SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended June 30, 1997.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number:
0000906420
BANK UNITED CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3528556
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 SOUTHWEST FREEWAY, SUITE 1600
HOUSTON, TX 77027
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 543-6958
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Number of shares outstanding of the registrant's $0.01 par value common
stock as of August 13, 1997 were as follows:
TITLE OF EACH CLASS NUMBER OF SHARES
------------------- ----------------
Class A 28,354,276
Class B 3,241,320
<PAGE>
BANK UNITED CORP.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements.................................. 1
Consolidated Statements of Financial Condition -
June 30, 1997 and September 30, 1996............................ 1
Consolidated Statements of Operations -
For the Nine Months Ended June 30, 1997 and 1996................ 2
Consolidated Statements of Operations -
For the Three Months Ended June 30, 1997 and 1996............... 3
Consolidated Statements of Stockholders' Equity -
For the Nine Months Ended June 30, 1997 and 1996................ 4
Consolidated Statements of Cash Flows -
For the Nine Months Ended June 30, 1997 and 1996................ 5
Notes to Consolidated Financial Statements...................... 6
Independent Accountants' Report................................. 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 22
Item 2. Changes in the Rights of the Company's Security Holders......... 23
Item 3. Defaults by the Company Upon Senior Securities................. 23
Item 4. Submission of Matters to a Vote of Security Holders............. 23
Item 5. Other Information............................................... 23
Item 6a.Exhibits........................................................ 23
Item 6b. Reports on Form 8-K............................................ 26
Signatures ............................................................. 27
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
JUNE 30, SEPTEMBER 30,
1997 1996
------------ ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents ....................... $ 102,811 $ 119,523
Securities purchased under agreements to
resell and federal funds sold ................. 577,059 674,249
Securities ...................................... 57,353 65,693
Mortgage-backed securities
Held to maturity, at amortized cost (fair
value of $543.7 million in 1997 and
$609.2 million in 1996) ..................... 563,369 630,048
Available for sale, at fair value ............. 1,038,488 1,027,860
Loans
Held to maturity (net of the allowance for
credit losses of $38.6 million in 1997
and $39.7 million in 1996) .................. 7,991,266 7,227,153
Held for sale ................................. 280,638 292,335
Federal Home Loan Bank stock .................... 186,907 179,643
Premises and equipment .......................... 38,495 40,209
Mortgage servicing rights ....................... 274,980 123,392
Real estate owned (net of the allowance for
losses of $928 thousand in 1997 and $986
thousand in 1996) ............................. 21,369 29,744
Deferred tax asset .............................. 130,026 168,323
Other assets .................................... 176,289 134,205
------------ ------------
TOTAL ASSETS .................................... $ 11,439,050 $ 10,712,377
============ ============
LIABILITIES, MINORITY INTEREST, AND
STOCKHOLDERS' EQUITY
LIABILITIES
Deposits ........................................ $ 5,249,888 $ 5,147,945
Federal Home Loan Bank advances ................. 3,630,060 3,490,386
Securities sold under agreements to
repurchase and federal funds purchased ........ 1,181,382 832,286
Subordinated Notes .............................. 219,694 --
Senior Notes .................................... 500 115,000
Advances from borrowers for taxes and
insurance ..................................... 164,042 146,634
Other liabilities ............................... 225,308 263,583
------------ ------------
Total liabilities .......................... 10,670,874 9,995,834
------------ ------------
MINORITY INTEREST
Preferred stock issued by
consolidated subsidiary ....................... 185,500 185,500
------------ ------------
STOCKHOLDERS' EQUITY
Common stock .................................... 316 316
Paid-in capital ................................. 129,286 129,286
Retained earnings ............................... 447,050 403,674
Unrealized gains (losses) on securities and
mortgage-backed securities available for
sale, net of tax .............................. 6,024 (2,233)
------------ ------------
Total stockholders' equity ................. 582,676 531,043
------------ ------------
TOTAL LIABILITIES, MINORITY INTEREST, AND
STOCKHOLDERS' EQUITY .......................... $ 11,439,050 $ 10,712,377
============ ============
See accompanying Notes to Consolidated Financial Statements.
1
<PAGE>
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE NINE MONTHS
ENDED JUNE 30,
1997 1996
------------ ------------
(UNAUDITED)
INTEREST INCOME
Short-term interest-earning assets ............ $ 26,732 $ 27,576
Securities .................................... 3,752 2,994
Mortgage-backed securities .................... 78,946 100,913
Loans ......................................... 482,077 478,846
Federal Home Loan Bank stock .................. 8,427 10,090
------------ ------------
Total interest income .................... 599,934 620,419
============ ============
INTEREST EXPENSE
Deposits ...................................... 195,107 204,138
Federal Home Loan Bank advances ............... 157,701 193,726
Securities sold under agreements to
repurchase and federal funds purchased ...... 39,703 42,357
Subordinated Notes ............................ 2,932 --
Senior Notes .................................. 5,582 7,805
------------ ------------
Total interest expense ................... 401,025 448,026
------------ ------------
Net interest income ...................... 198,909 172,393
PROVISION FOR CREDIT LOSSES ................... 14,644 10,155
------------ ------------
Net interest income after provision
for credit losses ...................... 184,265 162,238
------------ ------------
NON-INTEREST INCOME
Net gains (losses)
Sales of single family servicing rights
and single family warehouse loans ......... 20,475 29,581
Securities and mortgage-backed securities ... 2,277 3,821
Other loans ................................. 992 2,027
Sale of mortgage offices .................... 3,998 --
Loan servicing fees and charges ............... 44,225 31,739
Other ......................................... 14,925 10,914
------------ ------------
Total non-interest income ................ 86,892 78,082
------------ ------------
NON-INTEREST EXPENSE
Compensation and benefits ..................... 57,201 66,907
Occupancy ..................................... 11,372 13,904
Data processing ............................... 10,217 12,319
Advertising and marketing ..................... 5,979 5,956
Amortization of intangibles ................... 23,940 15,002
SAIF deposit insurance premiums ............... 3,985 9,102
Furniture and equipment ....................... 3,201 4,656
Restructuring charges ......................... -- 10,681
Other ......................................... 37,105 29,466
------------ ------------
Total non-interest expense ............... 153,000 167,993
------------ ------------
Income before income taxes, minority
interest and extraordinary loss ........ 118,157 72,327
INCOME TAX EXPENSE (BENEFIT) .................. 45,499 (73,644)
------------ ------------
Income before minority interest
and extraordinary loss ................. 72,658 145,971
MINORITY INTEREST
Subsidiary preferred stock dividends ...... 13,689 13,689
Payments in lieu of dividends ............. -- 6,413
------------ ------------
Net income before extraordinary loss ..... 58,969 125,869
EXTRAORDINARY LOSS ............................ 2,323 --
------------ ------------
NET INCOME ............................... $ 56,646 $ 125,869
============ ============
EARNINGS PER COMMON SHARE
Income before extraordinary loss ............ $ 1.86 $ 4.13
Extraordinary loss .......................... 0.07 --
------------ ------------
Net Income ............................... $ 1.79 $ 4.13
============ ============
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS
ENDED JUNE 30,
1997 1996
------------ ------------
(UNAUDITED)
INTEREST INCOME
Short-term interest-earning assets ............ $ 9,195 $ 10,216
Securities .................................... 1,521 847
Mortgage-backed securities .................... 25,610 30,214
Loans ......................................... 163,677 154,916
Federal Home Loan Bank stock .................. 2,900 3,005
------------ ------------
Total interest income .................... 202,903 199,198
------------ ------------
INTEREST EXPENSE
Deposits ...................................... 65,733 65,628
Federal Home Loan Bank advances ............... 52,399 57,225
Securities sold under agreements to
repurchase and federal funds purchased ...... 14,263 13,284
Subordinated Notes ............................ 2,932 --
Senior Notes .................................. 956 2,600
------------ ------------
Total interest expense ................... 136,283 138,737
------------ ------------
Net interest income ...................... 66,620 60,461
PROVISION FOR CREDIT LOSSES ................... 3,425 4,305
------------ ------------
Net interest income after
provision for credit losses ............ 63,195 56,156
------------ ------------
NON-INTEREST INCOME
Net gains (losses)
Sales of single family servicing rights
and single family warehouse loans ......... 3,544 10,424
Securities and mortgage-backed securities ... 684 958
Other loans ................................. 56 (1,458)
Loan servicing fees and charges ............... 16,366 9,632
Other ......................................... 5,221 3,917
------------ ------------
Total non-interest income ................ 25,871 23,473
------------ ------------
NON-INTEREST EXPENSE
Compensation and benefits ..................... 17,901 27,009
Occupancy ..................................... 3,501 4,465
Data processing ............................... 2,998 4,199
Advertising and marketing ..................... 1,829 1,903
Amortization of intangibles ................... 9,395 5,201
SAIF deposit insurance premiums ............... 823 2,973
Furniture and equipment ....................... 953 1,528
Restructuring charges ......................... -- 10,681
Other ......................................... 12,414 10,730
