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 quarterly period ended December 31, 1999.
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:
0-21017
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 2600
HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 543-6500
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 [ ]
As of February 8, 2000, there were 32,438,926 shares of the registrant's
common stock outstanding.
<PAGE>
BANK UNITED CORP.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements..............................................1
Consolidated Statements of Financial Condition -
As of December 31, 1999 and September 30, 1999....................1
Consolidated Statements of Operations -
For the Three Months Ended December 31, 1999 and 1998.............2
Consolidated Statements of Stockholders' Equity -
For the Three Months Ended December 31, 1999 and 1998.............3
Consolidated Statements of Cash Flows -
For the Three Months Ended December 31, 1999 and 1998.............4
Notes to Consolidated Financial Statements........................5
Independent Auditors' Review Report...............................9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................18
Item 2. Changes in Securities and Use of Proceeds........................18
Item 3. Defaults Upon Senior Securities..................................18
Item 4. Submission of Matters to a Vote of Security Holders..............19
Item 5. Other Information................................................19
Item 6. Exhibits and Reports on Form 8-K.................................19
Signatures...............................................................20
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................................... $ 326,593 $ 183,260
Securities purchased under agreements to resell and federal funds sold .. 488,714 390,326
Securities and other investments
Held to maturity, at amortized cost (fair value of $11.8 million in
2000 and $11.7 million in 1999) .................................. 11,987 12,106
Available for sale, at fair value .................................. 133,546 131,432
Mortgage-backed securities
Held to maturity, at amortized cost (fair value of $288.7 million in
2000 and $308.8 million in 1999) ................................. 297,466 315,288
Available for sale, at fair value .................................. 604,339 688,714
Loans
Held for investment (allowance for credit losses of
$87.8 million in 2000 and $82.7 million in 1999) ................. 13,195,357 12,422,238
Held for sale ...................................................... 801,817 693,964
Federal Home Loan Bank stock ............................................ 335,088 328,886
Mortgage servicing rights ............................................... 567,376 534,694
Servicing receivables ................................................... 139,841 116,397
Deferred tax asset ...................................................... 109,519 110,512
Premises and equipment .................................................. 88,755 88,684
Intangible assets ....................................................... 82,948 83,778
Real estate owned ....................................................... 15,144 17,278
Other assets ............................................................ 153,711 127,122
------------ ------------
TOTAL ASSETS ............................................................ $ 17,352,201 $ 16,244,679
============ ============
LIABILITIES
Deposits ................................................................ $ 8,361,782 $ 7,508,502
Federal Home Loan Bank advances ......................................... 6,593,293 6,443,470
Securities sold under agreements to repurchase and federal
funds purchased ..................................................... 634,722 516,900
Notes payable ........................................................... 368,786 368,762
Other liabilities ....................................................... 275,073 308,131
------------ ------------
Total liabilities ............................................. 16,233,656 15,145,765
------------ ------------
MINORITY INTEREST AND REDEEMABLE PREFERRED STOCK
Preferred stock issued by consolidated subsidiary ....................... 185,500 185,500
Redeemable preferred stock .............................................. 160,000 160,000
------------ ------------
345,500 345,500
------------ ------------
STOCKHOLDERS' EQUITY
Common stock ............................................................ 325 325
Paid-in capital ......................................................... 132,411 132,153
Retained earnings ....................................................... 669,222 646,549
Unearned stock compensation ............................................. (4,235) (4,686)
Accumulated other comprehensive income - net unrealized losses on
securities available for sale, net of tax ........................... (23,736) (20,058)
Treasury stock, at cost ................................................. (942) (869)
------------ ------------
Total stockholders' equity .................................... 773,045 753,414
------------ ------------
TOTAL LIABILITIES, MINORITY INTEREST, REDEEMABLE
PREFERRED STOCK, AND STOCKHOLDERS' EQUITY ............................... $ 17,352,201 $ 16,244,679
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
1
<PAGE>
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED DECEMBER 31,
--------------------
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME
Short-term interest-earning assets ....................................... $ 4,394 $ 4,950
Securities and other investments ......................................... 3,460 1,627
Mortgage-backed securities ............................................... 16,289 17,967
Loans .................................................................... 265,764 209,765
Federal Home Loan Bank stock ............................................. 4,767 3,823
-------- --------
Total interest income .......................................... 294,674 238,132
-------- --------
INTEREST EXPENSE
Deposits ................................................................. 88,066 74,376
Federal Home Loan Bank advances .......................................... 91,376 70,530
Securities sold under agreements to repurchase and federal funds purchased 7,645 10,122
Notes payable ............................................................ 7,921 4,887
-------- --------
Total interest expense ......................................... 195,008 159,915
-------- --------
Net interest income ............................................ 99,666 78,217
PROVISION FOR CREDIT LOSSES .............................................. 7,142 6,486
-------- --------
Net interest income after provision for credit losses .......... 92,524 71,731
-------- --------
NON-INTEREST INCOME
Loan servicing fees, net ................................................. 16,846 14,723
Net gains
Sales of single family loans .......................................... 2,213 8,513
