SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarter ended June 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ______ to _______
Commission File Number:
0000906420
BANK UNITED CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3528556
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 CHARLES LINDBERGH BLVD., SUITE 500
UNIONDALE, NY 11583 11553
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 745-6644
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Number of shares outstanding of the registrant's $.01 par value common stock as
of August 14, 1996 were as follows:
TITLE OF EACH CLASS NUMBER OF SHARES
Class A 27,735,934
Class B 3,859,662
<PAGE>
BANK UNITED CORP.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Condensed Financial Statements................................. 1
Consolidated Statements of Financial Condition -
June 30, 1996 and September 30, 1995........................... 1
Consolidated Statements of Operations -
For the Nine Months Ended June 30, 1996 and 1995............... 2
Consolidated Statements of Operations -
For the Three Months Ended June 30, 1996 and 1995.............. 3
Consolidated Statements of Stockholders' Equity -
For the Nine Months Ended June 30, 1996 and 1995............... 4
Consolidated Statements of Cash Flows -
For the Nine Months Ended June 30, 1996 and 1995............... 5
Notes to Consolidated Financial Statements..................... 6
Independent Accountants' Report................................ 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 22
Item 2. Changes in the Rights of the Company's Security Holders........ 22
Item 3. Defaults by the Company on Its Senior Securities............... 22
Item 4. Submission of Matters to a Vote of Security Holders............ 22
Item 5. Other Information.............................................. 22
Item 6a. Exhibits....................................................... 22
Item 6b. Reports of Form 8-K............................................ 25
Signatures ............................................................... 26
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................................................. $ 96,647 $ 112,931
Securities purchased under agreements to resell and federal funds sold ..................... 856,178 471,052
Trading account assets, at fair value ...................................................... 1,129 1,081
Securities
Held to maturity, at amortized cost (fair value of $1.8 million in 1996
and $2.7 million in 1995) ............................................................ 1,773 1,902
Available for sale, at fair value ....................................................... 65,036 114,111
Mortgage-backed securities
Held to maturity, at amortized cost (fair value of $631.0 million in 1996
and $2,031 million in 1995) .......................................................... 653,024 2,051,304
Available for sale, at fair value ....................................................... 1,079,747 346,959
Loans
Held to maturity (net of the allowance for credit losses of $37.0 million
in 1996 and $36.8 million in 1995) ................................................... 7,203,510 7,763,676
Held for sale (net of the allowance for credit losses of $23 thousand
in 1996 and $38 thousand in 1995) .................................................... 393,896 496,564
Federal Home Loan Bank stock ............................................................... 197,242 225,952
Premises and equipment ..................................................................... 35,954 37,687
Mortgage servicing rights .................................................................. 116,919 75,097
Intangible assets .......................................................................... 17,891 26,519
Real estate owned (net of the allowance for losses of $808 thousand in
1996 and $1.1 million in 1995) .......................................................... 30,222 23,764
Deferred tax asset ......................................................................... 161,537 77,571
Other assets ............................................................................... 112,565 157,364
------------ ------------
TOTAL ASSETS ............................................................................... $ 11,023,270 $ 11,983,534
============ ============
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS'
EQUITY
LIABILITIES
Deposits ................................................................................... $ 5,053,605 $ 5,182,220
Federal Home Loan Bank advances ............................................................ 3,883,758 4,383,895
Securities sold under agreements to repurchase and federal funds
purchased ............................................................................... 885,506 1,172,533
Senior Notes ............................................................................... 115,000 115,000
Advances from borrowers for taxes and insurance ........................................... 114,365 183,968
Other liabilities .......................................................................... 256,104 264,315
------------ ------------
Total liabilities ................................................................... 10,308,338 11,301,931
------------ ------------
MINORITY INTEREST
Preferred stock issued by consolidated subsidiary .......................................... 185,500 185,500
------------ ------------
STOCKHOLDERS' EQUITY
Common stock ............................................................................... 292 289
Paid-in capital ............................................................................ 121,428 117,722
Retained earnings .......................................................................... 410,608 384,739
Unrealized gains (losses) on securities and mortgage-backed
securities available for sale, net of tax ............................................... (2,896) (6,647)
------------ ------------
Total stockholders' equity .......................................................... 529,432 496,103
------------ ------------
TOTAL LIABILITIES, MINORITY INTEREST, AND
STOCKHOLDERS' EQUITY .................................................................... $ 11,023,270 $ 11,983,534
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
1
<PAGE>
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JUNE 30,
--------------------------------
1996 1995
--------- ---------
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME
Short-term interest-earning assets ................................................... $ 27,576 $ 22,867
Trading account assets ............................................................... 51 45
Securities ........................................................................... 2,943 4,417
Mortgage-backed securities ........................................................... 100,913 130,254
Loans ................................................................................ 478,846 357,234
Federal Home Loan Bank stock ......................................................... 10,090 7,634
--------- ---------
Total interest income ......................................................... 620,419 522,451
--------- ---------
INTEREST EXPENSE
Deposits ............................................................................. 204,138 191,755
Federal Home Loan Bank advances ...................................................... 193,726 152,792
Securities sold under agreements to repurchase
and federal funds purchased ....................................................... 42,357 33,829
Senior Notes ......................................................................... 7,805 7,804
--------- ---------
Total interest expense ........................................................ 448,026 386,180
--------- ---------
Net interest income ........................................................... 172,393 136,271
PROVISION FOR CREDIT LOSSES .......................................................... 10,155 14,630
--------- ---------
Net interest income after provision for credit losses ......................... 162,238 121,641
--------- ---------
NON-INTEREST INCOME
Net gains (losses)
Sales of single family servicing rights and single family
warehouse loans ................................................................ 29,581 48,481
Securities and mortgage-backed securities ......................................... 3,821 26
Other loans ....................................................................... 2,027 (771)
Loan servicing fees and charges ...................................................... 31,739 33,056
Other fees and charges ............................................................... 10,914 8,988
--------- ---------
Total non-interest income ..................................................... 78,082 89,780
--------- ---------
NON-INTEREST EXPENSE
Compensation and benefits ............................................................ 66,907 63,115
Occupancy ............................................................................ 13,904 13,840
Data processing ...................................................................... 12,319 12,135
Advertising and marketing ............................................................ 5,956 7,497
Amortization of intangibles .......................................................... 15,002 16,363
SAIF deposit insurance premiums ...................................................... 9,102 8,432
Furniture and equipment .............................................................. 4,656 4,800
Restructuring charges ................................................................ 10,681 --
Other ................................................................................ 29,466 15,928
--------- ---------
Total non-interest expense .................................................... 167,993 142,110
--------- ---------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST .................................................................. 72,327 69,311
INCOME TAX (BENEFIT) EXPENSE ......................................................... (73,644) 29,246
--------- ---------
INCOME BEFORE MINORITY INTEREST ...................................................... 145,971 40,065
Less minority interest:
Subsidiary preferred stock dividends .............................................. 13,689 6,489
Payments in lieu of dividends ..................................................... 6,413 377
--------- ---------
NET INCOME ........................................................................... $ 125,869 $ 33,199
========= =========
EARNINGS PER COMMON SHARE ............................................................ $ 4.13 $ 1.07
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
----------------------------------
1996 1995
--------- ---------
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME
Short-term interest-earning assets ................................................... $ 10,216 $ 8,452
Trading account assets ............................................................... 16 16
Securities ........................................................................... 831 1,467
Mortgage-backed securities ........................................................... 30,214 43,120
Loans ................................................................................ 154,916 138,864
Federal Home Loan Bank stock ......................................................... 3,005 2,946
--------- ---------
Total interest income ......................................................... 199,198 194,865
--------- ---------
INTEREST EXPENSE
Deposits ............................................................................. 65,628 69,251
Federal Home Loan Bank advances ...................................................... 57,225 60,511
Securities sold under agreements to repurchase
and federal funds purchased ....................................................... 13,284 13,856
Senior Notes ......................................................................... 2,600 2,602
--------- ---------
Total interest expense ........................................................ 138,737 146,220
--------- ---------
Net interest income ........................................................... 60,461 48,645
PROVISION FOR CREDIT LOSSES .......................................................... 4,305 10,473
--------- ---------
Net interest income after provision for credit losses ......................... 56,156 38,172
--------- ---------
NON-INTEREST INCOME
Net gains (losses)
Sales of single family servicing rights and single family
warehouse loans ................................................................ 10,424 10,017
Securities and mortgage-backed securities ......................................... 958 18
Other loans ....................................................................... (1,458) (391)
Loan servicing fees and charges ...................................................... 9,632 10,243
Other fees and charges ............................................................... 3,917 3,240
--------- ---------
Total non-interest income ..................................................... 23,473 23,127
--------- ---------
NON-INTEREST EXPENSE
Compensation and benefits ............................................................ 27,009 19,923
Occupancy ............................................................................ 4,465 4,768
Data processing ...................................................................... 4,199 4,019
Advertising and marketing ............................................................ 1,903 2,715
Amortization of intangibles .......................................................... 5,201 5,645
SAIF deposit insurance premiums ...................................................... 2,973 2,802
Furniture and equipment .............................................................. 1,528 1,581
Restructuring charges ................................................................ 10,681 --
Other ................................................................................ 10,730 (988)
--------- ---------
Total non-interest expense .................................................... 68,689 40,465
--------- ---------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST .................................................................. 10,940 20,834
INCOME TAX (BENEFIT) EXPENSE ......................................................... (98,922) 9,060
--------- ---------
INCOME BEFORE MINORITY INTEREST ...................................................... 109,862 11,774
Less minority interest:
Subsidiary preferred stock dividends ............................................. 4,563 2,163
Payments in lieu of dividends .................................................... 6,189 71
