FORM 10-Q/A (NO. 2)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 5-43936
BANKUNITED FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 65-0377773
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
255 ALHAMBRA CIRCLE, CORAL GABLES 33134
(Address of principal executive offices) (Zip Code)
(305) 569-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares outstanding of the registrant's common stock at the close
of business on September 25, 1998 was 17,813,607 shares of Class A Common Stock,
$.01 par value, and 331,743 shares of Class B Common Stock, $.01 par value.
This Form 10-Q/A contains 30 pages.
The Index to Exhibits appears on page 29.
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BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
Form 10-Q/A Report for the Quarter Ended March 31, 1998
INDEX
PAGE NO.
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition as of
March 31, 1998 (unaudited) and September 30, 1997 3
Consolidated Statements of Operations (unaudited)
for the Three Months and Six Months Ended March 31, 1998
and March 31, 1997 4
Consolidated Statements of Cash Flows (unaudited)
for the Six Months Ended March 31, 1998
and March 31, 1997 6
Condensed Notes to Consolidated Financial
Statements (unaudited) 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
Financial Condition and Results of Operations 11
Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK 25
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 26
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 26
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BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (NOTE 1)
MARCH 31,
1998 SEPTEMBER 30,
(UNAUDITED) 1997
- -------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash $ 13,265 $ 10,571
Federal Home Loan Bank overnight deposits 105,867 79,413
Tax certificates (net of reserves of $535 at March 31, 1998 and
$697 at September 30, 1997) 31,374 49,283
Investments held to maturity (market value of approximately
$14,526 at March 31, 1998 and $14,613 at September 30, 1997) 14,479 14,494
Investments available for sale, at market 27,011 10,166
Mortgage-backed securities, held to maturity (market
value of approximately $338,148 at March 31, 1998
and $11,292 at September 30, 1997) (Note 2) 340,064 11,352
Mortgage-backed securities available for sale, at market 135,227 108,919
Loans receivable, net 2,374,131 1,661,381
Mortgage loans held for sale (market value of approximately $153,022
at March 31, 1998 and $105,980 at September 30, 1997) 152,304 104,342
Other interest earning assets 48,328 33,599
Office properties and equipment, net 10,621 7,371
Real estate owned, net 1,499 611
Accrued interest receivable 24,635 16,261
Mortgage servicing rights 5,056 4,783
Goodwill 19,361 14,278
Prepaid expenses and other assets 23,746 18,582
----------- ----------
Total assets $ 3,326,968 $2,145,406
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 1,833,904 $1,195,892
Advances from Federal Home Loan Bank 904,466 671,484
Securities sold under agreements to repurchase (Note 2) 175,000 30,000
Company obligated mandatorily redeemable trust preferred securities of
subsidiary trust holding solely junior subordinated deferrable interest
debentures of the Company (Note 3) 218,500 116,000
Interest payable (primarily on deposits and advances from Federal Home
Loan Bank) 6,650 3,844
Advance payments by borrowers for taxes and insurance 10,088 10,688
Accrued expenses and other liabilities 24,057 17,853
----------- ----------
Total liabilities 3,172,665 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 - 901,697 at
March 31,1998 and 2,175,296 at September 30, 1997 (Note 4) 9 22
Class A Common Stock, $.01 par value. Authorized shares - 30,000,000;
issued and outstanding shares - 15,181,691 at March 31, 1998 and
9,257,098 at September 30, 1997 (Note 4) 152 92
Class B Common Stock, $.01 par value. Authorized shares - 3,000,000;
issued and outstanding shares - 286,499 at March 31, 1998 and 275,685
at September 30, 1997 3 3
Additional paid-in capital 137,748 86,679
Retained earnings 15,742 11,988
Net unrealized gains on securities available for sale, net of tax 649 861
----------- ----------
Total stockholders' equity 154,303 99,645
----------- ----------
Total liabilities and stockholders' equity $ 3,326,968 $2,145,406
=========== ==========
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SEE CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 1)
THREE MONTHS ENDED MARCH 31,
-------------------------------
(UNAUDITED)
1998 1997
---- ----
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C>
Interest income:
Interest and fees on loans $45,734 $21,062
Interest on mortgage-backed securities (Note 2) 3,765 1,551
Interest on short-term investments 1,551 667
Interest and dividends on long-term investments
and other earning assets 2,198 925
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Total interest income 53,248 24,205
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Interest expense:
Interest on deposits 22,617 11,887
Interest on borrowings 15,803 2,967
Preferred dividends of Trust Subsidiary (Note 3) 3,468 1,349
------- -------
Total interest expense 41,888 16,203
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Net interest income before provision for loan losses 11,360 8,002
Provision for loan losses 400 165
------- -------
Net interest income after provision for loan losses 10,960 7,837
------- -------
Non-interest income:
Service fees, net 506 874
Gain on sale of loans and mortgage-backed securities 424 12
Other 85 115
------- -------
Total non-interest income 1,015 1,001
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Non-interest expenses:
Employee compensation and benefits 2,694 2,521
Occupancy and equipment 1,207 729
Insurance 283 110
Professional fees - legal and accounting 569 320
Other operating expenses 3,417 2,072
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Total non-interest expenses 8,170 5,752
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Income before income taxes and preferred stock dividends 3,805 3,086
Income taxes 1,513 1,243
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Net income before preferred stock dividends 2,292 1,843
Preferred stock dividends of the Company 182 777
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Net income after preferred stock dividends $ 2,110 $ 1,066
======= =======
Earnings Per Share (Note 7)
Basic $ 0.14 $ 0.13
======= =======
Diluted $ 0.13 $ 0.12
======= =======
Weighted average number of common shares assumed outstanding during the period:
Basic 14,976 8,390
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Diluted 16,029 8,869
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SEE CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 1)
SIX MONTHS ENDED MARCH 31,
----------------------------------
(UNAUDITED)
1998 1997
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(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C>
Interest income:
Interest and fees on loans $ 82,627 $ 37,678
Interest on mortgage-backed securities (Note 2) 5,957 2,860
Interest on short-term investments 1,971 1,134
Interest and dividends on long-term investments