Securities and mortgage-backed securities ............................. 633 180
Other loans ........................................................... 1,704 1,065
-------- --------
Net gains ...................................................... 4,550 9,758
Deposit fees and charges ................................................. 7,887 4,839
Other .................................................................... 4,056 3,843
-------- --------
Total non-interest income ...................................... 33,339 33,163
-------- --------
NON-INTEREST EXPENSE
Compensation and benefits ................................................ 32,728 22,233
Occupancy ................................................................ 6,149 4,728
Data processing .......................................................... 6,587 4,351
Court of claims litigation ............................................... 625 2,761
Amortization of intangibles .............................................. 1,806 1,338
Other .................................................................... 21,380 18,460
-------- --------
Total non-interest expense ...................................... 69,275 53,871
-------- --------
Income before income taxes and minority interest ................ 56,588 51,023
INCOME TAX EXPENSE ....................................................... 20,248 19,084
-------- --------
Income before minority interest ................................. 36,340 31,939
MINORITY INTEREST
Subsidiary preferred stock dividends ..................................... 4,563 4,563
-------- --------
NET INCOME ....................................................... $ 31,777 $ 27,376
======== ========
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS ............................................. $ 28,812 $ 27,376
======== ========
EARNINGS PER COMMON SHARE
Basic ................................................................. $ 0.89 $ 0.85
Diluted ............................................................... 0.87 0.83
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------------
CLASS A CLASS B
------------------------ ----------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1998, RESTATED .. 28,969,592 $ 290 3,241,320 $ 32 $ 132,066 $ 560,961
Net income ............................ -- -- -- -- -- 27,376
Net change in unrealized gains (losses) -- -- -- -- -- --
----------
Total comprehensive income ......... -- -- -- -- -- 27,376
----------
Dividends declared:
Common stock ($0.157 per share) ... -- -- -- -- -- (5,056)
Stock repurchased ..................... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1998, RESTATED ... 28,969,592 $ 290 3,241,320 $ 32 $ 132,066 $ 583,281
========== ========== ========== ========== ========== ==========
BALANCE AT SEPTEMBER 30, 1999 ............ 32,477,826 $ 325 -- $ -- $ 132,153 $ 646,549
Net income ............................ -- -- -- -- -- 31,777
Net change in unrealized gains (losses) -- -- -- -- -- --
----------
Total comprehensive income ......... -- -- -- -- -- 31,777
----------
Dividends declared:
Common stock ($0.185 per share) .... -- -- -- -- -- (6,006)
Redeemable preferred stock
($0.93 per share) .................. -- -- -- -- -- (2,965)
Options exercised ..................... -- -- -- -- 258 (133)
Amortization of unrealized stock
compensation ...................... -- -- -- -- -- --
Stock repurchased ..................... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1999 ............. 32,477,826 $ 325 -- $ -- $ 132,411 $ 669,222
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME -
UNEARNED UNREALIZED TREASURY STOCK TOTAL
STOCK GAINS ------------------------ STOCKHOLDERS'
COMPENSATION (LOSSES) SHARES AMOUNT EQUITY
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1998, RESTATED .. $ -- $ (1,454) (14,200) $ (501) $ 691,394
Net income ............................ -- -- -- -- 27,376
Net change in unrealized gains (losses) -- (57) -- -- (57)
---------- ----------
Total comprehensive income ......... -- (57) -- -- 27,319
---------- ----------
Dividends declared:
Common stock ($0.157 per share) ... -- -- -- -- (5,056)
Stock repurchased ..................... -- -- (20,000) (562) (562)
---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1998, RESTATED ... $ -- $ (1,511) (34,200) $ (1,063) $ 713,095
========== ========== ========== ========== ==========
BALANCE AT SEPTEMBER 30, 1999 ............ $ (4,686) $ (20,058) (28,900) $ (869) $ 753,414
Net income ............................ -- -- -- -- 31,777
Net change in unrealized gains (losses) -- (3,678) -- -- (3,678)
---------- ----------
Total comprehensive income ......... -- (3,678) -- -- 28,099
---------- ----------
Dividends declared:
Common stock ($0.185 per share) .... -- -- -- -- (6,006)
Redeemable preferred stock
($0.93 per share) .................. -- -- -- -- (2,965)
Options exercised ..................... -- -- 12,000 375 500
Amortization of unrealized stock
compensation ...................... 451 -- -- -- 451
Stock repurchased ..................... -- -- (16,500) (448) (448)
---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1999 ............. $ (4,235) $ (23,736) (33,400) $ (942) $ 773,045
========== ========== ========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED DECEMBER 31,
---------------------------
1999 1998
----------- -----------
(RESTATED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used by operating activities ........................... $ (350,136) $ (123,822)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase price of acquisitions ....................................... (493) --
Net change in securities purchased under agreements to resell and
federal funds sold .............................................. (98,388) 288,633
Fundings of loans held for investment ................................ (1,796,283) (1,241,743)
Proceeds from principal repayments and maturities of
Loans held for investment ....................................... 1,565,444 1,241,179
Securities held to maturity ..................................... 2,417 2,267
Securities available for sale ................................... 622 199
Mortgage-backed securities held to maturity ..................... 17,714 35,413
Mortgage-backed securities available for sale ................... 21,940 59,313
Proceeds from the sale of
Securities available for sale ................................... 65,514 105,619
Mortgage-backed securities available for sale ................... 38,450 --
Real estate owned acquired through foreclosure .................. 11,383 5,679
Purchases of
Loans held for investment ....................................... (149,330) (870,949)
Securities held to maturity ..................................... (2,308) (2,271)
Securities available for sale ................................... -- (18)
Mortgage-backed securities available for sale ................... (155) (333,460)
Mortgage servicing rights ....................................... (52,335) (17,972)
Federal Home Loan Bank stock .................................... (1,436) (52,187)