--------- ---------
NET INCOME ........................................................................... $ 99,110 $ 9,540
========= =========
EARNINGS PER COMMON SHARE ............................................................ $ 3.26 $ 0.31
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
-------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1994 .............. 23,828,400 $ 239 -- $ -- 5,034,600 $ 50
Net income .................... -- -- -- -- -- --
Change in unrealized
gains (losses) ............ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT
JUNE 30, 1995 ................... 23,828,400 $ 239 -- $ -- 5,034,600 $ 50
=========== =========== =========== =========== =========== ===========
BALANCE AT
SEPTEMBER 30, 1995 .............. 23,828,400 $ 239 -- $ -- 5,034,600 $ 50
Net income .................... -- -- -- -- -- --
Dividend declared: common
stock ($3.46 per share) .. -- -- -- -- -- --
Redistribution of common stock (23,446,475) (235) 28,481,075 285 (5,034,600) $ (50)
Restricted Stock issued ....... -- -- 318,342 3 -- --
Change in unrealized
gains (losses) ............ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT
JUNE 30, 1996 ................... 381,925 $ 4 28,799,417 $ 288 -- $ --
=========== =========== =========== =========== =========== ===========
<CAPTION>
UNREALIZED TOTAL
PAID-IN RETAINED GAINS STOCKHOLDERS'
CAPITAL EARNINGS (LOSSES) EQUITY
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT
SEPTEMBER 30, 1994 .............. $ 121,480 $ 343,020 $ (13,427) $ 451,362
Net income .................... -- 33,199 -- 33,199
Change in unrealized
gains (losses) ............ -- -- 4,577 4,577
----------- ----------- ----------- -----------
BALANCE AT
JUNE 30, 1995 ................... $ 121,480 $ 376,219 $ (8,850) $ 489,138
=========== =========== =========== ===========
BALANCE AT
SEPTEMBER 30, 1995 .............. $ 117,722 $ 384,739 $ (6,647) $ 496,103
Net income .................... -- 125,869 -- 125,869
Dividend declared: common
stock ($3.46 per share) .. -- (100,000) -- (100,000)
Redistribution of common stock -- -- -- --
Restricted Stock issued ....... 3,706 -- -- 3,709
Change in unrealized
gains (losses) ............ -- -- 3,751 3,751
----------- ----------- ----------- -----------
BALANCE AT
JUNE 30, 1996 ................... $ 121,428 $ 410,608 $ (2,896) $ 529,432
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JUNE 30,
----------------------------------
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided (used) by operating activities ............................... $ 324,805 $ (174,812)
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in securities purchased under agreements to resell and
federal funds sold .......................................................... (385,126) 240,019
Purchases of securities held to maturity ....................................... (6,327) (2,920)
Proceeds from maturities of securities held to maturity ........................ 6,105 3,472
Purchases of mortgage-backed securities held to maturity ....................... (3,841) (38,515)
Repayments of mortgage-backed securities held to maturity ...................... 156,456 261,355
Purchases of securities available for sale ..................................... (16,029) --
Proceeds from sales of securities available for sale ........................... 78,509 --
Proceeds from sales of mortgage-backed securities available for sale ........... 295,702 77,626
Repayments of mortgage-backed securities available for sale .................... 220,089 12,631
Purchases of loans held to maturity ............................................ (102,230) (2,091,734)
Proceeds from sales of loans held to maturity .................................. 3,343 --
Change in loans held to maturity ............................................... 425,302 (574,505)
Purchases of Federal Home Loan Bank stock ...................................... -- (100,191)
Redemption of Federal Home Loan Bank stock ..................................... 38,800 18,500
Purchases of premises and equipment ............................................ (5,022) (3,077)
Proceeds from sales of real estate owned acquired through foreclosure .......... 31,832 26,834
Proceeds from sales of servicing rights ........................................ 6,174 32,142
----------- -----------
Net cash provided (used) by investing activities ......................... 743,737 (2,138,363)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits ......................................................... (128,696) 356,893
Proceeds from Federal Home Loan Bank advances .................................. 1,498,700 3,821,754
Repayment of Federal Home Loan Bank advances ................................... (1,998,200) (2,058,200)
Net change in securities sold under agreements to repurchase and
federal funds purchased ..................................................... (287,027) 187,528
Change in advances from borrowers for taxes and insurance ...................... (69,603) 9,551
Payment of dividends ........................................................... (100,000) --
----------- -----------
Net cash (used) provided by financing activities ......................... (1,084,826) 2,317,526
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............................... (16,284) 4,351
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................................... 112,931 76,938
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................................... $ 96,647 $ 81,289
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NONCASH
INVESTING ACTIVITIES
Cash paid for interest ......................................................... $ 434,050 $ 370,441
Cash paid for income taxes ..................................................... 2,204 6,695
Real estate owned acquired through foreclosure ................................. 55,105 35,738
Securitization of loans ........................................................ 13,601 --
Transfer of loans from held to maturity to held for sale ....................... 188,748 696
Transfer of mortgage-backed securities from held to maturity
to available for sale ....................................................... 1,244,945 --
Issue restricted common stock .................................................. 3,709 --
Change in unrealized gains (losses) on securities and
mortgage-backed securities available for sale ............................... 3,751 4,577
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Bank United Corp. (the "Parent Company") owns 100% of the outstanding
common stock of Bank United (the "Bank") subject to a potential minority
interest represented by certain warrants. See Note 3. In June 1996, the Parent
Company changed its name from USAT Holdings Inc. to Bank United Corp. and the
Bank changed its name from Bank United of Texas to Bank United. The accompanying
unaudited consolidated financial statements include the accounts of the Parent
Company, the Bank, and the Bank's wholly-owned subsidiaries (collectively known
as the "Company"). To date, the results of operations of the Bank's subsidiaries
have not been significant to the consolidated results of operations. All
significant intercompany accounts have been eliminated in consolidation. The
Parent Company has no significant assets other than the equity interest in the
Bank and substantially all of the Company's consolidated revenues are derived
from the operations of the Bank.
Prior to June 1996, the Company was a subsidiary of Hyperion Holdings
Inc., a Delaware corporation ("Hyperion Holdings"), which was a subsidiary of
Hyperion Partners L.P., a Delaware limited partnership ("Hyperion Partners"). In
June 1996, the following actions were taken (collectively, the "Restructuring"):
(i) Hyperion Holdings exchanged shares of a newly created class of its nonvoting
common stock for certain shares of its voting common stock held by Hyperion
Partners; (ii) Hyperion Partners then distributed the Hyperion Holdings common
stock owned by it to its limited and general partners in accordance with the
terms of the limited partnership agreement of Hyperion Partners (the
"Distribution") and; (iii) following the Distribution, Hyperion Holdings was
merged with and into the Company (the "Merger"). As a result of the Merger, the
common stockholders of Hyperion Holdings (i.e. the limited and general partners
of Hyperion Partners) received shares of Class A voting and Class B nonvoting
common stock of the Company. As of the date of the Merger, Hyperion Holdings had
no significant assets, liabilities or business other than its investment in the
Company. The Merger was accounted for in a manner similar to a pooling of
interests. Due to the immaterial nature of the assets, liabilities and
operations of Hyperion Holdings prior to the Merger, prior period results were
not restated.
Prior to the Merger, the Company had outstanding 13,238 shares of Class A
voting and 2,797 shares of Class C nonvoting common stock. Subsequent to the
Restructuring, a 1,800 to one stock conversion, and the conversion of Class C
and certain Class B shares to Class A shares, the Company had a total of
28,863,000 shares of common stock outstanding as follows: Class A Common Stock
(voting) -- 381,925 shares, Class B common stock (nonvoting) - 28,481,075
shares, and no shares of Class C common stock which were cancelled.
2. BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements were prepared
in accordance with the instructions for Form 10-Q and, therefore, do not include
all disclosures necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. All adjustments (consisting of only normal recurring
adjustments) that are necessary, in the opinion of management, for a fair
presentation of the interim financial statements have been included. The results
of operations for the nine months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the entire fiscal year or any
interim period. The interim financial information should be read in conjunction
with the Consolidated Financial Statements and Notes included in the Company's
Registration Statement on Form S-1 filed August 8, 1996.
The Consolidated Financial Statements and the related Notes as of and for
the three and nine month periods ended June 30, 1995 have been restated to
reflect the effect of the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing Rights, an
amendment of FASB Statement No. 65", effective October 1, 1994. Originated
mortgage servicing rights ("MSRs") of $4.4 million were capitalized as of June
30, 1995, net income and stockholders' equity increased $2.7 million and
earnings per share increased $0.09 for the nine months ended June 30, 1995 as a
result of this restatement. Certain other amounts within the accompanying
Consolidated Financial Statements and the related Notes as of September 30, 1995
and June 30, 1995 have been reclassified for comparative purposes to conform to
the current presentation. Such reclassifications had no effect on previously
presented net income or retained earnings.
6
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. MINORITY INTEREST AND WARRANTS
In fiscal 1995, the Bank publicly issued 4,000,000 shares, $25 liquidation
preference per share, of 9.60% noncumulative preferred stock (the "Preferred
Stock, Series B") (par value $0.01). In fiscal 1993, the Bank publicly issued
3,420,000 shares, $25 liquidation preference per share, of 10.12% noncumulative
preferred stock (the "Preferred Stock, Series A") (par value $0.01). These
shares are not owned by the Parent Company and accordingly are reflected as
minority interest in the accompanying Consolidated Financial Statements.
Warrants outstanding represent the right to purchase 158,823 shares of the
Bank's common stock for an exercise price of $0.01 per share. The Bank agreed to
make payments in lieu of dividends to the holder of the warrants upon payment of
dividends on the Bank's common stock from December 28, 1993 through December 30,
1998 or until their redemption. Payments in lieu of dividends paid to the
warrant holder for the nine months ended June 30, 1996 and 1995 totalled $6.4
million and $377,000.
In August 1996, the Federal Deposit Insurance Corporation ("FDIC")
surrendered a portion of the outstanding Bank common stock warrants for a cash
payment of $6.1 million, exercised the remainder of the warrants and immediately
exchanged all shares of Bank common stock received upon exercise of the warrants
for 1,503,560 shares of common stock of the Company. The FDIC sold all of these
shares in the offering. See Note 10 for a discussion of subsequent events.
4. EARNINGS PER COMMON SHARE
Earnings per common share is calculated by dividing net income applicable
to common stock and common stock equivalents by the weighted average number of
shares of common stock and common stock equivalents. The dilutive effect of the
outstanding Bank warrants has been considered in computing earnings per common
share. Average shares and per share results have been restated to reflect an
1,800 to one stock conversion effective June 1996.
The table below presents information necessary for the computation of
earnings per common share, on both a primary and fully diluted basis (in
thousands, except earnings per common share).
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ---------------------
1996 1995 1996 1995
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net income ......................................... $ 99,110 $ 9,540 $ 125,869 $ 33,199
Less: Bank's net income attributable to common stock
equivalents on warrants .................... (4,967) (689) (6,758) (2,311)
-------- -------- --------- --------
Net income applicable to common shares and common
stock equivalents .......................... $ 94,143 $ 8,851 $ 119,111 $ 30,888
======== ======== ========= ========
Average number of common shares outstanding ........ 28,863 28,863 28,863 28,863
======== ======== ========= ========
EARNINGS PER COMMON SHARE .......................... $ 3.26 $ 0.31 $ 4.13 $ 1.07
======== ======== ========= ========
</TABLE>
5. IMPAIRED LOANS
The Bank adopted SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan", and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures, an amendment of SFAS No. 114", effective
October 1, 1995. These statements address the accounting by creditors for
impairment of certain loans. They apply to all creditors and to all loans,
uncollateralized as well as collateralized, except for large groups of
small-balance homogeneous loans that are collectively evaluated for impairment,
loans that are measured at fair value or at lower of cost or fair value, leases,
and debt securities. Specifically, these statements apply to the Company's
single family residential construction, multi-family, commercial real estate,
business credit, and mortgage banker finance line of credit loan categories.