and other earning assets 4,143 2,024
-------- --------
Total interest income 94,698 43,696
-------- --------
Interest expense:
Interest on deposits 40,200 20,769
Interest on borrowings 27,395 6,472
Preferred dividends of Trust Subsidiary (Note 3) 6,376 1,377
-------- --------
Total interest expense 73,971 28,618
-------- --------
Net interest income before provision for loan losses 20,727 15,078
Provision for loan losses 1,050 415
-------- --------
Net interest income after provision for loan losses 19,677 14,663
-------- --------
Non-interest income:
Service fees, net 957 1,449
Gain on sale of loans and mortgage-backed securities 1,539 2
Other 163 150
-------- --------
Total non-interest income 2,659 1,601
-------- --------
Non-interest expenses:
Employee compensation and benefits 5,174 4,436
Occupancy and equipment 2,094 1,615
Insurance 538 471
Professional fees - legal and accounting 1,191 542
Other operating expenses 6,198 3,493
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Total non-interest expenses 15,195 10,557
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Income before income taxes and preferred stock dividends 7,141 5,707
Income taxes 2,874 2,265
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Net income before preferred stock dividends 4,267 3,442
Preferred stock dividends of the Company 514 1,449
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Net income after preferred stock dividends $ 3,753 $ 1,993
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Earnings Per Share (Note 7)
Basic $ 0.27 $ 0.26
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Diluted $ 0.26 $ 0.25
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Weighted average number of common shares assumed outstanding during the period:
Basic 13,963 7,598
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Diluted 15,470 8,414
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SEE CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 1)
SIX MONTHS ENDED MARCH 31,
-----------------------------------
(UNAUDITED)
1998 1997
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(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,267 $ 3,442
Adjustments to reconcile net income to net cash (used in)
operating activities:
Provision for loan losses 1,050 415
Provision for losses on tax certificates (162) 45
Depreciation and amortization 693 546
Amortization of discounts and premiums on investments 15 14
Amortization of discounts and premiums on mortgage-backed securities (425) 95
Amortization of discounts and premiums on loans 2,101 (46)
Amortization of loan servicing assets 668 561
Amortization of goodwill 446 184
Loans originated for sale (89,660) (5,193)
Increase in accrued interest receivable (8,374) (2,224)
Increase (decrease) in interest payable on deposits and FHLB advances 2,806 (1,345)
Increase (decrease) in accrued expenses (1,645) 1,662
Increase in accrued taxes 4,270 231
Decrease in deferred taxes (2,534) (632)
Decrease in other liabilities (547) (23,033)
(Increase) decrease in prepaid expenses and other assets (5,511) 1,843
Proceeds from sale of loans 49,069 5,971
Recovery on loans 8 19
(Gain) loss on sales of loans (1,116) 11
Gain on sale of mortgage-backed securities (423) --
Loss on sales of real estate owned 10 373
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Net cash (used in) operating activities (44,994) (17,061)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (1,002,815) (220,838)
Proceeds from sale of real estate owned 492 1,252
Purchase of investment securities (13,041) (5,844)
Purchase of mortgage securities (40,491) (33,768)
Purchase of other earning assets (34,330) (4,947)
Proceeds from repayments of mortgage-backed securities 42,178 7,861
Proceeds from repayments of other earning assets 20,274 9,176
Proceeds from repayments of investment securities 2,000 651
Proceeds from sale of mortgage securities 16,646 --
Purchases of premises and equipment (3,731) (725)
Net decrease in tax certificates 18,070 13,245
Purchase of Consumers, net of acquired cash equivalents 13,995 --
Purchase of Suncoast's cash equivalents -- 32,803
--------- ----------
Net cash (used in) investing activities (980,753) (201,134)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 542,773 181,632
Net increase (decrease) in other borrowings 369,948 (37,016)
Net proceeds from issuance of preferred stock -- 3
Net proceeds from issuance of common stock (Note 4) 44,830 771
Net proceeds from issuance of trust preferred securities (Note 3) 98,900 67,426
Preferred Stock purchase (43) --
Preferred Stock, Series 1996 called (85) --
Preferred Stock, Series 1993 called (314) --
Dividends paid on the Company's preferred stock (514) (1,449)
Decrease in advances from borrowers for taxes and insurance (600) (730)
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Net cash provided by financing activities 1,054,895 210,637
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Increase (decrease) in cash and cash equivalents 29,148 (7,558)
Cash and cash equivalents at beginning of period 89,984 34,136
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Cash and cash equivalents at end of period $ 119,132 $ 26,578
========= ==========
SUPPLEMENTAL DISCLOSURES:
Transfer from loans to real estate owned $ 1,390 $ 1,633
========= ==========
Interest paid on deposits and borrowings $ 67,321 $ 27,261
========= ==========
Income taxes paid $ 1,764 $ -
========= ==========
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SEE CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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 and six
month period ended March 31, 1998 are not necessarily indicative of the results
which may be expected for the year ended September 30, 1998. 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. MORTGAGE-BACKED SECURITIES, HELD TO MATURITY
During March 1998, the Company securitized certain portfolio residential
mortgage loans forming a publicly registered mortgage-backed security with an
initial principal balance of approximately $350 million. The resulting security
is classified as held-to-maturity and will be utilized primarily to serve as
collateral in certain collateralized borrowing arrangements. The securitization
transaction was accounted for as a transfer between loans and mortgage-backed
securities.
3. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE INTEREST
DEBENTURES OF THE COMPANY.
On March 11, 1998 BankUnited Capital III, a special purpose wholly owned
financial subsidiary of the Company, issued $102.5 million of 9% Trust Preferred
Securities and $4.1 million of common securities, which common securities are
also wholly owned by the Company. BankUnited Capital III simultaneously
purchased an additional $106.6 million of 9% Junior Subordinated Deferrable
Interest Debentures Series A issued by BankUnited Financial Corporation.
These securities mature March 31, 2028 and pay a preferential cumulative cash
distribution at an annual rate of 9%. The Company and BankUnited Capital III
have the right to defer payment of interest for up to 5 years. The Company has
guaranteed all of the obligations of the Trust Preferred Securities.
