PROSPECTUS
[LOGO]
3,600,000 Trust Preferred Securities
BANKUNITED CAPITAL III
9% Cumulative Trust Preferred Securities
(Liquidation Amount $25 per Trust Preferred Security)
guaranteed, to the extent set forth herein, by
BANKUNITED FINANCIAL CORPORATION
The 9% Cumulative Trust Preferred Securities (the "Preferred
Securities") offered hereby represent beneficial interests in BankUnited Capital
III, a trust created under the laws of the State of Delaware (the "Trust
Issuer"). BankUnited Financial Corporation, a Florida corporation (the "Company"
or "BankUnited"), will be the owner of all of the beneficial interests
represented by common securities of the Trust Issuer (the "Common Securities"
and, collectively with the Preferred Securities, the "Trust Securities"). The
Bank of New York is the Property Trustee of the Trust Issuer. The Trust Issuer
exists for the sole purpose of issuing the Trust Securities and investing the
proceeds from the sale thereof in 9% Junior Subordinated Deferrable Interest
Debentures (the "Junior Subordinated Debentures") to be issued by the Company.
The Junior Subordinated Debentures will mature on March 31, 2028 (the "Stated
Maturity"). The Preferred Securities will have a preference over the Common
Securities under certain circumstances with respect to cash distributions and
amounts payable on liquidation, redemption or otherwise. See "Description of the
Preferred Securities--Subordination of the Common Securities."
(CONTINUED ON THE FOLLOWING PAGES)
The Preferred Securities have been approved for listing on the New York
Stock Exchange under the symbol BUFPrC. See "Risk Factors--Absence of Prior
Public Market for the Preferred Securities; Trading Price and Tax
Considerations."
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SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT
INSURED BY THE SAVINGS ASSOCIATION INSURANCE FUND OR THE BANK INSURANCE FUND OF
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
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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.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) COMMISSION(2) TRUST ISSUER(3)(4)
Per Preferred Security $25.00 (3) $25.00
Total(5) $90,000,000 (3) $90,000,000
(1) Plus accumulated distributions, if any, from March 11, 1998.
(2) The Trust Issuer and the Company have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in the Junior Subordinated Debentures of
the Company, the Company has agreed to pay the Underwriters, as
compensation for their arranging the investment of such proceeds in the
Junior Subordinated Debentures, $.875 per Preferred Security, or
$3,150,000 in the aggregate ($3,622,500 in the aggregate if the
over-allotment option is exercised in full). See "Underwriting."
(4) Before deducting expenses payable by the Company, estimated to be
approximately $508,650.
(5) The Trust Issuer and the Company have granted the Underwriters a 30-day
option to purchase up to 540,000 additional Preferred Securities on the
same terms and conditions set forth above solely to cover
over-allotments, if any. If this option is exercised in full, the total
Price to Public and Proceeds to Trust Issuer will be $103,500,000. See
"Underwriting."
The Securities are offered by the Underwriters subject to receipt
and acceptance by them, prior sale and the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the Preferred Securities will be made in
book-entry form through the book-entry facilities of The Depository Trust
Company on or about March 11, 1998 against payment therefor in immediately
available funds.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
The date of this Prospectus is March 6, 1998
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(continued from the previous page)
The Preferred Securities will be represented by one or more
global securities registered in the name of a nominee of The Depository Trust
Company, as depository ("DTC"). Beneficial interests in the global securities
will be shown on, and transfer thereof will be effected only through, records
maintained by DTC and its participants. Except as described under "Description
of Preferred Securities," Preferred Securities in definitive form will not be
issued and owners of beneficial interests in the global securities will not be
considered holders of the Preferred Securities. Settlement for the Preferred
Securities will be made in immediately available funds. The Preferred Securities
will trade in DTC's Same-Day Funds Settlement System, and secondary market
trading activity for the Preferred Securities will therefore settle in
immediately available funds.
Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash distributions accumulating from the date of
original issuance and payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing June 30, 1998, at the
annual rate of 9% of the Liquidation Amount (as defined herein) of $25 per
Preferred Security ("Distributions"). Subject to certain exceptions, the Company
has the right to defer payment of interest on the Junior Subordinated Debentures
at any time or from time to time for a period not exceeding 20 consecutive
quarters with respect to each deferral period (each, an "Extension Period"),
provided that no Extension Period may extend beyond the Stated Maturity of the
Junior 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 9%, compounded quarterly, 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
Junior 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 securities of the
Company that rank PARI PASSU with or junior to the Junior Subordinated
Debentures.
During an Extension Period, interest on the Junior Subordinated
Debentures would continue to accrue (and the amount of Distributions to which
holders of the Preferred Securities are entitled would accumulate) at the rate
of 9% per annum, compounded quarterly, and holders of the Preferred Securities
would be required to include interest income in their gross income for United
States federal income tax purposes in advance of receipt of the cash
distributions with respect to such deferred interest payments. The Company
believes that the mere existence of its right to defer interest payments should
not cause the Preferred Securities to be issued with original issue discount for
federal income tax purposes. However, it is possible that the Internal Revenue
Service could take the position that the likelihood of deferral was not a remote
contingency within the meaning of applicable Treasury Regulations. See
"Description of the Junior Subordinated Debentures--Right to Defer Interest
Payment Obligation" and "Certain Federal Income Tax Consequences--Interest
Income and Original Issue Discount."
The Company and the Trust Issuer believe that, taken together,
the obligations of the Company under the Guarantee, the Trust Agreement, the
Junior Subordinated Debentures, the Indenture and the Expense Agreement (each as
defined herein), constitute in the aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated basis, of all of the Trust Issuer's
obligations under the Preferred Securities. See "Relationship Among the
Preferred Securities, the Junior Subordinated Debentures, the Expense Agreement
and the Guarantee--Full and Unconditional Guarantee." The Guarantee of the
Company (the "Guarantee") 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 Trust Issuer, as described herein. See
"Description of the Guarantee." If the Company does not
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make interest payments on the Junior Subordinated Debentures held by the Trust
Issuer, the Trust Issuer will have insufficient funds to pay Distributions on
the Preferred Securities. The Guarantee does not cover payment of Distributions
when the Trust 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 amounts equal to
such Distributions to such holder. See "Description of the Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of the Preferred
Securities." The obligations of the Company under the Guarantee and the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Debt (as defined in "Description of the Junior Subordinated
Debentures--Subordination") of the Company.
The Preferred Securities are subject to mandatory redemption, in
whole or in part, upon repayment of the Junior Subordinated Debentures at their
Stated Maturity or their earlier redemption. Subject to regulatory approval, if
then required under applicable capital guidelines or regulatory policies, the
Junior Subordinated Debentures are redeemable prior to their Stated Maturity at
the option of the Company (i) on or after March 31, 2003, in whole or in part
from time to time at a redemption price (the "Optional Redemption Price") equal
to the accrued and unpaid interest on the Junior Subordinated Debentures so
redeemed to the date of redemption plus 100% of the principal amount thereof, or
(ii) prior to March 31, 2003 in whole (but not in part), within 180 days
following the occurrence and continuation of a Tax Event, an Investment Company
Event or a Capital Treatment Event (each as defined herein) at a redemption
price (the "Special Event Redemption Price") equal to the greater of (A) 100% of
the principal amount thereof or (B) the sum, as determined by a Quotation Agent
(as defined herein), of the present values of 100% of the principal amount of
Junior Subordinated Debentures, together with scheduled payments of interest on
the Junior Subordinated Debentures from the prepayment date to and including
March 31, 2003, discounted to the prepayment date on a quarterly basis (assuming
a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate
(as defined herein) plus accrued interest thereon to the date of prepayment.
Either of the Optional Redemption Price or the Special Event Redemption Price
are referred to as the "Redemption Price." See "Description of the Junior
Subordinated Debentures--Redemption or Exchange."
The Junior Subordinated Debentures will be unsecured and
subordinated to all Senior Debt of the Company. At December 31, 1997, the
Company had no outstanding Senior Debt, but did have outstanding $72.8 million
of 10 1/4% Junior Subordinated Deferrable Interest Debentures and $47.8 million
of 9.60% Junior Subordinated Deferrable Interest Debentures which rank PARI
PASSU with the Junior Subordinated Debentures offered pursuant to this
Prospectus. There is no limitation on the amount of Senior Debt, or additional
subordinated debt which is PARI PASSU with the Junior Subordinated Debentures,
which the Company may issue. The Company expects from time to time to incur
additional indebtedness constituting Senior Debt or debt which is PARI PASSU.
See "Description of the Junior Subordinated Debentures--Subordination."
The Company, as the holder of the Common Securities, will have
the right at any time to terminate the Trust Issuer. The ability of the Company
to do so may be subject to the Company's prior receipt of regulatory approval.
In the event of the termination of the Trust Issuer, after satisfaction of
liabilities to creditors of the Trust Issuer as required by applicable law, the
holders of the Preferred Securities will be entitled to receive a Liquidation
Amount of $25 per Preferred Security plus accumulated and unpaid Distributions
thereon to the date of payment, which may be in the form of a distribution of
such amount in Junior Subordinated Debentures, subject to certain exceptions.
See "Description of the Preferred Securities--Liquidation Distribution upon
Termination."
The Company will provide to the holders of the Preferred
Securities annual reports containing financial statements audited by the
Company's independent auditors. The Company will also furnish annual reports on
Form 10-K free of charge to holders of the Preferred Securities who so request
in writing addressed to the Secretary of the Company.
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE
OF THE PREFERRED SECURITIES OFFERED HEREBY, INCLUDING OVER-
ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS AND PENALTY BIDS. ANY OF THE FOREGOING TRANSACTIONS, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME WITHOUT NOTICE. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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[MAP OF FLORIDA INDICATING BANKUNITED BRANCH OFFICES]
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED.
BANKUNITED FINANCIAL CORPORATION
GENERAL
The Company is a Florida corporation organized for the purpose of
becoming the savings and loan holding company for BankUnited, FSB (the "Bank").
This holding company reorganization, together with the Bank's conversion from a
Florida-chartered stock savings bank (which was founded in 1984) to a federally
chartered stock savings bank, became effective on March 5, 1993. At December 31,
1997, the Company had $1.4 billion in deposits, $145.6 million in stockholders'
equity, and $3.0 billion in assets. Based on the latest available information on
asset size, the Company is the second largest publicly held financial
institution headquartered in Florida. Principally through internal growth and
also as a result of the acquisition of Suncoast Savings and Loan Association,
FSA ("Suncoast") on November 15, 1996, the Company's total assets increased by
$2.2 billion from September 30, 1996 to December 31, 1997.
The Company currently has 18 branch offices in Miami-Dade,
Broward and Palm Beach Counties, Florida ("South Florida") (not including two,
scheduled to be closed shortly, that were part of the recent acquisition of
Consumers Savings Bank) and anticipates opening approximately 6 more branch
offices by September 30, 1998, in its market area, either by acquisition or de
novo branching, and may expand into other parts of Florida. The Company's
business has traditionally consisted of attracting deposits from the general
public and using those deposits, together with borrowings and other funds, to
purchase nationwide and to originate in Florida single-family residential
mortgage loans, and to a lesser extent, to purchase and originate commercial
real estate, commercial business and consumer loans. The Company also invests in
tax certificates and other permitted investments. The Company's revenues are
derived principally from interest earned on loans, mortgage-backed securities
and investments. The Company's primary expenses arise from interest paid on
savings deposits and borrowings and non-interest overhead expenses incurred in
operations.
On January 23, 1998 the Company acquired Consumers Bancorp, Inc.
and merged its wholly owned subsidiary, Consumers Savings Bank ("Consumers"), a
Florida-chartered savings and loan with assets of $101.2 million and deposits of
$84.3 million at December 31, 1997, into the Bank. On December 30, 1997, the
Company signed a definitive agreement to acquire Central Bank ("Central"), a
Florida-chartered commercial bank with assets of $96.9 million and deposits of
$72.8 million at December 31, 1997, and four branch offices in Miami-Dade
County. These mergers increase the Company's deposit market share, particularly
in Miami-Dade County, while permitting the Company to compete more effectively
with larger super-regional financial institutions in South Florida. See
"Business Strategy-Acquisitions and Branching Activity" for a further discussion
of these acquisitions.
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
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Deposit Insurance Corporation (the "FDIC"). Deposits at the Bank are insured by
the Savings Association Insurance Fund of the FDIC (the "SAIF") to the maximum
extent permitted by law.
The Company's executive offices are located at 255 Alhambra
Circle, Coral Gables, Florida 33134, and its telephone number is (305) 569-2000.
BUSINESS STRATEGY
OPERATING PLAN. The Company's operating plan emphasizes (i)
rapidly expanding the Company's deposit base by providing convenient locations,
competitive rates and personalized service in its market area and continuing the
expansion of the Company's branch network through de novo branching or the
acquisition of branches of, and mergers with, existing financial institutions;
(ii) concentrating lending activities on purchasing single-family residential
mortgage loans and originating such loans as favorable market opportunities
arise; (iii) maintaining the Company's commercial and multi-family real estate,
commercial business and real estate construction lending; (iv) increasing
non-interest income, and (v) maintaining asset quality.
DEPOSIT OPPORTUNITIES. The Company focuses on attracting
depositors with convenient locations, competitive rates and personalized
service. As the super-regional banking companies acquire and close branches, the
Company has identified certain locations for potential expansion. The Company
emphasizes personalized service by a local financial institution to
differentiate itself from the super-regionals that do business in the South
Florida market. For the year ended December 31, 1997, deposits at the Company's
branches increased by $566 million, or 64% from December 31, 1996.
RESIDENTIAL MORTGAGE LOAN PURCHASES. Since inception in 1984,
BankUnited's primary source of earning assets has been the purchase of
single-family residential mortgages in the secondary market. Management believes
BankUnited has developed an expertise in making such purchases including
re-underwriting each loan purchased. The anticipated future growth in
BankUnited's assets will be primarily through the purchase of single-family
residential mortgages. Single-family residential mortgages are considered to
involve less credit risk than other types of loans, and 93.4% of the Company's
loan portfolio consists of such mortgages.
COMMERCIAL LOAN PRODUCT AVAILABILITY. BankUnited believes the
rapid consolidation of the South Florida banking market has created and will
continue to create opportunities to originate commercial real estate loans
generally between $250,000 and $5 million to small- to medium-sized companies.
BankUnited has hired seasoned loan officers to take advantage of these
opportunities. In connection with the product diversification of its loan
portfolio, the Company recently signed a definitive agreement to acquire
Central, which has a loan portfolio that includes $11.7 million of commercial
real estate loans and $7.3 million of commercial loans.
INCREASING NON-INTEREST INCOME. In order to increase non-interest
income, the Company initiated a program to originate and sell, on a periodic
basis, packages of adjustable rate residential mortgage loans, servicing
retained. In September 1997 the Company sold its first package totalling $30.1
million of loans, generating a pre-tax gain of approximately $523,000, and in
December 1997 sold its second package of loans totalling $25.4 million,
generating a pre-tax gain of approximately $689,000.
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"In November 1997, the Company's subsidiary, BUFC Financial Services, Inc.
("Financial Services") initiated a program to sell annuity products in the
Bank's branch offices. Financial Services plans to expand its range of products
to include variable annuity products within the next several months. The Company
has also established a subsidiary to broker, with other financial institutions,
newly originated commercial loans that do not meet the Bank's underwriting
and/or investment criteria. Additionally, the Company will periodically bid on
and may purchase private or agency packages of residential loan servicing. The
Company believes that these activities will increase non-interest income.
MAINTAINING ASSET QUALITY. The Company has historically been able
to maintain asset quality as shown by its relatively low level of non-performing
assets to total assets and net charge-offs over the last five years.
Approximately 93.4% of the Company's loan portfolio is in one-to-four family
mortgages which are generally considered to involve a lower degree of credit
risk than other types of loans. At December 31, 1997, the Company's
non-performing loans as a percentage of total loans was 0.39%. See "Risk
Factors--Risks Associated with the Company's ARMs," "--Composition of
Residential and Commercial Real Estate Loan Portfolio" and "--Allowance for Loan
Losses."
ACQUISITIONS AND BRANCHING ACTIVITY. The Company has acquired, is
acquiring and will continue to acquire financial institutions and branches in
South Florida. In connection with this activity, the Company periodically has
discussions with and receives financial information on other financial
institutions which may lead to the acquisition of all or part of that financial
institution by the Company.
On January 23, 1998 the Company acquired Consumers Bancorp, Inc.
and merged its wholly owned subsidiary, Consumers, a Florida-chartered savings
and loan with assets of $101.2 million and deposits of $84.3 million at December
31, 1997, into the Bank. Two of Consumers' existing branch offices are being
consolidated into the Bank's branch offices. A branch which was under lease, but
not yet opened, in south Miami-Dade County, will be opened by the Bank within
the next several months.
On December 30, 1997, the Company signed a definitive agreement
to acquire Central, a Florida-chartered commercial bank with assets of $96.9
million and deposits of $72.8 million at December 31, 1997, and four branch
offices in Miami-Dade County. Central's loan portfolio includes $11.7 million of
commercial real estate loans, $7.3 million of commercial loans, and $21.9
million of installment loans. In addition, 34.6% of Central's deposits are
non-interest bearing demand deposit accounts. It is anticipated that the
acquisition of Central, with its somewhat greater emphasis on commercial
customers, will better position the Company to further develop its commercial
business.
On November 15, 1996, the Company acquired Suncoast, a federally
chartered savings association with assets of $409.4 million at September 30,
1996, and merged Suncoast into the Bank. Of Suncoast's six branch offices in
South Florida, five continue to operate and one has been consolidated with an
existing Bank branch office. Additionally, as part of the Suncoast acquisition,
the Company acquired approximately $95.8 million in commercial real estate loans
and $14.1 million in real estate construction loans. See "Commercial Real Estate
Lending," "--Real Estate Construction Lending," and "Commercial Business
Lending."
On March 29, 1996, the Company acquired the Bank of Florida with
total assets of $28.1 million which was merged into the Bank's South Miami
branch.
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These mergers increase the Company's deposit market share, in
Miami-Dade and Broward counties, while permitting the Company to compete more
effectively with larger super-regional financial institutions in South Florida.
In order to maximize cost savings, as part of its acquisition
program, the Company integrates the operations of acquired entities and converts
the data processing systems of such entities into its own as rapidly as
possible. For instance, Suncoast's data processing systems were converted to the
Bank's systems within one month of acquisition. The final conversion for
Consumers is expected to take place within six weeks after acquisition.
The Bank also opened branch offices in Delray Beach and West Palm
Beach in 1996, Boca Hamptons, Aventura and Coconut Creek in 1997, and Miami
Airport-West in January 1998. The Company currently has additional branches
under construction in Plantation, south Miami-Dade (discussed above) and Lake
Worth. It is expected that approximately 3 other branch offices will also be
opened or acquired before September 30, 1998.
PREFERRED STOCK RESTRUCTURING; CONVERSION TO COMMON STOCK. In
February 1998, the Company redeemed the outstanding shares of its 8%
Noncumulative Convertible Preferred Stock, Series 1993 (the "Series 1993
Preferred Stock") at $10.00 per share. Holders of shares of the Series 1993
Preferred Stock had the right to convert them to shares of the Company's Class A
Common Stock (the "Class A Common Stock") at a conversion rate of one share of
Class A Common Stock for each share of Series 1993 Preferred Stock. Holders of
712,464 shares of Series 1993 Preferred Stock exercised their conversion right,
which resulted in the issuance of 712,464 additional shares of Class A Common
Stock, and 31,406 shares of Series 1993 Preferred Stock were redeemed.
In October 1997, BankUnited redeemed the outstanding shares of
its 8% Noncumulative Convertible Preferred Stock, Series 1996 (the "Series 1996
Preferred Stock") at $15.00 per share. Holders of the shares of Series 1996
Preferred Stock had the right to convert them to shares of Class A Common Stock,
at a conversion rate of approximately 1.67 shares of Class A Common Stock for
each share of Series 1996 Preferred Stock. Holders of 927,204 shares of Series
1996 Preferred Stock exercised their conversion right, which resulted in the
issuance of 1,548,410 additional shares of BankUnited Class A Common Stock, and
5,696 shares of Series 1996 Preferred Stock were redeemed.
In August 1997, the Company purchased 448,583 shares of its 9%
Noncumulative Perpetual Preferred Stock (the "9% Preferred Stock") at $10.25 per
share. The purchase was made pursuant to a tender offer which expired on August
15, 1997. After the purchase, 701,417 shares of 9% Preferred Stock were still
outstanding. Pursuant to its terms, that stock may be redeemed by the Company
after September 30, 1998 at the stated redemption price.
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THE TRUST ISSUER
The Trust 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 June 6, 1997. The trust agreement will be amended and restated in its
entirety (as so amended and restated, the "Trust Agreement"). All of the Common
Securities will be owned by the Company. The Company will acquire Common
Securities in an aggregate Liquidation Amount equal to 4% of the aggregate
Liquidation Amount of the Preferred Securities. The Trust Issuer exists for the
exclusive purposes of (i) issuing and selling the Trust Securities, (ii) using
the proceeds from the sale of the Trust Securities to acquire Junior
Subordinated Debentures issued by the Company and (iii) engaging in only those
other activities necessary, advisable or incidental thereto (such as registering
the transfer of the Trust Securities). Accordingly, the Junior Subordinated
Debentures will be the sole assets of the Trust Issuer, and payments under the
Junior Subordinated Debentures will be the sole revenue of the Trust Issuer. The
principal executive office of the Trust Issuer is 255 Alhambra Circle, Coral
Gables, Florida 33134 and its telephone number is (305) 569-2000.
THE OFFERING
THE TRUST ISSUER................ BankUnited Capital III, a Delaware statutory
business trust (the "Trust Issuer"). The
sole assets of the Trust Issuer will be the
Junior Subordinated Debentures.
SECURITIES OFFERED.............. 3,600,000 shares of 9% Cumulative Trust
Preferred Securities (the "Preferred
Securities"), evidencing preferred undivided
beneficial interests in the assets of the
Trust Issuer, which will consist only of the
Junior Subordinated Debentures.
OFFERING PRICE.................. $25 per Preferred Security (Liquidation
Amount $25).
DISTRIBUTIONS................... Holders of the Preferred Securities will be
entitled to receive cumulative cash
Distributions at an annual rate of 9% of
the Liquidation Amount of $25 per Preferred
Security, accumulating from the date of
original issuance and payable quarterly in
arrears on March 31, June 30, September 30
and December 31 of each year, commencing on
June 30, 1998. The distribution rate and the
distribution and other payment dates for the
Preferred Securities will correspond to the
interest rate and interest and other payment
dates on the Junior Subordinated Debentures.
See "Description of the Preferred
Securities."
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JUNIOR SUBORDINATED DEBENTURES... The Trust Issuer will invest the proceeds
from the issuance of the Trust Securities in
an equivalent amount of the Junior
Subordinated Debentures. The Junior
Subordinated Debentures will mature on March
31, 2028. The Junior Subordinated Debentures
will rank subordinate and junior in right of
payment to all Senior Debt of the Company.
At December 31, 1997, the Company had no
outstanding Senior Debt, but did have
outstanding $72.8 million of 10 1/4% Junior
Subordinated Deferrable Interest Debentures
and $47.8 million of 9.60% Junior
Subordinated Deferrable Interest Debentures
which rank PARI PASSU with the Junior
Subordinated Debentures. There is no
limitation on the amount of Senior Debt, or
subordinated debt which is PARI PASSU with
the Junior Subordinated Debentures, which
the Company may issue. The Company expects
from time to time to incur additional
indebtedness constituting Senior Debt. In
addition, because the Company is a holding
company, the Company's obligations under the
Junior Subordinated Debentures will
effectively be subordinated to all existing
and future liabilities and obligations of
its subsidiaries, including the Bank. See
"Risk Factors-- Subordination of the
Guarantee and the Junior Subordinated
Debentures," "Risk Factors--Source of
Payments to Holders of Preferred Securities"
and "Description of the Junior Subordinated
Debentures-- Subordination."
GUARANTEE...................... Payments of Distributions out of funds held
by the Trust Issuer, and payments on
liquidation of the Trust Issuer or the
redemption of the Preferred Securities, are
guaranteed by the Company to the extent the
Trust Issuer has funds available therefor.
The Company and the Trust Issuer believe
that, taken together, the obligations of the
Company under the Guarantee, the Trust
Agreement, the Junior Subordinated
Debentures, the Indenture and the Expense
Agreement, constitute, in the aggregate, a
full and unconditional guarantee, on a
subordinated basis, of all of the Trust
Issuer's obligations under the Preferred
Securities. See "Description of the
Guarantee" and "Relationship Among the
Preferred Securities, the Junior
Subordinated Debentures, the Expense
Agreement and the Guarantee." The
obligations of the Company under the
Guarantee are subordinate and junior in
right of payment to all Senior Debt of the
Company. See "Risk Factors--Subordination of
the Guarantee and the Junior Subordinated
Debentures" and "Description of the
Guarantee."
6
<PAGE>
RIGHT TO DEFER INTEREST PAYMENTS... 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 during the term of the
Junior Subordinated Debentures to defer the
payment of interest at any time or from time
to time for a period not exceeding 20
consecutive quarters with respect to each
Extension Period, PROVIDED that no Extension
Period may extend beyond the Stated Maturity
of the Junior Subordinated Debentures. At
the end of such Extension Period, the
Company must pay all interest then accrued
and unpaid (together with interest thereon
at the annual rate of 9%, compounded
quarterly, to the extent permitted by
applicable law). During an Extension Period,
interest will continue to accrue and holders
of the Junior Subordinated Debentures (or
holders of the Preferred Securities, while
outstanding) will be required to accrue
interest income for United States federal
income tax purposes in advance of receipt of
payment of such deferred interest. See
"Certain Federal Income Tax
Consequences--Interest Income and 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 right of
payment to the Junior 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 right of payment to
the Junior Subordinated Debentures (other
than (a) the reclassification of any class
of the Company's capital stock into another
class of capital stock, (b) dividends or
distributions payable in common stock of the
Company, (c) 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, (d) payments under
the Guarantee and (e) 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
7
<PAGE>
Company may further defer the payment of
interest on the Junior Subordinated
Debentures, PROVIDED that no Extension
Period may exceed 20 consecutive quarters or
extend beyond the Stated Maturity of the
Junior Subordinated Debentures. There is no
limitation on the number of times that the
Company may elect to begin an Extension
Period. See "Description of the Junior
Subordinated Debentures--Right to Defer
Interest Payment Obligation" and "Certain
Federal Income Tax Consequences--Interest
Income and Original Issue Discount."
The Company has no current intention of
exercising its right to defer payments of
interest by extending the interest payment
period on the Junior 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 adversely affected. 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 similar securities that do not provide
for such optional deferrals.
REDEMPTION.................... The Junior Subordinated Debentures are
subject to redemption prior to their Stated
Maturity at the option of the Company (i) on
or after March 31, 2003, in whole or in part
from time to time at a redemption price (the
"Optional Redemption Price") equal to the
accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the
date of redemption plus 100% of the
principal amount thereof, or (ii) prior to
March 31, 2003 in whole (but not in part),
within 180 days following the occurrence and
continuation of a Tax Event, an Investment
Company Event or a Capital Treatment Event
(each as defined herein) in each case at a
redemption price (the "Special Event
Redemption Price") equal to the greater of
(A) 100% of the principal amount thereof or
(B) the sum, as determined by a Quotation
Agent (as defined herein), of the present
values of 100% of the principal amount of
Junior Subordinated Debentures, together
with scheduled payments of interest on the
Junior Subordinated Debentures from the
prepayment date to and including March 31,
2003, discounted to the prepayment date on a
quarterly basis (assuming a 360-day year
consisting of twelve 30-day months) at the
Adjusted Treasury Rate (as defined herein)
plus, in each case, accrued interest thereon
to the date of redemption. Either of the
Optional Redemption Price or the Special
Event Redemption Price are referred to as
the "Redemption Price."
8
<PAGE>
If the Junior Subordinated Debentures are
redeemed prior to their Stated Maturity, the
Trust Issuer must apply the proceeds of such
redemption to redeem a Like Amount (as
defined herein) of the Preferred Securities
and the Common Securities. The Preferred
Securities will be redeemed upon repayment
of the Junior Subordinated Debentures at
their Stated Maturity. See "Description of
the Preferred Securities--Redemption."
DISTRIBUTION OF THE JUNIOR
SUBORDINATED DEBENTURES UPON
LIQUIDATION OF THE TRUST ISSUER.. The Company will have the right at any time
to terminate the Trust Issuer and, after
satisfaction of creditors of the Trust
Issuer, if any, as provided by applicable
law, cause the Junior Subordinated
Debentures to be distributed to the holders
of the Preferred Securities and the Common
Securities in exchange therefor upon
liquidation of the Trust Issuer. The ability
of the Company to do so may be subject to
the Company's prior receipt of regulatory
approval.
In the event of the liquidation of the Trust
Issuer, after satisfaction of the claims of
creditors of the Trust Issuer, if any, as
provided by applicable law, the holders of
the Preferred Securities will be entitled to
receive a Liquidation Amount of $25 per
Preferred Security plus accumulated and
unpaid Distributions thereon to the date of
payment, which may be in the form of a
distribution of a Like Amount (as defined
herein) of the Junior Subordinated
Debentures, subject to certain exceptions as
described herein. See "Description of the
Preferred Securities--Liquidation of the
Trust Issuer and Distribution of the Junior
Subordinated Debentures to Holders."
VOTING RIGHTS.................... Except in limited circumstances, the holders
of the Preferred Securities will have no
voting rights. See "Description of the
Preferred Securities--Voting Rights;
Amendment of the Trust Agreement."
USE OF PROCEEDS.................. All of the proceeds from the sale of the
Preferred Securities will be used by the
Trust Issuer to purchase Junior Subordinated
Debentures. The Company intends that the
proceeds from the sale of such Junior
Subordinated Debentures will be used for
general corporate purposes, including, but
not limited to, acquisitions by either the
9
<PAGE>
Company or the Bank, expansion of the
Company's or the Bank's operations, and
capital contributions to the Bank to support
growth and for working capital and for other
general corporate purposes. See "Use of
Proceeds."
RISK FACTORS..................... An investment in the Preferred Securities
involves substantial risks that should be
considered by prospective purchasers. In
addition, because holders of the Preferred
Securities may receive Junior Subordinated
Debentures on termination of the Trust
Issuer, and because payments on the Junior
Subordinated Debentures are the sole source
of funds for Distributions on and
redemptions of the Preferred Securities,
prospective purchasers of the Preferred
Securities are also making an investment
decision with regard to the Junior
Subordinated Debentures and should carefully
review all of the information regarding the
Junior Subordinated Debentures contained
herein. See "Risk Factors" and "Description
of the Junior Subordinated Debentures."
NEW YORK STOCK EXCHANGE.......... The Preferred Securities have been approved
for listing on the New York Stock Exchange
under the symbol BUFPrC.
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The information at or for the three months ended December 31,
1997 and 1996 is derived from unaudited financial statements which, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results for such
periods. The results for the three months ended December 31, 1997 are not
necessarily indicative of the results that may be expected for the entire year.
The summary consolidated financial information should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto contained
in the Company's Annual Report on Form 10-K/A for the fiscal year ended
September 30, 1997 attached as Appendix A to this Prospectus; and the Company's
December 31, 1997 Operating Results and Financial Information attached as
Appendix B to this Prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED
DECEMBER 31,
-------------------------
1997 1996 1997
---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
OPERATIONS DATA:
Interest income..................................................... $ 41,450 $ 19,491 $ 108,774
Interest expense.................................................... 32,083 12,415 75,960
--------------- --------------- ---------------
Net interest income before provision (credit) for loan losses....... 9,367 7,076 32,814
Provision (credit) for loan losses.................................. 650 250 1,295
--------------- --------------- ---------------
Net interest income after provision (credit) for loan losses........ 8,717 6,826 31,519
--------------- --------------- ---------------
Non-interest income:
Service fees........................................................ 452 575 2,993
Gain on sales of loans and mortgage-backed
securities, net................................................... 1,115 (11) 819
Gain (loss) on sales of other assets, net(1)........................ -- -- 1
Other............................................................... 77 36 247
--------------- --------------- ---------------
Total non-interest income...................................... 1,644 600 4,060
--------------- --------------- ---------------
Non-interest expense:
Employee compensation and benefits................................ 2,480 1,915 8,880
Occupancy and equipment........................................... 886 886 3,568
Insurance (2)..................................................... 255 361 948
Professional fees................................................. 622 222 1,605
Other............................................................. 2,782 1,421 7,964
--------------- --------------- ---------------
Total non-interest expense..................................... 7,025 4,805 22,947
--------------- --------------- ---------------
Income before income taxes and preferred stock dividends ........... 3,336 2,621 12,632
Provision for income taxes (3)...................................... 1,361 1,022 5,033
--------------- --------------- ---------------
Net income before preferred stock dividends......................... 1,975 1,599 7,599
Preferred stock dividends........................................... 332 672 2,890
--------------- --------------- ---------------
Net income after preferred stock dividends.......................... $ 1,643 $ 927 $ 4,709
=============== =============== ===============
FINANCIAL CONDITION DATA:
Total assets........................................................ $ 3,028,776 $ 1,329,044 $ 2,145,406
Loans receivable, net, and mortgage-backed securities(4)............ 2,674,718 1,132,882 1,781,652
Investments, overnight deposits, tax certificates,
repurchase agreements, certificates of deposits and other
interest-earning assets............................................ 176,091 124,950 186,955
Total liabilities................................................... 2,883,145 1,230,889 2,045,761
Deposits............................................................ 1,444,102 878,166 1,195,892
Borrowings.......................................................... 1,291,466 289,259 701,484
Trust Preferred Securities.......................................... 116,000 50,000 116,000
Total stockholders' equity.......................................... 145,631 98,155 99,645
Common stockholders' equity......................................... 129,719 60,051 75,649
PER COMMON SHARE DATA:
Basic earnings per common share(5).................................. $ .13 $ .14 $ .57
=============== =============== ===============
Diluted earnings per common share(5)................................ $ .12 $ .13 $ .54
=============== =============== ===============
Weighted average number of common shares outstanding
during the period:
Basic(5).......................................................... 13,012,118 6,806,379 8,210,890
Diluted(5)........................................................ 14,041,609 7,957,657 8,955,572
Equity per common share............................................. $ 9.13 $ 7.59 $ 7.94
Fully converted tangible equity per common share.................... $ 8.19 $ 6.56 $ 6.88
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATIONS DATA:
Interest income..................................................$ 52,132 $ 39,419 $ 30,421 $ 25,722
Interest expense................................................. 34,622 26,305 16,295 12,210
--------------- --------------- --------------- ------------
Net interest income before provision (credit) for loan losses.... 17,510 13,114 14,126 13,512
Provision (credit) for loan losses............................... (120 1,221 1,187 1,052
--------------- --------------- --------------- ------------
Net interest income after provision (credit) for loan losses..... 17,630 11,893 12,939 12,460
--------------- --------------- --------------- ------------
Non-interest income:
Service fees..................................................... 597 423 358 221
Gain on sales of loans and mortgage-backed
securities, net................................................ 5 239 150 1,496
Gain (loss) on sales of other assets, net(1)..................... (6 9,569 -- --
Other............................................................ 53 6 46 2
--------------- --------------- --------------- ------------
Total non-interest income................................... 649 10,237 554 1,719
--------------- --------------- --------------- ------------
Non-interest expense:
Employee compensation and benefits............................. 4,275 3,997 3,372 2,721
Occupancy and equipment........................................ 1,801 1,727 1,258 978
Insurance (2).................................................. 3,610 1,027 844 835
Professional fees.............................................. 929 1,269 833 543
Other.......................................................... 3,421 4,129 3,579 2,746
--------------- --------------- --------------- ------------
Total non-interest expense.................................. 14,036 12,149 9,886 7,823
--------------- --------------- --------------- ------------
Income before income taxes and preferred stock dividends ........ 4,243 9,981 3,607 6,356
Provision for income taxes (3)................................... 1,657 3,741 1,328 2,318
--------------- --------------- --------------- ------------
Net income before preferred stock dividends...................... 2,586 6,240 2,279 4,038
Preferred stock dividends........................................ 2,145 2,210 2,069 1,513
--------------- --------------- --------------- ------------
Net income after preferred stock dividends.......................$ 441 $ 4,030 $ 210 $ 2,525
--------------- =============== =============== ============
FINANCIAL CONDITION DATA:
Total assets.....................................................$ 824,360 $ 608,415 $ 551,075 $ 435,378
Loans receivable, net, and mortgage-backed securities(4)......... 716,550 506,132 470,154 313,899
Investments, overnight deposits, tax certificates,
repurchase agreements, certificates of deposits and other
interest-earning assets......................................... 87,662 88,768 64,783 100,118
Total liabilities................................................ 755,249 562,670 509,807 397,859
Deposits......................................................... 506,106 310,074 347,795 295,108
Borrowings....................................................... 237,775 241,775 158,175 97,775
Trust Preferred Securities....................................... - - - --
Total stockholders' equity....................................... 69,111 45,745 41,268 30,273
Common stockholders' equity...................................... 44,807 21,096 16,667 17,162
PER COMMON SHARE DATA:
Basic earnings per common share(5)...............................$ .10 $ 1.99 $ .11 $ 1.67
=============== =============== =============== ============
Diluted earnings per common share(5).............................$ .10 $ 1.26 $ .10 $ 1.00
--------------- =============== =============== ============
Weighted average number of common shares outstanding
during the period:
Basic(5)....................................................... 4,306,042 2,021,601 1,957,210 1,509,264
Diluted(5)..................................................... 4,558,521 4,158,564 2,175,210 3,239,618
Equity per common share..........................................$ 7.85 $ 10.20 $ 8.33 $ 8.86
Fully converted tangible equity per common share.................$ 7.13 $ 8.15 $ 7.39 $ 7.57
</TABLE>
(Continued on next page)
11
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS AT OR FOR THE FISCAL YEARS
ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------- --------------------------
1997 1996 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
SELECTED FINANCIAL RATIOS
PERFORMANCE RATIOS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Return on average assets (6)(7).............................. .33% .62% .51% .36% 1.10% .46% 1.12%
Return on average common equity(6)........................... 6.31 9.55 9.34 1.30 22.60 1.21 18.55
Return on average total equity(6)............................ 5.87 8.08 8.06 4.30 14.70 5.84 14.07
Interest rate spread(6)...................................... 1.39 2.59 2.07 2.10 2.12 2.78 3.59
Net interest margin(6)....................................... 1.66 2.86 2.31 2.51 2.39 3.01 3.87
Dividend payout ratio(8)..................................... 16.81 42.02 38.03 82.95 35.42 96.79 40.66
Ratio of earnings to combined fixed charges and
preferred stock dividends(9):
Excluding interest on deposits............................ 1.18 1.32 1.26 1.05 1.52 1.07 1.87
Including interest on deposits............................ 1.09 1.11 1.10 1.02 1.21 1.03 1.27
Total loans, net, and mortgage-backed securities to
total deposits............................................185.22 129.00 148.98 141.58 163.13 134.40 109.65
Non-interest expenses to average assets...................... 1.17 1.85 1.55 1.97 2.14 2.04 2.18
Efficiency ratio(10)......................................... 57.43 59.37 57.56 61.11(11) 85.50(11) 66.06 45.17
ASSET QUALITY RATIOS:
Ratio of non-performing loans to total loans................. .39% .70% .72% .99% 1.02% 1.07% 1.54%
Ratio of non-performing assets to total loans, real estate
owned and tax certificates................................. .45 .86 .79 1.14 1.35 1.41 1.78
Ratio of non-performing assets to total assets............... .40 .70 .67 .95 1.10 1.17 1.46
Ratio of charge-offs to total loans(6)....................... .002 .03 .03 .08 .13 .39 .07
Ratio of loan loss allowance to total loans.................. .16 .28 .21 .34 .32 .20 .38
Ratio of loan loss allowance to non-performing loans......... 40.78 39.60 28.96 33.74 31.54 18.89 24.70
CAPITAL RATIOS:
Ratio of average common equity to average total assets....... 4.35% 3.74% 3.40% 4.78% 3.14% 3.58% 3.79%
Ratio of average total equity to average total assets........ 5.62 7.62 6.36 8.44 7.47 8.05 7.99
Tangible capital-to-assets ratio(12)......................... 7.11 7.80 8.07 7.01 7.09 6.65 7.56
Core capital-to-assets ratio(12)............................. 7.11 7.80 8.07 7.01 7.09 6.65 7.56
Risk-based capital-to-assets ratio(12)....................... 12.89 14.63 11.27 14.19 15.79 14.13 15.85
<FN>
(1) In 1995 the Company recorded a $9.3 million gain ($5.8 million after
tax) from the sale of its branches on the west coast of Florida.
(2) In 1996 the Company recorded a one-time SAIF special assessment of $2.6
million ($1.6 million after tax).
(3) Amount reflects expense from change in accounting principle of $194,843
for fiscal 1994. See Note 15 to Consolidated Financial Statements.
(4) Does not include mortgage loans held for sale.
(5) Earnings per share for all periods presented before December 31, 1997
have been restated in accordance with Financial Accounting Standard
128.
(6) Calculated on an annualized basis.
(7) Return on average assets is calculated before payment of preferred
stock dividends.
(8) 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.
(9) 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.
(10) Efficiency ratio is calculated by dividing non-interest expenses less
non-interest income by net interest income.
(11) These efficiency ratios have been adjusted to exclude the impact of the
one-time SAIF special assessment in 1996 and the gain on the sale of
the Company's branches in 1995. If these ratios were not adjusted, the
ratios would have been 76.45 in 1996 and 14.58 in 1995.
(12) Regulatory capital ratio of the Bank.
</FN>
</TABLE>
12
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE PREFERRED SECURITIES INVOLVES A HIGH DEGREE
OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE
OTHER INFORMATION CONTAINED AND INCORPORATED BY REFERENCE IN THIS PROSPECTUS,
THE FOLLOWING FACTORS IN EVALUATING THE COMPANY, ITS BUSINESS AND THE TRUST
ISSUER BEFORE PURCHASING THE PREFERRED SECURITIES OFFERED HEREBY. PROSPECTIVE
INVESTORS SHOULD NOTE, IN PARTICULAR, THAT THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), THAT INVOLVE
SUBSTANTIAL RISKS AND UNCERTAINTIES. WHEN USED IN THIS PROSPECTUS, OR IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN, THE WORD "ANTICIPATE," "BELIEVE,"
"ESTIMATE," "MAY," "INTEND" AND "EXPECT" AND SIMILAR EXPRESSIONS IDENTIFY
CERTAIN OF SUCH FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THOSE CONTEMPLATED, EXPRESSED OR
IMPLIED BY THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN. THE CONSIDERATIONS
LISTED BELOW REPRESENT CERTAIN IMPORTANT FACTORS THE COMPANY BELIEVES COULD
CAUSE SUCH RESULTS TO DIFFER. THESE CONSIDERATIONS ARE NOT INTENDED TO REPRESENT
A COMPLETE LIST OF THE GENERAL OR SPECIFIC RISKS THAT MAY AFFECT THE COMPANY AND
THE TRUST ISSUER. IT SHOULD BE RECOGNIZED THAT OTHER RISKS, INCLUDING GENERAL
ECONOMIC FACTORS AND EXPANSION STRATEGIES, MAY BE SIGNIFICANT, PRESENTLY OR IN
THE FUTURE, AND THE RISKS SET FORTH BELOW MAY AFFECT THE COMPANY AND THE TRUST
ISSUER TO A GREATER EXTENT THAN INDICATED.
RISK FACTORS RELATING TO THE COMPANY
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Bank's profitability is dependent to a large extent on its
net interest income, which is the difference between its income on
interest-earning assets and its expense on interest-bearing liabilities. The
Bank, like most financial institutions, is affected by changes in general
interest rate levels and by other economic factors beyond its control. Interest
rate risk arises from mismatches (i.e., the interest sensitivity gap) between
the dollar amount of repricing or maturing assets and liabilities, and is
measured in terms of the ratio of the interest rate sensitivity gap to total
assets. More assets than liabilities repricing or maturing over a given time
frame is considered asset-sensitive and is reflected as a positive gap, and more
liabilities than assets repricing or maturing over a given time frame is
considered liability-sensitive and is reflected as a negative gap. An
asset-sensitive position (i.e., a positive gap) will generally enhance earnings
in a rising interest rate environment and will reduce earnings in a falling
interest rate environment, while a liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and reduce earnings in a rising interest rate environment.
Fluctuations in interest rates are not predictable or controllable. At September
30, 1997, the Bank had a one year cumulative positive gap of 4.9%. This positive
one year gap position may, as noted above, have a negative impact on earnings in
a falling interest rate environment. There can be no assurances of the Company's
ability to continue to achieve positive net interest income. See
"Business--Factors Affecting Earnings--Asset and Liability Management" and
13
<PAGE>
"Quantitative and Qualitative Disclosure About Market Risk" contained in
Appendix A to this Prospectus.
RISKS ASSOCIATED WITH THE COMPANY'S ADJUSTABLE RATE MORTGAGE LOANS
The Company has purchased and intends to continue to purchase a
significant amount of residential mortgage loans. During the three months ended
December 31, 1997 and the year ended September 30, 1997, the Company purchased
$1.1 billion and $913.7 million, respectively, of one-to-four family residential
loans, of which $1.1 billion and $728.2 million, respectively, were adjustable
rate mortgage loans ("ARMs"). At December 31, 1997 the Company's residential
loan portfolio included $2.0 billion of ARMs (77.9% of the Company's gross loan
portfolio). The ARMs purchased by the Company generally have annual interest
rate adjustment caps that limit rate increases or decreases to 2% per year.
Further, the ARMs purchased by the Company provide for initial rates of interest
below the rates which would prevail were the contractual index and margin used
for repricing applied initially (the "teaser rate period"). Although the Company
attempts to mitigate the risk of default on these loans by requiring that
borrowers qualify for the loan based upon the fully indexed rate, nonetheless
these loans are subject to increased risk of delinquency or default as the
higher, fully indexed rate of interest subsequently comes into effect upon
repricing. As a result, management believes that the Company's net interest
margin could be negatively impacted in a rapidly rising interest rate
environment by increased delinquencies and defaults.
Also, if market interest rates rise rapidly, the annual and
lifetime interest rate adjustment caps on the ARMs may limit the increase in the
interest rates on the ARMs relative to the increase in market interest rates,
and yields on ARMs with teaser rates may be limited to repricing at interest
rates below the contractual index plus the margin. At December 31, 1997, $1.2
billion of the Company's ARM loans (46.2% of the Company's gross loan portfolio)
were in the teaser rate period with an average teaser rate of 6.39% and an
average fully indexed rate of 8.28%. Rapid increases in market interest rates
may not be fully reflected in loans which are in the teaser rate period and may,
accordingly, have a negative impact on the Company's net interest margin.
REFINANCING RISKS
As of December 31, 1997, 93.4% of the Company's loans receivable
were single-family residential mortgages that generally have an imbedded option
that allows the borrower to prepay the loan at any time without penalty. A
substantial portion of these loans have been purchased by the Company in the
secondary market at a premium.
In the current interest rate environment, when long-term interest
rates are generally low on a historical basis and the spread between short-term
rates and long-term rates is relatively narrow, prepayments of ARMs and higher
fixed-rate mortgages tend to accelerate. In addition, at December 31, 1997, $1.2
billion of the Company's ARMs had teaser rates, substantially all of which will
be subject to interest rate adjustments within the next twelve months. Teaser
rate loans also may tend to be prepaid near the end of the teaser period in the
current interest rate environment.
14
<PAGE>
Premiums and net deferred origination costs, which at December
31, 1997 were $33.0 million, are recognized as a reduction to interest income
using the interest method over the contractual life of the loans adjusted for
estimated prepayments, based on the Company's historical prepayment experience.
(See Note 1 to the Company's Consolidated Financial Statements and Notes thereto
contained in the Company's Annual Report on Form 10-K/A for the fiscal year
ended September 30, 1997 attached as Appendix A to this Prospectus.) As
prepayments accelerate, the Company's historical prepayment experience changes,
resulting in a shortening of the estimated life of the loan portfolio, and a
greater reduction in interest income. Accelerated prepayments could, therefore,
have a material adverse effect on the Company's results of operations.
In addition, the Company would likely apply the proceeds of any
prepaid loans to the purchase of ARMs with teaser rates (possibly with lower
teaser rates), thereby increasing the duration of the teaser period for the
Company's loan portfolio. Also, no assurance can be given that the Company will
be able to reinvest, on satisfactory terms, the proceeds of loan prepayments.
AVAILABILITY OF MORTGAGE LOANS
The Company's net income will depend significantly on its ability
to acquire mortgage loans on acceptable terms and at favorable spreads over the
Company's borrowing costs. If the Company is unable to acquire mortgage loans,
its results of operations will be adversely affected.