These statements apply to all loans that are restructured in a troubled debt
restructuring involving a modification of terms. Loans within the scope of these
statements are considered impaired when, based on current information and
events, it is probable that all principal and interest amounts due will not be
collected in accordance with the contractual terms of the loans.
7
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The adoption of SFAS No. 114 did not result in additional provisions for
credit losses. SFAS No. 114 requires that impaired loans that are within the
scope of this statement be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. Any excess of the Bank's
recorded investment in the loan (unpaid principal balance, adjusted for
unamortized premium or discount and net deferred loan origination fees or costs)
over the measured value of the loan is provided for in the allowance for credit
losses.
At June 30, 1996, the recorded investment in impaired loans totalled $3.9
million and the average outstanding balance for the nine months ended June 30,
1996 was $4.5 million. No allowance for credit losses was required on these
loans because the measured values of the loans exceeded the recorded investment
in the loans. Interest income of approximately $312,000 was recognized on
impaired loans during the nine months ended June 30, 1996, of which
approximately $274,000 was collected in cash.
6. MANAGEMENT COMPENSATION PROGRAM
In June 1996, the Company Board approved a management compensation program
containing the following provisions: (i) a cash bonus of $4.0 million; (ii) the
award of 318,342 shares of Company Class B common stock with restrictions on its
transferability for a period of three years from its issuance ("Restricted
Stock"), and (iii) the issuance of 1,154,520 options for purchase of an
equivalent number of shares of Company common stock; such options vest ratably
over three years from the date of grant. The options' exercise price was set at
an amount not less than the fair market value at the date of the grant and will
expire if not exercised within ten years of the date of the grant.
Compensation expense totalling $7.8 million, $4.8 million net of tax, was
recognized in the quarter ended June 30, 1996 for the cash bonus and the
Restricted Stock award. Compensation expense was not recognized for the stock
options, as the options have an exercise price approximating the fair value of
the Company's common stock.
7. MORTGAGE BANKING RESTRUCTURING CHARGE
In June 1996, a restructuring charge of $10.7 million, before tax, related
to the restructuring of the origination business of the mortgage banking segment
was recorded. This restructuring includes the closure or consolidation of
certain production offices and regional operations centers, and the related
reductions in workforce. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Discussion of Results of Operations --
Non-Interest Expense".
8. INCOME TAX BENEFIT
In June 1996, the Parent Company's Certificate of Incorporation and
By-Laws were restated with the intent to preserve certain beneficial tax
attributes limiting the disposition of certain common stock and other interests
in the Parent Company by certain of its stockholders. The preservation of
certain tax attributes allowed the recognition of tax benefits in June 1996 for
the expected utilization of net operating loss carryforwards ("NOLs"). These tax
benefits were not recognized in prior periods due to limitations on the
utilization of NOLs due to the likelihood of an ownership change at that time.
In June 1996, the Parent Company and the Bank entered into a tax sharing
agreement. This agreement resulted in the recognition of a tax benefit for the
expected utilization of the Parent Company's NOLs by the Bank. As a result of
the tax sharing agreement and the restatement of the Parent Company's
Certificate of Incorporation and By-laws, a total tax benefit of $101.7 million
was recognized as a reduction of income tax expense and an increase in the net
deferred tax asset, in accordance with SFAS No. 109, "Accounting for Income
Taxes".
9. RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." This statement defines a fair value based method of
accounting for an employee stock option or similar equity instrument and
encourages adoption of that method for all employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method currently being followed and
make pro forma disclosures of net income and earnings per share under the fair
value based method of accounting. This statement is effective for financial
statements with fiscal years beginning after December 15, 1995, with earlier
application encouraged. Management is currently evaluating the proposed
alternatives under this statement.
8
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 1996, SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" was issued. This statement
requires that, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. This statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. This statement is effective for transfers
and servicing of financial assets and extinguishment of liabilities occurring
after December 31, 1996, and is to be applied prospectively. Earlier or
retroactive application is not permitted. Implementation of this pronouncement
should have no material adverse effect on the Consolidated Financial Statements.
10. SUBSEQUENT EVENTS
In August 1996, the Company filed a registration statement with the
Securities and Exchange Commission ("SEC") and 12,075,000 shares of the
Company's Class A common stock (par value $0.01) were sold to the public (the
"Offering"). The Company sold 910,694 shares and certain shareholders ("selling
shareholders") sold 11,164,306 shares. The net proceeds to the Company, proceeds
to the selling shareholders who sold their stock, and the underwriting discount
were $14.2 million, $210.4 million and $13.9 million, respectively.
In August 1996, the Company filed a registration statement with the SEC
and consummated an exchange offer (the "Exchange Offer") for its outstanding
Senior Notes due May 15, 1998 (the "Senior Notes"). The Exchange Offer satisfied
the condition of the Senior Note Indenture pursuant to which the interest rate
on the Senior Notes reverted from 9.05% to 8.05% PER ANNUM commencing with and
including the date on which the Exchange Offer was consummated.
9
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of
Bank United Corp.:
We have reviewed the accompanying condensed consolidated statement of financial
condition of Bank United Corp. (formerly USAT Holdings Inc.) and its subsidiary
(collectively known as the "Company") as of June 30, 1996, and the related
condensed consolidated statements of operations for the three-month and
nine-month periods ended June 30, 1996 and 1995 and the related condensed
consolidated statements of stockholders' equity and cash flows for the
nine-month periods ended June 30, 1996 and 1995. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial condition of Bank United
Corp. and its subsidiary as of September 30, 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated October 31, 1995, except
for Note 21, as to which the date is July 24, 1996, we expressed an unqualified
opinion, including an explanatory paragraph regarding the Company's change in
its method of accounting for mortgage servicing rights effective October 1, 1994
on those consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated statement of financial
condition as of September 30, 1995 is fairly stated, in all material respects,
in relation to the consolidated statement of financial condition from which it
has been derived.
DELOITTE & TOUCHE LLP
NEW YORK, NEW YORK
September 16, 1996
10
BANK UNITED CORP.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DISCUSSION OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND
1995
GENERAL
Net income was $125.9 million for the nine months ended June 30, 1996,
compared to $33.2 million for the nine months ended June 30, 1995. The increase
was primarily due to the recognition of a $101.7 million tax benefit for the
expected utilization of NOLs. No such benefits were recorded during the nine
months ended June 30, 1995. Higher levels of interest-earning assets and an
increase in the net interest rate spread also contributed to increased net
income. Results for the current period also included a $6.6 million charge, net
of tax, relating to the restructuring of the origination business of the
mortgage banking segment and $4.8 million of compensation expense, net of tax,
related to a management compensation program implemented in June 1996.
NET INTEREST INCOME
Net interest income was $172.4 million for the nine months ended June 30,
1996, compared to $136.3 million for the nine months ended June 30, 1995,
reflecting a $36.1 million, or 26% increase. The increase can be attributed to a
$1.4 billion, or 15% increase in average interest-earning assets and a 21 basis
point increase in the net interest rate spread.
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET, INTEREST INCOME/EXPENSE, AND AVERAGE YIELD/RATE
FOR THE NINE MONTHS ENDED JUNE 30,
1996 1995
--------------------------------------------------- ---------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE (3) BALANCE INTEREST RATE (3)
--------- -------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Short-term interest-earning assets ................... $ 621,604 $ 27,576 5.83% $ 478,239 $ 22,867 6.31%
Trading account assets ............................... 1,150 51 5.91 1,071 45 5.60
Securities (1) ....................................... 78,354 2,943 5.02 116,980 4,417 5.05
Mortgage-backed securities (1) ....................... 2,064,035 100,913 6.52 2,676,101 130,254 6.49
Loans (2) ............................................ 7,994,274 478,846 7.99 6,146,147 357,234 7.75
FHLB stock ........................................... 220,452 10,090 6.11 166,265 7,634 6.14
----------- -------- -------- --------- -------- --------
Total interest-earning assets ................... 10,979,869 620,419 7.53 9,584,803 522,451 7.26
-------- -------- -------- --------
Non-interest-earning assets ............................. 383,785 328,713
----------- ---------
TOTAL ASSETS .................................... $11,363,654 $9,913,516
=========== ==========
INTEREST-BEARING LIABILITIES
Deposits ............................................. $ 5,047,794 204,138 5.40 $4,926,279 191,755 5.20
FHLB advances ........................................ 4,219,633 193,726 6.03 3,283,244 152,792 6.14
Securities sold under agreements to
repurchase and federal funds purchased .............. 973,039 42,357 5.72 754,000 33,829 5.92
Senior Notes ......................................... 115,000 7,805 9.05 115,000 7,804 9.05
----------- -------- -------- --------- -------- --------
Total interest-bearing liabilities .............. 10,355,466 448,026 5.71 9,078,523 386,180 5.66
-------- -------- -------- --------
Non-interest-bearing liabilities and stockholders' equity 1,008,188 834,993
----------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ........................... $11,363,654 $9,913,516
=========== ===========
Net interest income/interest rate spread ................ $172,393 1.82% $136,271 1.61%
========= ===== ======== =====
Net yield on interest-earning assets .................... 2.09% 1.91%
===== =====
Ratio of average interest-earning assets to
average interest-bearing liabilities ................. 1.06 1.06
==== ====
</TABLE>
(1) For purposes of computing yields, the effects of SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", have been excluded
from the average balances.
(2) Includes nonaccrual loans.
(3) Annualized.
11
BANK UNITED CORP.
The increase in average interest-earning assets during the nine months
ended June 30, 1996 can be principally attributed to two single family loan
purchases, approximating $1.9 billion, during the second half of fiscal 1995.
These purchases were funded primarily with Federal Home Loan Bank ("FHLB")
advances and securities sold under agreements to repurchase ("reverse repurchase
agreements").