4. CAPITAL
In January 1998, the Company called the outstanding 743,870 shares of its 8%
Noncumulative Convertible Preferred Stock, Series 1993 (the "Series 1993
Preferred Stock") effective February 20, 1998 at $10.00 per share. Holders of
shares of the Series 1993 Preferred Stock had the right to convert them into
shares of the Company's Class A Common Stock at a ratio of one for one. Holders
of 712,464 shares of Series
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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.
The Office of Thrift Supervision ("OTS") requires that BankUnited, FSB (the
"Bank"), a wholly owned subsidiary, meet minimum regulatory, 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 March 31, 1998 were as follows:
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REQUIRED ACTUAL EXCESS
------------------ ------------------ ------------------
% OF % OF % OF
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Core Capital $ 129,917 4.0% $ 293,067 9.0% $ 163,150 5.0%
Risk-Based Capital $ 125,943 8.0% $ 297,980 18.9% $ 172,037 10.9%
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During April 1998, the Company issued in a publicly underwritten offering and a
direct offering to certain directors and principal shareholders 1,081,500 shares
of Class A Common Stock, 30,000 shares of Class B Common Stock and 25,000 shares
of Noncumulative Convertible Preferred Stock, Series B, for net proceeds of
$15.3 million. The net proceeds, together with the net proceeds from the
issuance of Trust Preferred Securities (see Footnote 3 to the Consolidated
Financial Statements), provide the Company and the Bank additional capital to
support future growth.
5. ACQUISITIONS
On January 23, 1998, the Company acquired Consumers Bancorp, Inc. ("Consumers"),
for approximately $11 million in a combination of cash and stock, and merged its
wholly-owned subsidiary, Consumers Savings Bank, which had assets of $104.4
million and deposits of $88.3 million as of January 23, 1998, into the Bank.
This acquisition was accounted for under the purchase method and resulted in
goodwill of approximately $5.0 million.
On December 30, 1997, the Company entered into a definitive agreement to acquire
Central Bank, for an estimated 1,516,500 shares of the Company's Class A Common
Stock, and to merge Central into the Bank. The number of shares of Class A
Common Stock issuable in the acquisition is subject to adjustment based upon the
fair market value of the Class A Common Stock prior to the effective time of the
acquisition and merger. Central Bank is a state chartered commercial bank which
had assets of $95.5 million and deposits of $72.1 million as of March 31, 1998.
Central Bank operates 4 branch offices in Miami-Dade County, Florida.
On November 15, 1996, the Company acquired Suncoast Savings and Loan
Association, FSB ("Suncoast"). The balance sheet and results of operations of
Suncoast have been included with those of the Company as of and subsequent to
that date.
6. NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" and in
December 1996, the FASB issued a related Statement, SFAS No. 127, "Deferral of
the Effective Date of Certain Provisions of SFAS No. 125" (collectively "SFAS
No. 125"). SFAS 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
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control. Portions of SFAS 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 SFAS 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 SFAS No. 128 "Earnings per Share" and as required,
restated all earnings per share to report "Basic" and "Diluted" earnings per
share.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
("SFAS No. 130"), which requires that an enterprise report, by major components
and as a single total, the change in its net assets during the period from
non-owner sources; and SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information" ("SFAS No. 131"), which establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Adoption of these statements will not impact the Company's consolidated
financial position, results of operations, or cash flows, and any effect will be
limited to the form and content of its disclosures. Both statements are
effective for fiscal years beginning after December 15, 1997, with earlier
application permitted.
7. EARNINGS PER SHARE
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FOR THE THREE MONTHS ENDED
MARCH 31, 1998
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INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income before preferred stock
dividends....................................... $ 2,292
Less: Preferred stock dividends.................... (182)
----------
Basic EPS:
Income available to common
stockholders.................................... 2,110 14,976 $ 0.14
======
Effect of Dilutive Securities:
Warrants and options............................... 747
Convertible preferred stock........................ 25 306
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Diluted EPS:
Income available to common
stockholders and assumed conversions............ $ 2,135 16,029 $ 0.13
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FOR THE THREE MONTHS ENDED
MARCH 31, 1997
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INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income before preferred stock
dividends ...................................... $ 1,843
Less: Preferred stock dividends.................... (777)
----------
Basic EPS:
Income available to common
stockholders.................................... 1,066 8,389 $ 0.13
======
Effect of Dilutive Securities:
Warrants and options............................... 480
Convertible preferred stock........................ - - (*)
--------- --------
Diluted EPS:
Income available to common
stockholders and assumed conversions............ $ 1,066 8,869 $ 0.12
========= ======== =======
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FOR THE SIX MONTHS ENDED
MARCH 31, 1998
----------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income before preferred stock
dividends ...................................... $ 4,267
Less: Preferred stock dividends.................... (514)
----------
Basic EPS:
Income available to common
stockholders.................................... 3,753 13,963 $ 0.27
======
Effect of Dilutive Securities:
Warrants and options............................... 735
Convertible preferred stock........................ 200 772
--------- --------
Diluted EPS:
Income available to common
stockholders and assumed conversions............ $ 3,953 15,470 $ 0.26
========= ======== =======
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FOR THE SIX MONTHS ENDED
MARCH 31, 1997
----------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income before preferred stock
dividends ...................................... $ 3,442
Less: Preferred stock dividends.................... (1,449
---------
Basic EPS:
Income available to common
stockholders.................................... 1,993 7,598 $ 0.26
======
Effect of Dilutive Securities:
Warrants and options............................... 402
Convertible preferred stock........................ 84 414(*)
--------- --------
Diluted EPS:
Income available to common
stockholders and assumed conversions............ $ 2,077 8,414 $ 0.25
========= ======== =======
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(*) For the three months and six months ended March 31, 1997 there were
1,403,546 and 1,220,875 shares, respectively, of convertible preferred
stock outstanding that were not included in the computation of diluted
earnings per share because of their antidilutive effect.
8. CONTINGENCIES AND OFF-BALANCE SHEET ACTIVITIES
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.