In acquiring mortgage loans, the Company will compete with REITs,
investment banking firms, savings and loan associations, banks, mortgage
bankers, insurance companies, mutual funds, other lenders, FNMA, FHLMC, GNMA and
other entities purchasing mortgage loans, some of which have greater financial
resources than the Company. Increased competition for the acquisition of
eligible mortgage loans or a diminution in the supply could result in higher
prices and, thus, lower yields on such mortgage loans that could further narrow
the yield spread over borrowing costs.
The availability of mortgage loans meeting the Company's criteria
is dependent upon, among other things, the size and level of activity in the
residential real estate lending market, which depend on various factors,
including the level of interest rates, regional and national economic conditions
and inflation and deflation in residential real estate values. To the extent the
Company is unable to acquire a sufficient volume of mortgage loans meeting its
criteria, the Company's results of operations would be adversely affected.
COMPOSITION OF RESIDENTIAL AND COMMERCIAL LOAN PORTFOLIO
GEOGRAPHIC CONCENTRATION. Most of the loans in the Company's
portfolio are secured by real estate. At September 30, 1997, 33.95% of the
Company's gross loans receivable were secured by properties located in Florida,
13.88% by properties located in California and the balance throughout the
country. Therefore, 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
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purchasers, and natural disasters. 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 may have current loan to value ratios
that are higher than those when the loans were originated. In addition, both
Florida and California are states that are subject to natural disasters such as
hurricanes, earthquakes and flooding. In the event a property securing the loan
incurs damage as a result of a natural disaster that is not covered by
homeowner's insurance, the Company's results of operations may be negatively
impacted. Damage from windstorm and flooding is generally covered by homeowner's
insurance, but earthquake damage is frequently not insured. See
"Business--Lending Activities--Loan Portfolio" 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) loans, and
originating real estate construction and commercial business loans. These
lending categories are generally considered to involve a higher degree of credit
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. At December 31, 1997, the Company had a balance of
$165.1 million in commercial real estate loans, $5.6 million in construction
loans and $9.0 million in commercial business loans. The payment experience on
multi-family residential and commercial real estate loans typically is dependent
on the successful operation of the project (as opposed to a desire by the
borrower to continue to occupy the residence), and thus such loans may be
adversely affected to a greater extent by adverse conditions in the real estate
markets or in the economy generally. In addition to the foregoing, multi-family
residential and commercial real estate loans which are not fully amortizing over
their maturity and which have a balloon payment due at their stated maturity, as
would generally be the case with the Company's multi-family residential and
commercial real estate loans, involve a greater degree of risk than fully
amortizing loans. The ability of a borrower to make a balloon payment typically
will depend on its ability to either refinance the loan or timely sell the
underlying property.
If commercial properties are foreclosed upon, the Company may
encounter environmental problems with the properties. There is a risk that
hazardous substances or wastes, contaminants, pollutants or other
environmentally restricted substances could be discovered on the real estate
owned (primarily in the case of properties securing multi-family residential and
commercial real estate loans). In such event, the Company might be required to
remove such substances from the affected properties or to engage in abatement
procedures at its cost and expense. There can be no assurance that the cost of
such removal or abatement would not substantially exceed the value of the
affected properties or the loans secured by such properties; that the Company
would have adequate remedies against the prior owners or other responsible
parties; or that the Company would be able to resell the affected properties
either prior to or following completion of any such removal or abatement
procedures. If such environmental problems are discovered prior to foreclosure,
the Company generally would not foreclose on the related loan; however, the
value of such property as collateral will generally be substantially reduced and
the Company may suffer a loss upon collection of the loan as a result.
Risk of loss on a construction loan is dependent largely upon the
concurrence of the initial estimate of the property's value at completion of
construction and the estimated cost (including interest)
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of construction, as well as the availability of permanent take-out financing.
During the construction phase, a number of factors could result in delays and
cost overruns. If the estimate of value proves to be inaccurate, the Company may
be confronted, at or prior to the maturity of the loan, with a project which,
when completed, has a value which is insufficient to ensure full repayment.
Unlike residential mortgage loans, which generally are made on
the basis of the borrower's ability to repay the loan from the borrower's
employment and other income and which are secured by real property the value of
which tends to be more easily ascertainable, commercial business loans are of
higher risk and typically are made on the basis of the borrower's ability to
make repayment from the cash flow of the borrower's business. As a result, the
availability of funds for the repayment of commercial business loans may be
substantially dependent on the success of the business itself. Further, the
collateral securing the loans may depreciate over time, may be difficult to
appraise, and may fluctuate in value based on the success of the business.
Accordingly, there can be no assurance that the Company's
commercial real estate, multi-family residential, real estate construction, and
commercial business loans will not be adversely affected by these and the other
risks related to such loans. See "Business--Lending Activities--Commercial Real
Estate Lending," "--Real Estate Construction Lending," and "--Commercial
Business Lending" contained in Appendix A to this Prospectus.
RISKS ASSOCIATED WITH LOANS HELD FOR SALE. The Company recently
initiated a program to sell packages of adjustable rate residential loans,
servicing retained, currently originated through its correspondent loan program.
These loans, when originated, will be classified as held for sale and be subject
to a lower of cost or market adjustment, on a quarterly basis, depending on
market conditions. As of December 31, 1997, the Company had $92.2 million of
mortgages held for sale. Since the Company does not currently intend to hedge
its held for sale loan portfolio, this portfolio will be subject to adjustments,
based on market conditions, which may adversely affect the Company's results of
operations.
ALLOWANCE FOR LOAN LOSSES
Industry experience indicates that a portion of the Company's
loans will become delinquent and a portion of the loans will require partial or
entire charge-off. Regardless of the underwriting criteria utilized by the
Company, losses may be experienced as a result of various factors beyond the
Company's control, including, among other things, changes in market conditions
affecting the value of properties and problems affecting the credit of the
borrower. The Company's determination of the adequacy of its allowance for loan
losses is based on various considerations, including an analysis of the risk
characteristics of various classifications of loans, previous loan loss
experience, specific loans which would have loan loss potential, delinquency
trends, estimated fair value of the underlying collateral, current economic
conditions, the views of the Company's regulators, and geographic and industry
loan concentrations. Further, a significant amount of the Company's loan
portfolio was originated, purchased or acquired over the last three years and,
therefore, may be considered to be subject to a greater likelihood of
delinquency. If delinquency levels were to increase, whether as a result of
adverse general economic conditions, especially in Florida and California where
the Company's exposure is greatest, or
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otherwise, the allowance for loan losses as determined by the Company may not be
adequate. As of December 31, 1997 the Company's allowance for loan losses was
$4.3 million or 0.16% of total loans. There can be no assurance that the
allowance will be adequate to cover loan losses or that the Company will not
experience significant losses in its loan portfolios which may require
significant increases to the provision for loan losses in the future. See
"Business--Lending Activities--Loan Portfolio Quality" contained in Appendix A
to this Prospectus.
RECENT RAPID GROWTH AND INCREASED OPERATING EXPENSES
During the past 18 months, the Company has experienced rapid and
significant growth. The growth and expansion of operations through mergers and
acquisitions and internal growth has resulted in a significant increase in
assets, loans and deposits, as well as increases in net interest income,
non-interest income and non-interest expenses. Total assets of the Company have
increased from $824 million at September 30, 1996 to $3.0 billion at December
31, 1997. The Bank's loan portfolio increased from $646 million at September 30,
1996 to $2.6 billion at December 31, 1997. Much of this growth is attributable
to the purchase of wholesale residential loans and, to a lesser extent, to the
acquisition of Suncoast.
In connection with such expansion and growth, the Company has
hired 145 additional employees since September 30, 1996. Employee compensation
and benefits increased 107.7% from $4.3 million to $8.9 million over the last
fiscal year and occupancy and equipment costs increased 98.1% from $1.8 million
to $3.6 million during the same period. Such increased expenses were primarily
attributable to internal growth, including the opening of new branch offices,
and growth as a result of the acquisitions. Expenses associated with such growth
and with additional future growth may have an adverse impact on earnings.
There can be no assurance that the Company will continue to
experience rapid growth, or any growth in the future and, to the extent that it
does experience continued growth, there is no assurance that the Company will be
able to adequately and profitably manage such growth.
ACCOUNTING FOR ACQUISITIONS
Acquisitions are accounted for either as a "purchase" or as a
"pooling of interests." The consideration utilized is one of many factors
considered in determining the accounting treatment of an acquisition. If cash
represents at least 10% of the consideration, the acquisition will generally be
accounted for as a "purchase." If Class A Common Stock represents 90% or more of
the consideration and all other required conditions relating to the parties and
the transaction are met, the acquisition will be accounted for as a "pooling of
interests." Under the "purchase" method, the assets and liabilities are recorded
by the acquiror at their fair market values and any difference between the
purchase price and the fair value of the tangible and identifiable intangible
assets and liabilities is recorded as goodwill. Goodwill is generally amortized
over a period generally not exceeding 25 years and such amortization of goodwill
will reduce earnings. Under the "pooling of interests" method, the historical
values of the assets, liabilities and shareholders' equity of the combining
companies are consolidated, no goodwill
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is recorded and accordingly, the earnings of the resulting entity are not
impacted by the amortization of goodwill. The Company intends to actively pursue
acquisitions. If an acquisition is made and accounted for as a "purchase" rather
than a "pooling of interests," it is likely that such acquisition will result in
the creation of goodwill and accordingly, future results will reflect the
amortization of any goodwill recorded.
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 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
could result in the Company either attracting fewer deposits or in requiring 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--Market Area and Competition" contained in
Appendix A to this Prospectus.
REGULATORY OVERSIGHT
The Bank is subject to extensive regulation, supervision and
examination by the OTS as its chartering authority and primary federal
regulator, and by the FDIC, which insures its deposits up to applicable limits.
The Bank is a member of the FHLB of Atlanta and is subject to certain limited
regulation by the Federal Reserve Board. As the holding company of the Bank, the
Company is also subject to regulation and oversight by the OTS. Such regulation
and supervision governs the activities in which an institution may engage and is
intended primarily for the protection of the FDIC insurance funds and
depositors. Regulatory authorities have been granted extensive discretion in
connection with their supervisory and enforcement activities and regulations
have been implemented which have increased capital requirements, increased
insurance premiums and have resulted in increased administrative, professional
and compensation expenses. Any change in the regulatory structure or the
applicable statutes or regulations could have a material impact on the Company
and the Bank and their operations. Additional legislation and regulations may be
enacted or adopted in the future which could significantly affect the powers,
authority and operations of the Bank and the Bank's competitors which
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in turn could have a material adverse effect on the Bank and its operations. See
"Regulation" contained in Appendix A to this Prospectus.
RISK FACTORS RELATING TO THE OFFERING
SUBORDINATION OF THE GUARANTEE AND THE JUNIOR SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued by the
Company for the benefit of the holders of the Preferred Securities and under the
Junior Subordinated Debentures issued to the Trust Issuer will be unsecured and
will rank subordinate and junior in right of payment to all Senior Debt of the
Company. At December 31, 1997, the Company had no outstanding Senior Debt, but
did have outstanding $72.8 million of 10 1/4% Junior Subordinated Deferrable
Interest Debentures and $47.8 million of 9.60% Junior Subordinated Deferrable
Interest Debentures which rank PARI PASSU with the Junior Subordinated
Debentures. There is no limitation on the amount of Senior Debt, or subordinated
debt which is PARI PASSU with the Junior Subordinated Debentures, which the
Company may issue. 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 (including depositors in the Bank), except to the
extent that the Company may itself be recognized as a creditor of that
subsidiary. If the Company is a creditor of a subsidiary, the claims of the
Company would be subject to any prior security interest in the assets of the
subsidiary and any indebtedness of the subsidiary senior to that of the Company.
Accordingly, the Junior Subordinated Debentures and the Guarantee will be
effectively subordinated to all existing and future liabilities of the Company's
subsidiaries, including the Bank. At December 31, 1997 the Bank had liabilities
of $2.9 billion (including $1.4 billion in deposits). Only the capital stock of
the Company is currently junior in right of payment to the Junior Subordinated
Debentures to be issued to the Trust Issuer. Holders of the Junior Subordinated
Debentures will be able to look only to the assets of the Company for payments
on the Junior Subordinated Debentures. 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. The Company expects from time to time to incur additional indebtedness
constituting Senior Debt. See "Description of the Guarantee--Status of the
Guarantee" and "Description of the Junior Subordinated
Debentures--Subordination."
SOURCE OF PAYMENTS TO HOLDERS OF PREFERRED SECURITIES
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. Since the Company is without significant
assets other than the capital stock of the Bank, the ability of the Company to
pay interest on the principal of the Junior Subordinated Debentures to the Trust
Issuer (and consequently, the Trust Issuer's ability to pay Distributions on the
Preferred Securities and the Company's ability to pay its obligations under the
Guarantee) will be dependent on the ability of the Bank to pay dividends to the
Company in amounts
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sufficient to service the Company's obligations. The Company is currently
obligated to pay interest semi-annually on its outstanding 10 1/4% Junior
Subordinated Deferrable Interest Debentures and quarterly on its outstanding
9.60% Junior Subordinated Deferrable Interest Debentures and may become
obligated to make other payments with respect to securities issued by the
Company in the future which are PARI PASSU or have a preference over the Junior
Subordinated Debentures issued to the Trust Issuer with respect to the payment
of principal, interest or dividends. There is no restriction on the ability of
the Company to issue, or limitations on the amount of securities which the
Company may issue, which are PARI PASSU or have a preference over the Junior
Subordinated Debentures issued to the Trust Issuer, nor is there any restriction
on the ability of the Bank to issue additional capital stock or incur additional
indebtedness.
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 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 I association may
make capital distributions during a calendar year of up to the greater of (i)
100% of net income for the current calendar year plus 50% of its capital surplus
or (ii) 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, but there is no assurance that the Bank
will continue to so qualify.
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 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 Junior Subordinated Debentures, at any time or from
time to time, for a period not exceeding 20 consecutive quarters with respect to
each Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. As a consequence of any
such deferral, quarterly Distributions on the Preferred Securities by the Trust
Issuer would also be deferred (and the amount of Distributions to which holders
of the Preferred Securities are entitled would accumulate additional
Distributions thereon at the rate of 9% per annum, compounded quarterly from
the relevant payment date for such Distributions)
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during any such Extension Period. During any such Extension Period, the Company
may not (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 (other than (a) the reclassification of any class of the
Company's capital stock into another class of capital stock, (b) dividends or
distributions payable in any class of the Company's common stock, (c) any
declaration of a dividend in connection with the implementation of a shareholder
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 and (d) purchases
of the Company's common stock related to the rights under any of the Company's
benefit plans for its or its subsidiaries' directors, officers or employees),
(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 Junior 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 Junior Subordinated Debentures (other than
payments under the Guarantee), or (iii) redeem, purchase or acquire less than
all of the Junior Subordinated Debentures or any of the Preferred Securities.
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 20
consecutive quarters or extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any Extension Period and the
payment of all interest then accrued and unpaid on the Junior Subordinated
Debentures (together with interest thereon at the annual rate of 9%,
compounded quarterly 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 so
long as no event of default under the Indenture has occurred and is continuing.
See "Description of the Preferred Securities--Distributions" and "Description of
the Junior Subordinated Debentures--Right to Defer Interest Payment Obligation."
If an Extension Period were to occur, a holder of the Preferred
Securities would continue to accrue income (in the form of original issue
discount) for United States federal income tax purposes in respect of its PRO
RATA share of the interest accruing on the Junior Subordinated Debentures held
by the Trust Issuer. As a result, a holder of the Preferred Securities would be
required to include such income in gross income for United States federal income
tax purposes in advance of the receipt of cash and would not receive the cash
related to such income from the Trust Issuer if the holder disposed of the
Preferred Securities prior to the record date for the payment of Distributions.
See "Certain Federal Income Tax Consequences--Interest Income and 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 Junior Subordinated Debentures. However,
should the Company elect to exercise such right in the future, the market price
of the Preferred Securities would likely be adversely affected. A holder that
disposed of its Preferred Securities during an Extension Period, therefore,
might not receive the same return on its investment as a holder that continued
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
similar securities that are not subject to such deferrals.
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SHORTENING OF STATED MATURITY OF JUNIOR SUBORDINATED DEBENTURES
If a Tax Event (as defined herein) occurs, then the Company will
have the right prior to the termination of the Trust Issuer, to advance the
Stated Maturity of the Junior Subordinated Debentures to the minimum extent
required in order to allow for the payments of interest in respect of the Junior
Subordinated Debentures to continue to be tax deductible, but in no event shall
the resulting maturity of the Junior Subordinated Debentures be less than 15
years from the date of original issuance thereof. The exercise of such right may
be subject to the Company having received prior regulatory approval. See
"Description of the Junior Subordinated Debentures-General."
REDEMPTION DUE TO TAX EVENT, INVESTMENT COMPANY EVENT OR CAPITAL TREATMENT EVENT
The Company has the right, but not the obligation, to redeem the
Junior Subordinated Debentures prior to March 31, 2003 in whole (but not in
part) within 180 days following the occurrence and continuation of a Tax Event,
an Investment Company Event or a Capital Treatment Event, and, therefore, cause
a mandatory redemption of the Preferred Securities. The exercise of such right
may be subject to the Company having received prior regulatory approval.
A "Tax Event" means the receipt by the Trust 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 Trust 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 Junior Subordinated Debentures,
(ii) interest payable by the Company on the Junior 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 Trust 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,
assessments or other governmental charges. The Company must request and receive
an opinion with regard to such matters within a reasonable period of time after
it becomes aware of the possible occurrence of any of the events described in
clauses (i) through (iii) above.
"Investment Company Event" means the receipt by the Trust Issuer
of an opinion of counsel experienced in such matters to the effect that, as a
result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority, the Trust Issuer is or will
be considered an "investment company" that is required to be registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
which change occurs or becomes effective on or after the date of original
issuance of the Preferred Securities.
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"Capital Treatment Event" means the reasonable determination by
the Company that, as a result of any amendment to, or change (including any
proposed change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such proposed change, pronouncement, action or decision is
announced on or after the date of original issuance of the Preferred Securities,
there is more than an insubstantial risk that the Company will not be entitled
to treat an amount equal to the Liquidation Amount of the Preferred Securities
as "Tier 1 Capital" (or the then equivalent thereof) for purposes of applicable
capital adequacy guidelines of the Federal Reserve (or any successor regulatory
authority with jurisdiction over bank holding companies), or any capital
adequacy guidelines as then in effect and applicable to the Company.
EXCHANGE OF PREFERRED SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES; REDEMPTION
AND TAX CONSEQUENCES
The Company has the right at any time to dissolve, wind-up or
terminate the Trust Issuer and, after the satisfaction of liabilities to
creditors of the Trust Issuer as required by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities in exchange therefor in liquidation of the Trust Issuer. The exercise
of such right may be subject to the Company having received prior regulatory
approval. The Company will have the right, in certain circumstances, to redeem
the Junior Subordinated Debentures in whole or in part, in lieu of a
distribution of the Junior Subordinated Debentures by the Trust Issuer, in which
event the Trust Issuer will redeem the Preferred Securities on a pro rata basis
to the same extent as the Junior Subordinated Debentures are redeemed by the
Company. Any such distribution or redemption prior to the Stated Maturity will
be subject to prior regulatory approval if then required under applicable
capital guidelines or regulatory policies. See "Description of the Preferred
Securities--Liquidation of the Trust Issuer and Distribution of the Junior
Subordinated Debentures to Holders" and "Description of the Subordinated
Debenture--Redemption or Exchange."
Under current United States federal income tax law, a
distribution of Junior Subordinated Debentures upon the dissolution of the Trust
Issuer would not be a taxable event to holders of the Preferred Securities. If,
however, the Trust Issuer were characterized as an association taxable as a
corporation at the time of the dissolution of the Trust Issuer, the distribution
of the Junior Subordinated Debentures would constitute a taxable event to
holders of Preferred Securities and could give rise to a tax liability for the
Trust Issuer as well. Moreover, any redemption of the Preferred Securities for
cash would be a taxable event to such holders. See "Certain Federal Income Tax
Consequences--Distribution of the Junior Subordinated Debentures to Holders of
the Preferred Securities" and "--Sales or Redemption of the Preferred
Securities."
There can be no assurance as to the market prices for the
Preferred Securities or the Junior Subordinated Debentures that may be
distributed in exchange for Preferred Securities upon a dissolution or
liquidation of the Trust Issuer. The Preferred Securities or the Junior
Subordinated Debentures may trade at a discount to the price that the investor
paid to purchase the Preferred Securities offered hereby. Because holders of
Preferred Securities may receive Junior Subordinated Debentures as a result of
the
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liquidation of the Trust, and because payments on the Junior Subordinated
Debentures are the sole source of funds for Distributions and redemptions of the
Preferred Securities, prospective purchasers of Preferred Securities are also
making an investment decision with regard to the Junior Subordinated Debentures
and should carefully review all the information regarding the Junior
Subordinated Debentures contained herein.
If the Junior Subordinated Debentures are distributed to the
holders of Preferred Securities upon the liquidation of the Trust Issuer, the
Company will use its reasonable efforts to list the Junior Subordinated
Debentures on the New York Stock Exchange or such stock exchanges, if any, on
which the Preferred Securities are then listed.
RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Preferred
Securities the following payments, to the extent not paid by the Trust Issuer:
(i) any accumulated and unpaid Distributions required to be paid on the
Preferred Securities, to the extent that the Trust 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 Trust Issuer
has funds on hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, winding-up or liquidation of the Trust Issuer (unless
the Junior Subordinated Debentures are distributed to holders of the Preferred
Securities in exchange therefor), the lesser of (a) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions to the date of
payment, to the extent that the Trust Issuer has funds on hand available
therefor at such time, and (b) the amount of assets of the Trust Issuer
remaining available for distribution to holders of the Preferred Securities
after payment of creditors of the Trust Issuer as required by applicable law.
If the Company were to default on its obligation to pay amounts
payable under the Junior Subordinated Debentures, the Trust 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 Trust Issuer, the Guarantee Trustee or any other
person or entity. In the event 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 Junior 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 Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such holder (a "Direct
Action"). The exercise by the Company of its right, as described herein, to
defer the payment of interest on the Junior Subordinated Debentures does not
constitute an event of default under the Indenture. In connection with any
Direct Action, the Company will have a right of set-off under the Indenture to
the extent of any
25
<PAGE>
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 Junior Subordinated Debentures or assert directly any other rights in
respect of the Junior 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 Junior
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 Junior Subordinated Debentures--Enforcement of Certain
Rights by Holders of the Preferred Securities," "Description of the Junior
Subordinated Debentures--Debenture Events of Default" and "Description of the
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 COVENANTS
The covenants in the Indenture are limited and there are no
covenants in the Trust Agreement. As a result, neither the Indenture nor the
Trust Agreement protects holders of Junior Subordinated Debentures or Preferred
Securities, respectively, in the event of a material adverse change in the
Company's financial condition or results of operations or limits the ability of
the Company or any subsidiary to incur or assume additional indebtedness or
other obligations. Additionally, neither the Indenture nor the Trust Agreement
contains any financial ratios or specified levels of liquidity to which the
Company must adhere. Therefore, the provisions of these governing instruments
should not be considered a significant factor in evaluating whether the Company
will be able to or will comply with its obligations under the Junior
Subordinated Debentures or the Guarantee.
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 Trust Issuer's rights as holder of the Junior Subordinated
Debentures and the Guarantee. Holders of the Preferred Securities will not be
entitled to vote to appoint, remove or replace the Property Trustee, the
Delaware Trustee or the Administrative Trustees, as such voting rights are
vested exclusively in the Company, as the holder of the 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 Trust
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 Preferred Securities--Voting Rights; Amendment
of the Trust Agreement" and "--Removal of the Trust Issuer Trustees."
26
<PAGE>
ABSENCE OF PRIOR PUBLIC MARKET FOR THE PREFERRED SECURITIES; TRADING PRICE AND
TAX CONSIDERATIONS
There is no current public market for the Preferred Securities.
The Preferred Securities have been approved for listing on the New York Stock
Exchange. The Company has been advised that the Underwriters intend to make a
market in the Preferred Securities. However, the Underwriters are not obligated
to do so and such market making may be discontinued at any time. Therefore,
there is no assurance that an active trading market will develop for the
Preferred Securities or, if such market develops, that it will be maintained or
that the market price will equal or exceed the public offering price set forth
on the cover page of this Prospectus. Accordingly, holders of Preferred
Securities may experience difficulty reselling them or may be unable to sell
them at all. The public offering price for the Preferred Securities has been
determined through negotiations between the Company and the Underwriters. Prices
for the Preferred Securities will be determined in the marketplace and may be
influenced by many factors, including prevailing interest rates, the liquidity
of the market for the Preferred Securities, investor perceptions of the Company
and general industry and economic conditions.
Further, should the Company exercise its option to defer any
payment of interest on the Junior Subordinated Debentures, the Preferred
Securities would be likely to trade at prices that do not fully reflect the
value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. In the event of such a deferral, a holder of Preferred
Securities that disposed of its Preferred Securities between record dates for
payments of Distributions (and consequently did not receive a Distribution from
the Trust Issuer for the period prior to such disposition) would nevertheless be
required to include accrued but unpaid interest on the Junior Subordinated
Debentures through the date of disposition in income as ordinary income and to
add such amount to the adjusted tax basis of the Preferred Securities disposed
of. Such holder would recognize a capital loss to the extent the selling price
(which might not fully reflect the value of accrued but unpaid interest) was
less than its adjusted tax basis (which would include all 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."
PREFERRED SECURITIES AND JUNIOR SUBORDINATED DEBENTURES ARE NOT INSURED
The Preferred Securities and Junior Subordinated Debentures are
not insured by the Bank Insurance Fund or the Savings Association Insurance Fund
of the Federal Deposit Insurance Corporation or by any other governmental
agency.
27
<PAGE>
BANKUNITED FINANCIAL CORPORATION
GENERAL
The Company is a Florida corporation organized for the purpose of
becoming the savings and loan holding company for the Bank. This holding company
reorganization, together with the Bank's conversion from a Florida-chartered
stock savings bank (which was founded in 1984) to a federally chartered stock
savings bank, became effective on March 5, 1993. At December 31, 1997, the
Company had $1.4 billion in deposits, $145.6 million in stockholders' equity,
and $3.0 billion in assets. Based on the latest available information on asset
size, the Company is the second largest publicly held financial institution
headquartered in Florida. Principally through internal growth and also as a
result of the acquisition of Suncoast on November 15, 1996, the Company's total
assets increased by $2.2 billion from September 30, 1996 to December 31, 1997.
The Company currently has 18 branch offices in South Florida (not
including two, scheduled to be closed shortly, that were part of the recent
acquisition of Consumers Savings Bank) and anticipates opening approximately 6
more branch offices by September 30, 1998, in its market area, either by
acquisition or de novo branching, and may expand into other parts of Florida.
The Company's business has traditionally consisted of attracting deposits from
the general public and using those deposits, together with borrowings and other
funds, to purchase nationwide and to originate in Florida single-family
residential mortgage loans, and to a lesser extent, to purchase and originate
commercial real estate, commercial business and consumer loans. The Company also
invests in tax certificates and other permitted investments. The Company's
revenues are derived principally from interest earned on loans, mortgage-backed
securities and investments. The Company's primary expenses arise from interest
paid on savings deposits and borrowings and non-interest overhead expenses
incurred in operations.
On January 23, 1998 the Company acquired Consumers Bancorp, Inc.
and merged its wholly owned subsidiary, Consumers, a Florida-chartered savings
and loan with assets of $101.2 million and deposits of $84.3 million at December
31, 1997, into the Bank. On December 30, 1997, the Company signed a definitive
agreement to acquire Central, a Florida-chartered commercial bank with assets of
$96.9 million and deposits of $72.8 million at December 31, 1997, and four
branch offices in Miami-Dade County. These mergers increase the Company's
deposit market share, particularly in Miami-Dade County, while permitting the
Company to compete more effectively with larger super-regional financial
institutions in South Florida. See "Business Strategy-Acquisitions and Branching
Activity" for a further discussion of these acquisitions.
The Bank is a member of the Federal Home Loan Bank system and is
subject to comprehensive regulation, examination and supervision by the OTS and
the FDIC. Deposits at the Bank are insured by the SAIF to the maximum extent
permitted by law.
The Company's executive offices are located at 255 Alhambra
Circle, Coral Gables, Florida 33134, and its telephone number is (305) 569-2000.
28
<PAGE>
BUSINESS STRATEGY
OPERATING PLAN. The Company's operating plan emphasizes (i)
rapidly expanding the Company's deposit base by providing convenient locations,
competitive rates and personalized service in its market area and continuing the
expansion of the Company's branch network through de novo branching or the
acquisition of branches of, and mergers with, existing financial institutions;
(ii) concentrating lending activities on purchasing single-family residential
mortgage loans and originating such loans as favorable market opportunities
arise; (iii) maintaining the Company's commercial and multi-family real estate,
commercial business and real estate construction lending; (iv) increasing
non-interest income, and (v) maintaining asset quality.
DEPOSIT OPPORTUNITIES. The Company focuses on attracting
depositors with convenient locations, competitive rates and personalized
service. As the super-regional banking companies acquire and close branches, the
Company has identified certain locations for potential expansion. The Company
emphasizes personalized service by a local financial institution to
differentiate itself from the super-regionals that do business in the South
Florida market. For the year ended December 31, 1997, deposits at the Company's
branches increased by $566 million, or 64% from December 31, 1996.
RESIDENTIAL MORTGAGE LOAN PURCHASES. Since inception in 1984,
BankUnited's primary source of earning assets has been the purchase of
single-family residential mortgages in the secondary market. Management believes
BankUnited has developed an expertise in making such purchases including
re-underwriting each loan purchased. The anticipated future growth in
BankUnited's assets will be primarily through the purchase of single-family
residential mortgages. Single-family residential mortgages are considered to
involve less credit risk than other types of loans, and 93.4% of the Company's
loan portfolio consists of such mortgages.
COMMERCIAL LOAN PRODUCT AVAILABILITY. BankUnited believes the
rapid consolidation of the South Florida banking market has created and will
continue to create opportunities to originate commercial real estate loans
generally between $250,000 and $5 million to small- to medium-sized companies.
BankUnited has hired seasoned loan officers to take advantage of these
opportunities. In connection with the product diversification of its loan
portfolio, the Company recently signed a definitive agreement to acquire Central
which has a loan portfolio that includes $11.7 million of commercial real estate
loans and $7.3 million of commercial loans.
INCREASING NON-INTEREST INCOME. In order to increase non-interest
income, the Company initiated a program to originate and sell, on a periodic
basis, packages of adjustable rate residential mortgage loans, servicing
retained. In September 1997 the Company sold its first package totalling $30.1
million of loans, generating a pre-tax gain of approximately $523,000, and in
December 1997 sold its second package of loans totalling $25.4 million,
generating a pre-tax gain of approximately $689,000. In November 1997, the
Company's subsidiary, Financial Services initiated a program to sell annuity
products in the Bank's branch offices. Financial Services plans to expand its
range of products to include variable annuity products within the next several
months. The Company has also established a subsidiary to broker, with other
financial institutions, newly originated commercial loans that do not meet the
Bank's underwriting and/or investment criteria. Additionally, the Company will
periodically bid on and may purchase private
29
<PAGE>
or agency packages of residential loan servicing. The Company believes that
these activities will increase non-interest income.
MAINTAINING ASSET QUALITY. The Company has historically been able
to maintain asset quality as shown by its relatively low level of non-performing
assets to total assets and net charge-offs over the last five years.
Approximately 93.4% of the Company's loan portfolio is in one-to-four family
mortgages which are generally considered to involve a lower degree of credit
risk than other types of loans. At December 31, 1997, the Company's
non-performing loans as a percentage of total loans was 0.39%. See "Risk
Factors--Risks Associated with the Company's ARMs," "--Composition of
Residential and Commercial Real Estate Loan Portfolio" and "--Allowance for Loan
Losses."
ACQUISITIONS AND BRANCHING ACTIVITY. The Company has acquired, is
acquiring and will continue to acquire financial institutions and branches in
South Florida. In connection with this activity, the Company periodically has
discussions with and receives financial information on other financial
institutions which may lead to the acquisition of all or part of that financial
institution by the Company.
On January 23, 1998 the Company acquired Consumers Bancorp, Inc.
and merged its wholly owned subsidiary, Consumers, a Florida-chartered savings
and loan with assets of $101.2 million and deposits of $84.3 million at December
31, 1997, into the Bank. Two of Consumers' existing branch offices are being
consolidated into the Bank's branch offices. A branch which was under lease, but
not yet opened, in south Miami-Dade County, will be opened by the Bank within
the next several months.
On December 30, 1997, the Company signed a definitive agreement
to acquire Central, a Florida-chartered commercial bank with assets of $96.9
million and deposits of $72.8 million at December 31, 1997, and four branch
offices in Miami-Dade County. Central's loan portfolio includes $11.7 million of
commercial real estate loans, $7.3 million of commercial loans, and $21.9
million of installment loans. In addition, 34.6% of Central's deposits are
non-interest bearing demand deposit accounts. It is anticipated that the
acquisition of Central, with its somewhat greater emphasis on commercial
customers, will better position the Company to further develop its commercial
business.
On November 15, 1996, the Company acquired Suncoast, a federally
chartered savings association with assets of $409.4 million at September 30,
1996, and merged Suncoast into the Bank. Of Suncoast's six branch offices in
South Florida, five continue to operate and one has been consolidated with an
existing Bank branch office. Additionally, as part of the Suncoast acquisition,
the Company acquired approximately $95.8 million in commercial real estate loans
and $14.1 million in real estate construction loans. See "Commercial Real Estate
Lending," "--Real Estate Construction Lending," and "Commercial Business
Lending."
On March 29, 1996, the Company acquired the Bank of Florida with
total assets of $28.1 million which was merged into the Bank's South Miami
branch.
These mergers increase the Company's deposit market share, in
Miami-Dade and Broward counties, while permitting the Company to compete more
effectively with larger super-regional financial institutions in South Florida.
30
<PAGE>
In order to maximize cost savings, as part of its acquisition
program, the Company integrates the operations of acquired entities and converts
the data processing systems of such entities into its own as rapidly as
possible. For instance, Suncoast's data processing systems were converted to the
Bank's systems within one month of acquisition. The final conversion for
Consumers is expected to take place within six weeks after acquisition.
The Bank also opened branch offices in Delray Beach and West Palm
Beach in 1996, Boca Hamptons, Aventura and Coconut Creek in 1997, and Miami
Airport-West in January 1998. The Company currently has additional branches
under construction in Plantation, south Miami-Dade (discussed above) and Lake
Worth. It is expected that approximately 3 other branch offices will also be
opened or acquired before September 30, 1998.
PREFERRED STOCK RESTRUCTURING; CONVERSION TO COMMON STOCK. In
February 1998, the Company redeemed the outstanding shares of its Series 1993
Preferred Stock at $10.00 per share. Holders of shares of the Series 1993
Preferred Stock had the right to convert them to shares of the Company's Class A
Common Stock at a conversion rate of one share of Class A Common Stock for each
share of Series 1993 Preferred Stock. Holders of 712,464 shares of Series 1993
Preferred Stock exercised their conversion right, which resulted in the issuance
of 712,464 additional shares of Class A Common Stock, and 31,406 shares of
Series 1993 Preferred Stock were redeemed.
In October 1997, BankUnited redeemed the outstanding shares of
its 8% Noncumulative Convertible Preferred Stock, Series 1996 (the "Series 1996
Preferred Stock") at $15.00 per share. Holders of the shares of Series 1996
Preferred Stock had the right to convert them to shares of Class A Common Stock,
at a conversion rate of approximately 1.67 shares of Class A Common Stock for
each share of Series 1996 Preferred Stock. Holders of 927,204 shares of Series
1996 Preferred Stock exercised their conversion right, which resulted in the
issuance of 1,548,410 additional shares of BankUnited Class A Common Stock, and
5,696 shares of Series 1996 Preferred Stock were redeemed.
In August 1997, the Company purchased 448,583 shares of its 9%
Noncumulative Perpetual Preferred Stock (the "9% Preferred Stock") at $10.25 per
share. The purchase was made pursuant to a tender offer which expired on August
15, 1997. After the purchase, 701,417 shares of 9% Preferred Stock were still
outstanding. Pursuant to its terms, that stock may be redeemed by the Company
after September 30, 1998 at the stated redemption price.
31
<PAGE>
THE TRUST ISSUER
BANKUNITED CAPITAL III
The Trust Issuer, BankUnited Capital III, 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 June 6, 1997. The trust agreement will be amended and
restated in its entirety (as so amended and restated, the "Trust Agreement").
The Trust Issuer exists for the exclusive purposes of (i) issuing and selling
the Trust Securities, (ii) using the proceeds from the sale of the Trust
Securities to acquire Junior Subordinated Debentures issued by the Company and
(iii) engaging in only those other activities necessary, advisable or incidental
thereto (such as registering the transfer of the Trust Securities). Accordingly,
the Junior Subordinated Debentures will be the sole assets of the Trust Issuer,
and payments under the Junior Subordinated Debentures will be the sole revenue
of the Trust Issuer.
All of the Common Securities will be owned by the Company. The
Common Securities will 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
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 Preferred
Securities--Subordination of the Common Securities." The Company will acquire
the Common Securities in an aggregate Liquidation Amount equal to 4% of the
aggregate Liquidation Amount of the Preferred Securities. The Trust Issuer has a
term of 32 years, but may terminate earlier as provided in the Trust Agreement.
The Trust Issuer's business and affairs are conducted by its trustees, each
appointed by the Company as holder of the Common Securities. The trustees for
the Trust Issuer will be 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 "Trust 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 Guarantee" and "Description of the Junior Subordinated
Debentures." The holder of the 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
Company as the holder of the Common Securities. The duties and obligations of
the Trust Issuer Trustees are governed by the Trust Agreement. The Company will
pay all fees and expenses related to the Trust Issuer and the offering of the
Preferred Securities and will pay, directly or indirectly, all ongoing costs,
expenses and liabilities of the Trust Issuer pursuant to the Expense Agreement.
32
<PAGE>
USE OF PROCEEDS
All of the proceeds from the sale of the Preferred Securities
will be used by the Trust Issuer to purchase Junior Subordinated Debentures. The
Company intends that the proceeds from the sale of such Junior Subordinated
Debentures will be used for general corporate purposes, including, but not
limited to, acquisitions by either the Company or the Bank, expansion of the
Company's or the Bank's operations, and capital contributions to the Bank to
support growth and for working capital and for other general corporate purposes.
MARKET FOR THE PREFERRED SECURITIES
The Preferred Securities have been approved for listing on the
New York Stock Exchange. Although the Underwriters have informed the Company
that they presently intend to make a market in the Preferred Securities, the
Underwriters are not obligated to do so and any such market making may be
discontinued at any time. Accordingly, there is no assurance that an active and
liquid trading market will develop or, if developed, that such a market will be
sustained. The offering price and distribution rate have been determined by
negotiations among representatives of the Company and the Underwriters, and the
offering price of the Preferred Securities may not be indicative of the market
price following the offering. See "Underwriting."
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust Issuer will be
treated as a subsidiary of the Company and, accordingly, the Trust Issuer's
financial statements will be included in the consolidated financial statements
of the Company. The Preferred Securities will be presented as a separate line
item in the consolidated statements of financial condition of the Company under
the caption "Company Obligated Mandatorily Redeemable Trust Preferred Securities
of Subsidiary Trusts 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 a component of interest
expense in the consolidated statements of operations.
In its future financial reports, 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 Trust
Preferred Securities of Subsidiary Trusts 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 Trust Issuer are
the Junior Subordinated Debentures specifying the principal amount, interest
rate and maturity date of Junior Subordinated Debentures held; and (iii)
include, in an audited footnote to the financial statements, disclosure that (a)
the Trust Issuer is wholly owned, (b) the sole assets of the Trust Issuer are
its Junior Subordinated Debentures, and (c) the obligations of the Company under
the Junior Subordinated Debentures, the Indenture, the Trust Agreement and the
Guarantee, in the aggregate, constitute a full and unconditional guarantee by
the Company of the Trust Issuer's obligations under the Preferred Securities.
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<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of
the Company as of December 31, 1997, as adjusted to give effect to the
consummation of (i) the acquisition and merger of Consumers and the issuance of
527,112 shares of Class A Common Stock in connection therewith, (ii) the
conversion to Class A Common Stock of 712,464 shares of its currently
outstanding Series 1993 Preferred Stock and the redemption of 31,406 remaining
shares, (iii) the acquisition and merger of Central Bank and the issuance of an
estimated 1,867,500 shares of Class A Common Stock in connection therewith
(based upon the maximum that could be issued), and (iv) the issuance and sale of
the Preferred Securities offered hereby. The following data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto of the
Company contained in Appendix A and Appendix B to this Prospectus.
<TABLE>
<CAPTION>
AS
ACTUAL ADJUSTED
------ --------
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Deposits.......................................................................$ 1,444,102 $ 1,601,177
Securities sold under agreements to repurchase................................. 30,000 38,334
FHLB advances.................................................................. 1,261,466 1,269,466
Company Obligated Mandatorily Redeemable Trust Preferred Securities of
Subsidiary Trusts Holding Solely Junior Subordinated Deferrable
Interest Debentures of the Company (2)...................................... 116,000 206,000
--------------------- ------------------
Total deposits and borrowed funds......................................... 2,851,568 3,114,977
--------------------- ------------------
Stockholders' equity:
Preferred Stock, Series B, 8% Convertible and 9% Perpetual, $.01 par value;
authorized--10,000,000 shares; issued and outstanding--
1,644,805 shares as of December 31, 1997 and 900,935 shares as adjusted(1). 16 9
Class A Common Stock, $.01 par value; authorized--30,000,000 shares;
issued and outstanding-13,923,022 shares as of December 31, 1997 and
17,030,098 shares as adjusted.............................................. 139 170
Class B Common Stock, $.01 par value; authorized--3,000,000 shares,
issued and outstanding-285,958 shares as of December 31, 1997 and as
adjusted.................................................................... 3 3
Additional paid-in capital.................................................... 131,149 141,936
Retained earnings............................................................. 13,632 19,870
Net unrealized gains on securities available for sale, net of tax............. 692 831
--------------------- ------------------
Total stockholders' equity................................................. 145,631 162,819
--------------------- ------------------
Total deposits, borrowed funds and stockholders' equity....................$ 2,997,199 $ 3,277,796
===================== ==================
<FN>
(1) Such shares had an aggregate liquidation preference of $8.5 million at
December 31, 1997 and $58.5 million as adjusted.
(2) As described herein, for the Preferred Securities offered hereby, the
sole asset of the Trust Issuer will be $104 million aggregate principal
amount of the Junior Subordinated Debentures issued by the Company to
the Trust Issuer. The Junior Subordinated Debentures will bear interest
at the annual rate of 9% of the principal amount thereof, payable
quarterly and will mature on March 31, 2028. The Company owns all of
the Common Securities of the Trust Issuer.
</FN>
</TABLE>
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<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The information at or for the three months ended December 31,
1997 and 1996 is derived from unaudited financial statements which, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results for such
periods. The results for the three months ended December 31, 1997 are not
necessarily indicative of the results that may be expected for the entire year.
The summary consolidated financial information should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto contained
in the Company's Annual Report on Form 10-K/A for the fiscal year ended
September 30, 1997 attached as Appendix A to this Prospectus; and the Company's
December 31, 1997 Operating Results and Financial Information attached as
Appendix B to this Prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED AT OR FOR THE FISCAL YEARS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
OPERATIONS DATA:
Interest income...............................................$ 41,450 $ 19,491 $ 108,774 $ 52,132
Interest expense.............................................. 32,083 12,415 75,960 34,622
--------------- --------------- --------------- ---------------
Net interest income before provision (credit) for loan losses. 9,367 7,076 32,814 17,510
Provision (credit) for loan losses............................ 650 250 1,295 (120)
--------------- --------------- --------------- ---------------
Net interest income after provision (credit) for loan losses.. 8,717 6,826 31,519 17,630
--------------- --------------- --------------- ---------------
Non-interest income:
Service fees.................................................. 452 575 2,993 597
Gain on sales of loans and mortgage-backed
securities, net............................................. 1,115 (11) 819 5
Gain (loss) on sales of other assets, net(1).................. -- -- 1 (6)
Other......................................................... 77 36 247 53
--------------- --------------- --------------- ---------------
Total non-interest income................................ 1,644 600 4,060 649
--------------- --------------- --------------- ---------------
Non-interest expense:
Employee compensation and benefits.......................... 2,480 1,915 8,880 4,275
Occupancy and equipment..................................... 886 886 3,568 1,801
Insurance (2)............................................... 255 361 948 3,610
Professional fees........................................... 622 222 1,605 929
Other....................................................... 2,782 1,421 7,964 3,421
--------------- --------------- --------------- ---------------
Total non-interest expense............................... 7,025 4,805 22,947 14,036
--------------- --------------- --------------- ---------------
Income before income taxes and preferred stock dividends ..... 3,336 2,621 12,632 4,243
Provision for income taxes (3)................................ 1,361 1,022 5,033 1,657
--------------- --------------- --------------- ---------------
Net income before preferred stock dividends................... 1,975 1,599 7,599 2,586
Preferred stock dividends..................................... 332 672 2,890 2,145
--------------- --------------- --------------- ---------------
Net income after preferred stock dividends....................$ 1,643 $ 927 $ 4,709 $ 441
=============== =============== =============== ---------------
FINANCIAL CONDITION DATA:
Total assets..................................................$ 3,028,776 $ 1,329,044 $ 2,145,406 $ 824,360
Loans receivable, net, and mortgage-backed securities(4)...... 2,674,718 1,132,882 1,781,652 716,550
Investments, overnight deposits, tax certificates,
repurchase agreements, certificates of deposits and other
interest-earning assets...................................... 176,091 124,950 186,955 87,662
Total liabilities............................................. 2,883,145 1,230,889 2,045,761 755,249
Deposits...................................................... 1,444,102 878,166 1,195,892 506,106
Borrowings.................................................... 1,291,466 289,259 701,484 237,775
Trust Preferred Securities.................................... 116,000 50,000 116,000 -
Total stockholders' equity.................................... 145,631 98,155 99,645 69,111
Common stockholders' equity................................... 129,719 60,051 75,649 44,807
PER COMMON SHARE DATA:
Basic earnings per common share(5)............................$ .13 $ .14 $ .57 $ .10
=============== =============== =============== ===============
Diluted earnings per common share(5)..........................$ .12 $ .13 $ .54 $ .10
=============== =============== =============== ---------------
Weighted average number of common shares outstanding
during the period:
Basic(5)..................................................... 13,012,118 6,806,379 8,210,890 4,306,042
Diluted(5)................................................... 14,041,609 7,957,657 8,955,572 4,558,521
Equity per common share.......................................$ 9.13 $ 7.59 $ 7.94 $ 7.85
Fully converted tangible equity per common share..............$ 8.19 $ 6.56 $ 6.88 $ 7.13
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1995 1994 1993
---- ---- ----
OPERATIONS DATA:
<S> <C> <C> <C>
Interest income................................................... $ 39,419 $ 30,421 $ 25,722
Interest expense.................................................. 26,305 16,295 12,210
--------------- --------------- ------------
Net interest income before provision (credit) for loan losses..... 13,114 14,126 13,512
Provision (credit) for loan losses................................ 1,221 1,187 1,052
--------------- --------------- ------------
Net interest income after provision (credit) for loan losses...... 11,893 12,939 12,460
--------------- --------------- ------------
Non-interest income:
Service fees...................................................... 423 358 221
Gain on sales of loans and mortgage-backed
securities, net................................................. 239 150 1,496
Gain (loss) on sales of other assets, net(1)...................... 9,569 -- --
Other............................................................. 6 46 2
--------------- --------------- ------------
Total non-interest income.................................... 10,237 554 1,719
--------------- --------------- ------------
Non-interest expense:
Employee compensation and benefits.............................. 3,997 3,372 2,721
Occupancy and equipment......................................... 1,727 1,258 978
Insurance (2)................................................... 1,027 844 835
Professional fees............................................... 1,269 833 543
Other........................................................... 4,129 3,579 2,746
--------------- --------------- ------------
Total non-interest expense................................... 12,149 9,886 7,823
--------------- --------------- ------------
Income before income taxes and preferred stock dividends ......... 9,981 3,607 6,356
Provision for income taxes (3).................................... 3,741 1,328 2,318
--------------- --------------- ------------
Net income before preferred stock dividends....................... 6,240 2,279 4,038
Preferred stock dividends......................................... 2,210 2,069 1,513
--------------- --------------- ------------
Net income after preferred stock dividends........................ $ 4,030 $ 210 $ 2,525
=============== =============== ============
FINANCIAL CONDITION DATA:
Total assets...................................................... $ 608,415 $ 551,075 $ 435,378
Loans receivable, net, and mortgage-backed securities(4).......... 506,132 470,154 313,899
Investments, overnight deposits, tax certificates,
repurchase agreements, certificates of deposits and other
interest-earning assets.......................................... 88,768 64,783 100,118
Total liabilities................................................. 562,670 509,807 397,859
Deposits.......................................................... 310,074 347,795 295,108
Borrowings........................................................ 241,775 158,175 97,775
Trust Preferred Securities........................................ - - --
Total stockholders' equity........................................ 45,745 41,268 30,273
Common stockholders' equity....................................... 21,096 16,667 17,162
PER COMMON SHARE DATA:
Basic earnings per common share(5)................................ $ 1.99 $ .11 $ 1.67
=============== =============== ============
Diluted earnings per common share(5).............................. $ 1.26 $ .10 $ 1.00
=============== =============== ============
Weighted average number of common shares outstanding
during the period:
Basic(5)......................................................... 2,021,601 1,957,210 1,509,264
Diluted(5)....................................................... 4,158,564 2,175,210 3,239,618
Equity per common share........................................... $ 10.20 $ 8.33 $ 8.86
Fully converted tangible equity per common share.................. $ 8.15 $ 7.39 $ 7.57
</TABLE>
(Continued on next page)
35
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED
DECEMBER 31, AT OR FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
------------- ------------------------------------------
1997 1996 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS
PERFORMANCE RATIOS:
Return on average assets(6)(7)................................... .33% .62% .51% .36% 1.10% .46% 1.12%
Return on average common equity(6)............................... 6.31 9.55 9.34 1.30 22.60 1.21 18.55
Return on average total equity(6)................................ 5.87 8.08 8.06 4.30 14.70 5.84 14.07
Interest rate spread(6).......................................... 1.39 2.59 2.07 2.10 2.12 2.78 3.59
Net interest margin(6)........................................... 1.66 2.86 2.31 2.51 2.39 3.01 3.87
Dividend payout ratio(8)......................................... 16.81 42.02 38.03 82.95 35.42 96.79 40.66
Ratio of earnings to combined fixed charges and preferred
stock dividends(9):
Excluding interest on deposits................................ 1.18 1.32 1.26 1.05 1.52 1.07 1.87
Including interest on deposits................................ 1.09 1.11 1.10 1.02 1.21 1.03 1.27
Total loans, net, and mortgage-backed securities to
total deposits................................................185.22 129.00 148.98 141.58 163.13 134.40 109.65
Non-interest expenses to average assets.......................... 1.17 1.85 1.55 1.97 2.14 2.04 2.18
Efficiency ratio(10)............................................. 57.43 59.37 57.56 61.11(11) 85.50(11) 66.06 45.17
ASSET QUALITY RATIOS:
Ratio of non-performing loans to total loans..................... .39% .70% .72% .99% 1.02% 1.07% 1.54%
Ratio of non-performing assets to total loans, real estate
owned and tax certificates..................................... .45 .86 .79 1.14 1.35 1.41 1.78
Ratio of non-performing assets to total assets................... .40 .70 .67 .95 1.10 1.17 1.46
Ratio of charge-offs to total loans(6)........................... .002 .03 .03 .08 .13 .39 .07
Ratio of loan loss allowance to total loans...................... .16 .28 .21 .34 .32 .20 .38
Ratio of loan loss allowance to non-performing loans............. 40.78 39.60 28.96 33.74 31.54 18.89 24.70
CAPITAL RATIOS:
Ratio of average common equity to average total assets........... 4.35% 3.74% 3.40% 4.78% 3.14% 3.58% 3.79%
Ratio of average total equity to average total assets............ 5.62 7.62 6.36 8.44 7.47 8.05 7.99
Tangible capital-to-assets ratio(12)............................. 7.11 7.80 8.07 7.01 7.09 6.65 7.56
Core capital-to-assets ratio(12)................................. 7.11 7.80 8.07 7.01 7.09 6.65 7.56
Risk-based capital-to-assets ratio(12)........................... 12.89 14.63 11.27 14.19 15.79 14.13 15.85
<FN>
- ------------------------------------
(1) In 1995 the Company recorded a $9.3 million gain ($5.8 million after
tax) from the sale of its branches on the west coast of Florida.
