy, Suncoast's net interest income has grown in relation to other
income sources in the three months ended September 30, 1996 as compared to the
three months ended September 30, 1996. Starting in Fiscal 1995, Suncoast has
gradually replaced assets invested in its mortgage banking operations, primarily
its inventory of loans available for sale, with investments in mortgage-backed
securities, repurchase agreements, and loans originated or purchased for
portfolio. Suncoast's strategy restructured its assets initially into
interest-bearing assets with minimal credit risk until it could reinvest funds
previously used to finance its mortgage banking activities into portfolio loans.
In addition, this strategy allowed Suncoast to shift its assets to those with
lower risk weights under the risk based capital regulations enabling Suncoast to
increase both its assets and deposits and, accordingly, its net interest income,
while remaining well capitalized under such regulations.
During the first quarter of Fiscal 1996, Suncoast sold portions of
its mortgage-backed securities portfolio due to favorable market conditions and
its ability to apply the proceeds to the purchase and origination of high
quality residential and commercial real estate loans for investment and recorded
gains from these sales of $1.2 million. At September 30, 1996, $18.2 million of
mortgage-backed securities remained available for sale. In completing this
restructuring, Suncoast not only reduced its interest rate risk, but increased
its net interest income by shifting from longer term fixed rate mortgage-backed
securities to higher yielding adjustable rate loans receivable.
The following table sets forth for the periods indicated the amounts
and percentages of Suncoast's total income represented by each source (dollars
in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------
1996 1995
-----------------------------------------
AMOUNT % Amount %
------- ------ ------- ------
<S> <C> <C> <C> <C>
Net interest income before provision for loan losses $ 2,874 67.3% $ 2,175 44.3%
Loan servicing income 946 22.2 1,236 25.2
Gains on the sale of loans and loan servicing assets, net 222 5.2 14 .3
Gains on the sale of mortgage-backed securities -- -- 1,213 24.7
Other 226 5.3 277 5.5
------- ------ ------- ------
Total $ 4,268 100.0% $ 4,915 100.0%
======= ====== ======= ======
</TABLE>
Net interest income is the difference between interest income
received on Suncoast's interest-earning assets (principally loans,
investments, mortgage-backed securities and
9
<PAGE>
premiums on the sales of loans) and interest expense paid on its
interest-bearing liabilities (principally deposits, Federal Home Loan Bank
("FHLB") advances, and other borrowings). Suncoast also periodically realizes
other income from its other mortgage-related and real estate activities, which
is included in the "Other" category in the table above.
RECAPITALIZATION OF THE SAVINGS ASSOCIATION INSURANCE FUND ("SAIF").
Suncoast pays deposit insurance premiums to the SAIF. SAIF and its counterpart
for commercial banks, the Bank Insurance Fund ("81F"), were previously assessed
deposit insurance premiums at the same rate. However, in 1995, the FDIC twice
reduced deposit insurance premiums for most BIF-insured banks so the minimum
annual assessment applicable to BIF deposits effective January 1, 1996 is $2,000
as compared to a 23 basis point assessment rate for SAIF deposits. This
disparity between BIF and SAIF in assessment rates placed Suncoast and most
thrifts at a competitive disadvantage to institutions whose deposits are
exclusively or primarily BlF-insured (such as most commercial banks).
On September 30, 1996, Congress enacted legislation to recapitalize
the SAIF and bridge the premium disparity between BIF and SAIF insured
institutions. This legislation authorized the FDIC to assess all SAIF member
institutions, including Suncoast, a one-time fee of 65.7 basis points on the
amount of SAIF deposits held by the member institutions at March 31, 1995. This
assessment to Suncoast is approximately $2.3 million and is to be paid on
November 27, 1996. Suncoast recorded the assessment on September 30, 1996, which
significantly reduced earnings for the first quarter of Fiscal 1997.
ASSET/LIABILITY MANAGEMENT. The assets and liabilities of Suncoast
are managed to provide an optimum and stable net interest margin, after-tax
return on assets and return on equity capital. Management, in implementing
Suncoast's asset/liability management policy, attempts to minimize the interest
rate risk, credit risk, solvency risk and liquidity risk to Suncoast. Suncoast's
Asset/Liability Committee, which meets on a weekly basis and conducts scheduled
reviews of various indicators and other risk criteria, has the responsibility to
monitor interest rate risk, devise strategies to adjust interest rate risk and
enhance capital and operational effectiveness, monitor and set targets for loan
originations, purchases and sales and securities purchases, and establish
pricing on all deposit products. Suncoast's asset and liability strategy seeks
to achieve an optimum return on assets while assuming acceptable amounts of
credit and interest rate risk with the goal of reasonable returns on investments
relative to the risks assumed. Management balances these goals by minimizing
credit risk through strict underwriting standards and policies while accepting
moderate interest rate risk. While Suncoast accepts moderate levels of interest
rate risk in its loan and investment portfolio, it generally seeks to limit
interest rate risk by maintaining adjustable-rate assets and through the ongoing
sale into the secondary mortgage market of all loans originated or purchased for
sale.
The Suncoast Board of Directors has established an interest rate
risk policy to monitor the effect of interest rate risk in accordance with rules
issued by the OTS. Management has implemented this policy with quarterly
measurements. Management considers these measurements in its strategies to
enhance capital and operational effectiveness.
10
<PAGE>
GAP TABLE. The interest rate sensitivity of Suncoast can also be
measured by matching its assets and liabilities, analyzing the extent to which
such assets and liabilities are interest rate sensitive and by monitoring the
resulting "gap" position. An asset or liability is rate sensitive within a
specific time period if it will mature or reprice within that period. The
interest sensitivity gap is defined as the difference between the amount of
interest-earning assets anticipated, based upon certain assumptions, to mature
or reprice within a specific time period and the amount of interest-bearing
liabilities anticipated to mature within that time period. A gap is considered
positive when the amount of interest rate sensitive assets maturing within a
specific time frame exceeds the amount of interest rate sensitive liabilities
maturing within that same time frame.. Accordingly, in a rising interest rate
environment, an institution with a positive gap would generally be expected,
absent the effects of other factors, to experience a greater increase in the
yield of its assets relative to the cost of its liabilities. Conversely, the
cost of funds for an institution with a positive gap would generally be expected
to decline less quickly than the yield on its assets in a falling interest rate
environment. Changes in interest rates generally have the opposite effect on an
institution with a "negative" gap. During a rising interest rate environment,
Suncoast's negative gap position would generally be expected, absent the effect
of other factors, to result in decreased net interest income as the increase in
the cost of its liabilities would exceed the increase in the yield on its
assets. As of September 30, 1996, Suncoast had a negative cumulative one-year
gap of $17.5 million or 4.28% of total assets.
The following table sets forth the amounts of interest-earning
assets and interest-bearing liabilities outstanding at September 30, 1996, which
are anticipated, based upon certain assumptions described in the following
paragraph, to reprice or mature in each of the future time periods shown.
Certain weaknesses are inherent in this method of analysis. As an example,
certain assets and liabilities may have similar maturity and repricing periods,
but may react in different degrees to changes in market interest rates.
Prepayment and early withdrawal penalties would likely deviate significantly
from those assumed in calculating the table in the event of a change in interest
rates.
<TABLE>
<CAPTION>
(Dollars in thousands)
OVER OVER OVER OVER
ONE THREE FIVE SEVEN
WITHIN YEAR TO YEARS TO YEARS TO YEARS TO
ONE THREE FIVE SEVEN THIRTY
YEAR(1) YEARS YEARS YEARS YEARS TOTAL
--------- --------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets $ 261,465 $ 86,646 $ 10,716 $ 4,911 $ 9,790 $373,528
Interest-bearing liabilities 279,002 50,648 15,582 7,625 18,914 $371,771
--------- --------- -------- ------- ------- --------
Excess (deficit) of interesting assets
over interest-bearing liabilities . $ (17,537) $ 35,998 $ (4,866) $(2,714) $(9,124) $ 1,757
========= ========= ======== ======= ======= ========
</TABLE>
(1 ) Loans held for sale are included in this category because they are
held by Suncoast for less than six months. The maturity dates of the
loans range from seven to 30 years.
11
<PAGE>
On September 30, 1996 and June 30, 1996, approximately 63.9% and
68.9%, respectively, of Suncoast's total loans receivable were loans which
mature or reprice within one year.
Within the preceding table, interest-earning assets and
interest-bearing liabilities with no contractual maturities are included in the
"within one year" category. Premiums on the sale of loans are included as an
interest earning asset in the gap table, but do not have a stated contractual
yield. Investments in purchased mortgage servicing rights ("PMSRs") and
originated mortgage servicing rights ("OMSRs") which yield servicing fee income,
and escrow and custodial accounts deposited with Suncoast, are not considered
interest sensitive.
In preparing the preceding table, certain assumptions have been made
with regard to prepayments on first mortgage loans and mortgage-backed
securities. The prepayment assumptions used were obtained from publicly
available mortgage prepayment rate tables. These sources provide assumptions
which correlate to recent actual repricings experienced in the marketplace.
These assumptions are that fixed-rate, single-family residential loans will
reprice according to their scheduled amortization and that Suncoast will
experience average annual prepayments of approximately the following percentages
on fixed-rate loans according to the original term to maturity as follows:
30-year maturity, 8%; 1 5-year maturity, 10%; and seven and five year balloon,
15%. The assumptions provided by the mortgage prepayment rate tables should not
be regarded as indicative of the actual repricings that may be experienced by
Suncoast. Decay rates are assumed to indicate the annual rate at which an
interest-bearing liability will be withdrawn in favor of an account with a more
favorable interest rate. Decay rates have been assumed by Suncoast for NOW
accounts, passbook and money market deposits and are the most recent national
assumptions published by the OTS. The assumptions used at the dates indicated,
although standardized, may not be indicative of actual withdrawals and repricing
experienced by Suncoast. Annual percentage decay rate assumptions used for the
table are as follows:
MORE
WITHIN 1-3 3-5 5-7 THAN
1 YEAR YEARS YEARS YEARS 7 YEARS
------ ----- ----- ----- -------
Passbook 17% 17% 16% 16% 14%
NOW 37 32 17 17 17
Money market 40 40 40 40 40
All other assets and liabilities have been repriced based on the
earlier of repricing or contractual maturity.
YIELDS EARNED AND RATES PAID. The following table provides
information relating to the categories of Suncoast's interest-earning assets and
interest-bearing liabilities for the periods indicated. All yield and rate
information is calculated on an annualized basis. Yield and rate information for
a period is average information for the period calculated by dividing the income
or expense item for the period by the average balances during the period of the
appropriate balance sheet item. Net interest margin is net interest income
divided by average interest-earning assets. Non-accrual loans are included in
asset balances for the appropriate periods,
12
<PAGE>
whereas recognition of interest on such loans is discontinued and any
remaining accrued interest receivable is reversed in conformity with federal
regulations. The yields and net interest margins appearing in the following
table have been calculated on a pre-tax basis.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------
1996 1995
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- --------- ------- -------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits 3,460 $ 48 5.51$ $ 19,677 $ 299 6.03%
Repurchase agreements and investments 17,380 256 5.85% 37,662 561 5.91%
---------- -------- --------- --------
Sub-total 20,840 304 5.79% 57,339 860 5.95%
---------- -------- --------- --------
Loans receivable 328,108 6,600 8.05% 146,249 3,138 8.58%
Mortgage-backed securities 23,034 379 6.58$ 163,642 2,738 6.69%
Other interest-earning assets 1,329 30 9.00% 1,513 34 8.99%
---------- -------- --------- --------
Total interest-earning assets $ 373,311 $ 7,313 7.83% 368,743 $ 6,770 7.34%
========== ======== ========= ========
Interest-bearing liabilities:
Deposits $295,109 $ 3,442 4.63% $ 325,134 $ 3,981 4.86%
---------- -------- --------- --------
Advances from F1HLB 61,685 849 5.39% 25,000 399 6.25%
Other borrowings 10,716 148 5.42% 14,085 215 5.97%
---------- -------- --------- --------
Sub-total 72,401 997 5.39% 39,085 614 6.15%
---------- -------- --------- --------
Total interest-bearing liabilities $ 367,510 $ 4,439 4.79% $ 364,219 $ 4,595 5.01%
========== ======== ========= ========
Net interest income/interest
rate spread $ 2,874 3.04% $ 2,175 2.33%
======== ========
Net interest-earning assets/net
interest-margin $ 373,311 $ 2,874 3.13% $ 368,743 $ 2,175 2.36%
========== ======== ========= ========
</TABLE>
The increase in the interest rate spread for the three months ended
September 30, 1996 as compared to the three months ended September 30, 1995 is
primarily attributable to a change in Suncoast's asset mix as funds previously
invested in mortgage-backed securities were reinvested in higher yielding
primary adjustable rate residential and commercial mortgages. Suncoast's yields
and costs, however, have generally followed the financial markets.
RATE/VOLUME ANALYSIS. The following table describes the extent to
which changes in interest rates and changes in volume of interest-related assets
and liabilities have affected Suncoast's interest income and expense during the
three month periods ended September 30, 1996, 1995 and 1994. For each category
of interest-earning asset and interest-bearing liability, information is
provided on changes attributable to changes in volume (changes in volume
multiplied by prior year rates) and changes in rate (changes in rate multiplied
by prior year volume). Rate-volume variances (change in rate multiplied by the
change in volume) have been allocated to the change in volume. All amounts are
in thousands.
13
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30
1996 VS. 1995
INCREASE (DECREASE) DUE TO
-----------------------------
VOLUME RATE TOTAL
------- ------ --------
Interest-earning assets:
Loans $ $3,658 $(196) $ 3,462
Mortgage-backed securities (2,314) (45) (2,359)
Premiums on the sale of loans (4) -- (4)
FHLB stock and interest-earning deposits (532) (24) (556)
------- ------ --------
Net increase (decrease) in interest on
interest-bearing assets 808 (265) 543
------- ------ --------
Interest-bearing liabilities:
Deposits (350) (189) (539)
Borrowings and FHLB advances 459 (76) 383
------- ------ --------
Net increase (decrease) in interest
on interest-bearing liabilities 109 (265) (156)
------- ------ --------
Net increase (decrease) in net
interest income before provision
for loan losses $ 699 $ -- $ 699
======= ====== ========
LOAN SERVICING INCOME. Loan servicing income includes fees received
for servicing loans less amortization and valuation adjustments of loan
servicing assets. Loan servicing -assets consist of PMSRs, OMSRs and premiums on
the sale of loans. Premiums on the sales of loans represent the present value of
the future cash flows to be received in excess of the normal servicing fee,
which are recorded as gains on the sale of loans at the time the sales occur.
The value of loan servicing assets can be materially affected by
economic forces not within the control of Suncoast. For example, Suncoast is
subject to the risk that declines in the interest rates for mortgage loans will
diminish its servicing portfolio as borrowers refinance or otherwise prepay
higher rate loans. Management, however, seeks to reduce the risk of declining
interest rates on its loan servicing portfolio by implementing various
asset/liability management techniques and amortizing the assets. See "Asset and
Liability Management," above.
Prior to July 1, 1995, Suncoast did not purchase or accumulate any
servicing assets due in part to regulatory changes which placed restrictions on
the value and amount of PMSRs that could be included in the calculation of
regulatory capital. PMSRs and premiums on the sale of loans remaining from prior
years, however, have continued to be amortized over the remaining anticipated
life of the loans. In amortizing its loan servicing assets, and determining the
carrying value of these assets, Suncoast uses certain assumptions, including the
estimated prepayment rate on the mortgage loans being serviced. These estimates
are reviewed in connection with the preparation of quarterly and year-end
financial statements, and, if the estimated prepayment rates are too low, the
values of the assets are adjusted downward and the adjustments are recorded as
an expense. On an annual basis, PMSRs and OMSRs are also valued by an
independent firm with the necessary expertise to perform such valuation and, if
required by the valuation, the carrying value of the PMSRs and OMSRs is reduced
to fair market
14
<PAGE>
value. No adjustments of PMSRs, OMSRs or premiums on the sale of loans were
required in the three month periods ended September 30, 1996 and 1995.