------------ ------------
Total non-interest expense ............... 49,814 68,689
------------ ------------
Income before income taxes, minority
interest and extraordinary loss ........ 39,252 10,940
INCOME TAX EXPENSE (BENEFIT) .................. 15,086 (98,922)
------------ ------------
Income before minority interest
and extraordinary loss ................. 24,166 109,862
MINORITY INTEREST
Subsidiary preferred stock dividends ........ 4,563 4,563
Payments in lieu of dividends ............... -- 6,189
------------ ------------
Net income before extraordinary loss ..... 19,603 99,110
EXTRAORDINARY LOSS ............................ 2,323 --
------------ ------------
NET INCOME ...................... $ 17,280 $ 99,110
============ ============
EARNINGS PER COMMON SHARE
Income before extraordinary loss ............ $ 0.61 $ 3.26
Extraordinary loss .......................... 0.07 --
------------ ------------
Net Income ........................... $ 0.54 $ 3.26
============ ============
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------------------------------------
CLASS A CLASS B CLASS C
----------------------- ----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- -------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1995 . 23,828,400 $ 239 -- $ -- 5,034,600 $ 50
Net income ............... -- -- -- -- -- --
Dividends declared: common
stock ($3.46 per share) -- -- -- -- -- --
Conversion 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 -- $ --
=========== ======== =========== ======== ========== ========
BALANCE AT SEPTEMBER 30, 1996 . 27,735,934 $ 277 3,859,662 $ 39 -- $ --
Net income ............... -- -- -- -- -- --
Dividends declared: common
stock ($0.42 per share) -- -- -- -- -- --
Conversion of common stock 618,342 7 (618,342) (7) --
Change in unrealized gains
(losses) (Note 5) ...... -- -- -- -- -- --
----------- -------- ----------- -------- ---------- --------
BALANCE AT JUNE 30, 1997 ...... 28,354,276 $ 284 3,241,320 $ 32 -- $ --
=========== ======== =========== ======== ========== ========
</TABLE>
UNREALIZED TOTAL
PAID-IN RETAINED GAINS STOCKHOLDERS'
CAPITAL EARNINGS (LOSSES) EQUITY
-------- --------- ------- ---------
BALANCE AT SEPTEMBER 30, 1995 . $117,722 $ 384,739 $(6,647) $ 496,103
Net income ............... -- 125,869 -- 125,869
Dividends declared: common
stock ($3.46 per share) -- (100,000) -- (100,000)
Conversion 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
======== ========= ======= =========
BALANCE AT SEPTEMBER 30, 1996 . $129,286 $ 403,674 $(2,233) $ 531,043
Net income ............... -- 56,646 -- 56,646
Dividends declared: common
stock ($0.42 per share) -- (13,270) -- (13,270)
Conversion of common stock -- -- -- --
Change in unrealized gains
(losses) (Note 5) ...... -- 8,257
-------- --------- ------- ---------
BALANCE AT JUNE 30, 1997 ...... $129,286 $ 447,050 $ 6,024 $ 582,676
======== ========= ======= =========
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,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash (used) provided by operating activities ..................... $ (404,043) $ 324,805
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in securities purchased under agreements to resell and
federal funds sold ................................................ 97,190 (385,126)
Purchases of securities held to maturity ............................. --
Proceeds from maturities of securities held to maturity .............. -- 6,105
Purchases of mortgage-backed securities held to maturity ............. (2,134) (3,841)
Repayments of mortgage-backed securities held to maturity ............ 60,931 156,456
Purchases of securities available for sale ........................... (34,944) (16,029)
Proceeds from maturities of securities available for sale ............ 52,600 --
Proceeds from sales of securities available for sale ................. 241,929 78,509
Purchases of mortgage-backed securities available for sale ........... (171,918) --
Proceeds from sales of mortgage-backed securities available for sale . 6,965 295,702
Repayments of mortgage-backed securities available for sale .......... 177,858 220,089
Purchases of loans held to maturity .................................. (842,270) (102,230)
Proceeds from sales of loans held to maturity ........................ 84,974 3,343
Change in loans held to maturity ..................................... (30,868) 425,302
Purchases of Federal Home Loan Bank stock ............................ (16,998) --
Redemption of Federal Home Loan Bank stock ........................... 18,160 38,800
Purchases of premises and equipment .................................. (9,655) (5,022)
Proceeds from sales of real estate owned acquired through
foreclosure ................................................... 51,627 31,832
Proceeds from sales of servicing rights .............................. 7,112 6,174
------------ ------------
Net cash (used) provided by investing activities ............... (309,441) 743,737
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits ............................................... 102,130 (128,696)
Proceeds from Federal Home Loan Bank advances ........................ 2,750,202 1,498,700
Repayment of Federal Home Loan Bank advances ......................... (2,610,528) (1,998,200)
Net change in securities sold under agreements to repurchase and
federal funds purchased ........................................... 349,096 (287,027)
Change in advances from borrowers for taxes and insurance ............ 17,408 (69,603)
Payment of dividends ................................................. (13,270) (100,000)
Proceeds from issuance of Subordinated Debt .......................... 216,234 --
Repayment of Senior Notes ............................................ (114,500) --
------------ ------------
Net cash provided (used) by financing activities ............... 696,772 (1,084,826)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS ................................. (16,712) (16,284)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................... 119,523 112,931
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 102,811 $ 96,647
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NONCASH
INVESTING ACTIVITIES
Cash paid for interest ............................................... $ 394,231 $ 434,050
Cash paid for income taxes ........................................... 1,106 2,204
Real estate owned acquired through foreclosure ....................... 51,657 55,105
Sales of real estate owned financed by the Bank ...................... 17,451 452
Securitization of loans .............................................. 246,617 13,601
Net transfer of loans from held to maturity .......................... -- 187,463
Transfer of mortgage-backed securities from held to maturity
to available for sale ............................................. 6,843 1,244,945
Change in unrealized gains (losses) on securities and
mortgage-backed securities available for sale ..................... 8,257 3,751
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Bank United Corp. (the "Parent Company") was incorporated in the state of
Delaware on December 19, 1988, and became the holding company for Bank United, a
federal savings bank (the "Bank"), upon the Bank's formation on December 30,
1988. In December 1996, the Parent Company formed a new, wholly owned, Delaware
subsidiary, BNKU Holdings, Inc. ("Holdings"). After acquiring all of the common
stock of Holdings, the Parent Company contributed all of the common stock of the
Bank to Holdings, and Holdings assumed the Parent Company's obligations for $115
million 8.05% senior notes due May 15, 1998 (the "Senior Notes"). See Note 7. As
a result of these transactions, Holdings is the sole subsidiary of the Parent
Company and the Bank is the sole subsidiary of Holdings.
The accompanying unaudited Consolidated Financial Statements include the
accounts of the Parent Company, Holdings, the Bank, and the Bank's wholly owned
subsidiaries (collectively known as the "Company"). All significant intercompany
accounts have been eliminated in consolidation. The Parent Company has no
significant assets other than the equity interest in Holdings and Holdings has
no significant assets other than the equity interest in the Bank. Substantially
all of the Company's consolidated revenues are derived from the operations of
the Bank.
2. BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements were prepared
in accordance with the instructions for Form 10-Q and, therefore, do not include
all disclosures necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. All adjustments (consisting of only normal recurring
adjustments) that are necessary, in the opinion of management, for a fair
presentation of the interim financial statements have been included. The results
of operations for the nine months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the entire fiscal year or any
interim period. The interim financial information should be read in conjunction
with the Consolidated Financial Statements and Notes included in the Company's
1996 Annual Report on Form 10-K filed with the Securities and Exchange
Commission ("SEC").
Certain amounts within the accompanying Consolidated Financial Statements
and the related Notes have been reclassified for comparative purposes to conform
to the current presentation. Such reclassifications had no effect on previously
presented net income or retained earnings.
3. CAPITAL
CAPITAL STOCK
On February 5, 1997, the SEC declared effective a registration statement
for 10.2 million outstanding shares of the Company's Class A common stock. These
shares were previously subject to restrictions on sale and transfer due to
agreements entered into in connection with the Company's August 1996 common
stock public offering. On February 10, 1997, restrictions on 7.2 million shares
expired, and restrictions on the remaining 3.0 million shares expired on August
14, 1997. After these dates, the 10.2 million shares may be offered and sold
from time to time by the holding shareholders. The Company will not receive any
of the proceeds from the sale of these shares.
EARNINGS PER COMMON SHARE
Earnings per common share ("EPS") is calculated by dividing net income
(adjusted in fiscal 1996 for earnings on the common stock equivalents
attributable to warrants issued by the Bank, no longer outstanding as of August
1996) by the weighted-average number of shares of common stock outstanding.
Common stock equivalents on the Bank's warrants were computed using the treasury
stock method.
6
<PAGE>
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents the computation of EPS (in thousands, except per
share data).