During the nine months ended June 30, 1996, the yield on interest-earning
assets increased 27 basis points and the cost of funds increased 5 basis points,
resulting in a 21 basis point increase in the net interest rate spread. Periodic
caps on adjustable-rate loans and mortgage-backed securities had limited the
increase in interest income relative to the cost of deposits and borrowings, as
average market interest rates increased during fiscal 1995. The net interest
rate spread for the nine months ended June 30, 1996 reflects an improvement over
the nine months ended June 30, 1995 due to a lessening of the impact of caps.
The net interest rate spread was also positively impacted during the nine months
ended June 30, 1996 due to higher yields earned on loans purchased in the later
part of fiscal 1995.
PROVISION FOR CREDIT LOSSES
The provision for credit losses decreased $4.5 million to $10.2 million
for the nine months ended June 30, 1996. Decreased loan purchases resulted in
decreased single family loan provisions for the nine months ended June 30, 1996.
Partially offsetting this decrease was an increase in the consumer loan
provision reflecting loss experience on the unsecured consumer line of credit
portfolio and increased net charge-offs for the nine months ended June 30, 1996.
<TABLE>
<CAPTION>
ALLOWANCE FOR CREDIT LOSSES
COMMERCIAL MORTGAGE
SINGLE FAMILY REAL ESTATE BANKER
SINGLE RESIDENTIAL MULTI- AND FINANCE
FAMILY (1) CONSTRUCTION CONSUMER FAMILY BUSINESS CREDIT LINE OF CREDIT TOTAL
--------- ------------- -------- ------ --------------- -------------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994............ $15,981 $399 $1,822 $2,456 $2,112 $ 684 $23,454
Provision............................ 12,346 (59) 2,485 354 (61) (435) 14,630
Net charge-offs...................... (2,451) - (1,748) 2 - - (4,197)
-------- ---- ------- ------ ------ ------ --------
Balance at June 30, 1995................. $25,876 $340 $2,559 $2,812 $2,051 $ 249 $33,887
======= ==== ====== ====== ====== ===== =======
Balance at September 30, 1995............ $29,632 $361 $3,247 $3,054 $ 97 $ 410 $36,801
Provision............................ 4,117 223 5,400 258 155 2 10,155
Net charge-offs...................... (5,418) - (4,482) - - - (9,900)
-------- ---- ------- ------ ------ ----- --------
Balance at June 30, 1996................. $28,331 $584 $4,165 $3,312 $ 252 $ 412 $37,056
======= ==== ====== ====== ====== ===== =======
</TABLE>
(1) Includes single family and single family mortgage warehouse loans.
12
BANK UNITED CORP.
NONPERFORMING ASSETS
JUNE 30, SEPTEMBER 30,
1996 1995
---------- ---------
(IN THOUSANDS)
Nonaccrual loans
Single family ........................ $ 86,079 $ 83,954
Single family residential construction 35 505
Consumer ............................. 819 563
Multi-family ......................... 50 213
Commercial real estate ............... 276 --
--------- ---------
87,259 85,235
--------- ---------
(Discounts)/Premiums
Accretable ........................... (448) (560)
Non-accretable ....................... (4,852) (9,167)
--------- ---------
(5,300) (9,727)
--------- ---------
Net nonaccrual loans ............. 81,959 75,508
REO, primarily single family properties .. 31,030 24,904
--------- ---------
Total nonperforming assets ....... $ 112,989 $ 100,412
========= =========
SELECTED ASSET QUALITY RATIOS
<TABLE>
<CAPTION>
AT OR FOR AT OR FOR
THE NINE MONTHS THE YEAR ENDED
ENDED JUNE 30, 1996 SEPTEMBER 30, 1995
------------------- ------------------
<S> <C> <C>
Allowance for credit losses to net nonaccrual loans...... 45.21% 48.74%
Allowance for credit losses to total loans............... 0.49 0.44
Nonperforming assets to total assets..................... 1.03 0.84
Nonaccrual loans to total loans.......................... 1.07 0.91
Nonperforming assets to total loans and REO.............. 1.47 1.21
Net loan charge-offs to average loans (1)
Total................................................ 0.17 0.16
Single family........................................ 0.11 0.08
</TABLE>
(1) Annualized for the interim period.
GAINS FROM SALES OF SINGLE FAMILY SERVICING RIGHTS AND SINGLE FAMILY WAREHOUSE
LOANS
FOR THE NINE MONTHS ENDED JUNE 30,
1996 1995
------------ --------
(IN THOUSANDS)
GAINS
Sales of single family servicing rights.... $ - $ 32,142
Sales of single family warehouse loans..... 29,581 16,339
---------- ----------
Total $ 29,581 $ 48,481
========== ==========
PRINCIPAL SOLD
Single family servicing rights............. $ 955,678 $2,720,326
Single family warehouse loans.............. 2,333,319 1,297,811
The table above reflects the volume of single family servicing rights and
single family warehouse loans sold and the related gains for the nine months
ended June 30, 1996 and 1995. The 1995 period includes substantial gains on
sales of servicing rights originated in prior years.
13
BANK UNITED CORP.
NON-INTEREST EXPENSE
Non-interest expense was $168.0 million for the nine months ended June
30, 1996 and $142.1 million for the nine months ended June 30, 1995 or 1.97% and
1.91% of average total assets for those same periods.
Compensation and benefits is the largest component of non-interest
expense, representing $66.9 million or 40% of total non-interest expense for the
nine months ended June 30, 1996 and $63.1 million or 44% for the nine months
ended June 30, 1995. The increase can primarily be attributed to $7.8 million,
before tax, of compensation expense related to the adoption in June 1996, of a
management compensation program that provides, among other things, for a cash
bonus and the award of Company common stock.
Non-interest expense for the nine months ended June 30, 1996 included a
restructuring charge of $10.7 million, before tax. The restructuring of the
origination business of the mortgage banking segment includes closing or
consolidating production offices and several regional operations centers and
related reductions in workforce. The restructuring charge includes estimated
costs for severance and other benefits of $800 thousand, asset write-downs of
$5.3 million, lease termination costs of $3.4 million, and other costs of $1.2
million. The non-cash write-off of $5.3 million reflects $3.5 million of
goodwill and $1.8 million of fixed assets and leasehold improvements written off
in connection with the closed production offices. At June 30, 1996, the unpaid
liability relating to the restructuring charge was $5.4 million and is expected
to be paid in full during fiscal 1999.
Other non-interest expense included $4.3 million of losses and $7.4
million of gains on sales of real estate owned ("REO") properties for the nine
months ended June 30, 1996 and 1995, respectively.
INCOME TAX (BENEFIT) EXPENSE
The provision for income taxes is comprised of current federal income
taxes, deferred federal income taxes, state income taxes, and payments due in
lieu of taxes. The provision was a net benefit of $73.6 million for the nine
months ended June 30, 1996 compared to an expense of $29.2 million for the nine
months ended June 30, 1995. In June 1996, the Parent Company's Certificate of
Incorporation and By-Laws were restated with the intent to preserve certain
beneficial tax attributes limiting the disposition of certain common stock and
other interests in the Parent Company by certain of its stockholders. The
preservation of certain tax attributes allowed the recognition of tax benefits
in June 1996 for the expected utilization of NOLs. These tax benefits were not
recognized in prior periods due to limitations on the utilization of NOLs due to
the likelihood of an ownership change at that time. In June 1996, the Parent
Company and the Bank entered into a tax sharing agreement. This agreement
resulted in the recognition of a tax benefit for the expected utilization of the
Parent Company's NOLs by the Bank. As a result of the tax sharing agreement and
the restatement of the Parent Company's Certificate of Incorporation and
By-laws, a total tax benefit of $101.7 million was recognized as a reduction of
income tax expense and an increase in the net deferred tax asset, in accordance
with SFAS No. 109.
MINORITY INTEREST
Preferred stock dividends paid by the Bank increased to $13.7 million for
the nine months ended June 30, 1996 from $6.5 million for the nine months ended
June 30, 1995, due to the Bank's issuance of its Preferred Stock, Series B
during the fourth quarter of fiscal 1995. These shares are not owned by the
Parent Company and accordingly are reflected as minority interest in the
accompanying Consolidated Financial Statements.
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM SEPTEMBER 30, 1995 TO JUNE 30,
1996
GENERAL
Total assets decreased $960.3 million or 8% during the nine months ended
June 30, 1996 to $11.0 billion. The majority of this decrease occurred in the
loan and mortgage-backed security portfolios, primarily as a result of sales and
principal repayments. In connection with the decrease in total assets, FHLB
advances and reverse repurchase agreements also decreased.
14
BANK UNITED CORP.
PURCHASE AND SALE OF MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JUNE 30,
1996 1995
------------ --------
(IN THOUSANDS)
<S> <C> <C>
Beginning balance, September 30..................................... $2,398,263 $2,828,903
Purchases....................................................... 3,841 38,515
Net change in unrealized gains (losses), before tax............. 5,521 5,255
Sales........................................................... (292,990) (77,610)
Repayments...................................................... (376,545) (273,986)
Other........................................................... (5,319) 4,575
----------- -----------
Ending balance, June 30............................................. $1,732,771 $2,525,652
========== ==========
</TABLE>
ORIGINATION, PURCHASE, AND SALE OF LOANS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JUNE 30,
1996 1995
------------ -------
(IN THOUSANDS)
<S> <C> <C>
Beginning balance, September 30................................................. $8,260,240 $5,046,174
Originations
Single family (1)....................................................... 2,846,514 2,290,364
Single family residential construction.................................. 386,459 167,349
Consumer................................................................ 94,352 69,571
Multi-family, commercial real estate, and business credit............... 241,638 232,271
Purchases
Single family........................................................... 165,948 2,114,296
Consumer................................................................ - 68
Multi-family, commercial real estate, and business credit............... 21,783 56,093
Net change in mortgage banker finance line of credit........................ 38,733 (10,184)
Repayments.................................................................. (1,786,125) (733,912)
Securitized loans sold or transferred (2)................................... (2,072,308) (1,147,012)
Sales....................................................................... (559,533) (178,933)
Foreclosures................................................................ (55,105) (35,738)
Other....................................................................... 14,810 29,060
---------- ----------- ----------
Ending balance, June 30......................................................... $7,597,406 $7,899,467
========== ==========
</TABLE>
(1) Includes $649.9 million and $890.6 million of loans originated for the
Company's portfolio. (2) Represents loans securitized by the mortgage banking
segment and sold to third parties.