On July 1, 1995, Suncoast adopted Statement of Financial Accounting
Standards No. 122 ("FAS 122"), "Accounting for Mortgage Servicing Rights." With
its adoption of FAS 122, Suncoast has retained the servicing rights on most of
the loans that it subsequently originated and sold, and capitalized as OMSRs the
normal servicing fee to be received over the life of each loan at its fair
value. The adoption of FAS 122 resulted in aggregate additional realized net
gains of approximately $165,000 and $120,000($104,500 and $76,000, net of tax)
on the sale of loans during the three months ended September 30, 1996 and 1995,
respectively.
Suncoast's loan servicing portfolio (including subservicing, but
excluding loans owned by Suncoast) at June 30, 1996 and September 30, 1996
totaled approximately $1.2 billion. Unlike servicing generally, subservicing
contracts are not considered an investment in loan servicing rights for
financial reporting purposes. Subservicing contracts allow Suncoast to utilize
existing operational capabilities without incurring additional capital
investment in servicing rights or the interest rate risk associated with these
rights.
The amount of subservicing fees generated by Suncoast from the FDIC
is dependent upon the amount of assets which come under its control, the length
of time such assets are owned by the FDIC and other factors generally beyond the
control of Suncoast. The amount of subservicing fees from the FDIC declined due
to the sale by the Resolution Trust Corporation ("RTC"), the FDIC's predecessor,
of the majority of the loans under its control prior to the phase out of the
RTC's operations in December 1995. At September 30, 1996, the subservicing
portfolio declined to approximately $397.5 million from $462.7 million at June
30, 1996, with FDIC loans serviced declining from $208.2 million to $187.8
million. Included in the subservicing portfolio at September 30, 1996 is
approximately $13.8 million of loans serviced under a sales agreement the
servicing rights of which will be transferred to the purchaser in the second
quarter of Fiscal 1997.
The portfolio of Suncoast owned servicing rights decreased from
$698.8 million at June 30, 1996 to $695.5 million at September 30, 1996
primarily as a result of net repayments. During the three months ended September
30, 1996, Suncoast purchased approximately $200,000 of loan servicing rights,
representing approximately $16.0 million in principal loan balances, and
capitalized approximately $165,000 in OMSRs, representing $12.4 million in
principal loan balances. During the three months ended September 30, 1996,
Suncoast also recorded $38,000 in premiums on the sale of loans in connection
with the sale of participation interests in certain commercial real estate
loans. No similar premiums were recorded in the first quarter of Fiscal 1996.
Repayments of loans underlying the servicing assets increased from
$24.2 million in the three months ended September 30, 1995 to $41.7 million in
the three months ended September 30, 1996 due to lower interest rates in the
latter period as compared to the prior period. Suncoast intends to continue to
generate loan servicing fees in connection with its existing portfolio of loan
servicing rights and subservicing contracts, but loan servicing income may
continue to decrease as loans in the existing portfolio are repaid and
subservicing contracts are not renewed.
15
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
NET INCOME. Suncoast's net loss for the first quarter of Fiscal 1997
was $1.1 million, representing a loss per common share of $.62, as compared to
net income of $706,000, representing earnings per common share of $.19, for the
same period in Fiscal 1996. The net loss for the first quarter of Fiscal 1997 is
the result of the $2.3 million SAIF assessment discussed previously
under "Recapitalization of Savings Association Insurance Fund". This expense had
a $1.5 million effect on after-tax net earnings. Excluding this one-time
expense, net income would have been approximately $400,000 or $.06 per share.
The Fiscal 1996 first quarter financial results were positively affected by the
$1.2 million in gains on sales of mortgage-backed securities discussed
previously.
NET INTEREST INCOME. Net interest income before provision for loan
losses increased to $2.9 million in the first quarter of Fiscal 1997, as
compared to $2.2 million in the first quarter of Fiscal 1996, an increase of
32.1 %. Average interest earning assets declined by 0.6% from the first quarter
of Fiscal 1996 as compared to the first quarter of Fiscal 1997, and interest
income increased due to the shift in the asset mix from mortgage-backed
securities into higher yielding loans. Interest expense decreased 3.4% in the
first quarter of Fiscal 1997, as compared to the first quarter of the prior
fiscal year, primarily as a result of a decrease in the average balances of
deposits.
PROVISION FOR LOAN LOSSES. A provision for loan losses is recorded
when available information indicates that it is probable that an asset has been
impaired and the amount of the loss can be reasonably estimated. The adequacy of
the allowance for loan losses is evaluated monthly by application of a formula
developed by Suncoast that applies to outstanding loan balances percentages that
vary based on the expected risk of loss for each type of loan and the
designation of specific loans as classified assets, as well as management's
further consideration of the inherent risk in the portfolio. The allowance is
further based upon management's systematic and detailed evaluation of the
potential loss exposure in Suncoast's loan portfolio considering such factors as
historical loss experience, the borrower's ability to repay, repayment
performance, estimated collateral value and mortgage insurance coverage. The
evaluation process resulted in a provision for loan losses of $ 12,000 during
the first quarter of Fiscal 1997. No provision was required in the comparable
period of Fiscal 1996.
Effective July 1,1995, Suncoast adopted Statement of Financial
Accounting Standards No. 114 ("FAS 114n) "Accounting by Creditors or Impairment
of a Loan," subsequently amended by FAS 118. FAS 114 did not have any
significant effect on Suncoast's financial condition and results of operations
in the first quarter of Fiscal 1997 or Fiscal 1996.
LOAN SERVICING INCOME. Loan servicing fees decreased from $1.5
million for the first quarter of Fiscal 1996 to $1.4 million for the first
quarter of Fiscal 1997 primarily as a result of a decline in the number of loans
subserviced for FDIC. The amount of subservicing fees generated by Suncoast from
the FDIC depends upon the amount of assets which come under the FDIC's control,
the length of time such assets are owned by the FDIC and other factors generally
beyond the control of Suncoast.
16
<PAGE>
Amortization of loan servicing assets increased $166,000 from the
first quarter of Fiscal 1996 as compared to the same period in Fiscal 1997
primarily as a result of amortization of the PMSRs and OMSRs added over the past
year. As a result, Suncoast's loan servicing income during the first quarter of
Fiscal 1997 was $946,000, compared to $1.2 million in the first quarter of the
prior fiscal year.
GAINS ON THE SALE OF LOANS AND LOAN SERVICING ASSETS, NET. Gains on
sale of loans and loan servicing assets for the first quarter of Fiscal 1997
amounted to $222,000 as compared to $14,000 in the comparable quarter of the
prior fiscal year. During the first quarter of Fiscal 1997, Suncoast sold the
servicing rights to $13.8 million of conventional loans, and recorded gains of
$160,000 . These servicing rights, which had no carrying value for Suncoast,
were sold to take advantage of favorable market conditions. There were no
similar sales in the first quarter of Fiscal 1996. The first quarter of Fiscal
1997 also included $51,000 in gains on the sale of participation interests in
certain commercial loans. Other gains in both periods resulted from sales of
residential loans held for sale.
GAINS ON THE SALE OF MORTGAGE-BACKED SECURITIES. During the three
months ended September 30, 1995, Suncoast sold mortgage-backed securities with a
book value of $ 115.9 million, and realized gains of $1.2 million. Suncoast
sold these securities in order to restructure its assets, reduce its interest
rate sensitivity and take advantage of market opportunities. There were no
similar sales in the first quarter of Fiscal 1997. As of September 30, 1996,
Suncoast had $18.2 million in available for sale securities.
OTHER INCOME. Suncoast earned other income of $226,000 and $277,000
in the first quarters of Fiscal 1997 and Fiscal 1996, respectively, from
community banking and servicing operations.
NON-INTEREST EXPENSES. Non-interest expenses, excluding the SAIF
assessment, for the first quarter of Fiscal 1997 were $3.6 million as compared
to $3.8 million for the first quarter. of Fiscal 1996, a 4.3% decrease. This
overall decrease was principally due to a $294,000 reduction in foreclosure
losses incurred in the servicing operations and losses incurred in Fiscal 1996
resulting from the termination of prior mortgage banking operations. These
expenses are included in the "Other" classification.
Employee compensation and benefits is the largest component of
non-interest expenses and increased from $1.6 million in the first quarter of
Fiscal 1996 to $1.7 million in the first quarter of Fiscal 1997, a 5.4% increase
that resulted from salary increases and a small increase in staff.
FINANCIAL CONDITION
Suncoast's total assets increased by $6.8 million to $409.4 million
at September 30, 1996 from $402.6 million at June 30, 1996, primarily due to
changes in asset mix. Amounts due from purchasers of loans and loan servicing
rights at June 30, 1996 were collected and invested in repurchase agreements,
interest-earning deposits and overnight funds during the first quarter of Fiscal
199.7. There were no other significant changes in financial condition.
17
<PAGE>
The following table presents additional data on Suncoast's financial condition
for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995
---- ----
<S> <C> <C>
Loan servicing income as a percentage of
net interest income after provision for loan losses 33.05% 56.83%
Annualized return on average assets during period (.26)% .64%
Annualized return on average equity during period (4.25)% 11.26%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management requires that funds be available to meet the
daily financial commitments of Suncoast. These commitments consist primarily of
loan originations, savings deposit withdrawals, and repayments of borrowed
funds. Suncoast is required by federal regulations to maintain a minimum average
daily balance of cash and qualifying liquid assets equal to 5.0% of the
aggregate of the prior month's daily average savings deposits and short-term
borrowings. Suncoast's average liquidity ratio decreased from 5.42% at June 30,
1996 to 5.00% at September 30, 1996, as liquid assets were redeployed into
residential loan investments. Suncoast must also maintain an average daily
balance of short-term liquid assets equal to at least 1% of its prior month's
average daily balance of net withdrawable accounts plus short-term debt. At June
30, 1996 and September 30, 1996, Suncoast's short-term liquidity percentage was
5.42% and 5.00%, respectively. Suncoast maintains minimum levels of liquid
assets in order to maximize net interest income.
Suncoast's primary sources of funds consist of retail savings
deposits bearing market rates of interest. Suncoast also obtains funds through
interest and principal repayments on loans and from FHLB advances and other
borrowings, including reverse repurchase agreements with brokerage firms.
Under the regulatory capital regulations of the OTS, Suncoast is
required to maintain minimum levels of capital as measured by three ratios.
Savings institutions are currently required to maintain tangible capital of at
least 1.5% of tangible assets, core capital of at least 3.0% of adjusted
tangible assets and risk-based capital of at least 8.0% of risk-weighted assets
(at least half of which must be comprised of core capital). Each of the capital
requirements of the OTS that are applicable to Suncoast were exceeded at
September 30, 1996. The status of the capital requirements of Suncoast at
September 30, 1996 is as follows (amounts are in thousands and are unaudited):
18
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE PERCENTAGE RISK- OF
TANGIBLE OF CORE OF BASED RISK-BASED
CAPITAL ASSETS(1) CAPITAL ASSETS(1) CAPITAL ASSETS (1)
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stockholder' equity before adjustments $ 24,670 6.03% $ 24,670 6.03% $ 24,670 10.54%
Regulatory Adjustments:
General valuation reserves 669 .29
Non-qualifying PMSRs and OMSRs (800) (.20) (800) (.20) (800) (.34)
Goodwill (39) (.01) (39) ( 01) (39) (.02)
Unrealized loss on mortgage-backed
securities available for sale 306 .08 306 .08 306 .13
------- ------- ------- ------- ------- -------
Regulatory capital 24,137 5.90 24,137 5.90 24,806 10.60
Minimum capital requirement 6,133 1.5 24,137 3.00 18,719 8.OO
------- ------- ------- ------- ------- -------
Regulatory capital excess $ 18,004 4.40% $ 11,871 2.90% $ 6,087 2.60%
-------- ------- ------- ------- ------- -------
Assets for capital calculation $408,894 $408,894 $233,984
-------- -------- --------
</TABLE>
(1) Tangible and core capital percentages are computed as a percentage of
tangible and adjusted tangible assets, respectively. The risk-based
capital percentage is computed as a percentage of risk-adjusted assets.
IMPACT OF INFLATION
The Consolidated Statements of Financial Condition and related
consolidated financial data presented herein have been prepared in accordance
with generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation The primary impact of inflation and changing prices on the operations
of Suncoast is reflected in increased operating costs Unlike most industrial
companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates have a more
significant impact on a financial institution's performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or change in the same magnitude as the price of goods and services,
although periods of increased inflation may accompany a rising interest rate
environment.
NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123 ("FAS 1 23n),
"Accounting for Stock-Based Compensation." This statement requires certain
disclosures about stock-based employee compensation arrangements, regardless of
the method used to account for them, and defines a fair value based method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost for stock based compensation plans using the
intrinsic value method of accounting prescribed by existing principles. Suncoast
has elected to remain with the existing principles and will make pro forma
disclosures of net income and earnings per share, as if the fair value method of
accounting defined in FAS 123 had been applied. Under the fair value method,
compensation cost is measured at the grant date based on the value of the award
and
19
<PAGE>
is recognized over the service period, which is usually the vesting period.
Under the intrinsic value based method, compensation cost is the excess, if
any, of the quoted market price of the stock at grant date or other
measurement date over the amount an employee must pay to acquire the stock.
The disclosure requirements of FAS 123 are effective for financial statements
for Suncoast's fiscal years beginning after June 30, 1996.
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125 ("FAS 125"), "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." FAS 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities based on a financial-components
approach that focuses on control. FAS 125 is effective for transfers and
servicing of financial assets and extinguishment of liabilities occurring after
December 31, 1996 and is to be prospectively applied. Management is currently
evaluating the impact of adoption of FAS 125 on its financial position and
results of operations.
20
<PAGE>
SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA
Part II - Other Information
Item 1. Legal proceedings- none
Item 2. Changes in securities - none
Item 3. Defaults upon senior securities - none
Item 4. Submission of Matters to a Vote of Security Holders - none
Item 5. Other information - none
Item 6. Exhibits and reports on Form 8-K
On July 20, 1996 Suncoast filed a Current Report on Form 8-K
to report that on July 15, 1996 Suncoast and BankUnited
Financial Corporation entered into a definitive agreement
providing for the merger of Suncoast with and into
BankUnited F.S.B., a wholly owned subsidiary of BankUnited
and the survivor of the merger (the "Merger").
On September 30, 1996, Suncoast filed a Current Report on
Form 8-K to provide certain BankUnited documents flied with
the Securities Exchange Commission that are incorporated by
reference into the proxy materials being utilized in
connection with the Merger, including BankUnited's (i)
Annual Report on Form # 10-K/A for the year ended September
30, 1995, (ii) Quarterly Reports on 10-Q for the periods
ended December 31, 1995, March 31, 1996 and June 30, 1996;
and (iii) Current Reports for Form 8K dated November 30,
1995, March 1, 1996 and July 17, 1996.
21
<PAGE>
SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SUNCOAST SAVINGS AND LOAN ASSOCIATION, FSA
By: /s/ ALBERT J. FINCH Date: NOVEMBER 13, 1996
----------------------------- -----------------
Albert J. Finch
Chairman of the Board
By: /s/ RICHARD L. BROWDY Date: NOVEMBER 13, 1996
----------------------------- -----------------
Richard L. Browdy
Executive Vice President
Chief Financial Officer
22
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IX of the Articles of Incorporation of the Company
provides that the Company shall indemnify its officers and directors to the
fullest extent permitted by law.