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income before extraordinary loss ........ $ 19,603 $ 99,110 $ 58,969 $ 125,869
Less: Bank's net income attributable
to common stock equivalents on warrants ... -- (4,967) -- (6,758)
---------- ---------- ---------- ----------
Net income applicable to common shares
before extraordinary loss ................. 19,603 94,143 58,969 119,111
Extraordinary loss .......................... 2,323 -- 2,323 --
---------- ---------- ---------- ----------
Net income applicable to common shares ...... $ 17,280 $ 94,143 $ 56,646 $ 119,111
========== ========== ---------- ----------
Average number of common shares outstanding . 31,596 28,863 31,596 28,863
========== ========== ========== ==========
Earnings per share before extraordinary loss $ 0.61 $ 3.26 $ 1.86 $ 4.13
Extraordinary loss .......................... 0.07 -- 0.07 --
---------- ---------- ---------- ----------
EARNINGS PER COMMON SHARE ................... $ 0.54 $ 3.26 $ 1.79 $ 4.13
========== ========== ========== ==========
</TABLE>
4. EMPLOYEE BENEFITS
On October 1, 1996, the Company adopted 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 by the Company and make pro forma
disclosures of net income and EPS under the fair value based method of
accounting. The Company will continue accounting for stock-based employee
compensation plans in accordance with Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees" and is disclosing pro
forma fair value information as prescribed by SFAS No. 123.
1996 STOCK INCENTIVE PLAN
In December 1996, the Company granted options to purchase 147,500 shares
of its common stock to certain employees of the Bank under the Bank United 1996
Stock Incentive Plan. Compensation expense was not recognized for the stock
options because the options had an exercise price approximating the fair value
of the Company's common stock at the date of grant. These options will vest at
the end of three years and will expire if not exercised within ten years of the
date of grant. The maximum number of options of Class A common stock available
for grant under this plan is 1,600,000.
MANAGEMENT COMPENSATION PROGRAM
In June 1996, the Bank's and the Company's Boards of Directors approved a
management compensation program for the Company's executive officers, other key
officers and employees, and certain directors containing the following
provisions: (1) a cash bonus of $4.0 million, (2) 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 (3) the
issuance of 1,154,520 options for purchase of an equivalent number of shares of
Company common stock (such options vest ratably from the date of grant through
June 26, 1999 and may not be exercised prior to the third anniversary of 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 the options 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 had an exercise price approximating the fair value of
the Company's common stock at the date of grant.
7
<PAGE>
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIRECTOR STOCK COMPENSATION PLAN
In June 1996, the Company's Board of Directors approved a director stock
plan for each member of the Company's Board who is not an employee ("Eligible
Director"). Each Eligible Director will be granted stock options to purchase
1,000 shares of Class A common stock of the Company when first elected to the
Company's Board of Directors and following each annual stockholders' meeting
thereafter. The options exercise price is 115% of the fair value of the
Company's common stock at the date of grant. The Company granted 10,000 options
under the director stock plan during the fourth quarter of fiscal 1996 and
10,000 of such options during the second quarter of fiscal 1997. These options
vest and become exercisable if and when the fair value of the Company's common
stock equals or exceeds the exercise price of the option on any day during the
30-day period commencing on the first anniversary of the date of the grant
("vesting window"). If these stock options do not vest during the vesting
window, they will be cancelled and all vested options will expire if not
exercised within ten years of the date of grant. The maximum number of options
of Class A common stock available for grant under this plan is 250,000.
A summary of the status of the Company's stock option plans as of June 30,
1997 and changes during the nine months ending on that date is presented below.
No options were exercised, forfeited, or expired during the nine months ended
June 30, 1997, however, in connection with the February 1997 sale of the
mortgage offices, 33,718 options became fully vested during the second quarter
of 1997. See Note 6. The weighted-average remaining contractual life of options
outstanding at June 30, 1997 was 9.1 years. None of the options outstanding at
June 30, 1997 were exercisable. The weighted-average grant date fair value for
the options granted during the nine months ended June 30, 1997 was $9.67 per
share. The fair value of each stock option was estimated using the Black-Scholes
option pricing model with the following weighted-average assumptions used for
grants in the nine months ended June 30, 1997: estimated volatility of 26.10%;
risk- free interest rate of 6.24%; dividend yield of 2.08%; and an expected life
of ten years. The Company granted no options in the nine months ended June 30,
1996 and had no options outstanding at June 30, 1996.
Number of Weighted-Average Range of
Shares Exercise Price Exercise Prices
--------- ------ -----------------
Granted during fiscal 1996 ... 1,164,520 $20.15 $20.125 - $27.394
Granted during fiscal 1997 ... 157,500 27.48 $25.250 - $36.297
--------- ------ -----------------
Outstanding at June 30, 1997 . 1,322,020 21.02 $20.125 - $36.297
========= ====== =================
The Company applies APB Opinion No. 25 in accounting for its stock
compensation plans. Accordingly, no compensation cost has been recognized for
its stock option plans. If compensation expense had been recorded based on the
fair value at the grant date for awards consistent with SFAS No. 123, the
Company's pro forma net income and EPS would have been $54.5 million and $1.72
for the nine months ended June 30, 1997.
5. RECENT ACCOUNTING STANDARDS
On October 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement requires that long-lived assets and certain identified
intangibles held and used by an entity, along with goodwill related to those
assets, be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment loss must be recognized if the estimate of the future cash flows
(undiscounted and without interest charges) resulting from the use of the asset
and its eventual disposition is less than the carrying amount of the asset. The
adoption of this pronouncement did not have a material effect on the Company's
Consolidated Financial Statements.
On January 1, 1997, the Company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
This statement requires that, after a transfer of financial assets, an entity
recognize the financial and servicing assets it controls and the liabilities it
has incurred, derecognize financial assets when control has been surrendered,
and derecognize liabilities when extinguished. This statement distinguishes
between transfers of financial assets that are sales and transfers that are
secured borrowings. This statement superseded SFAS No. 122, "Accounting for
Mortgage Servicing Rights, an Amendment of Financial Accounting Standards Board
Statement No. 65", and requires, among other things, that the book value of
loans be allocated between mortgage servicing rights ("MSRs") and the related
8
<PAGE>
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
loans at the time of the loan sale or securitization, if servicing is retained.
SFAS No. 125 also requires that assets be classified as available for sale or
trading if the assets can be settled in such a way that the holder may not
recover substantially all of their recorded investment. As a result,
mortgage-backed securities ("MBS") held to maturity and other assets totalling
$22.3 million were reclassified to MBS and securities available for sale on
January 1, 1997. An unrealized gain of $8.2 million before tax, or $5.1 million
after tax, was recorded in stockholders' equity for this transfer. Under SFAS
No. 127, "Deferral of Certain Provisions of FASB Statement No. 125", certain
provisions of SFAS No. 125 are not effective until January 1, 1998. The deferred
provisions relate to: (1) secured borrowings and collateral for all transactions
and (2) transfers of financial assets for securities purchased under agreements
to resell ("repurchase agreements"), dollar rolls, securities lending, and
similar transactions. Implementation of the deferred portion of SFAS No. 125
should have no material effect on the Company's Consolidated Financial
Statements.
In February 1997, SFAS No. 128, "Earnings per Share" was issued. This
statement establishes standards for computing and presenting EPS. It replaces
the presentation of primary EPS with basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
entities with complex capital structures and requires a reconciliation of the
basic EPS computation to the diluted EPS computation. This statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. Earlier application is not permitted and all
prior period EPS data must be restated.
FOR THE NINE MONTHS
ENDED JUNE 30,
-------------------
1997 1996
-------- --------
EPS as reported ..................................... $ 1.79 $ 4.13
Pro forma EPS under SFAS No. 128 (unaudited)
Basic .......................................... 1.79 4.36
Diluted ........................................ 1.77 4.13
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued.
This statement requires that all components of comprehensive income and total
comprehensive income be reported on one of the following: (1) the statement of
operations, (2) the statement of stockholders' equity, or (3) a new separate
statement of comprehensive income. Comprehensive income is comprised of net
income and all changes to stockholders' equity, except those due to investments
by owners (changes in paid in capital) and distributions to owners (dividends).
This statement is effective for fiscal years beginning after December 15, 1997.
Earlier application is permitted. This statement does not change the current
accounting treatment for components of comprehensive income (i.e. changes in
unrealized gains or losses on securities and MBS available for sale) and thus
the implementation of SFAS No. 130 should have no material impact on the
Company's Consolidated Financial Statements.
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information" was issued. This statement requires public companies to
report certain information about their operating segments in their annual
financial statements and quarterly reports issued to shareholders. It also
requires public companies to report certain information about their products and
services, the geographic areas in which they operate, and their major customers.
This statement is effective for fiscal years beginning after December 15, 1997.
Earlier application is encouraged. Implementation of SFAS No.131 should have no
material effect on the Company's Consolidated Financial Statements.
6. MORTGAGE BANKING RESTRUCTURINGS AND SALE OF OFFICES
In June 1996, the Company recorded a restructuring charge of $10.7 million
before tax, to recognize the costs of closing or consolidating certain mortgage
origination offices and several regional operation centers and recorded $1.8
million of other expenses related to its mortgage origination business.