15
BANK UNITED CORP.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
HELD TO MATURITY
Single family................................ $6,250,200 $7,000,303
Single family residential construction....... 224,545 114,421
Consumer..................................... 163,815 117,498
Multi-family residential..................... 313,386 351,162
Multi-family construction.................... 42,847 34,674
Commercial real estate....................... 40,244 30,293
Business credit.............................. 20,872 6,457
Mortgage banker finance line of credit....... 147,601 108,868
---------- ----------
Held to maturity........................ 7,203,510 7,763,676
---------- ----------
HELD FOR SALE
Single family mortgage warehouse............. 312,802 406,563
Multi-family residential..................... 74,824 89,176
Business credit.............................. 6,270 825
---------- ----------
Held for sale........................... 393,896 496,564
---------- ----------
TOTAL LOANS............................. $7,597,406 $8,260,240
========== ==========
</TABLE>
Securities purchased under agreements to resell ("repurchase agreements")
and federal funds sold increased $385.1 million, to $856.2 million at June 30,
1996 as compared to $471.1 million at September 30, 1995. The increase primarily
reflected the Company's ability to borrow funds and invest those funds at a
positive spread on a short-term basis.
During the nine months ended June 30, 1996, the Company sold $78.4
million in U.S. Treasury securities. Additionally, during the nine months ended
June 30, 1996, the Bank sold $293.0 million in mortgage-backed securities for a
gain of $2.7 million compared to $77.6 million in sales for a gain of $16,000
during the nine months ended June 30, 1995.
In November 1995, the FASB issued "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities." This
implementation guide provided the Bank the opportunity to reassess the
appropriateness of the classifications of its securities. It further stated that
reclassifications of securities from the held to maturity category resulting
from this one-time reassessment would not call into question the intent to hold
other securities to maturity in the future. During the first quarter of fiscal
1996, the Company reassessed its securities portfolios and reclassified $1.2
billion in mortgage-backed securities from the held to maturity portfolio to the
available for sale portfolio. An unrealized gain of $4.2 million before tax, or
$2.6 million after tax, was recorded in stockholders' equity as a result of this
transfer.
Loans decreased $662.8 million during the nine months ended June 30, 1996
primarily due to sales and repayments. During the nine months ended June 30,
1996, the Company sold $98.1 million of single family loans held by the banking
operations segment for a gain of $383,000 and $168.6 million of multi-family
loans for a gain of $2.7 million.
Average market interest rates for the nine months ended June 30, 1996
were lower compared to the nine months ended June 30, 1995. Lower market
interest rates resulted in increased principal repayments and higher levels of
originations as borrowers refinanced their mortgages at lower rates of interest.
Refinancings approximated $1.0 billion and $355.4 million or 35% and 14% of
total single family mortgage loan originations during the nine months ended June
30, 1996 and 1995. The decrease in interest rates also resulted in an increase
in the mortgage banker finance line of credit portfolio. The increase in
commitments to fund multi-family loans, as well as the increase in residential
construction loan originations during the nine months ended June 30, 1996 as
compared to the nine months ended June 30, 1995, reflects the geographic
expansion of these products.
16
BANK UNITED CORP.
Single family loan purchases decreased to $165.9 million during the nine
months ended June 30, 1996 from $2.1 billion during the nine months ended June
30, 1995, due to lower availability of products at attractive yields.
Mortgage servicing rights increased $41.8 million to $116.9 million at
June 30, 1996, from $75.1 million at September 30, 1995. During the nine months
ended June 30, 1996, the Company purchased or entered into contracts to purchase
servicing rights associated with $1.2 billion in single family loans at a
premium of $20.9 million.
Deposits decreased $128.6 million primarily due to maturities of
wholesale certificates of deposit that were not renewed.
In the aggregate, FHLB advances, reverse repurchase agreements, and
federal funds purchased decreased $787.2 million to $4.8 billion at June 30,
1996 from $5.6 billion at September 30, 1995, reflecting a reduction in the
Company's asset base.
LIQUIDITY
The Bank is required by the OTS to maintain average daily balances of
liquid assets and short-term liquid assets in amounts equal to 5% and 1%,
respectively, of net withdrawable deposits and borrowings payable on demand or
with unexpired maturities of one year or less. The Bank's average daily
liquidity ratio for June 1996 was 5.98% and the average short-term liquidity
ratio for June 1996 was 3.70%.
The primary sources of funds consist of deposits, advances from the FHLB,
reverse repurchase agreements, and principal repayments on loans and
mortgage-backed securities. Funding resources are principally used to meet
ongoing commitments to fund deposit withdrawals, repay borrowings, fund existing
and continuing loan commitments, and maintain liquidity. Management believes
that the Bank has adequate resources to fund all of its commitments.
As a holding company without significant assets other than its equity
interest in the Bank, the Parent Company's ability to pay interest and principal
on the Senior Notes, pay common stock dividends, and to fund its operations
depends upon cash dividends it receives from the Bank. The Bank's ability to pay
dividends to the Parent Company is, in turn, dependent upon its ability to
generate earnings and is subject to a number of regulatory and other
restrictions.
The Bank's capital ratios at September 30, 1995 and June 30, 1996, and
the applicable regulatory capital requirements are as follows:
JUNE 30, 1996 SEPTEMBER 30, 1995 REQUIREMENT
Tangible capital ....... 6.15% 6.20% 1.50%
Core capital ........... 6.23 6.29 3.00
Total risk-based capital 12.53 13.45 8.00
The ability of the Bank to pay dividends is subject to regulation by the
OTS. At June 30, 1996, the Bank had $164.5 million of available capacity for the
payment of dividends under these requirements. The ability of the Bank to pay
dividends is also subject to covenants provided in the indenture agreement for
the Parent Company's Senior Notes. Under the Senior Note indenture, aggregate
dividends paid by the Bank on its preferred stock (series A and series B), and
certain other payments or investments are limited to the sum of (i) 50% of the
Parent Company's consolidated net income (or, if negative, 100% of such deficit)
after March 31, 1993, subject to certain exclusions, (ii) the proceeds from any
issuance of capital stock by the Parent Company after March 31, 1993, and (iii)
$12 million. At July 1, 1996, $73.5 million was available for payment of
dividends under this restriction.
On May 6, 1996, the Bank paid a dividend on the Bank's common stock in
the amount of $100 million, to enable its Parent Company to make a distribution
in this amount to its stockholders, and a related contractually required payment
in lieu of dividends on the Bank's warrants in the amount of $5.9 million. The
Bank maintained its status as a "well-capitalized" institution after these
payments, the highest of the categories under applicable regulatory definitions.
17
BANK UNITED CORP.
CONTINGENCIES AND UNCERTAINTIES
The United States Congress continues to consider measures aimed at
fully recapitalizing the Savings Association Insurance Fund ("SAIF"), which
include a one-time insurance assessment on deposits that could result in an
amount payable by the Bank, net of tax, of as much as $23.7 million to $28.5
million. Management believes that the Bank will be able to maintain its status
as a "well-capitalized" institution after payment of any such assessment. At
this time no assurance can be given whether any such measures will become law.
FORWARD-LOOKING INFORMATION
Statements and financial discussion and analysis by management contained
herein that are not historical facts are forward looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward looking statements involve a number of risks and
uncertainties. The important factors that could cause actual results to differ
materially from the forward looking statements include, without limitation,
changes in interests rates and economic conditions; the shift in the Company's
emphasis from residential mortgage lending to community and commercial banking
activities; the restructuring of the Company's mortgage banking business;
increased competition for deposits and loans; changes in the availability of
funds; changes in local economic and business conditions; changes in
availability of residential mortgage loans originated by other financial
institutions or the Company's ability to purchase such loans on favorable terms;
transactions in the Company's common stock that might result in an ownership
change triggering an annual limitation on the use of the Company's net operating
loss carryforwards under Section 382 of the Internal Revenue Code of 1986, as
amended; changes in the ability of Bank United to pay dividends on its common
stock; changes in applicable statutes and government regulations or their
interpretation; the continuation of the significant disparity in the deposit
insurance premiums paid by thrift institutions and commercial banks; changes in
government programs that facilitate the issuance of mortgaged backed securities
or the Company's continued eligibility to participate in such programs; the loss
of senior management or operating personnel; claims with respect to
representations and warranties made by the Company to purchasers and insurers of
mortgage loans and to purchasers of mortgage servicing rights; claims of
noncompliance by the Company with statutory and regulatory requirements; and
changes in the status of litigation to which the Company is a party. For further
information regarding these factors, see "Risk Factors" in the prospectus dated
August 8, 1996, relating to the initial public offering of the Company's common
stock filed with the Securities and Exchange Commission (File No. 333-06229).
DISCUSSION OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND
1995
GENERAL
Net income was $99.1 million for the three months ended June 30, 1996,
compared to $9.5 million for the three months ended June 30, 1995. The increase
was primarily due to the recognition of a $101.7 million tax benefit for the
expected utilization of NOLs. No such benefits were recorded during the three
months ended June 30, 1995. Higher levels of interest-earning assets and an
increase in the net interest rate spread also contributed to increased net
income. Results for the current period also included a $6.6 million charge, net
of tax, relating to the restructuring of the origination business of the
mortgage banking segment and $4.8 million of compensation expense, net of tax,
related to a management compensation program implemented in June 1996.
NET INTEREST INCOME
Net interest income was $60.5 million for the three months ended June 30,
1996, as compared to $48.6 million for the three months ended June 30, 1995,
reflecting an $11.9 million, or 24% increase. The increase can be attributed to
a $306.8 million, or 3% increase in average interest-earning assets and a 39
basis point increase in the net interest rate spread.
18
BANK UNITED CORP.
AVERAGE BALANCE SHEET, INTEREST INCOME/EXPENSE, AND AVERAGE YIELD/RATE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
1996 1995
---------------------------------- -------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE (3) BALANCE INTEREST RATE (3)
--------- -------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Short-term interest-earning assets................. $ 713,441 $ 10,216 5.66% $ 509,136 $ 8,452 6.57%
Trading account assets............................. 1,152 16 5.56 1,087 16 5.89
Securities (1)..................................... 65,677 831 5.09 116,792 1,467 5.04
Mortgage-backed securities (1)..................... 1,835,566 30,214 6.58 2,560,155 43,120 6.74
Loans (2).......................................... 7,796,042 154,916 7.95 6,935,183 138,864 8.01
FHLB stock......................................... 205,484 3,005 5.88 188,182 2,946 6.28
----------- --------- ---- ----------- --------- -----
Total interest-earning assets................. 10,617,362 199,198 7.50 10,310,535 194,865 7.56
-------- ---- -------- -----
Non-interest-earning assets........................... 392,610 364,818
----------- -----------
TOTAL ASSETS.................................. $11,009,972 $10,675,353
=========== ===========
INTEREST-BEARING LIABILITIES
Deposits........................................... $ 5,016,033 65,628 5.26 $5,069,683 69,251 5.48
FHLB advances...................................... 3,963,581 57,225 5.71 3,712,195 60,511 6.45
Securities sold under agreements to repurchase
and federal funds purchased....................... 954,679 13,284 5.50 911,097 13,856 6.02
Senior Notes....................................... 115,000 2,600 9.05 115,000 2,602 9.05
------------ --------- ----- ----------- -------- -----
Total interest-bearing liabilities............ 10,049,293 138,737 5.49 9,807,975 146,220 5.94
-------- ----- -------- -----
Non-interest-bearing liabilities and stockholders' equity 960,679 867,378
------------ -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY......................... $ 11,009,972 $10,675,353
============ ===========
Net interest income/interest rate spread.............. $ 60,461 2.01% $ 48,645 1.62%
======== ==== ======== =====
Net yield on interest-earning assets.................. 2.25% 1.91%
==== =====
Ratio of average interest-earning assets to
average interest-bearing liabilities............... 1.06 1.05
==== =====
</TABLE>
(1) For purposes of computing yields, the effects of SFAS No. 115 have been
excluded from the average balances.