Other changes in loans held for investment ........................... (230,328) (99,319)
Other changes in mortgage servicing rights ........................... (8,349) (6,015)
Net purchases of premises and equipment .............................. (2,187) (10,250)
----------- -----------
Net cash used by investing activities ........................... (618,108) (895,882)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits ............................................... 853,280 73,023
Proceeds from Federal Home Loan Bank advances ........................ 1,040,000 1,835,000
Repayment of Federal Home Loan Bank advances ......................... (890,177) (730,000)
Net change in securities sold under agreements to repurchase
and federal funds purchased ..................................... 117,822 (59,386)
Payment of dividends ................................................. (9,400) (5,056)
Stock repurchased .................................................... (448) (562)
Stock options exercised .............................................. 500 --
----------- -----------
Net cash provided by financing activities ......................... 1,111,577 1,113,019
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................. 143,333 93,315
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................... 183,260 236,588
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 326,593 $ 329,903
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest ............................................... $ 182,676 $ 159,639
Cash paid for income taxes ........................................... 5,532 1,818
NONCASH INVESTING ACTIVITIES
Real estate owned acquired through foreclosure ....................... 5,533 14,659
Securitization of loans .............................................. 76,436 109,234
Net transfer of loans (to) from held for investment (from) to held for
sale ............................................................ (175,201) (360,497)
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION
The accompanying unaudited Consolidated Financial Statements include the
accounts of Bank United Corp. (the "Parent Company"), Bank United, a federal
savings bank (the "Bank"), and subsidiaries of both the Parent Company and the
Bank (collectively known as the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation. The majority of
the Company's assets and operations are derived from 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 three months ended December 31, 1999, are not necessarily
indicative of the results that may be expected for the entire fiscal year or any
other interim period. The interim financial information should be read in
conjunction with the Consolidated Financial Statements and Notes included in the
Company's 1999 Annual Report on Form 10-K filed with the Securities and Exchange
Commission ("SEC").
Prior period Consolidated Financial Statements have been restated to include
the accounts of an entity that was acquired using the pooling of interests
method of accounting. Certain amounts within the accompanying unaudited
Consolidated Financial Statements and the related Notes have been reclassified
for comparative purposes to conform to the current presentation.
3. EARNINGS PER COMMON SHARE
Basic earnings per share ("EPS") is computed by dividing net income available
to common stockholders by the weighted-average number of common shares
outstanding during the period. Diluted EPS is computed by dividing net income
available to common stockholders by the weighted-average number of common shares
and potentially dilutive common shares outstanding during the period.
Potentially dilutive common shares are computed using the treasury stock method.
FOR THE THREE MONTHS
ENDED DECEMBER 31,
------------------
1999 1998
------- -------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
INCOME
Income available to common stockholders ................ $28,812 $27,376
======= =======
SHARES
Average common shares outstanding ...................... 32,456 32,181
Potentially dilutive common shares from options ........ 494 623
------- -------
Average common shares and potentially dilutive
common shares outstanding .......................... 32,950 32,804
======= =======
BASIC EPS .............................................. $ 0.89 $ 0.85
DILUTED EPS ............................................ 0.87 0.83
Options to purchase 1,897,550 and 852,950 shares of common stock at
weighted-average exercise prices of $40.30 and $42.26 were excluded from the
computation of diluted EPS for the three months ended December 31, 1999 and
1998, because the options' exercise price was greater than the average market
price of the common stock.
5
<PAGE>
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company will be required to issue shares of its common stock in August
2002 pursuant to purchase contracts outstanding. The maximum number of shares to
be issued under the purchase contracts is 2,671,120 and the minimum number is
2,225,940. These purchase contracts were not potentially dilutive and therefore
were not included in the computation of diluted EPS for the three months ended
December 31, 1999.
4. SUMMARY OF STOCK-BASED COMPENSATION
The Company has granted stock options to certain employees and members of its
Board of Directors under incentive and compensation plans. See the Company's
1999 Annual Report on Form 10-K for additional disclosures regarding these
options.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------
1999 1998
------------ ---------------- ------------ ----------------
NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Outstanding at end of period ..... 3,141,570 $ 32.60 2,157,970 $ 29.38
Vested at end of period .......... 1,384,250 22.59 826,596 20.64
Exercisable at end of period ..... 1,384,250 22.59 32,500 32.16
</TABLE>
5. SEGMENTS
The Company's business segments include Commercial Banking, (principally
comprised of Residential Construction Lending, Mortgage Banker Finance,
Commercial Real Estate Lending, Multi-Family Lending, and Healthcare Lending),
Community Banking, Mortgage Servicing, Mortgage Banking, and Investment
Portfolio.
o Commercial Banking provides credit and a variety of cash management and
other services primarily to mortgage bankers, builders, developers, and
healthcare operators. Other products and industry specialties include SBA
securitizations, and other commercial and industrial loan products.
o Community Banking activities include deposit gathering, consumer lending,
small business banking, and investment product sales.
o Mortgage Servicing activities include collecting and applying payments from
borrowers, remitting payments to investors, collecting funds for and paying
mortgage-related expenses, and, in general, the overall administration of an
investor's loan.
o Mortgage Banking originates wholesale single family mortgage loans for the
Company's portfolio and for sale in the secondary market.
o Investment Portfolio invests in single family loans, short-term
interest-earning assets, securities and other investments, and
mortgage-backed securities ("MBS").