(2) In 1996 the Company recorded a one-time SAIF special assessment of $2.6
million ($1.6 million after tax).
(3) Amount reflects expense from change in accounting principle of $194,843
for fiscal 1994. See Note 15 to Consolidated Financial Statements.
(4) Does not include mortgage loans held for sale.
(5) Earnings per share for all periods presented before December 31, 1997
have been restated in accordance with Financial Accounting Standard
128.
(6) Calculated on an annualized basis.
(7) Return on average assets is calculated before payment of preferred
stock dividends.
(8) 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.
(9) 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.
(10) Efficiency ratio is calculated by dividing non-interest expenses less
non-interest income by net interest income.
(11) These efficiency ratios have been adjusted to exclude the impact of the
one-time SAIF special assessment in 1996 and the gain on the sale of
the Company's branches in 1995. If these ratios were not adjusted, the
ratios would have been 76.45 in 1996 and 14.58 in 1995.
(12) Regulatory capital ratio of the Bank.
</FN>
</TABLE>
36
<PAGE>
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 as of and for the three
month periods ended December 31, 1997 and 1996. 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, 1997 attached as Appendix A to this Prospectus and the
Company's December 31, 1997 Operating Results and Financial Information attached
as Appendix B to this Prospectus. Reference is also made to Appendix A for
review of the consolidated operating results and financial condition of the
Company as of and for the years ended September 30, 1997, 1996 and 1995.
The following discussion and analysis contains forward looking statements.
Additional written or oral forward looking statements may be made by the Company
from time to time in filings with the Securities and Exchange Commission or
otherwise. Such forward looking statements are within the meaning of that term
in Section 27A of the Securities Act of 1933, as amended, (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Such statements may include, but not be limited to, projections
of income, borrowing costs, prepayment rates, and plans for future operations or
acquisitions, as well as assumptions relating to the foregoing. The words
"believe," "expect," "anticipate," "estimate," "project," "intend," and similar
expressions identify forward looking statements that are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially from those set forth in,
contemplated by, or underlying the forward looking statements.
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM SEPTEMBER 30, 1997 TO
DECEMBER 31, 1997.
ASSETS
Total assets increased by $883 million, or 41.2%, from $2.1 billion at September
30, 1997, to $3.0 billion at December 31, 1997, principally due to the purchase
of $1.1 billion of residential mortgages as discussed more fully below.
The Company's short-term investments, primarily consisting of Federal Home Loan
Bank ("FHLB") overnight deposits, and securities purchased under agreements to
resell decreased by $29.1 million, or 36.7%, to $50.3 million at December 31,
1997, from $79.4 million at September 30, 1997 as a result of the Company's
acquisition of residential mortgages.
Mortgage-backed securities available for sale decreased $24.5 million or 22.5%
from $108.9 million at September 30, 1997 to $84.4 million at December 31, 1997,
due primarily to repayments and to sales of such securities as management took
advantage of the declining interest rate environment.
The Company's net loans receivable increased by $918 million, or 55.3%, to $2.6
billion at December 31, 1997, from $1.7 billion at September 30, 1997, primarily
due to the purchase of $1.1 billion of residential loans. Of these loans
purchased, $822 million, or 79.3%, were one year adjustable rate mortgages with
an initial rate below the fully indexed rate. These loans were purchased
primarily to leverage the additional
37
<PAGE>
capital ($43.9 million in net proceeds) obtained from the issuance of 3.68
million shares of Class A Common Stock during the quarter. (See "Capital"
below).
During the three months ended December 31, 1997, the Company sold $27.9 million
of loans and recorded a gain of $692,000 on the sales.
Non-performing assets as of December 31, 1997 were $12.2 million which
represents a decrease of $2.1 million or 14.8% from $14.3 million as of
September 30, 1997. Non-performing assets as a percentage of total assets
declined 27 basis points from .67% as of September 30, 1997 to .40% as of
December 31, 1997 due not only to the decline in non-performing assets but also
to the increase in total assets.
The allowance for loan losses increased $611,000 from $3.7 million as of
September 30, 1997 to $4.3 million as of December 31, 1997. The increase was
attributable to additional provision for loan losses resulting primarily from
the growth of the loan portfolio.
38
<PAGE>
The following table sets forth information concerning the Company's
non-performing assets as of the dates indicated.
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ -------------
(Dollars in thousands)
Non-accrual loans (1) $9,365 $10,866
Restructured loans 1,190 1,888
Loans past due 90 days and still accruing -- --
---------- --------
Total non-performing loans 10,555 12,754
Non-accrual tax certificates 872 958
REO 780 611
--------- -------
Total non-performing assets $12,207 $14,323
======= =======
Allowance for tax certificates losses $ 713 $ 697
Allowance for loan losses 4,304 3,693
------ ------
Total allowance $5,017 $4,390
====== ======
Non-performing assets as a percentage of
total assets .40% .67%
Non-performing loans as a percentage of
total loans .39% .72%
Allowance for loan losses as a percentage of
total loans .16% .21%
Allowance for loan losses as a percentage of
non-performing loans 40.78% 28.96%
Net charge-offs as a percentage of
average total loans .002% .04%
- -----------
(1) In addition to the above, management had concerns as to the borrower's
ability to comply with present repayment terms on $1,410,000 and
$1,878,000 of accruing loans as of December 31, 1997 and September 30,
1997, respectively. Management estimates the loss, if any, on these
loans will not be significant.
LIABILITIES
Deposits increased by $248 million, or 20.7%, to $1.44 billion at December 31,
1997 from $1.20 billion at September 30, 1997. Management believes this increase
is attributable to the Company's offering competitive interest rates and
personalized service in a market area dominated by super-regional banks and to
continued industry consolidation.
During the quarter, the Company opened two de novo branch offices and during
January 1998 opened a third branch office. The Company has announced that it has
signed leases for three additional de novo branch offices and has plans to open
as many as six more during the next twelve months.
39
<PAGE>
FHLB advances were $1.26 billion at December 31, 1997, up $590 million from $671
million at September 30, 1997. This increase was used to fund, together with
other liquidity sources, the loan purchases. (See "Discussion of Financial
Condition Changes from September 30, 1997 to December 31, 1997 - Assets").
CAPITAL
The Company's total stockholders' equity was $145.6 million at December 31,
1997, an increase of $46.0 million, or 46.1%, from $99.6 million at September
30, 1997. The increase is due primarily to the issuance of 3.68 million shares
of Class A Common Stock pursuant to a public stock offering. The net proceeds
from the offering were $43.9 million.
In September 1997, the Company exercised its right to call all the outstanding
shares of its 8% Noncumulative Convertible Preferred Stock, Series 1996,
effective October 10, 1997. As a result 927,204 shares (387,709 shares as of
September 30, 1997) converted to 1,548,410 shares of Class A Common Stock at a
ratio of approximately 1.67 shares of common stock for each share of preferred.
The remaining 5,696 shares of preferred stock were redeemed at $15 per share.
In January 1998, the Company called its 743,870 shares of its 8% Noncumulative
Convertible Preferred Stock, Series 1993 effective February 20, 1998 at $10.00
per share. Management expects substantially all shares of the preferred stock to
be converted into common stock at a ratio of one for one.
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, as defined, of not less than 4.0% of
its net withdrawal deposit accounts plus short term borrowings. As of December
31, 1997 the Bank had liquid assets of 5.08%, which was in compliance with this
requirement.
The Company is in the process of securitizing certain purchased residential
mortgages in its portfolio. The securitization will give the Bank the capability
of borrowing, on a secured basis, additional funds which may be used to fund
additional loan purchases or repay a portion of FHLB advances.
The Company periodically has discussions with and reviews financial information
on other financial institutions which may lead to the acquisition of all or part
of that financial institution by the Company.
YEAR 2000
Data processing for the Company's major applications is performed by two third
party service bureaus. Both have indicated that their systems will be year 2000
compliant. Consequently, management does not anticipate that the year 2000 issue
will be material to the Company's operations or financial condition.
40
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31,
1997 AND 1996.
NET INCOME AFTER PREFERRED STOCK DIVIDENDS
The Company had net income after preferred stock dividends of $1.64 million for
the three months ended December 31, 1997, compared to net income after preferred
stock dividends of $927,000 for the three months ended December 31, 1996, or an
increase of 77.2%. All major categories of income and expense increased
significantly in the three months ended December 31, 1997 as compared to the
three months ended December 31, 1996 and reflect the significant growth the
Company has experienced in the last year. Below is a more detailed discussion of
each major category of income and expenses. Despite the increase in net income
after preferred stock dividends, basic and diluted earnings per share each
declined by $.01 per share due to the increase in the average number of shares
outstanding over the period due to the common stock offering and the common
stock issued in connection with the Suncoast acquisition.
NET INTEREST INCOME
Net interest income increased $2.29 million, or 32.3%, to $9.37 million for the
three months ended December 31, 1997 from $7.08 million for the three months
ended December 31, 1996. This increase is attributable to an increase in average
earning assets of $1.32 billion, or 132%, to $2.32 billion for the three months
ended December 31, 1997 from $998.3 million for the three months ended December
31, 1996, offset by a decline in the net interest spread of 120 basis points.
The increase in average earning assets is due primarily to loan purchases;
approximately $200 million of the increase in average earning assets is a result
of the acquisition of Suncoast Savings on November 15, 1996. The decline in the
interest rate spread of 120 basis points from 2.59% for the three months ended
December 31, 1996 to 1.39% for the three months ended December 31, 1997 is due
to a decline in the yield on interest earning assets of 65 basis points and an
increase in the rate paid on interest bearing liabilities of 55 basis points,
each for the reasons discussed below.
The increase in interest income of $21.96 million, or 113%, to $41.45 million
for the three months ended December 31, 1997 from $19.49 million for the three
months ended December 31, 1996, reflects increases in interest and fees on loans
of $20.27 million.
This increase in interest and fees on loans is due to an increase in average
loans outstanding of $1.24 billion, or 150% to $2.07 billion for the three
months ended December 31, 1997 from $830 million for the three months ended
December 31, 1996 which resulted from purchases of residential mortgages in the
secondary market. Because many of the loans purchased are adjustable-rate
mortgages in the "teaser" period, the yield on loans declined from 7.97% for the
three months ended December 31, 1996 to 7.10% for the three months ended
December 31, 1997. This 87 basis point drop in the yield earned on loans caused
the yield on all interest earning assets to decline 65 basis points from 7.78%
to 7.13%.
The increase in interest expense of $19.67 million, or 158%, to $32.08 million
for the three months ended December 31, 1997 from $12.42 million for the three
months ended December 31, 1996 primarily reflects an increase in interest
expense on interest bearing deposits of $8.70 million, or 98%, from $8.88
million for the three months ended December 31, 1996, to $17.58 million for the
three months ended December 31, 1997, an increase in interest expense on FHLB
advances and other borrowings of $8.09 million from $3.51 million for the three
months ended December 31, 1996 to $11.59 million for the three months ended
December 31, 1997, and an increase in preferred dividends of Trust Subsidiary of
$2.88 million to $2.91 million for the three months ended December 31, 1997. The
increase in each of these categories reflects
41
<PAGE>
significant increases in the average balance for each category. The increase in
the average balances in interest bearing deposits, FHLB advances and other
borrowings were used to fund loan purchases. The proceeds from the Trust
Preferred Securities were contributed as capital to the Bank to fund its growth.
Of the $599 million growth in average interest bearing deposits, $504 million,
or 84% was in certificates of deposits. Because the growth in interest bearing
liabilities was concentrated in the higher costing categories of certificates of
deposits, FHLB advances and other borrowings, and preferred dividends of the
Trust Subsidiary, the rate paid on interest bearing liabilities increased 55
basis points from 5.19% for the three months ended December 31, 1996 to 5.74%
for the three months ended December 31, 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended December 31, 1997 was
$650,000 as compared to $250,000 for the three months ended December 31, 1996.
This increase is related to the strong loan growth in the three months ended
December 31, 1997.
The provision for loan losses represents management's estimate of the charge to
operations after reviewing the nature, volume, delinquency status, and inherent
risk in the loan portfolio in relation to the allowance for loan losses. No
assurance can be given that such reserve will prove to be adequate.
NON-INTEREST INCOME
Non-interest income for the three months ended December 31, 1997 was $1.6
million compared with $600,000 for the three months ended December 31, 1996, an
increase of $1.0 million. This increase is due to the gain on sale of loans and
mortgage-backed securities of $1.1 million recorded in the three months ended
December 31, 1997.
NON-INTEREST EXPENSES
Operating expenses increased $2.2 million, or 46.2%, to $7.03 million for the
three months ended December 31, 1997 compared to $4.81 million for the three
months ended December 31, 1996. The increase in expenses is attributable to the
rapid growth and branch office expansion the Company has experienced.
INCOME TAXES
The income tax provision was $1.36 million for the three months ended December
31, 1997, compared to $1.02 million for the three months ended December 31,
1996. The increase in income taxes is the result of the Company's higher pre-tax
earnings during the three months ended December 31, 1997, compared to the three
months ended December 31, 1996.
PREFERRED STOCK DIVIDENDS
Preferred stock dividends for the three months ended December 31, 1997 were
$332,000, a decrease of $340,000, as compared to $672,000 for the three months
ended December 31, 1996. This decrease is the result of the conversion to common
stock of Noncumulative Convertible Preferred Stock, Series C, C II and Series
1996 as well as the purchase by the Company of 452,883 shares of the 9%
Noncumulative Perpetual Preferred Stock.
42
<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
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1997 1996
----------------------------------------- ------------------------------------------
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 $2,071,826 $ 36,893 7.10% $830,157 $ 16,616 7.97%
Mortgage-backed securities 113,910 2,192 7.70 78,721 1,309 6.65
Short-term investments (1) 28,383 420 5.79 33,021 467 5.53
Tax certificates 44,198 831 7.52 36,681 756 8.24
Long-term investments and
FHLB stock, net 62,062 1,114 7.14 19,736 343 6.89
--------------- ------------ ---- -------------- ------------- ----
Total interest-earning assets 2,320,379 41,450 7.13 998,316 19,491 7.78
--------------- ------- ---- -------- ------------- ----
Interest-bearing liabilities:
NOW/money market 106,372 748 2.79 73,103 413 2.24
Savings 168,177 1,991 4.70 106,209 1,254 4.68
Certificates of deposit 1,023,980 14,845 5.75 519,785 7,215 5.51
Trust Preferred securities 116,000 2,908 10.03 1,087 28 10.30
FHLB advances and other
borrowings 792,391 11,591 5.72 245,520 3,505 5.59
-------- ------------ ---- -------- -------- ----
Total interest-bearing
liabilities 2,206,920 32,083 5.74 945,704 12,415 5.19
--------- ------------ ---- ---------- ------------- ----
Excess of interest-earning assets
over interest-bearing liabilities $ 113,459 $ 52,612
========= ==============
Net interest income $ 9,367 $ 7,076
======= ============
Interest rate spread 1.39% 2.59%
===== =====
Net interest margin 1.66% 2.86%
===== =====
Ratio of interest-earning assets to
interest-bearing liabilities 105.14% 105.56%
======= =======
</TABLE>
- ---------------------
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and
certificates of deposit.
43
<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,
------------------------------------------------
1997 VS. 1996
------------------------------------------------
INCREASE (DECREASE) DUE TO
------------------------------------------------
CHANGES CHANGES CHANGES TOTAL
IN IN IN INCREASE/
VOLUME RATE RATE/VOLUME (DECREASE)
------ ---- ----------- ----------
(Dollars in thousands)
Interest income attributable to:
<S> <C> <C> <C> <C>
Loans $ 24,186 $ (1,384) $ (2,526) $ 20,276
Mortgage-backed securities 585 206 92 883
Short-term investments (1) (66) 22 (3) (47)
Tax certificates 155 (66) (14) 75
Long-term investments and FHLB
stock 730 13 29 772
------- ------- --------- --------
Total interest-earning assets 25,590 (1,209) (2,422) 21,959
------ ------- --------- -------
Interest expense attributable to:
NOW/money market 188 101 46 335
Savings 732 3 2 737
Certificates of deposit 6,999 321 310 7,630
Trust Preferred securities 2,960 (1) (79) 2,880
FHLB advances and other
borrowings 7,785 75 226 8,086
-------- --------- -------- --------
Total interest-bearing liabilities 18,664 499 505 19,668
------- -------- -------- -------
Increase (decrease) in net interest income $ 6,926 $(1,708) $(2,927) $ 2,291
=========== =========== ======== =======
</TABLE>
- ------------
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and
certificates of deposit.
44
<PAGE>
DESCRIPTION OF THE PREFERRED SECURITIES
GENERAL
The following is a summary of certain terms and provisions of the
Preferred Securities. This summary of certain terms and provisions of the
Preferred Securities does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Trust Agreement. Where particular
defined terms of the Trust Agreement are referred to, but not defined herein,
such defined terms are incorporated herein by reference. The form of the Trust
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
DISTRIBUTIONS
The Preferred Securities represent preferred undivided beneficial
interests in the assets of the Trust Issuer. Distributions on such Preferred
Securities will be payable at the annual rate of 9% of the stated Liquidation
Amount of $25, payable quarterly in arrears on March 31, June 30, September 30
and December 31 of each year, to the holders of the Preferred Securities on the
relevant record dates. The record date will be the 15th day of the month in
which the relevant Distribution payment date occurs. Distributions will
accumulate from the date of the initial issuance of the Preferred Securities and
are cumulative. The first Distribution payment date for the Preferred Securities
will be June 30, 1998. 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
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 (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 executive order to remain closed or a day on
which the principal 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 Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarters with respect to
each Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. As a consequence of any
such deferral of interest, quarterly Distributions on the Preferred Securities
by the Trust 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 9%
thereof, compounded quarterly from the relevant payment date for such
Distributions, to the extent permitted by applicable law. The term
"Distributions" as used herein, shall include any such additional Distributions
and shall include amounts paid in respect of any Special Event Redemption
Price. During any such
45
<PAGE>
Extension Period, the Company may not (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, (other than (a) the
reclassification of any class of the Company's capital stock into another class
of capital stock, (b) dividends or distributions payable in any class of the
Company's common stock, (c) any declaration of a dividend in connection with the
implementation of a shareholder 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 and (d) purchases of the Company's common stock related to the
rights under any of the Company's benefit plans for its or its subsidiaries'
directors, officers or employees), (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 Junior
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 Junior
Subordinated Debentures (other than payments under the Guarantee), or (iii)
redeem, purchase or acquire less than all of the Junior Subordinated Debentures
or any of the Preferred Securities. Prior to the termination of any such
Extension Period, the Company may further defer the payment of interest on the
Junior Subordinated Debentures, provided that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Junior
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 9%, compounded quarterly, 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 Junior Subordinated Debentures--Right
to Defer Interest Payment Obligation" and "Certain Federal Income Tax
Consequences-Interest Income and Original Issue Discount."
The revenue of the Trust Issuer available for distribution to
holders of its Preferred Securities will be limited to payments under the Junior
Subordinated Debentures in which the Trust Issuer will invest the proceeds from
the issuance and sale of its Trust Securities. See "Description of the Junior
Subordinated Debentures." If the Company does not make interest payments on the
Junior 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 Trust 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 the Guarantee."
The Company has no current intention of exercising its right to
defer payments of interest on the Junior Subordinated Debentures.
SUBORDINATION OF THE COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the
Preferred Securities and Common Securities, as applicable, shall be made PRO
RATA based on the Liquidation Amount of the Preferred Securities and the Common
Securities; PROVIDED, HOWEVER, that if on any Distribution Date or Redemption
Date (as defined herein) 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 Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of such Common Securities, shall
46
<PAGE>
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 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
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 Junior 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 Trust 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 Trust Securities plus accumulated and unpaid Distributions thereon (the
"Redemption Price") to the date of redemption (the "Redemption Date").
The Company has the option to redeem the Junior Subordinated
Debentures prior to maturity on or after March 31, 2003, in whole or in part
from time to time, and thereby cause a mandatory redemption of a Like Amount of
the Trust Securities. Any time that a Tax Event, an Investment Company Event or
a Capital Treatment Event (each as defined below) shall occur and be continuing,
the Company has the right to redeem the Junior Subordinated Debentures in whole
(but not in part) within 180 days following the occurrence of such event and
thereby cause a mandatory redemption of the Preferred Securities in whole (but
not in part). For a fuller description of the Stated Maturity and redemption
provisions of the Junior Subordinated Debentures, see "Description of the Junior
Subordinated Debentures--Redemption or Exchange."
REDEMPTION PROCEDURES
Trust 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 Junior Subordinated
Debentures. Redemptions of the Trust Securities shall be made and the Redemption
Price shall be paid on each Redemption Date only to the extent that the Trust
Issuer has funds on hand
47
<PAGE>
available for the payment of such Redemption Price. See also "--Subordination of
the Common Securities."
If the Trust Issuer gives a notice of redemption in respect of
the Trust 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 the 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 thereof upon surrender of their certificates evidencing
such Trust Securities. Notwithstanding the foregoing, Distributions payable on
or prior to the Redemption Date for the Trust Securities called for redemption
shall be payable to the holders of the Trust 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 Trust Securities so called for redemption will
cease, except the right of the holders of such Trust Securities to receive the
Redemption Price, but without interest on such Redemption Price, and such Trust
Securities will cease to be outstanding.
In the event that any date fixed for redemption of the Trust
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 Trust Securities called for redemption is
improperly withheld or refused and not paid either by the Trust Issuer or by the
Company pursuant to the Guarantee as described under "Description of the
Guarantee," Distributions on such Trust Securities will continue to accumulate
at the then applicable rate, from the Redemption Date originally established by
the Trust Issuer for such Trust 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) and the provisions of the Trust Agreement, 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 Trust Securities and any
distribution of the Junior Subordinated Debentures to holders of the Trust
Securities shall be made to the applicable recordholders thereof as they appear
on the register for the Trust Securities on the relevant record date, which date
shall be the date at least 15 days prior to the Redemption Date or liquidation
date, as applicable.
If less than all of the Preferred Securities and Common
Securities issued by the Trust Issuer are to be redeemed on a Redemption Date,
then the aggregate Liquidation Amount of the Preferred Securities and Common
Securities to be redeemed shall be allocated PRO RATA to the Preferred
Securities and the 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, or if the Preferred Securities are then held in the form of a global
preferred security in accordance with DTC's customary procedures. The Property
Trustee shall promptly notify the trust
48
<PAGE>
registrar in writing of the Preferred Securities selected for redemption and, in
the case of any 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 Junior Subordinated Debentures, on and
after the Redemption Date interest will cease to accrue on the Junior
Subordinated Debentures or portions thereof called for redemption.
LIQUIDATION OF THE TRUST ISSUER AND DISTRIBUTION OF THE JUNIOR SUBORDINATED
DEBENTURES TO HOLDERS
The Company has the right at any time to terminate the Trust
Issuer and, after satisfaction of the liabilities of creditors of the Trust
Issuer as provided by applicable law, cause Junior Subordinated Debentures to be
distributed to the holders of the Preferred Securities and Common Securities in
exchange therefor upon liquidation of the Trust Issuer.
After the liquidation date fixed for any distribution of the
Junior Subordinated Debentures for Preferred Securities (i) such Preferred
Securities will no longer be deemed to be outstanding, and (ii) DTC or its
nominee, as the registered holder of Preferred Securities, will receive a
registered global certificate or certificates representing the Junior
Subordinated Debentures to be delivered upon such distribution with respect to
Preferred Securities held by DTC or its nominee, (iii) any certificates
representing the Preferred Securities not held by DTC or its nominee will be
deemed to represent Junior 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 Junior 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 Junior Subordinated Debentures to Holders of
the Preferred Securities."
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to the Trust Agreement, the Trust 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
49
<PAGE>
liquidation of the Company, subject in certain instances to any such event
remaining in effect for a period of 60 or 90 days; (ii) the distribution of a
Like Amount of the Junior 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 Trust 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 Trust Issuer by a court of competent jurisdiction.
If an early termination occurs as described in clause (i), (ii)
or (iv) of the preceding paragraph, the Trust Issuer shall be liquidated by the
Trust Issuer Trustees as expeditiously as the Trust Issuer Trustees determine to
be possible by distributing, after satisfaction of liabilities to creditors of
the Trust Issuer, if any, as provided by applicable law, to the holders of the
Trust Securities a Like Amount of the Junior 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
Trust Issuer available for distribution to holders, after satisfaction of
liabilities to creditors of the Trust Issuer, if any, as provided by applicable
law, an amount equal to, in the case of holders of the Trust 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 Trust Issuer has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust Issuer on Preferred Securities shall be paid on a PRO RATA basis. The
Company, as the holder of the 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 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 Junior Subordinated Debentures--Debenture
Events of Default"); or
(ii) default 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 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 Trust Issuer Trustees in
the Trust Agreement (other than a covenant or
50
<PAGE>
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 Trust Issuer Trustee
or Trustees by the holders of at least 25% in aggregate Liquidation
Amount 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 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 Common
Securities as described above. See "--Subordination of the Common Securities"
and "--Liquidation Distribution Upon Termination."
REMOVAL OF THE TRUST ISSUER TRUSTEES
Unless an event of default under the Indenture shall have
occurred and be continuing, any Trust Issuer Trustee may be removed at any time
by the holder of the 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 Common Securities. No resignation or removal of any
Trust 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 (as defined in the Trust Agreement) may at the time be
located, the Company, as the holder of the 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
51
<PAGE>
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 TRUST 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 Trust Issuer Trustee shall be
a party or any entity succeeding to all or substantially all the corporate trust
business of such Trust Issuer Trustee, shall be the successor of such Trust
Issuer Trustee under the Trust Agreement, provided such entity shall be
otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST ISSUER
The Trust 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 Trust 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, the Property
Trustee or the Delaware 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 Trust 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 Junior Subordinated Debentures, (iii) the Successor Securities are
registered or listed, or any Successor Securities will be registered or listed
upon notification of issuance, on any national securities exchange or other
organization on which the Preferred Securities are then registered or listed
(including, if applicable, the New York Stock Exchange), 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 Trust Issuer, (vii) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Company has received an opinion from independent counsel to the Trust 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,
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<PAGE>
conveyance, transfer or lease, neither the Trust 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 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 Trust
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, conveyance, transfer or lease
would cause the Trust Issuer or the successor entity to be classified as other
than a grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of the
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, (i) with respect to
acceptance of appointment of a successor trustee, (ii) to 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 (iii) to
modify, eliminate or add to any provisions of the Trust Agreement to such extent
as shall be necessary to ensure that the Trust 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 Trust Issuer will
not be required to register as an "investment company" under the Investment
Company Act; PROVIDED, however, that in the case of clause (ii), 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 Trust Issuer Trustees and
the Company with (i) the consent of holders representing not less than a
majority (based upon Liquidation Amounts) of the outstanding Trust Securities
and (ii) receipt by the Trust Issuer Trustees of an opinion of counsel to the
effect that such amendment or the exercise of any power granted to the Trust
Issuer Trustees in accordance with such amendment will not affect the Trust
Issuer's status as a grantor trust for United States federal income tax purposes
or the Trust Issuer's exemption from status as an "investment company" under the
Investment Company Act, PROVIDED that without the consent of each holder of the
Trust Securities, the Trust Agreement may not be amended to (a) change the
amount or timing of any Distribution on the Trust Securities or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the Trust Securities as of a specified date or (b) restrict the right of a
holder of the Trust Securities to institute suit for the enforcement of any such
payment on or after such date.
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So long as the Junior Subordinated Debentures are held by the
Property Trustee, the Trust 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 Junior Subordinated Debentures, (ii) waive any past
default that is waivable under the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the Junior Subordinated
Debentures shall be due and payable or (iv) consent to any amendment,
modification or termination of the Indenture or the Junior 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 of each
holder of the Junior 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 Trust 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 received with respect to the Junior
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 Trust Issuer Trustees shall obtain an opinion of counsel
experienced in such matters to the effect that the Trust 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 set forth in the Trust Agreement.
No vote or consent of the holders of the Preferred Securities
will be required for the Trust 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 Trust Issuer
Trustees or any affiliate of the Company or the Trust 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 Trust Issuer is $25 per Preferred Security plus
accumulated and unpaid Distributions, which may be in the form of a distribution
of such amount in Junior Subordinated Debentures, subject to certain exceptions.
See "--Liquidation Distribution Upon Termination."
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EXPENSES AND TAXES
In the Indenture, the Company, as borrower, has agreed to pay all
debts and other obligations (other than with respect to the Preferred
Securities) and all costs and expenses of the Trust Issuer (including costs and
expenses relating to the organization of the Trust Issuer, the fees and expenses
of the Trust Issuer Trustee and the costs and expenses relating to the operation
of the Trust Issuer) and to pay any and all taxes and all costs and expenses
with respect thereto (other than United States withholding taxes) to which the
Trust Issuer might become subject. The foregoing obligations of the Company
under the Indenture are for the benefit of, and shall be enforceable by, any
person to whom any such debts, obligations, costs, expenses and taxes are owed
(a "Creditor") whether or not such Creditor has received notice thereof. Any
such Creditor may enforce such obligations of the Company directly against the
Company, and the Company has irrevocably waived any right or remedy to require
that any such Creditor take any action against the Trust Issuer or any other
person before proceeding against the Company. The Company has also agreed in the
Indenture to execute such additional agreements as may be necessary or desirable
to give full effect to the foregoing.
BOOK ENTRY, DELIVERY AND FORM
The Preferred Securities will be issued in the form of one or
more fully registered global securities which will be deposited with, or on
behalf of, DTC and registered in the name of DTC's nominee. Unless and until it
is exchangeable in whole on in part for the Preferred Securities in definitive
form, a global security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC
or any such nominee to a successor of such Depository or a nominee of such
successor.
Ownership of beneficial interests in a global security will be
limited to persons that have accounts with DTC or its nominee ("Participants")
or persons that may hold interests through Participants. The Company expects
that, upon the issuance of a global security, DTC will credit, on its book-entry
registration and transfer system, the Participants' accounts with their
respective principal amounts of the Preferred Securities represented by such
global security. Ownership of beneficial interests in such global security will
be shown on, and the transfer of such ownership interests will be effected only
through, records maintained by DTC (with respect to interests of Participants)
and on the records of Participants (with respect to interests of Persons held
through Participants). Beneficial owners will not receive written confirmation
from DTC of their purchase, but are expected to receive written confirmations
from the Participants through which the beneficial owner entered into the
transaction. Transfers of ownership interests will be accomplished by entries on
the books of Participants acting on behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a
global security, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Preferred Securities represented by such global
security for all purposes under the Junior Subordinated Indenture. Except as
provided below, owners of beneficial interests in a global security will not be
entitled to receive physical delivery of the Preferred Securities in definitive
form and will not be considered the owners or holders thereof under the Junior
Subordinated Indenture. Accordingly, each person owning a
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beneficial interest in such a global security must rely on the procedures of DTC
and, if such person is not a Participant, on the procedures of the Participant
through which such person owns its interest, to exercise any rights of a holder
of Preferred Securities under the Junior Subordinated Indenture. The Company
understands that, under DTC's existing practices, in the event that the Company
requests any action of holders, or an owner of a beneficial interest in such a
global security desires to take any action which a holder is entitled to take
under the Junior Subordinated Indenture, DTC would authorize the Participants
holding the relevant beneficial interests to take such action, and such
Participants would authorize beneficial owners owning through such Participants
to take such action or would otherwise act upon the instructions of beneficial
owners owning through them. Redemption notices will also be sent to DTC. If less
than all of the Preferred Securities are being redeemed, the Company understands
that it is DTC's existing practice to determine by lot the amount of the
interest of each Participant to be redeemed.
Distributions on the Preferred Securities registered in the name
of DTC or its nominee will be made to DTC or its nominee, as the case may be, as
the registered owner of the global security representing such Preferred
Securities. None of the Company, the Trust Issuer Trustees, the Administrators,
any Paying Agent or any other agent of the Company or the Trust Issuer Trustees
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the global
security for such Preferred Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Disbursements of Distributions to Participants shall be the responsibility of
DTC. DTC's practice is to credit Participants' accounts on a payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on the payable date. Payments
by Participants to beneficial owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Company, the Trust Issuer
Trustees, the Paying Agent or any other agent of the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
DTC may discontinue providing its services as securities
depository with respect to the Preferred Securities at any time by giving
reasonable notice to the Company or the Trust Issuer Trustees. If DTC notifies
the Company that it is unwilling to continue as such, or if it is unable to
continue or ceases to be a clearing agency registered under the Exchange Act and
a successor depository is not appointed by the Company within ninety days after
receiving such notice or becoming aware that DTC is no longer so registered, the
Company will issue the Preferred Securities in definitive form upon registration
of transfer of, or in exchange for, such global security. In addition, the
Company may at any time and in its sole discretion determine not to have the
Preferred Securities represented by one or more global securities and, in such
event, will issue Preferred Securities in definitive form in exchange for all of
the global securities representing such Preferred Securities.
DTC has advised the Company and the Trust Issuer as follows: DTC
is a limited purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions
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between Participants through electronic book entry changes to accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other organizations.
Certain of such Participants (or their representatives), together with other
entities, own DTC. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a Participant, either directly or indirectly.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Preferred Securities will be made by the
Underwriters in immediately available funds.
Secondary trading in preferred securities of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the Preferred Securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as to
the effect, if any, of settlement in immediately available funds on trading
activity in the Preferred Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities will be made to
DTC, which will credit the relevant accounts at DTC on the applicable
Distribution Dates or, if the Preferred Securities are not held by DTC, such
payments will be made by check mailed to the address of the holder entitled
thereto. as such address appears on the securities register for the Trust
Securities. The paying agent (the "Paying Agent") will initially be the Property
Trustee and any co-paying agent chosen by the Property Trustee and acceptable to
the Administrators. The Paying Agent will be permitted to resign as Paying Agent
upon 30 days' written notice to the Property Trustee and the Administrators. If
the Property Trustee is no longer the Paying Agent, the Property Trustee will
appoint a successor (which must be a bank or trust company reasonably acceptable
to the Administrators) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as the registrar and the transfer
agent for the Preferred Securities. Registration of transfers of Preferred
Securities will be effected without charge by or on behalf of the Trust Issuer,
except for the payment of any tax or other governmental charges that may be
imposed in connection with any transfer or exchange or the giving of such
indemnity as the Trust Issuer may require with respect thereto. In the event of
any redemption, the Trust Issuer will not be required to (i) issue, register the
transfer of, or exchange any Preferred Securities during a period beginning at
the opening of business 15 days before the date of mailing of a notice of
redemption of any Preferred Securities called for redemption and ending at the
close of business on the day of such mailing; or (ii) register the transfer of
or exchange any Preferred Securities so selected for redemption, in whole or in
part, except the unredeemed portion of any such Preferred Securities being
redeemed in part.
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INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during
the 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 Trust
Securities unless it is offered reasonable security or 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 Preferred
Securities are entitled under the Trust Agreement to vote, and the Company has
not given written instructions to the Property Trustee under the Trust
Agreement, then the Property Trustee will take such action as it deems advisable
and in the best interests of the holders of the Preferred 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 Trust Issuer in such a way that the
Trust 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 Junior 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 of the Trust Issuer
or the Trust Agreement, that the Company and the Administrative Trustees
determine in their discretion to be necessary or desirable for such purposes.
Holders of the Preferred Securities have no preemptive or similar
rights.
The Trust Agreement and the Preferred Securities will be governed
by, and construed in accordance with, the internal laws of the State of
Delaware.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under an
Indenture (the "Indenture") between the Company and The Bank of New York, as
trustee (the "Debenture Trustee"). The Indenture will be qualified as an
Indenture under the Trust Indenture Act. This summary of certain terms and
provisions of the Junior Subordinated Debentures and the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Indenture, and to the Trust Indenture Act. Wherever particular
defined terms of the Indenture are referred to, but not defined herein, such
defined terms are incorporated herein by reference. The form of the Indenture
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
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GENERAL
Concurrently with the issuance of the Preferred Securities, the
Trust Issuer will invest the proceeds thereof, together with the consideration
paid by the Company for the Common Securities, in the Junior Subordinated
Debentures. The Junior Subordinated Debentures will bear interest at the annual
rate of 9%, from the date of original issuance payable quarterly in arrears on
March 31, June 30, September 30, and December 31 of each year (each, an
"Interest Payment Date"), commencing June 30, 1998, 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 Trust Issuer, the
Junior Subordinated Debentures will be held in the name of the 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 Junior 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 9% thereof,
compounded quarterly from the relevant Interest Payment Date. The term
"interest" as used herein shall include quarterly interest payments, interest on
quarterly interest payments not paid on the applicable Interest Payment Date and
Additional Sums, as applicable.
The Junior Subordinated Debentures will mature on March 31, 2028
(such date, as it may be shortened as hereinafter described, the "Stated
Maturity"). If a Tax Event (as defined herein) occurs, then the Company will
have the right prior to the termination of the Trust Issuer, subject to the
Company having received prior regulatory approval if then required under
applicable capital guidelines or regulatory policies, to advance the Stated
Maturity of the Junior Subordinated Debentures to the minimum extent required in
order to allow for the payments of interest in respect of the Junior
Subordinated Debentures to continue to be tax deductible, but in no event shall
the resulting maturity of the Junior Subordinated Debentures be less than 15
years from the date of original issuance thereof. The Stated Maturity shall be
advanced only if, in the opinion of counsel to the Company experienced in such
matters, (a) after advancing the Stated Maturity, interest paid on the Junior
Subordinated Debentures will be deductible for United States federal income tax
purposes and (b) advancing the Stated Maturity will not result in a taxable
event to holders of the Trust Securities.
In the event that the Company elects to shorten the Stated
Maturity of the Junior Subordinated Debentures as the result of the occurrence
of a Tax Event, it will give notice thereof to the Debenture Trustee, the Trust
Issuer and to the holders of the Junior Subordinated Debentures no more than 180
days and no less than 90 days prior to the effectiveness thereof.
The Junior 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,
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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 Junior Subordinated Debentures
will be effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, and holders of the Junior Subordinated Debentures should
look only to the assets of the Company for payments on the Junior 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.
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 Junior Subordinated Debentures to defer
the payment of interest on the Junior Subordinated Debentures for a period not
exceeding 20 consecutive quarters with respect to each Extension Period,
PROVIDED that no Extension Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. At the end of each Extension Period, the Company
must pay all interest then accrued and unpaid on the Junior Subordinated
Debentures (together with interest on such unpaid interest at the annual rate of
9%, compounded quarterly from the relevant Interest Payment Date, to the
extent permitted by applicable law). During an Extension Period, interest would
continue to accrue and holders of the Junior Subordinated Debentures would be
required to accrue interest income for United States federal income tax
purposes. See "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount."
During any such Extension Period, the Company may not (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 (other
than (a) the reclassification of any class of the Company's capital stock into
another class of capital stock, (b) dividends or distributions payable in any
class of the Company's common stock, (c) any declaration of a dividend in
connection with the implementation of a shareholder 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 and (d) purchases of the Company's common stock
related to the rights under any of the Company's benefit plans for its or its
subsidiaries' directors, officers or employees), 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 Junior 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 Junior Subordinated Debentures (other than payments under the Guarantee), or
(iii) redeem, purchase or acquire less than all of the Junior Subordinated
Debentures or any of the Preferred Securities. 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 20 consecutive quarters or extend
beyond the Stated Maturity of the Junior 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 9%,
compounded quarterly, to the extent permitted by
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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 Junior 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 give notice of the record date, or
the date such Distributions are payable, to the New York Stock Exchange 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 Trust Issuer or the Property Trustee is required to pay
any additional taxes, duties or other governmental charges, the Company will pay
such additional amounts (the "Additional Sums") on the Junior Subordinated
Debentures as shall be required so that the Distributions payable by the Trust
Issuer shall not be reduced as a result of any such additional taxes, duties or
other governmental charges.
REDEMPTION OR EXCHANGE
The Company will have the right to redeem the Junior Subordinated
Debentures prior to maturity (i) on or after March 31, 2003, in whole or in part
from time to time at a redemption price (the "Optional Redemption Price") equal
to the accrued and unpaid interest on the Junior Subordinated Debentures so
redeemed to the date of redemption plus 100% of the principal amount thereof, or
(ii) prior to March 31, 2003 in whole (but not in part), within 180 days
following the occurrence and continuation of a Tax Event, an Investment Company
Event or a Capital Treatment Event, in each case at a redemption price (the
"Special Event Redemption Price") equal to the greater of (A) 100% of the
principal amount thereof or (B) the sum, as determined by a Quotation Agent (as
defined herein), of the present values of 100% of the principal amount of Junior
Subordinated Debentures, together with scheduled payments of interest on the
Junior Subordinated Debentures from the prepayment date to and including March
31, 2003, discounted to the prepayment date on a quarterly basis (assuming a
360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate
(as defined herein) plus, in each case, accrued interest thereon to the date of
redemption. Either of the Optional Redemption Price or the Special Event
Redemption Price are referred to as the "Redemption Price." Any such redemption
prior to the Stated Maturity will be subject to prior regulatory approval if
then required.
"Investment Company Event" means the receipt by the Trust Issuer
of an opinion of counsel experienced in such matters to the effect that, as a
result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority, the Trust Issuer is or will
be considered an "investment company" that is required to be registered under
the Investment Company Act, which change occurs or becomes effective on or after
the date of original issuance of the Preferred Securities.
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"Capital Treatment Event" means the reasonable determination by
the Company that, as a result of any amendment to, or change (including any
proposed change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such proposed change, pronouncement, action or decision is
announced on or after the date of original issuance of the Preferred Securities,
there is more than an insubstantial risk that the Company will not be entitled
to treat an amount equal to the Liquidation Amount of the Preferred Securities
as "Tier 1 Capital" (or the then equivalent thereof) for purposes of applicable
capital adequacy guidelines of the Federal Reserve (or any successor regulatory
authority with jurisdiction over bank holding companies), or any capital
adequacy guidelines as then in effect and applicable to the Company. There are
currently no capital adequacy guidelines applicable to savings bank holding
companies such as the Company.
"Tax Event" means the receipt by the Trust 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 Trust Issuer is, or will be within 90 days of
the date of such opinion, subject to United Stated federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by the Company on the Junior 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 Trust 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,
assessments or other governmental charges.
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to that portion
of the principal amount of the Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Preferred Securities PRO RATA based upon the
relative Liquidation Amounts of such Trust Securities and the proceeds of which
will be used to pay the Redemption Price of such Trust Securities and (ii) with
respect to a distribution of the Junior Subordinated Debentures to holders of
the Trust Securities in exchange therefor in connection with a dissolution or
liquidation of the Trust Issuer, Junior Subordinated Debentures having a
principal amount equal to the Liquidation Amount of the Trust Securities of the
holder to whom such Junior Subordinated Debentures would be distributed.
"Adjusted Treasury Rate" means, with respect to any prepayment
date, 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 percentage for its principal amount) equal to the
Comparable Treasury Price for such prepayment date, calculated on the third
Business Day preceding the prepayment date, plus in each case (a) 1.25% if such
prepayment date occurs on or prior to the first anniversary of the issuance of
the Preferred Securities offered hereby and (b) 0.50% in all other cases.
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"Comparable Treasury Issue" means the United States Treasury
security selected by the Quotation Agent as having a maturity comparable to the
remaining term to the Stated Maturity Date of the Junior Subordinated Debentures
that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity to the remaining term of the Junior Subordinated
Debentures.
"Quotation Agent" means the Reference Treasury Dealer appointed
by the Company. "Reference Treasury Dealer" means (i) [PaineWebber Incorporated]
and respective successors; provided, however, that if the foregoing shall cease
to be a primary U.S. Government securities dealer in New York City (a "Primary
Treasury Dealer"), the Company shall substitute therefor another Primary
Treasury Dealer; and (ii) any other Primary Treasury Dealer selected by the
Company.
"Comparable Treasury Price" means, with respect to any prepayment
date, (i) average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount on the third
Business Day preceding such prepayment date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 P.M. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the average
of the Reference Treasury Dealer Quotations for such prepayment date, after
excluding the highest and lowest such Reference Treasury 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 prepayment date, the average, as
determined by the Debenture Trustee, of the bid and asked price for the
Comparable Treasury Issue (expressed in each case as 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 prepayment date.
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 Junior
Subordinated Debentures to be redeemed at its registered address. Unless the
Company defaults in payment of the redemption price, on and after the redemption
date interest ceases to accrue on the Junior Subordinated Debentures or portions
thereof called for redemption.
The Junior Subordinated Debentures will not be subject to any
sinking fund.
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered
in the name of the Trust Issuer. If the Junior Subordinated Debentures are
distributed to holders of Preferred Securities, it is anticipated that the
depository arrangements for the Junior Subordinated Debentures will be
substantially identical to those in effect for the Preferred Securities. See
"Description of Preferred Securities -- Book Entry, Delivery and Form."