Effective February 1, 1997, the Company sold certain of its retail and
wholesale mortgage origination offices. In connection with this sale, the
remaining offices were restructured or closed. The net gain on the sale of these
offices, reduced by additional restructuring costs, was $4.0 million before tax,
$2.5 million after tax, or $0.08 per share, and was recorded in the quarter
ended March 31, 1997. The additional restructuring costs were principally
comprised of estimated costs of severance and other benefits of $2.0 million and
estimated contractual obligations for which no future benefit will be derived of
$3.3 million.
9
<PAGE>
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 1997, the unpaid liability relating to the sale, the two
restructurings, and the branch closures was estimated to be $6.4 million and is
expected to be paid in full by fiscal 1999.
7. LONG-TERM DEBT
In May 1997, the Company issued $220 million of fixed-rate Subordinated
Notes due May 2007, with a stated rate of 8.875% and an effective rate of 8.896%
("Subordinated Notes"). Net proceeds from the issuance of the Subordinated Notes
were used to repurchase and retire $114.5 million of the Company's Senior Notes,
pay the related costs and expenses, and provide additional capital to the Bank.
The costs associated with retiring the Senior Notes are reflected as an a
extraordinary loss of $3.6 million, or $2.3 million after tax, in the quarter
ended June 30, 1997. In connection with the repurchase of the Senior Notes, the
Company obtained consents from the holders of the Senior Notes, which
substantially eliminated all restrictive covenants of the related indenture,
including limitations on dividends. The Subordinated Notes are subordinate to
all liabilities of the Company's subsidiaries, including preferred stock and
deposit liabilities.
8. OFF-BALANCE-SHEET FINANCIAL STATEMENTS
In January 1997, the SEC adopted new rules that require enhanced
disclosures of accounting policies for derivatives effective for SEC filings
that include financial statements for fiscal periods ending after June 15, 1997.
Pursuant to these new rules, the Company's enhanced accounting policy for
derivatives is disclosed below:
The Company enters into traditional off-balance-sheet financial
instruments such as interest rate exchange agreements ("swaps"), interest rate
caps and floors, financial options, and futures contracts in the normal course
of business in an effort to reduce its exposure to changes in interest rates.
The Company does not utilize instruments such as leveraged derivatives or
structured notes. The off-balance-sheet financial instruments utilized by the
Company are typically classified as hedges of existing assets, liabilities, or
anticipated transactions. Criteria for these methods follows:
HEDGE OF AN EXISTING ASSET OR LIABILITY: (1) the hedged asset or liability must
be interest rate sensitive and (2) the off- balance-sheet financial instrument
must be designated and be effective as a hedge of the asset or liability.
HEDGE OF ANTICIPATED TRANSACTIONS: (1) the transaction to be hedged must be
interest rate sensitive, (2) the off-balance-sheet financial instrument must be
designated and be effective as a hedge of the transaction, (3) significant
characteristics and terms of the transaction must be identified, and (4) it is
probable the transaction will occur.
Gains or losses on early termination of financial contracts, if any, are
amortized over the remaining terms of the hedged items. Generally, the Company
terminates the off-balance-sheet financial instrument when the hedged asset or
liability is sold or if the anticipated transaction is not likely to occur. In
these instances, the gain or loss on the financial contract is recognized in
income.
Off-balance-sheet financial instruments that do not satisfy the criteria
for classification as hedges above, including those used for trading activities,
are carried at market value. Changes in market value are recognized in
non-interest income.
INTEREST RATE EXCHANGE AGREEMENTS, CAPS, FLOORS, AND OPTIONS. Accrual accounting
is applied for those financial contracts classified as hedges as described
above. Amounts receivable and payable are offset against interest income or
expense on the hedged items. Fees incurred to enter into the financial contracts
are amortized over the lives of the contracts as a component of the income or
expense on the asset or liability hedged.
FINANCIAL FUTURES. Deferral accounting is applied for those financial contracts
classified as hedges as described above. Changes in the market value of futures
contracts are deferred and recognized as interest income or expense over the
remaining terms of the hedged items or recognized at the time the hedged items
are sold.
10
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Bank United Corp.:
We have reviewed the accompanying condensed consolidated statement of financial
condition of Bank United Corp. and its subsidiaries (collectively known as the
"Company") as of June 30, 1997, and the related condensed consolidated
statements of operations for the three-month and nine-month periods ended June
30, 1997 and 1996 and the related condensed consolidated statements of
stockholders' equity and cash flows for the nine-month periods ended June 30,
1997 and 1996. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial condition of Bank United
Corp. and its subsidiary as of September 30, 1996, 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 28, 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, 1996 is fairly stated, in
all material respects, in relation to the consolidated statement of financial
condition from which it has been derived.
Deloitte & Touche LLP
Houston, Texas
July 23, 1997
11
<PAGE>
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, 1997 AND
1996
GENERAL
Net income was $56.6 million ($1.79 per share) for the nine months ended
June 30, 1997, and $125.9 million ($4.13 per share) for the nine months ended
June 30, 1996. Excluding several non-recurring items in both periods, the most
significant of which was a $101.7 million tax benefit recorded during 1996, the
Company's net income was $56.5 million ($1.78 per share) for the nine months
ended June 30, 1997, compared to $42.6 million ($1.38 per share) for the nine
months ended June 30, 1996, reflecting a 33% increase. This increase is
principally the result of an improved interest rate margin.
NET INTEREST INCOME
Net interest income was $198.9 million for the nine months ended June 30,
1997, compared to $172.4 million for the nine months ended June 30, 1996,
reflecting a $26.5 million, or 15% increase. This increase is attributable to a
49 basis point increase in the net yield on interest-earning assets ("net
yield"), partially offset by a $633.3 million decrease in average
interest-earning assets.
AVERAGE BALANCE SHEET, INTEREST INCOME/EXPENSE, AND AVERAGE YIELD/RATE
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE (2) BALANCE INTEREST RATE (2)
----------- -------- -------- ----------- -------- --------
(DOLLARS IN THOUSANDS)
----------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Short-term interest-earning assets .............. $ 589,249 $ 26,732 5.98% $ 621,604 $ 27,576 5.83%
Securities ...................................... 74,407 3,752 6.75 79,504 2,994 5.03
Mortgage-backed securities ...................... 1,552,690 78,946 6.78 2,064,035 100,913 6.52
Loans (1) ....................................... 7,938,565 482,077 8.10 7,994,274 478,846 7.99
FHLB stock ...................................... 191,650 8,427 5.88 220,452 10,090 6.11
----------- -------- -------- ----------- -------- --------
Total interest-earning assets ............... 10,346,561 599,934 7.73 10,979,869 620,419 7.53
----------- -------- -------- ----------- -------- --------
Non-interest-earning assets ........................ 600,225 -- -- 383,785 -- --
----------- -------- -------- ----------- -------- --------
TOTAL ASSETS ................................ $10,946,786 -- -- $11,363,654 -- --
=========== ======== ======== =========== ======== ========
INTEREST-BEARING LIABILITIES
Deposits ........................................ $ 5,086,292 195,107 5.13 $ 5,047,794 204,138 5.40
FHLB advances ................................... 3,696,314 157,701 5.63 4,219,633 193,726 6.03
Securities sold under agreements to
repurchase and federal funds purchased ......... 934,166 39,703 5.60 973,039 42,357 5.72
Subordinated Notes .............................. 44,264 2,932 8.90 -- -- --
Senior Notes .................................... 92,352 5,582 8.05 115,000 7,805 9.05
----------- -------- -------- ----------- -------- --------
Total interest-bearing liabilities .......... 9,853,388 401,025 5.41 10,355,466 448,026 5.71
Non-interest-bearing liabilities, minority interest,
and stockholders' equity ....................... 1,093,398 -- -- 1,008,188 -- --
----------- -------- -------- ----------- -------- --------
TOTAL LIABILITIES, MINORITY INTEREST,
AND STOCKHOLDERS' EQUITY .................. $10,946,786 -- -- $11,363,654 -- --
=========== ======== ======== =========== ======== ========
Net interest income/interest rate spread ........... -- $198,909 2.32% -- $172,393 1.82%
=========== ======== ======== =========== ======== ========
Net yield on interest-earning assets ............... -- -- 2.58% -- -- 2.09%
=========== ======== ======== =========== ======== ========
Ratio of average interest-earning assets to
average interest-bearing liabilities ............ 1.05 -- -- 1.06 -- --
=========== ======== ======== =========== ======== ========
</TABLE>
(1) Includes nonaccrual loans.
(2) Annualized.
12
<PAGE>
BANK UNITED CORP.
The yield on interest-earning assets increased 20 basis points during the
nine months ended June 30, 1997 in comparison to the prior year period,
primarily due to the shift of assets to higher yielding commercial and consumer
loans from the traditionally lower yielding single family mortgages and to
higher rates on adjustable-rate MBS. Average interest-earning assets decreased
primarily due to principal repayments on loans and MBS.
The cost of funds decreased 30 basis points during the nine months ended
June 30, 1997 in comparison to the prior year period, primarily due to a
decrease in Federal Home Loan Bank ("FHLB") advance rates and lower deposit
rates, reflecting the turnover of deposits from products with higher rates to
lower cost transaction accounts.