Income for segment reporting purposes is defined as income before income
taxes and minority interest as these items are not allocated to the segments.
Gross revenues are comprised of net interest income before the provision for
credit losses and non-interest income. Summarized financial information by
business segment for the periods indicated, was as follows:
6
<PAGE>
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999
------------------------------------------
GROSS
INCOME REVENUES ASSETS
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Commercial Banking
Residential Construction Lending $ 6,686 $ 9,683 $ 1,199,895
Mortgage Banker Finance ........ 5,548 9,482 1,335,645
Commercial Real Estate Lending . 4,173 6,044 1,027,834
Multi-Family Lending ........... 4,725 6,569 1,212,393
Healthcare Lending ............. 3,207 4,592 719,522
Other .......................... 3,559 4,535 470,151
----------- ----------- -----------
Total Commercial Banking .. 27,898 40,905 5,965,440
Community Banking ................... 4,640 44,643 1,256,117
Mortgage Servicing .................. 7,640 17,529 797,094
Mortgage Banking .................... (3) 7,637 2,997,731
Investment Portfolio ................ 11,928 19,019 5,174,151
----------- ----------- -----------
Reportable Segments ............ 52,103 129,733 16,190,533
Other ............................... 4,485 3,272 1,161,668
----------- ----------- -----------
Total .......................... $ 56,588 $ 133,005 $17,352,201
=========== =========== ===========
<CAPTION>
AT OR FOR THE THREE MONTHS ENDED
DECEMBER 31, 1998
------------------------------------------
GROSS
INCOME REVENUES ASSETS
----------- ----------- -----------
(IN THOUSANDS)
Commercial Banking
Residential Construction Lending $ 4,263 $ 6,828 $ 884,657
Mortgage Banker Finance ........ 5,648 6,718 1,125,333
Commercial Real Estate Lending . 3,096 4,246 461,855
Multi-Family Lending ........... 2,852 4,479 878,014
Healthcare Lending ............. 1,145 2,082 406,070
Other .......................... 1,708 2,737 598,996
----------- ----------- -----------
Total Commercial Banking .. 18,712 27,090 4,354,925
Community Banking ................... 6,630 31,605 803,270
Mortgage Servicing .................. 8,414 16,726 675,896
Mortgage Banking .................... 9,135 16,569 2,289,311
Investment Portfolio ................ 13,149 19,456 5,992,740
----------- ----------- -----------
Reportable Segments ............ 56,040 111,446 14,116,142
Other ............................... (5,017) (66) 823,482
----------- ----------- -----------
Total .......................... $ 51,023 $ 111,380 $14,939,624
=========== =========== ===========
</TABLE>
Higher levels of commercial loans outstanding during the current quarter
resulted in a 41% increase in the Commercial Banking income, year over year.
Costs associated with the 7-Day Banking center initiative were the primary cause
for lower Community Banking income in the current quarter. Higher levels of loan
sales in the year ago quarter resulted in a decrease in Mortgage Banking income.
Mortgage Banking assets increased during the current quarter as a result of
growth in the adjustable-rate mortgage loan portfolio. Other represents certain
unallocated indirect expenses and the transfer pricing difference between
interest-earning assets and interest-bearing liabilities maturing or repricing
in the period, both of which can vary from period to period.
7
<PAGE>
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. RECENT ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and for Hedging Activities," requires companies to
recognize all derivatives as either assets or liabilities in the statement of
financial condition and to record those instruments at fair value. SFAS No. 133
requires that changes in fair value of a derivative be recognized currently in
earnings unless specific hedge accounting criteria are met. Upon implementation
of SFAS No. 133, hedging relationships may be redesignated and securities held
to maturity may be transferred to available for sale or trading. SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," deferred the effective date of SFAS
No. 133 to fiscal years beginning after June 15, 2000. The Company will adopt
SFAS No. 133 on October 1, 2000 and is evaluating the impact, if any, this
statement may have on its future Consolidated Financial Statements.
7. SUBSEQUENT EVENTS
On January 14, 2000, the Company elected to redeem at par the 1,200,000
shares of Series A Preferred Stock on February 15, 2000. In exchange for the
Series A Preferred Stock, a cash payment of $50.94375 per share will be
delivered to the holders, representing the redemption price of $50.00 per share
plus all accrued and unpaid dividends from the last dividend date up to the date
of redemption.
8
<PAGE>
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Stockholders
Bank United Corp.:
We have reviewed the accompanying consolidated statement of financial condition
of Bank United Corp. and subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the three-month period then ended. These consolidated 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 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 on 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 the consolidated financial statements referred to above 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 subsidiaries as of September 30, 1999, 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 26, 1999, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated
statement of financial condition as of September 30, 1999, is fairly stated, in
all material respects, in relation to the consolidated statement of financial
condition from which it has been derived.
KPMG LLP
Houston, Texas
January 24, 2000
9
<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 THREE MONTHS ENDED DECEMBER 31, 1999
AND 1998
GENERAL
Net income was $31.8 million or $.87 per diluted share for the three months
ended December 31, 1999, compared to $27.4 million or $.83 per diluted share for
the three months ended December 31, 1998. Net interest income increased due to
higher levels of interest-earning assets, particularly commercial loans, and due
to an increase in the net yield on interest-earning assets ("net yield").
Expansion of the Community Banking and Commercial Banking businesses also
resulted in an increase in deposit fees and charges as well as higher
non-interest expenses. Net servicing fees increased due to higher levels of
servicing purchases. Gains on sales of single family loans are down due to a
decline in sales volume.