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Although DTC has agreed to the procedures described above, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
Payments on Junior Subordinated Debentures represented by a
global security will be made to Cede & Co., the nominee for DTC, as the
registered holder of the Junior Subordinated Debentures, as described under
"Description of Preferred Securities -- Book Entry, Delivery and Form." If
Junior Subordinated Debentures are issued in certificated form, principal and
interest will be payable, the transfer of the Junior Subordinated Debentures
will be registrable, and Junior Subordinated Debentures will be exchangeable for
Junior Subordinated Debentures of other authorized denominations of a like
aggregate principal amount, at the corporate trust office of the Debenture
Trustee in New York, New York or at the offices of any Paying Agent or transfer
agent appointed by the Company, provided that payment of interest may be made at
the option of the Company by check mailed to the address of the persons entitled
thereto. However, a holder of $1 million or more in aggregate principal amount
of Junior Subordinated Debentures may receive payments of interest (other than
interest payable at the Stated Maturity) by wire transfer of immediately
available funds upon written request to the Debenture Trustee not later than 15
calendar days prior to the date on which the interest is payable.
Junior Subordinated Debentures will be exchangeable for other
Junior Subordinated Debentures of like tenor, of any authorized denominations
and of a like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as
provided above, and may be presented for registration of transfer (with the form
of transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Indenture or at the office of any transfer agent designated by the Company for
such purpose without service charge and upon payment of any taxes and other
governmental charges as described in the Indenture. The Company will appoint the
Debenture Trustee as securities registrar under the Indenture. The Company may
at any time designate additional transfer agents with respect to the Junior
Subordinated Debentures.
In the event of any redemption, neither the Company nor the
Debenture Trustee shall be required to (i) issue, register the transfer of or
exchange Junior Subordinated Debentures during a period beginning at the opening
of business 15 days before the date of mailing of notice of redemption of the
Junior Subordinated Debentures to be redeemed and ending at the close of
business on the day of mailing of the relevant notice of redemption or (ii)
register the transfer or exchange of any Junior Subordinated Debentures so
selected for redemption, except, in the case of any Junior Subordinated
Debentures being redeemed in part, any portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying
agent, or then held by the Company in trust, for the payment of the principal of
(and premium, if any) or interest on any Junior Subordinated Debenture and
remaining unclaimed for two years after such principal (and premium, if any) or
interest has become due and payable shall, at the request of the Company, be
repaid to the
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Company and the holder of such Junior Subordinated Debenture shall thereafter
look, as a general unsecured creditor, only to the Company for payment thereof.
RESTRICTIONS ON CERTAIN PAYMENTS
If at any time (i) there has occurred an event of default under
the Indenture, (ii) the Company is in default with respect to its obligations
under the Guarantee, or (iii) the Company has given notice of its election of an
Extension Period as provided in the Indenture with respect to the Junior
Subordinated Debentures and has not rescinded such notice, or such Extension
Period, or any extension thereof, is continuing, the Company will not (1)
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 (other than (a) the reclassification of any class of the Company's capital
stock into another class of capital stock, (b) dividends or distributions
payable in any class of the Company's common stock, (c) any declaration of a
dividend in connection with the implementation of a shareholder 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 and (d) purchasers of the
Company's common stock related to the rights under any of the Company's benefit
plans for its or its subsidiaries' directors, officers or employees), (2) 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 Junior 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
or junior in interest to the Junior Subordinated Debentures (other than payments
under the Guarantee), or (3) redeem, purchase or acquire less than all of the
Junior Subordinated Debentures or any of the Preferred Securities.
MODIFICATION OF INDENTURE
From time to time the Company and the Debenture Trustee may,
without the consent of the holders of the Junior 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
Junior 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
Junior Subordinated Debentures affected, to modify the Indenture in a manner
affecting the rights of the holders of the Junior 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 Junior Subordinated Debentures, reduce the principal amount
thereof or premiums thereon or reduce the rate or extend the time of payment of
interest thereon or (ii) reduce the percentage of principal amount of the Junior
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 Junior Subordinated Debentures that has
occurred and is continuing constitutes a "Debenture Event of Default":
(i) failure for 30 days to pay interest on the Junior
Subordinated Debentures when due (subject to the deferral of certain
due dates in the case of an Extension Period); or
(ii) failure to pay any principal or redemption premium, if
any, on the Junior 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 Junior 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 Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee, provided, however, that such direction is not in conflict
with any law or the Indenture. The Debenture Trustee or the holders of not less
than 25% in aggregate outstanding principal amount of the Junior 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 Junior Subordinated Debentures may annul such
declaration and waive the default if the default (other than the non-payment of
the principal of the Junior 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 Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal, premium 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 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 Junior 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 Junior
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 Trust 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 Junior 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 Junior 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 Junior Subordinated Debentures protection in the event of a highly leveraged
or other transaction involving the Company that may adversely affect holders of
the Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all of the
Junior 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 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 Junior
Subordinated Debentures are payable sufficient to pay and discharge the entire
indebtedness on the Junior Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation, for the principal and interest to the
date of the deposit or to
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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
Junior 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 the 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 Junior
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 Junior Subordinated Debentures.
In the event of the acceleration of the maturity of any of the
Junior 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 Junior Subordinated Debentures will be entitled to receive or
retain any payment in respect of the principal of or interest, if any, on the
Junior Subordinated Debentures.
No payments on account of principal or interest, if any, in
respect of the Junior 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 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
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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 Junior Subordinated
Debentures or to other Debt which is PARI PASSU with, or subordinated to, the
Junior 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, (iii) any Debt to any employee of the
Company and (iv) debentures sold by the Company to BankUnited Capital or
BankUnited Capital II or to the holders of the 10 1/4% Trust Preferred
Securities of BankUnited Capital or the 9.60% Cumulative Trust Preferred
Securities of BankUnited Capital II.
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 Junior Subordinated Debentures will be
governed by and construed in accordance with the laws of the State of New York,
without regard to conflicts of laws principles thereof.
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 Junior 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 JUNIOR SUBORDINATED DEBENTURES
As described under "Description of the Preferred
Securities--Liquidation of the Trust Issuer and Distribution of the Junior
Subordinated Debentures to Holders," under certain circumstances involving the
termination of the Trust Issuer, Junior Subordinated Debentures may be
distributed to the holders of the Preferred Securities in exchange therefor upon
liquidation of the Trust Issuer, after satisfaction of liabilities to creditors
of the Trust Issuer as provided by applicable law. Any such distribution will be
subject to receipt of prior regulatory approval if then required. If the Junior
Subordinated Debentures are distributed to the holders of Preferred Securities
upon the liquidation of the Trust Issuer, the Company will use its best efforts
to list the Junior Subordinated Debentures on the New York Stock Exchange or
such stock exchanges, if any, on which the Preferred Securities are then listed.
There can be no assurance as to the market price of any Junior Subordinated
Debentures that may be distributed to the holders of the Preferred Securities.
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PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the Junior
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) 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 Junior 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
Junior 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 Junior Subordinated Debentures and remaining unclaimed for
two years after such principal or interest has become due and payable shall be
repaid to the Company upon written request of the Company on May 31 of each year
or (if then held in trust by the Company) will be discharged from such trust and
the holders of the Junior Subordinated Debentures shall thereafter look, as
general unsecured creditors, only to the Company for payment thereof.
REGISTRAR AND TRANSFER AGENT
The Debenture Trustee will act as the registrar and the transfer
agent for the Junior Subordinated Debentures. Junior Subordinated Debentures may
be presented for registration of transfer (with the form of transfer endorsed
thereon, or a satisfactory written instrument of transfer, duly executed) at the
office of the registrar. The Company may at any time rescind the designation of
any such transfer agent or approve a change in the location through which any
such transfer agent acts; provided that the Company maintains a transfer agent
in the place of payment. The Company may at any time designate additional
transfer agents with respect to the Junior Subordinated Debentures. In the event
of any redemption, neither the Company nor the Debenture Trustee will be
required to (i) issue, register the transfer of or exchange Junior Subordinated
Debentures during a period beginning at the opening of business 15 days before
the day of selection for redemption of Junior Subordinated Debentures and ending
at the close of business on the day of mailing of the relevant notice of
redemption, or (ii) transfer or exchange any Junior Subordinated Debentures so
selected for redemption, except, in the case of any Junior Subordinated
Debentures being redeemed in part, any portion thereof not to be redeemed.
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DESCRIPTION OF THE GUARANTEE
A Guarantee will be executed and delivered by the Company
concurrently with the issuance of the Preferred Securities for the benefit of
the holders from time to time of such Preferred Securities (the "Guarantee").
The Bank of New York will act as trustee ("Guarantee Trustee") under the
Guarantee. This summary of certain provisions of the Guarantee does not purport
to be complete and is subject to, and qualified in its entirety by reference to,
all of the provisions of the Guarantee. Wherever particular defined terms of the
Guarantee are referred to, but not defined herein, such defined terms are
incorporated herein by reference. The form of the Guarantee has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
GENERAL
The Company will irrevocably and unconditionally agree to pay in
full on a subordinated basis, to the extent set forth herein, the Guarantee
Payments (as defined below) without duplication of amounts theretofor paid by
the Trust Issuer, to the holders of the Preferred Securities, as and when due,
regardless of any defense, right of set-off or counterclaim that the Trust
Issuer may have or assert. The following payments with respect to the Preferred
Securities, to the extent not paid by or on behalf of the Trust Issuer (the
"Guarantee Payments"), will be subject to the Guarantee: (i) any accrued and
unpaid Distributions required to be paid on the Preferred Securities, to the
extent that the Trust Issuer has funds available therefor, (ii) the Redemption
Price with respect to any Preferred Securities called for redemption, to the
extent that the Trust Issuer shall have funds available therefor, and (iii) upon
a voluntary or involuntary dissolution, winding up or termination of the Trust
Issuer (unless the Junior Subordinated Debentures are distributed to holders of
the Preferred Securities as provided in the Trust Agreement or all of the
Preferred Securities are redeemed), the lesser of (a) the Liquidation
Distribution, and (b) the amount of assets of the Trust Issuer remaining
available for distribution to holders of the Preferred Securities in liquidation
of the Trust Issuer. 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 Trust Issuer to pay such
amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated
basis of the Trust Issuer's obligations under the Preferred Securities, but will
apply only to the extent that the Trust 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 Junior
Subordinated Debentures held by the Trust Issuer, the Trust 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
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otherwise. The Company expects from time to time to incur additional
indebtedness constituting Senior Debt.
The Company and the Trust Issuer believe that the Company has,
through the Guarantee, the Trust Agreement, the Junior Subordinated Debentures,
the Indenture and the Expense Agreement, taken together, fully, irrevocably and
unconditionally guaranteed all of the Trust Issuer's obligations under the
Preferred Securities, on a subordinated basis. 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 Trust Issuer's obligations under the Preferred Securities. See
"Relationship Among the Preferred Securities, the Junior 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 (i) subordinate and junior in right of payment to all
Senior Debt of the Company, (ii) PARI PASSU with the most senior preferred
securities or preference stock now or hereafter issued by the Company and with
any guarantee now or hereafter entered into by the Company in respect to any
preferred securities or preference stock of any affiliate of the Company, and
(iii) senior to the Company's Common Stock.
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 Company 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 Trust Issuer or upon
distribution to the holders of the Preferred Securities of the Junior
Subordinated Debentures.
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 consent of the holders of Preferred Securities 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 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 majority in aggregate
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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 the Guarantee.
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 indemnity and security reasonably satisfactory to the Guarantee Trustee
against the costs, expenses and liabilities that might be incurred thereby. The
Guarantee 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
Guarantee Trustee reasonably believes repayment or adequate indemnity is not
reasonably assured to it.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and
effect upon (a) full payment of the Redemption Price of the Preferred
Securities, (b) full payment of the amounts payable upon liquidation of the
Trust Issuer, or (c) distribution of the Junior 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, without regard to conflicts of laws
principles thereof.
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 person or entity to whom the
Trust Issuer becomes indebted or liable, the full payment of any costs, expenses
or liabilities of the Trust Issuer, other than obligations of the Trust Issuer
to pay to the holders of the
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Preferred Securities the amounts due such holders pursuant to the terms of the
Preferred Securities. Third party creditors of the Trust Issuer may proceed
directly against the Company under the Expense Agreement, regardless of whether
such creditors had notice of the Expense Agreement.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE JUNIOR 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 Trust 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." The Company and the Trust
Issuer believe that, taken together, the Company's obligations under the Junior
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, on a subordinated basis. 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 Trust Issuer's obligations under the Preferred Securities. If and to the
extent that the Company does not make payments on the Junior Subordinated
Debentures, the Trust Issuer will not pay Distributions or other amounts due on
its Preferred Securities. The Guarantee does not cover payment of Distributions
when the Trust 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 Junior 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 Junior Subordinated
Debentures will be equal to the sum of the aggregate stated Liquidation Amount
of the Preferred Securities and Common Securities; (ii) the interest rate and
interest and other payment dates on the Junior 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 Trust Issuer except the Trust Issuer's
obligations to holders of its Preferred Securities; and (iv) the Trust Agreement
further provides that the Trust Issuer will not engage in any activity that is
not consistent with the limited purposes of the Trust 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.
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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 Trust
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 Junior 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 Junior Subordinated
Debentures would constitute an event of default under the Indenture.
LIMITED PURPOSE OF THE TRUST ISSUER
The Preferred Securities evidence a preferred undivided
beneficial interest in the Trust Issuer, and the Trust Issuer exists for the
sole purpose of issuing its Preferred Securities and Common Securities and
investing the proceeds thereof in Junior Subordinated Debentures. A 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 Junior Subordinated Debentures held, while a holder of the Preferred
Securities is entitled to receive Distributions from the Trust Issuer (or from
the Company under the Guarantee) if, and to the extent, the Trust 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 Trust Issuer involving the liquidation of the Junior
Subordinated Debentures, after satisfaction of liabilities to creditors of the
Trust 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
Trust 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 Junior 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
Trust Issuer (other than the Trust Issuer's obligations to the holders of its
Preferred Securities), the positions of a holder of such Preferred Securities
and a holder of the Junior 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.
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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 addresses only the tax consequences to a
person that acquires Preferred Securities on their original issue at their
original offering price and 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 will 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. Except as set forth in the
discussion below of "United States Alien Holder," the summary addresses the
United States federal income tax consequences to a person that is an individual
citizen or resident of the United States, a corporation, partnership or other
entity organized under the laws of the United States or any state thereof or the
District of Columbia, or a domestic estate or trust.
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 Trust 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. 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.
CLASSIFICATION OF THE TRUST ISSUER AND THE JUNIOR SUBORDINATED DEBENTURES
In the opinion of Kronish Lieb, under current law, the Trust
Issuer will not be classified as an association taxable as a corporation for
United States federal income tax purposes. As a result, each beneficial owner of
Preferred Securities (a "Securityholder") will be required to include in its
gross income its PRO RATA share of the interest (or accrued original issue
discount) with respect to the Junior Subordinated Debentures. See "--Interest
Income and Original Issue Discount." No amount included in income with respect
to the Preferred Securities will be eligible for the dividends-received
deduction.
The Company, the Trust Issuer and the Securityholders (by
acceptance of beneficial interests in the Preferred Securities) will agree to
treat the Junior Subordinated Debentures as indebtedness for United Stated
federal income tax purposes. Kronish Lieb is of the opinion that, under current
law, and
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based on the representations, facts and assumptions set forth herein, the Junior
Subordinated Debentures will be classified as indebtedness for United States
federal income tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under applicable Treasury regulations (the "Regulations"), if the
terms and conditions of a debt instrument make the likelihood that stated
interest will not be timely paid a "remote" contingency, such contingency will
be ignored in determining whether the debt instrument is issued with original
issue discount ("OID"). The Company believes that the likelihood of its
exercising its option to defer payments of interest on the Junior Subordinated
Debentures is remote, since exercising that option would prevent it from
declaring dividends on any class of its stock. Based on the foregoing, the
Company intends to take the position that the Junior Subordinated Debentures
were not issued with OID and, accordingly, a Securityholder should include in
gross income only such Securityholder's pro rata share of stated interest on the
Junior Subordinated Debentures in accordance with such Securityholder's method
of tax accounting.
The Regulations have not yet been addressed in any rulings or
other published interpretations by the Internal Revenue Service (the "IRS"). In
the opinion of Kronish Lieb, it is not unreasonable for the Company to take the
position that the Junior Subordinated Debentures will not be issued with OID.
However, it is possible the IRS could take the position that the likelihood of
deferral was not a remote contingency within the meaning of the Regulations.
Under the Regulations, if the Company were to exercise its option
to defer payments of interest after treating the Junior Subordinated Debentures
as issued without OID, the Junior Subordinated Debentures would be treated as
re-issued with OID at that time, and all stated interest (and DE MINIMIS OID, if
any) on the Junior Subordinated Debentures would thereafter be treated as OID as
long as the Junior Subordinated Debentures remained outstanding. In such event,
all of a Securityholder's income with respect to the Junior Subordinated
Debentures would be accounted for as OID on an economic accrual basis regardless
of such Securityholder's method of tax accounting, and actual distributions of
stated interest would not be includable in gross income. Consequently, a
Securityholder would be required to include OID in gross income even though the
Company would not make any actual cash payments during an Extension Period.
A Securityholder that disposed of Preferred Securities prior to
the record date for the payment of Distributions following an Extension Period
would include OID in gross income but would not receive any cash related thereto
from the Trust Issuer. Any amount of OID included in a Securityholder's gross
income (whether or not during an Extension Period) would increase such
Securityholder's tax basis in its Preferred Securities, and the amount of
Distributions not includable in gross income would reduce such Securityholder's
tax basis in its Preferred Securities.
DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF THE PREFERRED
SECURITIES
Under current law, a distribution by the Trust Issuer of the
Junior Subordinated Debentures as described under the caption "Description of
the Preferred Securities-Liquidation of the Trust Issuer and Distribution of the
Junior Subordinated Debentures to Holders" will be nontaxable and will result in
a
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Securityholder's receiving directly its PRO RATA share of the Junior
Subordinated Debentures previously held indirectly through the Trust 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 account for interest in respect of the
Junior Subordinated Debentures received from the Trust Issuer in the manner
described above under "--Interest Income and Original Issue Discount."
If, however, the Trust Issuer were treated as an association
taxable as a corporation, the distribution would constitute a taxable event to
holders of the Preferred Securities and could give rise to a tax liability for
the Trust Issuer as well. Under certain circumstances described herein (see
"Description of the Preferred Securities--Redemption"), the Junior Subordinated
Debentures may be redeemed by the Company for cash and the proceeds of that
redemption distributed by the Trust Issuer to Securityholders in redemption of
their Preferred Securities. Such redemption would be a taxable event to the
Securityholders.
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. (A lower capital gains
tax rate will apply in the case of a non-corporate Securityholder if the
Preferred Securities have been held for more than 18 months.) Assuming the
Junior Subordinated Debentures are not issued with OID, a Securityholder's
amount realized on a sale of a Preferred Security will not include any amount
attributable to accrued interest with respect to the Preferred Security's PRO
RATA share of the Junior Subordinated Debentures, which amount will be treated
as ordinary income. A Securityholder's adjusted tax basis in the Preferred
Securities generally will be their initial issue price. If the Junior
Subordinated Debentures were to be treated as issued (or re-issued) with OID, as
a result of the Company's deferral of any interest payment or otherwise, a
Securityholder's tax basis in the Preferred Securities generally would be their
initial issue price, increased by OID includable in the Securityholder's gross
income to the date of disposition and decreased by the amount of the
Securityholder's Distributions not includable in gross income.
If the Company were to exercise its option to defer payments of
interest on the Junior Subordinated Debentures, the Preferred Securities might
trade at a price that did not fully reflect the value of accrued but unpaid
interest with respect to the underlying Junior Subordinated Debentures. A
Securityholder that disposed of its Preferred Securities between record dates
for payments of Distributions (and consequently did not receive a Distribution
from the Trust Issuer for the period prior to such disposition) would
nevertheless be required to include in income as ordinary income accrued OID on
the Junior Subordinated Debentures through the date of disposition and to add
such amount to its adjusted tax basis in its Preferred Securities disposed of.
Such Securityholder would recognize a capital loss on the disposition of its
Preferred Securities to the extent the selling price (which might not fully
reflect the value of accrued but unpaid interest) was less than the
Securityholder's adjusted tax basis in the Preferred Securities (which would
include OID). Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for federal income tax purposes. In addition,
the marketability of the Preferred Securities could be affected by the United
States federal income tax rules
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on the treatment of market discount. Those rules apply to a Securityholder that
acquires a Preferred Security for an amount less than its stated redemption
price at maturity. Upon a subsequent taxable disposition of that Preferred
Security, gain up to the amount of accrued market discount is treated as
ordinary income rather than capital gain. In general, market discount accrues on
a straight line basis unless the holder elects to have it accrue on an economic
accrual basis.
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 current United States federal income tax law: (i) payments
by the Trust Issuer or any of its paying agents to any Securityholder that 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 Trust Issuer or
its agent, under penalties of perjury, that it is not a United States person 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
Trust 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 Trust 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.
Recently adopted Treasury regulations (the "New Regulations")
provide alternative methods for satisfying the certification requirement
described in clause (i)(c) above. The New Regulations also 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 applies in the case of tiered partnerships. The New
Regulations generally apply to payments made after December 31, 1998.
INFORMATION REPORTING TO SECURITYHOLDERS
Generally, income on and proceeds from the sale of the Preferred
Securities will be reported to Securityholders on Forms 1099, which should be
mailed to Securityholders by January 31 following each calendar year. In
general, interest on the Preferred Securities must be reported to United States
Alien Holders on Forms 1042-S, which would be mailed to Securityholders by March
15.
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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 or establishes
an exemption. 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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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement dated the date hereof (the "Underwriting Agreement"), the Company and
the Trust have agreed that the Trust will sell to each of PaineWebber
Incorporated, Prudential Securities Incorporated and Friedman, Billings, Ramsey
& Co., Inc. (the "Underwriters"), and each of the Underwriters have severally
agreed to purchase from the Trust, the number of Preferred Securities set forth
opposite its name below.
NUMBER OF
UNDERWRITERS PREFERRED SECURITIES
- ------------ --------------------
PaineWebber Incorporated.......................... 1,440,000
Prudential Securities Incorporated................ 1,440,000
Friedman, Billings, Ramsey & Co., Inc............. 720,000
---------
Total.............................. 3,600,000
=========
In the Underwriting Agreement, the several Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
the Preferred Securities offered hereby if any Preferred Securities are
purchased by the Underwriters. In the event of default by an Underwriter, the
Underwriting Agreement provides that, in certain circumstances, the purchase
commitment of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Company has been advised by the Underwriters that the
Underwriters propose initially to offer the Preferred Securities to the public
at the public offering price set forth on the cover page of this Prospectus, and
to certain dealers at such price less a concession not in excess of $.55 per
Preferred Security. The Underwriters may allow, and such dealers may reallow a
concession not in excess of $.45 per Preferred Security to certain brokers and
dealers. After the initial public offering, the public offering price and such
concessions may be changed by the Underwriters.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Underwriting Agreement provides that the Company will pay as
compensation ("Underwriters' Compensation") for the Underwriters' arranging the
investment therein of such proceeds $.875 per Preferred Security or
$3,150,000 in the aggregate ($3,622,500 in the aggregate if the Underwriters'
over-allotment option is exercised in full) for the accounts of the several
Underwriters.
Pursuant to the Underwriting Agreement, the Trust has granted to the
Underwriters an option, exercisable for 30 days from the date hereof, to
purchase up to 540,000 additional Preferred Securities at the price to the
public set forth on the cover page hereof. The Underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
made in connection with the offering. The Company will pay Underwriters'
Compensation in the amount per Preferred Security set forth above with respect
to such additional Preferred Securities. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional Preferred
Securities as the number set forth next to such Underwriters' name in the
preceding table bears to the total number of Preferred Securities offered by the
Underwriters hereby.
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In connection with the offering of the Preferred Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Securities
and Exchange Commission's Regulation M that are intended to stabilize, maintain
or otherwise affect the market price of the Preferred Securities. Such
transactions may include over-allotment transactions in which the Underwriters
create a short position for their own account by selling more Preferred
Securities than they are committed to purchase from the Trust Issuer. In such a
case, to cover all or part of the short position, the Underwriters may exercise
the over-allotment option described above or may purchase Preferred Securities
in the open market following completion of the initial offering of the Preferred
Securities. The Underwriters also may engage in stabilizing transactions in
which they bid for, and purchase, shares of the Preferred Securities at a level
above that which might otherwise prevail in the open market for the purpose of
preventing or retarding a decline in the market price of the Preferred
Securities. The Underwriters also may reclaim any selling concessions allowed to
an Underwriter or dealer if the Underwriters repurchase shares distributed by
the Underwriter or dealer. Any of the foregoing transactions may result in the
maintenance of a price for the Preferred Securities at a level above that which
might otherwise prevail in the open market. Neither the Company nor any of the
Underwriters makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Preferred Securities. The Underwriters are not required to engage
in any of the foregoing transactions and, if commenced, such transactions may be
discontinued at any time without notice.
During a period of 90 days from the date of this Prospectus,
neither the Trust nor the Company will, without the prior written consent of the
Underwriters, directly or indirectly, sell, offer to sell, grant any option for
the sale of, or otherwise dispose of, any Preferred Securities, any security
convertible into or exchangeable into or exercisable for Preferred Securities or
Junior Subordinated Debentures or any debt securities substantially similar to
the Junior Subordinated Debentures or equity securities substantially similar to
the Preferred Securities (except for the Junior Subordinated Debentures and the
Preferred Securities offered hereby).
The Preferred Securities have been approved for listing on the
New York Stock Exchange. Trading of the Preferred Securities on the New York
Stock Exchange is expected to commence within a 30-day period after the date
of this Prospectus. The Underwriters have advised the Trust that it intends
to make a market in the Preferred Securities. The Underwriters will have no
obligation to make a market in the Preferred Securities, however, and may cease
market making activities, if commenced, at any time.
Prior to this offering, there has been no public market for the
Preferred Securities. In order to meet one of the requirements for listing the
Preferred Securities on the New York Stock Exchange, the Underwriters will
undertake to sell lots of 100 or more Preferred Securities to a minimum of 400
beneficial holders.
Because the National Association of Securities Dealers, Inc.
("NASD") is expected to view the Preferred Securities as interests in a direct
participation program, the offering of the Preferred Securities is being made in
compliance with the applicable provisions of Rule 2810 of the NASD's Rules of
Conduct.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, or
contribute to payments which the Underwriters may be required to make in respect
thereof.
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VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the
Preferred Securities, the enforceability of the Trust Agreement and the creation
of the Trust Issuer will be passed upon by Richards, Layton & Finger, P.A.,
special Delaware counsel to the Company and the Trust Issuer. The validity of
the Guarantee and the Junior Subordinated Debentures will be passed upon for the
Company by Stuzin and Camner, P.A. Certain legal matters will be passed upon for
the Underwriters by Brown & Wood LLP. 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 Marc 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 consolidated financial statements of the Company and
subsidiaries as of September 30, 1997 and 1996 and for each of the three years
in the period ended September 30, 1997 incorporated by reference herein and
included as Appendix A to this Prospectus have been so included in reliance upon
the report of Price Waterhouse LLP, independent certified public accountants,
given on the authority of said firm as experts in auditing and accounting.
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 Securities and Exchange Commission (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
Citicorp Center, 14th Floor, Suite 1400, 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 pursuant to the informational requirements of the Exchange Act, prior
to the acquisition of Suncoast 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.
The Company and the Trust Issuer have filed with the Commission a
Registration Statement on Form S-2 (together with all amendments thereto, the
"Registration Statement"), of which this Prospectus is a part, under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Preferred Securities, the Junior Subordinated Debentures and the Guarantee. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which have been
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omitted as permitted by the rules and regulations of the Commission. In
addition, certain documents filed by the Company with the Commission have been
incorporated in this Prospectus by reference. See "Incorporation of Certain
Documents by Reference." For further information with respect to the Company,
the Trust Issuer, the Preferred Securities and the Junior Subordinated
Debentures, reference is made to the Registration Statement, including the
exhibits thereto and the documents incorporated herein by reference. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission
or incorporated by reference herein are not necessarily complete, and, in each
instance, reference is made to the copy of such document so filed for a more
complete description of the matter involved. Each such statement is qualified in
its entirely by such reference. The Registration Statement may be inspected
without charge at the principal office of the Commission in Washington, D.C, and
copies of all or part of it may be obtained from the Commission upon payment of
the prescribed fees.
No separate financial statements of the Trust Issuer have been
included herein. The Company does not consider that such financial statements
would be material to holders of Preferred Securities because (i) all of the
voting securities of the Trust Issuer will be owned by the Company, a reporting
company under the Exchange Act, (ii) the Trust Issuer has no independent
operations but exists for the sole purpose of issuing securities representing
undivided beneficial interests in the assets of the Trust Issuer and investing
the proceeds thereof in Junior Subordinated Debentures issued by the Company,
and (iii) the obligations of the Company described herein to provide certain
indemnities in respect of and be responsible for certain costs, expenses, debts
and liabilities of the Trust Issuer under the Indenture and pursuant to the
Trust Agreement, the guarantee issued by the Company with respect to the
Preferred Securities, the Junior Subordinated Debentures purchased by the Trust
Issuer, the related Indenture and the Expense Agreement, taken together,
constitute, in the belief of the Company and the Trust Issuer full and
unconditional guarantee of payments due on the Preferred Securities. See
"Description of the Junior Subordinated Debentures" and "Description of the
Guarantee."
The Trust Issuer is not currently subject to the information
reporting requirements of the Exchange Act and the Company does not expect that
the Trust Issuer will file reports, proxy statements and other information under
the Exchange Act with the Commission.
84
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following BankUnited documents are incorporated by reference
herein (Commission File No. 5-43936):
(1) The Company's Annual Report on Form 10-K/A for the year ended
September 30, 1997 filed with the Commission on February 27, 1997.
(2) The Company's Quarterly Report on Form 10-Q/A for the quarter
ended December 31, 1997 filed with the Commission on February 27, 1998.
(3) The Company's Current Reports on Form 8-K dated October 10,
1997, December 30, 1997, January 15, 1998, and January 23, 1998 filed with the
Commission on October 29, 1997, January 2, 1998, January 16, 1998, and February
3, 1998, respectively.
(4) The description of the Class A Common Stock contained in the
Company's Current Report on Form 8-K dated March 5, 1993, filed with the
Commission to register the Company's Class A Common stock under Section 12(g) of
the Securities Exchange Act of 1934, as amended.
Any statement contained in this Prospectus or in a document
incorporated or deemed to be incorporated by reference herein will be deemed to
be modified or superseded for purposes of this Prospectus 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 will not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus. All documents subsequently filed by the Registrant pursuant to
Sections 3(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination
of the Offering shall be deemed to be incorporated by reference into this
Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN
EXHIBITS THERETO, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL
REQUEST TO BANKUNITED FINANCIAL CORPORATION, 255 ALHAMBRA CIRCLE, CORAL GABLES,
FLORIDA 33134, ATTENTION: NANCY L. ASHTON, (305) 569-2000.
85
<PAGE>
APPENDIX A
BANKUNITED FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-K/A
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1997
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)
<TABLE>
<S> <C>
FLORIDA 65-0377773
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
<TABLE>
<S> <C>
255 ALHAMBRA CIRCLE, CORAL GABLES, FLORIDA 33134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE
</TABLE>
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 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/A or any
amendment to the Form 10-K/A. [ ]
The aggregate market value of the Class A Common Stock held by
non-affiliates of the Registrant, based upon the average price on February 24,
1998, was $198,412,606.* The other voting securities of the Registrant are not
publicly traded.
The shares of the Registrant's common stock outstanding as of December 26,
1997 were as follows:
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES
- ----------------------------------------------- -----------------
<S> <C>
Class A Common Stock, $.01 par value 15,072,314
Class B Common Stock, $.01 par value 286,499
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders was filed with the Securities and Exchange Commission within
120 days after the end of the fiscal year covered by this Form 10-K/A
pursuant to Rule G(3) of the General Instructions for Form 10-K. Information
from such Definitive Proxy Statement will be incorporated by reference into
Part III, Items 10, 11, 12 and 13 hereof.
- ----------------
* Based on reported beneficial ownership of all directors and executive
officers of the Registrant; this determination does not, however, constitute
an admission of affiliated status for any of these individual stockholders.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<PAGE>
PART I
ITEM 1. BUSINESS
BUSINESS OF BANKUNITED FINANCIAL CORPORATION
GENERAL
BankUnited Financial Corporation (the "Company" or "BankUnited") is a
Florida corporation and the savings and loan holding company for BankUnited,
FSB (the "Bank"). The Company currently has seventeen branch offices in South
Florida and anticipates opening at least six additional branch offices by
September 30, 1998 in its market area, either by acquisition or de novo
branching, and may expand into other parts of Florida. The Company's business
has traditionally consisted of attracting deposits from the general public and
using those deposits, together with borrowings and other funds, to purchase
nationwide and to originate in Florida single-family residential mortgage
loans, and to a lesser extent, to purchase and originate commercial real
estate, commercial business and consumer loans. The Company also invests in tax
certificates and other permitted investments. The Company's revenues are
derived principally from interest earned on loans, mortgage-backed securities
and investments. The Company's primary expenses arise from interest paid on
deposits and borrowings and non-interest operating expenses incurred in
operations.
During the past three years the Company has redefined its strategy to
increase its emphasis on strategic product niches which management believes are
being underserved as South Florida's banks consolidate. Such product niches
include commercial business and commercial real estate lending and deposit
services for small to mid-sized businesses. The Company also focuses on
attracting depositors by stressing convenience, competitive rates and
personalized service.
The Company's operating plan emphasizes (i) rapidly expanding the
Company's deposit base by providing convenience, competitive rates and
personalized service in its market area and continuing expansion of the
Company's branch network through de novo branching or the acquisition of
branches of, and mergers with, existing financial institutions; (ii)
concentrating lending activities on purchasing single-family residential
mortgage loans and originating such loans when market opportunities are
favorable; (iii) expanding the Company's commercial and multi-family real
estate, commercial business, and real estate construction lending; (iv)
increasing non-interest income, and (v) maintaining asset quality.
The Bank is a member of the Federal Home Loan Bank of Atlanta (the "FHLB")
and is subject to comprehensive regulation, examination and supervision by the
Office of Thrift Supervision (the "OTS") and the Federal Deposit Insurance
Corporation (the "FDIC"). Deposits at the Bank are insured by the Savings
Association Insurance Fund to the maximum extent permitted by law.
MARKET AREA AND COMPETITION
The Company conducts operations in South Florida, which geographic region,
at December 31, 1996, had a total of approximately $76 billion in deposits at
commercial banks, savings institutions, and credit unions (39% of the total of
$195 billion of deposits in Florida). The Company intends to continue to
establish or acquire branch offices in its market area and may expand into
other parts of Florida.
In 1995, the Company sold its three branch offices on the west coast of
Florida, including their deposits which totaled $130.3 million at the date of
sale. The sale was pursuant to a strategy designed to take advantage of
consolidation trends in banking and growth opportunities in South Florida.
Also, as part of this strategy, the Company opened additional Florida branch
offices in Boynton Beach in June 1996, West Palm Beach in September 1996, Boca
Hamptons in August 1997, Coconut Creek in October 1997 and Aventura in November
1997. On March 29, 1996, the Company acquired The Bank of Florida with total
assets of $28.1 million which was merged into the Bank and consolidated into
the Bank's
A-2
<PAGE>
South Miami branch. On November 15, 1996, the Company acquired Suncoast Savings
and Loan Association, FSA ("Suncoast"), with total assets of $409.4 million,
which was merged into the Bank. On September 19, 1997 the Company signed a
definitive agreement to acquire Consumers Bancorp and merge its subsidiary,
Consumers Savings Bank, into the Bank. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Acquisitions."
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 branch offices of
several super-regional commercial banks and savings associations that are
substantially larger and that have more extensive operations than does the
Company. In addition, many financial institutions formerly independent and
operating in South Florida have recently been acquired by larger institutions
headquartered in other parts of the state or headquartered out of state. The
Company's goal is to compete for savings and other deposits by offering
depositors a higher level of personal service, together with a wide range of
deposit products offered at competitive rates. The Company believes that this
strategy will enable it to attract depositors as the number of local
institutions declines and depositors who desire more personal service,
particularly retirees, relocate their accounts.
The competition in originating real estate and other loans comes
principally from commercial banks, mortgage banking companies and other savings
associations. The Company competes for loan originations primarily through the
interest rates and loan fees it charges, the types 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 primarily on the basis of price. While
the Company has been, and intends to continue to be, primarily a residential
lender, the Company has recently increased its emphasis on commercial real
estate, construction and commercial lending, as discussed more fully below.
Factors that affect competition in lending include general and local economic
conditions, current interest rates and volatility of the mortgage markets. As
with its deposit products, the Company's strategy is to promote its higher
level of personal service and to position itself as a small- to middle-market
lender servicing businesses left underserved by larger institutions.
Management's strategy has included and continues to include evaluating
market needs and offering products to meet those needs. The Company will
continue to offer products and services that will allow it to control the
growth of its assets and liabilities. These new products and services will
allow the Company to properly position itself to its customers as a community
bank.
FACTORS AFFECTING EARNINGS
The results of the Company's operations are affected by many factors
beyond the Company's control, including general economic conditions and the
related monetary and fiscal policies of the federal government. Earnings
generated from lending activities are affected by the demand for mortgages and
other types of loans, which is in turn affected by the interest rates at which
such loans may be offered, and other factors affecting the supply of housing
and the availability of funds. Sources and costs of funds, principally deposits
and borrowings, are influenced by yields available on competing investments and
by general market rates of interest.
ASSET AND LIABILITY MANAGEMENT. The Company's net earnings depend
primarily on its net interest income, which is the difference between interest
income received on its interest-earning assets (principally loans, short-term
and long-term investments, and mortgage-backed securities) and interest expense
paid on its interest-bearing liabilities (principally deposits, FHLB advances,
and trust preferred securities). The Company's net interest income is
significantly affected by (i) the difference between yields received on its
interest-earning assets and the rates paid on its interest-bearing liabilities
(the "interest rate spread") and (ii) the relative amounts of its
interest-earning assets and interest-bearing
A-3
<PAGE>
liabilities. When interest-earning assets equal or exceed interest-bearing
liabilities, any positive interest rate spread will generate net interest
income. When such liabilities exceed such assets, the greater the positive
interest rate spread must be in order to produce net interest income.
Non-interest sources of income and non-interest expenses also affect the
Company's net income. The higher non-interest expenses are, the greater the
positive interest rate spread and/or non-interest sources of income must be to
produce net income.
The Company's exposure to interest rate risk is measured as the
sensitivity of the value of its financial instruments and net interest income
to changes in the level of interest rates. Generally, interest rate risk for a
financial institution results from differences in repricing intervals or
maturities between interest-earning assets and interest-bearing liabilities.
When such differences exist, a change in the level of interest rates will most
likely result in an increase or decrease in net interest income. The Company's
ability to manage interest rate risk depends upon a number of factors,
including competition for loans and deposits in its market area and conditions
prevailing in the secondary mortgage market.
To reduce the adverse impact of 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, 1997, 76.1% 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 strategy, and when market conditions are favorable, the
Company attempts to lengthen the maturities of its interest-bearing liabilities
(i) with longer term deposits or (ii) when advantageous, with longer term
borrowed funds.
The Company has rate-sensitive (maturing or subject to repricing within
one year) assets that exceed its rate-sensitive liabilities, resulting in a
positive cumulative one-year gap position of 4.9% of total assets as of
September 30, 1997. This imbalance, when coupled with the deregulation of the
restrictions previously imposed on the types of savings products that financial
institutions are permitted to offer, subjects the Company's earnings to change
based on fluctuations in interest rates. The Company constantly attempts to
reduce the sensitivity of its earnings to fluctuations in interest rates by
adjusting the average maturities of its interest-bearing liabilities and
interest-earning assets. 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.
A-4
<PAGE>
GAP TABLE. The following table sets forth the amount of interest-earning
assets and interest-bearing liabilities outstanding at September 30, 1997,
which are expected to reprice or mature in each of the future time periods
shown.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
------------------------------------------
INTEREST SENSITIVITY PERIOD (1)
------------------------------------------
6 MONTHS 6 MONTHS OVER 1 -
OR LESS - 1 YEAR 5 YEARS
-------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Investments, tax certificates, Federal funds sold,
FHLB overnight deposits and other interest
earning assets, at cost ........................ $ 139,450 $ 23,108 $ 24,397
Mortgage-backed securities ........................ 24,058 7,013 46,488
Loans:
Adjustable-rate mortgages ........................ 789,494 416,262 115,574
Fixed-rate mortgages .............................. 72,257 26,124 152,548
Commercial and consumer loans ..................... 10,182 310 1,704
--------- --------- ---------
Total loans .................................... 871,933 442,696 269,826
--------- --------- ---------
Total interest-earning assets .................. 1,035,441 472,817 340,711
Total non-interest-earning assets ............... -- -- --
--------- --------- ---------
Total assets .................................... $1,035,441 $ 472,817 $ 340,711
========== ========= =========
Interest-bearing liabilities:
Customer deposits:
Money market and NOW accounts ..................... 2,916 2,918 23,344
Passbook accounts ................................. 6,018 6,020 48,160
Certificate accounts .............................. 613,825 195,619 126,429
---------- --------- ---------
Total customer deposits ........................ 622,759 204,557 197,933
Borrowings:
FHLB advances .................................... 440,000 105,000 125,000
Trust Preferred ................................. -- -- --
Other borrowings ................................. 30,000 -- --
---------- --------- ---------
Total borrowings ................................. 470,000 105,000 125,000
---------- --------- ---------
Total interest-bearing liabilities ............... 1,092,759 309,557 322,933
Total non-interest-bearing liabilities ............ -- -- --
Shareholders' equity .............................. -- -- --
---------- --------- ---------
Total liabilities and shareholders' equity ...... $1,092,759 $ 309,557 $ 322,933
========== ========= =========
Total interest-earning assets less interest-bearing
liabilities ("GAP") .............................. $ (57,318) $ 163,260 $ 17,778
========== ========= =========
Ratio of GAP to total assets ..................... (2.67)% 7.61% .83%
========== ========= =========
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities ......... $ (57,318) $ 105,942 $ 123,720
========== ========= =========
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities, as a
percentage of total assets ... (2.67)% 4.94% 5.77%
========== ========= =========
<PAGE>
<CAPTION>
NON-
OVER 5- OVER 10- INTEREST
10 YEARS YEARS EARNING TOTAL
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Interest-earning assets:
Investments, tax certificates, Federal funds sold,
FHLB overnight deposits and other interest
earning assets, at cost ........................ $ -- $ -- $ -- $ 186,955
Mortgage-backed securities ........................ 19,202 23,510 -- 120,271
Loans:
Adjustable-rate mortgages ........................ -- 1,018 10,447 1,332,795
Fixed-rate mortgages .............................. 96,221 76,818 411 424,379
Commercial and consumer loans ..................... 8 30 8 12,242
--------- -------- -------- ----------
Total loans .................................... 96,229 77,866 10,866 1,769,416
--------- -------- -------- ----------
Total interest-earning assets .................. 115,431 101,376 10,866 2,076,642
Total non-interest-earning assets ............... -- -- 68,764 68,764
--------- -------- -------- ----------
Total assets .................................... $ 115,431 $101,376 $ 79,630 $2,145,406
========= ======== ======== ==========
Interest-bearing liabilities:
Customer deposits:
Money market and NOW accounts ..................... 29,175 19,443 21,436 99,232
Passbook accounts ................................. 60,207 40,152 -- 160,557
Certificate accounts .............................. 230 -- -- 936,103
--------- -------- -------- ----------
Total customer deposits ........................ 89,612 59,595 21,436 1,195,892
Borrowings:
FHLB advances .................................... 1,484 -- -- 671,484
Trust Preferred ................................. -- 116,000 -- 116,000
Other borrowings ................................. -- -- -- 30,000
--------- -------- -------- ----------
Total borrowings ................................. 1,484 116,000 -- 817,484
--------- -------- -------- ----------
Total interest-bearing liabilities ............... 91,096 175,595 21,436 2,013,376
Total non-interest-bearing liabilities ............ -- -- 32,385 32,385
Shareholders' equity .............................. -- -- 99,645 99,645
--------- -------- -------- ----------
Total liabilities and shareholders' equity ...... $ 91,096 $175,595 $153,466 $2,145,406
========= ======== ======== ==========
Total interest-earning assets less interest-bearing
liabilities ("GAP") .............................. $ 24,335 $(74,219) $(73,836) $ --
========= ======== ======== ==========
Ratio of GAP to total assets ..................... 1.13% (3.46)% (3.44)% --
========= ======== ======== ==========
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities ......... $ 148,055 $ 73,836
========= ========
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities, as a
percentage of total assets ... 6.90% 3.44%
========= ========
</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 decay based upon duration estimates
utilized in the OTS Interest Rate Risk Model. 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.
A-5
<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 by dividing the income or
expense item for the period by the average balances during the period of the
appropriate balance sheet item. Net interest margin is calculated by dividing
net interest income by average interest-earning assets. Non-accrual loans are
included for the appropriate periods, whereas recognition of interest on such
loans is discontinued and any remaining accrued interest receivable is
reversed, in conformity with generally accepted accounting principles and
federal regulations. The yields and net interest margins appearing in the
following table have been calculated on a pre-tax basis.
<TABLE>
<CAPTION>
AS OF
9/30/97
YIELD/RATE
-----------
(DOLLARS IN THOUSANDS)
<S> <C>
Interest-earning assets:
Loans receivable, net ............... 7.44%
Mortgage-backed securities ......... 6.86
Short-term investments (1) ......... 6.30
Tax certificates ..................... 8.09
Long-term investments and FHLB
stock, net ........................ 7.05
-----
Total interest-earning assets ...... 7.36
-----
Interest-bearing liabilities:
NOW/Money Market ..................... 2.63
Savings .............................. 4.66
Certificate of deposits ............ 5.72
Trust preferred securites ............ 10.17
FHLB advances and other
borrowings ........................ 5.86
-----
Total interest-bearing
liabilities ..................... 5.79
-----
Excess of interest-earning assets over
interest-bearing liabilities .........
Net interest income ..................
Interest rate spread .................. 1.57%
=====
Net interest margin .................. 1.74%
=====
Ratio of interest-earning assets to
interest-bearing liabilities .........
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------- ----------------------------------- --------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE
--------------- ---------- ---------- ------------- ---------- ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net ............... $ 1,217,181 $ 94,655 7.78% $ 540,313 $41,313 7.65% $ 419,501
Mortgage-backed securities ......... 103,389 7,035 6.80 62,711 4,250 6.78 59,204
Short-term investments (1) ......... 27,612 1,613 5.84 41,240 2,359 5.72 23,884
Tax certificates ..................... 41,162 3,171 7.70 34,831 3,018 8.66 37,377
Long-term investments and FHLB
stock, net ........................ 33,161 2,300 6.94 17,352 1,192 6.87 7,930
----------- -------- ----- --------- -------- ---- ---------
Total interest-earning assets ...... 1,422,505 108,774 7.65 696,447 52,132 7.49 547,856
----------- -------- ----- --------- -------- ---- ---------
Interest-bearing liabilities:
NOW/Money Market ..................... 91,515 2,236 2.44 33,148 775 2.34 41,196
Savings .............................. 137,912 6,342 4.60 59,965 2,627 4.38 55,950
Certificate of deposits ............ 735,008 41,558 5.65 313,521 17,389 5.55 276,564
Trust preferred securites ............ 63,008 6,473 10.27 -- -- -- --
FHLB advances and other
borrowings ........................ 335,112 19,351 5.77 235,264 13,831 5.88 144,052
----------- -------- ----- --------- -------- ---- ---------
Total interest-bearing
liabilities ..................... 1,362,555 75,960 5.58 641,898 34,622 5.39 517,762
----------- -------- ----- --------- -------- ---- ---------
Excess of interest-earning assets over
interest-bearing liabilities ......... $ 59,950 $ 54,549 $ 30,094
=========== ========= =========
Net interest income .................. $ 32,814 $17,510
======== ========
Interest rate spread .................. 2.07% 2.10%
===== ====
Net interest margin .................. 2.31% 2.51%
===== ====
Ratio of interest-earning assets to
interest-bearing liabilities ......... 104.40% 108.50% 105.81%
=========== ========= =========
<CAPTION>
YIELD/
INTEREST RATE
---------- ----------
<S> <C> <C>
Interest-earning assets:
Loans receivable, net ............... $30,171 7.19%
Mortgage-backed securities ......... 4,093 6.91
Short-term investments (1) ......... 1,491 6.25
Tax certificates ..................... 3,087 8.26
Long-term investments and FHLB
stock, net ........................ 577 7.29
-------- ----
Total interest-earning assets ...... 39,419 7.20
-------- ----
Interest-bearing liabilities:
NOW/Money Market ..................... 875 2.12
Savings .............................. 2,420 4.33
Certificate of deposits ............ 14,554 5.26
Trust preferred securites ............ -- --
FHLB advances and other
borrowings ........................ 8,456 5.87
-------- ----
Total interest-bearing
liabilities ..................... 26,305 5.08
-------- ----
Excess of interest-earning assets over
interest-bearing liabilities .........