During April 1998, the Company entered into two interest rate cap contracts with
a major Wall Street brokerage firm, in an aggregate nominal amount of $150
million, for the purpose of hedging a portion of the Company's interest rate
risk for rising interest rates. One of the contracts expires after 18 months and
the other after 24 months.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis presents a review of the consolidated
operating results and financial condition of the Company for the three and six
month periods ended March 31, 1998 and 1997. 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.
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This Quarterly Report on form 10-Q/A 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
MARCH 31, 1998.
ASSETS
Total assets increased by $1.2 billion, or 57.1%, from $2.1 billion at September
30, 1997, to $3.3 billion at March 31,1998, principally due to the purchase of
$1.5 billion of residential mortgages as discussed more fully below and the
acquisition of Consumers which had $104.4 million in assets.
The Company's short-term investments, primarily consisting of Federal Home Loan
Bank ("FHLB") overnight deposits, increased by $26.5 million, or 33.4%, to
$105.9 million at March 31, 1998, from $79.4 million at September 30, 1997.
Investments available for sale increased by $16.8 million or 164.7% from $10.2
million at September 30, 1997, to $27.0 million at March 31, 1998, due primarily
to $6.0 million of investment securities acquired with the acquisition of
Consumers and the purchase of approximately $13.0 million of trust preferred
securities.
Mortgage-backed securities held-to-maturity increased by $328.7 million to
$340.1 million at March 31, 1998 from $11.4 million at September 30, 1997 due to
the securitization of $355.8 million mortgage loans and repayments of $27.2
million. (See footnote No. 2 to the Consolidated Financial Statements).
Mortgage-backed securities available-for-sale increased by $26.3 million or
24.2% from $108.9 million at September 30, 1997 to $135.2 million at March 31,
1998, due primarily to $17.2 million of mortgage-backed securities acquired with
Consumers, the purchase of $40.2 million mortgage-backed securities and
repayments of $31.1 million.
The Company's net loans receivable (including loans held for sale) increased by
$759.7 million, or 43.0%, to $2.5 billion at March 31, 1998, from $1.8 billion
at September 30, 1997, primarily due to the purchase of $1.5 billion of
residential mortgage loans, loan originations of $158 million, the
securitization of $355.8 million and repayments of $543 million. Of the loans
purchased, $1.2 billion, or 82.4%, were one year adjustable rate mortgages with
an initial or "teaser" rate below the fully indexed rate. These loans were
purchased primarily to invest the proceeds received from deposits, borrowings
and loan repayments, and to leverage the additional capital ($43.9 million in
net proceeds) obtained from the issuance of 3.68 million shares of Class A
Common Stock during the quarter ended December 31, 1997. (See "Capital" below).
12
<PAGE>
During the six months ended March 31, 1998, the Company sold $47.9 million of
loans and recorded a gain of $1.1 million on the sales.
Non-performing assets as of March 31, 1998 were $14.7 million which represents
an increase of $376,000 or 2.6% from $14.3 million as of September 30, 1997.
Non-performing assets as a percentage of total assets declined 23 basis points
from 0.67% as of September 30, 1997 to 0.44% as of March 31, 1998 due to the
increase in total assets.
The allowance for loan losses increased by $1.1 million from $3.7 million as of
September 30, 1997 to $4.8 million as of March 31, 1998. The increase was
attributable to additional provisions for loan losses resulting primarily from
the growth of the loan portfolio and $362,000 in allowance for loan losses
acquired with the Consumers acquisition.
The following table sets forth information concerning the Company's
non-performing assets as of the dates indicated.
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1997
--------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Non-accrual loans $11,557 $10,866
Restructured loans 834 1,888
Loans past due 90 days and still accruing -- --
------- -------
Total non-performing loans 12,351 12,754
Non-accrual tax certificates 819 958
REO 1,499 611
------- -------
Total non-performing assets $14,699 $14,323
======= =======
Allowance for tax certificates losses $ 535 $ 697
Allowance for loan losses 4,844 3,693
------- -------
Total allowance $ 5,379 $ 4,390
======= =======
Non-performing assets as a percentage of
total assets 0.44% 0.67%
Non-performing loans as a percentage of
total loans 0.49% 0.72%
Allowance for loan losses as a percentage of
total loans 0.19% 0.21%
Allowance for loan losses as a percentage of
non-performing loans 39.22% 28.96%
Net charge-offs as a percentage of
average total loans 0.01% 0.04%
</TABLE>
LIABILITIES
Deposits increased by $638 million, or 53.4%, to $1.8 billion at March 31, 1998
from $1.2 billion at September 30, 1997. Management believes this increase is
attributable to the Company's opening of additional branch offices, the offering
of competitive interest rates and personalized service in a market area
dominated by super-regional banks and to continued industry consolidation. Of
this growth, $88.3 million was acquired with Consumers.
13
<PAGE>
The Company has opened three de novo branch offices during the six months ended
March 31, 1998, and during May 1998 opened a fourth de novo branch office. The
Company has announced that it has signed leases for two additional de novo
branch offices and has plans to open as many as six more during the next twelve
months.
FHLB advances were $904.4 million at March 31, 1998, up $233 million from $671
million at September 30, 1997. This increase was used to fund, together with
deposits and other sources, the loan purchases. (See "Discussion of Financial
Condition Changes from September 30, 1997 to March 31, 1998 - Assets").
Securities sold under agreements to repurchase increased $145 million to $175
million at March 31, 1998 from $30 million at September 30, 1997. This increase
resulted from the Company's strategy of securitizing residential mortgage loans
and was used to fund loan purchases. See Footnote No. 2 to the Consolidated
Financial Statements.
During the quarter ended March 31, 1998, BankUnited Capital III issued $102.5
million of Trust Preferred Securities. The net proceeds from the sale of the
trust preferred securities were $98.9 million. A portion of the proceeds will be
used to provide additional capital to the Bank and to enable the Bank to
continue its asset growth. (See Footnote No. 3 to the Consolidated Financial
Statements).