(2) Includes nonaccrual loans.
(3) Annualized.
The increase in average interest-earning assets during the three months
ended June 30, 1996 can be principally attributed to single family loan
purchases during the second half of fiscal 1995. These purchases were funded
primarily with FHLB advances and reverse repurchase agreements.
During the three months ended June 30, 1996, the yield on interest-earning
assets decreased 6 basis points, while the cost of funds decreased 45 basis
points, resulting in a 39 basis point increase in the net interest rate spread.
Periodic caps on adjustable-rate loans and mortgage-backed securities had
limited the increase in interest income relative to the cost of deposits and
borrowings, as average market interest rates increased during fiscal 1995. The
net interest rate spread for the three months ended June 30, 1996 reflects an
improvement over the three months ended June 30, 1995 due to a lessening of the
impact of caps.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $4.3 million and $10.5 million for
both of the three month periods ended June 30, 1996 and 1995. Decreased loan
purchases resulted in decreased single family loan provisions for the three
months ended June 30, 1996. Partially offsetting this decrease was an increase
in the consumer loan provision reflecting loss experience on the unsecured
consumer line of credit portfolio and increased net charge-offs for the three
months ended June 30, 1996.
19
BANK UNITED CORP.
ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
COMMERCIAL MORTGAGE
SINGLE FAMILY REAL ESTATE BANKER
SINGLE RESIDENTIAL MULTI- AND FINANCE
FAMILY(1) CONSTRUCTION CONSUMER FAMILY BUSINESS CREDIT LINE OF CREDIT TOTAL
--------- ------------ -------- ------ --------------- -------------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 $ 16,789 $ 473 $ 2,455 $ 2,974 $ 2,112 $236 $ 25,039
Provision ........... 10,122 (133) 694 (162) (61) 13 10,473
Net charge-offs ..... (1,035) -- (590) -- -- -- (1,625)
-------- ----- ------- ------- ------- ---- --------
Balance at June 30, 1995 $ 25,876 $ 340 $ 2,559 $ 2,812 $ 2,051 $249 $ 33,887
======== ===== ======= ======= ======= ==== ========
Balance at March 31, 1996 $ 28,843 $ 483 $ 3,339 $ 3,229 $ 183 $412 $ 36,489
Provision ........... 1,682 101 2,370 83 69 -- 4,305
Net charge-offs ..... (2,194) -- (1,544) -- -- -- (3,738)
-------- ----- ------- ------- ------- ---- --------
Balance at June 30, 1996 $ 28,331 $ 584 $ 4,165 $ 3,312 $ 252 $412 $ 37,056
======== ===== ======= ======= ======= ==== ========
</TABLE>
(1) Includes single family and single family mortgage warehouse loans.
NON-INTEREST EXPENSE
Non-interest expense was $68.7 million for the three months ended June 30,
1996 as compared to $40.5 million for the three months ended June 30, 1995 or
2.49% and 1.52% of average total assets for those same periods.
Compensation and benefits is the largest component of non-interest expense,
representing $27.0 million and $19.9 million of total non-interest expense for
the three months ended June 30, 1996 and 1995. The increase can be attributed to
$7.8 million, before tax, of compensation expense related to the adoption in
June 1996 of a management compensation program.
Also included in non-interest expense for the three months ended June 30,
1996 was a $10.7 million charge, before tax, relating to the restructuring of
the origination business of the mortgage banking segment. Other non-interest
expense included $2.0 million of losses and $8.4 million of gains on sales of
REO properties for the three months ended June 30, 1996 and 1995, respectively.
INCOME TAX (BENEFIT) EXPENSE
The provision for income taxes was a net benefit of $98.9 million for the
three months ended June 30, 1996, compared to an expense of $9.1 million for the
year ago period. During the three months ended June 30, 1996, a $101.7 million
tax benefit for the expected utilization of NOLs was recognized. No such tax
benefits were recorded during the three months ended June 30, 1995.
MINORITY INTEREST
Preferred stock dividends paid by the Bank increased to $4.6 million for the
quarter ended June 30, 1996 from $2.2 million for the quarter ended June 30,
1995, due to the Bank's issuance of its Preferred Stock, Series B during the
fourth quarter of fiscal 1995. These shares are not owned by the Parent Company
and accordingly are reflected as minority interest in the accompanying
Consolidated Financial Statements.
20
BANK UNITED CORP.
PARENT COMPANY
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
JUNE 30, SEPTEMBER 30,
1996 1995
------------ -------------
ASSETS
Cash and cash equivalents........................ $ 1 $ 1
Securities purchased under agreements to resell.. 614 2,121
Investment in Bank United........................ 619,127 609,178
Intangible assets................................ 1,830 2,563
Deferred tax asset............................... 18,312 -
Other assets..................................... 5,980 1,287
--------- ---------
TOTAL ASSETS..................................... $645,864 $615,150
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Senior Notes..................................... $115,000 $115,000
Other liabilities................................ 1,432 4,047
Stockholders' equity............................. 529,432 496,103
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $645,864 $615,150
======== ========
PARENT COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ---------------------
1996 1995 1996 1995
--------- -------- --------- --------
<S> <C> <C> <C> <C>
INCOME
Dividends from the Bank .................. $ 105,201 $ 1,200 $ 109,011 $ 6,409
Short-term interest-earning assets ....... 23 40 52 71
--------- -------- --------- --------
Total income ....................... 105,224 1,240 109,063 6,480
--------- -------- --------- --------
EXPENSE
Interest expense on Senior Notes ......... 2,600 2,602 7,805 7,804
Other .................................... 265 199 829 803
--------- -------- --------- --------
Total expense ...................... 2,865 2,801 8,634 8,607
--------- -------- --------- --------
INCOME (LOSS) BEFORE UNDISTRIBUTED
INCOME OF BANK AND INCOME TAXES .... 102,359 (1,561) 100,429 (2,127)
Equity in undistributed income of the Bank (22,000) 11,138 6,198 34,813
--------- -------- --------- --------
INCOME BEFORE INCOME TAXES ............... 80,359 9,577 106,627 32,686
Income tax (benefit) expense ............. (18,751) 37 (19,242) (513)
--------- -------- --------- --------
NET INCOME ............................... $ 99,110 $ 9,540 $ 125,869 $ 33,199
========= ======== ========= ========
</TABLE>
21
BANK UNITED CORP.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See "Legal Proceedings" in the Company's Registration Statement on Form S-1
filed August 8, 1996 (Exhibit 99 hereto).
In connection with the Company's litigation against the United States of
America in the Court of Federal Claims, the following has occurred. Following a
number of status conferences beginning on July 30, 1996, Chief Judge Loren Smith
of the United States Court of Federal Claims has transferred all WINSTAR-related
cases to his own docket and entered an Omnibus Case Management Order governing
proceedings in such cases, including the Company's case. Under the Omnibus Case
Management Order, Chief Judge Smith serves as the "Managing Judge" for all
WINSTAR-related cases and may assign other judges of the United States Court of
Federal Claims to resolve pre-trial discovery disputes and common legal issues
and to conduct trials. The Government and plaintiffs in WINSTAR-related cases
are directed to exchange certain significant documents as early as October 2, at
which time plaintiffs may move for partial summary judgments holding the
Government liable on their WINSTAR-related claims. Trials on damages in two of
the three WINSTAR cases that were decided by the United States Supreme Court in
July 1996 are scheduled for early 1997. Damages trials in the remaining cases
subject to the Omnibus Case Management Plan are scheduled to begin four months
after completion of the first two damages trials. The Company's case is one of
thirteen cases that "shall be accorded priority in the scheduling" of the
damages trials under the Omnibus Case Management Order.
The Company intends to move promptly for partial summary judgement on
liability and to pursue an early trial on damages. Uncertainties remain
concerning the administration of the Omnibus Case Management Order and the
future course of the Company's lawsuit pursuant to the Order. Accordingly, the
Company cannot predict the timing of any resolution of its claims. The Company
is also unable to predict the outcome of its suit against the United States and
the amount of judgment for damages, if any, that may be awarded.
Consequently, no assurances can be given as to the results of this suit.
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
Not applicable.
ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6A. EXHIBITS
Exhibits followed by a parenthetical reference are incorporated by
reference herein from the document described in such parenthetical
reference.
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
2.1 - Form of Letter Agreement, by and among the general and limited partners
of Hyperion Partners, L.P., dated as of June 17, 1996, relating to certain
transactions consummated prior to the Offering (Exhibit 2.1 to Form S-1
filed on June 18, 1996)
2.2 - Merger Agreement, dated as of June 17, 1996, by and between the Company
and Hyperion Holdings relating to the Merger (Exhibit 2.2 to Form S-1
filed on August 7, 1996)
3.1 Form of restated Certificate of Incorporation of the Registrant, as
amended (Exhibit 3.1 to Form S-1 filed on June 18, 1996)
3.2 - Form of Bylaws of the Registrant (Exhibit 3.2 to Form S-1 filed on June
18, 1996)
4.1 - Indenture, dated as of May 15, 1993, between the Registrant and Bank of
New York, as Trustee, relating to the Registrant's 8.05% Senior Notes due
May 15, 1998 (Exhibit 4.1 to Form S-1 filed on June 18, 1996)
4.2 Form of 8.05% Senior Notes due May 15, 1998 (Exhibit 4.2 to Form S-1
filed on June 18, 1996)
4.3 - Exchange and Registration Rights relating to 8.05% Senior Notes due May
15, 1998 (Exhibit 4.3 to Form S-1 filed on June 18, 1996)
22
BANK UNITED CORP.