Net interest income .................. $13,114
========
Interest rate spread .................. 2.12%
====
Net interest margin .................. 2.39%
====
Ratio of interest-earning assets to
interest-bearing liabilities .........
</TABLE>
- ---------------
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
A-6
<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.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1997 V. 1996
------------------------------------------------
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 ........................... $52,842 $ 53 $ 447 $53,342
Mortgage-backed securities and
collateralized mortgage
obligations ..................... 2,757 17 11 2,785
Short-term investments (1) ...... (780) 49 (15) (746)
Tax Certificates .................. 549 (335) (61) 153
Long-term investments and
FHLB stock ..................... 1,078 28 2 1,108
------- ------ -------- -------
Total interest-earning assets ... 56,446 (188) 384 56,642
------- ------ -------- -------
Interest expense attributable to:
NOW/Money Market .................. 1,365 35 61 1,461
Savings ........................... 3,415 131 169 3,715
Certificates of Deposit ............ 23,377 338 454 24,169
Trust preferred securities ......... -- -- 6,473 6,473
FHLB advances and other
borrowings ........................ 5,855 (233) (102) 5,520
------- ------ -------- -------
Total interest-bearing
liabilities ..................... 34,012 271 7,055 41,338
------- ------ -------- -------
Increase (decrease) in net interest
income ........................... $22,434 $ (459) $ (6,671) $15,304
======= ====== ======== =======
<PAGE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1996 V. 1995
---------------------------------------------
INCREASE (DECREASE)
DUE TO
---------------------------------------------
CHANGES CHANGES CHANGES TOTAL
IN IN IN INCREASE
VOLUME RATE RATE/VOLUE (DECREASE)
---------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income attributable to:
Loans ........................... $ 8,689 $1,905 $548 $11,142
Mortgage-backed securities and
collateralized mortgage
obligations ..................... 242 (81) (4) 157
Short-term investments (1) ...... 1,088 (127) (93) 868
Tax Certificates .................. (210) 152 (11) (69)
Long-term investments and
FHLB stock ..................... 687 (33) (39) 615
------- ------ ------ -------
Total interest-earning assets ... 10,496 1,816 401 12,713
------- ------ ------ -------
Interest expense attributable to:
NOW/Money Market .................. (171) 88 (17) (100)
Savings ........................... 173 31 3 207
Certificates of Deposit ............ 1,946 785 104 2,835
Trust preferred securities ......... -- -- --
FHLB advances and other
borrowings ........................ 5,354 13 8 5,375
------- ------ ------ -------
Total interest-bearing
liabilities ..................... 7,302 917 98 8,317
------- ------ ------ -------
Increase (decrease) in net interest
income ........................... $ 3,194 $ 899 $303 $ 4,396
======= ====== ====== =======
</TABLE>
- ---------------
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
A-7
<PAGE>
LENDING ACTIVITIES
The Company focuses its lending activity on purchasing and originating
single-family residential mortgage loans. The Company's lending strategy also
includes expanding its commercial real estate, commercial business, and real
estate construction lending. The Company also currently offers consumer loans,
such as automobile loans and boat loans, primarily as an accommodation to
existing customers.
LOAN PORTFOLIO. The Company's loan portfolio primarily consists of
adjustable-rate mortgage loans ("ARMs") and, to a lesser extent, fixed-rate
mortgage loans secured by one-to-four family residential and commercial real
estate. As of September 30, 1997, the Company's loan portfolio totaled $1.8
billion, of which $1.6 billion 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 not insured by the Federal
Housing Administration (the "FHA") or guaranteed by the Veterans Administration
(the "VA"). The Company is, however, approved to originate FHA and VA loans. As
of September 30, 1997, the remainder of the Company's loan portfolio consisted
of $130.2 million of commercial real estate loans (7.4 % of total loans);
five-or-more units residential real estate loans of $32.2 million (1.8 % of
total loans, net); $6.0 million of second mortgage loans (.3 % of total loans,
net); $1.7 million of consumer loans (.1% of total loans, net); $10.9 million
of commercial business loans (.6 % of total loans, net); and $15.5 million of
other loans (.9% of total loans, net).
At September 30, 1997, the Company's loan portfolio included $93.9 million
of residential mortgage loans to non-resident aliens. See "Residential Mortgage
Loan Purchases and Originations" for additional information on the Company's
loans to non-resident aliens.
Set forth below is a table showing the Company's loan origination,
purchase and sale activity for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Total loans receivable, net, at beginning of period (1) ...... $ 646,385 $ 453,350 $ 413,287
Loans originated:
Residential real estate .................................... 159,533 65,954 54,438
Commercial business and consumer ........................... 18,804 16,705 7,556
---------- --------- ---------
Total loans originated .................................... 178,337 82,659 61,994
Loans acquired in Suncoast/Bank of Florida mergers (2) ...... 341,394 8,116 --
Loans purchased (3) .......................................... 913,653 242,099 76,081
Loans sold ................................................... (39,934) (4,356) (2,449)
Principal repayments and amortization of discounts
and premiums ................................................ (271,212) (133,836) (93,787)
Loans charged off ............................................. (604) (493) (594)
Transfers to real estate owned, net ........................... (2,296) (1,154) (1,182)
---------- --------- ---------
Total loans receivable, net, at end of period(1) ............ $1,765,723 $ 646,385 $ 453,350
========== ========= =========
</TABLE>
- ----------------
(1) Includes loans held for sale.
(2) Loans acquired in the Suncoast merger included $230.7 million of
one-to-four family residential real estate loans, $95.8 million of
commercial real estate loans and $14.9 million of other types of loans.
(3) All loans purchased are one-to-four family residential real estate loans
except for the purchase of $32.0 million of commercial real estate loans
in fiscal 1996.
A-8
<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, as of the dates indicated.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------------------------------
1997 1996
------------------------ ----------------------
AMOUNT PERCENT AMOUNT PERCENT
-------------- --------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
First mortgage loans:
One-to four-family
residential loans ...... $1,559,823 88.3% $568,203 87.9%
Five or more units
residential loans ...... 32,163 1.8 12,559 2.0
Commercial ............... 130,197 7.4 49,318 7.6
Construction ............ 7,477 .4 -- --
Land ..................... 7,997 .5 2,687 .4
Second mortgages loans . 5,992 .3 2,748 .4
---------- ----- -------- -----
Total first
and second
mortgage loans ......... 1,743,649 98.7 635,515 98.3
---------- ----- -------- -----
Consumer loans ............ 1,748 .1 2,648 .4
Commercial business
loans ..................... 10,890 .6 5,822 .9
---------- ----- -------- -----
Total loans
receivable ............ 1,756,287 99.4 643,985 99.6
---------- ----- -------- -----
Deferred loan fees,
premiums and
(discounts) ............... 13,129 .8 4,558 .7
Allowance for loan losses (3,693) ( .2) (2,158) ( .3)
---------- ----- -------- -----
Loans receivable,
net ..................... $1,765,723 100.0% $646,385 100.0%
========== ===== ======== =====
<CAPTION>
1995 1994 1993
---------------------- ---------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------ --------- ------------ --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
First mortgage loans:
One-to four-family
residential loans ...... $432,472 95.4% $393,933 95.3% $298,342 96.1%
Five or more units
residential loans ...... 1,124 0.2 2,164 0.5 705 0.2
Commercial ............... 10,223 2.3 4,469 1.1 748 0.2
Construction ............ 200 0.1 -- -- 2,248 0.7
Land ..................... 450 0.1 1,095 0.3 1,099 0.4
Second mortgages loans . 2,412 0.5 2,616 0.6 623 0.2
-------- ----- -------- ----- -------- -----
Total first
and second
mortgage loans ......... 446,881 98.6 404,277 97.8 303,765 97.8
-------- ----- -------- ----- -------- -----
Consumer loans ............ 920 0.2 2,336 0.6 2,786 0.9
Commercial business
loans ..................... 3,632 0.8 4,732 1.1 3,665 1.2
-------- ----- -------- ----- -------- -----
Total loans
receivable ............ 451,433 99.6 411,345 99.5 310,216 99.9
-------- ----- -------- ----- -------- -----
Deferred loan fees,
premiums and
(discounts) ............... 3,386 0.7 2,783 0.7 1,409 0.5
Allowance for loan losses (1,469) ( 0.3) (841) ( 0.2) (1,184) ( 0.4)
-------- ----- -------- ----- -------- -----
Loans receivable,
net ..................... $453,350 100.0% $413,287 100.0% $310,441 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
The following table sets forth, as of September 30, 1997, the amount of
loans (including mortgage loans held for sale) by category and expected
principal repayments by year.
<TABLE>
<CAPTION>
OUTSTANDING AT
SEPTEMBER 30, 1997 1998 1999
-------------------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
First mortgage loans:
One-to-four family residential $1,559,823 $343,918 $257,389
Five-or-more units residential . 32,163 4,312 3,751
Commercial ........................ 130,197 68,154 19,612
Construction ..................... 7,477 5,301 1,394
Land .............................. 7,997 5,571 2,239
Second mortgage loans ............... 5,992 1,315 1,122
---------- -------- --------
Total first and second mortgage
loans ........................... 1,743,649 428,571 285,507
---------- -------- --------
Consumer loans ..................... 1,748 1,043 705
Commercial business loans ......... 10,890 7,723 3,167
---------- -------- --------
Total loans ..................... $1,756,287 $437,337 $289,379
========== ======== ========
<CAPTION>
2002- 2004- 2008 AND
2000 2001 2003 2007 THEREAFTER
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
First mortgage loans:
One-to-four family residential $198,224 $153,567 $213,382 $216,351 $176,992
Five-or-more units residential . 6,674 2,399 3,894 11,133 --
Commercial ........................ 11,239 11,239 9,978 9,975 --
Construction ..................... 764 18 -- -- --
Land .............................. 95 92 -- -- --
Second mortgage loans ............... 956 812 1,265 522 --
-------- -------- -------- -------- ---------
Total first and second mortgage
loans ........................... 217,952 168,127 228,519 237,981 176,992
-------- -------- -------- -------- ---------
Consumer loans ..................... -- -- -- -- --
Commercial business loans ......... -- -- -- -- --
-------- -------- -------- -------- ---------
Total loans ..................... $217,952 $168,127 $228,519 $237,981 $176,992
======== ======== ======== ======== =========
</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
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, 1997, 34.0% of the Company's gross
loans receivable (27.8% of total assets) were secured by properties located in
Florida and 13.9% of gross loans receivable (11.4% of total assets) were
secured by properties located in California. Because of this concentration,
regional economic circumstances in those states could affect the level of the
Company's non-performing loans.
A-9
<PAGE>
The following table sets forth, as of September 30, 1997 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, 1997
- ------------------------------------- -------------------
(IN THOUSANDS)
<S> <C>
Florida(l) ..................... $ 596,327
California ..................... 243,722
Illinois ........................ 95,141
Michigan ........................ 90,447
Colorado ........................ 66,069
Massachusetts .................. 61,652
Virginia ........................ 59,046
Maryland ........................ 49,529
New Jersey ..................... 48,182
Texas ........................... 39,678
Ohio ........................... 36,801
New York ........................ 34,569
Arizona ........................ 34,470
Georgia ........................ 34,273
Connecticut ..................... 33,096
Pennsylvania ..................... 28,928
Washington ..................... 27,613
North Carolina .................. 17,146
Missouri ........................ 15,677
Minnesota ........................ 12,472
Utah ........................... 11,239
Tennessee ........................ 10,822
Oregon ........................... 10,054
Nevada ........................... 9,465
South Carolina .................. 8,839
Kentucky ........................ 7,261
Indiana ........................ 7,204
Washington, DC .................. 6,873
Kansas ........................... 6,073
Wisconsin ........................ 4,913
Alabama ........................ 4,867
Oklahoma ........................ 4,273
New Mexico ..................... 3,502
Rhode Island ..................... 2,981
Louisiana ........................ 2,637
Idaho ........................... 2,612
Hawaii ........................... 2,036
Maine ........................... 1,664
Alaska ........................... 1,654
Arkansas ........................ 1,606
Mississippi ..................... 1,505
Iowa ........................... 1,216
New Hampshire .................. 1,211
Others(2) ........................ 3,912
Not secured by real estate ...... 13,030
----------
Total ........................... $1,756,287
==========
</TABLE>
- ----------------
(1) Does not include $49.3 million of tax certificates representing liens
secured by properties in Florida.
(2) Less than $1 million in any one state.
A-10
<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'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 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 Eleventh District Cost of Funds Index ("COFI"). 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 generally
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 certain 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 generally purchases or originates loans with "teaser" rates
that are below market rates during an initial period after the loan is
originated. For loans with teaser rates, the borrower's ability to repay is
determined upon fully indexed rates. The Company underwrites these loans
pursuant to its underwriting guidelines prior to purchase. As of September 30,
1997 there were approximately $538.7 million of loans with teaser rates.
Applicable regulations permit the Company to lend up to 100% of the
appraised value of the real property securing a loan ("loan-to-value ratio").
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 may purchase or originate single-family mortgage loans with
loan-to-value ratios between 80% and 95%. In most of these cases, the Company
will, as a matter of policy, require the borrower to obtain private mortgage
insurance which insures that portion of the loan exceeding the 80% loan-to-value
ratio, thereby reducing the risk to no more than 80% of appraised value.
The Company generally applies the same underwriting criteria to
residential mortgage loans purchased or originated. In its loan purchases, the
Company generally reserves the right to reject particular loans from a loan
package being purchased and does reject loans in a package that do not meet its
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 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.
A-11
<PAGE>
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 (except as to principal balance
and with regard to certain loans discussed below, as to the borrower's
citizenship and related factors) to 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.
At September 30, 1997, approximately $93.9 million, or 5.3%, 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).
The Company has also established a correspondent mortgage banking
operation for the origination of single-family residential mortgage loans in
its market area. This correspondent operation consists of a network of mortgage
brokers and lenders in South Florida that generate mortgage loans for the
Company. Originations in the correspondent program, together with branch
lending, reached $159.5 million in fiscal 1997 and $66.0 million for the year
ended September 30, 1996.
Beginning in the Company's fiscal 1997 fourth quarter, management began a
program to sell approximately 50% to 75% of the Company's internally generated
residential loans. In the fourth quarter, a package of residential loans
totalling $30.1 million was sold for a gain of $523,000. In addition, as part
of starting this program, the Company reclassified $93.5 million of its
internally generated portfolio of residential loans as available for sale in
the fourth quarter. It is currently the Company's intention that future loans
classified as available for sale will be identified and so classified at time
of origination. Loans held for sale as of September 30, 1997 were $104.3
million.
A-12
<PAGE>
COMMERCIAL REAL ESTATE LENDING. The Company's commercial real estate
lending division originates or purchases multi-family and commercial real
estate loans from approximately $250,000 to $5.0 million. The Company's
strategy is to promote commercial lending together with private banking, as
both areas seek to develop long-term relationships with select businesses, real
estate borrowers, and professionals. At September 30, 1997, the Company had
$130.2 million of commercial real estate loans, representing a total of 7.4% of
the Company's loan portfolio before net items. The Company's commercial real
estate loan portfolio includes loans secured by apartment buildings, office
buildings, warehouses, retail stores and other properties, which are located in
the Company's primary market area. Commercial real estate loans generally are
originated in amounts up to 75% of the appraised value of the property securing
the loan. In determining whether to originate or purchase multi-family or
commercial real estate loans, the Company also considers such factors as the
financial condition of the borrower and the debt service coverage of the
property. Commercial real estate loans are made at both fixed and adjustable
interest rates for terms of up to 10 years.
REAL ESTATE CONSTRUCTION LENDING. The Company makes real estate
construction loans to individuals for the construction of their residences, as
well as to builders and real estate developers for the construction of
one-to-four-family residences and commercial and multi-family real estate. At
September 30, 1997, the Company had $7.5 million of construction loans
representing a total of .4% of the Company's loan portfolio before net items.
COMMERCIAL BUSINESS LENDING. Commercial business loans totaled $10.9
million as of September 30, 1997 representing .6 % of total loans. In its
commercial business loan underwriting, the Company evaluates the value of the
collateral securing the loan and assesses the borrower's creditworthiness and
ability to repay. While commercial business loans generally are made for
shorter terms and at higher yields than one-to-four-family residential loans,
such loans generally involve a higher level of risk than one-to-four-family
residential loans because the risk of borrower default is greater and the
collateral may be more difficult to liquidate and more likely to decline in
value.
LOAN PORTFOLIO QUALITY. Federal regulations require a savings institution
to review its assets on a regular basis and, if appropriate, to classify assets
as "substandard," "doubtful," or "loss" depending on the likelihood of loss.
General allowances for loan losses are required to be established for assets
classified as substandard or doubtful. For assets classified as loss, the
institution must either establish specific allowances equal to the amount
classified as a loss or charge off such amount. Assets that do not require
classification as substandard but that possess credit deficiencies or potential
weaknesses deserving management's close attention are required to be designated
as "special mention." The deputy director of the appropriate OTS regional
office may approve, disapprove or modify any classifications of assets and any
allowance for loan losses established.
Additionally, under standard banking practices, an institution's asset
quality is also measured by the level of non-performing loans in the
institution's portfolio. Non-performing loans consist of (i) non-accrual loans;
(ii) loans that are more than 90 days contractually past due as to interest or
principal but that are well-secured and in the process of collection or renewal
in the normal course of business; and (iii) loans that have been renegotiated
to provide a deferral of interest or principal because of a deterioration in
the financial condition of the borrower. The Company issues delinquency notices
to borrowers when loans are 30 or more days past due. The Company places
conventional mortgage loans on non-accrual status when more than 90 days past
due, unless the loan is fully secured and in the process of collection. When a
loan is placed on non-accrual status, the Company reverses all accrued and
uncollected interest. The Company also begins appropriate legal procedures to
obtain repayment of the loan or otherwise satisfy the obligation.
A-13
<PAGE>
As of September 30, 1997, the Company had $14.6 million in substandard
assets of which $14.3 million are included in non-performing assets.
Substandard assets consisted of the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------
(IN THOUSANDS)
<S> <C>
One-to-four family residential loans ...... $10,087
Commercial real estate ..................... 2,517
Consumer and business loans ............... 150
REO ....................................... 611
Tax certificates ........................... 1,247
-------
Total Substandard Assets .................. $14,612
=======
</TABLE>
In addition, $336,000 of tax certificates, for which reserves have been
established, were classified as loss as of September 30, 1997.
The following table sets forth information regarding the Company's
allowance for loan losses for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses, balance (at beginning of
period) ................................................... $2,158 $1,469 $ 841 $ 1,184 $ 265
Provisions (credit) for loan losses ........................ 1,295 (120) 1,221 1,187 1,052
Allowance from Suncoast/Bank of Florida ..................... 775 183 -- -- --
Allocation from discounts on loans purchased ............... -- -- -- -- 90
Loans charged off:
One-to-four family residential loans ........................ (604) (493) (535) (1,582) (223)
Commercial and other ....................................... -- -- (59) -- --
------ ------ ------ -------- ------
Total (604) (493) (594) (1,582) (223)
------ ------ ------ -------- ------
Recoveries:
One-to-four family residential loans ........................ 48 1,119 1 52 --
Commercial and other ....................................... 21 -- -- -- --
------ ------ ------ -------- ------
Total 69 1,119 1 52 --
------ ------ ------ -------- ------
Allowance for loan losses, balance (at end of period) ...... $3,693 $2,158 $1,469 $ 841 $1,184
====== ====== ====== ======== ======
</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.
A-14
<PAGE>
The following table sets forth the allocation of general allowance for
loan losses by loan category for the periods indicated.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------------------------------------------------------------
1997 1996 1995
------------------------ ------------------------ -----------------------
% OF LOANS % OF LOANS % OF LOANS
IN EACH IN EACH IN EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ------------- -------- ------------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to:
One-to-four family residential
mortgages ........................... $1,873 89.2% $1,381 88.6% $1,207 95.9%
Commercial and other loans ............ 1,787 10.8 739 11.4% 168 4.1%
Unallocated ........................... 33 N/A 38 N/A 94 N/A
------ ---- ------ ---- ------ ----
Total allowances for loan losses ...... $3,693 100.0% $2,158 100.0% $1,469 100.0%
====== ===== ====== ===== ====== =====
</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--Description of Financial Condition Changes for the Years Ended
September 30, 1997, 1996, and 1995--Credit Quality."
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
The Company maintains an investment portfolio consisting primarily of
federal agency securities, FHLB overnight deposits, securities purchased under
agreements to resell and tax certificates. Federal regulations limit the
instruments in which the Company may invest its funds. The Company's current
investment policy permits purchases only of investments (with the exception of
tax certificates) rated in one of the three highest grades by a nationally
recognized rating agency and does not permit purchases of securities of
non-investment grade quality (such as so-called "junk bonds").
The Company's portfolio also includes tax certificates issued by various
counties in the State of Florida. Tax certificates represent tax obligations
that are auctioned by county taxing authorities on an annual basis in order to
collect delinquent real estate taxes. Although tax certificates have no stated
maturity, the certificate holder has the right to collect the delinquent tax
amount, plus interest, and can file for a tax deed if the delinquent tax amount
is unpaid at the end of two years. Tax certificates have a claim superior to
most other liens. If the holder does not file for deed within seven years, the
certificate becomes null and void. The Company has adopted detailed policies
with regard to its investment in tax certificates, which specify due diligence
procedures, purchasing procedures (including parameters for the location, type
and size of tax certificates acceptable for purchase) and procedures for
managing the portfolio after acquisition.
Mortgage-backed securities are primarily acquired for their liquidity,
yield, and credit characteristics. Such securities may be used as collateral
for borrowing or pledged as collateral for certain deposits, including public
funds deposits. Mortgage-backed securities acquired include fixed and
adjustable rate agency securities (GNMA, FNMA and FHLMC), private issue
securities and collateralized mortgage obligations.
A-15
<PAGE>
The following table sets forth information regarding the Company's
investments and mortgage-backed securities as of the dates indicated. Amounts
shown are historical amortized cost. For additional information regarding the
Company's investments and mortgage-backed securities, including the carrying
values and approximate market values of such securities, see Notes 1 and 5 of
the Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
---------------------------------------------
1997 1996 1995
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal funds sold ............... $ -- $ 400 $ 400
Federal agency securities ......... 23,283 4,985 4,675
FHLB overnight deposits ............ 79,413 28,253 31,813
Tax certificates .................. 49,283 40,088 39,544
Mortgage-backed securities ......... 120,271 70,165 52,998
Other .............................. 1,377 1,711 11
--------- --------- ---------
Total investment securities ...... $ 273,627 $ 145,602 $ 129,441
========= ========= =========
Weighted average yield ............ 6.91% 7.09% 7.43%
========= ========= =========
</TABLE>
The following table sets forth information regarding the maturities of the
Company's investments as of September 30, 1997. Amounts shown are book values.
<TABLE>
<CAPTION>
PERIODS TO MATURITY
FROM SEPTEMBER 30, 1997
---------------------------------------------------------
AS OF WITHIN 1 THROUGH 5 THROUGH OVER
SEPTEMBER 30, 1997 1 YEAR 5 YEARS 10 YEARS 10 YEARS
------------------- -------------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Federal agency securities ...... $ 23,283 $ -- $ 23,283 $ -- $ --
FHLB overnight deposits ......... 79,413 79,413 -- -- --
Mortgage-backed securities ...... 120,271 31,071 46,488 19,202 23,510
Tax certificates (1) ............ 49,283 49,283 -- -- --
Other ........................... 1,377 254 1,113 10 --
--------- ---------- -------- -------- --------
Total ........................... $ 273,627 $ 160,021 $ 70,884 $ 19,212 $ 23,510
========= ========== ======== ======== ========
Weighted average yield ......... 6.91% 6.97% 6.70% 7.06% 7.06%
========= ========== ======== ======== ========
</TABLE>
- ----------------
(1) Maturities are based on historical experience.
MORTGAGE LOAN SERVICING
Prior to November 1996, the Company primarily serviced mortgage loans only
for its portfolio. With the acquisition of Suncoast on November 15, 1996, the
Company acquired a servicing portfolio consisting of 19,487 loans owned by
outside investors.
Servicing agreements generally provide for loan servicing fees ranging
from 0.25% to 0.50% per annum of the declining principal amount of the loans,
plus any late charges or other ancillary fees. Loan servicing fees for loans
serviced under mortgage-backed securities programs are either subject to
negotiation with the sponsoring agency or in certain instances set by the
sponsoring agency. Servicing fees for loans sold to private investors are
determined by agreement with the investor. Income from servicing is calculated
based upon the contractual servicing fee, net of amortization of the carrying
value of the loan servicing rights.
The Company is subject to certain costs and risks related to servicing
delinquent loans. Servicing agreements relating to the mortgage-backed security
programs of FNMA and FHLMC require the servicer to advance funds to make
scheduled payments of interest, taxes and insurance, and in some instances
principal, if such payments have not been received from the borrowers. However,
the
A-16
<PAGE>
Company recovers substantially all of the advanced funds upon cure of default
by the borrower, or through foreclosure proceedings and claims against agencies
or companies that have insured or guaranteed the loans. Certain servicing
agreements for loans sold directly to other investors require the Company to
remit funds to the loan purchaser only upon receipt of payments from the
borrower and, accordingly, the investor bears the risk of loss. The Company,
however, is subject to the risk that declines in the market rates of interest
for mortgage loans or other economic conditions will result in a revaluation of
its servicing assets as borrowers refinance or otherwise prepay higher interest
rate loans.
The following table sets forth, by category of investor, the composition
of the acquired servicing portfolios of the Company as of the dates indicated:
<TABLE>
<CAPTION>
NOVEMBER 15, 1996
SEPTEMBER 30, 1997 (SUNCOAST ACQUISITION)
-------------------------------- ----------------------------------
# OF BOOK # OF BOOK
LOANS PRINCIPAL VALUE LOANS PRINCIPAL VALUE
------- ----------- -------- -------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
GNMA ........................ -- $ -- $ -- 5,791 $ 299,183 $ 4,952
FNMA ........................ 1,297 102,805 1,514 1,462 117,856 1,690
FHLMC ..................... 2,903 246,557 2,318 3,425 295,392 2,758
Private investors ......... 472 68,906 951 337 50,741 626
FDIC/RTC-subservicing ...... -- -- -- 7,087 150,317 --
Private subservicing ...... 320 14,275 -- 1,385 190,350 --
----- --------- ------ ----- ---------- -------
4,992 $432,543 $4,783 19,487 $1,103,839 $10,026
===== ========= ====== ====== ========== =======
</TABLE>
In the second quarter of 1997, the GNMA mortgage servicing portfolio was
sold at its fair market value recognized in purchase accounting. As of August
31, 1997, the Company transferred the FDIC/ RTC subservicing portfolios to a
third party servicer. These actions were taken to increase the Company's
profitability from mortgage loan servicing.
SOURCES OF FUNDS
The Company's primary sources of funds for its investment and lending
activities are customer deposits, loan repayments, funds from operations, the
Company's capital (including trust preferred securities) and FHLB advances.
DEPOSITS. The Company offers a full variety of deposit accounts ranging
from passbook accounts to certificates of deposit with maturities of up to five
years. The Company also offers transaction accounts, which include commercial
checking accounts, negotiable order of withdrawal ("NOW") accounts, super NOW
accounts and money market deposit accounts. The rates paid on deposits are
established periodically by management based on the Company's need for funds
and the rates being offered by the Company's competitors with the goal of
remaining competitive without offering the highest rates in the market area.
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 instruments permit the Company to
reduce its cost of funds during periods of declining interest rates, such
savings instruments also increase the Company's vulnerability to periods of
high interest rates. There are no regulatory interest rate ceilings on the
Company's accounts.
A-17
<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,
-------------------------------------------------------------------------
1997 1996 1995
------------------------- ----------------------- -------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------------ ---------- ---------- ---------- ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts:
Regular .................................... $ 160,522 4.66% $ 73,741 4.44% $ 50,327 3.04%
Holiday club .............................. 35 2.00 39 2.00 46 2.00
---------- -------- --------
Total passbook accounts .................. 160,557 73,780 50,373
---------- -------- --------
Checking:
Insured money market ........................ 20,325 4.00 16,556 3.87 7,733 2.68
NOW and non-interest-bearing accounts ...... 78,907 2.28 24,566 1.49 18,157 2.17
---------- -------- --------
Total transaction accounts ............... 99,232 41,122 25,890
---------- -------- --------
Total passbook and checking accounts ...... 259,789 114,902 76,263
---------- -------- --------
Certificates:
30-89-day certificates of deposit ......... -- -- -- -- 91 2.73
3-5-month certificates of deposit ......... 18,674 4.94 7,114 4.67 1,465 4.78
6-8-month certificates of deposit ......... 439,091 5.67 159,850 5.40 93,684 5.65
9-11-month certificates of deposit ......... 15,721 5.66 20,279 5.45 5,654 5.55
12-17-month certificates of deposit ......... 307,305 5.73 124,637 5.49 79,637 5.90
18-23-month certificates of deposit ......... 20,410 5.80 12,375 5.79 12,382 5.37
24-29-month certificates of deposit ......... 58,279 5.84 42,875 5.94 18,593 5.57
30-35-month certificates of deposit ......... 12,517 5.85 1,774 5.57 2,868 4.99
36-60-month certificates of deposit ......... 64,106 6.07 22,300 5.93 19,437 5.81
---------- -------- --------
Total certificates ........................ 936,103 391,204 233,811
---------- -------- --------
Total .................................... $1,195,892 $506,106 $310,074
========== ======== ========
Weighted average rate .................. 5.32% 5.11% 4.99%
</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, 1997 that mature during the periods indicated:
<TABLE>
<CAPTION>
PERIODS TO MATURITY
FROM SEPTEMBER 30, 1997
-----------------------------------------------
AS OF WITHIN 1 TO 2 TO MORE THAN
SEPTEMBER 30, 1997 1 YEAR 2 YEARS 3 YEARS 3 YEARS
------------------- ---------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Certificate accounts:
3.00% to 3.99% ......... $ 173 $ 173 $ -- $ -- $ --
4.00% to 4.99% ......... 17,414 17,144 270 -- --
5.00% to 5.99% ......... 706,619 637,978 59,921 5,599 3,121
6.00% to 6.99% ......... 54,220 15,892 8,793 3,478 26,057
7.00% to 7.99% ......... 814 10 47 706 51
-------- -------- ------- ------- --------
Total certificate accounts
(under $100,000) ...... $779,240 $671,197 $69,031 $9,783 $29,229
======== ======== ======= ======= ========
</TABLE>
A-18
<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, 1997 that mature during the periods indicated:
<TABLE>
<CAPTION>
PERIODS TO MATURITY
FROM SEPTEMBER 30, 1997
-----------------------------------------------
AS OF WITHIN 1 TO 2 TO MORE THAN
SEPTEMBER 30, 1997 1 YEAR 2 YEAR 3 YEARS 3 YEARS
------------------- ---------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Jumbo certificate accounts:
4.00% to 4.99% ........................ $ 3,317 $ 3,317 $ -- $ -- $ --
5.00% to 5.99% ........................ 135,714 125,217 9,996 401 100
6.00% to 6.99% ........................ 17,174 9,563 2,785 560 4,266
7.00% to 7.99% ........................ 658 150 100 408 --
-------- -------- ------- ------- ------
Total Jumbo certificate amounts ...... $156,863 $138,247 $12,881 $1,369 $4,366
======== ======== ======= ======= ======
</TABLE>
Of the Company's total deposits at September 30, 1997, 1996, and 1995,
13.1%, 10.5%, and 8.6%, 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 the 1997 and 1996 fiscal years, the Company opened four new branch
offices and acquired six branch offices (one of which was closed) from
Suncoast. In fiscal 1998, the Company intends to open as many as eight new
branch offices including two that opened in the first fiscal quarter. These
additional branches are part of the Company's rapid growth as it takes
advantage of the bank consolidation in South Florida.
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
securities sold under agreements to repurchase in order to increase available
funds.
FHLB borrowings, known as "advances," are made on a secured basis, and the
terms and rates charged for FHLB advances vary in response to general economic
conditions. As a shareholder of the FHLB of Atlanta, the Bank is authorized to
apply for advances from this bank. A wide variety of borrowing plans are
offered by the FHLB of Atlanta, each with its own maturity and interest rate.
The FHLB of Atlanta will consider various factors, including an institution's
regulatory capital position, net income, quality and composition of assets,
lending policies and practices, and level of current borrowings from all
sources, in determining the amount of credit to extend to an institution. In
addition, an institution that fails to meet the qualified thrift lender test
may have restrictions imposed on its ability to obtain FHLB advances. The Bank
currently meets the qualified thrift lender test.
A-19
<PAGE>
The following tables set forth information as to the Company's borrowings
as of the dates and for the periods indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------------------------------------------------
1997 1996 1995
----------------------- ---------------------- --------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE WEIGHTED
BALANCE RATE BALANCE RATE BALANCE AVERAGE RATE
---------- ---------- ---------- --------- ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PERIOD END BALANCES:
FHLB advances(l) ............... $671,484 5.87% $237,000 5.73% $241,000 5.92%
Company Obligated Mandatorily
Redeemable Trust Preferred
Securities of Subsidiary Trusts
Holding Solely Junior
Subordinated Deferrable
Interest Debentures of
the Company .................. 116,000 10.17 -- -- -- --
Subordinated notes ............ -- -- 775 9.00 775 9.00
Securities sold under agreements
to repurchase(2) ............ 30,000 5.64 -- -- -- --
-------- ----- -------- ---- -------- ----
Total borrowings ............... $817,484 6.47% $237,775 5.74% $241,775 5.93%
======== ===== ======== ==== ======== ====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1997
--------------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- ----------------------
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(l) .................. $325,580 5.77% $234,489 5.77% $136,706 5.86%
Company Obligated Mandatorily
Redeemable Trust Preferred
Securities of Subsidiary Trusts
Holding Solely Junior Subordinated
Deferrable Interest Debentures of
the Company ..................... 63,008 10.27 -- -- -- --
Subordinated notes ............... 704 10.53 775 9.00 775 9.00
Securities sold under agreements to
repurchase(2) .................. 8,828 5.73 -- -- 6,571 5.59
-------- ----- -------- ---- -------- ----
Total borrowings .................. $398,120 6.49% $235,264 5.78% $144,052 5.86%
======== ===== ======== ==== ======== ====
</TABLE>
- ----------------
(1) The maximum amount of FHLB advances outstanding during the years ended
September 30, 1997, 1996 and 1995 was $671.5 million, $244.0 million and
$246.0 million, respectively.
(2) The maximum amount of securities sold under agreements to repurchase at any
month-end during the years ended September 30, 1997, 1996, and 1995 was
$30.0 million, $0.0 million and $33.6 million, respectively.
ACTIVITIES OF SUBSIDIARIES
T&D Properties of South Florida, Inc., a Florida corporation ("T&D"), is a
wholly owned operating subsidiary of the Bank that invests in tax certificates
and holds title to, maintains, manages and supervises the disposition of real
property acquired through tax deeds. T&D was established in 1991 for the
purpose of insulating the Bank from risk of liability concerning the
maintenance, management and disposition of real property.
A-20
<PAGE>
Bay Holdings, Inc., a Florida corporation ("Bay Holdings"), is a wholly
owned operating subsidiary of the Bank that holds title to, maintains, manages
and supervises the disposition of real property acquired through foreclosure.
Bay Holdings was established in 1994 for the purpose of insulating the Bank
from risk of liability concerning maintenance, management and disposition of
real property.
BU Ventures, Inc., a Florida corporation, is a wholly owned operating
subsidiary of the Company organized in 1994 to assume from T&D the
responsibility for the maintenance, management and disposition of real property
acquired through tax deeds.
BankUnited Mortgage Corporation, a Florida corporation ("BMC"), is a
wholly owned operating subsidiary of the Company that services loans secured by
real property. BMC was established for this purpose in 1996, and commenced
operations in October 1997.
BankUnited Capital, BankUnited Capital II and BankUnited Capital III (the
"Trusts") are Delaware statutory business trusts wholly owned by the Company.
BankUnited Capital was formed in 1996, and BankUnited Capital II and BankUnited
Capital III were formed in 1997, for the purpose of issuing Trust Preferred
Securities and investing the proceeds therefrom in Junior Subordinated
Debentures issued by the Company. BankUnited Capital and BankUnited Capital II
are operating, but BankUnited Capital III has not yet issued any capital stock.
BUFC Financial Services, Incorporated, a Florida corporation, is a wholly
owned operating subsidiary of the Company organized in 1997 for the purpose of
selling annuities, insurance and securities products.
BankUnited Financial Services, Inc., a Florida corporation, is a wholly
owned operating subsidiary of the Company, organized in 1997 for the purpose of
brokering loans.
EMPLOYEES
At September 30, 1997, the Company had 246 full-time equivalent employees.
The Company's employees are not represented by a collective bargaining group,
and the Company considers its relations with its employees to be excellent. The
Company provides employee benefits customary in the savings industry, which
include group medical and life insurance, a 401(k) savings plan and paid
vacations. The Company also provides a stock bonus plan, a profit sharing plan
and the two stock option plans 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.
A-21
<PAGE>
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
under the FIRREA to manage conservatorships and receiverships of insolvent
thrifts, and was succeeded by the FDIC.
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 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
I or core capital to risk-weighted assets ("Tier I risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier I risk-based capital ratios of less than 4% or
a risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.
A-22
<PAGE>
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than
the designated reserve ratio of 1.25% of SAIF insured deposits. In setting
these increased assessments, the FDIC must seek to restore the reserve ratio to
that designated reserve level, or such higher reserve ratio as is established
by the FDIC. The FDIC may also impose special assessments on SAIF members to
repay amounts borrowed from the United States Treasury or for any other reason
deemed necessary by the FDIC.
For the first six months of 1995, the assessment schedule for members of
the 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 provided for a one-time assessment to be imposed on all
deposits assessed at the SAIF rates, as of March 31, 1995, in order to
recapitalize the SAIF. It also provided for the merger of the BIF and the SAIF
on January 1, 1999 if no savings associations then exist. The special
assessment rate was established at .657% of deposits by the FDIC and the
resulting assessment of $2.6 million (exclusive of an additional $2.3 million
payment which relates to Suncoast deposits) was paid in November 1996. This
special assessment significantly increased non-interest expense and adversely
affected the Bank's results of operations for the year ended September 30,
1996. As a result of the special assessment, the Bank's deposit insurance
premiums were initially reduced to 6.7 basis points, and as of June 30, 1997 to
6.3 basis points based upon its current risk classification and the new
assessment schedule for SAIF insured institutions. These premiums are subject
to change in future periods.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for
resolving the thrift crisis in the 1980's. Although the FDIC has proposed that
the SAIF assessment be equalized with the BIF assessment schedule, SAIF-insured
institutions will continue to be subject to a FICO assessment as a result of
this continuing obligation. Although the legislation also now requires
assessments to be made on BIF-assessable deposits for this purpose, that
assessment will be limited to 20% of the rate imposed on SAIF assessable
deposits until the earlier of December 31, 1999 or when no savings association
continues to exist, thereby imposing a greater burden on SAIF member
institutions such as the Bank. Thereafter, however, assessments on BIF-member
institutions will be made on the same basis as SAIF-member institutions. The
rates to be established by the FDIC to implement this requirement for all
FDIC-insured institutions were 6.48 basis points assessment on SAIF deposits
and 1.30 basis points on BIF deposits until BIF insured institutions
participate fully in the assessment.
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
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HOLA, certain provisions of the Federal Reserve Act that were made applicable
to savings institutions by the FIRREA, and the OTS regulations.
As a result of the FIRREA, savings institutions' transactions with their
affiliates are subject to the limitations set forth in the HOLA and the OTS
regulations, which incorporate Sections 23A, 23B, 22(g) and 22(h) of the
Federal Reserve Act and Regulation O adopted by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). Under Section 23A, an
"affiliate" of an institution is defined generally as (i) any company that
controls the institution and any other company that is controlled by the
Company that controls the institution, (ii) any company that is controlled by
the shareholders who control the institution or any company that controls the
institution, or (iii) any company that is determined by regulation or order to
have a relationship with the institution (or any subsidiary or affiliate of the
institution) such that "covered transactions" with the Company may be affected
by the relationship to the detriment of the institution. "Control" is
determined to exist if a percentage stock ownership test is met or if there is
control over the election of directors or the management or policies of the
Company or institution. "Covered transactions" generally include loans or
extensions of credit to an affiliate, purchases of securities issued by an
affiliate, purchases of assets from an affiliate (except as may be exempted by
order or regulation), and certain other transactions. The OTS regulations and
Sections 23A and 23B require that covered transactions and certain other
transactions with affiliates be on terms and conditions consistent with safe
and sound banking practices or on terms comparable to similar transactions with
non-affiliated parties, and imposes quantitative restrictions on the amount of
and collateralization requirements on covered transactions. In addition, a
savings institution is prohibited from extending credit to an affiliate (other
than a subsidiary of the institution), unless the affiliate is engaged only in
activities that the Federal Reserve Board has determined, by regulation, to be
permissible for bank holding companies. Sections 22(g) and 22(h) of the Federal
Reserve Act impose limitations on loans and extensions of credit from an
institution to its executive officers, directors and principal shareholders and
each of their related interests.
ACTIVITIES LIMITATIONS. A unitary savings and loan holding company, such
as the Company, whose sole insured institution subsidiary qualifies as a QTL
(described below) generally has the broadest authority to engage in various
types of business activities. A holding company that acquires another
institution and maintains it as a separate subsidiary or whose sole subsidiary
fails to meet the QTL test will become subject to the activities limitations
applicable to multiple savings and loan holding companies.
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 QTL's.
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
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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
shareholders' equity, noncumulative perpetual preferred stock and related
paid-in capital, certain qualifying nonwithdrawable accounts and pledged
deposits, and minority interests in fully consolidated subsidiaries, 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, 1997, the Bank's tangible, core and risk-based capital
ratios were 8.1%, 8.1% and 11.3% respectively.
The OTS regulatory capital regulations take into account a savings
institution's exposure to the risk of loss from changing interest rates. Under
the regulations, a savings institution with an above normal level of interest
rate risk exposure will be required to deduct an IRR component from its total
capital when determining its compliance with the risk-based capital
requirements. An "above normal" level of
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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, 1997, 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 of 5% or more and Tier I risk-based capital (based on the
ratio of core capital to risk-weighted assets) of 6% or more and may not be
subject to any written agreement, order, capital directive, or prompt
corrective action directive issued by the OTS. The Bank is a well capitalized
institution under the definitions as adopted. An institution will be
categorized as "adequately capitalized" if it has total risk-based capital of
8% or more, Tier 1 risk-based capital of 4% or more, and core capital of 4% or
more; "undercapitalized" if it has total risk-based capital of less than 8%,
Tier I 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.
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The final rules establishing the capital levels for purposes of the FDICIA
also indicate that the federal regulators intend to lower or eliminate the core
capital requirement from the definitions of well capitalized, adequately
capitalized and undercapitalized after the requirement to deduct an IRR
component from total capital becomes effective. This action has not yet been
taken. See "Regulatory Capital Requirements" above.
In addition to the foregoing prompt corrective action provisions, the
FDICIA also sets forth requirements that the federal banking agencies,
including the OTS, review their capital standards every two years to ensure
that their standards require sufficient capital to facilitate prompt corrective
action and to minimize loss to the SAIF and the BIF.
RESTRICTIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. The current OTS
regulation applicable to the payment of dividends or other capital
distributions by savings institutions imposes limits on capital distributions
based on an institution's regulatory capital levels and net income. An
institution that meets or exceeds all of its capital requirements (both before
and after giving effect to the distribution) and is not in need of more than
normal supervision would be a "Tier 1 association." A Tier I association may
make capital distributions during a calendar year of up to the greater of (i)
100% of net income for the current calendar year plus 50% of its capital
surplus or (ii) the amount permitted for a "Tier 2 association" which is 75% of
its net income over the most recent four quarters. Any additional capital
distributions would require prior regulatory approval. The Bank currently
exceeds its fully phased-in capital requirements and qualifies as a Tier I
association under the regulation. A "Tier 3 association" is defined as an
institution that does not meet all of the minimum regulatory capital
requirements and therefore may not make any capital distributions without the
prior approval of the OTS.
Savings institutions must provide the OTS with at least 30 days written
notice before making any capital distributions. All such capital distributions
are also subject to the OTS' right to object to a distribution on safety and
soundness grounds.
The OTS has proposed regulations that would revise the current capital
distribution restrictions. 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
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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, 1997, 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 $33.6 million investment
in stock of the FHLB of Atlanta as of September 30, 1997.
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, 1997, advances from the FHLB of Atlanta totaled $671.5 million.
The FIRREA restricted the amount of FHLB advances that a member institution may
obtain, and in some circumstances requires repayment of outstanding advances,
if the institution does not meet the QTL test. See "--Qualified Thrift Lender
Test," above.
LIQUIDITY. OTS regulations currently require member savings institutions
to maintain for each calendar month an average daily balance of liquid assets
(cash and certain time deposits, securities of certain mutual funds, bankers'
acceptances, corporate debt securities and commercial paper, and specified U.S.
government, state government and federal agency obligations) equal to at least
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 1997, the Bank's liquidity ratio was 8.49%, and its
short-term liquidity ratio, which must be at least 1%, was 5.15%. Effective
November 24, 1997, OTS regulations were revised to eliminate the short-term
liquidity ratio and to reduce the liquidity ratio to 4%. The Bank is also
required to maintain cash reserve requirements at the Federal Home Loan Bank.
At September 30, 1997 this cash reserve requirement was $3.1 million.
COMMUNITY REINVESTMENT ACT. Under the Community Reinvestment Act (the
"CRA"), as implemented by the OTS regulations, a savings institution has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with its examination of a financial
institution,
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to assess the institution's record of meeting the credit needs of its community
and to take such records into account in its evaluation of certain
applications. The FIRREA amended the CRA to require public disclosure of an
institution's CRA rating and to require that the OTS provide a written
evaluation of an institution's CRA performance utilizing a four-tiered
descriptive rating system in lieu of the existing five-tiered numerical rating
system. Based upon an OTS examination in fiscal 1997, the Bank's CRA rating is
satisfactory.
Effective July 1, 1995, the OTS together with the other federal banking
agencies, adopted a joint rule amending each of their regulations concerning
the CRA. Subject to certain exceptions and elections, the new regulations
prescribe three tests for the evaluation of a savings institution's
performance. The lending test evaluates a savings institution's record of
helping to meet the credit needs of its assessment area through its lending
activities by considering an institution's home mortgage, small business, small
farm, and community development lending. The investment test evaluates a
savings institution's record of helping to meet the credit needs of its
assessment area through qualified investments that benefit its assessment area
or a broader statewide or regional area including the assessment area. Finally,
the service test evaluates a savings institution by analyzing both the
availability and the effectiveness of the institution's systems for delivering
retail banking services and the extent and innovativeness of its community
development services. Based upon the savings institution's performance under
the lending, investment and service tests, and any other tests which may be
applicable to the institution under the new regulations, the OTS will assign
the savings institution one of the same four ratings prescribed under current
regulations. Additionally, under the new regulations, the OTS will continue to
consider an institution's record of performance under the CRA in the same
manner and for the same purposes as required under current regulations.
These new regulations, while effective July 1, 1995, were implemented over
a two-year time frame. A savings institution may elect to be evaluated under
the revised performance tests beginning January 1, 1996, although the Company
has not made such election. Absent such an election, these revised performance
tests became mandatory and were deemed to replace the regulations described
above effective July 1, 1997.
LOANS-TO-ONE-BORROWER LIMITATIONS. The FIRREA provided that loans-to-one
borrower limits applicable to national banks apply to savings institutions.
Generally, under current limits, loans and extensions of credit outstanding at
one time to a single borrower shall not exceed 15% of the savings institution's
unimpaired capital and unimpaired surplus. Loans and extensions of credit fully
secured by certain readily marketable collateral may represent an additional
10% of unimpaired capital and unimpaired surplus. As of September 30, 1997, 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.
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GENERAL LENDING REGULATIONS
The Bank's lending activities are subject to federal and state regulation,
including the Equal Credit Opportunity Act, the Truth in Lending Act, the Real
Estate Settlement Procedures Act, the Community Reinvestment Act and the laws
of Florida, California and other jurisdictions governing discrimination, lender
disclosure to borrowers, foreclosure procedures and anti-deficiency judgments,
among other matters.
FEDERAL RESERVE SYSTEM
The Bank is subject to certain regulations promulgated by the Federal
Reserve Board. Pursuant to such regulations, savings institutions are required
to maintain reserves against their transaction accounts (primarily
interest-bearing checking accounts) and non-personal time deposits. The
balances maintained to meet the reserve requirements imposed by the Federal
Reserve Board may be used to satisfy liquidity requirements imposed by the OTS.