NET INTEREST INCOME
Net interest income was $99.7 million for the three months ended December 31,
1999, compared to $78.2 million for the three months ended December 31, 1998, a
$21.5 million or 27% increase. This increase was due to a $2.6 billion or 20%
increase in average interest-earning assets as well as a change in the
composition of the assets. The net yield increased 16 basis points to 2.60% for
the three months ended December 31, 1999.
AVERAGE BALANCE SHEET, INTEREST INCOME/EXPENSE, AND AVERAGE YIELD/RATE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998
----------------------------------- -----------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE (1) BALANCE INTEREST RATE (1)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest-earning assets
Short-term interest-earning assets .................. $ 295,283 $ 4,394 5.82% $ 353,664 $ 4,950 5.48%
Securities and other investments .................... 210,599 3,460 6.52 117,684 1,627 5.48
Mortgage-backed securities .......................... 997,139 16,289 6.53 1,115,325 17,967 6.44
Loans
Single family ...................................... 7,133,225 129,291 7.25 6,889,440 123,669 7.18
Commercial ......................................... 5,896,251 122,812 8.27 3,765,216 76,099 8.02
Consumer ........................................... 697,066 13,661 7.78 503,035 9,997 7.88
----------- ----------- ----------- ----------- ----------- -----------
Total loans ................................... 13,726,542 265,764 7.72 11,157,691 209,765 7.49
FHLB stock .......................................... 330,111 4,767 5.73 264,691 3,823 5.73
----------- ----------- ----------- ----------- ----------- -----------
Total interest-earning assets ...................... 15,559,674 294,674 7.54 13,009,055 238,132 7.29
Non-interest-earning assets ........................... 1,238,220 1,056,787
----------- -----------
Total assets ....................................... $16,797,894 $14,065,842
=========== ===========
Interest-bearing liabilities
Deposits
Interest-bearing ................................... $ 6,826,402 88,066 5.12 $ 5,796,447 74,376 5.09
Non-interest bearing ............................... 1,261,570 -- -- 1,063,262 -- --
----------- ----------- ----------- ----------- ----------- -----------
Total deposits ................................ 8,087,972 88,066 4.32 6,859,709 74,376 4.30
FHLB advances ....................................... 6,493,950 91,376 5.52 5,211,120 70,530 5.30
Securities sold under agreements to repurchase
and federal funds purchased ........................ 557,758 7,645 5.36 745,726 10,122 5.31
Notes payable ....................................... 370,742 7,921 8.55 219,723 4,887 8.90
----------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing liabilities ................. 15,510,422 195,008 4.96 13,036,278 159,915 4.84
Non-interest-bearing liabilities, minority interest,
redeemable preferred stock, and stockholders' equity 1,287,472 1,029,564
----------- -----------
Total liabilities, minority interest, redeemable
preferred stock, and stockholders' equity .......... $16,797,894 14,065,842
=========== ===========
Net interest income/interest rate spread .............. $ 99,666 2.58% $ 78,217 2.45%
=========== =========== =========== ===========
Net yield on interest-earning assets .................. 2.60% 2.44%
=========== ===========
Ratio of average interest-earning assets to average
interest-bearing liabilities ........................ 1.00 1.00
=========== ===========
(1) Annualized.
</TABLE>
10
<PAGE>
BANK UNITED CORP.
Average interest-earning assets increased 20% to $15.6 billion during the
three months ended December 31, 1999, as compared to the three months ended
December 31, 1998, primarily due to a 57% increase in average commercial loans.
The increase in average interest-earnings assets was funded with deposits and
Federal Home Loan Bank ("FHLB") advances. See "Discussion of Changes in
Financial Condition."
The net yield was 2.60% for the three months ended December 31, 1999,
compared to 2.44% for the three months ended December 31, 1998. During the three
months ended December 31, 1999, the Company's net interest income and gross
yields increased as a result of rate resets on its portfolio of adjustable-rate
loans. The increase in gross yields more than offset the rise in the costs of
funds, resulting in a 16 basis point increase in the net yield for the three
months ended December 31, 1999. An increase in the number of lower costing
transaction deposit accounts reduced the effect of rising market interest rates
on the cost of funds.
PROVISION FOR CREDIT LOSSES
Management periodically evaluates each loan portfolio based on a variety of
factors in an effort to determine that the period end allowance for credit loss
level is adequate to cover probable losses. The allowance for credit losses
totalled $87.8 million or .62% of total loans at December 31, 1999, compared to
$82.7 million or .63% at September 30, 1999, and $52.7 million or .44% at
December 31, 1998. The provision for credit losses totalled $7.1 million for the
three months ended December 31, 1999, compared to $6.5 million for the three
months ended December 31, 1998.
ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
SINGLE
FAMILY COMMERCIAL CONSUMER TOTAL
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at September 30, 1998, restated $ 12,503 $ 32,745 $ 2,255 $ 47,503
Provision ........................... 1,318 5,097 71 6,486
Net charge-offs ..................... (635) (299) (362) (1,296)
---------- ---------- ---------- ----------
Balance at December 31, 1998, restated $ 13,186 $ 37,543 $ 1,964 $ 52,693
========== ========== ========== ==========
Balance at September 30, 1999 ......... $ 19,030 $ 61,271 $ 2,404 $ 82,705
Provision ........................... 1,683 4,946 513 7,142
Net charge-offs ..................... (1,344) (106) (624) (2,074)
---------- ---------- ---------- ----------
Balance at December 31, 1999 .......... $ 19,369 $ 66,111 $ 2,293 $ 87,773
========== ========== ========== ==========
NONPERFORMING ASSETS
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1999 1999 1998
------------ ------------ ------------
(RESTATED)
(IN THOUSANDS)
Nonperforming loans
Single family ................. $ 74,806 $ 73,575 $ 52,666
Commercial .................... 18,443 14,170 9,962
Consumer ...................... 2,956 1,617 712
------------ ------------ ------------
96,205 89,362 63,340
Premium (discounts) ............. (262) 287 87
------------ ------------ ------------
Nonperforming loans ........... 95,943 89,649 63,427
Real estate owned
Single family ................. 14,324 17,231 23,168
Commercial .................... 1,624 1,387 4,053
------------ ------------ ------------
15,948 18,618 27,221
------------ ------------ ------------
Total nonperforming assets . $ 111,891 $ 108,267 $ 90,648
============ ============ ============
</TABLE>
11
<PAGE>
BANK UNITED CORP.
Nonperforming loans may include loans on both accrual and nonaccrual status.
On a loan-by-loan basis, management may continue to accrue interest on loans
that are past due more than 90 days if management believes that the individual
loan is in the process of collection or renewal and the interest is fully
collectible. At December 31, 1999, the commercial nonperforming loan total
includes $1.3 million of loans that are greater than 90 days past due and still
accruing interest. At September 30, 1999, and December 31, 1998, there were no
loans greater than 90 days past due and still accruing interest included in the
nonperforming loan totals.
SELECTED ASSET QUALITY RATIOS
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR AT OR FOR THE
THREE MONTHS ENDED THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 SEPTEMBER 30, 1999 DECEMBER 31, 1998
-------------------- -------------------- --------------------
(RESTATED)
<S> <C> <C> <C>
Allowance for credit losses to nonperforming loans
Single family .................................. 25.93% 25.71% 24.98%
Commercial ..................................... 361.12 436.59 377.01
Consumer ....................................... 78.13 151.77 284.64
Total .......................................... 91.48 92.25 83.08
Allowance for credit losses to total loans
Single family .................................. 0.30 0.29 0.25
Commercial ..................................... 1.09 1.14 0.92
Consumer ....................................... 0.33 0.36 0.37
Total .......................................... 0.62 0.63 0.44
Nonperforming assets to total assets ............. 0.64 0.67 0.61
Net loan charge-offs to average loans - annualized
Single family .................................. 0.08 0.06 0.05
Commercial ..................................... 0.01 0.03 0.03
Consumer ....................................... 0.36 0.22 0.28
Total .......................................... 0.06 0.05 0.05
</TABLE>
The following table summarizes the recorded investments in impaired loans and
related allowances:
<TABLE>
<CAPTION>
AT OR FOR THE THREE AT OR FOR
MONTHS ENDED THE YEAR ENDED
DECEMBER 31, 1999 SEPTEMBER 30, 1999
-------------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
Impaired loans with allowance......................... $ 13,588 $ 44,406
Impaired loans with no allowance ..................... -- --
-------------------- --------------------
Total impaired loans ................................. $ 13,588 $ 44,406
==================== ====================
Average impaired loans................................ $ 28,997 $ 13,630
Allowance for impaired loans ......................... 6,744 6,626
</TABLE>
At September 30, 1999, impaired loans included a $41.5 million secured loan
to a mortgage banking company. A principal payment was received on this loan
during the current quarter resulting in an outstanding loan balance of $7.2
million at December 31, 1999. The borrower is currently in Chapter 7 bankruptcy
proceedings. The Company believes it is adequately secured and reserved.
NON-INTEREST INCOME
Non-interest income totalled $33.3 million for the three months ended
December 31, 1999, which was consistent with the three months ended December 31,
1998. Increases in loan servicing fees and Community and Commercial Banking fees
were offset by lower gains on sales of single family loans.
Net loan servicing fees increased $2.1 million or 14% during the three
months ended December 31, 1999, compared to the three months ended December 31,
1998. The increase was due to a larger servicing portfolio and higher servicing
fees
12
<PAGE>
BANK UNITED CORP.
received per loan. The portfolio of single family loans serviced for others
increased 19% to $27.5 billion at December 31, 1999, compared to $23.1 billion
at December 31, 1998. The portfolio's growth came from purchases during the
twelve month period, a large portion of which were Government National Mortgage
Association ("GNMA") securities. Loans included in GNMA securities generally
yield a higher servicing fee rate than conventional and other government related
servicing, thereby contributing to the increase in average servicing fees
earned. The annualized average service fee rate was 45.1 basis points for the
three months ended December 31, 1999, as compared to 40.4 basis points for the
three months ended December 31, 1998. During the current period, the impairment
reserve on the servicing portfolio was reduced by $1.4 million, bringing the
reserve to $3.4 million at December 31, 1999. The reduction in the reserve was a
result of the recent rise in market interest rates and the decline in prepayment
activity. The single family servicing portfolio totalled $32.5 billion at
December 31, 1999, including $5.0 billion serviced for the Company's own account
and $27.5 billion serviced for others.