The Bylaws of the Company provide that the Company will
indemnify any person against whom an action is brought or threatened because
that person is or was a director, officer or employee of the Company for any
amount for which that person becomes liable under a judgment in such action and
reasonable costs and expenses, including attorney's fees. Such indemnification
may only be made, however, if (i) final judgment on the merits is in his or her
favor or (ii) in case of settlement, final judgment against him or her or final
judgment in his or her favor, other than on the merits, if a majority of the
Board of Directors of the Company determines that he or she was acting in good
faith within the scope of his or her duties and for a purpose he or she could
have reasonably believed under the circumstances was in the best interests of
the Company.
Section 607.0831 of the Florida Business Corporation Act
provides, among other things, that a director is not personally liable for
monetary damages to a company or any other person for any statement, vote,
decision, or failure to act, by the director, regarding corporate management or
policy, unless the director breached or failed to perform his or her duties as a
director and such breach or failure constitutes (a) a violation of criminal law,
unless the director had reasonable cause to believe his or her conduct was
lawful or had no reasonable cause to believe his or her conduct was unlawful;
(b) a transaction from which the director derived an improper personal benefit;
(c) a circumstance under which the liability provisions of Section 607.0834 of
the Florida Business Corporation Act (relating o the liability of the directors
for improper distributions) are applicable; (d) willful misconduct or a
conscious disregard for the best interests of the company in the case of a
proceeding by or in the right of the company to procure a judgment in its favor
or by or in the right of a shareholder; or (e) recklessness or an act or
omission in bad faith or with malicious purpose or with wanton and willful
disregard of human rights, safety or property, in a proceeding by or in the
right of someone other than such company or a shareholder.
Section 607.0850 of the Florida Business Corporation Act
authorizes, among other things, the Company to indemnify any person who was or
is a party to any proceeding (other than an action by or in the right of the
Company) by reason of the fact that he is or was a director, officer, employee
or agent of the Company (or is or was serving at the request of the Company in
such a position for any entity) against liability incurred in connection with
such proceeding, if he or she acted in good faith and in a manner reasonably
believed to be in the best interests of the Company and, with respect to
criminal proceedings, had no reasonable cause to believe his or her conduct was
unlawful.
Florida law requires that a director, officer or employee be
indemnified for expenses (including attorneys' fees) to the extent that he or
she has been successful on the merits or otherwise in the defense of any
proceeding. Florida law also allows expenses of defending a proceeding to be
advanced by a company before the final disposition of the proceedings, provided
that the officer,
II-1
<PAGE>
director or employee undertakes to repay such advance if it is ultimately
determined that indemnification is not permitted.
Florida law states that the indemnification and advancement of
expenses provided pursuant to Section 607.0850 is not exclusive and that
indemnification may be provided by a company pursuant to other means, including
agreements or bylaw provisions. Florida law prohibits indemnification or
advancement of expenses, however, if a judgment or other final adjudication
establishes that the actions of a director, officer or employee constitute (i) a
violation of criminal law, unless he or she had reasonable cause to believe his
or her conduct was lawful or had no reasonable cause to believe his or her
conduct was unlawful; (ii) a transaction from which such person derived an
improper personal benefit; (iii) willful misconduct or conscious disregard for
the best interests of the company in the case of a derivative action or a
proceeding by or in the right of a shareholder; or (iv) in the case of a
director, a circumstance under which the liability provisions of Section
607.0834 of the Florida Business Corporation Act (relating to the liability of
directors for improper distributions) are applicable.
The Company has purchased director and officer liability
insurance that insures directors and officers against liabilities in connection
with the performance of their duties.
Under the Trust Agreement, the Company will agree to indemnify each of
the Trustees of the Issuer or any predecessor Trustee for the Issuer, and to
hold the Trustee harmless against, any loss, damage, claims, liability or
expense incurred without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration of the Trust Agreements,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties under the Trust Agreements.
Item 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.(A)
4.1A Junior Subordinated Indenture(C)
4.1B Supplemental Indenture(C)
4.2 Certificate of Trust of BankUnited Capital(C)
4.3 Amended and Restated Trust Agreement dated as of March 24,
1997(C)
4.4 Form of Series B Preferred Security Certificate for BankUnited
Capital(B)
4.5 Amended and Restated Guarantee Agreement dated as of
March 24, 1997.(C)
4.6 Registration Rights Agreement dated as of December 30, 1996(C)
4.7 Registration Rights Agreement dated as of March 24, 1997(C)
5.1 Opinion and consent of Stuzin and Camner, P.A. to the Company
as to legality of the Junior Subordinated Debentures and the
Guarantees to be issued by the Company(B)
5.2 Opinion and consent of Richards, Layton & Finger, P.A. as to
legality of the Series B Preferred Securities to be issued by
BankUnited Capital(B)
8 Opinion and consent of Kronish, Lieb, Weiner & Hellman, LLP as
to certain federal income tax matters(B)
12 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends(B)
23.1a Consent of Price Waterhouse LLP(B)
23.1b Consent of Price Waterhouse LLP(B)
II-2
<PAGE>
23.2 Consent of Stuzin and Camner, P.A. (included in Exhibit 5.1)(B)
23.3 Consent of Richards, Layton & Finger, P.A. (included in
Exhibit 5.2)(B)
23.4 Consent of Kronish, Lieb, Weiner & Hellman, LLP (included in
Exhibit 8)(B)
24 Power of Attorney (set forth on the signature page in Part II
of this Registration Statement)(C)
25.1 Form T-1 Statement of Eligibility of The Bank of New York to
act as trustee under the Subordinated Indenture(B)
25.2 Form T-1 Statement of Eligibility of The Bank of New York to
act as trustee under the Amended and Restated Trust Agreement
of BankUnited Capital(B)
25.3 Form T-1 Statement of Eligibility of The Bank of New York
under the guarantee for the benefit of the holders of
Preferred Securities of BankUnited Capital(B)
99.1 Form of Letter of Transmittal(B)
99.2 Form of Notice of Guarantee Delivery(B)
99.3 Form of Exchange Agent Agreement(B)
99.4 Purchase Agreement dated December 23, 1996(C)
99.5 Purchase Agreement dated March 18, 1997(C)
99.6 Agreement as to Expenses and Liabilities dated as of December
30, 1996.
99.7 Current Report on Form 8-K dated November 15, 1996 (as filed with the
Securities and Exchange Commission on December 2, 1996).
99.8 Current Report on Form 8-K dated December 30, 1996 for
BankUnited Financial Corporation (as filed with the Securities
and Exchange Commission on January 9, 1997).
99.9a Current Report on Form 8-K dated February 25, 1997 for
BankUnited Financial Corporation (as filed with the Securities
and Exchange Commission on February 25, 1997).
99.9b Current Report on Form 8-K dated March 24, 1997 for BankUnited
Financial Corporation (as filed with the Securities and
Exchange Commission on March 26, 1997).
99.9c Current Report on Form 8-K dated April 2, 1997 for BankUnited
Financial Corporation (as filed with the Securities and Exchange
Commission on April 4, 1997).
- ----
(A) Exhibits containing a parenthetical reference in their
description are incorporated herein by reference from the
documents described in the parenthetical reference.
(B) Filed with Amendment No. 1 to this Registration Statement.
(C) Filed with the original filing of this Registration Statement.
Item 22. UNDERTAKINGS
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
II-3
<PAGE>
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in
the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities t that time shall be deemed to be the
initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of each Registrant pursuant to the provisions, or otherwise, each
Registrant has been advised that in the opinion of the Securities and Exchange
Commission therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by each
Registrant of expenses incurred or paid by a director, officer or controlling
person of each Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, each Registrant will, unless in
the opinion of its counsel the matter has been settled by the controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired or involved therein, that was not the she registration
statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Coral Gables, State of Florida, on
April 17, 1997
BANKUNITED FINANCIAL CORPORATION
By: ----------------------------------------
Alfred R. Camner
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed on April 17, 1997
by the following persons in the capacities indicated.
* Chairman of the Board, Chief Executive
- -------------------------- Officer, President and Director
Alfred R. Camner (Principal Executive Officer)
* Director
- --------------------------
Lawrence H. Blum
* Executive Vice President, Treasurer and
- -------------------------- Director
Earline G. Ford
* Senior Vice President and Chief Financial
- -------------------------- Officer (Principal Financial Officer and
Samuel A Milne Principal Accounting Officer)
II-5
<PAGE>
* Director
- --------------------------
Marc D. Jacobson
* Director
- --------------------------
Allen M. Bernkrant
* Director
- --------------------------
Neil Messinger
* Director
- --------------------------
Marc Lipsitz
* Director
- --------------------------
Anne W. Solloway
* Director
- --------------------------
Albert J. Finch
* Director
- --------------------------
Irving P. Cohen
* Director
- --------------------------
E.J. Giusti
II-6
<PAGE>
* Director
- --------------------------
Bruce Friesner
* By: /s/ ALFRED R. CAMNER
--------------------
Alfred R. Camner, as Attorney-in-Fact
II-7
<PAGE>
BANKUNITED FINANCIAL CORPORATION
INDEX TO EXHIBITS (A)
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ------------
4.1A Junior Subordinated Indenture(C)
4.1B Supplemental Indenture(C)
4.2 Certificate of Trust of BankUnited Capital(C)
4.3 Amended and Restated Trust Agreement dated as of March 24, 1997(C)
4.4 Form of Series B Preferred Security Certificate for
BankUnited Capital(B)
4.5 Amended and Restated Guarantee Agreement dated as of March 24,
1997(C)
4.6 Registration Rights Agreement dated as of December 30, 1996(C)
4.7 Registration Rights Agreement dated as of March 24, 1997(C)
5.1 Opinion and consent of Stuzin and Camner, P.A. to the Company
as to the legality of the Junior Subordinated Debentures and the
Guarantees to be issued by the Company(B)
5.2 Opinion and consent of Richards, Layton & Finger, P.A. as to
legality of the Series A Preferred Securities to be issued by
BankUnited Capital(B)
8 Opinion and consent of Kronish, Lieb, Weiner & Hellman, LLP as to
certain federal income tax matters(B)
12 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends(B)
23.1a Consent of Price Waterhouse, LLP(B)
23.1b Consent of Price Waterhouse, LLP(B)
23.2 Consent of Stuzin and Camner, P.A. (included in Exhibit 5.1)(B)
23.3 Consent of Richard, Layton & Finger, P.A. (included in Exhibit
5.2)(B)
<PAGE>
23.4 Consent of Kronish, Lieb, Weiner & Hellman, LLP (included in
Exhibit 8)(B)
24 Power of attorney (set forth on the signature page in Part II of this
Registration Statement)(C)
25.1 Form T-1 Statement of Eligibility of The Bank of New York to act as
trustee under the Subordinated Indenture(B)
25.2 Form T-1 Statement of Eligibility of The Bank of New York to
act as trustee under the Amended and Restated Trust Agreement
of BankUnited Capital(B)
25.3 Form T-1 Statement of Eligibility of The Bank of New York under
the Guarantee for the benefit of the holders of Series A
Preferred Securities of BankUnited Capital(B)
99.1 Form of Letter of Transmittal(B)
99.2 Form of Notice of Guaranteed Delivery(B)
99.3 Form of Exchange Agent Agreement(B)
99.4 Purchase Agreement dated December 23, 1996(C)
99.5 Purchase Agreement dated March 18, 1997(C)
99.6 Agreement as to Expenses and Liabilities dated as of December 30,
1996. Current Report on Form 8-K dated November 15, 1996 (as filed
with the Securities and Exchange Commission on December 2, 1996).
- ----------
(A) All other exhibits listed under Item 21 of Part II of this
Registration Statement are incorporated by reference to
documents previously filed, as indicated herein.
(B) Filed with Amendment No. 1 to this Registration Statement.
(C) Filed with the original filing of this Registration Statement.
EXHIBIT 4.4
Certificate Number Number of Preferred Securities
P-
CUSIP NO.
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF
BANKUNITED CAPITAL
10 1/4% TRUST PREFERRED SECURITIES
SERIES B
(LIQUIDATION AMOUNT $1,000 PER PREFERRED SECURITY)
BankUnited Capital, a statutory business trust formed under the laws of
the State of Delaware (the "Trust"), hereby certifies that ___________________
_________________________________(the "Holder") is the registered owner of ( )
preferred securities of the Trust representing an undivided beneficial interest
in the assets of the Trust and designated the BankUnited Capital 10 1/4% Trust
Preferred Securities, Series B (liquidation amount $1,000 per Preferred
Security) (the "Preferred Securities"). The Preferred Securities are
transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer as provided in Section 5.5 of the Trust Agreement (as
defined below). The designations, rights, privileges, restrictions, preferences
and other terms and provisions of the Preferred Securities are set forth in, and
this certificate and the Preferred Securities represented hereby are issued and
shall in all respects be subject to the terms and provisions of, the Amended and
Restated Trust Agreement dated as of March 24, 1997, as the same may be amended
from time to time (the "Trust Agreement") including the designation of the terms
of Preferred Securities as set forth therein. The Holder is entitled to the
benefits of the Guarantee Agreement, as amended, entered into by BankUnited
Financial Corporation, a Florida corporation, as gurantor and The Bank of New
York, as guarantee trustee, dated as of March 24, 1997 (the "Guarantee"), to the
extent provided therein. The Trust will furnish a copy of the Trust Agreement
and the Guarantee to the Holder without charge upon written request to the Trust
at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has
executed this certificate this ___ day of _________, 1997.
BANKUNITED CAPITAL
BY:
---------------------------------
Name:
------------------------------
Title: ADMINISTRATIVE TRUSTEE
------------------------------
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Preferred Security to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer this Preferred Securities Certificate on the books of the
Trust. The agent may substitute another to act for him or her.
Date:_____________________
Signature:______________________________________________________________________
(Sign exactly as your name appears on the other side of this Preferred
Securities Certificate)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule l7Ad-15.
EXHIBIT 5.1
The Board of Directors
BankUnited Financial Corporation
255 Alhambra Circle
Coral Gables, Florida 33134
Re: BankUnited Financial Corporation
Registration Statement on Form S-4
File No. 333-24025
Ladies and Gentlemen:
We have acted as counsel to BankUnited Financial Corporation, a Florida
corporation (the "Company" and Depositor of BankUnited Capital, a Delaware
business trust (the "Trust"), in connection with a Registration Statement on
Form S-4 (the "Registration Statement") relating to (i) the proposed issuance
by the Trust of $70,000,000 aggregate Liquidation Amount of the Trust's 10-1/4%
Trust Preferred Securities, Series B due December 31, 2026 (the "New Series B
Preferred Securities") registered under the Securities Act of 1933, as amended
(the "Securities Act"), in exchange for up to $70,000,000 aggregate Liquidation
Amount of the Trust's outstanding 10-1/4% Trust Preferred Securities, Series A
due December 31, 2026 (the "Old Series A Preferred Securities"); (ii) the
proposed issuance by the Company to the Trust of $72,800,000 aggregate principal
amount of the Company's 10-1/4% Junior Subordinated Deferrable Interest
Debentures (the "New Series B Subordinated Debentures") registered under the
Securities Act, in exchange for up to $72,800,000 aggregate principal of the
Company's outstanding 10-1/4% Junior Subordinated Deferrable Interest
Debentures (the "Old Series A Subordinated Debentures"); and (iii) the Company's
guarantee (the "New Guarantee"), which guarantees the payment of Distributions
and payments on liquidation or redemption of the New Series B Preferred
Securities, registered under the Securities Act, in exchange for the guarantee
(the "Old Guarantee") which guarantees the payment of Distributions and payments
on liquidation or redemption of the Old Series A Preferred Securities. The New
Series B Preferred Securities are issuable under an Amended and Restated Trust
Agreement dated as of March 24, 1997 (the "Trust Agreement") between the
Company, as Depositor, The Bank of New York (Delaware), as Delaware Trustee,
the Bank of New York, as Property Trustee, and the Administrative Agents named
therein; the New Series B Subordinated Debentures are issuable under a
Indenture dated as of December 30, 1996, as supplemented by that certain
Supplemental Indenture dated as of March 24, 1997 (together, the "Indenture")
between the Company and The Bank of New York as Trustee; and the New Guarantee
is issuable under the Guarantee Agreement dated as of March 24, 1997 (the
"Guarantee Agreement") between the Company and The Bank of New York, as
Guarantee Trustee.