CAPITAL
The Company's total stockholders' equity was $154.3 million at March 31, 1998,
an increase of $54.7 million, or 54.9%, 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 during October 1997 pursuant to a public stock offering
with net proceeds of $43.9 million. The Company also issued 501,360 shares of
Class A Common Stock in connection with the Consumers acquisition during January
1998. The estimated value of the stock issued to acquire Consumers was $6.3
million.
In January 1998, the Company called the outstanding 743,870 shares of its Series
1993 Preferred Stock effective February 20, 1998 at $10.00 per share. Holders of
shares of the Series 1993 Preferred Stock had the right to convert them into
shares of the Company's Class A Common Stock at a ratio of one for one. 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.
(See Footnote No. 4 to the Consolidated Financial Statements).
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 March 31,
1998 the Bank had liquid assets of 7.23 %, which was in compliance with this
requirement.
The Company may continue securitizing residential mortgage loans 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 other borrowings, including 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.
14
<PAGE>
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
problem will be material to the Company's operations or financial condition.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1997.
NET INCOME AFTER PREFERRED STOCK DIVIDENDS
The Company had net income after preferred stock dividends of $2.11 million for
the three months ended March 31, 1998, compared to net income after preferred
stock dividends of $1.07 million for the three months ended March 31, 1997. All
major categories of income and expense increased significantly in the three
months ended March 31, 1998 as compared to the three months ended March 31, 1997
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.
NET INTEREST INCOME
Net interest income before provision for loan losses increased by $3.34 million,
or 42%, to $11.36 million for the three months ended March 31, 1998 from $8.02
million for the three months ended March 31, 1997. This increase is attributable
to an increase in average earning assets of $1.78 billion, or 141%, to $3.04
billion for the three months ended March 31, 1998 from $1.26 billion for the
three months ended March 31, 1997. The increase in average earning assets is due
primarily to loan purchases. The decline in the interest rate spread of 103
basis points from 2.29% for the three months ended March 31, 1997 to 1.26% for
the three months ended March 31, 1998 is due to a decline in the yield on
interest earning assets of 70 basis points and an increase in the rate paid on
interest bearing liabilities of 33 basis points, each for the reasons discussed
below.
The increase in interest income of $29.0 million, or 120%, to $53.25 million for
the three months ended March 31, 1998 from $24.21 million for the three months
ended March 31, 1997, reflects increases in interest and fees on loans of $24.67
million.
This increase in interest and fees on loans is due to an increase in average
loans outstanding of $1.55 billion, or 146% to $2.61 billion for the three
months ended March 31, 1998 from $1.06 billion for the three months ended March
31, 1997 which resulted primarily from purchases of residential mortgage loans
in the secondary mortgage market. The results of operations for the three months
ended March 31, 1998 reflect premium amortization net of discount of $772,000
compared to $42,000 for the three months ended March 31, 1997. As a result of
this premium amortization and because many of the loans purchased are
adjustable-rate mortgages in the "teaser" period, the yield on loans declined
from 7.94% for the three months ended March 31, 1997 to 7.01% for the three
months ended March 31, 1998. This 93 basis point drop in the yield earned on
loans was a significant factor in the decline of the yield on all interest
earning assets by 70 basis points from 7.71% to 7.01%.
The increase in interest expense of $25.69 million, or 159%, to $41.89 million
for the three months ended March 31, 1998 from $16.20 million for the three
months ended March 31, 1997 primarily reflects an increase in interest expense
on interest bearing deposits of $10.73 million, or 90%, from $11.89 million for
the three months ended March 31, 1997, to $22.62 million for the three months
ended March 31, 1998, an increase in interest expense on FHLB advances and other
borrowings of $12.83 million from $2.97 million for the three months ended March
31, 1997 to $15.80 million for the three months ended
15
<PAGE>
March 31, 1998, and an increase in Preferred Dividends of Trust Subsidiaries of
$2.12 million to $3.47 million for the three months ended March 31, 1998 from
$1.35 million for the three months ended March 31, 1997. The increase in each of
these categories reflects significant increases in the average balance for each
category during the period. Of the $746 million growth in average interest
bearing deposits, $664 million, or 89% 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 Subsidiaries, the rate paid on
interest bearing liabilities increased 33 basis points from 5.42% for the three
months ended March 31, 1997 to 5.75% for the three months ended March 31, 1998.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended March 31, 1998 was
$400,000 as compared to $165,000 for the three months ended March 31, 1997. This
increase is related to the large loan growth in the three months ended March 31,
1998. (See "Discussion of Financial Condition Changes from September 30, 1997 to
March 31, 1998 - Assets").
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.
NON-INTEREST INCOME
Non-interest income for the three months ended March 31, 1998 was $1.01 million
compared with $1.00 million for the three months ended March 31, 1997. The gain
on sale of loans and mortgage-backed securities of $424,000 for the three months
ended March 31, 1998 increased by $412,000 compared to a gain of $12,000 for the
three months ended March 31, 1997. Service fee income decreased by $368,000
primarily due to the acceleration of amortization of mortgage servicing rights.
NON-INTEREST EXPENSES
Operating expenses increased $2.40 million, or 42%, to $8.17 million for the
three months ended March 31, 1998 compared to $5.77 million for the three months
ended March 31, 1997. 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 $1.51 million for the three months ended March 31,
1998, compared to $1.24 million for the three months ended March 31, 1997. The
increase in income taxes is the result of the Company's higher pre-tax earnings
during the three months ended March 31, 1998, compared to the three months ended
March 31, 1997.
PREFERRED STOCK DIVIDENDS
Preferred stock dividends for the three months ended March 31, 1998 were
$182,000, a decrease of $395,000, as compared to $777,000 for the three months
ended March 31, 1997. This decrease is the result of the conversion to Class A
Common Stock of the Noncumulative Convertible Preferred Stock, Series C and
C-II, the conversion to common stock and redemption of outstanding shares of the
Series 1996 and Series 1993 Preferred Stock, a decrease in the dividend rate on
the Series B Preferred Stock, as well as the redemption by the Company of
452,883 shares of the 9% Noncumulative Perpetual Preferred Stock.