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
4.4 - First Supplemental Indenture, dated as of January 23, 1995, between the
Registrant and the Bank of New York, as Trustee, relating to 8.05% Senior
Notes due May 15, 1998 (Exhibit 4.4 to Form S-1 filed on June 18, 1996)
4.5 - Form of Class A common stock certificate (Exhibit 4.5 to Form S-1 filed
on July 25, 1996)
10.1 - Assistance Agreement dated December 30, 1988, among the Bank, the
Registrant, Hyperion Holdings Inc., Hyperion Partners L.P., and the FSLIC
(Exhibit 10.1 to Form S-1 filed on June 18, 1996)
10.1a - Settlement and Termination Agreement dated as of December 23, 1993,
among the Bank, the Registrant, Hyperion Holdings Inc., Hyperion Partners
L.P., and the FDIC (Exhibit 10.1a to Form S-1 filed on June 18, 1996)
10.1b Tax Benefits Agreement dated December 28, 1993, among the Bank, the
Registrant, Hyperion Holdings Inc., Hyperion Partners L.P., and the FDIC
(Exhibit 10.1b to Form S-1 filed on June 18, 1996)
10.2 - Acquisition Agreement dated December 30, 1988, between the Bank and the
FSLIC (Exhibit 10.2 to Form S-1 filed on June 18, 1996)
10.3 - Warrant Agreement dated December 30, 1988, between the Bank and the
FSLIC (Exhibit 10.3 to Form S-1 filed on June 18, 1996)
10.3a - Amended and Restated Warrant Agreement dated December 28, 1993, between
the Bank and the FDIC (Exhibit 10.3a to Form S-1 filed on June 18, 1996)
10.4 - Regulatory Capital Maintenance Agreement, dated December 30, 1988 among
the Bank, the Registrant, Hyperion Holdings, Hyperion Partners, and the
FSLIC (terminated) (Exhibit 10.4 to Form S-1 filed on June 18, 1996)
10.5 -Federal Stock Charter of the Bank and First Amendment to charter approved
on August 26, 1992 (Exhibit 10.5 to Form S-1 filed on June 18, 1996)
10.6 - Amended and Restated Federal Stock Charter of the Bank and Second
Amendment approved on October 30, 1992 (Exhibit 10.6 to Form S-1 filed on
June 18, 1996)
10.6a - Third Amendment to the Federal Stock Charter of the Bank approved on
April 23, 1996 (Exhibit 10.6a to Form S-1 filed on June 18, 1996)
10.6b - Amended and Restated Bylaws of the Bank (Exhibit 10.6b to Form S-1 filed
on June 18, 1996)
10.7 - Specimen Preferred Stock, Series A, certificate, $25.00 per share stated
value, of the Bank (Exhibit 10.7 to Form S-1 filed on June 18, 1996)
10.7a - Certificate of Designation of Noncumulative Preferred Stock, Series A of
the Bank (Exhibit 10.7a to Form S-1 filed on June 18, 1996)
10.7b - Specimen Preferred Stock, Series B, certificate, $25.00 per share stated
value, of the Bank (Exhibit 10.7b to Form S-1 filed on June 18, 1996)
10.7c - Certificate of Designation of Noncumulative Preferred Stock, Series B of
the Bank (Exhibit 10.7c to Form S-1 filed on June 18, 1996)
10.8 - Data Processing Agreement dated January 1, 1992, between the Bank and
Systematics Financial Services, Inc., a First Amendment (dated October 28,
1992), and Second Amendment (dated September 1, 1992) (Exhibit 10.8 to
Form S-1 filed on June 18, 1996)
10.8a - Third Amendment to the Data Processing Agreement, dated January 1, 1992,
between the Bank and Systematics Financial Services, Inc. (Exhibit 10.8a
to Form S-1 filed on June 18, 1996)
10.8b - Fourth Amendment to the Data Processing Agreement, dated January 1,
1992, between the Bank and Systematics Financial Services, Inc. (Exhibit
10.8b to Form S-1 filed on June 18, 1996)
10.8c - Fifth Amendment, dated April 1, 1994 to the Data Processing Agreement,
dated January 1, 1992, between the Bank and Systematics Financial
Services, Inc. (Exhibit 10.8c to Form S-1 filed on June 18, 1996)
10.8d -Sixth Amendment, dated February 26, 1996 to the Data Processing
Agreement, dated January 1, 1992, between the Bank and Systematics
Financial Services, Inc. (Exhibit 10.8d to Form S-1 filed on June 18,
1996)
10.9 - Management and Consulting Services Agreement dated January 1, 1992,
between the Bank and Systematics Financial Services Inc., First Amendment
(dated March 18, 1992), and Second Amendment (dated September 1, 1992)
(Exhibit 10.9 to Form S-1 filed on June 18, 1996)
23
BANK UNITED CORP.
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
10.10 - Lease Agreement dated April 1, 1989, between the Bank and Homart
Development Co. (Leased premises at 3200 Southwest Freeway) and First
Amendment thereto dated January 31, 1990 (Exhibit 10.10 to Form S-1 filed
on June 18, 1996)
10.10a - Second Amendment dated November 14, 1994 to Lease Agreement dated April
1, 1989, between the Bank and Homart Development Co. (assigned to HD
Delaware Properties, Inc.) (Exhibit 10.10a to Form S-1 filed on June 18,
1996)
10.10b - Third Amendment dated January 8, 1996 to Lease Agreement dated April 1,
1989, between the Bank and Homart Development Co. (predecessor in interest
of HMS Office, L.P.) (Exhibit 10.10b to Form S-1 filed on June 18, 1996)
10.11 - Lease Agreement dated November 20, 1990, between the Bank and Greenway
Plaza, LTD. (Leased premises at 3800 Buffalo Speedway) (Exhibit 10.11 to
Form S-1 filed on June 18, 1996)
10.12 - Employment Agreement dated March 18, 1991, between the Bank and Barry C.
Burkholder (Exhibit 10.12 to Form S-1 filed on June 18, 1996)
10.12a - Amendment, dated April 10, 1996, to the Employment Agreement between
the Bank and Barry C. Burkholder (Exhibit 10.12a to Form S-1 filed on June
18, 1996)
10.13 - Letter Agreement Related to Employment, dated April 4, 1990, between the
Bank and Anthony J. Nocella (Exhibit 10.13 to Form S-1 filed on June 18,
1996)
10.14 - Letter Agreement Related to Employment, dated June 18, 1990, between the
Bank and George R. Bender (Exhibit 10.14 to Form S-1 filed on June 18,
1996)
10.15 - Letter Agreement Related to Employment, dated April 6, 1990, between the
Bank and Jonathon K. Heffron (Exhibit 10.15 to Form S-1 filed on June 18,
1996)
10.16 - Letter Agreement Related to Employment, dated May 10, 1991, between the
Bank and Leslie H. Green (Exhibit 10.16 to Form S-1 filed on June 18,
1996)
10.17 - Management Incentive Plan dated April 20, 1992 (Exhibit 10.17 to Form
S-1 filed on June 18, 1996)
10.18 - Letter Agreement, dated January 5, 1990, between Hyperion Partners and
certain shareholders of the Registrant with respect to the provision of
managerial assistance to the Registrant (Exhibit 10.18 to Form S-1 filed
on June 18, 1996)
10.22 - Supplemental Executive Savings Plan of the Bank (Exhibit 10.22 to Form
S-1 filed on June 18, 1996)
10.23 - Directors Supplemental Savings Plan of the Bank (Exhibit 10.23 to Form
S-1 filed on June 18, 1996)
10.24 - Warrant Purchase and Exchange Agreement, dated July 23, 1996, by and
among the Parent Company, the Bank and the Federal Deposit Insurance
Corporation (Exhibit 10.24 to Form S-1 filed on July 25, 1996)
10.25 - Form of Tax Sharing Agreement dated as of May 1, 1996, by and between
the Parent Company and the Bank (Exhibit 10.25 to Form S-1 filed on July
25, 1996)
10.26 - Form of The Registrant's 1996 Stock Incentive Plan (Exhibit 10.26 to
Form S-1 filed on July 25, 1996)
10.27 - Form of The Registrant's Director Stock Plan (Exhibit 10.27 to Form S-1
filed on July 25, 1996)
10.28 - Form of Employment Agreement, dated August 1, 1996, between the
Registrant and Barry C. Burkholder (Exhibit 10.28 to Form S-1 filed on
July 25, 1996)
10.29 - Form of Employment Agreement, dated August 1, 1996, between the
Registrant and Anthony J. Nocella (Exhibit 10.29 to Form S-1 filed on July
25, 1996)
10.30 - Form of Employment Agreement, dated August 1, 1996, between the
Registrant and Jonathon K. Heffron (Exhibit 10.30 to Form S-1 filed on
July 25, 1996)
10.31 - Form of Employment Agreement, dated August 1, 1996, between the
Registrant and Ronald D. Coben (Exhibit 10.31 to Form S-1 filed on July
25, 1996)
10.32 - Form of Nontransferable Stock Agreement (Exhibit 10.32 to Form S-1 filed
on July 25, 1996)
10.33 - Form of Stock Option Agreement (Exhibit 10.33 to Form S-1 filed on July
25, 1996)
10.34 - Form of Consulting Agreement (Exhibit 10.34 to Form S-1 filed on July
25, 1996)
10.35 - Form of Recovery Agreement (Exhibit 10.35 to Form S-1 filed on July 25,
1996)
24
BANK UNITED CORP.
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
10.36 - Stock Purchase Agreement, dated January 15, 1993, between Hyperion
Partners and Hyperion Holdings (Exhibit 10.36 to Form S-1 filed on July
25, 1996)
21 - Subsidiaries of the Registrant (Exhibit 21 to Form S-1 filed on August
7, 1996)
27* - Financial Data Schedule
99* - Legal Proceedings Section (pp. 112-114) of the Registrant's Registration
Statement on Form S-1 filed August 8, 1996.
* Filed herewith.
ITEM 6B. REPORTS ON FORM 8-K
The Company did not file a report on Form 8-K during the nine months ended June
30, 1996.
25
BANK UNITED CORP.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANK UNITED CORP.