We have examined such documents, including resolutions adopted by the Board
of Directors of the Company on December 16, 1996 and February 26, 1997 (the
"Resolutions"), and have reviewed such questions of law as we have considered
necessary and appropriate for the purposes of our opinions set forth below. In
rendering our opinions, we have assumed the authenticity of all documents
submitted to us as originals, the genuineness of all signatures and the
conformity to authentic originals of all documents submitted to us as copies. We
have also assumed the legal
<PAGE>
The Board of Directors
BankUnited Financial Corporation
Coral Gables, Florida 33134
April __, 1997
Page 2
capacity for all purposes relevant hereto of all natural persons and, with
respect to all parties to agreements or instruments relevant hereto other than
the Company and the Trust, that such parties had the requisite power and
authority (corporate or otherwise) to execute, deliver and perform such
agreements or instruments, that such agreements or instruments have been duly
authorized by all requisite action (corporate or otherwise), executed and
delivered by such parties and that such agreements or instruments are the valid,
binding and enforceable obligations of such parties. As to questions of fact
material to our opinions, we have relied upon certificates of officers of the
Company and the Trust and of public officials. Capitalized terms used herein
and not otherwise defined herein shall have the meanings assigned to them in
the Trust Agreement, the Indenture and the Guarantee Agreement, as applicable.
In connection with this opinion, we have examined the following:
a. Articles of Incorporation of the Company (including Statements of
Designation), and all amendments thereto, certified by the Florida
Secretary of State on March 14, 1997.
b. Certificate of Good Standing of the Company, as issued by the Florida
Secretary of State on March 21, 1997.
c. Certificate of Good Standing of the Issuer, as issued by the Delaware
Secretary of State on April 17, 1997.
d. Certificates, dated March 24, 1997, of the Administrative Trustees
of the Trust and the President and Chief Financial Officer of the
Company.
e. Certificate, dated March 24, 1997, of the Executive Vice President
and Treasurer of the Company.
f. The Trust Agreement.
<PAGE>
The Board of Directors
BankUnited Financial Corporation
Coral Gables, Florida 33134
April __, 1997
Page 3
g. The Indenture.
h. The Guarantee Agreement.
i. The Trust Agreement of the Trust dated as of December 13, 1996, among
the Company, as depositor, and the trustees of the Trust named
therein.
j. The Amended and Restated Trust Agreement dated as of December 30,
1996, among the Company, as depositor, the trustees named therein,
and the holders from time to time of the Preferred Securities
and the Common Securities, which represent undivided beneficial
interests in the assets of the Trust.
Based on the foregoing, we are of the opinion that:
(1) The New Series B Subordinated Debentures have been duly authorized by
all requisite corporate action and, when executed and authenticated as specified
in the Indenture and delivered against surrender and cancellation of a like
amount of Old Series A Subordinated Debentures in the manner described in the
Registration Statement, the new Series B Subordinated Debentures will
constitute valid and binding obligations of the Company, enforceable in
accordance with their terms.
(2) The New Guarantee has been duly authorized by all requisite corporate
action and, when executed as specified in the Guarantee Agreement and delivered
against surrender and cancellation of the Old Guarantee in the manner described
in the Registration Statement, the New Guarantee will constitute the valid and
binding obligation of the Company, enforceable in accordance with its terms.
The opinions set forth above are subject to the following qualification
and exceptions:
The enforceability of the operative documents, or any provision thereof
may be limited by and/or subject to bankruptcy (including, without limitation,
executory contracts provisions),
<PAGE>
The Board of Directors
BankUnited Financial Corporation
Coral Gables, Florida 33134
April __, 1997
Page 4
insolvency, reorganization, receivership, moratorium, fraudulent transfer or
conveyance, or other laws affecting the rights and remedies of creditors
generally, or similar federal or state laws, by general equity principles,
by rules of law governing specific performance, appointment of receivers,
injunctive relief and other equitable remedies, and by certain other
limitations which may be imposed upon the availability of certain remedies
or the exercise of certain rights including, without limitation, commercial
reasonableness or conscionability, reasonable notice of disposition, specific
performance or enforcement, limitation on sale or encumbrance provisions,
waivers or eliminations of rights such as statutory rights of redemption, or of
jury trial, separation or aggregation of property at foreclosure or enforced
sale, application of sale or judgment proceeds, and multiplicity and
inconsistency of remedies.
This opinion is rendered only with respect to the laws of the State of
Florida, the State of New York and of the United States of America (the
"Applicable Laws"). With respect to matters of Delaware law, we are relying upon
the opinion of Richards, Layton & Finger, P.A., Wilmington, Delaware special
Delaware counsel to the Company and the Trust.
The opinions expressed above concern only the effect of laws as now in
effect and are rendered as of the date hereof. We undertake no, and hereby
disclaim any, obligation to revise or supplement this opinion should such law
be changed by legislative action, judicial decision, or otherwise after the
date of this opinion, or if we become aware of any facts that might change the
opinions expressed above after the date of this letter.
We hereby consent to your filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the caption
"Validity of the new Securities" contained in the Prospectus included therein.
Date: April __, 1997
Very truly yours,
STUZIN AND CAMNER,
PROFESSIONAL ASSOCIATION
/s/ Stuzin and Camner, Professional Association
EXHIBIT 5.2
[LETTERHEAD OF RICHARDS, LAYTON & FINGER]
ONE RODNEY SQUARE
P.O. BOX 551
WILMINGTON, DELAWARE 19899
TELEPHONE (302) 658-6541
TELECOPIER (302) 658-6548
WRITER'S DIRECT DIAL NUMBER
April 17, 1997
BankUnited Capital
c/o BankUnited Financial Corporation
255 Alhambra Circle
Coral Gables, Florida 33134
Re: BANKUNITED CAPITAL
Ladies and Gentlemen:
We have acted as special Delaware counsel for BankUnited Financial
Corporation, a Florida corporation (the "Company"), and BankUnited Capital, a
Delaware business trust (the "Trust"), in connection with the matters set forth
herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, dated as of December 13,
1996 (the "Certificate"), as filed in the office of the Secretary of State of
the State of Delaware (the "Secretary of State") on December 13, 1996;
(b) The Trust Agreement of the Trust, dated as of December 13, 1996, by
and among the Company and the trustees of the Trust named therein;
<PAGE>
BankUnited Capital
April 17, 1997
Page 2
(c) The Amended and Restated Trust Agreement of the Trust, dated as of
December 30, 1996 (including Exhibits A, C, D-1, D-2, E and F thereto), among
the Company, as depositor, the trustees of the Trust named therein and the
holders, from time to time, of undivided beneficial interests in the assets of
the Trust;
(d) The Amended and Restated Trust Agreement of the Trust, dated as of
March 24, 1997 (including Exhibits A, C, D-1, D-2, E and F thereto)(the "Trust
Agreement"), among the Company, as depositor, the trustees of the Trust named
therein and the holders, from time to time, of undivided beneficial interests in
the assets of the Trust;
(e) Amendment No. 1 to the Registration Statement on Form S-4 (the
"Registration Statement"), including a preliminary prospectus (the
"Prospectus"), relating to the 10 1/4% Trust Preferred Securities, Series B of
the Trust representing undivided beneficial interest in the assets of the Trust
(each, a "Preferred Security" and collectively, the "Preferred Securities"), as
proposed to be filed by the Company and the Trust with the Securities and
Exchange Commission on or about April 17, 1997; and
(f) A Certificate of Good Standing for the Trust, dated April 17, 1997,
obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed in paragraphs (a) through (f) above. In particular, we
have not reviewed any document (other than the documents listed in paragraphs
(a) through (f) above) that is referred to in or incorporated by reference into
the documents reviewed by us. We have assumed that there exists no provision in
any document that we have not reviewed that is inconsistent with the opinions
stated herein. We have conducted no independent factual investigation of our own
but rather have relied solely upon the foregoing documents, the statements and
information set forth therein and the additional matters recited or assumed
herein, all of which we have assumed to be true, complete and accurate in all
material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
<PAGE>
BankUnited Capital
April 17, 1997
Page 3
For purposes of this opinion, we have assumed (i) that the Trust
Agreement constitutes the entire agreement among the parties thereto with
respect to the subject matter thereof, including with respect to the creation,
operation and termination of the Trust, and that the Trust Agreement and the
Certificate are in full force and effect and have not been amended, (ii) except
to the extent provided in paragraph 1 below, the due creation or due
organization or due formation, as the case may be, and valid existence in good
standing of each party to the documents examined by us under the laws of the
jurisdiction governing its creation, organization or formation, (iii) the legal
capacity of natural persons who are parties to the documents examined by us,
(iv) that each of the parties to the documents examined by us has the power and
authority to execute and deliver, and to perform its obligations under, such
documents, (v) the due authorization, execution and delivery by all parties
thereto of all documents examined by us, (vi) the receipt by each Person to whom
a Preferred Security is to be issued by the Trust (collectively, the "Preferred
Security Holders") of a Preferred Securities Certificate for such Preferred
Securities and the payment for the Preferred Security acquired by it, in
accordance with the Trust Agreement and the Registration Statement, and (vii)
that the Preferred Securities are issued to the Preferred Security Holders in
accordance with the Trust Agreement and the Registration Statement. We have not
participated in the preparation of the Registration Statement and assume no
responsibility for its contents.
This opinion is limited to the laws of the State of Delaware (excluding
the securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal laws
and rules and regulations relating thereto. Our opinions are rendered only with
respect to Delaware laws and rules, regulations and orders thereunder which are
currently in effect.
Based upon the foregoing, and upon our examination of such questions of
law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act.
2. The Preferred Securities will represent valid and, subject to the
qualifications set forth in paragraph 3 below, fully paid and nonassessable
undivided beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of the Trust,
will be entitled to the same limitation of personal liability extended to
<PAGE>
BankUnited Capital
April 17, 1997
Page 4
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated to make payments as set forth in the Trust Agreement.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. We also consent
to Stuzin and Camner, P.A.'s relying as to matters of Delaware law upon this
opinion in connection with opinions to be rendered by it on the date hereof as
described in the Prospectus. In addition, we hereby consent to the use of our
name under the heading "Validity of the New Securities" in the Prospectus. In
giving the foregoing consents, we do not thereby admit that we come within the
category of Persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder. Except as stated above, without our prior
written consent, this opinion may not be furnished or quoted to, or relied upon
by, any other Person for any purpose.
Very truly yours,
/s/ RICHARDS, LAYTON & FINGER
------------------------------
Richards, Layton & Finger
April 17, 1997
BankUnited Financial Corporation
BankUnited Capital
255 Alhambra Circle
Coral Gables, FL 33134
Ladies and Gentlemen:
We are acting as special tax counsel to BankUnited Financial
Corporation (the "Company") and BankUnited Capital (the "Issuer") in connection
with the Registration Statement on Form S-4 (the "Registration Statement") filed
by the Company and the Issuer with the Securities and Exchange Commission
(Registration No. 333-24025) for the purpose of registering under the Securities
Act of 1933 (the "Act") the Issuer's Trust Preferred Securities, Series B, the
Company's Junior Subordinated Deferrable Interest Debentures, and the Company's
Guarantee with respect to the Trust Preferred Securities, Series B.
We are of the opinion that the statements under the caption "Certain
Federal Income Tax Consequences" in the Prospectus included in the Registration
Statement, insofar as such statements constitute summaries of federal income tax
law, fairly summarize the matters referred to therein.
We hereby consent to the use of our name under the captions "Certain
Federal Income Tax Consequences" and "Validity of the New Securities" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement. In giving such consent, we
do not admit that we come within the category of persons whose consent is
required under Section 7 of the Act, as amended.
Very truly yours,
/s/ KRONISH, LIEB, WEINER & HELLMAN LLP
---------------------------------------
Kronish, Lieb, Weiner & Hellman LLP
EXHIBIT 12
<TABLE>
<CAPTION>
BANKUNITED FINANCIAL CORPORATION
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
THREE MONTHS
ENDED
FOR THE YEARS ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------------- ---------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges (excluding interest on deposits):
Interest on Borrowings $ 1,888 $ 1,949 $ 4,951 $ 8,455 13,832 $3,583 3,505
Rent (33%) 205 202 256 320 302 64 128
----------------------------------------------- ---------------
Total fixed charges 2,093 2,151 5,207 8,775 14,134 3,627 3,633
Income fixed charges
extraordinary items 4,248 6,356 3,607 9,981 4,243 1,468 2,656
----------------------------------------------- ---------------
Earnings $ 6,341 $ 8,507 $ 8,814 $18,756 $18,377 $5,095 6,299
=============================================== ===============
Total fixed charges $ 2,093 $ 2,151 $ 5,207 $ 8,775 $14,134 $3,627 $ 3,633
Preferred stock dividends on a pretax basis 1,373 2,386 3,016 3,536 3,460 865 1,084
----------------------------------------------- ---------------
Combined fixed charges and
preferred stock dividends $ 3,466 $ 4,537 $ 8,223 $12,311 $17,594 $4,491 $ 4,717
=============================================== ================
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.83:1 1.87:1 1.07:1 1.52:1 1.05:1 1.13:1 1.33:1
=============================================== ================
Fixed charges (including interest on deposits):
Interest on Deposits $12,134 $10,261 $11,344 $17,849 $20,791 $4,223 $ 8,882
Interest on Borrowings 1,888 1,949 4,951 8,456 13,832 3,563 3,505
Rent (33%) 205 202 256 320 302 64 128
----------------------------------------------- ----------------
Total fixed charges 14,227 12,412 16,551 26,625 34,925 7,850 12,515
Income before income taxes and
extraordinary items 4,248 6,356 3,607 9,981 4,243 1,468 2,856
Earnings $18,475 $18,768 20,158 $36,606 $39,168 $9,318 $15,171
=============================================== ================
Total fixed charges $14,227 $12,412 $16,551 $26,625 $34,925 $7,850 $12,515
Preferred stock dividends on a pretax basis 1,373 2,386 3,016 3,536 3,460 865 1,084
---------------------------------------------- ----------------
Combined fixed charges and
preferred stock dividends $15,600 $14,798 $19,567 $30,161 $38,385 $8,714 $13,599
---------------------------------------------- ----------------
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.18:1 1.27:1 1.03:1 1.21:1 1.02:1 1.07:1 1.12:1
---------------------------------------------- ----------------
</TABLE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Amendment No. 1 to Registration Statement on Form S-4
of BankUnited Financial Corporation of our report dated November 4, 1996, except
as to Note 18, which is as of November 15, 1996, appearing on page 54 of
BankUnited Financial Corporation's Annual Report on Form 10-K/A for the year
ended September 30, 1996. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
- ------------------------
Price Waterhouse LLP
Miami, Florida
April 17, 1997
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Amendment No. 1 to Registration Statement on Form S-4
of BankUnited Financial Corporation of our report dated August 12, 1996,
appearing on page 56 of Suncoast Savings and Loan Association, FSA's Annual
Report on Form 10-K for the year ended June 30, 1996. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
- ------------------------
Price Waterhouse LLP
Miami, Florida
April 17, 1997
EXHIBIT 25.1
THIS CONFORMING PAPER FORMAT DOCUMEMT IS BEING SUBMITTED
PURSUANT TO RULE 901 (d) OF REGULATION S-T
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2 [ ]
______________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
______________________
BANKUNITED FINANCIAL CORPORATION
(Exact name of obligor as specified in its charter)
Florida 65-0377773
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
255 Alhambra Circle
Coral Gables, Florida 33134
(Address of principal executive offices) (Zip code)
______________________
Junior Subordinated Deferrable Interest Debentures
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and Rule 24 of the
Commission's Rules of Practice.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to
Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 10th day of March, 1997.