PROVISION FOR CREDIT LOSSES
The provision for credit losses increased $4.5 million for the nine months
ended June 30, 1997. The increase primarily results from charge-offs taken in
conjunction with a bulk sale of nonperforming single family loans, increased
commercial and multi-family originations, and the addition of new product lines,
including healthcare loans and commercial loan participations. During April
1997, the Company sold $31.3 million of nonperforming single family loans and
recorded related charge-offs of $5.0 million. Due to losses experienced in the
consumer line of credit portfolio, the level of reserves were increased through
higher provisions for the nine months ended June 30, 1996. This portfolio has
decreased from $54.8 million at June 30, 1996 to $44.7 million at June 30, 1997,
resulting in lower provisions and reserves in the nine months ended June 30,
1997.
ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
MORTGAGE
MULTI- BANKER
SINGLE SINGLE FAMILY MULTI- FAMILY FINANCE
FAMILY (1) CONSTRUCTION CONSUMER FAMILY CONSTRUCTION COMMERCIAL(2) LINE OF CREDIT TOTAL
-------- ---------- -------- ------- ---------- ----------- ------------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995 $ 29,632 $ 361 $ 3,247 $ 2,855 $ 199 $ 97 $ 410 $36,801
Provision ................ 4,117 223 5,400 225 33 155 2 10,155
Net charge-offs .......... (5,418) -- (4,482) -- -- -- -- (9,900)
-------- ---------- -------- ------- ---------- ----------- ------------ -------
Balance at June 30, 1996 .... $ 28,331 $ 584 $ 4,165 $ 3,080 $ 232 $ 252 $ 412 $37,056
======== ========== ======== ======= ========== =========== ============ =======
Balance at September 30, 1996 $ 28,672 $ 693 $ 5,219 $ 4,118 $ 232 $ 314 $ 412 $39,660
Provision ................ 7,663 475 4,385 646 211 1,037 227 14,644
Net charge-offs .......... (10,787) (73) (4,426) (148) -- (312) (15,746)
-------- ---------- -------- ------- ---------- ----------- ------------ -------
Balance at June 30, 1997 .... $ 25,548 $ 1,095 $ 5,178 $ 4,616 $ 443 $ 1,039 $ 639 $38,558
======== ========== ======== ======= ========== =========== ============ =======
</TABLE>
(1) Includes single family portfolio and warehouse loans.
(2) Includes commercial real estate, commercial, small business, and
healthcare loans.
NONPERFORMING ASSETS
JUNE 30, SEPTEMBER 30,
1997 1996
------------ ------------
(IN THOUSANDS)
Nonaccrual loans
Single family ................................ $ 51,186 $ 92,187
Consumer ..................................... 855 1,039
Multi-family ................................. 16 144
Commercial real estate and small business .... 2,622 350
------------ ------------
54,679 93,720
Discounts .................................... (818) (4,077)
------------ ------------
Net nonaccrual loans ...................... 53,861 89,643
REO, primarily single family prope ties ........ 22,297 30,730
------------ ------------
Total nonperforming assets ................ $ 76,158 $ 120,373
============ ============
13
<PAGE>
BANK UNITED CORP.
SELECTED ASSET QUALITY RATIOS
<TABLE>
<CAPTION>
AT OR FOR AT OR FOR AT OR FOR
THE NINE MONTHS THE YEAR ENDED THE NINE MONTHS
ENDED JUNE 30, 1997 SEPTEMBER 30, 1996 ENDED JUNE 30, 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Allowance for credit losses to net nonaccrual loans
Single family ....................................... 49.89% 32.46% 35.00%
Total ............................................... 71.59 44.24 45.21
Allowance for credit losses to total loans ............ 0.46 0.52 0.49
Nonperforming assets to total assets .................. 0.67 1.12 1.03
Net nonaccrual loans to total loans ................... 0.65 1.19 1.07
Nonperforming assets to total loans and REO ........... 0.91 1.59 1.47
Net loan charge-offs to average loans - Annualized
Single family ....................................... 0.23(1) 0.12 0.11
Total ............................................... 0.26(1) 0.17 0.17
</TABLE>
(1) Excluding charge-offs totalling $5.0 million related to a nonperforming
loan sale in April 1997, the single family charge-off ratio would have
been 0.12% and the total charge-off ratio would have been 0.18%.
Single family nonaccrual loans decreased $41.0 million during the nine
months ended June 30, 1997, primarily due to the sale of $31.3 million of
nonperforming loans in April 1997 and transfers of foreclosed properties to Real
Estate Owned ("REO"). Discounts decreased $3.3 million during the nine months
ended June 30, 1997, reflecting the recognition of non-accretable discounts into
income. These discounts principally related to potential credit risks on bulk
purchases of single family loans and upon obtaining sufficient seasoning,
payoffs, and stabilized delinquencies, a portion of these discounts was
recognized into income.
At June 30, 1997 and September 30, 1996, the recorded investment in
impaired loans pursuant to SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan", totalled $3.6 million and $3.9 million, respectively. The average
outstanding balance for the nine months ended June 30, 1997 was $3.6 million and
the average outstanding balance for fiscal 1996 was $4.4 million.
NON-INTEREST INCOME
Net gains (losses) declined $7.7 million to $27.7 million during the nine
months ended June 30, 1997, compared to $35.4 million during the same period in
1996. This decrease primarily reflects a decrease in net gains on sales of
single family warehouse loans due to the sale of the Company's mortgage
origination business during the second quarter of fiscal 1997, partially offset
by the gain recorded on that sale. See Note 6 to the Consolidated Financial
Statements.
Loan servicing fees and charges increased $12.5 million, or 39%, to $44.2
million for the nine months ended June 30, 1997. This increase reflects a larger
portfolio of single family loans serviced for others at June 30, 1997, compared
to June 30, 1996 ($20.8 billion versus $8.2 billion). See "Discussion of Changes
in Financial Condition from September 30, 1996 to June 30, 1997".
NON-INTEREST EXPENSE
Non-interest expense was $153.0 million for the nine months ended June 30,
1997, and $168.0 million for the nine months ended June 30, 1996, or 1.87% and
1.97% of average total assets for those same periods. Non-interest expense for
the nine months ended June 30, 1996 included two items deemed to be
non-recurring; (1) a charge to compensation expense of $7.8 million recorded in
June 1996 related to the implementation of a management compensation program and
(2) a $10.7 million charge recorded in June 1996 related to the restructuring of
the mortgage origination business. See Notes 4 and 6 to the Consolidated
Financial Statements. Excluding these non-recurring items, non-interest expense
was $153.0 million compared to $149.5 million for an increase of 2% period over
period. This increase was primarily due to a $8.9 million increase in intangible
amortization expense and a $2.4 million increase in legal expenses, partially
offset by decreases in compensation expense, Savings Association
14
<PAGE>
BANK UNITED CORP.
Insurance Fund ("SAIF") premiums, and the effect of the sale of certain of the
Company's retail and wholesale mortgage origination offices. Intangible
amortization expense increased due to purchases of MSRs during fiscal 1997 and
legal expenses were higher than the prior period due to the forbearance
litigation ($3.0 million and $533,000 for the nine months ended June 30, 1997
and 1996, respectively). See "Discussion of Changes in Financial Condition from
September 30, 1996 to June 30, 1997" and "Legal Proceedings".
Compensation expense decreased $9.7 million, or 15%, during the nine
months ended June 30, 1997 compared to the nine months ended June 30, 1996,
primarily due to the $7.8 million non-recurring charge discussed above.
Excluding this non-recurring charge, compensation expense decreased $1.9
million, or 3%. Average full-time equivalents decreased 30% from 2,610 for the
nine months ended June 30, 1996 to 1,838 for the nine months ended June 30, 1997
as a result of the restructuring and sale of certain of the Company's retail and
wholesale mortgage origination offices. However, the decline in compensation
expense was less than the decrease in average full-time equivalents due to the
deferral of compensation into the basis of loans originated during both periods.
SAIF deposit insurance premiums decreased $5.1 million during the nine months
ended June 30, 1997 compared to the nine months ended June 30, 1996 due to an
assessment reduction from 23 to 6.48 basis points effective January 1, 1997. The
sale of certain of the Company's retail and wholesale mortgage origination
offices contributed to decreases in occupancy, data processing, furniture and
equipment, and other non-interest expenses as the mortgage origination branches
were reduced from 91 at June 30, 1996 to six at June 30, 1997.
MINORITY INTEREST
The Bank made payments in lieu of dividends to the holder of the Bank's
common stock warrants upon payment of dividends on the common stock of the Bank
from December 1993 until August 1996, when the warrants were no longer
outstanding. In May 1996, the Bank made a payment in lieu of dividends of $5.9
million in connection with the payment of a $100 million dividend on the common
stock of the Bank.
EXTRAORDINARY LOSS
In May 1997, the Company issued $220 million of Subordinated Notes and
used a portion of the net proceeds to retire $114.5 million of Senior Notes. The
costs associated with retiring the Senior Notes are reflected as an
extraordinary loss of $3.6 million, or $2.3 million after tax ($0.07 per share).
See Note 7 to the Consolidated Financial Statements.