16
<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 MARCH 31,
-------------------------------------------------------------------------
1998 1997
----------------------------------- ---------------------------------
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 $ 2,611,424 $ 45,734 7.01% $1,061,931 $ 21,062 7.94%
Mortgage-backed securities 190,552 3,765 7.90 93,024 1,551 6.67
Short-term investments (1) 110,089 1,551 5.64 48,479 667 5.50
Tax certificates 35,455 608 6.86 29,990 541 7.22
Long-term investments and
FHLB stock, net 90,497 1,590 7.10 22,525 384 6.94
----------- -------- ---- ---------- -------- ----
Total interest-earning assets 3,038,017 53,248 7.01 1,255,949 24,205 7.71
----------- -------- ---- ---------- -------- ----
Interest-bearing liabilities:
NOW/money market 139,360 1,137 3.31 98,236 587 2.42
Savings 183,207 2,130 4.72 142,819 1,595 4.53
Certificates of deposit 1,363,203 19,350 5.76 699,150 9,705 5.63
Trust Preferred securities 139,917 3,468 10.05 51,778 1,349 10.57
FHLB advances and other
borrowings 1,113,811 15,803 5.68 217,570 2,967 5.45
----------- -------- ---- ---------- -------- ----
Total interest-bearing
liabilities 2,939,498 41,888 5.75 1,209,553 16,203 5.42
----------- -------- ---- ---------- -------- ----
Excess of interest-earning assets
over interest-bearing liabilities $ 98,519 $ 46,396
=========== ==========
Net interest income $ 11,360 $ 8,002
======== ========
Interest rate spread 1.26% 2.29%
==== ====
Net interest margin 1.45% 2.49%
==== ====
Ratio of interest-earning assets to
interest-bearing liabilities 103.35% 103.84%
====== ======
</TABLE>
- --------
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
17
<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 MARCH 31,
-------------------------------------------------------------
1998 VS. 1997
-------------------------------------------------------------
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 $ 29,201 $ (1,623) $ (2,906) $ 24,672
Mortgage-backed securities 1,626 287 301 2,214
Short-term investments (1) 848 16 20 884
Tax certificates 99 (27) (5) 67
Long-term investments and FHLB
stock 1,180 9 17 1,206
-------- --------- -------- --------
Total interest-earning assets 32,954 (1,338) (2,573) 29,043
-------- --------- -------- --------
Interest expense attributable to:
NOW/money market 246 214 90 550
Savings 451 65 19 535
Certificates of deposit 9,218 219 208 9,645
Trust Preferred securities 2,297 (66) (112) 2,119
FHLB advances and other
borrowings 12,184 109 543 12,836
-------- --------- -------- --------
Total interest-bearing liabilities 24,396 541 748 25,685
-------- --------- -------- --------
Increase (decrease) in net interest income $ 8,558 $ (1,879) $ (3,321) $ 3,358
======== ========= ======== ========
</TABLE>
- ------------
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
18
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND
1997.
NET INCOME AFTER PREFERRED STOCK DIVIDENDS
The Company had net income after preferred stock dividends of $3.75 million for
the six months ended March 31, 1998, compared to net income after preferred
stock dividends of $1.99 million for the six months ended March 31, 1997. All
major categories of income and expense increased significantly in the six months
ended March 31, 1998 as compared to the six months ended March 31, 1997 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.
NET INTEREST INCOME
Net interest income before provision for loan losses increased by $5.65 million,
or 37%, to $20.73 million for the six months ended March 31, 1998 from $15.08
million for the six months ended March 31, 1997. This increase is attributable
to an increase in average earning assets of $1.55 billion, or 137%, to $2.68
billion for the six months ended March 31, 1998 from $1.13 billion for the six
months ended March 31, 1997, offset by a decline in the net interest spread of
110 basis points. The increase in average earning assets is due primarily to
loan purchases. The decline in the interest rate spread of 110 basis points from
2.43% for the six months ended March 31, 1997 to 1.33% for the six months ended
March 31, 1998 is due to a decline in the yield on interest earning assets of 68
basis points and an increase in the rate paid on interest bearing liabilities of
42 basis points, each for the reasons discussed below.
The increase in interest income of $51.00 million, or 117%, to $94.70 million
for the six months ended March 31, 1998 from $43.70 million for the six months
ended March 31, 1997, reflects increases in interest and fees on loans of $44.95
million.
This increase in interest and fees on loans is due to an increase in average
loans outstanding of $1.39 billion, or 146% to $2.34 billion for the six months
ended March 31, 1998 from $.95 billion for the six months ended March 31, 1997
which resulted primarily from purchases of residential mortgage loans in the
secondary mortgage market. The results of operations for the six months ended
March 31, 1998 reflect premium amortization net of discounts of $1.676 million
compared to $49,000 for the six months ended March 31, 1997. As a result of this
premium amortization and because many of the loans purchased are adjustable-rate
mortgages in the "teaser" period, the yield on loans declined from 7.96% for the
six months ended March 31, 1997 to 7.06% for the six months ended March 31,
1998. This 90 basis point drop in the yield earned on loans was a significant
factor in the decline of the yield on all interest earning assets by 68 basis
points from 7.75% to 7.07%.
The increase in interest expense of $45.35 million, or 159%, to $73.97 million
for the six months ended March 31, 1998 from $28.62 million for the six months
ended March 31, 1997 primarily reflects an increase in interest expense on
interest bearing deposits of $19.43 million, or 94%, from $20.77 million for the
six months ended March 31, 1997, to $40.20 million for the six months ended
March 31, 1998, an increase in interest expense on FHLB advances and other
borrowings of $20.92 million from $6.47 million for the six months ended March
31, 1997 to $27.40 million for the six months ended March 31, 1998, and an
increase in Preferred Dividends of Trust Subsidiaries of $5.10 million to $6.38
million for the six months ended March 31, 1998 from $1.38 million for the six
months ended March 31, 1997. The increase in each of these categories reflects
significant increases in the average balance for each category during the
period. Of the $672 million growth in average interest bearing deposits, $583
million, or 87%
19
<PAGE>
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 Subsidiaries, the rate paid on interest bearing liabilities increased 42
basis points from 5.32% for the six months ended March 31, 1997 to 5.74% for the
six months ended March 31, 1998.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the six months ended March 31, 1998 was
$1,050,000 as compared to $415,000 for the six months ended March 31, 1997. This
increase is related to the strong loan growth in the six months ended March 31,
1998. (See "Discussion of Financial Condition Changes from September 30, 1997 to
March 31, 1998 - Assets").