THE BANK OF NEW YORK
By: /S/MARY LAGUMINA
--------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
<PAGE>
EXHIBIT 7
Consolidated Report of Condition
THE BANK OF NEW YORK
of 48 Wall Street, New York 10286
And Foreign and Domestic Subsidiaries
a member of the Federal Reserve System, at the close of business September 30,
1996, published in accordance with a call made by the Federal Reserve Bank of
this Director pursuant to the provisions of the Federal Rreserve Act.
<TABLE>
<CAPTION>
ASSETS Dollar Amounts
in Thousands
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins........................4,404,522
Interest-bearing balances....................................................732,833
Securities:
Held-to-maturity securities................................................ 789,964
Available-for-sale securities..............................................2,005,509
Federal funds sold in domestic offices of the bank:
Federal funds sold.........................................................3,364,838
Loans and lease financing receivables:
Loans and leases, net of unearned income. . . . . . .28,728,602
LESS: Allowance for loan and lease losses. . . . . . 584,525
LESS: Allocated transfer risk reserve. . . . . . . . 429
Loans and leases, net of unearned income, allowance, and reserve..........28,143,648
Assets held in trading accounts...............................................1,004,242
Premises and fixed assets (including capitalized leases)........................605,668
Other real estate owned..........................................................41,238
Investments in unconsolidated subsidiaries and associated companies.............205,031
Customers' liability to this bank on acceptances outstanding....................949,154
Intangible assets...............................................................490,524
Other assets..................................................................1,305,839
-----------
Total assets................................................................$44,043,010
===========
CONTINUED ON NEXT PAGE
<PAGE>
LIABILITIES
Deposits:
In domestic offices..........................................................$20,441,318
Noninterest-bearing . . . . . . . . 8,158,472
Interest-bearing. . . . . . . . . . 12,282,846
In foreign offices, Edge and Agreement subsidiaries and IBF's................$11,710,903
Noninterest-bearing . . . . . . . . 46,182
Interest-bearing. . . . . . . . . . 11,664,721
Federal funds sold in domestic offices of the bank:
Federal funds purchased.....................................................1,565,288
Demand notes issued to the U.S. Treasury.........................................293,186
Trading liabilities..............................................................826,856
Other borrowed money:
With original maturity of one year or less..................................2,103,443
With original maturity of more than one year...................................20,766
Bank's liability on acceptances executed and outstanding.........................951,116
Subordinated notes and debentures..............................................1,020,400
Other liabilities..............................................................1,522,884
-----------
Total liabilities.............................................................40,456,160
===========
EQUITY CAPITAL
Common Stock.....................................................................942,284
Surplus..........................................................................525,666
Undivided profits and capital reserves.........................................2,129,376
Net unrealized holding gains (losses) on available-for-sale securities............(2,073)
Cumulative foreign currency translation adjustments...............................(8,403)
-----------
Total equity capital...........................................................3,586,850
-----------
Total liabilities and equity capital.........................................$44,043,010
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and belief
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instuctions
issued by the Board of Governors of the Federal Reserve System and is true and
correct
J Carter Bacot )
Thomas R Renyt ) Directors
Alan R. Griffith )
EXHIBIT 25.2
THIS CONFORMING PAPER FORMAT DOCUMEMT IS BEING SUBMITTED
PURSUANT TO RULE 901 (d) OF REGULATION S-T
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [ ]
______________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
______________________
BANKUNITED CAPITAL
(Exact name of obligor as specified in its charter)
Delaware Applied for
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
255 Alhambra Circle
Coral Gables, Florida 33134
(Address of principal executive offices) (Zip code)
______________________
Trust Preferred Securities
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and Rule 24 of the
Commission's Rules of Practice.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to
Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 10th day of March, 1997.
THE BANK OF NEW YORK
By: /S/MARY LAGUMINA
-------------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
<PAGE>
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION
THE BANK OF NEW YORK
OF 48 WALL STREET, NEW YORK 10286
AND FOREIGN AND DOMESTIC SUBSIDIARIES
a member of the Federal Reserve System, at the close of business September 30,
1996, published in accordance with a call made by the Federal Reserve Bank of
this Director pursuant to the provisions of the Federal Rreserve Act.
<TABLE>
<CAPTION>
ASSETS Dollar Amounts
in Thousands
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins........................4,404,522
Interest-bearing balances....................................................732,833
Securities:
Held-to-maturity securities................................................ 789,964
Available-for-sale securities..............................................2,005,509
Federal funds sold in domestic offices of the bank:
Federal funds sold.........................................................3,364,838
Loans and lease financing receivables:
Loans and leases, net of unearned income. . . . . . .28,728,602
LESS: Allowance for loan and lease losses. . . . . . 584,525
LESS: Allocated transfer risk reserve. . . . . . . . 429
Loans and leases, net of unearned income, allowance, and reserve..........28,143,648
Assets held in trading accounts...............................................1,004,242
Premises and fixed assets (including capitalized leases)........................605,668
Other real estate owned..........................................................41,238
Investments in unconsolidated subsidiaries and associated companies.............205,031
Customers' liability to this bank on acceptances outstanding....................949,154
Intangible assets...............................................................490,524
Other assets..................................................................1,305,839
-----------
Total assets................................................................$44,043,010
===========
CONTINUED ON NEXT PAGE
<PAGE>
LIABILITIES
Deposits:
In domestic offices..........................................................$20,441,318
Noninterest-bearing . . . . . . . . 8,158,472
Interest-bearing. . . . . . . . . . 12,282,846
In foreign offices, Edge and Agreement subsidiaries and IBF's................$11,710,903
Noninterest-bearing . . . . . . . . 46,182
Interest-bearing. . . . . . . . . . 11,664,721
Federal funds sold in domestic offices of the bank:
Federal funds purchased.....................................................1,565,288
Demand notes issued to the U.S. Treasury.........................................293,186
Trading liabilities..............................................................826,856
Other borrowed money:
With original maturity of one year or less..................................2,103,443
With original maturity of more than one year...................................20,766
Bank's liability on acceptances executed and outstanding.........................951,116
Subordinated notes and debentures..............................................1,020,400
Other liabilities..............................................................1,522,884
-----------
Total liabilities.............................................................40,456,160
===========
EQUITY CAPITAL
Common Stock.....................................................................942,284
Surplus..........................................................................525,666
Undivided profits and capital reserves.........................................2,129,376
Net unrealized holding gains (losses) on available-for-sale securities............(2,073)
Cumulative foreign currency translation adjustments...............................(8,403)
-----------
Total equity capital...........................................................3,586,850
-----------
Total liabilities and equity capital.........................................$44,043,010
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and belief
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instuctions
issued by the Board of Governors of the Federal Reserve System and is true and
correct
J Carter Bacot )
Thomas R Renyt ) Directors
Alan R. Griffith )
EXHIBIT 25.3
THIS CONFORMING PAPER FORMAT DOCUMEMT IS BEING SUBMITTED
PURSUANT TO RULE 901 (d) OF REGULATION S-T
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2 [ ]
______________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
______________________
BANKUNITED FINANCIAL CORPORATION
(Exact name of obligor as specified in its charter)
Florida 65-0377773
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
255 Alhambra Circle
Coral Gables, Florida 33134
(Address of principal executive offices) (Zip code)
______________________
Guarantee of Preferred Securities of
BankUnited Capital
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and Rule 24 of the
Commission's Rules of Practice.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to
Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 10th day of March, 1997.
THE BANK OF NEW YORK
By: /S/MARY LAGUMINA
--------------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
<PAGE>
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION
THE BANK OF NEW YORK
OF 48 WALL STREET, NEW YORK 10286
AND FOREIGN AND DOMESTIC SUBSIDIARIES
a member of the Federal Reserve System, at the close of business September 30,
1996, published in accordance with a call made by the Federal Reserve Bank of
this Director pursuant to the provisions of the Federal Rreserve Act.
<TABLE>
<CAPTION>
ASSETS DOLLAR AMOUNTS
IN THOUSANDS
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins........................4,404,522
Interest-bearing balances....................................................732,833
Securities:
Held-to-maturity securities................................................ 789,964
Available-for-sale securities..............................................2,005,509
Federal funds sold in domestic offices of the bank:
Federal funds sold.........................................................3,364,838
Loans and lease financing receivables:
Loans and leases, net of unearned income. . . . . . .28,728,602
LESS: Allowance for loan and lease losses. . . . . . 584,525
LESS: Allocated transfer risk reserve. . . . . . . . 429
Loans and leases, net of unearned income, allowance, and reserve..........28,143,648
Assets held in trading accounts...............................................1,004,242
Premises and fixed assets (including capitalized leases)........................605,668
Other real estate owned..........................................................41,238
Investments in unconsolidated subsidiaries and associated companies.............205,031
Customers' liability to this bank on acceptances outstanding....................949,154
Intangible assets...............................................................490,524
Other assets..................................................................1,305,839
-----------
Total assets................................................................$44,043,010
===========
CONTINUED ON NEXT PAGE
<PAGE>
LIABILITIES
Deposits:
In domestic offices..........................................................$20,441,318
Noninterest-bearing . . . . . . . . 8,158,472
Interest-bearing. . . . . . . . . . 12,282,846
In foreign offices, Edge and Agreement subsidiaries and IBF's................$11,710,903
Noninterest-bearing . . . . . . . . 46,182
Interest-bearing. . . . . . . . . . 11,664,721
Federal funds sold in domestic offices of the bank:
Federal funds purchased.....................................................1,565,288
Demand notes issued to the U.S. Treasury.........................................293,186
Trading liabilities..............................................................826,856
Other borrowed money:
With original maturity of one year or less..................................2,103,443
With original maturity of more than one year...................................20,766
Bank's liability on acceptances executed and outstanding.........................951,116
Subordinated notes and debentures..............................................1,020,400
Other liabilities..............................................................1,522,884
-----------
Total liabilities.............................................................40,456,160
============
EQUITY CAPITAL
Common Stock.....................................................................942,284
Surplus..........................................................................525,666
Undivided profits and capital reserves.........................................2,129,376
Net unrealized holding gains (losses) on available-for-sale securities............(2,073)
Cumulative foreign currency translation adjustments...............................(8,403)
-----------
Total equity capital...........................................................3,586,850
-----------
Total liabilities and equity capital.........................................$44,043,010
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and belief
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instuctions
issued by the Board of Governors of the Federal Reserve System and is true and
correct
J Carter Bacot )
Thomas R Renyt ) Directors
Alan R. Griffith )
EXHIBIT 99.1
LETTER OF TRANSMITTAL
Offer For Any and All Outstanding
10 1/4% Trust Preferred Securities, Series A
(Liquidation Amount $1,000 per Trust Preferred Security)
in Exchange for
10 1/4% Trust Preferred Securities, Series B
(Liquidation Amount $1,000 per Trust Preferred Security)
Which Have Been Registered Under The Securities Act Of 1933
Pursuant to the Prospectus dated ________ __, 1997
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON MAY __, 1997, UNLESS THE OFFER IS EXTENDED. TENDERS MAY
BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
<TABLE>
<CAPTION>
The Exchange Agent For the Exchange Offer Is:
The Bank of New York
<S> <C> <C>
By Hand or Overnight Delivery: Facsimile Transmission: By Registered or Certified Mail:
(Eligible Institutions Only)
The Bank of New York The Bank of New York
101 Barclay Street (212) 571-3080 101 Barclay Street, 7E
Corporate Trust Services Window New York, New York 10286
Ground Level To Confirm by Telephone Attention: Reorganization Section,
Attention: Reorganization Section. or for Information Call: Enrique Lopez
Enrique Lopez
(212) 815-2742
</TABLE>
Delivery of this letter of transmittal to an address other than as set
forth above or transmission of this letter of transmittal via facsimile to a
number other than as set forth above does not constitute a valid delivery.
The undersigned acknowledges that he or she has received the
Prospectus, dated ______ __, 1997 (the "Prospectus"), of BankUnited Financial
Corporation, a Florida corporation (the "Company"), and BankUnited Capital, a
trust formed under the laws of the State of Delaware (the "Trust"), and this
Letter of Transmittal, which together constitute the Company's and the Trust's
offer (the "Exchange Offer") to exchange an aggregate Liquidation Amount of up
to $70,000,000 10 1/4% Trust Preferred Securities, Series B due December 31,
2026, which have been registered under the Securities Act of 1933, as amended
(the "Securities Act") (the "Exchange Preferred Securities") of the Trust for a
like Liquidation Amount of the issued and outstanding 10 1/4% Trust Preferred
Securities, Series A due December 31, 2026 (the "Old Series A Preferred
Securities") of the Trust from the holders thereof.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
1
<PAGE>
Capitalized terms used but not defined herein shall have the same
meaning given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Series
A Preferred Securities either if Old Series A Preferred Securities are to be
forwarded herewith or if tenders of Old Series A Preferred Securities are to be
made by book-entry transfer to an account maintained by The Bank of New York
(the "Exchange Agent") at The Depository Trust Company (the "Book-Entry Transfer
Facility" or "DTC") pursuant to the procedures set forth in "The Exchange
Offer--Procedures for Tendering Old Series A Preferred Securities" in the
Prospectus.
Holders of Old Series A Preferred Securities whose certificates (the
"Certificates") for such Old Series A Preferred Securities are not immediately
available or who cannot deliver their Certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date (as defined
in the Prospectus) or who cannot complete the procedures for book-entry transfer
on a timely basis, must tender their Old Series A Preferred Securities according
to the guaranteed delivery procedures set forth in "The Exchange
Offer-Procedures for Tendering Old Series A Preferred Securities" in the
Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
The undersigned has completed the appropriate boxes below and signed
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange offer.
2
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD SERIES A PREFERRED SECURITIES 1 2 3
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate Liquidation
Liquidation Amount of
Amount of Old Series A
Name(s) and Address(es) of Registered Holders(s): Certificate Old Series A Preferred
(Please fill in, if blank) Number(s)* Preferred Securities
Securities
Tendered**
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total
- -----------------------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Series A Preferred Securities are being
tendered by book-entry holders.
** Old Series A Preferred Securities may be tendered in whole or in part
in denominations of $100,000 and integral multiples of $1,000 in excess
thereof, provided that if any Old Series A Preferred Securities are
tendered for exchange in part, the untendered liquidation amount
thereof must be $100,000 or any integral multiple of $1,000 in excess
thereof. See instruction 4. Unless otherwise indicated in the column, a
holder will be deemed to have tendered all Old Series A Preferred
Securities represented by the Old Series A Preferred Securities
indicated in Column 2. See Instruction 4.