In addition, Federal Reserve Board regulations limit the periods within which
depository institutions must provide availability for and pay interest on
deposits to transaction accounts. Depository institutions are required to
disclose their check-hold policies and any changes to those policies in writing
to customers. The Bank is in compliance with all such Federal Reserve Board
regulations.
TAXATION
The Company reports its income and expenses under an accrual method of
accounting and prior to 1994 filed federal income tax returns on a calendar
year basis. Beginning in 1994 and continuing thereafter, the Company and its
subsidiaries have elected to file consolidated tax returns on a fiscal year
basis ended September 30. The Tax Reform Act of 1986 (the "1986 Act"), which
was signed into law on October 22, 1986, revised the income tax laws applicable
to corporations in general and to savings institutions, such as the Bank, in
particular. Except as specifically noted, the discussion below relates to
taxable years beginning after December 31, 1986.
The Company has not been notified of a proposed examination by the
Internal Revenue Service (the "IRS") of its federal income tax returns.
BAD DEBT RESERVES
DEDUCTIONS. Prior to legislation enacted in August 1996, the Internal
Revenue Code (the "Code") permitted savings institutions, such as the Bank, to
establish a reserve for bad debts and to make annual additions thereto, which
additions may, within specified formula limits, be deducted in determining
taxable income. The bad debt reserve deduction was generally based upon a
savings institution's actual loss experience (the "experience method"). In
addition, provided that certain definitional tests relating to the composition
of assets and sources of income are met, a savings institution was permitted to
elect annually to compute the allowable addition to its bad debt reserve for
losses on qualifying real property loans (generally loans secured by improved
real estate) by reference to a percentage of its taxable income (the
"percentage of taxable income method").
Under the percentage of taxable income method, a savings institution was
permitted, in general, to claim a deduction for additions to bad debt reserves
equal to 8% of the savings institution's taxable income. Taxable income for
this purpose is defined as taxable income before the bad debt deduction, but
without regard to any deduction allowable for any addition to the reserve for
bad debt. Certain adjustments must also be made for gains on the sale of
corporate stock and tax exempt obligations. For this purpose, the taxable
income of a savings institution for a taxable year is calculated after
utilization of net operating loss carry forwards.
In August of 1996, legislation was enacted that repealed the reserve
method of accounting (including the percentage of taxable income method) used
by many thrifts, including the Bank, to
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calculate their bad debt deduction for federal income tax purposes. The
legislation requires thrifts to account for bad debts for federal income tax
purposes on the same basis as commercial banks for tax years beginning after
December 31, 1995. As such, thrifts with assets whose tax basis exceeds
$500,000,000 must change to the specific charge off method in computing its bad
debt deduction. As such, the Bank must use the specific charge off method in
computing its bad debt deduction for tax years beginning after December 31,
1995.
As a result of this change in accounting method, the Bank must recapture
the excess of its January 1, 1996 bad debt reserve over the reserve in
existence on December 31, 1987. This recapture will occur over a six-year
period, the commencement of which will be delayed until the first taxable year
beginning after December 31, 1997, provided the institution meets certain
residential lending requirements. The management of the Company does not
believe that the legislation will have a material impact on the Company or the
Bank.
DISTRIBUTIONS. Under the Code, the Bank's December 31, 1987 reserve must
be recaptured into taxable income as a result of certain non-dividend
distributions. A distribution is a non-dividend distribution to the extent
that, for federal income tax purposes, (i) it is in redemption of shares, (ii)
it is pursuant to a liquidation of the institution, or (iii) in the case of a
current distribution it, together with all other such distributions during the
taxable year, exceeds the Bank's current and post-1951 accumulated earnings and
profits. The amount charged against the Bank's bad debt reserves in respect of
a distribution will be includable in its gross income and will equal the amount
of such distribution, increased by the amount of federal income tax resulting
from such inclusion.
ALTERNATIVE MINIMUM TAX
In addition to the income tax, corporations are generally subject to an
alternative minimum tax at a rate of 20%. The alternative minimum tax is
imposed on the sum of regular taxable income (with certain adjustments) and tax
preference items, less any available exemption ("AMTI"). The alternative
minimum tax is imposed to the extent that it exceeds a corporation's regular
income tax liability. The items of tax preference that constitute AMTI for 1990
and thereafter include 75% of the difference between the taxpayer's adjusted
current earnings and AMTI (determined without regard to this preference and
prior to any deduction for net operating loss carry forwards or carry backs).
In addition, net operating loss carry forwards cannot offset more than 90% of
AMTI.
INTEREST ALLOCABLE TO TAX-EXEMPT OBLIGATIONS
The 1986 Act eliminates for financial institutions the deduction for
interest expense allocable to the purchase or carrying of most tax-exempt
obligations for taxable years ending after December 31, 1986, with respect to
tax-exempt obligations acquired after August 7, 1986 excluding certain
financial institution-qualified issues. For all qualified issues and for
non-qualified tax-exempt obligations acquired after 1982 and before August 7,
1986, 20% of allocable interest expense deductions will be disallowed.
STATE TAXATION
The State of Florida imposes a corporate income tax on the Company, at a
rate of 5.5% of the Company's taxable income as determined for Florida income
tax purposes. Taxable income for this purpose is based on federal taxable
income with certain adjustments. A credit against the tax, for Florida
intangible taxes paid, is allowable in an amount equal to the lesser of (i) the
amount of such intangible taxes paid or (ii) 65% of the tax liability.
FORECLOSURES
Tax legislation enacted in August of 1996 significantly changed the tax
treatment with respect to foreclosures for taxable years beginning after
December 31, 1995. Prior to this legislation, a thrift's acquisition of
property by means of foreclosure was not treated as a taxable event for federal
tax
A-31
<PAGE>
purposes. As such no gain or loss was recognized at the time of foreclosure and
no portion of the debt could be treated as worthless. In addition, prior to the
August 1996 legislation, thrift institutions were allowed a tax benefit for
write downs of foreclosed property to fair market value. Finally, for thrifts
that computed its bad debt deduction under the experience method, gains or
losses realized from the sale of foreclosed property were not taken into
account in computing taxable income, but were credited or charged to the
thrift's bad debt reserve.
As a result of the newly enacted tax legislation, thrift foreclosures are
treated as a taxable event for federal tax purposes for property acquired after
December 31, 1995. As such, a thrift may recognize gain, loss or a bad debt
deduction at the time of foreclosure depending on the method by which the
property was acquired. In addition, write downs of foreclosed property to fair
market value no longer give rise to a tax benefit. Finally, gains and losses
realized upon the sale of foreclosed property are included in taxable income of
the thrift.
ITEM 2. PROPERTIES
The executive and administrative offices of the Company and the Bank and
the Coral Gables branch are located at 255 Alhambra Circle, Coral Gables,
Florida 33134. The Company owns electronic data processing equipment for its
exclusive use, which consists of personal computers and peripherals and
software having an aggregate net book value of approximately $1.3 million as of
September 30, 1997.
The following table sets forth the location of, and certain additional
information regarding, the Company's and Bank's offices and branches as of
September 30, 1997.
<TABLE>
<CAPTION>
NET BOOK VALUE OF PREMISES
OR LEASEHOLD IMPROVEMENTS LEASE EXPIRATION DATE
LOCATION AND EQUIPMENT AND RENEWAL TERMS SQUARE FOOTAGE
- ------------------------------------- --------------------------- ---------------------- ---------------
<S> <C> <C> <C>
Executive and administrative offices,
and savings branches
Aventura branch ..................... $ 11,319 1999 5,000
2984 Aventura Boulevard (2 options to renew
Aventura, Florida 33180 for 5 years each)
Boca Hamptons branch ............... 238,411 2002 2,700
9070 Kimberly Boulevard (3 options to renew
Suite 68 for 5 years each)
Boca Raton, Florida 33434
Boca Raton branch .................. 136,047 1999 2,442
21222 St. Andrews Boulevard #11 (3 options to renew
Raton, Florida 33434 for 3 years each)
Boynton Beach branch ............... 195,726 2001 2,933
117 North Congress Avenue (2 options to renew
Boynton Beach, Florida 33426 for 5 years)
Coconut Creek branch ............... 123,731 2002 2,400
4913 Coconut Creek Parkway (2 options to renew
Coconut Creek, Florida 33063 for 5 years each)
Coral Gables branch ............... 1,458,317 2001 14,097
255 Alhambra Circle (2 options to renew
Coral Gables, Florida 33134 for 5 years each)
Coral Springs branch ............... 68,272 2001 2,805
1307 University Drive (2 options to renew
Coral Springs, Florida 33071 for 5 years each)
</TABLE>
A-32
<PAGE>
<TABLE>
<CAPTION>
NET BOOK VALUE OF PREMISES
OR LEASEHOLD IMPROVEMENTS LEASE EXPIRATION DATE
LOCATION AND EQUIPMENT AND RENEWAL TERMS SQUARE FOOTAGE
- ------------------------------------ --------------------------- ---------------------- ---------------
<S> <C> <C> <C>
Deerfield Beach branch ............ 297,753 1998 4,000
and Commercial Real Estate office (2 options to renew
2201 West Hillsboro Boulevard for 5 years each)
Deerfield Beach, Florida 33442
Delray Beach branch ............... 376,256 1995 4,000
7431-39 West Atlantic Avenue (3 options to renew
Delray Beach, Florida 33446 for 5 years each)
Hallandale branch .................. 635,114 (1)(2) 4,500
501 Golden Isles
Drive Hallandale, Florida 33009
Hollywood branch .................. 34,068 2004 4,111
4350 Sheridan Street, Unit 101
Hollywood, Florida 33021
Lauderdale by the Sea branch ...... 773,301 (1) 5,000
227 Commercial Boulevard
Lauderdale by the Sea, Florida
33008
Pembroke Pines branch ............ 49,451 2001 4,059
100 South Flamingo Road (1 option to renew
Pembroke Pines, Florida 33027 for 5 years)
Pompano Beach branch ............... $708,102 (1) 5,000
1313 North Ocean Boulevard
Pompano Beach, Florida 33062
South Miami branch ............... 127,783 2002 6,701
6075 Sunset Drive (1 option to renew
South Miami, Florida 33143 for 5 years)
Tamarac branch ..................... 110,937 2002 3,531
5779 North University Drive (1 option to renew
Tamarac, Florida 33321 for 5 years)
West Airport branch ............... 283,723 2000 7,200
2410 N.W. 72nd Avenue (4 options to renew
Miami, Florida 33122 for 3 years)
West Palm Beach branch ............ 167,794 2001 3,740
2911C North Military Trail (2 options to renew
West Palm Beach, Florida 33409 for 5 years)
Mortgage Servicing office ......... 811,765 2000 32,850
Presidential Circle (2 options to renew
4000 Hollywood Boulevard for 5 years each)
Hollywood, Florida 33021
Miami Lakes Operation Center ...... -- 2002 14,880
7815 N.W. 148 Street (2 options to renew
Miami Lakes, Florida 33016 for 5 years each)
</TABLE>
A-33
<PAGE>
<TABLE>
<CAPTION>
NET BOOK VALUE OF PREMISES
OR LEASEHOLD IMPROVEMENTS LEASE EXPIRATION DATE
LOCATION AND EQUIPMENT AND RENEWAL TERMS SQUARE FOOTAGE
- ----------------------------------------- --------------------------- ---------------------- ---------------
<S> <C> <C> <C>
Hollywood Training Office ............... -- 1999 4,042
4350 Sheridan Street,
Units 200 & 201
Hollywood, Florida 33021
Mortgage Origination Office ............ 177,384 2004 2,000
255 Alhambra Circle 3rd Floor
Coral Gables, Florida 33134
Other Offices
1177 George Bush Boulevard, #200 ...... -- 1998 5,371
Delray Beach, Florida 33483 (1 option to renew
for 3 years)
4340 Sheridan Street .................. 585,855 (1)(3) 4,764
Hollywood, Florida 33021
6101 Sunset Drive ..................... -- 1998 4,000
South Miami, Florida 33143
7700 North Kendall Drive, #506 ......... -- 1998 1,129
Miami, Florida 33143
</TABLE>
- ----------------
(1) The Bank owns the facility.
(2) The Bank leases 1,400 square feet to unrelated parties
(3) The entire space is currently sub-leased to an unrelated party
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries, from time to time, are involved as
plaintiff or defendant in various legal actions arising in the normal course of
their businesses. While the ultimate outcome of any such proceedings cannot be
predicted with certainty, it is the opinion of management that no proceedings
exist, either individually or in the aggregate, which, if determined adversely
to the Company and its subsidiaries, would have a material effect on the
Company's consolidated financial condition, results of operations or cash
flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended September 30, 1997.
A-34
<PAGE>
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 53 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 (1984 to present) and
President (1984 to 1993, 1994 to present) of the Bank; Senior
Managing Director (1996 to present) and Managing Director (1973 to
1996) of Stuzin and Camner, Professional Association, attorneys-at-
law; General Counsel to CSF Holdings, Inc. and its subsidiary,
Citizens Federal Bank, a federal savings bank (1973 to 1996);
Director and member of the Executive Committee of the Board of
Directors of Loan America Financial Corporation, a national
mortgage banking company (1985 to 1994); Director of CSW
Associates, Inc., an asset management firm (1990 to 1995).
Lawrence H. Blum 54 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.
James A. Dougherty 47 Director (December 1995 to present) and Chief Operating Officer
and Executive Vice President (1994 to present) of the Company;
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).
Earline G. Ford 54 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 55 Director (1993 to present) and Secretary (1993 to 1997) of the
Company; Director (1984 to present) and Secretary (1985 to 1996) of
the Bank; Vice President of Head-Beckham Insurance Agency, Inc.
(1990 to present).
Allen M. Bernkrant 67 Director of the Company (1993 to present) and the Bank (1985 to
present); 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).
Bruce D. Friesner 55 Director of the Company and the Bank (1996 to present); Director of
Loan America Financial Corporation, a national mortgage banking
company (1990 to 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 (1990 to
1997); Private investor in Miami, Florida (1993 to present); Principal,
West Laboratory School, Coral Gables, Florida (1970 to 1993).
</TABLE>
A-35
<PAGE>
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY
NAME AGE AND BUSINESS EXPERIENCE
- ------------------------- ----- ---------------------------------------------------------------------
<S> <C> <C>
Elia J. Gusti 63 Director of the Company and the Bank (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 (1996 to present) and Secretary (1997 to present) of the
Company; Managing Director (1996 to present) of Stuzin and
Camner, Professional Association, attorneys-at-law; General Counsel
of Jefferson National Bank (1993 to 1996); Partner, Stroock Stroock
& Lavan, attorneys-at-law (1991 to 1993).
Norman E. Mains 54 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 H. Messinger, M.D. 59 Director of the Company 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 32 Director of the Company and the Bank (1995 to present); Executive
Vice President, the Beacon Council (1996 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 (formerly Southeast Bank,
N.A.) (1986 to 1992).
Anne W. Solloway 82 Director of the Company (1993 to present) and the Bank (1985 to
present); Private investor in Miami, Florida.
EXECUTIVE OFFICERS OF THE COMPANY AND/OR THE BANK
WHO ARE NOT DIRECTORS:
Clifford A. Hope 49 Executive Vice President of the Company and the Bank (1997 to
present); Banking industry consultant in private practice (1996 to
1997); Senior Vice President and Chief Accounting Officer, Citizens
Federal Bank (1987 to 1996).
Samuel A. Milne 47 Executive Vice President and Chief Financial Officer (1996 to
present) and Senior Vice President and Chief Financial Officer (1995
to 1996) of the Company and the Bank; Senior Vice President and
Chief Financial Officer, Consolidated Bank (1992 to 1995); Senior
Vice President, Southeast Bank, N.A. (1984 to 1991).
Donald Putnam 40 Executive Vice President of the Company (1997 to present) and the
Bank (1996 to present); Senior Vice President and Regional Sales
Manager, NationsBank of Florida, N.A. (1996); Senior Vice President
(1994 to 1996), and First Vice President (1987 to 1994), of Citizens
Federal Bank.
</TABLE>
----------------
All executive officers serve at the discretion of the Board of Directors
and are elected annually by the Board.
A-36
<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, 1997, there were 400 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 1997 or
1996. See Note 12 to the Company's Consolidated Financial Statements for a
discussion of restrictions on the Bank's payment of dividends to the Company.
The following tables set forth, for the periods indicated, the range of
high and low bid prices for the Class A Common Stock quoted on Nasdaq. Stock
price data in the Nasdaq reflects inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK
--------------------
PRICE
--------------------
HIGH LOW
--------- --------
<S> <C> <C>
Fiscal Year Ended September 30, 1997:
1st Quarter ..................... $10.00 $ 7.875
2nd Quarter ..................... $11.25 $ 9.25
3rd Quarter ..................... $10.875 $ 8.50
4th Quarter ..................... $13.375 $ 9.625
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
</TABLE>
A-37
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF OR FOR THE FISCAL
YEARS ENDED SEPTEMBER 30,
-----------------------------
1997 1996
------------ ----------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
OPERATIONS DATA
Interest income ................................................ $ 108,774 $ 52,132
Interest expense ............................................. 75,960 34,622
---------- ------------
Net interest income .......................................... 32,814 17,510
Provision for loan losses .................................... 1,295 (120)
---------- ------------
Net interest income after provision for loan losses ............ 31,519 17,630
---------- ------------
Non-interest income:
Service fees ................................................... 2,993 597
Gain on sales of loans and mortgage-backed
securities, net ............................................. 819 5
Gain (loss) on sales of other assets, net(1) .................. 1 (6)
Other ......................................................... 247 53
---------- ------------
Total non-interest income .................................... 4,060 649
---------- ------------
Non-interest expense:
Employee compensation and benefits ........................... 8,880 4,275
Occupancy and equipment ....................................... 3,568 1,801
Insurance(2) ................................................ 948 3,610
Professional fees ............................................. 1,605 929
Other ......................................................... 7,964 3,421
---------- ------------
Total non-interest expense ................................. 22,947 14,036
---------- ------------
Income before income taxes .................................... 12,632 4,243
Provision for income taxes(3) ................................. 5,033 1,657
---------- ------------
Net income before Preferred Stock dividends .................. 7,599 2,586
Preferred stock dividends:
Bank ......................................................... - -
Company ...................................................... 2,890 2,145
---------- ------------
Net income after Preferred Stock dividends ..................... $ 4,709 $ 441
========== ============
FINANCIAL CONDITION DATA:
Total assets ................................................... $2,145,406 $ 824,360
Loans receivable, net, and mortgage-backed securities(4) ...... 1,781,652 716,550
Investments, overnight deposits, tax certificates, reverse
purchase agreements, certificates of deposits and other
earning assets ................................................ 186,955 87,662
Total liabilities ............................................. 2,045,761 755,249
Deposits ...................................................... 1,195,892 506,106
Borrowings ................................................... 817,484 237,775
Total stockholders' equity .................................... 99,645 69,111
Common stockholders' equity .................................... 75,649 44,807
PER COMMON SHARE DATA:
Primary earnings per common share and common
equivalent share ............................................. $ .54 $ .10
========== ============
Earnings per common share assuming full dilution ............... $ .54 $ .10
========== ============
Weighted average number of common shares and common
equivalent shares assumed outstanding during the period:
Primary ...................................................... 8,679,845 4,558,521
Fully diluted ................................................ 9,030,843 4,558,521
Equity per common share ....................................... $7.94 $ 7.85
Fully converted tangible equity per common share ............. $ 6.88 $ 7.13
Cash dividends per common share
Class A ...................................................... $ - $ -
Class B ...................................................... $ - $ -
<PAGE>
<CAPTION>
AS OF OR FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
----------------------------------------
1995 1994 1993
------------- ------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
OPERATIONS DATA
Interest income ................................................ $ 39,419 $ 30,421 $ 25,722
Interest expense ............................................. 26,305 16,295 12,210
----------- ----------- -----------
Net interest income .......................................... 13,114 14,126 13,512
Provision for loan losses .................................... 1,221 1,187 1,052
----------- ----------- -----------
Net interest income after provision for loan losses ............ 11,893 12,939 12,460
----------- ----------- -----------
Non-interest income:
Service fees ................................................... 423 358 221
Gain on sales of loans and mortgage-backed
securities, net ............................................. 239 150 1,496
Gain (loss) on sales of other assets, net(1) .................. 9,569 -- --
Other ......................................................... 6 46 2
----------- ----------- -----------
Total non-interest income .................................... 10,237 554 1,719
----------- ----------- -----------
Non-interest expense:
Employee compensation and benefits ........................... 3,997 3,372 2,721
Occupancy and equipment ....................................... 1,727 1,258 978
Insurance(2) ................................................ 1,027 844 835
Professional fees ............................................. 1,269 833 543
Other ......................................................... 4,129 3,579 2,746
----------- ----------- -----------
Total non-interest expense ................................. 12,149 9,886 7,823
----------- ----------- -----------
Income before income taxes .................................... 9,981 3,607 6,356
Provision for income taxes(3) ................................. 3,741 1,328 2,318
----------- ----------- -----------
Net income before Preferred Stock dividends .................. 6,240 2,279 4,038
Preferred stock dividends:
Bank ......................................................... - 198 787
Company ...................................................... 2,210 1,871 726
----------- ----------- -----------
Net income after Preferred Stock dividends ..................... $ 4,030 $ 210 $ 2,525
=========== =========== ===========
FINANCIAL CONDITION DATA:
Total assets ................................................... $ 608,415 $ 551,075 $ 435,378
Loans receivable, net, and mortgage-backed securities(4) ...... 506,132 470,154 313,899
Investments, overnight deposits, tax certificates, reverse
purchase agreements, certificates of deposits and other
earning assets ................................................ 88,768 64,783 100,118
Total liabilities ............................................. 562,670 509,807 397,859
Deposits ...................................................... 310,074 347,795 295,108
Borrowings ................................................... 241,775 158,175 97,775
Total stockholders' equity .................................... 45,745 41,268 30,273
Common stockholders' equity .................................... 21,096 16,667 17,162
PER COMMON SHARE DATA:
Primary earnings per common share and common
equivalent share ............................................. $ 1.77 $ .10 $ 1.42
=========== =========== ===========
Earnings per common share assuming full dilution ............... $ 1.26 $ .10 $ 1.00
=========== =========== ===========
Weighted average number of common shares and common
equivalent shares assumed outstanding during the period:
Primary ...................................................... 2,296,021 2,175,210 1,773,264
Fully diluted ................................................ 4,158,564 2,175,210 3,248,618
Equity per common share ....................................... $ 10.20 $ 8.33 $ 8.86
Fully converted tangible equity per common share ............. $ 8.15 $ 7.39 $ 7.57
Cash dividends per common share
Class A ...................................................... $ - $ .075 $ .094
Class B ...................................................... $ - $ .03 $ 0.38
</TABLE>
(Continued on next page)
A-38
<PAGE>
<TABLE>
<CAPTION>
AS OF OR FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS
PERFORMANCE RATIOS:
Return on average assets(5) ................................. .51% .36% 1.10% .46% 1.12%
Return on average common equity .............................. 9.34 1.30 22.60 1.21 18.55
Return on average total equity .............................. 8.06 4.30 14.70 5.84 14.07
Interest rate spread ....................................... 2.07 2.10 2.12 2.78 3.59
Net interest margin .......................................... 2.31 2.51 2.39 3.01 3.87
Dividend payout ratio(6) .................................... 38.03 82.95 35.42 96.79 40.66
Ratio of earnings to combined fixed charges and preferred
stock dividends(7):
Excluding interest on deposits .............................. 1.26 1.05 1.52 1.07 1.87
Including interest on deposits .............................. 1.10 1.02 1.21 1.03 1.27
Total loans, net, and mortgage-backed securities to
total deposits ............................................. 148.98 141.58 163.13 134.40 109.65
Non-interest expenses to average assets ..................... 1.55 1.97 2.14 2.04 2.18
Efficiency ratio(8) .......................................... 57.56 76.45 14.58 66.06 45.17
ASSET QUALITY RATIOS:
Ratio of non-performing loans to total loans ............... .72% .99% 1.02% 1.07% 1.54%
Ratio of non-performing assets to total loans, real estate
owned and tax certificates ................................. .79 1.14 1.35 1.41 1.78
Ratio of non-performing assets to total assets ............... .67 .95 1.10 1.17 1.46
Ratio of charge-offs to total loans ........................ .03 .08 .13 .39 .07
Ratio of loan loss allowance to total loans .................. .21 .34 .32 .20 .38
Ratio of loan loss allowance to non-performing loans ......... 28.96 33.74 31.54 18.89 24.70
CAPITAL RATIOS:
Ratio of average common equity to average total assets ...... 3.40% 4.78% 3.14% 3.58% 3.79%
Ratio of average total equity to average total assets ...... 6.36 8.44 7.47 8.05 7.99
Tangible capital-to-assets ratio(9) ........................ 8.07 7.01 7.09 6.65 7.56
Core capital-to-assets ratio(9) .............................. 8.07 7.01 7.09 6.65 7.56
Risk-based capital-to-assets ratio(9) ........................ 11.27 14.19 15.79 14.13 15.85
</TABLE>
- ----------------
(1) In 1995 the Company recorded a $9.3 million gain ($5.8 million after tax)
from the sale of its branches on the west coast of Florida.
(2) In 1996 the Company recorded a one-time SAIF special assessment of $2.6
million ($1.6 million after tax).
(3) Amount reflects expense from change in accounting principle of $194,843 for
fiscal 1994. See Note 15 to Consolidated Financial Statements.
(4) Does not include mortgage loans held for sale.
(5) Return on average assets is calculated before payment of Preferred Stock
dividends.
(6) The ratio of total dividends declared during the period (including
dividends on the Bank's and the Company's Preferred Stock and the
Company's Class A and Class B Common Stock) to total earnings for the
period before dividends.
(7) The ratio of earnings to combined fixed charges and Preferred Stock
dividends excluding interest on deposits is calculated by dividing income
before taxes and extraordinary items by interest on borrowings plus 33% of
rental expense plus Preferred Stock dividends on a pretax basis. The ratio
of earnings to combined fixed charges and Preferred Stock dividends
including interest on deposits is calculated by dividing income before
taxes and extraordinary items by interest on deposits plus interest on
borrowings plus 33% of rental expense plus Preferred Stock dividends on a
pretax basis.
(8) Efficiency ratio is calculated by dividing non-interest expenses less
non-interest income by net interest income.
(9) Regulatory capital ratio of the Bank.
A-39
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis and the related financial data
present a review of the consolidated operating results and financial condition
of BankUnited Financial Corporation (also referred to as the "Company" or
"BankUnited") for the fiscal years ended September 30, 1997, 1996 and 1995.
This discussion and analysis are presented to assist the reader in
understanding and evaluating the financial condition, results of operations and
future prospects of BankUnited, and are intended to supplement, and should be
read in conjunction with, the Consolidated Financial Statements and Notes
thereto.
BankUnited's income is derived primarily from its loans and other
investments. Funding for such loans and investments is derived principally from
deposits, loan repayments, and borrowings. Consequently, BankUnited's net
income depends, to a large extent, on the interest rate spread between the
average yield earned on loans and investments and the average rate paid on
deposits and borrowings. Results of operations are also dependent on the dollar
volume and asset quality of BankUnited's loans and investments.
In addition to the foregoing, results of BankUnited's operations, like
those of other financial institution holding companies, are affected by
BankUnited's asset and liability management policies, as well as factors beyond
BankUnited's control, such as general economic conditions and the monetary and
fiscal policies of the federal government. Lending activities are affected by
the demand for mortgage financing and other types of loans, which is in turn
affected by the interest rates at which such financings may be offered and
other factors affecting the supply of housing and the availability of funds.
Deposit flows and costs of funds are influenced by yields available on
competing investments and by general market rates of interest.
ACQUISITIONS
The Company has had an active acquisition program during the last two
years and expects to continue this program in the foreseeable future.
In September 1997, the Company entered into a definitive agreement to
acquire Consumers Bancorp, Inc. for approximately $11 million in a combination
of cash and stock. Consumers Bancorp, Inc. is a thrift holding company for
Consumers Savings Bank which had assets of $108.0 million and deposits of $87.8
million at September 30, 1997.
On November 15, 1996, BankUnited completed its acquisition of Suncoast.
Suncoast had total assets of $409.4 million, net loans of $335.0 million,
deposits of $298.5 million and shareholders' equity of $24.7 million as of
September 30, 1996. The cost of the acquisition to BankUnited was $27.8
million, representing the fair value of consideration given to Suncoast
shareholders as well as option and warrant holders. See Note 2 of the Notes to
Consolidated Financial Statements for additional information regarding this
acquisition.
In March 1996, BankUnited 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.
DISCUSSION OF FINANCIAL CONDITION CHANGES FOR THE YEARS ENDED SEPTEMBER 30,
1997, 1996, AND 1995
Total assets increased $1.3 billion, or 160% to $2.1 billion at September
30, 1997 from $824 million at September 30, 1996, as compared to $608 million
at September 30, 1995.
LOANS. The Company's net loans receivable increased by $1.1 billion, or
173% to $1.7 billion at September 30, 1997 from $646 million at September 30,
1996. The increase was primarily the result of the $913.7 million of
residential loans purchased in fiscal 1997, $341.4 million of loans acquired
with
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<PAGE>
Suncoast, and $178.3 million of loan originations, partially offset by
principal repayments of $271 million (net of accretion of discount and
amortization of premium).
In fiscal 1996, the Company's net loans receivable increased by $193.3
million, or 42.6%, from $453.1 million at September 30, 1995. The increase was
primarily the result of $210.1 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.
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.
Of the new loans originated or purchased during fiscal 1997 totaling $1.4
billion, $728.2 million or 51% represented adjustable-rate residential loans
("ARMs"). Of BankUnited's total net loans receivable of $1.7 billion at
September 30, 1997, $1.2 billion or 71% were ARMs. Of this amount BankUnited
had $122.3 million in ARMs tied to the 11th District Federal Home Loan Bank
cost of funds index ("COFI"). COFI is a lagging index in that it does not
change as quickly as market rates. (See "Business--Lending
Activities--Residential Mortgage Loan Purchases and Originations.")
Loans available for sale as of September 30, 1997, were $104.3 million as
compared to no such loans available for sale as of September 30, 1996 and
$216,000 as of September 30, 1995. Beginning in the Company's fiscal 1997
fourth quarter, management began a program to sell approximately 50% to 75% of
the Company's internally generated residential loans. In the fourth quarter, a
package of residential loans totaling $30.1 million was sold for a gain of
$523,000. In addition, as part of starting this program, the Company
reclassified $93.5 million of its internally generated portfolio of residential
loans as available for sale in the fourth quarter. It is currently the
Company's intention that future loans classified as available for sale will be
identified and so classified at time of origination.
The Company also reclassified all commercial loans acquired with Suncoast
that were secured by properties outside the state of Florida totaling $10.8
million as available for sale.
CREDIT QUALITY. At September 30, 1997, non-performing assets totaled $14.3
million as compared to $7.8 million and $6.7 million at September 30, 1996 and
1995, respectively. Expressed as a percentage of total assets, non-performing
assets declined to .67% as of September 30, 1997 as compared to .95% as of
September 30, 1996 and 1.10% as of September 30, 1995. The increase in
non-performing assets in both 1997 and 1996 is due primarily to the increase in
loans.
Prior to 1993, BankUnited did not experience significant loan losses.
However, beginning in late 1993, BankUnited 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 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, BankUnited 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 1997,
BankUnited recorded a total of $2.9 million in charge offs for residential
loans secured by property in Southern California. Of these Southern California
charge offs, $1.0 million were for loans purchased from a single seller.
BankUnited instituted legal action against the seller for breach of warranty to
recover BankUnited's losses. In October 1995, this legal action was settled,
which resulted in a recovery of $1.0 million. Taking this recovery into
account, BankUnited recorded net charge offs of $2.3 million for the period
from late 1993 through September 30, 1997, of which $1.9 million or 86.9% were
for residential loans secured by real properties in Southern California.
Beginning in fiscal 1993, BankUnited began to reduce the percentage of new
loans acquired which were secured by property located in California and ceased
acquiring all but de minimis amounts of such loans in April 1994. As of
September 30, 1997 BankUnited had $243.7 million of residential loans in
California which constituted 11.4% of its assets. This compares to $125.8
million, or 15.3% of its assets
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<PAGE>
as of September 30, 1996, 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 discontinued this policy.
The allowance for loan losses was $3.7 million, $2.2 million, and $1.5
million at September 30, 1997, 1996, and 1995, respectively. The allowance for
loan losses as a percentage of total loans decreased to .21% at fiscal year end
1997, as compared to .34% at fiscal year end 1996, and .32% at fiscal year end
1995. The decrease in the allowance as a percentage of total loans reflects the
Company's recent charge-off history which shows net charge-offs (recoveries) as
a percentage of average loans of .04%, (.12%) and .14% for 1997, 1996 and 1995,
respectively. The increase in non-performing assets to $14.3 million as of
September 30, 1997 from $7.8 million as of September 30, 1996 was due to
increases in non-performing loans of $6.4 million which, as stated above,
relates to the increase in total loans. Real estate owned declined from $1.5
million as of September 30, 1995 to $632,000 as of September 30, 1996, to
$611,000 as of September 30, 1997. At September 30, 1997, $3.0 million, or
23.5%, of BankUnited's non-performing loans were secured by Southern California
properties as compared to $2.8 million, or 43.4%, as of September 30, 1996, and
$1.5 million, or 37.6% as of September 30, 1995.
Effective October 1, 1995, BankUnited adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan" as amended by SFAS No. 118 "Accounting by Creditors for Impairment
of a Loan-Income Recognition and Disclosures ("SFAS No. 114"). There was no
impact on the consolidated statement of operations upon implementation due to
the composition of BankUnited's loan portfolio (primarily residential or
collateral dependent loans) and BankUnited's policy for establishing the
allowance for loan losses. The only impact to the consolidated statement of
financial condition and to non-performing assets was to reclassify three loans
totaling $522,000 previously classified as in substance foreclosures in real
estate owned to non accrual loans. These loans were reclassified because
BankUnited did not have possession of the collateral which, under SFAS No. 114,
is required for a loan to be classified as real estate owned. SFAS No. 114 does
not apply to large groups of smaller balance homogenous loans that are
collectively evaluated for impairment. Loans collectively reviewed by
BankUnited for impairment include all residential and consumer loans that are
past due not more than 60 days. All other loans are reviewed based on specific
criteria such as delinquency or other factors that may come to the attention of
management. BankUnited's impaired loans within the scope of SFAS No. 114
include all non-performing loans.
BankUnited's process for evaluating the adequacy of the allowance for
loans losses has three basic elements: first is the identification of impaired
loans; second is the establishment of an appropriate loan loss allowance once
individual specific impaired loans are identified; and third is a methodology
for establishing loan losses based on the inherent risk in the remainder of the
loan portfolio, past loan loss experience, specific loans which could have loss
potential, geographic and industry concentration, delinquency trends, economic
conditions, the views of its regulators, and other relevant factors.
The identification of impaired loans is achieved mainly through individual
reviews of all loans 60 or more days past due. Loss allowances are established
for specifically identified impaired loans based on the fair value of the
underlying collateral in accordance with SFAS No. 114.
Impairment losses are included in the allowance for loan losses through a
charge to the provision for loan losses. Adjustments to impairment losses
resulting from changes in the fair value of an impaired loan's collateral are
included in the provision for loan losses. Upon disposition of an impaired loan
any related valuation allowance is removed from the allowance for loan losses.
The allowance for loan losses is adjusted by additions charged to operations as
a provision for loan losses and by loan recoveries, with actual losses charged
as reductions to the allowance.
Management believes that the allowance for loan losses is adequate given
the strength of BankUnited's collateral position and the attention given to
loan review and classifications. There can be no assurance that additional
provisions for loan losses will not be required in future periods.
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<PAGE>
The following table sets forth information concerning the Company's
non-performing assets for the periods indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans(1) ........................... $ 10,866 $ 4,939 $ 3,496 $ 3,918 $ 4,225
Restructured loans(2) ........................... 1,888 1,457 1,070 533 569
Loans past due 90 days and still accruing ...... -- -- 92 -- --
-------- ------- -------- -------- --------
Total non-performing loans .................. 12,754 6,396 4,658 4,451 4,794
Non-accrual tax certificates .................. 958 800 574 -- --
Real estate owned .............................. 611 632 1,453 1,983 1,581
-------- ------- -------- -------- --------
Total non-performing assets ..................... $ 14,323 $ 7,828 $ 6,685 $ 6,434 $ 6,375
======== ======= ======== ======== ========
Allowance for losses on tax certificates ...... $ 697 $ 614 $ 569 $ 85 $ --
Allowance for loan losses ..................... 3,693 2,158 1,469 841 1,184
-------- ------- -------- -------- --------
Total allowance .............................. $ 4,390 $ 2,772 $ 2,038 $ 926 $ 1,184
======== ======= ======== ======== ========
Non-performing assets as a percentage of
total assets ................................. .67% .95% 1.10% 1.17% 1.46%
Non-performing loans as a percentage of
total loans(4) .............................. .72% .99% 1.02% 1.07% 1.54%
Allowance for loan losses as a percentage
of total loans(4) ........................... .21% .34% .32% .20% .38%
Allowance for loan losses as a percentage
of non-performing loans ..................... 28.96% 33.74% 31.54% 18.89% 24.70%
Net chargeoffs as a percentage of average
total loans ................................. .04% ( .12%) .14% .42% .08%
</TABLE>
- ----------------
(1) Gross interest income that would have been recorded on non-accrual loans
had they been current in accordance with original terms was $556,000,
$217,000, $128,000, $52,000, and $295,000, for the years ended September
30, 1997, 1996, 1995, 1994, and 1993, respectively. The amount of interest
income on such non-accrual loans included in net income for years ended
September 30, 1997, 1996, and 1995 was $369,000, $145,000, and $113,000,
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 $1,878,000 and $109,000
of accruing loans as of September 30, 1997 and 1996, respectively.
Management estimates the loss, if any, on these loans will not be
significant.
(4) Based on balances prior to deductions for allowance for loan losses.
FEDERAL HOME LOAN BANK (FHLB) OVERNIGHT DEPOSITS. FHLB overnight deposits
increased to $79.4 million at September 30, 1997 from $28.3 million at
September 30, 1996 and $31.8 million at September 30, 1995. This increase is
due to increased liquidity requirements caused by the growth in the balance
sheet.
TAX CERTIFICATES. BankUnited's investment in tax certificates increased
$9.2 million, or 22.9%, to $49.3 million at September 30, 1997 from $40.1
million at September 30, 1996 and $39.5 million at September 30, 1995. The
increase was primarily the result of $42.3 million in certificate purchases
during fiscal 1997 which exceeded $33.0 million in certificate redemptions and
repayments.
INVESTMENTS. Investments held to maturity increased $14.5 million to $14.5
million as of September 30, 1997 as compared with $11,000 as of September 30,
1996 and $4.7 million as of September 30, 1995. Investments available for sale
increased $3.5 million to $10.2 million as of September 30, 1997 as compared to
$6.7 million as of September 30, 1996 and none as of September 30, 1995. The
increase in both of these categories is primarily due to the investment in
agency securities for liquidity purposes.
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<PAGE>
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities, held to maturity
were $11.4 million, $14.7 million and $50.9 million at September 30, 1997, 1996
and 1995 respectively. In fiscal 1996 the Company's portfolio decreased $36.2
million, or 71.1%, primarily as a result of BankUnited'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.
BankUnited's available for sale mortgage-backed securities portfolio
increased $53.4 million to $108.9 million as of September 30, 1997 from $55.5
million as of September 30, 1996, and $2.1 million as of September 30, 1995. In
fiscal 1997, the increase was due to $18.7 million of securities acquired with
Suncoast and purchases of $56.4 million, partially offset by maturities and pay
downs of $21.7 million. In fiscal 1996, $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.
OTHER INTEREST EARNING ASSETS. Other interest earning assets increased to
$33.6 million at September 30, 1997 from $12.2 million as of September 30, 1996
and $12.3 million as of September 30, 1995. This category primarily represents
stock in the FHLB which the Company is required to purchase as FHLB advances
increase.
OTHER ASSETS. From September 30, 1996 to September 30, 1997, Office
properties and equipment, net, mortgage servicing rights, goodwill and prepaid
and other assets increased by $4.8 million, $4.8 million, $11.8 million and
$16.7 million, respectively. These increases all relate primarily to the
acquisition of Suncoast.
Since acquiring Suncoast, the Company sold its $292 million Ginnie Mae
("GNMA") mortgage servicing portfolio for $4.7 million and transferred its
FDIC/RTC subservicing portfolio. No gain or loss was recorded on either of
these transactions.
DEPOSITS. Deposits increased by $689.8 million, or 136.3%, to $1.2 billion
at September 30, 1997 from $506.1 million at September 30, 1996. Of this
growth, $323.7 million was acquired with Suncoast; $96.6 million of the
increase represents growth in former Suncoast branches since acquisition;
$128.1 million represents growth in the four branches opened in the two years;
and $22.0 million represents deposits from the State of Florida. Management
believes this strong deposit growth was primarily attributable to BankUnited
offering competitive interest rates and personalized service. BankUnited
intends to open as many as eight branches in the 1998 fiscal year.
FHLB ADVANCES. FHLB advances were $671.5 million at September 30, 1997, up
$434.5 million from the $237.0 million at September 30, 1996. This increase was
the result of FHLB advances being used to fund the purchase of residential
loans as well as $26.5 million of advances assumed by BankUnited in connection
with the acquisition of Suncoast.
TRUST PREFERRED SECURITIES. In December 1996, BankUnited's subsidiary,
BankUnited Capital, issued $50 million of Trust Preferred Securities; in March
1997, BankUnited Capital issued an additional $20 million of Trust Preferred
Securities; and in June 1997, BankUnited's subsidiary, BankUnited Capital II,
issued $46 million of Trust Preferred Securities. The net proceeds from the
sales of the Trust Preferred Securities were $111 million. These funds may be
used for general corporate purposes, including, but not limited to,
acquisitions by either the Bank or the Company, capital contributions to
support the Bank's growth and for working capital, and the possible repurchase
of shares of the Company's preferred stock subject to acceptable market
conditions. In the year ended September 30, 1997, BankUnited contributed $85
million of additional capital to the Bank.
SUBORDINATED NOTES. On August 31, 1997, BankUnited called all outstanding
subordinated notes totaling $774,500.
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<PAGE>
STOCKHOLDERS' EQUITY. BankUnited's total stockholders' equity was $99.6
million at September 30, 1997, an increase of $30.5 million, or 44.1% from
$69.1 million at September 30, 1996. This was due primarily to the issuance of
2,199,930 shares of Class A Common Stock and 920,000 shares of 8% Noncumulative
Convertible Preferred Stock, Series 1996, in connection with the Suncoast
acquisition. The estimated value of the stock issued to acquire Suncoast was
$27.8 million.
In February 1997, the holder of BankUnited'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 1.45475 shares of Class A Common Stock for
each share of Series C preferred stock and 1.3225 shares of Class A Common
Stock for each share of Series C-II preferred stock. BankUnited had previously
exercised its right to call both classes of preferred stock. In July 1997,
BankUnited began a tender offer to purchase any and all of its outstanding
shares of 9% Preferred Stock at $10.25 per share. The offer expired on August
15, 1997, and BankUnited purchased 448,583 shares pursuant thereto. The number
of shares remaining outstanding after the tender offer is 701,417 shares.
In September 1997, the Company exercised its right to call all the
outstanding shares of its 8% Non-cumulative Convertible Preferred Stock Series
1996, effective October 10, 1997. As a result 927,204 shares (387,709 shares as
of September 30, 1997) converted to 1,548,410 Class A Common Stock at a ratio
of 12/3 shares of common stock for each share of preferred. The remaining 5,696
shares of preferred shares were redeemed at $15 per share.
In October 1997, the Company issued 3,680,000 shares of Class A Common
Stock pursuant to a public stock offering. Net proceeds from the offering were
approximately $43.9 million.
LIQUIDITY AND CAPITAL RESOURCES. BankUnited's most significant sources of
funds are deposits, FHLB advances, amortization and pre-payment of mortgage
loans and securities, maturities of investment securities and other short term
investments, and earnings and funds provided from operations. While FHLB
advances, scheduled mortgage loan repayments and securities repayments are
relatively predictable sources of funds, deposit flows and prepayments on loans
and mortgage-backed securities are greatly influenced by general interest
rates, economic conditions and competition. BankUnited manages the pricing of
its deposits to maintain a desired balance. In addition, BankUnited invests
excess funds in federal funds and other short-term interest-earning assets
which provide liquidity to meet lending requirements.
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, 1997, the Bank
had liquid assets and short-term liquid assets of 8.49% and 5.15%,
respectively, which was in compliance with these requirements, and as of
September 30, 1996, the Bank had liquid assets and short-term liquid assets of
6.75% and 3.80%, respectively. These applicable federal regulations were
revised effective November 24, 1997, eliminating the 1.0% short-term liquid
asset requirement and reducing the 5.0% liquid asset requirement to 4%.
BankUnited's primary use of funds is to purchase or originate loans and to
purchase mortgage-backed and investment securities. In fiscal 1997, 1996, and
1995, loans increased $1.1 billion, $193.0 million, and $40.1 million,
respectively, and BankUnited purchased $78.6 million, $22.7 million, and $16.6
million, respectively, of mortgage-backed and investment securities. In
addition, in 1995, BankUnited sold branches having $130.3 million of deposits.
Funding for the above came primarily from increases in deposits of $689.8
million, $196.1 million and $92.6 million (exclusive of the branch sale) in
1997, 1996 and 1995, respectively, and increases in FHLB advances and other
borrowings of $464.5 million in 1997, $52.7 million in 1996 and $83.6 million
in 1995.
Federal savings banks such as the Bank are also required to maintain
capital at levels specified by applicable minimum capital ratios. At September
30, 1997, the Bank was in compliance with all capital requirements and met the
definition of a "well capitalized" institution under applicable federal
regulations.
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<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1997
AND 1996
NET INCOME AFTER PREFERRED STOCK DIVIDENDS. BankUnited had net income
after preferred stock dividends of $4.7 million for the year ended September
30, 1997, compared to net income after preferred stock dividends of $441,000
for the year ended September 30, 1996. All major categories of income and
expense increased significantly in the year ended September 30, 1997 as
compared to the year ended September 30, 1996 and reflect the significant
growth BankUnited has experienced in the last year. A significant factor in
such growth was the acquisition of Suncoast, which was completed on November
15, 1996. BankUnited's Consolidated Statement of Operations for the year ended
September 30, 1997 reflects Suncoast's operations from the date of acquisition.
Below is a more detailed discussion of each major category of income and
expenses.
NET INTEREST INCOME. Net interest income increased $13.9 million, or
78.8%, to $31.5 million for the year ended September 30, 1997 from $17.6
million for the year ended September 30, 1996. This increase was attributable
to an increase in average interest-earning assets of $726.0 million, or 104.3%,
to $1.4 billion for the year ended September 30, 1997 from $696.4 million for
the year ended September 30, 1996. Approximately $350 million of the increase
in average interest-earning assets for the year ended September 30, 1997 was a
result of the acquisition of Suncoast. The remaining increase in average
interest-earning assets is due primarily to loan purchases. The average yield
on interest-earning assets increased 16 basis points to 7.65% for the year
ended September 30, 1997, from 7.49% for the year ended September 30, 1996. The
increase in average yield was attributable to an increase in the yield on loans
receivable relating primarily to commercial real estate and construction loans
acquired with Suncoast. Suncoast had a greater percentage of higher yielding
commercial real estate and construction loans than the Bank.
The increase in interest income of $56.6 million, or 108.8%, to $108.8
million for the year ended September 30, 1997 from $52.1 million for the year
ended September 30, 1996, primarily reflects increases in interest and fees on
loans of $53.3 million. The average yield on loans receivable increased to
7.78% for the year ended September 30, 1997 from 7.65% for the year ended
September 30, 1996 and the average balance of loans receivable increased $676.9
million, or 125.3%, to $1.2 billion for the year ended September 30, 1997.
Approximately $300 million of the increase in loans was due to the acquisition
of Suncoast and, as stated above, the increase in the yield on loans was also
attributed to Suncoast.