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.
NON-INTEREST INCOME
Non-interest income for the six months ended March 31, 1998 was $2.66 million
compared with $1.60 million for the six months ended March 31, 1998, an increase
of $1.06 million. This increase is primarily due to the gain on sale of loans
and mortgage-backed securities of $1.54 million recorded in the six months ended
March 31, 1998.
NON-INTEREST EXPENSES
Operating expenses increased $4.62 million, or 44%, to $15.20 million for the
six months ended March 31, 1998 compared to $10.58 million for the six months
ended March 31, 1997. 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 $2.87 million for the six months ended March 31,
1998, compared to $2.27 million for the six months ended March 31, 1997. The
increase in income taxes is the result of the Company's higher pre-tax earnings
during the six months ended March 31, 1998, compared to the six months ended
March 31, 1997.
PREFERRED STOCK DIVIDENDS
Preferred stock dividends for the six months ended March 31, 1998 were $514,000,
a decrease of $935,000, as compared to $1,449,000 for the six months ended March
31, 1997. This decrease is the result of the conversion to Class A Common Stock
of the Noncumulative Convertible Preferred Stock, Series C and C-II, the
conversion to common stock and redemption of outstanding shares of the Series
1996 and Series 1993 Preferred Stock, a decrease in the dividend rate on the
Series B Preferred Stock, as well as the redemption by the Company of 452,883
shares of the 9% Noncumulative Perpetual Preferred Stock.
20
<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>
SIX MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------
1998 1997
----------------------------------- ---------------------------------
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 $ 2,338,659 $ 82,627 7.06% $ 944,782 $ 37,678 7.96%
Mortgage-backed securities 151,810 5,957 7.85 85,784 2,860 6.67
Short-term investments (1) 68,787 1,971 5.67 40,664 1,134 5.52
Tax certificates 39,874 1,438 7.21 33,373 1,297 7.77
Long-term investments and
FHLB stock, net 76,123 2,705 7.12 21,115 727 6.90
----------- -------- ---- --------- --------- ----
Total interest-earning assets 2,675,253 94,698 7.07 1,125,718 43,696 7.75
----------- -------- ---- --------- --------- ----
Interest-bearing liabilities:
NOW/money market 122,685 1,885 3.08 85,531 1,000 2.34
Savings 175,609 4,121 4.71 124,313 2,850 4.60
Certificates of deposit 1,191,728 34,194 5.75 608,482 16,919 5.58
Trust Preferred securities 127,827 6,376 10.00 26,154 1,377 10.56
FHLB advances and other
borrowings 951,334 27,395 5.70 231,698 6,472 5.53
----------- -------- ---- --------- --------- ----
Total interest-bearing
liabilities 2,569,183 73,971 5.74 1,076,178 28,618 5.32
----------- -------- ---- --------- --------- ----
Excess of interest-earning assets
over interest-bearing liabilities $ 106,070 $ 49,540
=========== =========
Net interest income $ 20,727 $ 15,078
======== ========
Interest rate spread 1.33% 2.43%
==== ====
Net interest margin 1.55% 2.66%
==== ====
Ratio of interest-earning assets to
interest-bearing liabilities 104.13% 104.60%
====== ======
</TABLE>
- --------
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
21
<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>
SIX MONTHS ENDED MARCH 31,
-------------------------------------------------------------
1998 VS. 1997
-------------------------------------------------------------
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 $ 53,419 $ (3,014) $ (5,456) $ 44,949
Mortgage-backed securities 2,194 510 393 3,097
Short-term investments (1) 785 31 21 837
Tax certificates 252 (93) (18) 141
Long-term investments and FHLB
stock 1,915 19 44 1,978
-------- -------- -------- --------
Total interest-earning assets 58,565 (2,547) (5,016) 51,002
-------- --------- --------- --------
Interest expense attributable to:
NOW/money market 435 314 136 885
Savings 1,176 67 28 1,271
Certificates of deposit 16,217 540 518 17,275
Trust Preferred securities 5,353 (72) (282) 4,999
FHLB advances and other
borrowings 20,042 178 703 20,923
-------- -------- -------- --------
Total interest-bearing liabilities 43,223 1,027 1,103 45,353
-------- -------- -------- --------
Increase (decrease) in net interest income $ 15,342 $ (3,574) $ (6,119) $ 5,649
======== ========= ========= ========
</TABLE>
- ------------
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
22
<PAGE>
SIGNIFICANT FACTORS AFFECTING THE COMPANY'S BUSINESS
The future operating results of the Company may be affected by a number
of factors, including the matters discussed below:
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES. The Company'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 Company is affected by changes in general
interest rate levels and by other economic factors beyond its control.
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 rate.
In addition to periodic gap reports 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 ("net
portfolio value" or "NPV") at current interest rates, and at hypothetical higher
and lower interest rates at one percent intervals.
The following table presents the Bank's exposure to interest rate risk
calculated as a percentage change in NPV to the present value of total assets as
of December 31, 1997, as calculated by the OTS model 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 $145,518 $2,914,133 4.99% (2.76)%
+100 196,418 2,970,131 6.61 (1.14)
Static 233,578 3,013,714 7.75 -
-100 258,617 3,046,151 8.49 0.74
-200 272,417 3,068,295 8.88 1.13
</TABLE>
While the above table reflects a small reduction in exposure to
interest rate risk from the September 30, 1997 period, such exposure can change
significantly upon changes in balance sheet composition and other variables
including market interest rates and prepayments.
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 six months ended March 31, 1998 and
the year ended September 30, 1997, the Company purchased $1.5 billion and $913.7
million, respectively, of one-to-four family residential loans, of which $1.4
billion and $728.2 million, respectively, were adjustable rate mortgage loans
("ARMs"). At March 31, 1998 the
23
<PAGE>
Company's residential loan portfolio included $2.1 billion of ARMs (80.0% 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").