=============================================================================================================================
</TABLE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED OLD SERIES A PREFERRED SECURITIES ARE BEING
DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED
BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution_______________________________________
Account Number______________________________________________________
Transaction Code Number_____________________________________________
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED
DELIVERY IF TENDERED OLD SERIES A PREFERRED SECURITIES ARE BEING
DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY
SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
3
<PAGE>
Name of Registered Holder(s)________________________________________
Window Ticket Number (if any)_______________________________________
Date of Execution of Notice of Guaranteed Delivery__________________
Name of Institution which Guaranteed Delivery_______________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution_______________________________________
Account Number______________________________________________________
Transaction Code Number_____________________________________________
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED
OLD SERIES A PREFERRED SECURITIES ARE TO BE RETURNED BY CREDITING
THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD
SERIES A PREFERRED SECURITIES FOR ITS OWN ACCOUNT AS A RESULT OF
MARKET MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING
BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE
PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ____________________________________________________________________
Address:____________________________________________________________________
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Trust and the Company, the above described
aggregate Liquidation Amount of the Trust's 10 1/4% Trust Preferred Securities,
Series A (the "Old Series A Preferred Securities") in exchange for a like
aggregate Liquidation Amount of the Trust's 10 1/4% Trust Preferred Securities,
Series B due December 31, 2026 (the "Exchange Preferred Securities") which have
been registered under the Securities Act upon the terms and subject to the
conditions set forth in the Prospectus dated ______________ __, 1997 (as the
same may be amended or supplemented from time to time, the "Prospectus"),
receipt of which is acknowledged, and in this Letter of Transmittal (which,
together with the Prospectus, constitute the "Exchange Offer").
4
<PAGE>
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Series A Preferred Securities tendered herewith in accordance
with the terms and conditions of the Exchange Offer (including, if the Exchange
Offer is extended or amended, the terms and conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or upon the
order of the Trust all rights, title and interest in and to such Old Series A
Preferred Securities as are being tendered herewith. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent as its agent and
attorney-in-fact (with full knowledge that the Exchange Agent is also acting as
agent of the Company and the Trust in connection with the Exchange Offer) with
respect to the tendered Old Series A Preferred Securities, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Old Series A Preferred
Securities to the Company or the Trust together with all accompanying evidences
of transfer and authenticity to, or upon the order of, the Trust, upon receipt
by the Exchange Agent, as the undersigned's agent, of the Exchange Preferred
Securities to be issued in exchange for such Old Series A Preferred Securities,
(ii) present Certificates for such Old Series A Preferred Securities for
transfer, and to transfer the Old Series A Preferred Securities on the books of
the Trust, and (iii) receive for the account of the Trust all benefits and
otherwise exercise all rights of beneficial ownership of such Old Series A
Preferred Securities, all in accordance with the terms and conditions of the
Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
SERIES A PREFERRED SECURITIES TENDERED HEREBY AND THAT, WHEN THE SAME ARE
ACCEPTED FOR EXCHANGE, THE TRUST WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED
TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND
ENCUMBRANCES, AND THAT THE OLD SERIES A PREFERRED SECURITIES TENDERED HEREBY ARE
NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON
REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY, THE
TRUST OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE
EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD SERIES A PREFERRED SECURITIES
TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE
REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE
TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old
Series A Preferred Securities tendered hereby should be printed above, if they
are not already set forth above, as they appear on the Certificates representing
such Old Series A Preferred Securities. The Certificate number(s) and the Old
Series A Preferred Securities that the undersigned wishes to tender should be
indicated in the appropriate boxes above.
If any tendered Old Series A Preferred Securities are not exchanged
pursuant to the Exchange Offer for any reason, of if Certificates are submitted
for more Old Series A Preferred Securities than are tendered or accepted for
exchange, Certificates for such nonexchanged or nontendered Old Series A
Preferred Securities will be returned (or, in the case of Old Series A Preferred
Securities tendered
5
<PAGE>
by book-entry transfer, such Old Series A Preferred Securities will be credited
to an account maintained at DTC), without expense to the tendering holder,
promptly following the expiration or termination of the Exchange Offer.
The undersigned understands that tenders of Old Series A Preferred
Securities pursuant to any one of the procedures described in "The Exchange
Offer--Procedures for Tendering Old Series A Preferred Securities" in the
Prospectus and in the instruction, attached hereto will, upon the Company's and
the Trust's acceptance for exchange of such tendered Old Series A Preferred
Securities, constitute a binding agreement between the undersigned, the Company
and the Trust upon the terms and subject to the conditions of the Exchange
Offer. The undersigned recognizes that, under certain circumstances set forth in
the Prospectus, the Company and the Trust may not be required to accept for
exchange any of the Old Series A Preferred Securities tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Preferred
Securities be issued in the name(s) of the undersigned or, in the case of a
book-entry transfer of Old Series A Preferred Securities, that such Exchange
Preferred Securities be credited to the account indicated above maintained at
DTC. If applicable, substitute Certificates representing Old Series A Preferred
Securities not exchanged or not accepted for exchange will be issued to the
undersigned or, in the case of a book-entry transfer of Old Series A Preferred
Securities, will be credited to the account indicated above maintained at DTC.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please deliver Exchange Preferred Securities to the undersigned at the address
shown below the undersigned's signature.
BY TENDERING OLD SERIES A PREFERRED SECURITIES AND EXECUTING THIS
LETTER OF TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE
UNDERSIGNED IS NOT AN "AFFILIATE" OF THE COMPANY OR THE TRUST, (II) ANY EXCHANGE
PREFERRED SECURITIES TO BE RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE
ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED HAS NO ARRANGEMENT OR
UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE
MEANING OF THE SECURITIES ACT) OF EXCHANGE PREFERRED SECURITIES TO BE RECEIVED
IN THE EXCHANGE OFFER, AND (IV) IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE
UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION
(WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH EXCHANGE PREFERRED
SECURITIES. BY TENDERING OLD SERIES A PREFERRED SECURITIES PURSUANT TO THE
EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, A HOLDER OF OLD SERIES
A PREFERRED SECURITIES WHICH IS A BROKER-DEALER REPRESENTS AND AGREES,
CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION
OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD
PARTIES, THAT (A) SUCH OLD SERIES A PREFERRED SECURITIES HELD BY THE
BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH OLD SERIES A PREFERRED
SECURITIES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT
OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE
PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE
REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY
6
<PAGE>
RESALE OF SUCH EXCHANGE PREFERRED SECURITIES (PROVIDED THAT, BY SO ACKNOWLEDGING
AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT
THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
THE COMPANY AND THE TRUST HAVE AGREED THAT, SUBJECT TO THE PROVISIONS
OF THE REGISTRATION RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS
DEFINED BELOW) IN CONNECTION WITH RESALES OF EXCHANGE PREFERRED SECURITIES
RECEIVED IN EXCHANGE FOR OLD SERIES A PREFERRED SECURITIES, WHERE SUCH OLD
SERIES A PREFERRED SECURITIES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER
FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES, FOR A PERIOD ENDING 90 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO
EXTENSION UNDER CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR,
IF EARLIER, WHEN ALL SUCH EXCHANGE PREFERRED SECURITIES HAVE BEEN DISPOSED OF BY
SUCH PARTICIPATING BROKER-DEALER. IN THAT REGARD, EACH BROKER-DEALER WHO
ACQUIRED OLD SERIES A PREFERRED SECURITIES FOR ITS OWN ACCOUNT AS A RESULT OF
MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY
TENDERING SUCH OLD SERIES A PREFERRED SECURITIES AND EXECUTING THIS LETTER OR
TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OR THE TRUST
OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY
STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY
MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT
NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE
THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT
MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE
REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE
SALE OF EXCHANGE PREFERRED SECURITIES PURSUANT TO THE PROSPECTUS UNTIL THE
COMPANY AND THE TRUST HAVE AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT
SUCH MISSTATEMENT OR OMISSION AND HAVE FURNISHED COPIES OF THE AMENDED OR
SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY OR THE
TRUST HAS GIVEN NOTICE THAT THE SALE OF THE EXCHANGE PREFERRED SECURITIES MAY BE
RESUMED, AS THE CASE MAY BE, IF THE COMPANY OR THE TRUST GIVES SUCH NOTICE TO
SUSPEND THE SALE OF THE EXCHANGE PREFERRED SECURITIES. THEY SHALL EXTEND THE
90-DAY PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING BROKER-DEALERS ARE
ENTITLED TO USE THE PROSPECTUS IN CONNECTION WITH THE RESALE OF EXCHANGE
PREFERRED SECURITIES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND INCLUDING
THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN
PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR
AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE EXCHANGE PREFERRED
SECURITIES OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY
7
<PAGE>
OR THE TRUST HAS GIVEN NOTICE THAT THE SALE OF EXCHANGE PREFERRED
SECURITIES MAY BE RESUMED, AS THE CASE MAY BE.
Holders of Old Series A Preferred Securities whose Old Series A
Preferred Securities are accepted for exchange will not receive accrued interest
on such Old Series A Preferred Securities for any period from and after the last
Interest Payment Date to which interest has been paid or duty provided for on
such Old Series A Preferred Securities prior to the original issue date of the
Exchange Preferred Securities or, if no such interest has been paid or duly
provided for, will not receive any accrued interest on such Old Series A
Preferred Securities, and the undersigned waives the right to receive any
interest on such Old Series A Preferred Securities accrued from and after such
Interest Payment Date or, if no such interest has been paid or duly provided
for, from and after December 30, 1996.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Series A Preferred Securities tendered
hereby. All authority herein conferred or agreed to be conferred in this Letter
of Transmittal shall survive the death or incapacity of the undersigned and any
obligation o the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
SERIES A PREFERRED SECURITIES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO
HAVE TENDERED THE OLD SERIES A PREFERRED SECURITIES AS SET FORTH IN SUCH BOX.
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE 7)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Old Series A Preferred Securities hereby tendered or on
the register of holders maintained by the Trust, or by any person(s) authorized
to become the registered holder(s) by endorsements and documents transmitted
herewith (including such opinions of counsel, certifications and other
information as may be required by the Trust or the Trustee for the Old Series A
Preferred Securities to comply with the restrictions on transfer applicable to
the Old Series A Preferred Securities). If signature is by an attorney-in-fact,
executor, administrator, trustee, guardian, officer of a corporation or other
acting in a fiduciary capacity or representative capacity, please set forth the
signer's full title. See Instruction 5.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
8
<PAGE>
(SIGNATURE(S) OF HOLDER(S)
Date: _______________, 199_
Name(s)
------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
----------------------------------------------------------
Address
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
------------------------------------------------
- -------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
- -------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
Date: _______________, 199_
Name of Firm
------------------------------------------------------------------
Capacity (full title)
-------------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number ________________________________________________
9
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the Exchange Preferred Securities or Old Series A
Preferred Securities not tendered are to be issued in the name of someone other
than the registered holder of the Old Series A Preferred Securities whose
name(s) appear(s) above.
Issue
[ ] Old Series A Preferred Securities not tendered to:
[ ] Exchange Preferred Securities to:
Name(s)
----------------------------------------------------------------------
Address
----------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and
Telephone Number
--------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER(S))
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if Exchange Preferred Securities or Old Series A Preferred
Securities not tendered are to be sent to someone other than the registered
holder of the Old Series A Preferred Securities whose name(s) appear(s) above,
or such registered holder(s) at an address other than that shown above.
Mail
[ ] Old Series A Preferred Securities not tendered to:
[ ] Exchange Preferred Securities to:
Name(s
--------------------------------------------------------------------
Address
--------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and
Telephone Number
--------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER(S))
10
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in the "Exchange
Offer--Procedures for Tendering Old Series A Preferred Securities" in the
Prospectus. Certificates, or timely confirmation of a book-entry transfer of
such Old Series A Preferred Securities into the Exchange Agent's account at DTC,
as well as this Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein on or prior to the Expiration
Date. Old Series A Preferred Securities may be tendered in whole or in part in
the liquidation amount of $100,000 (100 Old Series A Preferred Securities) and
integral multiples of $1,000 in excess thereof, provided that, if any Old Series
A Preferred Securities are tendered for exchange in part, the untendered
liquidation amount thereof must be $100,000 (100 Old Series A Preferred
Securities) or any integral multiple of $1,000 in excess thereof.
Holders who wish to tender their Old Series A Preferred Securities and
(i) whose Old Series A Preferred Securities are not immediately available or
(ii) who cannot deliver their Old Series A Preferred Securities, this Letter of
Transmittal and all other required documents to the Exchange Agent on or prior
to the Expiration Date or (iii) who cannot complete the procedures for delivery
by book-entry transfer on a timely basis, may tender their Old Series A
Preferred Securities by properly completing and duly executing a Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in
"The Exchange Offer--Procedures for Tendering Old Series A Preferred Securities"
in the Prospectus. Pursuant to such procedures: (i) such tender must be made by
or through an Eligible Institution (as defined below); (ii) a properly completed
and duly executed Notice of Guaranteed Delivery, substantially in the form made
available by the Company, must be received by the Exchange Agent on or prior to
the Expiration Date; and (iii) the Certificates (or a book-entry confirmation
(as defined in the Prospectus)) representing all tendered Old Series A Preferred
Securities, in proper form for transfer, together with a Letter of Transmittal
(or facsimile thereof), properly completed and duly executed, with any required
signature guarantees and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent within five New York Stock
Exchange, Inc. trading days after the date of execution of such Notice of
Guaranteed Delivery, all as provided in "The Exchange Offer-Procedures for
Tendering Old Series A Preferred Securities" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by facsimile or mail to the Exchange Agent, and must include a
guarantee by an Eligible Institution in the form set forth in such Notice. For
Old Series A Preferred Securities to be properly tendered pursuant to the
guaranteed delivery procedure, the Exchange Agent must receive a Notice of
Guaranteed Delivery on or prior to the Expiration Date. As used herein and in
the Prospectus, "Eligible Institution" means a firm or other entity identified
in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution,"
including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer,
municipal securities broker or dealer or government securities broker or dealer;
(iii) a credit union; (v) a national
11
<PAGE>
securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Neither the Company nor the Trust will accept any alternative,
conditional or contingent tenders. Each tendering holder, by execution of a
Letter of Transmittal (or facsimile thereof), waives any right to receive any
notice of the acceptance of such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any
participant in DTC whose name appears on the register of
holders maintained by the Trust as the owner of the Old Series
A Preferred Securities) of Old Series A Preferred Securities
tendered herewith, unless such holder(s) has completed either
the box entitled "Special Issuance Instructions" or the box
entitled "Special Delivery Instructions" above, or
(ii) such Old Series A Preferred Securities are tendered for the
account of a firm that is an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the
signature(s) on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Series A Preferred Securities" is inadequate, the
Certificate number(s) and/or the liqidation amount of Old Series A Preferred
Securities and any other required information should be listed on a separate
signed schedule which is attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Series A
Preferred Securities will be accepted only in the liquidation amount of $100,000
(100 Old Series A Preferred Securities) and integral multiples of $1,000 in
excess thereof, provided that if any Old Series A Preferred Securities are
tendered for exchange in part, the untendered liquidation amount thereof must be
$100,000 (100 Old Series A Preferred Securities) or any integral multiple of
$1,000 in excess thereof. If less than all the Old Series A Preferred Securities
evidenced by any Certificate submitted are to be tendered, fill in the
liquidation amount of Old Series A Preferred Securities which are to be tendered
in the box entitled "Liquidation Amount of Old Series A Preferred Securities
Tendered (if less than all)." In such case, new Certificate(s) for the remainder
of the Old Series A Preferred Securities that were evidenced by your old
Certificate(s) will only be sent to the holder of
12
<PAGE>
the Old Series A Preferred Security, promptly after the Expiration Date. All
Old Series A Preferred Securities represented by Certificates delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Series A Preferred
Securities may be withdrawn at any time on or prior to the Expiration Date. In
order for a withdrawal to be effective on or prior to that time, a written, or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth above or in the Prospectus
on or prior to the Expiration Date. Any such notice of withdrawal must specify
the name of the person who tendered the Old Series A Preferred Securities to be
withdrawn, the aggregate liquidation amount of Old Series A Preferred Securities
to be withdrawn, and (if Certificates for Old Series A Preferred Securities have
been tendered) the name of the registered holder of the Old Series A Preferred
Securities as set forth on the Certificate for the Old Series A Preferred
Securities if different from that of the person who tendered such Old Series A
Preferred Securities. If Certificates for the Old Series A Preferred Securities
have been delivered or otherwise identified to the Exchange Agent, then prior to
the physical release of such Certificates for the Old Series A Preferred
Securities, the tendering holder must submit the serial numbers shown on the
particular Certificates for the Old Series A Preferred Securities to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by an
Eligible Institution, except in the case of Old Series A Preferred Securities
tendered for the account of an Eligible Institution. If Old Series A Preferred
Securities have been tendered pursuant to the procedures for book-entry transfer
set forth in the Prospectus under "The Exchange Offer--Procedures for Tendering
Old Series A Preferred Securities," the notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawal of Old
Series A Preferred Securities, in which case a notice of withdrawal will be
effective if delivered to the Exchange Agent by written, or facsimile
transmission. Withdrawals of tenders of Old Series A Preferred Securities may
not be rescinded. Old Series A Preferred Securities properly withdrawn will not
be deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described in the Prospectus under "The Exchange
Offer--Procedures for Tendering Old Series A Preferred Securities."