DISCUSSION OF CHANGES IN FINANCIAL CONDITION FROM SEPTEMBER 30, 1996 TO JUNE 30,
1997
GENERAL
Total assets increased during the nine months ended June 30, 1997 by
$726.7 million, or 7%, to $11.4 billion. The majority of the increase is the
result of commercial and consumer loan purchases and originations, as well as
purchases of MSRs. These increases were funded primarily with FHLB advances and
securities sold under agreements to repurchase ("reverse repurchase
agreements").
15
<PAGE>
BANK UNITED CORP.
ORIGINATION, PURCHASE, AND SALE OF LOANS
FOR THE NINE MONTHS ENDED JUNE 30,
-------------------------------
1997 1996
------------ ------------
(IN THOUSANDS)
Beginning balance, September 30 .......... $ 7,519,488 $ 8,260,240
Originations
Single family ....................... 1,603,305 2,846,514
Commercial .......................... 1,045,748 628,097
Consumer ............................ 109,056 94,352
Purchases
Single family ....................... 715,134 165,948
Commercial .......................... 347,169 21,783
Consumer ............................ 88,424 --
Net change in mortgage banker
finance line of credit .............. 169,260 38,733
Repayments ............................ (1,824,037) (1,786,125)
Securitized loans sold or
transferred ......................... (1,175,579) (2,072,308)
Sales ................................. (289,117) (559,533)
Other ................................. (36,947) (40,295)
------------ ------------
Ending balance, June 30 .................. $ 8,271,904 $ 7,597,406
============ ============
LOAN PORTFOLIO
JUNE 30, SEPTEMBER 30,
1997 1996
------------ ------------
(IN THOUSANDS)
Single family ........................... $ 6,330,303 $ 6,369,974
Single family construction .............. 364,710 240,488
Consumer ................................ 286,065 168,513
Multi-family ............................ 589,917 472,074
Multi-family construction ............... 87,983 30,608
Commercial real estate .................. 98,870 9,928
Commercial real estate construction ..... 41,335 21,473
Commercial .............................. 31,594 --
Healthcare and healthcare construction .. 53,750 8,750
Small business .......................... 78,768 58,331
Mortgage banker finance line of credit .. 308,609 139,349
------------ ------------
TOTAL LOANS ........................... $ 8,271,904 $ 7,519,488
============ ============
SUMMARY
Single family ........................... $ 6,330,303 $ 6,369,974
Commercial .............................. 1,655,536 981,001
Consumer ................................ 286,065 168,513
------------ ------------
$ 8,271,904 $ 7,519,488
============ ============
Total loans increased $752.4 million, or 10%, during the nine months ended
June 30, 1997. This increase, which is primarily reflected in the commercial and
consumer loan portfolios, reflects the Company's strategy to reduce its reliance
on traditionally lower yielding single family residential lending lines of
business by developing higher margin commercial and consumer lending lines of
business.
Single family loans declined during the nine months ended June 30, 1997,
primarily due to higher principal repayments. Mortgage loan originations were
down due to the sale of the Company's retail mortgage origination business
during the second quarter of fiscal 1997. Despite the sale of the retail
mortgage origination business, the Company intends to continue its origination
capability in Texas through its community banking branches and
16
<PAGE>
BANK UNITED CORP.
its wholesale capability through its Financial Markets Group. Most of the loans
originated through these businesses will be held for the Company's portfolio.
Commercial loans, which include single family construction, multi-family,
healthcare, small business, and mortgage banker finance line of credit loans,
increased $674.5 million, or 69%, during the nine months ended June 30, 1997,
compared to an increase of $134.7 million, or 18%, during the nine months ended
June 30, 1996. Additionally, the Company had $1.1 billion of outstanding
commercial loan commitments that had not been funded as of June 30, 1997, and
are not reflected in the table above.
Consumer loans increased $117.6 million, or 70%, during the nine months
ended June 30, 1997. This increase reflects purchases of home equity line of
credit loans outside the state of Texas and increased home improvement loan
originations, offset by a lower consumer line of credit portfolio balance.
MSRs increased $151.6 million, or 123%, during the nine months ended June
30, 1997. During this period, the Company purchased servicing rights associated
with $12.3 billion of single family loans at a premium of $158.2 million. As of
June 30, 1997, $7.1 billion of these servicing rights had not yet been
transferred to the Company, and are expected to be transferred during the first
quarter of fiscal 1998. The total single family servicing portfolio serviced for
others at June 30, 1997, adjusted for the acquired servicing rights, was $20.8
billion. The Company also services $3.6 billion of loans held in its own
portfolio.
Deposits increased $101.9 million, or 2%, during the nine months ended
June 30, 1997. Although total deposits were relatively unchanged, the
composition changed. Higher cost brokered deposits and certificates of deposit
were allowed to run-off and were replaced with lower cost transaction accounts.
In the aggregate, FHLB advances, reverse repurchase agreements, and federal
funds purchased increased $488.8 million during the nine months ended June 30,
1997, primarily to fund commercial and consumer loan purchases and originations.
During the nine months ended June 30, 1997, the Company issued $220 million
of Subordinated Notes. Net proceeds were used to repurchase and retire $114.5
million of Senior Notes, pay the related costs and expenses and provide
additional capital to the Bank. See Note 7 to the Consolidated Financial
Statements.
LIQUIDITY
The Bank is required by the Office of Thrift Supervision ("OTS") to
maintain a certain level of liquidity. The Bank's liquidity ratios for June 30,
1997 were as follows:
ACTUAL REQUIREMENT
------ -----------
Average daily liquidity ........... 5.47% 5.00%
Average short-term liquidity ...... 2.45% 1.00%
The primary sources of funds consist of deposits, advances from the FHLB,
reverse repurchase agreements, and principal repayments on loans and MBS.
Funding resources are principally used to meet ongoing commitments to fund
deposit withdrawals, repay borrowings, fund existing and continuing loan
commitments, and maintain liquidity. Management believes that the Bank has
adequate resources to fund all of its commitments.
The Company's and Holding's ability to pay dividends on their common stock
and to meet their other cash obligations is dependent upon the receipt of
dividends from the Bank. The declaration of dividends by the Bank on all classes
of its capital stock is subject to the discretion of the Board of Directors of
the Bank, the terms of the Bank Preferred Stock, and applicable regulatory
requirements. At June 30, 1997, the Bank had $182.3 million of available
capacity for the payment of dividends under OTS regulations.
17
<PAGE>
BANK UNITED CORP.
REGULATORY MATTERS
The Bank's capital level at June 30, 1997 and September 30, 1996 qualified
it as "well-capitalized", the highest of five tiers under applicable regulatory
definitions. The Bank's capital ratios at June 30, 1997 and September 30, 1996,
and the applicable regulatory capital requirements were as follows:
JUNE 30, 1997 SEPTEMBER 30, 1996 REQUIREMENT
------------- ------------------ -----------
Tangible capital ......... 7.59% 6.57% 1.50%
Core capital ............. 7.65 6.64 3.00
Tier 1 capital ........... 13.45 12.40 6.00
Total risk-based capital . 14.05 13.09 8.00
DISCUSSION OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND
1996
GENERAL
Net income was $17.3 million ($0.54 per share) for the three months ended
June 30, 1997, and $99.1 million ($3.26 per share) for the prior year's quarter.
Excluding several non-recurring items in both periods, the most significant of
which was a $101.7 million tax benefit recorded during fiscal 1996, the
Company's net income was $19.6 million ($0.61 per share) for the three months
ended June 30, 1997, compared to $15.8 million ($0.52 per share) for the three
months ended June 30, 1996, reflecting a 24% increase. This increase is
principally the result of an improved interest rate margin.
NET INTEREST INCOME
Net interest income was $66.6 million for the three months ended June 30,
1997, compared to $60.5 million for the three months ended June 30, 1996,
reflecting a $6.1 million, or 10% increase. This increase is attributable to a
31 basis point increase in the net yield, partially offset by a $159.2 million
decrease in average interest-earning assets.
18
<PAGE>
BANK UNITED CORP.