The increase in interest expense of $41.3 million, or 119.4%, to $76.0
million for the year ended September 30, 1997 from $34.6 million for the year
ended September 30, 1996 primarily reflects an increase in interest expense on
interest-bearing deposits of $29.3 million, or 141.1%, from $20.8 million for
the year ended September 30, 1996, to $50.1 million for the year ended
September 30, 1997, an increase in interest expense on FHLB advances of $5
million from $13.8 million for the year ended September 30, 1996 to $18.7
million for the year ended September 30, 1997, and interest expense of $6.5
million on Trust Preferred Securities which were issued in fiscal 1997. This
increase was due to an increase in average interest-bearing deposits of $557.8
million, or 137.2%, from $406.6 million for the year ended September 30, 1996
to $964.4 million for the year ended September 30, 1997. Approximately $250
million of this increase represents deposits acquired with Suncoast. The
average rate paid on interest-bearing deposits increased 9 basis points from
5.11% for the year ended September 30, 1996 to 5.20% for the year ended
September 30, 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the year
ended September 30, 1997 was $1.3 million as compared with a credit for loan
losses of $120,000 for the year ended September 30, 1996. The credit in 1996
was due to a recovery of approximately $1 million as a result of a legal
settlement relating to certain loans previously purchased. The provision for
loan losses represents management's estimate of the charge to operations after
reviewing the nature, volume, delinquency status, and inherent risk in the loan
portfolio in relation to the allowance for loan losses. For a detailed
discussion of BankUnited's asset quality and allowance for loan losses, see
"--Description of Financial Condition Changes for the Years Ended September 30,
1997, 1996 and 1995--Credit Quality."
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<PAGE>
NON-INTEREST INCOME. Non-interest income for the year ended September 30,
1997 was $4.1 million compared with $649,000 for the year ended September 30,
1996, an increase of $3.4 million. Of this increase, $1.6 million represents
loan servicing fees (net of amortization of capitalized servicing rights) from
operations acquired with Suncoast, and $819,000 represent gains on the sale of
loans and mortgage backed securities. The remaining increase was primarily
attributable to service fees on deposits reflecting the increase in the amount
of deposits outstanding.
NON-INTEREST EXPENSES. Operating expenses increased $8.9 million, or
63.5%, to $22.9 million for the year ended September 30, 1997 compared to $14.0
million for the year ended September 30, 1996. The increase in expenses was
attributable to the growth BankUnited has experienced including the expenses of
Suncoast's operations. The year ended September 30, 1996 included a one time
assessment to replenish the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation (FDIC) of $2.6 million.
INCOME TAXES. The income tax provision was $5.0 million for the year ended
September 30, 1997 compared to $1.7 million for the year ended September 30,
1996. The increase in income taxes was the result of BankUnited's higher
pre-tax earnings during the year ended September 30, 1997, compared to the year
ended September 30, 1996.
PREFERRED STOCK DIVIDENDS. Preferred stock dividends for the year ended
September 30, 1997 were $2.9 million, an increase of $745,000, as compared to
$2.1 million for the year ended September 30, 1996. This increase is the result
of dividends paid on the 8% Noncumulative Convertible Preferred Stock, Series
1996, issued in connection with the acquisition of Suncoast and retired in
October, 1997, partially offset by the conversion of the Noncumulative
Convertible Preferred Stock, Series C and C-II in February 1997.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL 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
fiscal 1995 of $9.3 million ($5.8 million after tax) from the sale of
BankUnited's three branches on the west coast of Florida and the expense of a
one-time special assessment by the 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 share stock dividends declared in 1996 or 1995. In
the fourth quarter of fiscal 1994 BankUnited 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 attributed to an 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
A-47
<PAGE>
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 this regard BankUnited acquired
$110.7 million of non-residential loans 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
34 basis points to 5.12% 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 BankUnited's
branches on the west coast of Florida.
PROVISIONS FOR LOAN LOSSES. In fiscal 1996, BankUnited 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 BankUnited had
previously purchased approximately $38.7 million of loans. BankUnited
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 BankUnited's asset quality and allowance for loan
losses, see "--Description of Financial Condition Changes for the Years Ended
September 30, 1997, 1996 and 1995--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 BankUnited'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.
The reduction of operating expenses as a result of the sale of
BankUnited'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 BankUnited's growth.
Insurance expense increased 251.5% due to the one time SAIF special
assessment of $2.6 million.
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,
BankUnited recorded an additional provision on tax certificates previously
purchased, which have not been redeemed and on which BankUnited elected not to
seek tax deeds.
A-48
<PAGE>
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
from 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 BankUnited declared a special dividend in the fourth quarter of
fiscal 1995 on the Series A and Series B Noncumulative 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.
A-49
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
Set forth below is selected quarterly data for the fiscal years ended
September 30, 1997 and 1996.
<TABLE>
<CAPTION>
1997
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net interest income .................................... $7,076 $8,001 $8,842 $8,895
Provision for loan losses .............................. 250 165 280 600
Non-interest income .................................... 600 1,001 916 1,543
Non-interest expense .................................... 4,805 5,751 6,158 6,233
------- ------- ------- ------
Income before taxes and preferred stock dividends ...... 2,621 3,086 3,320 3,605
Income taxes .......................................... 1,022 1,243 1,329 1,439
------- ------- ------- ------
Net income before preferred stock dividends ............ 1,599 1,843 1,991 2,166
Preferred stock dividends .............................. 672 777 718 723
------- ------- ------- ------
Net income applicable to common stock .................. $ 927 $1,066 $1,273 $1,443
======= ======= ======= ======
Primary earnings per share .............................. $ 0.13 $ 0.12 $ 0.14 $ 0.15
======= ======= ======= ======
Fully diluted earnings per share ........................ $ 0.13 $ 0.12 $ 0.14 $ 0.15
======= ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ------------
(DOLLARS IN THOUSANDS)
<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 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.
A-50
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The business of the Company and the composition of its balance sheet
consists of investments in interest-earning assets (primarily loans,
mortgage-backed securities, and investment securities) which are primarily
funded by interest-bearing liabilities (deposits and borrowings). Such
financial instruments have varying levels of sensitivity to changes in market
interest rates resulting in market risk. Other than loans which are originated
and held for sale, all of the financial instruments of the Company are for
other than trading purposes.
Interest rate risk results when the maturity or repricing intervals and
interest rate indices of the interest-earning assets, interest-bearing
liabilities, and off-balance sheet financial instruments are different,
creating a risk that changes in the level of market interest rates will result
in disproportionate changes in the value of, and the net earnings generated
from, the Company's interest-earning assets, interest-bearing liabilities, and
off-balance sheet financial instruments. The Company's exposure to interest
rate risk is managed primarily through the Company's strategy of selecting the
types and terms of interest-earning assets and interest-bearing liabilities
which generate favorable earnings, while limiting the potential negative
effects of changes in market interest rates. Since the Company's primary source
of interest-bearing liabilities is customer deposits, the Company's ability to
manage the types and terms of such deposits may be somewhat limited by customer
preferences in the market areas in which the Company operates. Borrowings,
which include FHLB Advances, short-term borrowings, and long-term borrowings,
are generally structured with specific terms which in management's judgement,
when aggregated with the terms for outstanding deposits and matched with
interest-earning assets, mitigate the Company's exposure to interest rate risk.
The rates, terms and interest rate indices of the Company's interest-earning
assets result primarily from the Company's strategy of investing in loans and
securities (a substantial portion of which have adjustable-rate terms) which
permit the Company to limit its exposure to interest rate risk, together with
credit risk, while at the same time achieving a positive interest rate spread
from the difference between the income earned on interest-earning assets and
the cost of interest-bearing liabilities (see "Business--Factors Affecting
Earnings--Asset and Liability Management" for a further discussion of rate
sensitive assets, rate sensitive liabilities and net interest spread).
SIGNIFICANT ASSUMPTIONS UTILIZED IN MANAGING INTEREST RATE RISK
Managing the Company's exposure to interest rate risk involves significant
assumptions about the exercise of imbedded options and the relationship of
various interest rate indices of certain financial instruments.
IMBEDDED OPTIONS. A substantial portion of the Company's loans and
mortgage-backed securities are residential mortgage loans containing
significant imbedded options which permit the borrower to prepay the principal
balance of the loan prior to maturity ("prepayments") without penalty. A loan's
propensity for prepayment is dependent upon a number of factors, including, the
current interest rate and interest rate index (if any) on the loan, the
financial ability of the borrower to refinance, the economic benefit to be
obtained from refinancing, availability of refinancing at attractive terms, as
well as economic and other factors in specific geographic areas which affect
the sales and price levels of residential property. In a changing interest rate
environment, prepayments may increase or decrease on fixed- and adjustable-rate
loans depending on the current relative levels and expectations of future
short- and long-term interest rates. Since a significant portion of the
Company's loans are ARM loans, prepayments on such loans generally increase
when long-term interest rates fall or are at historically low levels relative
to short-term interest rates making fixed-rate loans more desirable.
Investment securities, other than those with early call provisions,
generally do not have significant imbedded options and repay pursuant to
specific terms until maturity. While savings and checking deposits generally
may be withdrawn upon the customer's request without prior notice, a continuing
relationship with customers resulting in future deposits and withdrawals is
generally predictable resulting in a dependable and uninterruptible source of
funds. Time deposits generally have early
A-51
<PAGE>
withdrawal penalties, while term FHLB Advances have prepayment penalties, which
discourage customer withdrawal of time deposits and prepayment of FHLB Advances
prior to maturity.
INTEREST RATE INDICES. The Company's ARM loans and mortgage-backed
securities are primarily indexed to the One Year Constant Maturity Treasury
Index or COFI (see "Business--Lending Activities"). When such loans and
mortgage-backed securities are funded by interest-bearing liabilities which are
determined by other indices, primarily deposits and FHLB Advances, a changing
interest rate environment may result in different levels of change in the
different indices leading to disproportionate changes in the value of, and the
net earnings generated from, the Company's financial instruments. Each index is
unique and is influenced by different external factors, therefore, the
historical relationships in various indices may not necessarily be indicative
of the actual change which may result in a changing interest rate environment.
INTEREST RATE RISK MEASUREMENT
In addition to periodic gap reports (see "Business--Factors Affecting
Earnings--Asset and Liability Management") comparing the sensitivity of
interest-earning assets and interest-bearing liabilities to changes in interest
rates, management also utilizes a quarterly report ("model") prepared for the
Bank by the OTS based on information provided by the Bank which measures the
Bank's exposure to interest rate risk. The model calculates the present value
of assets, liabilities, off-balance sheet financial instruments, and equity at
current interest rates, and at hypothetical higher and lower interest rates at
one percent intervals. The present value of each major category of financial
instrument is calculated by the model using estimated cash flows based on
weighted average contractual rates and terms at discount rates representing the
estimated current market interest rate for similar financial instruments. The
resulting present value of longer term fixed-rate financial instruments are
more sensitive to change in a higher or lower market interest rate scenario,
while adjustable-rate financial instruments largely reflect only a change in
present value representing the difference between the contractual and
discounted rates until the next interest rate repricing date.
A-52
<PAGE>
The following table reflects the estimated present value of
interest-earning assets, interest-bearing liabilities, and off-balance sheet
financial instruments as calculated by the OTS for the Bank as of September 30,
1997, consolidated with the estimated present values of other financial
instruments of the Company, at current interest rates and at hypothetical
higher and lower interest rates of one and two percent.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
------------------------------------------------------------------------
PRESENT VALUE
------------------------------------------------------------------------
-2% -1% CURRENT +1% +2%
------------ ------------ ------------ -------------- --------------
<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 ................................. $ 191,067 $ 189,499 $ 187,074 $ 186,141 $ 184,475
Mortgage-backed securities ............... 127,699 124,954 120,211 114,403 108,636
Loans:
Adjustable-rate mortgages ............... 1,402,745 1,392,526 1,378,638 1,359,515 1,334,774
Fixed-rate mortgages ..................... 450,068 442,009 426,906 407,384 387,172
Commercial and consumer loans ............ 12,771 12,689 12,608 12,533 12,455
---------- ---------- ---------- ---------- ----------
Total loans .............................. 1,865,584 1,847,224 1,818,152 1,779,432 1,734,401
---------- ---------- ---------- ---------- ----------
Total interest-earning assets ............ $2,184,350 $2,161,677 $2,125,437 $2,079,976 $2,027,512
========== ========== ========== ========== ==========
Interest-bearing liabilities:
Customer deposits:
Money market and NOW accounts ............ $ 99,357 $ 99,357 $ 99,357 $ 99,357 $ 99,357
Passbook accounts ........................ 160,431 160,431 160,431 160,431 160,431
Certificate accounts ..................... 950,266 944,105 938,083 932,140 926,336
---------- ---------- ---------- ---------- ----------
Total customer deposits .................. 1,210,054 1,203,893 1,197,871 1,191,928 1,186,124
Borrowings:
FHLB advances ........................... 678,664 676,676 674,705 672,752 670,815
Trust preferred ........................... 142,791 129,923 119,010 109,035 100,538
Other borrowings ........................ 30,000 30,000 30,000 30,000 30,000
---------- ---------- ---------- ---------- ----------
Total borrowings ........................ 851,455 836,599 823,715 811,787 801,353
---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities ...... $2,061,509 $2,040,492 $2,021,586 $2,003,715 $1,987,477
========== ========== ========== ========== ==========
Loan commitments ........................... $ 30,219 $ 20,174 $ 7,371 $ (8,716) $ (28,481)
========== ========== ========== ========== ==========
</TABLE>
The calculations of present value have certain shortcomings. The discount
rates utilized for loans and mortgage-backed securities are based on estimated
market interest rate levels for similar loans and securities nationwide, with
prepayment levels generally assumed based on global statistics. The unique
characteristics of the Company's loans and mortgage-backed securities may not
necessarily parallel those assumed in the model, and therefore, would likely
result in different discount rates, prepayment experiences, and present values.
The discount rates utilized for deposits and borrowings are based upon
available alternative types and sources of funds which are not necessarily
indicative of the present value of deposits and FHLB Advances since such
deposits and Advances are unique to, and have certain price and customer
relationship advantages for, depository institutions. The present values are
determined based on the discounted cash flows over the remaining estimated
lives of the financial instruments and assumes that the resulting cash flows
are reinvested in financial instruments with virtually identical terms. The
total measurement of the Company's exposure to interest rate risk as presented
in the above table may not be representative of the actual values which might
result from a higher or lower interest rate environment. A higher or lower
interest rate environment will most likely
A-53
<PAGE>
result in different investment and borrowing strategies by the Company designed
to further mitigate the effect on the value of, and the net earnings generated
from, the Company's net assets from any change in interest rates.
NET PORTFOLIO VALUE. The OTS adopted a final rule in August of 1993
incorporating an interest rate risk ("IRR") component into the risk-based
capital rules (see "Regulation"). The IRR component is a dollar amount that is
deducted from total capital for the purpose of calculating an institution's
risk-based capital requirement and is measured in terms of the sensitivity of
its net portfolio value ("NPV") to changes in interest rates. An institution's
NPV is calculated as the net discounted cash flows from assets, liabilities,
and off-balance sheet contracts. An institution's IRR component is measured as
the change in the ratio of NPV to the net present value of total assets as a
result of a hypothetical 200 basis point change in market interest rates. A
resulting decline in this ratio of more than 2% of the estimated present value
of an institution's total assets prior to the hypothetical 200 basis point
change will require the institution to deduct from its regulatory capital 50%
of that excess decline. Implementation of the rule has been postponed
indefinitely.
The following table presents the Bank's ratio of NPV to the present value
of total assets as of September 30, 1997, 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>
+200 $114,075 $2,061,248 5.53% (4.46)%
+100 169,500 2,104,648 8.05 (1.94)
Static 214,066 2,141,024 10.00 --
-100 244,597 2,166,744 11.29 1.29
-200 265,113 2,185,364 12.13 2.13
</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 loan. Further, in the event of a
change in interest rates, prepayment and early withdrawal levels could deviate
significantly from those assumed in calculating the tables. Finally, the
ability of many borrowers to service their debt may decrease in the event of a
significant interest rate increase.
In addition, the previous table does not necessarily indicate the impact
of general interest rate movements on the Company's net interest income because
the repricing of certain categories of assets and liabilities are subject to
competitive and other pressures beyond the Company's control. As a result,
certain assets and liabilities indicated as maturing or otherwise repricing
within a stated period may in fact mature or reprice at different times and at
different volumes.
A-54
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BANKUNITED FINANCIAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
-
Report of Independent Certified Public Accountants .................. 55
Consolidated Statements of Financial Condition as of September 30, 1997
and September 30, 1996 ............................................. 56
Consolidated Statements of Operations for the Years Ended
September 30, 1997, 1996 and 1995 .................................... 57
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 1997, 1996 and 1995 .................................... 58
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1997, 1996 and 1995 .................................... 60
Notes to Consolidated Financial Statements ........................... 62
</TABLE>
A-55
<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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997, 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.
PRICE WATERHOUSE LLP
Miami, Florida
November 12, 1997
A-56
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
-------------------------
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash .................................................................................... $ 10,571 $ 5,483
Federal Home Loan Bank overnight deposits ................................................ 79,413 28,253
Federal funds sold ..................................................................... -- 400
Tax certificates, (net of reserves of $697 and $614 at September 30, 1997 and 1996,
respectively) ........................................................................... 49,283 40,088
Investments held to maturity (market value of approximately $14,613 and $11 at
September 30, 1997 and 1996, respectively) ............................................. 14,494 11
Investments available for sale, at market ................................................ 10,166 6,685
Mortgage-backed securities, held to maturity (market value of approximately $11,292 and
$14,274 at September 30, 1997 and 1996, respectively).................................... 11,352 14,698
Mortgage-backed securities available for sale, at market ................................. 108,919 55,467
Loans receivable, net .................................................................. 1,661,381 646,385
Mortgage loans held for sale (market value of approximately $105,980 at September 30, 104,342 --
1997) .
Other interest earning assets ............................................................ 33,599 12,225
Office properties and equipment, net ................................................... 7,371 2,608
Real estate owned, net .................................................................. 611 632
Accrued interest receivable ............................................................ 16,261 7,023
Mortgage servicing rights ............................................................... 4,783 --
Goodwill ................................................................................. 14,278 2,457
Prepaid expenses and other assets ...................................................... 18,582 1,945
---------- --------
Total assets ........................................................................... $2,145,406 $824,360
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits .............................................................................. $1,195,892 $506,106
Securities sold under agreements to repurchase .......................................... 30,000 --
Advances from Federal Home Loan Bank ................................................... 671,484 237,000
Company obligated mandatorily redeemable trust preferred securities of subsidiary trust
holding solely junior subordinated deferrable interest debentures of the Company ...... 116,000 --
Subordinated notes ..................................................................... -- 775
Interest payable (primarily on deposits and advances from Federal Home Loan Bank) ...... 3,844 1,244
Advance payments by borrowers for taxes and insurance ................................. 10,688 4,292
Accrued expenses and other liabilities ................................................ 17,853 5,832
---------- --------
Total liabilities ..................................................................... 2,045,761 755,249
---------- --------
Commitments and contingencies (Notes 7 and 16)
Stockholders' equity:
Preferred stock, Series B, 1993 and 1996, $0.01 par value. Authorized shares--10,000,000;
issued and outstanding shares--2,175,296 and 2,664,547 at September 30, 1997 and 1996,
respectively ........................................................................ 22 27
Class A Common Stock, $.01 par value. Authorized shares--30,000,000; issued and
outstanding shares--9,257,098 and 5,454,201 at September 30, 1997 and 1996, 92 54
respectively .
Class B Common Stock, $.01 par value. Authorized shares--3,000,000; issued and
outstanding shares--275,685 and 251,515 at September 30, 1997 and 1996, respectively 3 3
Additional paid-in capital ............................................................... 86,679 62,055
Retained earnings ........................................................................ 11,988 7,279
Net unrealized gains (losses) on securities available for sale, net of tax ............... 861 (307)
---------- --------
Total stockholders' equity ............................................................ 99,645 69,111
---------- --------
Total liabilities and stockholders' equity ............................................. $2,145,406 $824,360
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
A-57
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30:
--------------------------------------
1997 1996 1995
---------- -------------- --------
(DOLLARS IN THOUSANDS,
EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C>
Interest income:
Interest and fees on loans ....................................... $ 94,655 $ 41,313 $30,171
Interest on mortgage-backed securities ........................... 7,035 4,250 4,093
Interest on short-term investments ................................. 1,613 2,359 1,491
Interest and dividends on long-term investments and other
interest-earning assets .......................................... 5,471 4,210 3,664
-------- -------- -------
Total interest income ............................................. 108,774 52,132 39,419
-------- -------- -------
Interest expense:
Interest on deposits ............................................. 50,136 20,791 17,849
Interest on borrowings ............................................. 19,351 13,831 8,456
Preferred dividends of Trust Subsidiary ........................... 6,473 -- --
-------- -------- -------
Total interest expense .......................................... 75,960 34,622 26,305
-------- -------- -------
Net interest income before provision (credit) for loan
losses ......................................................... 32,814 17,510 13,114
Provision (credit) for loan losses ................................. 1,295 (120) 1,221
-------- -------- -------
Net interest income after provision (credit) for loan losses ...... 31,519 17,630 11,893
-------- -------- -------
Non-interest income:
Service fees ...................................................... 2,993 597 423
Gain on sale of loans and mortgage-backed securities ............... 819 5 239
Gain (loss) on sale of other assets .............................. 1 (6) 9,569
Other ............................................................ 247 53 6
-------- --------- -------
Total non-interest income ....................................... 4,060 649 10,237
-------- --------- -------
Non-interest expenses:
Employee compensation and benefits ................................. 8,880 4,275 3,997
Occupancy and equipment .......................................... 3,568 1,801 1,727
Insurance ......................................................... 948 3,610 1,027
Professional fees--legal and accounting ........................... 1,605 929 1,269
Data processing ................................................... 992 340 356
Loan servicing expense ............................................. 1,796 979 765
Real estate owned operations ....................................... 301 73 559
Other operating expenses .......................................... 4,857 2,029 2,449
-------- --------- -------
Total non-interest expenses ....................................... 22,947 14,036 12,149
-------- --------- -------
Income before income taxes and preferred stock
dividends ...................................................... 12,632 4,243 9,981
Income taxes ...................................................... 5,033 1,657 3,741
-------- --------- -------
Net Income before preferred stock dividends ..................... 7,599 2,586 6,240
Preferred stock dividends of the Company ........................... 2,890 2,145 2,210
-------- --------- -------
Net income after preferred stock dividends ........................ $ 4,709 $ 441 $ 4,030
======== ========= =======
Primary earnings per share .......................................... $ 0.54 $ 0.10 $ 1.77
======== ========= =======
Fully diluted earnings per share .................................... $ 0.54 $ 0.10 $ 1.26
======== ========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
A-58
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK
------------------------ -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- ---------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994 ......... 2,679,107 $ 27 1,787,018 $18 214,834 $ 2
Issuance of Class A and Class B
Common Stock ........................ -- -- 22,418 -- 18,232 --
Conversion of Class B Common
Stock to Class A Common
Stock .............................. -- -- 742 -- (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 18 232,324 2
Conversion of Preferred Stock
to Common Stock Class A ............ (14,560) -- 21,340 -- -- --
Issuance of Class A and Class B
Common Stock ........................ -- -- 25,210 -- 19,191 1
Underwritten public offering of
the Company's Common
Class A, net ........................ -- -- 3,565,000 36 -- --
Payment of dividends on the
Company's Preferred Stock ......... -- -- 7,481 -- -- --
Net change in unrealized loss on
investments available for sale . -- -- -- -- -- --
Net income for the year ended
September 30, 1996 .................. -- -- -- -- -- --
--------- ----- --------- --- ------- ---
Balance at September 30, 1996 ......... 2,664,547 27 5,454,201 54 251,515 3
Issuance of Class A and Class B
Common Stock ........................ -- -- 40,357 -- 24,423 --
Conversion of Preferred Stock
to Common Class A .................. (973,568) (10) 1,470,359 13 -- --
Conversion of Common Class B
to Common Class A .................. -- -- 253 -- (253) --
Preferred Stock, Series 9%
tender offer ........................ (448,583) (4) -- -- -- --
Issuance of Stock in connection
with the Suncoast acquisition . 920,000 9 2,199,730 22 -- --
Stock options and warrants
exercised ........................... 12,900 -- 89,004 -- -- --
Payments of dividends on the
Company's Preferred Stock ......... -- -- 3,194 3 -- --
Net change in unrealized loss on
investments available for sale . -- -- -- -- -- --
Net income for the year ended
September 30, 1997 .................. -- -- -- -- -- --
--------- ------- --------- --- ------- ---
Balance at September 30, 1997 ......... 2,175,296 $ 22 9,257,098 $92 275,685 $ 3
========= ======= ========= === ======= ===
<PAGE>
<CAPTION>
UNREALIZED
GAIN ON
SECURITIES
AVAILABLE TOTAL
PAID-IN RETAINED FOR SALE, STOCKHOLDERS'
CAPITAL EARNINGS NET OF TAX EQUITY
------------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Balance at September 30, 1994 ......... $38,413 $ 2,808 $ -- $ 41,268
Issuance of Class A and Class B
Common Stock ........................ 222 -- -- 222
Conversion of Class B Common
Stock to Class A Common
Stock .............................. -- -- -- --
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 ......... 38,835 6,838 25 45,745
Conversion of Preferred Stock
to Common Stock Class A ............ -- -- -- --
Issuance of Class A and Class B
Common Stock ........................ 330 -- -- 331
Underwritten public offering of
the Company's Common
Class A, net ........................ 22,831 -- -- 22,867
Payment of dividends on the
Company's Preferred Stock ......... 59 (2,145) -- (2,086)
Net change in unrealized loss on
investments available for sale . -- -- (332) (332)
Net income for the year ended
September 30, 1996 .................. -- 2,586 -- 2,586
-------- ------- ------- --------
Balance at September 30, 1996 ......... 62,055 7,279 (307) 69,111
Issuance of Class A and Class B
Common Stock ........................ 501 -- -- 501
Conversion of Preferred Stock
to Common Class A .................. (3) -- -- --
Conversion of Common Class B
to Common Class A .................. -- -- -- --
Preferred Stock, Series 9%
tender offer ........................ (4,481) -- -- (4,485)
Issuance of Stock in connection
with the Suncoast acquisition . 27,781 -- -- 27,812
Stock options and warrants
exercised ........................... 794 -- -- 794
Payments of dividends on the
Company's Preferred Stock ......... 32 (2,890) -- (2,855)
Net change in unrealized loss on
investments available for sale . -- -- 1,168 1,168
Net income for the year ended
September 30, 1997 .................. -- 7,599 -- 7,599
--------- ------- ------- --------
Balance at September 30, 1997 ......... $86,679 $11,988 $ 861 $ 99,645
========= ======= ======= ========
</TABLE>
(CONTINUED ON NEXT PAGE)
A-59
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
The beginning balance at September 30, 1994 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
Series 9% ......... 1,150,000 11
--------- ---
Total ......... 2,679,107 $27
========= ===
</TABLE>
The ending balance at September 30, 1997 of Preferred Stock were as
follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
----------- -------
<S> <C> <C>
Series B ......... 183,818 $ 2
Series 1993 ...... 744,870 7
Series 9% ......... 701,417 8
Series 1996 ...... 545,191 5
------- ---
Total ......... 2,175,296 $22
========= ===
</TABLE>
Effective September 30, 1995, the Series A Preferred Stock was exchanged
for Series B Preferred Stock.
See accompanying notes to consolidated financial statements.
A-60
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
----------------------------------------------
1997 1996 1995
------------ --------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................................... $ 7,599 $ 2,586 $ 6,240
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision (credit) for loan losses ................................. 1,295 (120) 1,221
Provision for losses on tax certificates ........................... 84 76 484
Depreciation and amortization ....................................... 1,320 674 526
Amortization of discounts and premiums on investments ............... 38 20 3
Amortization of discounts and premiums on
mortgage-backed securities ....................................... 101 144 84
Amortization of goodwill .......................................... 683 -- --
Amortization of discounts and premiums on loans ..................... (570) (2,332) (784)
Amortization of loan servicing assets .............................. 931 -- --
Loans originated for sale .......................................... (28,467) (4,141) (2,376)
Increase in accrued interest receivable ........................... (6,285) (1,239) (320)
Increase in interest payable on deposits and FHLB advances ......... 1,142 31 685
Increase (decrease) in accrued expenses ........................... 3,312 213 (68)
Increase (decrease) in accrued taxes .............................. 792 (2,960) 3,065
Increase (decrease) in deferred taxes .............................. (1,854) (469) 33
Increase (decrease) in other liabilities ........................... (22,130) 2,841 1,763
(Increase) decrease in prepaid expenses and other assets ............ (1,635) (224) 566
Gain on sales of mortgage-backed securities ........................ (185) -- (231)
Proceeds from sale of loans ....................................... 39,890 4,362 2,456
Proceeds from sale of loan servicing assets ........................ 4,215 -- 265
Recovery on loans ................................................... 69 1,119 1
(Gain) loss on sales of loans ....................................... 44 (5) (8)
(Gain) loss on real estate owned operations ........................ 236 (185) 94
(Gain) on sales of tax certificates ................................. -- -- (3)
(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 ............... 625 398 4,127
--------- ----------- ----------
Cash flows from investing activities:
Net increase in loans ............................................. (792,501) (185,457) (44,744)
Proceeds from sale of real estate owned ........................... 2,257 2,661 4,607
Purchase of investment securities ................................. (22,144) (3,510) (4,675)
Purchase of mortgage-backed securities .............................. (56,499) (19,228) (11,931)
Purchases of other earning assets ................................. (32,300) (650) (9,580)
Proceeds from repayments of investment securities .................. 4,051 5,675 2,000
Proceeds from repayments of mortgage-backed securities ............ 19,345 10,523 6,326
Proceeds from repayments of other earning assets .................. 14,176 750 5,125
Proceeds from sales of investment securities ........................ 126 2,097 --
Proceeds from sale of mortgage-backed securities .................. 7,653 -- 9,947
Purchases of office properties and equipment ........................ (1,980) (1,170) (742)
Sales of premises and equipment .................................... 1,364 -- --
Net decrease (increase) in tax certificates ........................ (9,278) (620) 2,587
Purchase of Bank of Florida, net of acquired cash equivalents ...... -- 1,521 --
Cash and cash equivalents of Suncoast at date of acquisition ...... 32,803 -- --
--------- ----------- ----------
Net cash used in investing activities .............................. (832,927) (187,408) (41,080)
--------- ----------- ----------
</TABLE>
(CONTINUED ON NEXT PAGE)
A-61
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
-------------------------------------------
1997 1996 1995
------------ ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits .......................................... $366,049 $168,744 $ 92,555
Net (decrease) in deposits from sale of branches .................. -- -- (130,276)
Net (decrease) increase in Federal Home Loan Bank advances ...... 382,984 (4,000) 105,000
Net (decrease) increase in other borrowings ..................... 30,000 -- (21,400)
Decrease in subordinated notes .................................... (775) -- --
Premium on sale of branches ....................................... -- -- 9,304
Net proceeds from issuance of trust preferred securities ......... 111,456 -- --
Net proceeds from issuance of common stock ........................ 1,329 23,198 222
Preferred Stock, Series 9% tender offer ........................... (4,486) -- --
Dividends paid on the Company's preferred stock .................. (2,890) (2,086) (2,010)
Increase in advances from borrowers for taxes and insurance ...... 4,483 560 1,526
-------- -------- ----------
Net cash provided by financing activities ........................ 888,150 186,416 54,921
-------- -------- ----------
Increase (decrease) in cash and cash equivalents .................. 55,848 (594) 17,968
Cash and cash equivalents at beginning of year .................. 34,136 34,730 16,762
-------- -------- ----------
Cash and cash equivalents at end of year ........................ $ 89,984 $ 34,136 $ 34,730
======== ======== ==========
Supplemental Disclosures:
Interest paid on deposits and borrowings ........................ $ 73,385 $ 34,547 $ 25,617
======== ======== ==========
Income taxes paid ................................................ $ 3,390 $ 4,626 $ 676
======== ======== ==========
Transfers from loans to real estate owned ........................ $ 2,296 $ 1,154 $ 1,182
======== ======== ==========
Transfer of mortgage-backed securities from held to maturity to
available for sale ............................................. $ -- $ 31,780 $ --
======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
A-62
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of BankUnited Financial Corporation
(the "Company") and subsidiaries conform to generally accepted accounting
principles and to general practices within the savings and loan industry.
Presented below is a description of the Company and its principal accounting
policies.
(A) BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, including BankUnited, FSB (the "Bank"). The Bank provides
a full range of banking services to individual and corporate customers through
its branches in South Florida. The Bank is subject to the regulations of
certain federal agencies and undergoes periodic examinations by those
regulatory authorities. All significant intercompany transactions and balances
have been eliminated.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the consolidated statements of financial condition and operations for the
period.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan losses
and the allowance for losses on tax certificates, the valuation of mortgage
servicing rights, 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 properties.
(B) MORTGAGE-BACKED SECURITIES AND INVESTMENTS
Mortgage-backed securities and other investments available for sale are
carried at fair value (market value), inclusive of unrealized gains and losses,
and net of discount accretion and premium amortization computed using the level
yield method. Net unrealized gains and losses are reflected as a separate
component of stockholders' equity, net of applicable deferred taxes.
Mortgage-backed securities and investments held to maturity are carried at
amortized cost. Mortgage-backed securities and investment securities that the
Company has the positive intent and ability to hold to maturity are designated
as held-to-maturity securities.
Gain or losses on sales of mortgage securities and investments are
recognized on the specific identification basis.
Tax certificates are considered investments held to maturity and,
accordingly, are carried at cost less a valuation allowance. Interest is
accrued on tax certificates until payoff or until 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 of the tax certificates, adjusted for
accrued interest. Tax deeds applied for carry an annual interest rate of 18%.
(C) ALLOWANCE FOR LOAN LOSSES
A provision for losses on loans is charged to operations when, in
management's opinion, the collectibility of the balances is doubtful and the
carrying value is greater than the estimated net
A-63
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 6 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 and costs are adjusted to the principal balances of the
related loans.
(E) LOAN-ORIGINATION FEES, COMMITMENT FEES AND RELATED COSTS
Loan origination fees and certain direct loan origination costs are
deferred, and the net fee or cost is recognized as an adjustment to interest
income using the interest method over the contractual life of the loans,
adjusted for estimated prepayments based on the Company's historical prepayment
experience. Commitment fees and costs relating to commitments, of which the
likelihood of exercise is remote, are recognized over the commitment period on
a straight-line basis. If the commitment is subsequently exercised during the
commitment period, the remaining unamortized commitment fee at the time of
exercise is recognized over the life of the loan as an adjustment of yield.
(F) OTHER INTEREST EARNING ASSETS
Other interest earning assets includes 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,
A-64
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
fixtures and equipment (7 to 10 years), and computer equipment and software (3
to 5 years), or with leases, the term of the lease or the useful life (10
years), whichever is shorter. Repair and maintenance costs are charged to
operations as incurred, and improvements are capitalized.
(H) ACCRUED INTEREST RECEIVABLE
Recognition of interest on the accrual method is generally discontinued
when interest or principal payments are greater than 90 days in arrears, unless
the loan is well secured and in the process of collection. At the time a loan
is placed on nonaccrual status, previously accrued and uncollected interest is
reversed against interest income in the current period.
(I) REAL ESTATE OWNED
Property acquired through foreclosure, 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.
(J) GOODWILL
Goodwill is amortized on a straight-line basis over its estimated
beneficial life of 10 to 25 years.
(K) INCOME TAXES
The Company and its subsidiaries file consolidated income tax returns.
Deferred income taxes have been provided for elements of income and expense
which are recognized for financial reporting purposes in periods different than
such items are recognized for income tax purposes. The Company accounts for
income taxes utilizing the liability method, which applies the enacted
statutory rates in effect at the statement of financial condition date to
differences between the book and tax bases of assets and liabilities. The
resulting deferred tax liabilities and assets are adjusted to reflect changes
in tax laws.
(L) 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 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, 1997, 1996 and 1995 were 8,680,000, 4,559,000, and 2,296,000,
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
A-65
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
diluted common shares outstanding during the years ended September 30, 1997,
1996 and 1995 were 9,031,000, 4,559,000 and 4,159,000, respectively. Stock
dividends have been included in the calculation of earnings per share for all
years presented.
(M) 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. (See Note 14.)
(N) IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" and in December 1996, the FASB issued a related
Statement of Financial Accounting Standards No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB No. 125" (collectively "Statement No. 125").
Statement No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities based on a
financial components approach that focuses on control. Portions of Statement
No. 125 were effective for transactions entered into after December 31, 1996
with the remaining portions effective for transactions entered into after
December 31, 1997. The impact of adopting Statement No. 125 has not been nor is
it currently expected to be material to the Company's financial position or the
results of operations.
In February 1997, FASB issued Statement of Financial Accounting Standards
No. 128 "Earnings per Share" ("Statement No. 128"). Statement No. 128 specifies
the computation, presentation and disclosure requirements for earnings per
share. It replaces primary earnings per share and fully diluted earnings per
share with basic earnings per share and diluted earnings per share and is
effective for reporting periods ending after December 15, 1997. For the
Company, the computation for basic earnings per share is similar to primary
earnings per share except stock options are not considered when computing basic
earnings per share. Also, for the Company, diluted earnings per share and fully
diluted earnings per share are similar.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure"
("Statement No. 129"). Statement No. 129 continues previous requirements to
disclose certain information about an entity's capital structure. The Company
currently complies with the disclosure requirements of Statement No. 129.
(O) FINANCIAL STATEMENT RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
September 30, 1997 consolidated financial statements.
(2) ACQUISITIONS
On March 31, 1996, the Company 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. The acquisition was accounted for as a purchase and $2.5 million
of goodwill was recorded.
A-66
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(2) ACQUISITIONS--(CONTINUED)
On November 15, 1996, the Company acquired Suncoast Savings & Loan
Association, FSA ("Suncoast"). The Company issued one share of its Class A
Common Stock for each share of Suncoast common stock of which 2,199,930 were
outstanding and one share of newly created 8% Noncumulative Convertible
Preferred Stock, Series 1996 for each share of Suncoast preferred stock of
which 920,000 shares were outstanding. The 8% Noncumulative Convertible
Preferred Stock, Series 1996 has substantially the same terms and conditions as
the Suncoast preferred stock. The cost of the acquisition, which was accounted
for as a purchase was $27.8 million, representing the fair value of the
consideration given to the Suncoast common and preferred stockholders as well
as the option and warrant holders. In addition, the Company incurred
approximately $1.3 million of costs directly related to the merger. The balance
sheet and results of operations of Suncoast have been included with those of
BankUnited as of and for periods subsequent to November 15, 1996.
At the date of acquisition, the fair value of the assets and liabilities
acquired from Suncoast are as follows (in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents ...... $ 32,804
Loans receivable, net ............ 341,394
Mortgage-backed securities ...... 18,672
Goodwill ........................ 11,643
Other assets ..................... 34,930
Deposits ........................ (323,737)
FHLB advances .................. (51,500)
Other liabilities ............... (36,394)
----------
Net purchase price ............ $ 27,812
==========
</TABLE>
The unaudited proforma combined condensed statements of operations for the
years ended September 30, 1997 and 1996, after giving effect to certain
proforma adjustments are as follows (in thousands except per share data):
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Interest income .................................... $112,642 $81,752
Interest expense ................................. 78,268 52,423
Provision for loan losses ........................ 1,401 45
Non-interest income .............................. 4,714 9,193
Non-interest expense .............................. 24,770 31,885
Income tax expense ................................. 5,166 2,654
-------- -------
Net income before preferred stock dividends ...... 7,751 3,938
Preferred stock dividends ........................ 3,028 3,249
-------- -------
Net income after preferred stock dividends ...... $ 4,723 $ 689
======== =======
Earnings per share
Primary .......................................... $ .53 $ .10
Fully-diluted .................................... $ .52 $ .10
</TABLE>
The proforma combined condensed statement of operations assumes the
acquisition occurred as of October 1, 1995.
A-67
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(2) ACQUISITIONS--(CONTINUED)
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%
Noncumulative 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% Noncumulative Convertible Preferred Stock, Series 1996
or each warrant could be exercised to purchase 1.68595 shares, subject to
adjustment, of Class A Common Stock at a per share price of $10.68, also
subject to adjustment under certain conditions. The warrants expire on July 8,
1998 and, as of September 30, 1997, 63,541 warrants were outstanding.
In September 1997, the Company entered into a definitive agreement to
acquire Consumers Bancorp, Inc. for approximately $11 million in a combination
of cash and stock. Consumers Bancorp, Inc. is a thrift holding company for
Consumers Savings Bank which had assets of $108.0 million and deposits of $87.8
million at September 30, 1997. The acquisition will be accounted for as a
purchase and is expected to result in goodwill of approximately $3.5 million.
(3) 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 $49.3 million and $40.0
million at September 30, 1997 and 1996, respectively. Included in these amounts
at September 30, 1997 and 1996 were $1.3 million and $1.9 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 $697,000 and $614,000 at September 30, 1997 and 1996, 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.
(4) SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Interest income from securities purchased under agreements to resell
aggregated approximately $1.2 million for the year ended September 30, 1995.
A-68
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(4) SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL--(CONTINUED)
The following sets forth information concerning the Company's agreements
to resell for the periods indicated:
<TABLE>
<CAPTION>
AS OF AND FOR
THE YEAR ENDED SEPTEMBER 30,
------------------------------
1997 1996 1995
------ ------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Maximum amount of outstanding agreements at any month end
during the period .................................... $-- $-- $ 700
Average amount outstanding during the period ............ $-- $-- $ 20,262
Weighted average interest rate for the period ......... -- -- 6.10%
Maturity ................................................ -- -- --
</TABLE>
(5) INVESTMENTS AND MORTGAGE-BACKED SECURITIES
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.
INVESTMENTS
Presented below is an analysis of the carrying values and approximate
market values of investments held to maturity.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
---------- ------------ ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government agency securities ...... $14,483 $119 $-- $14,602
State of Israel Bonds .................. 11 -- -- 11
-------- ---- -------- -------
Total ................................. $14,494 $119 $-- $14,613
======== ==== ======== =======
</TABLE>
<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>
A-69
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(5) INVESTMENTS AND MORTGAGE-BACKED SECURITIES--(CONTINUED)
All investments held to maturity at September 30, 1997 and 1996 had
maturities between one and five years. Presented below is analysis of the
investments designated as available for sale.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
---------- ------------ ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government agency securities ...... $ 8,799 $ 2 $-- $ 8,801
Other ................................. 1,353 12 -- 1,365
-------- --- -------- -------
Total ................................. $10,152 $14 $-- $10,166
======== === ======== =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET
VALUE 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>
MORTGAGE-BACKED SECURITIES
The carrying value and historical cost of mortgage-backed securities
available for sale are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------------------------
GROSS GROSS
HISTORICAL UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
------------ ------------ ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA mortgage-backed securities ...... $ 48,881 $ 994 $ (41) $ 49,834
FNMA mortgage-backed securities ...... 4,198 108 (6) 4,300
FHLMC mortgage-backed securities ...... 31,839 119 (19) 31,939
Other ................................. 22,625 282 (61) 22,846
-------- ------ ------- --------
Total ................................. $107,543 $1,503 $(127) $108,919
======== ====== ======= ========
</TABLE>
A-70
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(5) INVESTMENTS AND MORTGAGE-BACKED SECURITIES--(CONTINUED)
<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>
The market value and historical cost of mortgage-backed securities held to
maturity are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
---------- ------------ ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA mortgage-backed securities ......... $ 74 $ 6 $ -- $ 80
FHLMC mortgage-backed securities ......... 3,434 -- (44) 3,390
Mortgage pass-through certificates ...... 7,844 -- (22) 7,822
-------- --- ----- -------
Total ................................. $11,352 $ 6 $ (66) $11,292
======== === ===== =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
---------- ------------ ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA mortgage-backed securities ......... $ 83 $ 5 $ -- $ 88
FHLMC mortgage-backed securities ......... 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>
The mortgage-backed securities have contractual maturities which range
from the years 1997 to 2027, however, expected maturities will differ from
contractual maturities as borrowers have the right to prepay obligations with
or without prepayment penalties.
Gross proceeds on sales of mortgage-backed securities and collateralized
mortgage obligations were $7.7 million for the year ended September 30, 1997
and $10.0 million for the year ended September 30, 1995. There were no sales of
mortgage-backed securities and collateralized mortgage obligations in 1996.
Gross realized gains were $250,000 and $231,000 on sales of mortgage-backed
securities and collateralized mortgage obligations during the years ended
September 30, 1997 and 1995, respectively. There were no realized losses during
the years ended September 30, 1997 and 1995.
A-71
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(5) INVESTMENTS AND MORTGAGE-BACKED SECURITIES--(CONTINUED)
At September 30, 1997 , GNMA mortgage-backed securities with carrying
values of approximately $10.9 million were pledged as collateral for public
funds on deposit.
At September 30, 1997, FHLMC and GNMA mortgage-backed securities with a
carrying value of approximately $34.0 million and a market value of
approximately $34.5 million were pledged as collateral for a $30.0 million
reverse repurchase agreement. The securities underlying the agreement were held
in safekeeping by a trustee.
(6) LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
----------------------------
1997 1996
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mortgage loans-conventional ........................ $ 387,096 $263,757
Mortgage loans-conventional serviced by others ...... 1,110,686 317,103
Mortgage loans-other ................................. 140,393 53,817
Commercial loans:
Secured ............................................. 9,475 5,618
Unsecured .......................................... 1,168 787
Line of credit loans ................................. 1,456 1,254
Share loans .......................................... 835 648
Installment loans .................................... 836 1,001
---------- --------
Total ............................................. 1,651,945 643,985
Less allowance for loan losses ..................... (3,693) (2,158)
Deferred loan fees, discounts and premiums ......... 13,129 4,558
---------- --------
Loans receivable, net .............................. $1,661,381 $646,385
========== ========
</TABLE>
Of the total gross loans receivable of $1.7 billion at September 30, 1997,
approximately $506.1 million, or 30.6%, represents residential loans secured by
properties in Florida, $243.7 million, or 15.0% represents loans in California
and $950.2 million, or 54.4% represents loans secured by properties in other
states.
A-72
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(6) LOANS RECEIVABLE--(CONTINUED)
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------
1997 1996 1995
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of the period ...... $2,158 $1,469 $ 841
Provision (credit) ..................... 1,295 (120) 1,221
Allowance from Bank of Florida ......... -- 183 --
Allowance from Suncoast .................. 775 -- --
Loans charged-off ........................ (604) (493) (594)
Recoveries .............................. 69 1,119 1
------ ------ ------
Balance at end of the period ............ $3,693 $2,158 $1,469
====== ====== ======
</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" ("Statement No. 114"). There was
no significant 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.
As of September 30, 1997 and 1996, the Company had impaired or non-accrual
loans of $10.9 million and $4.9 million, respectively and had recorded specific
reserves on these loans of $704,000 and $801,000, respectively. For the years
ended September 30, 1997, 1996 and 1995 the average amounts of impaired loans
were $8.0 million, $4.8 million and $2.3 million, respectively. No income is
recognized on loans during the period for which the loan is deemed impaired.
(7) OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-------------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Office buildings ........................... $ 2,600 $ --
Leasehold improvements ..................... 2,700 1,640
Furniture, fixtures and equipment ......... 3,504 1,881
Computer equipment and software ............ 3,548 1,124
-------- --------
Total .................................... 12,352 4,645
Less: accumulated depreciation ............ (4,981) (2,037)
-------- --------
Office properties and equipment, net ...... $ 7,371 $ 2,608
======== ========
</TABLE>
Depreciation expense was $1.2 million, $674,000 and $526,000, for the
years ended September 30, 1997, 1996, and 1995, respectively.
A-73
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(7) OFFICE PROPERTIES AND EQUIPMENT--(CONTINUED)
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>
1998 .................. $ 2,961
1999 .................. 2,889
2000 .................. 2,051
2001 .................. 1,464
2002 .................. 956
Thereafter ............ 997
-------
Total .................. $11,318
=======
</TABLE>
Rent expense for the years ended September 30, 1997, 1996, and 1995 was
$1.6 million, $905,000, and $959,000, respectively.
(8) DEPOSITS
The weighted average nominal interest rate payable on all deposit accounts
at September 30, 1997 and 1996 was 5.20% and 5.11%, respectively.
Types of deposits and related range of interest rates were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------------------------------
1997 1996
------------------------------------ -----------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing deposits ......... --% - --% $ 21,436 --% - --% $ 7,301
Passbook and statement savings deposits 2.00% - 5.16% 160,557 2.00% - 4.97% 73,780
Super NOW deposits .................. 0.00% - 3.93% 57,471 0.00% - 3.00% 17,265
Money market deposits ............... 0.00% - 3.10% 20,325 0.00% - 4.65% 16,556
Certificates of deposit ............... 3.92% - 6.06% 936,103 3.92% - 6.16% 391,204
---------- --------
Total .............................. $1,195,892 $506,106
========== ========
</TABLE>
Deposit accounts with balances of $100,000 or more totaled approximately
$174.0 millioin and $69.4 million at September 30, 1997 and 1996, respectively.
Interest expense on deposits for the years ended September 30, 1997, 1996
and 1995 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Super NOW and money market deposits ......... $ 2,236 $ 775 $ 875
Passbook and statement savings deposits ...... 6,342 2,627 2,420
Certificates of deposit ..................... 41,558 17,389 14,554
------- ------- -------
Total ....................................... $50,136 $20,791 $17,849
======= ======= =======
</TABLE>
Early withdrawal penalties on deposits are recognized as a reduction of
interest on deposits. For the years ended September 30, 1997, 1996 and 1995,
early withdrawal penalties totaled $101,000, $42,000, and $110,000,
respectively.