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Company and the
Trust, in their sole discretion, whose determination shall be final and binding
on all parties. None of the Company, the Trust, any affiliates or assigns of the
Company and the Trust, the Exchange Agent or any other person shall be under any
duty to give any notification of any irregularities in any notice of withdrawal
or incur any liability for failure to give any such notification. Any Old Series
A Preferred Securities which have been tendered but which are withdrawn will be
returned to the holder thereof without cost to such holder promptly after
withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS.
If this Letter of Transmittal is signed by the registered holder(s) of the Old
Series A Preferred Securities tendered hereby, the signature(s) must correspond
exactly with the name(s) as written on the face of the Certificate(s) without
alteration, enlargement or any change whatsoever.
13
<PAGE>
If any of the Old Series A Preferred Securities tendered hereby are
owned of record by two or more joint owners, all such owners must sign this
Letter of Transmittal.
If any tendered Old Series A Preferred Securities are registered in
different names on several Certificates, it will be necessary to complete, sign
and submit as many separate Letters of Transmittal (or facsimiles thereof) as
there are different registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and must submit proper
evidence satisfactory to the Company and the Trust, in their sole discretion, of
each such person's authority so to act.
When this Letter of Transmittal is signed by the registered owner(s) of
the Old Series A Preferred Securities listed and transmitted hereby, no
endorsement(s) of Certificate(s) or separate bond power(s) are required unless
Exchange Preferred Securities are to be issued in the name of a person other
than the registered holder(s). Signature(s) on such Certificate(s) or bond
power(s) must be guaranteed by an Eligible Institution.
If this letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Series A Preferred Securities listed, the
Certificates must be endorsed or accompanied by appropriate bond powers, signed
exactly as the name or names of the registered owner(s) appear(s) on the
Certificates, and also must be accompanied by such opinions of counsel,
certifications and other information as the Company, the Trust or the Trustee
for the Old Series A Preferred Securities may require in accordance with the
restrictions on transfer applicable to the Old Series A Preferred Securities.
Signatures on such Certificates must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Preferred
Securities are to be issued in the name of a person other than the signer of
this Letter of Transmittal, of if Exchange Preferred Securities are to be sent
to someone other than the signer of this Letter of Transmittal or to an address
other than that shown above, the appropriate boxes on this Letter of Transmittal
should be completed. Certificates for Old Series A Preferred Securities not
exchanged will be returned by mail or, if tendered by book-entry transfer, by
crediting the account indicated above maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company and the Trust will determine, in their
sole discretion, all questions as to the form of documents, validity,
eligibility (including time of receipt) and acceptance for exchange of any
tender of Old Series A Preferred Securities, which determination shall be final
and binding on all parties. The Company and the Trust reserve the absolute right
to reject any and all tendered determined by either of them not to be in proper
form or the acceptance of which, or exchange for which, may, in the view of
counsel to the Company and the Trust, be unlawful. The Company and the Trust
also reserve the absolute right, subject to applicable law, to waive any of the
conditions of the Exchange Offer set forth in the Prospectus under "The Exchange
Offer--Conditions to the Exchange Offer" or any conditions or irregularity in
any tender of Old Series A Preferred Securities of any particular holder whether
or not similar conditions or irregularities are waived in the case of other
holders. The Company's and the Trust's interpretation
14
<PAGE>
of the terms and conditions of the Exchange Offer (including this Letter of
Transmittal and the instructions hereto) will be final and binding. No tender
of Old Series A Preferred Securities will be deemed to have been validly made
until all irregularities with respect to such tender have been cured or waived.
The Company, the Trust, any affiliates or assigns of the Company, the Trust,
the Exchange Agent, or any other person shall not be under any duty to give
notification of any irregularities in tenders or incur any liability for
failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal
income tax law, a holder whose tendered Old Series A Preferred Securities are
accepted for exchange is required to provide the Exchange Agent with such
holder's correct taxpayer identification number ("TIN") on Substitute Form W-9
below. If the Exchange Agent is not provided with the correct TIN, the Internal
Revenue Service (the "IRS") may subject the holder or other payee to a $50
penalty. In addition, payments to such holders or other payees with respect to
Old Series A Preferred Securities exchanged pursuant to the Exchange Offer may
be subject to 31% backup withholder.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the holder and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60 day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number of employer identification number) of the registered owner of
the Old Series A Preferred Securities or of the last transferee appearing on the
transfers attached to, or endorsed on, the Old Series A Preferred Securities. If
the Old Series A Preferred Securities are registered in more than one name or
are not in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such
15
<PAGE>
holders should nevertheless complete the attached Substitute Form W-9 below,
and write "exempt" on the face thereof, to avoid possible erroneous backup
withholding. A foreign person may qualify as an exempt recipient by submitting
a properly completed IRS Form W-8, signed under penalties of perjury, attesting
to that holder's exempt status. Please consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax.
Rather, the U.S. Federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive satisfaction of any or all conditions enumerated in the Prospectus.
11. NO CONDITIONAL TENDERS. No alternative, condition, irregular or
contingent tenders will be accepted. All tendering holders of Old Series A
Preferred Securities, by execution of the Letter or Transmittal, shall waive any
right to receive notice of the acceptance of their Old Series A Preferred
Securities for exchanges.
Neither the Company, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Old Series A Preferred Securities nor shall any of them incur any
liability for failure to give any such notice.
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Series A Preferred Securities have been lost, destroyed or
stolen, the holder should promptly notify the Exchange Agent. The holder will
then be instructed as to the steps that must be taken in order to replace the
Certificate(s). This Letter of Transmittal and related document cannot be
processed until the procedures for replacing lost, destroyed or stolen
Certificate(s) have been followed.
13. SECURITY TRANSFER TAXES. Holders who tender their Old Series A
Preferred Securities for exchange will not be obligated to pay any transfer
taxes in connection therewith. If, however, Exchange Prefered Securities are to
be delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Series A Preferred Securities tendered, or if a
transfer tax is imposed for any reason other than the exchange of Old Series A
Preferred Securities in connection with the Exchange Offer, then the amount of
any such transfer tax (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tending holder.
IMPORTANT; THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL
OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO
THE EXPIRATION DATE.
16
<PAGE>
<TABLE>
<CAPTION>
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(See Instruction 9)
PAYER'S NAME: THE BANK OF NEW YORK
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN ON THE LINE AT TIN:________________
RIGHT AND CERTIFY BY SIGNING AND DATING Social Security Number or
Form W-9 BELOW Employer Identification Number
Department of the Treasury ------------------------------------------------------------------------------------------
Internal Revenue Service PART 2--TIN Applied For [ ]
Payor's Request For
Taxpayer
Identification Number
("TIN")
and Certification
------------------------------------------------------------------------------------------
CERTIFICATION- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
(1) the number shown on this form is my correct taxpayer identification number (or I am
waiting for a number to be issued to me).
(2) I am not subject to backup withholding either because (i) I am exempt from backup
withholding, (ii) I have not been notified by the Internal Revenue Service ("IRS")
that I am subject to backup withholding as a result of a failure to report all
interest or dividends, or (iii) the IRA has notified me that I am no longer subject
to backup withholding, and
(3) any other information provided on this form is true and correct.
Signature__________________________ Date______________, 1997
- ----------------------------------------------------------------------------------------------------------------------
You must cross out item (iii) in Part (2) above if you have been notified by the IRS that you are subject to backup
withholding because of underreporting interest or dividends on your tax return and you have not been notified by the
IRS that you are no longer subject to backup withholding.
========================================================================================================================
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-4 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF
SUBSTITUTE FORM W-9
- -------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments made to me on account of the Exchange Preferred Securities shall be
retained until I provide a taxpayer identification number to the Exchange Agent
and that, if I do not provide my taxpayer identification number within 60 days,
such retained amounts shall be remitted to the Internal Revenue Service as
backup withholding and 31% of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue Service until I provide a
taxpayer identification number.
Signature__________________________ Date_______________, 1997
- -------------------------------------------------------------------------------
17
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
ANY AND ALL OUTSTANDING
10 1/4 TRUST PREFERRED SECURITIES, SERIES A
(LIQUIDATION AMOUNT $1,000 PER TRUST PREFERRED SECURITY)
OF
BANKUNITED CAPITAL
FULLY AND UNCONDITIONALLY GUARANTEED
BY BANKUNITED FINANCIAL CORPORATION
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Trust's 10 1/4% Trust Preferred Securities, Series A due
December 31, 2026 (the "Old Series A Preferred Securities") are not immediately
available, (ii) Old Series A Preferred Securities, the Letter of Transmittal and
all other required documents cannot be delivered to The Bank of New York (the
"Exchange Agent") on or prior to 5:00 P.M. New York City time, on the Expiration
Date (as defined in the Prospectus referred to below) or (iii) the procedures
for delivery by book-entry transfer cannot be completed on a timely basis. This
Notice of Guaranteed Delivery may be delivered by hand, overnight courier or
mail, or transmitted by facsimile transmission, to the Exchange Agent. See "The
Exchange Offer-- Procedures for Tendering Old Series A Preferred Securities" in
the Prospectus. In addition, in order to utilize the guaranteed delivery
procedure to tender Old Series A Preferred Securities pursuant to the Exchange
Offer, a completed, signed and dated Letter of Transmittal relating to the Old
Series A Preferred Securities (or facsimile thereof) must also be received by
the Exchange Agent prior to 5:00 P.M. New York City time, on the Expiration
Date. Capitalized terms not defined herein have the meanings assigned to them in
the Prospectus.
<TABLE>
<CAPTION>
The Exchange Agent For the Exchange Offer Is:
The Bank of New York
<S> <C> <C>
By Registered or Certified Mail Facsimile Transmission: By Hand or Overnight Delivery
(Eligible Institutions Only)
The Bank of New York The Bank of New York
101 Barclay Street, 7E (212) 571-3080 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attention: Reorganization Section Confirm by Telephone Ground Level
Enrique Lopez (212) 815-2742 New York, New York 10286
Attention: Reorganization Section
For Information Call: Enrique Lopez
(212) 815-2742
</TABLE>
<PAGE>
Delivery of this Notice of Guaranteed Delivery to an address other than
as set forth above or transmission of this Notice of Guaranteed Delivery via
facsimile to a number other than as set forth above does not constitute a valid
delivery.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
Ladies and Gentlemen:
The undersigned hereby tenders to BankUnited Financial Corporation, a
Florida corporation (the "Corporation") and to BankUnited Capital, a trust
formed under the laws of the State of Delaware (the "Trust"), upon the terms and
subject to the conditions set forth in the Prospectus dated April __, 1997 (as
the same may be amended or supplemented from time to time, the "Prospectus"),
and the related Letter of Transmittal (which together constitute the "Exchange
Offer"), receipt of which is hereby acknowledged, the aggregate liquidation
amount of Old Series A Preferred Securities set forth below pursuant to the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer--Procedures for Tendering Old Series A Preferred Securities.
<TABLE>
<S> <C>
Aggregate Liquidation Amount Name(s) of Registered Holder(s):____________
Amount Tendered: $__________________* _______________________________________
</TABLE>
Certificate No(s)
if Available):__________________________
_____________________________________
(Total Liquidation Amount Represented by
Old Series A Preferred Securities Certificate(s)
$_____________________________________
If Old Series A Preferred Securities will be tendered by book-entry transfer,
provide the following information:
DTC Account Number____________________
Date:___________________________________
______________________________
* Must be in denominations of a Liquidation Amount of $1,000 and any
integral multiple thereof, and not less than $100,000 aggregate
Liquidation Amount.
<PAGE>
- -------------------------------------------------------------------------------
All Authority herein conferred or agreed to be conferred shall survive the death
or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
- -------------------------------------------------------------------------------
PLEASE SIGN HERE
X_______________________________ ___________________________
X_______________________________ ___________________________
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:__________________________
Must be signed by the holder(s) of the Old Series A Preferred
Securities as their name(s) appear(s) on certificates for Old Series A Preferred
Securities or on a security position listing, or by person(s) authorized to
become registered holder(s) by endorsement and documents transmitted with this
Notice of Guaranteed Delivery. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer or other person acting in a
fiduciary or representative capacity, such person must set forth his or her full
title below.
Please print name(s) and address(es)
Name(s):
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Capacity: -----------------------------------------------------------------
Address(es): -----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17 Ad-15
under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
learning agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Old Series A
Preferred Securities tendered hereby in proper form for transfer, or
confirmation of the book-entry transfer of such Old Series A Preferred
Securities to the Exchange Agent's account at The Depository Trust Company
("DTC"), pursuant to the procedures for book-entry transfer set forth in the
Prospectus, in either case together with one or more properly completed and duly
executed Letter(s) of Transmittal (or facsimile thereof) and any other required
documents within five business days after the date of execution of this Notice
of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Series A Preferred Securities tendered hereby to the
Exchange Agent within the time period set forth above and that failure to do so
could result in a financial loss to the undersigned.
- --------------------------------- --------------------------------
Name of Firm Authorized Signature
- --------------------------------- --------------------------------
Address Title
- --------------------------------- --------------------------------
Zip Code (Please Type or Print)
Area Code and Telephone No._________________________ Dated:____________________
NOTE: DO NOT SEND CERTIFICATES FOR OLD SERIES A SECURITIES WITH THIS FORM.
CERTIFICATES FOR OLD SERIES A SECURITIES SHOULD ONLY BE SENT WITH YOUR
LETTER OF TRANSMITTAL.
April _, 1997
EXCHANGE AGENT AGREEMENT
------------------------
The Bank of New York
Corporate Trust Trustee Administration
101 Barclay Street - 21st Floor
New York, New York 10286
Ladies and Gentlemen:
BankUnited Capital, a Trust formed under the laws of the State
of Delaware (the "Trust") proposes to make an offer (the "Exchange Offer") to
exchange its 10 1/4% Trust Preferred Securities, Series A (the "Old Series A
Preferred Securities") for its New 10 1/4% Trust Preferred Securities, Series B
(the "New Series B Preferred Securities"). The terms and conditions of the
Exchange Offer as currently contemplated are set forth in a prospectus, dated
April __, 1997 (the "Prospectus"), proposed to be distributed to all record
holders of the Old Series A Preferred Securities. The Old Series A Preferred
Securities and the New Series B Preferred Securities are collectively referred
to herein as the "Securities".
The Trust hereby appoints The Bank of New York to act as
exchange agent (the "Exchange Agent") in connection with the Exchange Offer.
References hereinafter to "you" shall refer to The Bank of New York.
The Exchange Offer is expected to be commenced by the Trust on
or about April __, 1997. The Letter of Transmittal accompanying the Prospectus
(or in the case of book entry securities, the ATOP system) is to be used by the
holders of the Old Series A Preferred Securities to accept the Exchange Offer
and contains instructions with respect to the delivery of cer tificates for Old
Series A Preferred Securities tendered in connection therewith.