Net gains from sales of single family loans and Small Business Administration
("SBA") loans and securities comprised the majority of the $4.6 million of gains
during the three months ended December 31, 1999, down $5.2 million from the
three months ended December 31, 1998. Gains on sales of single family loans
declined $6.3 million due to lower sales volume during the current period as
compared to the prior year period ($352.2 million sold in the current period
compared to $1.3 billion sold in the prior year period). Lower levels of
refinancings during the three months ended December 31, 1999 caused a reduction
in originations, contributing to the lower sales volume. SBA banking gains were
$1.9 million for the quarter, up 49% from the year ago quarter.
Deposit fees and charges increased $3.0 million or 63% to $7.9 million for
the three months ended December 31, 1999. The number of checking accounts
increased 29% over the prior year period to 239,000 at December 31, 1999. Growth
in the number of checking accounts came from the 7-Day Banking Centers opened in
Kroger stores during fiscal 1999, as well as the Midland acquisition. See
"-Discussion of Changes in Financial Condition - Deposits".
NON-INTEREST EXPENSE
Non-interest expense was $69.3 million and $53.9 million for the three months
ended December 31, 1999 and 1998. Included in these amounts are litigation
expenses of $625,000 and $2.8 million related to the Company's Court of Claims
case against the federal government. See "Legal Proceedings". Excluding these
litigation expenses, non-interest expense for the three months ended December
31, 1999 and 1998, was $68.7 million and $51.1 million, for an increase of 34%.
This increase was due to the continued growth in all businesses of the Company,
most particularly the Community Bank and the Commercial Bank. During the twelve
months ended December 31, 1999, the Community Bank's retail branch network
expanded from 88 branch locations to 152. The Midland acquisition in February
1999, the 7-Day Banking Center initiative in April 1999, and the expansion of
the SBA banking initiative contributed to this growth. Costs associated with new
offices for commercial and wholesale lending and technology initiatives also
contributed to the increase. The Company's efficiency ratio, adjusted for the
Court of Claims expense, for the three months ended December 31, 1999 was 50.65%
compared to 44.78% for the year ago period.
INCOME TAX EXPENSE
The Company's effective income tax rate was 35.8% for the three months ended
December 31, 1999, as compared to 37.4% for the three months ended December 31,
1998. This reduction was principally a result of the issuance of certain
securities in August 1999. The dividends on these securities are deductible for
purposes of computing the Company's payments due in lieu of taxes that are paid
to the Federal Savings and Loan Insurance Corporation ("FSLIC") Resolution Fund.
DISCUSSION OF CHANGES IN FINANCIAL CONDITION FROM SEPTEMBER 30, 1999 TO DECEMBER
31, 1999
GENERAL
Total assets increased $1.1 billion or 7% to $17.4 billion at December 31,
1999, up from $16.2 billion at September 30, 1999, primarily due to growth in
the commercial loan portfolios. Higher asset levels were financed principally
with higher deposit levels.
13
<PAGE>
BANK UNITED CORP.
Cash and securities purchased under agreements to resell and federal funds
sold are maintained for liquidity and short-term investment purposes. The
increase during the three months ended December 31, 1999 related to the
Company's preparation for potential customer cash demands at the end of the
year.
In connection with the Company's SBA business, $76.4 million of SBA loans
were securitized, of which $70.8 million were sold and $4.8 million of
interest-only strips were retained by the Company. During the three months ended
December 31, 1999, $2.6 billion of commercial paper was purchased and matured.
During the three months ended December 31, 1999, $55.4 million in MBS were
sold, contributing to the decline in this portfolio. Principal repayments of
$39.6 million were lower than repayments in the year ago period totalling $94.7
million due to a lower average balance outstanding and due to a decline in
payoffs during the current period. The net unrealized loss on securities
available for sale increased $6.1 million, before tax, principally due to the
rise in market interest rates during the current period.
During the current period, the Company continued to expand its commercial and
consumer lending lines of business, resulting in a change in mix as well as an
increase in the size of the total loan portfolio. At December 31, 1999,
commercial and consumer loans made up 49% of the total loan portfolio, as
compared to 46% at September 30, 1999.
The commercial loan portfolio increased $743.1 million or 14% during the
three months ended December 31, 1999. This growth was in part due to the
purchase of mortgage banker finance and consumer finance loans during the
current period. The multi-family and commercial real estate, healthcare, and
small business and SBA loan portfolios increased, primarily due to fundings,
during the three months ended December 31, 1999. The single family construction
loan portfolio remained stable during the three months ended December 31, 1999.
Single family construction loan fundings totalling $921.4 million were offset by
principal repayments.
Despite a decline in refinance activity, total single family loans increased
during the three months ended December 31, 1999. Refinancings represented 52% of
total originations for the current period, as compared to 81% for the prior year
period. The decrease in industry-wide refinancings resulted in a decline in
originations as well as lower repayments and lower sales volumes during the
three months ended December 31, 1999.
The increase in the consumer loan portfolio was primarily related to fundings
of home improvement and home equity loans.
14
<PAGE>
BANK UNITED CORP.