AVERAGE BALANCE SHEET, INTEREST INCOME/EXPENSE, AND AVERAGE YIELD/RATE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------
1997 1996
--------------------------------- ----------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE (2) BALANCE INTEREST RATE (2)
----------- -------- -------- ----------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Short-term interest-earning assets .............. $ 572,720 $ 9,195 6.35% $ 713,441 $ 10,216 5.66%
Securities ...................................... 67,725 1,521 9.00 66,829 847 5.10
Mortgage-backed securities ...................... 1,504,305 25,610 6.81 1,835,566 30,214 6.58
Loans (1) ....................................... 8,119,958 163,677 8.06 7,796,042 154,916 7.95
FHLB stock ...................................... 193,411 2,900 6.01 205,484 3,005 5.88
----------- -------- -------- ----------- -------- --------
Total interest-earning assets ............... 10,458,119 202,903 7.75 10,617,362 199,198 7.50
----------- -------- -------- ----------- -------- --------
Non-interest-earning assets ........................ 665,391 -- -- 392,610 -- --
----------- -------- -------- ----------- -------- --------
TOTAL ASSETS ................................ $11,123,510 -- -- $11,009,972 -- --
=========== ======== ======== =========== ======== ========
INTEREST-BEARING LIABILITIES
Deposits ........................................ $ 5,156,202 65,733 5.11 $ 5,016,033 65,628 5.26
FHLB advances ................................... 3,645,949 52,399 5.68 3,963,581 57,225 5.71
Securities sold under agreements to
repurchase and federal funds purchased ......... 990,724 14,263 5.70 954,679 13,284 5.50
Subordinated Notes .............................. 132,791 2,932 8.90 -- -- --
Senior Notes .................................... 47,055 956 8.13 115,000 2,600 9.05
----------- -------- -------- ----------- -------- --------
Total interest-bearing liabilities .......... 9,972,721 136,283 5.44 10,049,293 138,737 5.49
Non-interest-bearing liabilities, minority interest,
and stockholders' equity ....................... 1,150,789 -- -- 960,679 -- --
----------- -------- -------- ----------- -------- --------
TOTAL LIABILITIES, MINORITY INTEREST,
AND STOCKHOLDERS' EQUITY .................. $11,123,510 -- -- $11,009,972 -- --
=========== ======== ======== =========== ======== ========
Net interest income/interest rate spread ........... -- $ 66,620 2.31% -- $ 60,461 2.01%
=========== ======== ======== =========== ======== ========
Net yield on interest-earning assets ............... -- -- 2.56% -- -- 2.25%
=========== ======== ======== =========== ======== ========
Ratio of average interest-earning assets to
average interest-bearing liabilities ............ 1.05 -- -- 1.06 -- --
=========== ======== ======== =========== ======== ========
</TABLE>
(1) Includes nonaccrual loans.
(2) Annualized.
The yield on interest-earning assets increased 25 basis points during the
three months ended June 30, 1997 in comparison to the prior year period,
primarily due to the shift of assets to higher yielding commercial and consumer
loans from the traditionally lower yielding single family mortgages. Average
interest-earning assets decreased primarily due to principal repayments on MBS.
The cost of funds decreased 5 basis points during the three months ended
June 30, 1997 in comparison to the prior year period, primarily due to lower
deposit rates, reflecting the turnover of deposits from products with higher
rates to lower cost transaction accounts.
PROVISION FOR CREDIT LOSSES
The provision for credit losses decreased $880,000 for the three months
ended June 30, 1997. This decrease is primarily the result of lower single
family delinquencies and lower provisions for consumer line of credit loans in
fiscal 1997. These decreases were partially offset by provisions for commercial
and multi-family loans, which reflect higher originations and the addition of
new product lines, including healthcare and commercial loan participations.
During April 1997, the Company sold $31.3 million of nonperforming single family
loans and recorded related charge-offs of $5.0 million.
19
<PAGE>
BANK UNITED CORP.
ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
MORTGAGE
MULTI- BANKER
SINGLE SINGLE FAMILY MULTI- FAMILY FINANCE
FAMILY (1) CONSTRUCTION CONSUMER FAMILY CONSTRUCTION COMMERCIAL(2) LINE OF CREDIT TOTAL
-------- ---------- -------- ------ ---------- ----------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 .. $ 28,843 $ 483 $ 3,339 $2,998 $ 231 $ 183 $ 412 $ 36,489
Provision ............... 1,682 101 2,370 82 1 69 -- 4,305
Net charge-offs ......... (2,194) -- (1,544) -- -- -- -- (3,738)
-------- ---------- -------- ------ ---------- ----------- ------------ --------
Balance at June 30, 1996 ... $ 28,331 $ 584 $ 4,165 $3,080 $ 232 $ 252 $ 412 $ 37,056
======== ========== ======== ====== ========== =========== ============ ========
Balance at March 31, 1997 .. $ 31,362 $ 996 $ 5,014 $4,616 $ 247 $ 874 $ 639 $ 43,748
Provision ............... 894 99 1,756 -- 196 480 -- 3,425
Net charge-offs ......... (6,708) -- (1,592) -- -- (315) (8,615)
-------- ---------- -------- ------ ---------- ----------- ------------ --------
Balance at June 30, 1997 ... $ 25,548 $ 1,095 $ 5,178 $4,616 $ 443 $ 1,039 $ 639 $ 38,558
======== ========== ======== ====== ========== =========== ============ ========
</TABLE>
(1) Includes single family portfolio and warehouse loans.
(2) Includes commercial real estate, commercial, small business, and
healthcare loans.
NON-INTEREST INCOME
Net gains (losses) declined $5.6 million to $4.3 million during the three
months ended June 30, 1997 compared to $9.9 million during the same period in
1996. This decrease primarily reflects a decrease in net gains on sales of
single family warehouse loans resulting from the sale of the Company's mortgage
origination business during the second quarter of fiscal 1997.
Loan servicing fees and charges increased $6.7 million, or 70%, to $16.4
million for the three months ended June 30, 1997. This increase reflects a
larger portfolio of single family loans serviced for others at June 30, 1997,
compared to June 30, 1996 ($20.8 billion versus $8.2 billion). See "Discussion
of Changes in Financial Condition from September 30, 1996 to June 30, 1997".
NON-INTEREST EXPENSE
Non-interest expense was $49.8 million for the three months ended June 30,
1997, and $68.7 million for the three months ended June 30, 1996, or 1.80% and
2.51% of average total assets for those same periods. Non-interest expense for
the three months ended June 30, 1996 included two items deemed to be
non-recurring; (1) a charge to compensation expense of $7.8 million recorded in
June 1996 related to the implementation of a management compensation program and
(2) a $10.7 million charge recorded in June 1996 related to the restructuring of
the mortgage origination business. See Notes 4 and 6 to the Consolidated
Financial Statements. Excluding these non-recurring items recorded in June 1996,
non-interest expense was $49.8 million compared to $50.2 million period over
period. This decrease was primarily due to decreases in compensation expense,
SAIF premiums, and the effect of the sale of certain of the Company's retail and
wholesale mortgage origination offices, partially offset by an increase in
intangible amortization expense.
Compensation expense decreased $9.1 million, or 34%, during the three
months ended June 30, 1997 compared to the three months ended June 30, 1996,
primarily due to the $7.8 million non-recurring charge discussed above.
Excluding this non-recurring charge, compensation expense decreased $1.3
million, or 7%. Average full-time equivalents decreased 42% from 2,555 for the
three months ended June 30, 1996 to 1,474 for the three months ended June 30,
1997 as a result of the restructuring and sale of certain of the Company's
retail and wholesale mortgage origination offices. However, the decline in
compensation expense was less than the decrease in average full-time equivalents
due to the deferral of compensation into the basis of loans originated during
both periods. SAIF deposit insurance premiums decreased $2.2 million during the
three months ended June 30, 1997 compared to the three months ended June 30,
1996 due to an assessment reduction from 23 to 6.48 basis points effective
January 1, 1997. The sale of certain of the Company's retail and wholesale
mortgage origination offices contributed to decreases in
20
<PAGE>
BANK UNITED CORP.
occupancy, data processing, furniture and equipment, and other non-interest
expenses as the mortgage origination branches were reduced from 91 at June 30,
1996 to six at June 30, 1997. Partially offsetting these decreases was a $4.2
million increase in intangible amortization expense resulting from purchases of
MSRs during fiscal 1997.
MINORITY INTEREST
See "Discussion of Results of Operations for the Nine Months Ended June
30, 1997 and 1996 - Minority Interest" above.
EXTRAORDINARY LOSS
See "Discussion of Results of Operations for the Nine Months Ended June
30, 1997 and 1996 - Extraordinary Loss" above.
RECENT SEC DISCLOSURE REQUIREMENTS
In January 1997, the SEC adopted new rules to expand existing disclosure
requirements to include quantitative and qualitative information about market
risk inherent in market risk sensitive instruments. The required quantitative
and qualitative information should be disclosed outside of the Company's
Consolidated Financial Statements and related Notes. The expanded disclosures
must be included in SEC filings that include annual financial statements for
fiscal years ending after June 15, 1997 and thus must be included in the
Company's fiscal 1997 Annual Report on Form 10-K. The Company is currently
evaluating the disclosure options under these new requirements.
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 and sale of a substantial part of the Company's
mortgage banking origination 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 the Bank 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; the loss of senior management or operating personnel; claims
with respect to representations and warranties made by the Company to purchasers
and insurers of mortgage loans and to purchasers of MSRs; claims of
noncompliance by the Company with statutory and regulatory requirements; and
changes in the status of litigation to which the Company is a party. For further
information regarding these factors, see "Risk Factors" in the prospectus dated
April 29, 1997, relating to the public offering of the Company's Subordinated
Notes filed with the SEC (File No. 333-19861), and in the prospectus dated
January 27, 1997, relating to the registration of 10,208,610 shares of the
Company's Class A common stock, filed with the SEC (File No. 333-19237).
21
<PAGE>
BANK UNITED CORP.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 25, 1995, the Bank, the Parent Company (including its
predecessors), and Hyperion Partners L.P. (collectively, "Plaintiffs") filed
suit against the United States of America in the United States Court of Federal
Claims for breach of contract and taking of property without compensation in
contravention of the Fifth Amendment of the United States Constitution. The
action arose because the passage of Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") and the regulations adopted by the OTS
pursuant to FIRREA deprived Plaintiffs of their contractual rights.