The Exchange Offer shall expire at 5:00 P.M., New York City
time, on May __, 1997 or on such later date or time to which the Trust may
extend the Exchange Offer (the "Expiration Date"). Subject to the terms and
conditions set forth in the Prospectus, the Trust expressly reserves the right
to extend the Exchange Offer from time to time and may extend the Exchange Offer
by giving oral (confirmed in writing) or written notice to you before 9:00 A.M.,
New York City time, on the business day following the previously scheduled
Expiration Date.
The Trust expressly reserves the right to amend or terminate
the Exchange Offer, and not to accept for exchange any Old Series A Preferred
Securities not theretofore accepted for exchange, upon the occurrence of any of
the conditions of the
<PAGE>
Exchange Offer specified in the Prospectus under the caption "The Exchange Offer
- -- Conditions to the Exchange Offer." The Trust will give oral (confirmed in
writing) or written notice of any amendment, termination or nonacceptance to you
as promptly as practicable.
In carrying out your duties as Exchange Agent, you are to act
in accordance with the following instructions:
1. You will perform such duties and only such duties as are
specifically set forth in the section of the Prospectus captioned "The Exchange
Offer" or as specifically set forth herein; PROVIDED, HOWEVER, that in no way
will your general duty to act in good faith be discharged by the foregoing.
2. You will establish an account with respect to the Old
Series A Preferred Securities at The Depository Trust Company (the "Book-Entry
Transfer Facility") for purposes of the Exchange Offer within two business days
after the date of the Prospectus, and any financial institution that is a
participant in the Book-Entry Transfer Facility's systems may make book-entry
delivery of the Old Series A Preferred Securities by causing the Book-Entry
Transfer Facility to transfer such Old Series A Preferred Securities into your
account in accordance with the Book-Entry Transfer Facility's procedure for such
transfer.
3. You are to examine each of the Letters of Transmittal and
certificates for Old Series A Preferred Securities (or confirmation of
book-entry transfer into your account at the Book-Entry Transfer Facility) and
any other documents delivered or mailed to you by or for holders of the Old
Series A Preferred Securities to ascertain whether: (i) the Letters of
Transmittal and any such other documents are duly executed and properly
completed in accordance with instructions set forth therein and (ii) the Old
Series A Preferred Securities have otherwise been properly tendered. In each
case where the Letter of Transmittal or any other document has been improperly
completed or executed or any of the certificates for Old Series A Preferred
Securities are not in proper form for transfer or some other irregularity in
connection with the acceptance of the Exchange Offer exists, you will endeavor
to inform the presenters of the need for fulfillment of all requirements and to
take any other action as may be necessary or advisable to cause such
irregularity to be corrected.
4. With the approval of the Administrative Trustee of the
Trust (such approval, if given orally, to be confirmed in writing) or any other
party designated by such an officer in writing, you are authorized to waive any
irregularities in
2
<PAGE>
connection with any tender of Old Series A Preferred Securities pursuant to the
Exchange Offer.
5. Tenders of Old Series A Preferred Securities may be made
only as set forth in the Letter of Transmittal and in the section of the
Prospectus captioned "The Exchange Offer -Procedures for Tendering Old Series A
Preferred Securities", and Old Series A Preferred Securities shall be considered
properly tendered to you only when tendered in accordance with the procedures
set forth therein.
Notwithstanding the provisions of this paragraph 5, Old Series
A Preferred Securities which the Administrative Trustee of the Trust shall
approve as having been properly ten dered shall be considered to be properly
tendered (such approval, if given orally, shall be confirmed in writing).
6. You shall advise the Trust with respect to any Old Series A
Preferred Securities received subsequent to the Expiration Date and accept its
instructions with respect to disposition of such Old Series A Preferred
Securities.
7. You shall accept tenders:
(a) in cases where the Old Series A Preferred Securities are
registered in two or more names only if signed by all named holders;
(b) in cases where the signing person (as indicated on the
Letter of Transmittal) is acting in a fiduciary or a representative capacity
only when proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Old
Series A Preferred Securities provided that customary trans fer requirements,
including any applicable transfer taxes, are fulfilled.
You shall accept partial tenders of Old Series A Preferred
Securities where so indicated and as permitted in the Letter of Transmittal and
deliver certificates for Old Series A Preferred Securities to the transfer agent
for split-up and return any untendered Old Series A Preferred Securities to the
holder (or such other person as may be designated in the Letter of Transmittal)
as promptly as practicable after expiration or termination of the Exchange
Offer.
8. Upon satisfaction or waiver of all of the con ditions to
the Exchange Offer, the Trust will notify you (such notice if given orally, to
be confirmed in writing) of its acceptance, promptly after the Expiration Date,
of all Old
3
<PAGE>
Series A Preferred Securities properly tendered and you, on behalf of the Trust,
will exchange such Old Series A Preferred Securities for New Series B Preferred
Securities and cause such Old Series A Preferred Securities to be cancelled.
Delivery of New Series B Preferred Securities will be made on behalf of the
Trust by you at the rate of $1,000 liquidation amount of New Series B Preferred
Securities for each $1,000 liquidation amount of the corresponding series of Old
Series A Preferred Securities tendered promptly after notice (such notice if
given orally, to be confirmed in writing) of acceptance of said Old Series A
Preferred Securities by the Trust; provided, however, that in all cases, Old
Series A Preferred Securities tendered pursuant to the Exchange Offer will be
exchanged only after timely receipt by you of certificates for such Old Series A
Preferred Securities (or confirmation of book-entry transfer into your account
at the Book-Entry Transfer Facility), a properly completed and duly executed
Letter of Transmittal (or facsimile thereof) with any required signature
guarantees and any other required documents. You shall issue New Series B
Preferred Securities only in denominations of $1,000 liquidation amount or any
integral multiple thereof.
9. Tenders pursuant to the Exchange Offer are ir revocable,
except that, subject to the terms and upon the con ditions set forth in the
Prospectus and the Letter of Trans mittal, Old Series A Preferred Securities
tendered pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date.
10. The Trust shall not be required to exchange any Old Series
A Preferred Securities tendered if any of the conditions set forth in the
Exchange Offer are not met. Notice of any decision by the Trust not to exchange
any Old Series A Preferred Securities tendered shall be given (and confirmed in
writing) by the Trust to you.
11. If, pursuant to the Exchange Offer, the Trust does not
accept for exchange all or part of the Old Series A Preferred Securities
tendered because of an invalid tender, the occurrence of certain other events
set forth in the Prospectus under the caption "The Exchange Offer -- Conditions
to the Ex change Offer" or otherwise, you shall as soon as practicable after the
expiration or termination of the Exchange Offer return those certificates for
unaccepted Old Series A Preferred Securities (or effect appropriate book-entry
transfer), together with any related required documents and the Letters of
Transmittal relating thereto that are in your possession, to the persons who
deposited them.
12. All certificates for reissued Old Series A Preferred
Securities, unaccepted Old Series A Preferred
4
<PAGE>
Securities or for New Series B Preferred Securities shall be forwarded by
first-class certified mail, return receipt re-quested.
13. You are not authorized to pay or offer to pay any
concessions, commissions or solicitation fees to any broker, dealer, bank or
other persons or to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other
than those specifically set forth herein or as may be subse
quently agreed to in writing by you and the Trust;
(b) will be regarded as making no representa
tions and having no responsibilities as to the validity, suf ficiency, value or
genuineness of any of the certificates or the Old Series A Preferred Securities
represented thereby deposited with you pursuant to the Exchange Offer, and will
not be required to and will make no representation as to the validity, value or
genuineness of the Exchange Offer;
(c) shall not be obligated to take any legal
action hereunder which might in your reasonable judgment involve any expense or
liability, unless you shall have been furnished with reasonable indemnity;
(d) may reasonably rely on and shall be pro
tected in acting in reliance upon any certificate, instrument, opinion, notice,
letter, telegram or other document or security delivered to you and reasonably
believed by you to be genuine and to have been signed by the proper party or
parties;
(e) may reasonably act upon any tender, state
ment, request, comment, agreement or other instrument whatsoever not only as to
its due execution and validity and effectiveness of its provisions, but also as
to the truth and accuracy of any information contained therein, which you shall
in good faith believe to be genuine or to have been signed or represented by a
proper person or persons;
(f) may rely on and shall be protected in acting
upon written or oral instructions from any officer of the Trust;
(g) may consult with your counsel with respect
to any questions relating to your duties and responsibilities and the advice or
opinion of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted to be taken by you hereunder
in good
5
<PAGE>
faith and in accordance with the advice or opinion of such counsel; and
(h) shall not advise any person tendering Old
Series A Preferred Securities pursuant to the Exchange Offer as to the wisdom of
making such tender or as to the market value or decline or appreciation in
market value of any Old Series A Preferred Securities.
15. You shall take such action as may from time to time be
requested by the Trust or its counsel (and such other action as you may
reasonably deem appropriate) to furnish copies of the Prospectus, Letter of
Transmittal and the Notice of Guaranteed Delivery (as defined in the Prospectus)
or such other forms as may be approved from time to time by the Trust, to all
persons requesting such documents and to accept and comply with telephone
requests for information relating to the Exchange Offer, provided that such
information shall relate only to the procedures for accepting (or withdrawing
from) the Exchange Offer. The Trust will furnish you with copies of such
documents at your request. All other requests for information relating to the
Exchange Offer shall be directed to the Trust, Attention: Administrative
Trustee, BankUnited Capital, 255 Alhambra Circle, Coral Gables, Florida 33134.
16. You shall advise by facsimile transmission or telephone,
and promptly thereafter confirm in writing to the Administrative Trustee of the
Trust and such other person or persons as it may request, daily (and more
frequently during the week immediately preceding the Expiration Date and if
otherwise requested) up to and including the Expiration Date, as to the number
of Old Series A Preferred Securities which have been tendered pursuant to the
Exchange Offer and the items received by you pursuant to this Agreement,
separately reporting and giving cumulative totals as to items properly received
and items improperly received. In addition, you will also inform, and cooperate
in making available to, the Trust or any such other person or persons upon oral
request made from time to time prior to the Expiration Date of such other
information as it or he or she reasonably requests. Such cooperation shall
include, without limitation, the granting by you to the Trust and such person as
the Trust may request of access to those persons on your staff who are
responsible for receiving tenders, in order to ensure that immediately prior to
the Expiration Date the Trust shall have received information in sufficient
detail to enable it to decide whether to extend the Exchange Offer. You shall
prepare a final list of all persons whose tenders were accepted, the aggregate
liquidation amount of Old Series A Preferred Securities tendered, the aggregate
liquidation amount of Old Series A Preferred Securities accepted and deliver
said list to the Trust.
6
<PAGE>
17. Letters of Transmittal and Notices of Guaranteed Delivery
shall be stamped by you as to the date and the time of receipt thereof and shall
be preserved by you for a period of time at least equal to the period of time
you preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Trust.
18. You hereby expressly waive any lien, encumbrance or right
of set-off whatsoever that you may have with respect to funds deposited with you
for the payment of transfer taxes by reasons of amounts, if any, borrowed by the
Trust, or any of its subsidiaries or affiliates pursuant to any loan or credit
agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereun der, you
shall be entitled to such compensation as set forth on Schedule I attached
hereto.
20. You hereby acknowledge receipt of the Prospectus and the
Letter of Transmittal and further acknowledge that you have examined each of
them. Any inconsistency between this Agreement, on the one hand, and the
Prospectus and the Letter of Transmittal (as they may be amended from time to
time), on the other hand, shall be resolved in favor of the latter two
documents, except with respect to the duties, liabilities and indemnification of
you as Exchange Agent, which shall be controlled by this Agreement.
21. The Trust covenants and agrees to indemnify and hold you
harmless in your capacity as Exchange Agent hereunder against any loss,
liability, cost or expense, including attorneys' fees and expenses, arising out
of or in connection with any act, omission, delay or refusal made by you in
reliance upon any signature, endorsement, assignment, certificate, order,
request, notice, instruction or other instrument or document reasonably believed
by you to be valid, genuine and sufficient and in accepting any tender or
effecting any transfer of Old Series A Preferred Securities reasonably believed
by you in good faith to be authorized, and in delaying or refusing in good faith
to accept any tenders or effect any transfer of Old Series A Preferred
Securities; provided, however, that the Trust shall not be liable for
indemnification or otherwise for any loss, liability, cost or expense to the
extent arising out of your gross negligence or willful misconduct. In no case
shall the Trust be liable under this indemnity with respect to any claim against
you unless the Trust shall be notified by you, by letter or cable or by
facsimile confirmed by letter, of the written assertion of a claim against you
or of any other action commenced against you, promptly after you shall have
received any such written assertion or notice of commencement of action.
7
<PAGE>
The Trust shall be entitled to participate at its own expense in the defense of
any such claim or other action, and, if the Trust so elects, the Trust shall
assume the defense of any suit brought to enforce any such claim. In the event
that the Trust shall assume the defense of any such suit, the Trust shall not be
liable for the fees and expenses of any additional counsel thereafter retained
by you so long as the Trust shall retain counsel satisfactory to you to defend
such suit.
22. You shall arrange to comply with all requirements under
the tax laws of the United States, including those relating to missing Tax
Identification Numbers, and shall file any appropriate reports with the Internal
Revenue Service. The Trust understands that you are required to deduct 31% on
payments to holders who have not supplied their correct Taxpayer Identification
Number or required certification. Such funds will be turned over to the Internal
Revenue Service in accordance with applicable regulations.
23. You shall deliver or cause to be delivered, in a timely
manner to each governmental authority to which any transfer taxes are payable in
respect of the exchange of Old Series A Preferred Securities, your check in the
amount of all transfer taxes so payable, and the Trust shall reimburse you for
the amount of any and all transfer taxes payable in respect of the exchange of
Old Series A Preferred Securities; provided, however, that you shall reimburse
the Trust for amounts refunded to you in respect of your payment of any such
transfer taxes, at such time as such refund is received by you.
24. This Agreement and your appointment as Exchange Agent
hereunder shall be construed and enforced in accordance with the laws of the
State of New York applicable to agreements made and to be performed entirely
within such state, and without regard to conflicts of law principles, and shall
inure to the benefit of, and the obligations created hereby shall be binding
upon, the successors and assigns of each of the parties hereto.
25. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
26. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
27. This Agreement shall not be deemed or construed to be
modified, amended, rescinded, cancelled or waived, in whole or in part, except
by a written instrument signed by a
8
<PAGE>
duly authorized representative of the party to be charged. This Agreement may
not be modified orally.
28. Unless otherwise provided herein, all notices, requests
and other communications to any party hereunder shall be in writing (including
facsimile or similar writing) and shall be given to such party, addressed to it,
at its address or telecopy number set forth below:
If to the Trust:
BankUnited Capital
255 Alhambra Circle
Coral Gables, Florida 33134
Facsimile: (305) 569-3458
Attention: Administrative Trustee
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile: (212) 815-5915
Attention: Corporate Trust Trustee
Administration
29. Unless terminated earlier by the parties hereto, this
Agreement shall terminate 90 days following the Expiration Date. Notwithstanding
the foregoing, Paragraphs 19, 21 and 23 shall survive the termination of this
Agreement. Upon any termination of this Agreement, you shall promptly deliver to
the Trust any certificates for Securities, funds or property then held by you as
Exchange Agent under this Agreement.
30. This Agreement shall be binding and effective as
of the date hereof.
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Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and re turning the enclosed copy.
BANKUNITED CAPITAL,
a Trust formed under the laws of
the State of Delaware
By:______________________________
Name:
Title: Administrative Trustee
Accepted as of the date
first above written:
THE BANK OF NEW YORK, as Exchange Agent
By:_____________________
Name:
Title:
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SCHEDULE I
FEES
$2,500 for all fees and expenses
$ 500 per extension of exchange offer
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