(Registrant)
Date September 20, 1996 /s/ BARRY C. BURKHOLDER
Barry C. Burkholder
President
Chief Executive Officer
(Duly Authorized Officer)
Date September 20, 1996 /s/ ANTHONY J. NOCELLA
Anthony J. Nocella
Executive Vice President
Chief Financial Officer
26
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND FORM 10-Q FOR THE
NINE MONTHS ENDED 6/30/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 96,647
<INT-BEARING-DEPOSITS> 4,766,319
<FED-FUNDS-SOLD> 856,178
<TRADING-ASSETS> 1,129
<INVESTMENTS-HELD-FOR-SALE> 1,144,783
<INVESTMENTS-CARRYING> 654,797
<INVESTMENTS-MARKET> 632,803
<LOANS> 7,597,406
<ALLOWANCE> 37,056
<TOTAL-ASSETS> 11,023,270
<DEPOSITS> 5,053,605
<SHORT-TERM> 4,769,264
<LIABILITIES-OTHER> 370,469
<LONG-TERM> 115,000
0
0
<COMMON> 292
<OTHER-SE> 529,140
<TOTAL-LIABILITIES-AND-EQUITY> 11,023,270
<INTEREST-LOAN> 478,846
<INTEREST-INVEST> 131,483
<INTEREST-OTHER> 10,090
<INTEREST-TOTAL> 620,419
<INTEREST-DEPOSIT> 204,138
<INTEREST-EXPENSE> 448,026
<INTEREST-INCOME-NET> 172,393
<LOAN-LOSSES> 10,155
<SECURITIES-GAINS> 3,821
<EXPENSE-OTHER> 167,993
<INCOME-PRETAX> 72,327
<INCOME-PRE-EXTRAORDINARY> 125,869
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125,869
<EPS-PRIMARY> 4.13
<EPS-DILUTED> 4.13
<YIELD-ACTUAL> 2.09
<LOANS-NON> 87,259
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 36,801
<CHARGE-OFFS> 10,024
<RECOVERIES> 124
<ALLOWANCE-CLOSE> 37,056
<ALLOWANCE-DOMESTIC> 37,056
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT 99
LEGAL PROCEEDINGS
On December 7, 1995, Maxxam filed a Petition for Review in the United
States Court of Appeals for the Fifth Circuit seeking to modify, terminate, and
set aside the order, dated December 30, 1988 (the "Order"), of the FSLIC
approving the Acquisition, which was consummated on December 31, 1988 and
involved substantially all the Bank's initial assets and liabilities. See "The
Company -- History". On December 8, 1995, Maxxam filed a Motion to Intervene
and a Complaint in Intervention in an action pending in the U.S. District Court
for the Southern District of Texas, entitled FEDERAL DEPOSIT INSURANCE
CORPORATION V. CHARLES E. HURWITZ, also seeking to set aside the Order. Maxxam
contends, in both cases, that it submitted the most favorable bid to acquire the
assets and liabilities of Old USAT and that it should have been selected as the
winning bidder. In its brief to the Court of Appeals, Maxxam has asserted that
the Court should order the OTS "to award Bank United to Maxxam" and that the
Company would bear no harm in that event because it is entitled to full
indemnification by the FDIC, as manager of the FRF, pursuant to Section 7(a)(2)
of the Assistance Agreement.
The Company is not a party to either of these proceedings. The Bank has
intervened in the Fifth Circuit case and may file a Motion to Intervene in the
District Court case at a later date. Management believes, after consultation
with legal counsel, that the claims of Maxxam are barred by applicable time
limits, have no basis for assertion under existing law, and will not have a
material adverse effect on the Bank's or the Company's financial condition,
results of operations, or liquidity.
The Bank's operations are subject to various consumer protection statutes
and regulations, including, for example, the TILA, the FH Act, the CRA, the
ECOA, the HMDA, the RESPA, the EFTA, the Expedited Funds Act, the TISA, and the
ADA. See "Regulation -- Consumer Protection Regulations". During the past
several years, numerous individual claims and purported consumer class action
claims were commenced against a number of financial institutions, their
subsidiaries, and other mortgage lending institutions seeking civil statutory
and actual damages and rescission under the TILA, as well as remedies for
alleged violations of various state unfair trade practices laws and restitution
or unjust enrichment in connection with certain mortgage loan transactions.
Also, there have been numerous individual claims and purported consumer class
action claims commenced against a number of financial institutions, their
subsidiaries, and other mortgage lending institutions seeking declaratory relief
that certain of the lenders' escrow account servicing practices violate the
RESPA and breach the lenders' contracts with borrowers. Such claims also
generally seek actual damages and attorneys' fees.
In addition to the foregoing, mortgage lending institutions have been
subjected to an increasing number of other types of individual claims and
purported consumer class action claims that relate to various aspects of the
origination, pricing, closing, servicing, and collection of mortgage loans and
that allege inadequate disclosure, breach of contract, breach of fiduciary duty,
or violation of federal or state laws. Claims have involved, among other things,
interest rates and fees charged in connection with loans, interest rate
adjustments on adjustable-rate mortgage loans, timely release of liens upon loan
payoffs, the disclosure and imposition of various fees and charges, and the
placing of collateral protection insurance. The Bank has had asserted against it
one putative class action claim under the TILA, one putative class action claim
under the RESPA and three separate putative class action claims involving the
Bank's loan servicing practices. Management does not expect these claims, in the
aggregate, to have a material adverse impact on the Company's financial
condition, results of operation, or liquidity.
On July 25, 1995, Plaintiffs (the Bank, the Company (including its
predecessors) and Hyperion Partners) filed suit against the United States of
America in the United States Court of Federal Claims for breach of contract and
taking of property without compensation in contravention of the Fifth Amendment
of the United States Constitution. The action arose because the passage of
FIRREA and the regulations adopted by the OTS pursuant to FIRREA deprived
Plaintiffs of their contractual rights.
In December 1988, the United States, through its agencies, entered into
certain agreements with the Plaintiffs that resulted in contractual obligations
owed to Plaintiffs. Plaintiffs contend that the obligations were undertaken to
induce, and did induce, the Company's acquisition of substantially all of the
assets and the secured, deposit, and certain tax liabilities of Old USAT, an
insolvent savings and loan association, thereby relieving the FSLIC, an agency
of the United States government, of the immense costs and burdens of taking over
and managing or liquidating the institution. The FSLIC actively solicited buyers
for Old USAT, and in the weeks preceding the acquisition the Company and the
FSLIC negotiated the terms of a complex transaction involving some six
contractual documents. To accomplish this transaction, the FSLIC and its
regulating agency, the FHLBB, which was also an agency of the United States
government, were required to undertake to pay certain other amounts of money
over time and to count for regulatory purposes certain monies and book entries
of the Bank in ways that allowed the Company greater leverage to increase the
size of the Bank prudently and profitably. The United States obtained the right
to share in this leveraged growth through warrants for stock and through
so-called "tax benefit payments" to the United States from the Company and the
Bank.
The lawsuit alleges breaches of the United States' contractual obligations
(i) to abide by a capital forbearance, which would have allowed the Bank to
operate for ten years under negotiated capital levels lower than the levels
required by the then existing regulations or successor regulations, (ii) to
abide by its commitment to allow the Bank to count $110 million of subordinated
debt as regulatory capital for all purposes and (iii) to abide by an accounting
forbearance, which would have allowed the Bank to count as capital for
regulatory purposes, and to amortize over a period of twenty-five years, the
$30.7 million difference between certain FSLIC payment obligations to the Bank
and the discounted present value of those future FSLIC payments. The lawsuit
seeks monetary relief for the breaches by the United States of its contractual
obligations to plaintiffs and, in the alternative, seeks just compensation for a
taking of property and for a denial of due process under the Fifth Amendment to
the United States Constitution.
There are over 100 similar cases pending in the United States Court of
Federal Claims, which has entered summary judgment for the plaintiffs as to
liability, but not damages, in three of the cases. The WINSTAR cases were
appealed to the United States Court of Appeals for the Federal Circuit, which
affirmed the judgment for the plaintiffs following a hearing EN BANC after a
three-judge panel had found for the United States. On July 1, 1996, the United
States Supreme Court affirmed the EN BANC ruling of the Federal Circuit holding
the United States liable for breach of contract and remanded the case for future
proceedings on the issue of damages.
Plaintiffs' lawsuit has been stayed from the outset by a judge of the Court
of Federal Claims pending the Supreme Court's decision in the WINSTAR cases. The
Company anticipates that the stay will be lifted in the near future, but there
is uncertainty about how Plaintiffs' lawsuit and the over 100 similar cases will
be judicially managed by the Court of Federal Claims. On July 8, 1996, the Chief
Judge of the Court of Federal Claims designated Stephen D. Susman, Esq. of
Houston, Texas as "Special Counsel to the Court" to facilitate the adoption of
methods for "rationalizing" the litigation. At the Court of Federal Claims
status conference held on July 30, 1996, Mr. Susman presented a proposed case
management plan and schedule supported by a large number of the plaintiffs in
the FIRREA-related cases, including Plaintiffs. Counsel for the United States
proposed a different plan, but, while asserting objections to a number of the
features of Mr. Susman's plan, expressed a willingness to work with Mr. Susman
and a coordinating committee of plaintiffs' counsel on achieving an agreed
pretrial order for management of the cases. The Chief Judge of the Court of
Federal Claims scheduled another status conference for August 19, 1996 and
directed counsel for the United States and the plaintiffs' counsel coordinating
committee to report to the Chief Judge by August 15 on their efforts to agree on
a proposed case management plan. The Chief Judge also encouraged the FDIC, which
has indicated a desire to participate in or take over certain lawsuits (unlike
Plaintiffs' lawsuit) involving post-FIRREA failed institutions, to become
involved in this process. The Chief Judge indicated that he may enter a case
management order at or shortly after the August 19 status conference. It remains
unclear how such an order entered by the Chief Judge will affect the future
course of Plaintiffs' lawsuit.
There have been no decisions determining damages in any of the over 100
similar cases pending in the Court of Federal Claims. While the Company expects
Plaintiffs' claims for damages to exceed $200 million, the Company is unable to
predict the outcome of Plaintiffs' suit against the United States and the amount
of judgment for damages, if any, that may be awarded. Consequently, no
assurances can be given as to the results of this suit.
The Company and the Bank have entered into an agreement with Hyperion
Partners acknowledging the relative value, as among the parties, of their claims
in the pending litigation. The agreement confirms that the Company and the Bank
are entitled to receive 85% of the amount, if any, recovered as a result of the
settlement of or a judgment on such claims, and that Hyperion Partners is
entitled to receive 15% of such amount. The agreement was approved by the
disinterested directors of the Company. Plaintiffs will continue to cooperate in
good faith and will use their best efforts to maximize the total amount, if any,
that they may recover.
The Bank is involved in other legal proceedings occurring in the ordinary
course of business that management believes, after consultation with legal
counsel, are not, in the aggregate, material to the financial condition, results
of operations, or liquidity of the Bank or the Company.