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 March 31, 1998, $0.9 billion of the
Company's ARM loans (34.3% 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. A significant portion of the Company's loans
receivable are 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 mortgage 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 March 31, 1998, $0.9
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 may tend to be prepaid near the end of the teaser period in the
current interest rate environment, creating higher levels of prepayments on
loans overall which the Company may not be able to reinvest quickly enough and
at sufficient interest rates to mitigate the effect on its net interest margin.
Premiums, net of discount and deferred origination costs, which at
March 31, 1998 were $37.7 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. As prepayments accelerate, the Company's historical prepayment
experience changes, resulting in a shortening of the estimated life of the loan
portfolio, and an increase in the rate at which premiums are expensed, resulting
in a greater reduction in interest income. Accelerated prepayments could,
therefore, have a material adverse effect on the Company's results of
operations. Based on a continuation of the current interest rate environment, a
significant portion of the premium may be expensed in a relatively short term
period.
In addition, the Company would likely apply a portion of 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 depends
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.
24
<PAGE>
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 changes 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.
RISKS ASSOCIATED WITH INVESTMENTS AND MORTGAGE-BACKED SECURITIES. The
Company purchases fixed and adjustable rate mortgage-backed and other securities
for liquidity, yield and risk management purposes. The Company has also, and
will continue to, securitize whole loans in its loan portfolio primarily for
liquidity and collateral purposes. Such securities provide liquidity through the
ability of the Company to dispose of certain securities from time to time and
the ability of the Company to use securities as collateral for borrowings,
thereby adding leverage capability and lower borrowing costs. Certain securities
are purchased for risk management purposes when the terms of those securities
mitigate interest rate, credit, prepayment or basis risk within the Company's
balance sheet. Certain purchases of securities may increase risk in one area
while decreasing risk in another, or may not mitigate any existing risk. The
Company manages its exposure to risk in its acquisition of securities through
its selection of prices, collateral and terms. Changes in interest rates and/or
prepayment rates associated with the Company's investments and mortgage-backed
securities could negatively impact the Company's net interest margin.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market value of the Company's assets and liabilities are
subject to change primarily from risk of change in market interest rates,
prepayments, and non-parallel changes in interest rate indices (basis risk). See
"Significant Factors Affecting the Company's Business" for a further discussion.
25
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders of the Company held on
January 26, 1998 the stockholders voted on the election of directors to the
Company's Board of Directors and the approval of an amendment to the Company's
1996 Incentive Compensation and Stock Award Plan (the "1996 Plan").
The stockholders voted to elect the nominees for directors as
follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES ABSTAINING
--------- ------------- ----------------
<S> <C> <C> <C>
Lawrence H. Blum 1,679,680 30,706 0
Alfred R. Camner 1,679,955 30,430 0
James A. Dougherty 1,679,955 30,430 0
Patricia L. Frost 1,679,906 30,479 0
</TABLE>
The stockholders voted to approve an amendment to the 1996
Plan which provided for an increase in the number of shares of the Company's
Class A Common Stock and Class B Common Stock (together, the "Common Stock") and
Noncumulative Convertible Preferred Stock, Series B (the "Series B Preferred
Stock"), issuable under the 1996 Plan, to 1,300,000 shares of Common Stock and
375,000 shares of Series B Preferred Stock. Voting on the amendment was as
follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES ABSTAINING
--------- ------------- ----------------
<S> <C> <C>
1,210,642 118,040 44,382
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed the following current reports on
Form 8-K during the quarter for which this report is
filed:
(i) Current Report on Form 8-K dated January 15,
1998 reporting that the Company had called
its 8% Noncumulative Convertible Preferred
Stock, Series 1993 for redemption;
(ii) Current Report on Form 8-K dated January 23,
1998, reporting the Company's acquisition of
Consumers Bancorp, Inc.; and
26
<PAGE>
(iii) Current Report on Form 8-K dated February 20,
1998 reporting the conversion and redemption
of the Company's outstanding shares of its 8%
Noncumulative Convertible Preferred Stock,
Series 1993.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
BANKUNITED FINANCIAL CORPORATION
Date: September 29, 1998 By: /s/ CLIFFORD A. HOPE
-----------------------------
Clifford A. Hope
Executive Vice President
and Chief Financial Officer
<PAGE>
<TABLE>
<CAPTION>
BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES
Form 10-Q/A for the Quarter Ended March 31, 1998
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGE
- ----------- -------------
<S> <C> <C>
27.1 Financial Data Schedule...............................
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BANK UNITED, FSB FOR THE SIX MONTHS ENDED March 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 13,265
<INT-BEARING-DEPOSITS> 105,867
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 162,238
<INVESTMENTS-CARRYING> 354,543
<INVESTMENTS-MARKET> 0
<LOANS> 2,531,279
<ALLOWANCE> 4,844
<TOTAL-ASSETS> 3,326,968
<DEPOSITS> 1,833,904
<SHORT-TERM> 1,297,966
<LIABILITIES-OTHER> 40,795
<LONG-TERM> 0
0
9
<COMMON> 155
<OTHER-SE> 154,139
<TOTAL-LIABILITIES-AND-EQUITY> 3,326,968
<INTEREST-LOAN> 82,627
<INTEREST-INVEST> 12,071
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 94,698
<INTEREST-DEPOSIT> 40,200
<INTEREST-EXPENSE> 73,971
<INTEREST-INCOME-NET> 19,677
<LOAN-LOSSES> 1,050
<SECURITIES-GAINS> 1,539
<EXPENSE-OTHER> 15,195
<INCOME-PRETAX> 7,141
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,753
<EPS-PRIMARY> .27
<EPS-DILUTED> .26
<YIELD-ACTUAL> 1.55
<LOANS-NON> 11,557
<LOANS-PAST> 0
<LOANS-TROUBLED> 834
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,304
<CHARGE-OFFS> 226
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 4,844
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