A-74
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(8) DEPOSITS--(CONTINUED)
The amounts and scheduled maturities of certificate accounts at September
30, 1997 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30, AMOUNT
- ---------------------------- -----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
1998 .................. $809,444
1999 .................. 81,912
2000 .................. 11,152
2001 .................. 4,951
2002 .................. 28,414
Thereafter ............ 230
--------
Total .................. $936,103
========
</TABLE>
(9) 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 1997 1996
- -------------------------------------------- --------------------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997 .................................... 4.56% - 6.07% $ -- 192,000
1998 .................................... 5.63% - 6.55% 480,000 5,000
1999(1) ................................. 5.60% 25,000 --
2001(2) ................................. 5.33% - 5.61% 15,000 40,000
2002(3) ................................. 5.43% - 6.24% 150,000 --
2005 .................................... 6.65% 1,484 --
-------- -------
$671,484 $237,000
======== ========
</TABLE>
- ----------------
(1) Advances for $25 million are callable by the FHLB in 1998.
(2) Advances for $15 million are callable by the FHLB in 1997.
(3) Advances for $25 million are callable by the FHLB in 1998 and $125 million
in 1999.
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 75% of the unpaid
pricipal balance. The FHLB of Atlanta stock, which is recorded at cost, is also
pledged as collateral for these advances.
(10) SECURITIES SOLD UNDER AN AGREEMENT TO REPURCHASE
Interest expense on securities sold under an agreement to repurchase
aggregated $506,000 and $367,000 for the years ended September 30, 1997 and
1995, respectively.
A-75
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(10) SECURITIES SOLD UNDER AN AGREEMENT TO REPURCHASE--(CONTINUED)
The following sets forth information concerning repurchase agreements for
the periods indicated:
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED
SEPTEMBER 30,
----------------------------------------
1997 1996 1995
---------------- ------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Maximum amount of outstanding agreements at any month
end during the period .............................. $30,000 $-- $ 33,600
Average amount outstanding during the period ...... $8,828 $-- $ 6,572
Weighted average interest rate for the period ...... 5.73% -- 5.59%
Maturity .......................................... Nov. 28, 1997 -- --
</TABLE>
At September 30, 1997, the Company had $34.0 million of mortgage-backed
securities pledged under repurchase agreements. At September 30, 1996 and 1995,
the Company had no pledged securities under repurchase agreements.
(11) COMPANY OBLIGATED MANDATORILY REEDEMABLE TRUST PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE INTEREST
DEBENTURES OF THE COMPANY.
On December 30, 1996, a newly formed trust subsidiary created under the
laws of Delaware, BankUnited Capital, issued $50 million of 10-1/4% Trust
Preferred Securities, Series A and $2 million of common securities. The common
securities are wholly owned by the Company. In connection with this
transaction, BankUnited Capital simultaneously purchased $52 million of 10-1/4%
Junior Subordinated Deferrable Interest Debentures, Series A issued by
BankUnited Financial Corporation with terms similar to the 10-1/4% Trust
Preferred Securities, Series A which are the sole assets of BankUnited Capital.
On March 24, 1997, BankUnited Capital issued an additional $20 million of
10-1/4% Trust Preferred Securities, Series A and $800,000 of common securites,
which common securities are also wholly owned by the Company. BankUnited
Capital simultaneously purchased an additional $20.8 million of 10-1/4% Junior
Subordinated Deferrable Interest Debentures, Series A issued by BankUnited
Financial Corporation. These securities mature December 31, 2026 and pay a
preferential cumulative cash distribution at an annual rate of 10-1/4%. The
Company and BankUnited Capital have the right to defer payment of interest for
up to 5 years. BankUnited Financial Corporation has guaranteed all of the
obligations of the 10-1/4% Trust Preferred Securities, Series A subject to
certain limitations.
On June 5, 1997, BankUnited Capital II, a newly formed trust subsidiary
created under the laws of Delaware, issued $46 million of 9.60% Cumulative
Trust Preferred Securities and $1.84 million of common securities. The common
securities are wholly owned by the Company. In connection with this
transaction, BankUnited Capital II simultaneously purchased $47.8 million of
9.60% Junior Subordinated Deferrable Interest Debentures issued by BankUnited
Financial Corporation with terms similar to the 9.60% Cumulative Trust
Preferred Securities which are the sole assets of BankUnited Capital II.
These securities mature June 30, 2027 and pay a preferential cumulative
cash distribution at an annual ratae of 9.60%. The Company and BankUnited
Capital II have the right to defer payment of
A-76
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(11) COMPANY OBLIGATED MANDATORILY REEDEMABLE TRUST PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE INTEREST
DEBENTURES OF THE COMPANY.--(CONTINUED)
interest for up to five years. BankUnited Financial Corporation has guaranteed
all the obligations of the 9.60% Cumulative Trust Preferred Securities, subject
to certain limitations. The 9.60% Junior Subordinated Deferrable Interest
Debentures rank pari pasu with the 10-1/4% Junior Subordinated Deferrable
Interest Debentures.
Considered together the back-up undertakings constitute a full and
unconditional guarantee by the Company of the obligations of the Trust
Preferred Securities.
(12) 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
--------------------------- ---------------------------- ----------------------------
1997 1996 1997 1996 1997 1996
------------ ------------ ------------- ------------ ------------- ------------
(DOLLAR IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital ......... $ 31,542 $ 12,196 $ 169,708 $ 56,967 $ 138,166 $ 44,771
1.5% 1.5% 8.1% 7.0% 6.6% 5.5%
Core Capital ............ $ 63,084 $ 24,392 $ 169,708 $ 56,967 $ 106,624 $ 32,575
3.0% 3.0% 8.1% 7.0% 5.1% 4.0%
Risk-based capital ...... $123,365 $ 33,927 $ 173,725 $ 60,164 $ 50,360 $ 26,237
8.0% 8.0% 11.3% 14.2% 3.3% 6.2%
</TABLE>
Under the Office of Thrift Supervision (OTS) regulations adopted to
implement the "prompt corrective action" provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (the "FDICIA"), a "well
capitalized" institution must have a risk-based capital ratio of 10%, a core
capital ratio of 5% and a Tier 1 risk-based capital ratio of 6%. (The "Tier 1
risk-based capital" ratio is the ratio of core capital to risk-weighted
assets.) The Bank is a well capitalized institution under the definitions as
adopted. Regulatory capital and net income amounts as of and for the years
ended September 30, 1997, 1996 and 1995 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
A-77
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(12) REGULATORY CAPITAL--(CONTINUED)
OTS appeals process. If the IRR component had been required as of September 30,
1997, 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.
(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, 1997, 5,666,310
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 Noncumulative Convertible Preferred Stock, Series A,
agreed to exchange each of the 55,000 shares of the Series A Preferred stock
for one share of the Company's Noncumulative Convertible Preferred Stock,
Series B. Because the dividend rate, redemption price, and the liquidation
preference for the Series B Preferred Stock are lower than those for the Series
A Preferred Stock, the Company agreed not to redeem the shares of Series B
Preferred Stock issued pursuant to the exchange offer for a period of three
years and for three years thereafter, such Series B Preferred Stock will only
be redeemed at a 50% premium or $11.0625 per share.
NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES B:
Authorized shares--200,000 shares.
Issued and outstanding shares--183,818 shares
Dividends--noncumulative cash dividends payable quarterly at the fixed
annual rate of $0.6750 per share beginning October 1, 1997 and $0.7375 per
share prior to that date.
Preference on liquidation--voluntary liquidation at the applicable
redemption price per share and involuntary liquidation at $7.375 per share.
Redemption Prior to October 1, 1997--except for the shares converted from
Series A discussed above, at the option of the Company at $7.67 per share at
September 30, 1995, declining thereafter at $.07375 per share during each year
through January 31, 1998, and thereafter the redemption price remains at $7.375
per share.
Effective October 1, 1997, the Company, in exchange for a reduction in the
dividend rate described above, has agreed not to redeem the Series B, Preferred
Stock until October 1, 2007 or later unless earlier redemption is approved by
the holders of at least 50 percent of the Series B Preferred shares.
A-78
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(13) STOCKHOLDERS' EQUITY--(CONTINUED)
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 1.4959 shares (adjusted for all stock
dividends) of Class B Common Stock for each share of Noncumulative Convertible
Preferred Stock, Series B, surrendered for conversion, subject to adjustment on
the occurrence of certain events.
NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES C:
Authorized, issued and outstanding shares--none as of September 30, 1997
and 363,636 shares as of September 30, 1996.
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 1.45475 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, issued and outstanding shares--none as of September 30, 1997
and 222,223 shares as of September 30, 1996.
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 1.3225 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.
A-79
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(13) STOCKHOLDERS' EQUITY--(CONTINUED)
8% NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES 1993:
Authorized shares--1,610,000 shares.
Issued and outstanding--744,870 shares as of September 30, 1997 and
September 30, 1996.
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.
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;
beginning July 1, 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--1,851,417 shares as of September 30, 1997 and 2,300,000
shares as of September 30, 1996.
Issued and outstanding--701,417 as of September 30, 1997 and 1,150,000 as
of September 30, 1996.
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.
A-80
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(13) STOCKHOLDERS' EQUITY--(CONTINUED)
8% NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES 1996:
Authorized shares--608,732 shares as of September 30, 1997 and none as of
September 30, 1996.
Issued and outstanding shares--545,191 shares as of September 30, 1997 and
none as of September 30, 1996.
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--called for redemption effective October 10, 1997 for $15.00
per share. As a result 927,204 shares were converted to Class A Common Stock
and 5,696 shares were or will be redeemed.
Voting rights--nonvoting except under certain circumstances.
Convertibility--convertible into 1.67 shares of Class A Common Stock for
each share of 8% Noncumulative Convertible Preferred Stock, Series 1996,
surrendered for conversion.
CLASS A COMMON STOCK:
Issuable in series with rights and preferences to be designated by the
Board of Directors:
As of September 30, 1997, 10,000,000 shares of Class A Common Stock were
authorized but not designated to a series. As of September 30, 1996, 5,000,000
shares were authorized but not designated.
SERIES I CLASS A COMMON STOCK:
Authorized shares--20,000,000 at September 30, 1997 and 10,000,000 at
September 30, 1996.
Issued and outstanding--9,257,098 shares as of September 30, 1997 and
5,454,201 shares as of September 30, 1996.
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.
In October 1997, the Company issued 3,680,000 shares of Series I Class A
Common Stock pursuant to a public stock offering. Net proceeds from the
offering were approximately $43.9 million.
A-81
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(13) STOCKHOLDERS' EQUITY--(CONTINUED)
CLASS B COMMON STOCK:
Authorized shares--3,000,000.
Issued and outstanding--275,685 shares as of September 30, 1997 and
251,515 shares as of September 30, 1996.
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
The Company maintains the 1992 Stock Bonus Plan whereby it is authorized
to issue up 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, 1997, 64,857 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, 1997, there were 5,364 shares
available for grant under the 1992 Stock Bonus Plan.
The Company also maintains a non-statutory stock option plan under which
options for up to 825,000 shares of Class A and Class B Common Stock may be
granted. 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, 1997,
825,000 options have been granted under this plan and 75,207 options have been
exercised.
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, 1997, 250,000 options have been granted under this
plan.
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, 1997, the Agreements are exercisable for
a total of 155,367 shares at the exercise price of $4.64 per share; none have
been exercised.
Pursuant to stockholder approval in February 1997, the Company maintains
the 1996 Incentive and Stock Award Plan. Under this plan, the Compensation
Committee of the Board of Directors may grant options to purchase, or may issue
in connection with Stock Awards, Stock Bonuses and Restricted Stock, up to
550,000 shares of Class A or Class B Common Stock. Additionally, the number of
shares of Noncumulative Convertible Preferred Stock, Series B for which Options
may be granted or which may be issued in connection with Stock Bonuses, Stock
Awards and Restricted Stock in lieu of cash or other
A-82
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(14) STOCK BONUS PLAN, OPTION AGREEMENTS AND OTHER BENEFIT PLANS--(CONTINUED)
stock awards is 100,000. As of September 30, 1997, options to purchase 149,365
shares of Class A Common Stock and 237,000 shares of Class B Common Stock had
been granted and 9,452 shares of Class A Common Stock had been issued.
The following table presents additional data concerning the Company's
outstanding stock options:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE AGGREGATE
OF SHARES PER SHARE OPTION PRICE
----------- ---------------- -------------
<S> <C> <C> <C>
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 .................................... 122,585 7.24 - 8.26 933,064
------- ---------------- ----------
Options outstanding, September 30, 1996 ............ 941,148 3.11 - 10.98 5,410,580
Options granted (including Suncoast options) ...... 729,381 3.00 - 10.74 5,839,961
Options exercised ................................. (83,004) 3.00 - 8.80 (490,932)
------- ---------------- ----------
Options outstanding, September 30, 1997 ............ 1,587,525 $3.00 - $10.98 $10,759,609
========= ================ ===========
</TABLE>
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" and as permitted by SFAS No. 123, the Company continues to follow
the measurement provisions of Accounting Principles Board Option No. 25,
"Accounting for Stock Issued to Employees, " and does not recognize
compensation expense for its stock-based incentive plans. Had compensation cost
for the Company's stock based incentive compensation plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the methodology prescribed by SFAS No. 123, the Company's net
income and earnings per share for fiscal 1997 and 1996 would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
As Reported ........................... $7,599 $2,586
Pro forma .............................. 6,218 2,349
Primary earnings per common share:
As reported ........................... $ .54 $ .10
Pro forma .............................. $ .39 $ .04
Fully diluted earnings per common share:
As reported ........................... $ .54 $ .10
Pro forma .............................. $ .38 $ .04
</TABLE>
The fair value of each option is estimated on the date of the grant using
the Black Scholes option pricing model, with the following historical weighted
average assumptions applied to grants in fiscal 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Dividend yields ............... -- --
Expected volatility ............ 30.1 % 30.1 %
Risk-free interest rates ...... 6.30% 6.52%
Expected life (in years) ...... 9.52 7.88
</TABLE>
A-83
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(14) STOCK BONUS PLAN, OPTION AGREEMENTS AND OTHER BENEFIT PLANS--(CONTINUED)
Based upon the above assumptions, the weighted average fair value of
options granted during 1997 and 1996 was $2,484,000 and $334,000, respectively.
The Company has a 401(k) savings plan pursaunt 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, 1997, 1996, and
1995 totaled approximately $34,600, $7,000, and $30,000 respectively. Employees
are eligible to participate in the plan after one year of service and begin
vesting in the company's contribution after two years of participation in the
plan at the rate of 25% per year up to 100%.
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 the eligible employees based upon
their salaries. Employees become eligible for the plan after one year of
service and become vested at the rate of 20% per year up to 100%. The Board of
Directors authorized a contribution of $170,000, $100,000 and $75,000 in 1997,
1996 and 1995, respectively.
In connection with the Suncoast acquisition the Company assumed 119,000 of
Suncoast's options with option prices ranging from $3.00 to $7.38 per share of
Class A Common Stock with an aggregate exercise price of $610,000. As of
September 30, 1997, 73,000 of these options had been exercised.
(15) INCOME TAXES
The Company's effective tax rate differs from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ----------------------
AMOUNT % AMOUNT % AMOUNT %
-------- ---------- -------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tax at federal income tax rate ...... $4,295 34.0% $1,443 34.0% $3,394 34.0%
Increase (decrease) resulting from:
State tax ........................... 314 2.5% 154 3.6 362 3.6
Other, net ........................ 424 3.3% 60 1.5 (15) (0.1)
------ ---- ------ ---- ------ ----
Total .............................. $5,033 39.8% $1,657 39.1% $3,741 37.5%
====== ==== ====== ==== ====== ====
</TABLE>
A-84
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(15) INCOME TAXES--(CONTINUED)
The components of the provision for income taxes for the year ended
September 30, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
--------------------------------
1997 1996 1995
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current-federal ...... $1,150 $1,324 $3,590
Current-state ......... 125 227 620
Deferred-federal ...... 3,391 90 (400)
Deferred-state ......... 367 16 (69)
------ ------ ------
Total ............... $5,033 $1,657 $3,741
====== ====== ======
</TABLE>
The tax effects of significant temporary differences included in the
deferred tax asset as of September 30, 1997 and 1996 were:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1997 1996
-------- -----
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Non-accrual interest ............... $ 200 $185
Loan loss and other reserves ...... 875 431
Fixed assets ........................ 77 5
Deferrals and amortization ......... 250 19
Purchase accounting ............... 1,605 --
Other .............................. 236 --
------ ----
Gross deferred tax asset ......... 3,243 640
------ ----
Deferred tax liability:
FHLB Atlanta stock dividends ...... 159 167
Deferrals and amortizations ......... 912 --
Other .............................. 91 13
------ ----
Gross deferred tax liability ...... 1,162 180
------ ----
Net deferred tax asset ............ $2,081 $460
====== ====
</TABLE>
At September 30, 1997, the Company had $409,000 in Tax Bad Debt Reserves
originating before December 31, 1987 for which deferred taxes have not been
provided. The amount becomes taxable under the Internal Revenue Code upon the
occurrence of certain events, including certain non-dividend distributions. The
Company does not anticipate any actions which would ultimately result in the
recapture of this amount for income tax purposes.
A-85
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(15) INCOME TAXES--(CONTINUED)
The components of deferred income tax provision (benefit) relate to the
following:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------
1997 1996 1995
-------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Differences in book/tax depreciation ...... $ -- $(10) $ (21)
Delinquent interest ........................ (18) (7) (80)
FHLB Stock dividends ..................... -- -- (144)
Loan fees ................................. 15 -- --
Loan loss and other reserves ............... (294) 156 (164)
Deferrals and amortization ............... (145) (33) (60)
SAIF special assessment .................. 758 -- --
Purchase accounting ........................ 2,635 -- --
Other .................................... 807 -- --
------ ------ ------
Total deferred taxes ..................... $3,758 $106 $ (469)
====== ====== ======
</TABLE>
In connection with the acquisition of Suncoast, the Company recorded
deferred tax assets and liabilities for the differences between values assigned
in purchase accounting and the tax bases of acquired assets and liabilities.
The resultant net deferred tax asset is not included in the summary of
significant temporary differences at September 30, 1996 above. Approximately
$2,635,000 of this deferred tax asset has been recognized as deferred tax
expense during the year ended September 30, 1997 and $1,605,000 represents the
tax effect at September 30, 1997 of amounts deductible for tax purposes in
future periods.
The Company also acquired net deferred tax assets of approximately
$1,140,000 in conjunction with its acquisition of Suncoast. These net deferred
tax assets are not included in the summary of significant temporary differences
at September 30, 1996 above.
(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
A-86
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(16) COMMITMENTS AND CONTINGENCIES--(CONTINUED)
other termination clauses and may require payment of a fee. Total commitments
to extend credit at September 30, 1997 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------
FIXED VARIABLE
RATE RATE TOTAL
--------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commitments to fund loans ......... $ 9,980 $ 15,826 $ 25,806
Loans in process .................. 4,297 8,664 12,961
Letters of credit .................. 127 -- 127
Commitments to purchase loans ...... -- 873,553 873,553
------- -------- --------
Total .............................. $14,404 $898,043 $912,447
======= ======== ========
</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 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 agency, of which a member of the Board of Directors is a vice
president. For the years ended September 30, 1997, 1996 and 1995, total fees (a
portion of which were capitalized) paid to this law firm totaled approximately
$2.2 million, $986,000, and $1.1 million, respectively, and amounts paid to
this insurance agency totaled approximately $373,000, $147,000, and $129,000,
respectively.
In fiscal 1997, the Company leased property for a new branch, which is 25%
owned by the Company's Chairman of the Board. The lease is for a term of 3
years with four three year options to renew. The annual rent for the property
is approximately $126,000, and in fiscal 1997, the Company paid a total of
$82,000 in rent.
A-87
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(18) 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,
------------------------
1997 1996
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Assets:
Cash ......................................................... $ 623 $ 88
FHLB overnight deposits ....................................... 2,822 7,889
Tax certificates ............................................. 40 312
Investments, net (market value of approximately $10 and $10 at
September 30, 1997 and 1996, respectively) .................. 10 10
Investments available for sale .............................. -- 155
Mortgage-backed securities, available for sale ............... 18,644 1,309
Accrued interest receivable ................................. 173 132
Investment in the Bank ....................................... 183,807 59,443
Investment in subsidiaries .................................... 4,640 --
Other assets ................................................ 9,622 248
-------- -------
Total ...................................................... $220,381 $69,586
======== =======
Liabilities ................................................... $ 96 $ 475
Junior subordinated deferrable interest debentures ............ 120,640 --
Stockholders' equity:
Preferred stock ............................................. 22 27
Common stock ................................................ 95 57
Paid-in capital ............................................. 86,679 62,055
Retained earnings ............................................. 11,988 7,279
Net unrealized gains (losses) on securities available for sale,
net of taxes ................................................ 861 (307)
-------- -------
Total stockholders' equity ................................. 99,645 69,111
-------- -------
Total liabilities and stockholders' equity .................. $220,381 $69,586
======== =======
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
----------------------------------
1997 1996 1995
----------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income .................. $ 2,626 $ 803 $ 307
Interest expense .................. 6,726 17 36
Equity income of the Bank ......... 10,927 2,406 6,587
Operating expenses ............... 1,166 491 818
-------- ------ ------
Income before income taxes ......... 5,661 2,701 6,040
Income tax expense (benefit) ...... (1,938) 115 (200)
-------- ------ ------
Net income ........................ $ 7,599 $2,586 $6,240
======== ====== ======
</TABLE>
A-88
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(18) BANKUNITED FINANCIAL CORPORATION--(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
1997 1996 1995
------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income ................................................... $ 7,599 $ 2,586 $ 6,240
Less: Undistributed income of the Bank ..................... (11,551) (406) (6,587)
Other ...................................................... (2,757) 242 156
--------- --------- --------
Net cash provided by (used in) operating activities ......... (6,709) 2,422 (191)
--------- --------- --------
Cash from investing activities:
Equity contributions to the Bank ........................... (85,000) (16,000) --
Equity contributions to subsidiaries ........................ (4,640) -- --
Purchase of investment securities ........................... -- (155) --
Proceeds from sale of investments ........................... 155 -- --
Purchase of mortgage-backed securities ..................... (27,411) -- --
Proceeds from repayments of mortgage- backed securities . 5,054 368 181
Proceeds from sales of mortgage-backed securities ............ 5,021 -- --
Net decrease in tax certificates ........................... 269 145 732
--------- --------- --------
Net cash provided by (used in) investing activities ......... (106,552) (15,642) 913
--------- --------- --------
Cash flow from financing activities:
Net proceeds from issuance of Junior subordinated
deferrable interest debentures ........................... 114,776 -- --
Net proceeds from issuance of common stock .................. 1,329 23,198 222
Dividends paid on preferred stock ........................... (2,890) (2,086) (2,010)
Preferred Stock, Series 9% tender offer ..................... (4,486) -- --
--------- --------- --------
Net cash provided by (used in) financing activities ......... 108,729 21,112 (1,788)
(Decrease) increase in cash and cash equivalents ............ (4,532) 7,892 (1,066)
Cash and cash equivalents at beginning of year ............... 7,977 85 1,151
--------- --------- --------
Cash and cash equivalents at end of year ..................... $ 3,445 $ 7,977 $ 85
========= ========= ========
</TABLE>
(19) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The information set forth below provides disclosure of the estimated fair
value of the Company's financial instruments. Management has made estimates of
fair value discount rates that it believes to be reasonable. However, because
there is no market for many of these financial instruments, management has no
basis to determine whether the fair value presented would be indicative of the
value negotiated in an actual sale. The fair value estimates do not consider
the tax effect that would be associated with the disposition of the assets or
liabilities at their fair value estimates.
Fair values are estimated for loan portfolios with similar financial
characteristics. Loans are segregated by category, such as commercial,
commercial real estate, residential mortgage, second mortgages, and other
installment. Each loan category is further segmented into fixed and adjustable
rate
A-89
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(19) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
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.
The fair value of deposits with no stated maturity, such as
non-interest-bearing demand deposits, savings and NOW accounts, and money
market accounts, is equal to the amount payable on demand. The fair value of
certificates of deposit is based on the discounted value of contractual cash
flows. The discount rate is estimated using the Company's current rates for
deposits of similar maturities adjusted for insurance costs.
The fair value of the Trust Preferred Securities is estimated based on bid
prices available from securities dealers.
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.
A-90
<PAGE>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997
(19) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
The following table presents information for the Company's financial
instruments at September 30, 1997 and 1996:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
------------------------------
CARRYING VALUE FAIR VALUE
---------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Financial assets:
Cash and overnight investments ............... $ 89,984 $ 89,984
Tax certificates and other investments ...... 73,943 74,062
Mortgage-backed securities .................. 120,271 120,211
Loans receivable ........................... 1,765,723 1,814,459
Mortgage servicing assets .................. 4,783 4,890
Other interest-earning assets ............... 33,599 33,599
Financial liabilities:
Deposits .................................... $1,195,892 $1,197,871
Borrowings ................................. 701,484 704,705
Trust Preferred Securities .................. 116,000 119,010
</TABLE>
<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 .................. 70,163 69,741
Loans receivable ........................... 646,385 646,547
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>
A-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"
appearing in the Company's definitive proxy statement relating to the Company's
1998 Annual Meeting of Stockholders, which definitive proxy statement was
filed with the Securities and Exchange Commission within 120 days after
the end of the Company's fiscal year covered by this report on Form 10-K/A
(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/A.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the caption "Executive Compensation"
appearing 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" appearing 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" appearing in the Annual Meeting Proxy Statement is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) Financial Statements.
The following consolidated financial statements of the Company and the
report of the independent certified public accountants thereon filed with this
report:
Report of Independent Certified Public Accountants (Price
Waterhouse LLP).
Consolidated Statements of Financial Condition as of September 30,
1997 and 1996.
Consolidated Statements of Operations for the years September 30,
1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1997, 1996 and 1995.
A-92
<PAGE>
Consolidated Statements of Cash Flows for the years ended September
30, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules.
Schedules are omitted because the conditions requiring their filing
are not applicable or because the required information is provided in
the Consolidated Financial Statements, including the Notes thereto.
(3) Exhibits.*
2.1 Agreement and Plan of Merger, dated July 15, 1996, between
BankUnited and Suncoast Savings and Loan Association, FSA. (Exhibit 2.1
to BankUnited's Form S-4 Registration Statement, File No. 333-13211, as
filed with the Securities and Exchange Commission on October 1, 1996).
2.2 Agreement and Plan of Merger between BankUnited and Consumers
Bancorp, Inc. dated September 19, 1997 (Exhibit 2.2 to BankUnited's
Form S-4 Registration Statement, File No. 333-39921, as filed with the
Securities and Exchange Commission on November 10, 1997).
3.1 Articles of Incorporation of BankUnited (Exhibit 3.1 to
BankUnited's Form 10-K report for the year ended September 30, 1997).
3.2 Statement of Designation of Series I Class A Common Stock and
Class B Common Stock of BankUnited (included as an appendix to Exhibit
3.1).
3.3 Statement of Designation of Noncumulative Convertible Preferred
Stock, Series A, of BankUnited (included as an appendix to Exhibit
3.1).
3.4 Statement of Designation of Noncumulative Convertible Preferred
Stock, Series B of BankUnited (included as appendix to Exhibit 3.1).
3.5 Statement of Designation of 8% Noncumulative Convertible
Preferred Stock, Series 1993 of BankUnited (included as an appendix to
Exhibit 3.1).
3.6 Statement of Designation of 9% Noncumulative Perpetual Preferred
Stock of BankUnited (included as an appendix to Exhibit 3.1).
3.7 Statement of Designation of 8% Noncumulative Convertible
Preferred Stock, Series 1996 of BankUnited (included as appendix to
Exhibit 3.1).
3.8 Form of Letter Agreement between BankUnited and the holders of
shares of BankUnited's Noncumulative Convertible Preferred Stock,
Series B (Exhibit 3.8 to BankUnited's Form 10-K report for the year
ended September 30, 1997).
3.9 Bylaws of BankUnited (Exhibit 4.5 to BankUnited's Form S-8
Registration Statement, File No. 333-43211, as filed with the
Securities and Exchange Commission on November 14, 1996).
4.1 Agreement for Advances and Security Agreement with Blanket
Floating Lien dated as of September 25, 1992, between BankUnited, FSB
(the "Bank") and the Federal Home Loan Bank 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 BankUnited's
Form 8-K dated March 25, 1993).
A-93
<PAGE>
4.2 Forms of Series 15A-F, Series 18E and Series 20A-F of
Subordinated Notes of the Bank (Exhibit 4.3 to BankUnited's Form S-4
Registration Statement, File No. 33-55232, as filed with the Securities
and Exchange Commission on December 2, 1992).
10.1 Non-Statutory Stock Option Plan, as amended, (Exhibit 4.9 to
BankUnited's Form S-8 Registration Statement, File No. 33-76882, as
filed with the Securities and Exchange Commission on March 24, 1994).
**
10.2 1992 Stock Bonus Plan, as amended (Exhibit 10.2 to BankUnited's
Form 10-K Report for the year ended September 30, 1994 [the "1994
10-K"]).**
10.3 1994 Incentive Stock Option Plan. (Exhibit 10.3 to the 1994
10-K).**
10.4 The Bank's Profit Sharing Plan. (Exhibit 10.4 to BankUnited's
Form S-2 Registration Statement, File No. 33-80791, as filed with the
Securities and Exchange Commission on December 22, 1995).**
10.5 1996 Incentive Compensation and Stock Award Plan (Exhibit 10.5
to BankUnited'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 BankUnited, the Bank, SouthTrust Corporation, SouthTrust of
Florida, Inc. and SouthTrust Bank of the Suncoast (Exhibit 10.1 to
BankUnited's Form 10-Q Report for the quarter ended March 31, 1995 [the
"March 31, 1995 10-Q"]).
10.7 Purchase and Assumption Agreement dated March 20, 1995 by and
among BankUnited, 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 BankUnited, the Bank, SouthTrust Corporation,
SouthTrust of Florida, Inc., and SouthTrust Bank of the Suncoast
(Exhibit 10.1 to BankUnited'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 BankUnited, 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 BankUnited and Alfred R.
Camner (Exhibit 10.10 to BankUnited's 10-K Report for the year ended
September 30, 1996).
10.11 Form of Employment Agreement between BankUnited and Earline G.
Ford (Exhibit 10.11 to BankUnited's 10-K Report for the year ended
September 30, 1996).
10.12 Form of Employment Agreement between BankUnited and certain of
its senior officers (Exhibit 10.12 to BankUnited's 10-K Report for the
year ended September 30, 1996).
10.13 Junior Subordinated Indenture with respect to BankUnited's
101/4% Junior Subordinated Debentures. (Exhibit 4.1A to the Company's
Registration Statement on Form S-4, File No. 333-24025, as filed with
the Securities and Exchange Commission on March 27, 1997).
10.14 Supplemental Indenture (Exhibit 4.1B to the Company's
Registration Statement on Form S-4, File No. 333-24025, as filed with
the Securities and Exchange Commission on March 27, 1997).
A-94
<PAGE>
10.15 Form of Amended and Restated Trust Agreement of BankUnited
Capital. (Exhibit 4.3 to the Company's Registration Statement on Form
S-4, No. 333-24025, as filed with the Securities and Exchange
Commission on March 27, 1997).
10.16 Form of Amended and Restated Guarantee Agreement for
BankUnited Capital. (Exhibit 4.5 to the Company's Registration
Statement on Form S-4, No. 333-24025, as filed with the Securities and
Exchange Commission on March 27, 1997).
10.17 Form of Agreement as to Expenses and Liabilities (included as
an exhibit to Exhibit 99.6 to the Company's Registration Statement on
Form S-4, No. 333-24025, as filed with the Securities and Exchange
Commission on March 27, 1997).
10.18 Registration Rights Agreement (Exhibit 4.6 to the Company's
Registration Statement on Form S-4, No. 333-24025, as filed with the
Securities and Exchange Commission on March 27, 1997).
10.19 Registration Rights Agreement (Exhibit 4.7 to the Company's
Registration Statement on Form S-4, No. 333-24025, as filed with the
Securities and Exchange Commission on March 27, 1997).
10.20 Purchase Agreement (Exhibit 99.4 to the Company's Registration
Statement on Form S-4, No. 333-24025, as filed with the Securities and
Exchange Commission on March 27, 1997).
10.21 Purchase Agreement (Exhibit 99.5 to the Company's Registration
Statement on Form S-4, No. 333-24025, as filed with the Securities and
Exchange Commission on March 27, 1997).
10.22 Form of Indenture with respect to BankUnited's 9.60% Junior
Subordinated Debentures. (Exhibit 4.3 to the Company's Registration
Statement on Form S-2, File No. 333-27597, as filed with the Securities
and Exchange Commission on May 22, 1997).
10.23 Trust Agreement of BankUnited Capital II. (Exhibit 4.6 to the
Company's Registration Statement on Form S-2, File No. 333-27597, as
filed with the Securities and Exchange Commission on May 22, 1997).
10.24 Form of Amended and Restated Trust Agreement of BankUnited
Trust II. (Exhibit 4.7 to the Company's Registration Statement on Form
S-2, No. 333-27597, as filed with the Securities and Exchange
Commission on May 22, 1997).
10.25 Form of Guarantee Agreement for BankUnited Capital II.
(Exhibit 4.9 to the Company's Registration Statement on Form S-2, No.
333-27597, as filed with the Securities and Exchange Commission on May
22, 1997).
10.26 Form of Agreement as to Expenses and Liabilities (included as
an exhibit to Exhibit 4.7) (Exhibit 4.10 to the Company's Registration
Statement on Form S-2, No. 333-27597, as filed with the Securities and
Exchange Commission on May 22, 1997).
11.1 Statement regarding calculation of earnings per common share
(Exhibit 11.1 to BankUnited's Form 10-K report for the year ended
September 30, 1997).
12.1 Statement regarding calculation of earnings to combined fixed
charges and preferred stock dividends (Exhibit 12.1 to BankUnited's Form
10-K report for the year ended September 30, 1997).
21.1 Subsidiaries of the Registrant (Exhibit 21.1 to BankUnited's
Form S-4 Registration Statement, File No. 333-39921, as filed with the
Securities and Exchange Commission on November 10, 1997).
A-95
<PAGE>
23.1 Consent of Price Waterhouse LLP.
24.1 Power of attorney (set forth on the signature page in Part IV
of BankUnited's Report on Form 10-K for the year ended September 30,
1997).
27.1 Financial Data Schedule (Exhibit 27.1 to BankUnited's Form 10-K
report for the year ended September 30, 1997).
- ----------------
* Exhibits followed by a parenthetical reference are incorporated herein by
reference from the documents described therein.
** Exhibits 10.1--10.5 are compensatory plans or arrangements.
(B) REPORTS ON FORM 8-K.
During the quarter ended September 30, 1997, the Company filed with the
Securities and Exchange Commission, (i) a Current Report on Form 8-K dated
September 12, 1997, which reported that the Company had called its 8%
Noncumulative Convertible Preferred Stock, Series 1996, for redemption, and
(ii) a Current Report on Form 8-K dated September 23, 1997 announcing that the
Company had agreed to acquire Consumers Bancorp, Inc., the parent company of
Consumers Savings Bank.
SUPPLEMENTAL INFORMATION
Copies of the Company's annual report to security holders and proxy
materials have previously been provided to the Commission.
A-96
<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/A
to be signed on its behalf by the undersigned, thereunto duly authorized on
February 27, 1998.
BANKUNITED FINANCIAL CORPORATION
By: /s/ Alfred R. Camner
-----------------------------------
Alfred R. Camner
Chairman of the Board, President
and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on February 27, 1998 on behalf of the Registrant by the
following persons and in the capacities indicated.
<TABLE>
<S> <C>
* Chairman of the Board, Chief Executive
- ---------------------------- Officer, President and Director
Alfred R. Camner (Principal Executive Officer)
* Executive Vice President, Treasurer and
- ---------------------------- Director
Earline G. Ford
* Executive Vice President and Director
- ----------------------------
James A. Dougherty
* Executive Vice President and Chief Financial
- ---------------------------- Officer (Principal Financial Officer and
Samuel A. Milne Principal Accounting Officer)
* Director
- ----------------------------
Marc D. Jacobson
* Director
- ----------------------------
Allen M. Bernkrant
* Director
- ----------------------------
Lawrence H. Blum
* Director
- ----------------------------
Patricia L. Frost
</TABLE>
A-97
<PAGE>
<TABLE>
<S> <C>
- --------------------------- Director
Anne W. Solloway
* Director
- ---------------------------
Neil Messinger
* Director
- ---------------------------
Bruce Friesner
* Director and Corporate Secretary
- ---------------------------
Marc Lipsitz
*By: /s/ Alfred R. Camner
----------------------
as Attorney-in-Fact
</TABLE>
A-98
<PAGE>
APPENDIX B
BANKUNITED FINANCIAL CORPORATION
OPERATING RESULTS AND FINANCIAL INFORMATION
FOR THE QUARTER ENDED DECEMBER 31, 1997
<PAGE>
<TABLE>
<CAPTION>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, SEPTMEBER 30,
1997 1997
(Unaudited) 1997
-------------- -------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
ASSETS
Cash $ 13,136 $ 10,571
Federal Home Loan Bank overnight deposits 20,261 79,413
Securities purchased under agreements to resell 30,032 --
Tax certificates (net of reserves of $714 at December 31, 1997 and
$697 at September 30, 1997) 40,035 49,283
Investments held to maturity (market value of approximately
$14,612 at December 31, 1997 and $14,613 at September 30, 1997) 14,497 14,494
Investments available for sale, at market 8,168 10,166
Mortgage-backed securities, held to maturity (market
value of approximately $10,946 at December 31, 1997
and $11,292 at September 30, 1997) 10,882 11,352
Mortgage-backed securities available for sale, at market 84,403 108,919
Loans receivable, net 2,579,433 1,661,381
Mortgage loans held for sale (market value of approximately $93,443
at December 31, 1997 and $105,980 at September 30, 1997) 92,224 104,342
Other interest earning assets 63,098 33,599
Office properties and equipment, net 8,682 7,371
Real estate owned, net 780 611
Accrued interest receivable 22,743 16,261
Mortgage servicing rights 5,030 4,783
Goodwill 14,559 14,278
Prepaid expenses and other assets 20,813 18,582
---------- ----------
Total assets $3,028,776 $2,145,406
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $1,444,102 $1,195,892
Securities sold under agreements to repurchase 30,000 30,000
Advances from Federal Home Loan Bank 1,261,466 671,484
Company obligated mandatorily redeemable trust preferred securities of
subsidiary trust holding solely junior subordinated deferrable interest
debentures of the Company 116,000 116,000
Interest payable (primarily on deposits and advances from Federal Home
Loan Bank) 5,770 3,844
Advance payments by borrowers for taxes and insurance 6,434 10,688
Accrued expenses and other liabilities 19,373 17,853
---------- ----------
Total liabilities 2,883,145 2,045,761
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, Series B, 1993, 1996 and 9%, $0.01 par value. Authorized
shares - 10,000,000; issued and outstanding shares - 1,644,805 at
December 31,1997 and 2,175,296 at September 30, 1997 16 22
Class A Common Stock, $.01 par value. Authorized shares - 30,000,000;
issued and outstanding shares - 13,923,022 at December 31, 1997 and
9,257,098 at September 30, 1997 139 92
Class B Common Stock, $.01 par value. Authorized shares - 3,000,000;
issued and outstanding shares - 285,958 at December 31, 1997 and 275,685
at September 30, 1997 3 3
Additional paid-in capital 131,149 86,679
Retained earnings 13,632 11,988
Net unrealized gains on securities available for sale, net of tax 692 861
---------- ----------
Total stockholders' equity 145,631 99,645
---------- ----------
Total liabilities and stockholders' equity $3,028,776 $2,145,406
========== ==========
</TABLE>
SEE CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-1
<PAGE>
<TABLE>
<CAPTION>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
(Unaudited)
1997 1996
-------- --------
(In thousands, except earnings per share)
<S> <C> <C>
Interest income:
Interest and fees on loans $ 36,893 $ 16,616
Interest on mortgage-backed securities 2,192 1,309
Interest on short-term investments 420 467
Interest and dividends on long-term investments
and other earning assets 1,945 1,099
-------- --------
Total interest income 41,450 19,491
-------- --------
Interest expense:
Interest on deposits 17,584 8,882
Interest on borrowings 11,591 3,505
Preferred dividends of Trust Subsidiary 2,908 28
-------- --------
Total interest expense 32,083 12,415
-------- --------
Net interest income before provision for loan losses 9,367 7,076
Provision for loan losses 650 250
-------- --------
Net interest income after provision for loan losses 8,717 6,826
-------- --------
Non-interest income:
Service fees, net 452 575
Gain (loss) on sale of loans and mortgage-backed securities 1,115 (11)
Other 77 36
-------- --------
Total non-interest income 1,644 600
-------- --------
Non-interest expenses:
Employee compensation and benefits 2,480 1,915
Occupancy and equipment 886 886
Insurance 255 361
Professional fees - legal and accounting 622 222
Other operating expenses 2,782 1,421
-------- --------
Total non-interest expenses 7,025 4,805
-------- --------
Income before income taxes and preferred stock dividends 3,336 2,621
Income taxes 1,361 1,022
-------- --------
Net income before preferred stock dividends 1,975 1,599
Preferred stock dividends 332 672
-------- --------
Net income after preferred stock dividends $ 1,643 $ 927
======== ========
Earnings Per Share
Basic $ 0.13 $ 0.14
======== ========
Diluted $ 0.12 $ 0.13
======== ========
Weighted average number of common shares
assumed outstanding during the period:
Basic 13,012 6,807
======== ========
Diluted 14,042 7,958
======== ========
</TABLE>
SEE CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-2
<PAGE>
<TABLE>
<CAPTION>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
(Unaudited)
1997 1996
--------- ---------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,975 $ 1,599
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan losses 650 250
Provision for losses on tax certificates 16 18
Depreciation and amortization 328 313
Amortization of discounts and premiums on investments (2) 8
Amortization of discounts and premiums on mortgage-backed securities (633) 30
Amortization of discounts and premiums on loans (1,162) (23)
Amortization of loan servicing assets 285 163
Amortization of goodwill 208 113
Loans originated for sale (12,037) (5,193)
Increase in accrued interest receivable (6,481) (1,097)
Increase (decrease) in interest payable on deposits and FHLB advances 1,926 (845)
Increase (decrease) in accrued expenses (60) 2,347
Increase (decrease) in accrued taxes 2,687 (937)
Increase (decrease) in deferred taxes (249) 17
Decrease in other liabilities (1,005) (27,320)
(Increase) decrease in prepaid expenses and other assets (3,004) 1,763
Proceeds from sale of loans 28,574 3,657
Recovery on loans 5 11
(Gain) loss on sales of loans (692) 11
Gain on sale of mortgage-backed securities (423) --
(Gain) loss on sales of real estate owned (54) 23
--------- ---------
Net cash provided by (used in) operating activities 10,852 (25,092)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (921,700) (58,864)
Proceeds from sale of real estate owned 313 488
Purchase of other earning assets (34,250) (2,650)
Proceeds from repayments of mortgage-backed securities 8,747 3,136
Proceeds from repayments of other earning assets 4,751 3,000
Proceeds from repayments of investment securities 2,000 --
Proceeds from sale of mortgage securities 17,021 --
Purchases of premises and equipment (1,639) (338)
Net decrease in tax certificates 9,231 6,281
Purchase of Suncoast's cash equivalents -- 32,803
--------- ---------
Net cash (used in) investing activities (915,526) (16,144)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 248,210 48,323
Net increase (decrease) in other borrowings 589,982 (16)
Net proceeds from issuance of preferred stock -- 9
Net proceeds from issuance of common stock 44,641 14
Net proceeds from issuance of trust preferred securities -- 48,350
Preferred Stock purchase (43) --
Preferred Stock, Series 1996 called (85) --
Dividends paid on the Company's preferred stock (332) (672)
Decrease in advances from borrowers for taxes and insurance (4,254) (4,490)
--------- ---------
Net cash provided by financing activities 878,119 91,518
--------- ---------
Increase (decrease) in cash and cash equivalents (26,555) 50,282
Cash and cash equivalents at beginning of period 89,984 34,136
--------- ---------
Cash and cash equivalents at end of period $ 63,429 $ 84,418
========= =========
SUPPLEMENTAL DISCLOSURES:
Transfer from loans to real estate owned $ 428 $ 1,160
========= =========
</TABLE>
SEE CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-3
<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, 1997 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 the fiscal year ended September
30, 1997.
2. CAPITAL
In January 1998, the Company called its 743,870 shares of its 8% Noncumulative
Convertible Preferred Stock, Series 1993 effective February 20, 1998 at $10.00
per share. Management expects substantially all shares of the preferred stock to
be converted into common stock at a ratio of one for one.
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, 1997 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 $ 44,850 1.5% $ 212,474 7.1% $ 167,624 5.6%
Core Capital $ 89,699 3.0% $ 212,474 7.1% $ 122,775 4.1%
Risk-Based Capital $134,722 8.0% $ 217,097 12.9% $ 82,375 4.9%
</TABLE>
3. ACQUISITIONS
On January 23, 1998, the Company acquired Consumers Bancorp, Inc., for
approximately $11 million in a combination of cash and stock, and merged its
wholly-owned subsidiary, Consumers Savings Bank, which had assets of $101.2
million and deposits of $84.2 million as of December 31, 1997, into the Bank.
On December 30, 1997, the Company entered into a definitive agreement to acquire
Central Bank for 1,516,500 shares of the Company's Class A common stock, subject
to adjustment under certain conditions. Central Bank is a state chartered
commercial bank which had assets of $96.9 million and deposits of $72.8 million
as of December 31, 1997. Central Bank operates 4 branch offices in Miami-Dade
County, Florida.
B-4
<PAGE>
On November 15, 1996, the Company acquired Suncoast Savings and Loan
Association, FSA. The balance sheet and results of operations of Suncoast have
been included with those of the Company as of and for periods subsequent to
November 15, 1996.
4. NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued Statement of Financial Accounting Standards No.
125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" and in December 1996, the FASB issued a related
Statement of Financial Accounting Standards No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB No. 125" (collectively "Statement No. 125").
Statement No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities based on a
financial components approach that focuses on control. Portions of Statement No.
125 were effective for transactions entered into after December 31, 1996 with
the remaining portions effective for transactions entered into after December
31, 1997. The impact of adopting Statement No. 125 has not been nor is it
currently expected to be material to the Company's financial position or the
results of operations.
The Company has adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share" and as required, restated all earnings per share to report
"Basic" and "Diluted" earnings per share.
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.
B-5
<PAGE>
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such information and representations must
not be relied upon as having been authorized by the Company, the Trust Issuer or
the Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the registered
securities to which it relates or an offer to sell or a solicitation of an offer
to buy such securities in any circumstances in which such offer or solicitation
is unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to the date
hereof.
Table of Contents
PAGE
Summary ........................................................... 1
Summary Consolidated Financial Information and Other Data.......... 9
Risk Factors....................................................... 11
BankUnited Financial Corporation................................... 23
The Trust Issuer................................................... 26
Use of Proceeds.................................................... 27
Market for the Preferred Securities................................ 27
Accounting Treatment............................................... 27
Capitalization..................................................... 28
Summary Consolidated Financial Information and Other Data.......... 29
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 31
Description of the Preferred Securities............................ 38
Description of the Junior Subordinated Debentures.................. 49
Description of the Guarantee....................................... 59
Relationship Among the Preferred Securities, the Junior
Subordinated Debentures, the Expense Agreement and the Guarantee. 61
Certain Federal Income Tax Consequences............................ 63
Underwriting....................................................... 67
Validity of Securities............................................. 68
Experts .................................................... 69
Available Information.............................................. 69
Incorporation of Certain Documents by Reference.................... 70
Appendix A - 1997 Annual Report on Form 10-K/A
of BankUnited Financial Corporation.............................. A-1
Business of BankUnited Corporation.................. A-2
Regulation.......................................... A-21
Taxation............................................ A-30
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... A-40
Consolidated Financial Statements................... A-55
Appendix B - Operating Results and Financial Information of
BankUnited Financial Corporation for the quarter ended
December 31, 1997............................................... B-1
[LOGO]
3,600,000
TRUST PREFERRED SECURITIES
BANKUNITED CAPITAL III
9% CUMULATIVE TRUST
PREFERRED SECURITIES
GUARANTEED, TO THE EXTENT SET FORTH HEREIN, BY
BANKUNITED FINANCIAL
CORPORATION
---------------------------
PROSPECTUS
---------------------------
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
March 6, 1998