In December 1988, the United States, through its agencies, entered into
certain agreements with the Plaintiffs that resulted in contractual obligations
owed to Plaintiffs. Plaintiffs contend that the obligations were undertaken to
induce, and did induce, the Company's acquisition of substantially all of the
assets and the secured, deposit, and certain tax liabilities of United Savings
Association of Texas ("Old USAT"), an insolvent savings and loan association,
thereby relieving the Federal Savings and Loan Insurance Corporation ("FSLIC"),
an agency of the United States government, of the immense costs and burdens of
taking over and managing or liquidating the institution. The 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
six contractual documents. To accomplish this transaction, the FSLIC and its
regulating agency, the Federal Home Loan Bank Board ("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
(1) to abide by a capital forbearance, which would have allowed the Bank to
operate for ten years under negotiated capital levels lower than the levels
required by the then existing regulations or successor regulations, (2) to abide
by its commitment to allow the Bank to count $110 million of subordinated debt
as regulatory capital for all purposes, and (3) to abide by an accounting
forbearance, which would have allowed the Bank to count as capital for
regulatory purposes, and to amortize over a period of twenty-five years, the
$30.7 million difference between certain FSLIC payment obligations to the Bank
and the discounted present value of those future FSLIC payments. The lawsuit
seeks monetary relief for the breaches by the United States of its contractual
obligations to Plaintiffs and, in the alternative, seeks just compensation for a
taking of property and for a denial of due process under the Fifth Amendment to
the United States Constitution.
The lawsuit was stayed from the outset by a judge of the Court of Federal
Claims pending the Supreme Court's decision in UNITED STATES V. WINSTAR CORP.,
an action by three other thrifts raising similar issues (the "WINSTAR cases").
Since the Supreme Court ruling, the Chief Judge of the Court of Federal Claims
established a case management protocol for the more than 100 lawsuits on the
Court of Federal Claims docket, that, like Plaintiffs' case, involve issues
similar to those raised in the WINSTAR cases.
Chief Judge Loren Smith of the United States Court of Federal Claims
transferred all WINSTAR-related cases to his own docket and entered an Omnibus
Case Management Order governing proceedings in such cases, including the
Company's case. Under the Omnibus Case Management Order, Chief Judge Smith
serves as the "Managing Judge" for all WINSTAR-related cases and may assign
other judges of the United States Court of Federal Claims to resolve pre-trial
discovery disputes and common legal issues and to conduct trials. The Government
and Plaintiffs exchanged certain significant documents as early as October 2,
1996 pursuant to a court order, and the Company and the Bank have responded to
the Government's first and second discovery requests. Trials on damages in two
of the three WINSTAR cases that were decided by the United States Supreme Court
in July 1996 were scheduled for early 1997. The trial of one of these two cases
is in progress and the trial of the other case has not yet begun. 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. On
January 3, 1997, the court issued a scheduling order scheduling the trial of the
Company's case in the third month after the trials of the "priority" cases
begin.
22
<PAGE>
BANK UNITED CORP.
In December 1996, Chief Judge Smith decided the motion IN LIMINE on damage
theories of Glendale Federal, one of four WINSTAR plaintiffs, and allowed
Glendale Federal to assert several other alternative damage theories against the
Government. While the Company expects Plaintiffs' claims for damages to exceed
$200 million, 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. The Company, on November 27, 1996, moved for partial summary
judgment on liability, and the Government has opposed the motion. The Company is
pursuing an early trial on damages. Uncertainties remain concerning the
administration of the Omnibus Case Management Order and the future course of the
Company's lawsuit pursuant to the Omnibus Case Management Order. Accordingly,
the Company cannot predict the timing of any resolution of its claims. The
damage trial in the first case has lasted longer than was originally estimated,
and the Company now expects the trial of its case to commence during the first
quarter of fiscal 1999. The Company is unable to predict the outcome of its suit
against the United States and the amount of judgment for damages, if any, that
may be awarded. Consequently, no assurances can be given as to the results of
this suit.
The Company and the Bank have entered into an agreement with Hyperion
Partners L.P. acknowledging the relative value, as among the parties, of their
claims in the pending litigation. The agreement confirms that the Company and
the Bank are entitled to receive 85% of the amount, if any, recovered as a
result of the settlement of or a judgment on such claims, and that Hyperion
Partners L.P. is entitled to receive 15% of such amount. The agreement was
approved by the disinterested directors of the Company. Plaintiffs will continue
to cooperate in good faith and will use their best efforts to maximize the total
amount, if any, that they may recover.
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
Not applicable.
ITEM 3. DEFAULTS BY THE COMPANY UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6A. EXHIBITS
Exhibits followed by a parenthetical reference are incorporated herein by
reference 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 Note due May 15, 1998 (included in the
Indenture filed as Exhibit 4.1 hereto) (E hibit 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)
4.4 - First Supplemental Indenture, dated as of January 23, 1995,
between the Registrant and the Bank of New York, as Trustee,
elating 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)
4.6 - Indenture, dated as of May 7, 1997, between the Registrant and
The Bank of New York, as Trustee, relating to the Registrant's
8.875 Subordinated Notes due May 1, 2007 (Exhibit 4.2 to Form
S-1 filed on April 24, 1997)
23
<PAGE>
BANK UNITED CORP.
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
4.7 - Form of 8.875% Subordinated Notes due May 1, 2007 (included in
the Indenture filed as Exhibit 4.2 hereto) (Exhibit 4.3 to
Form S-1 on April 24, 1997)
4.8 - Form of 8.05% Senior Note due May 15, 1998 (included in
Indenture filed as Exhibit 4.1 hereto) (Exhibit 4.4 to Form
S-1 filed on April 24, 1997)
4.9 - Exchange and Registration Rights relating to Registrant's
8.05% Senior Notes due May 15, 1998. (Incorporated by
reference to Exhibit 4.3 in the Registrant's Registration
Statement on Form S-1, Registration No. 333-06229).
4.10 - First Supplemental Indenture, dated as of January 23, 1995,
between the Registrant and The Bank of New York, as Trustee,
relating to Registrant's 8.05% Senior Notes due May 15, 1998.
(Incorporated by reference to Exhibit 4.4 in the Registrant's
Registration Statement on Form S-1, Registration No.
333-06229.)
4.11 - 0coace Registrant's 8.05% Senior Notes due May 15, 1998
(Exhibit 4.8 to Form S-1 filed on April 24, 1997)
4.12 - Opinion of Wachtell, Lipton, Rosen & Katz as to the validity
of the shares of Class A Common Stock. (Exhibit 5 to Form S-1
filed on January 27, 1997)
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 oncumulative Preferred Stock,
Series A of the Bank (Exhibit 10.7ato 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)
24
<PAGE>
BANK UNITED CORP.
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
10.8a - Third Amendment, dated December 17, 1993, 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, dated March 28, 1994, 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)
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 a d 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 - Tax Sharing Agreement dated as of May 1, 1996, by and between
the Parent Company and the Bank (Exhibit 10.25 to Form 10-K
filed on December 20, 1996)
10.26 - Form of The Company's 1996 Stock Incentive Plan (Exhibit 10.26
to Form S-1 filed on July 25, 1996)
25
<PAGE>
BANK UNITED CORP.
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
10.27 - Form of The Company's Director Stock Plan (Exhibit 10.27 to
Form S-1 filed on July 25, 1996)
10.28 - Employment Agreement, dated August 1, 1996, between the
Company and Barry C. Burkholder (Exhibit 10.28 to Form 10-K
filed on December 20, 1996)
10.29 - Employment Agreement, dated August 1, 1996, between the
Company and Anthony J. Nocella (Exhibit 10.29 to Form 10-K
filed on December 20, 1996)
10.30 - Employment Agreement, dated August 1, 1996, between the
Company and Jonathon K. Heffron (Exhibit 10.30 to Form 10-K
filed on December 20, 1996)
10.31 - Employment Agreement, dated August 1, 1996, between the
Company and Ronald D. Coben (Exhibit 10.31 to Form 10-K filed
on December 20, 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 - Consulting Agreement (Exhibit 10.34 to Form 10-K filed on
December 20, 1996)
10.35 - Recovery Agreement (Exhibit 10.35 to Form 10-K filed on
December 20, 1996)
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)
10.37 - Asset Purchase and Sale Agreement, dated January 17, 1997,
between the Bank and National City Mortgage Co. (Exhibit 10.38
to Form 10-Q filed on February 14, 1997)
*27 - Financial Data Schedule
- ----------
* Filed herewith.
ITEM 6B. REPORTS ON FORM 8-K
The Company did not file a report on Form 8-K during the nine months ended June
30, 1997.
26
<PAGE>
BANK UNITED CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANK UNITED CORP.
(Registrant)
Date: AUGUST 13, 1997 /S/ BARRY C. BURKHOLDER
Barry C. Burkholder
President
Chief Executive Officer
(Duly Authorized Officer)
Date: AUGUST 13, 1997 /S/ ANTHONY J. NOCELLA
Anthony J. Nocella
Vice Chairman
Chief Financial Officer
27
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