ORIGINATION, PURCHASE, AND SALE OF LOANS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED DECEMBER 31,
-----------------------------
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Beginning balance, September 30 ........................ $ 13,116,202 $ 10,867,897
Fundings
Single family ................................... 641,697 1,625,949
Commercial ...................................... 1,669,388 1,041,932
Consumer ........................................ 82,701 64,527
Purchases
Single family ................................... 205,147 732,167
Commercial ...................................... 127,832 306,273
Net change in mortgage banker finance line of credit 257,196 134,529
Repayments
Single family ................................... (369,911) (738,895)
Commercial ...................................... (1,162,086) (681,821)
Consumer ........................................ (52,389) (40,426)
Loans sold or securitized
Single family ................................... (352,213) (1,291,988)
Commercial ...................................... (147,051) (123,819)
Consumer ........................................ (1,267) --
Foreclosures ........................................ (5,914) (14,659)
Net change in allowance for credit losses ........... (5,068) (5,190)
Other ............................................... (7,090) (11,854)
------------ ------------
Ending balance, December 31 ............................ $ 13,997,174 $ 11,864,622
============ ============
LOAN PORTFOLIO
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1999 1999 1998
------------ ------------ ------------
(IN THOUSANDS)
Single family
Held for investment ......... $ 6,501,454 $ 6,470,636 $ 5,376,941
Held for sale ............... 669,958 592,583 1,783,143
Commercial ..................... 6,217,837 5,469,946 4,227,349
Consumer ....................... 695,698 665,742 529,882
------------ ------------ ------------
14,084,947 13,198,907 11,917,315
Less allowance for credit losses (87,773) (82,705) (52,693)
------------ ------------ ------------
Total loans receivable ....... $ 13,997,174 $ 13,116,202 $ 11,864,622
============ ============ ============
</TABLE>
Mortgage servicing rights ("MSRs") increased $32.7 million during the three
months ended December 31, 1999, primarily due to purchases. During this period,
the Company purchased servicing rights associated with $2.1 billion in loans at
a cost of $43.1 million. At December 31, 1999, $2.0 billion of these loans had
not yet been transferred to the Company, and a resulting liability of $60.5
million was included in other liabilities, representing the amount withheld
until such loans transfer. The majority of these servicing rights are to be
transferred to the Company during the second quarter of fiscal 2000.
Additionally, $7.1 million of MSRs were created during the three months ended
December 31, 1999, through sales of $317.1 million of originated single family
loans.
The increase in other assets relates to unsettled sales of MBS during the
current period. These sales are expected to settle during the second quarter of
fiscal 2000. The decline in other liabilities relates to unsettled purchases of
MBS at September 30, 1999 that were subsequently settled during the current
period.
15
<PAGE>
BANK UNITED CORP.
Transaction accounts, which include checking, savings, money market, and
escrow accounts, increased $145.0 million or 4% and certificates of deposit
increased $201.8 million or 6% during the three months ended December 31, 1999.
These increases are due to the continued growth in the Community Bank. Brokered
deposits increased to $925.8 million at December 31, 1999.
LIQUIDITY
The management of the Company's liquidity focuses on ensuring that sufficient
funds are available to meet loan funding commitments, withdrawals from deposit
accounts, the repayment of borrowed funds, and ensuring that the Bank complies
with regulatory liquidity requirements.
The Company's primary sources of liquidity are deposits, FHLB advances,
securities sold under agreements to repurchase, principal and interest payments
on loans and MBS, proceeds from the sale of loans and proceeds from the issuance
of debt and stock. While maturities and scheduled payments of loans and MBS are
predictable sources of funds, deposit outflows, loan sales and access to the
capital markets for issuance of securities are greatly influenced by economic
conditions and general interest rates.
Under the Office of Thrift Supervision ("OTS") regulations, the Bank must
maintain, for each calendar quarter, an average daily balance of liquid assets
equal to at least 4.0% of either (1) its net withdrawable accounts plus
short-term borrowings (liquidity base), at the end of the preceding calendar
quarter or (2) the average daily balance of its liquidity base during the
preceding quarter. For the first quarter of fiscal 2000, the Bank's liquidity
ratio was 4.61%.
The primary source of funds for the Parent Company, excluding funds raised
through the capital markets, to meet its cash obligations and to make dividend
payments on its cumulative redeemable preferred stock and common stock has been
from dividends from the Bank, whose ability to pay dividends is subject to
regulations of the OTS and the terms of the preferred stock of the Bank. At
December 31, 1999, the Bank had $240.1 million of capital available for payment
of dividends without prior approval of the OTS. See "Management's Discussion and
Analysis - Capital Resources and Liquidity" in the Company's 1999 Annual Report
on Form 10-K.
REGULATORY MATTERS
The Bank is subject to regulatory capital requirements as defined in the OTS
capital regulations. The Bank's capital level at December 31, 1999 and September
30, 1999 qualified it as "well-capitalized", the highest of five tiers under
applicable regulatory definitions.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, CAPITAL ADEQUACY WELL-CAPITALIZED
1999 1999 REQUIREMENT REQUIREMENT
---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
Tangible capital ................ 6.84% 7.14% 1.50% --
Core capital .................... 6.85 7.15 3.00 5.00%
Tier 1 risk-based capital ....... 9.26 9.73 -- 6.00
Total risk-based capital ........ 11.14 11.71 8.00 10.00
</TABLE>
YEAR 2000
All of the Company's computer systems worked without incident through the end
of the year 1999 and into the year 2000.
FORWARD-LOOKING INFORMATION
Statements and financial discussion and analysis by management contained in
this report 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:
16
<PAGE>
BANK UNITED CORP.
INTEREST RATES AND ECONOMY
o changes in interest rates and economic conditions;
o changes in the levels of loan prepayments and the resulting effects on the
value of the loan and servicing portfolios and the related hedging
instruments;
o changes in local economic and business conditions adversely affecting the
Company's borrowers and their ability to repay their loans according to their
terms or impacting the value of the related collateral;
o changes in local economic and business conditions adversely affecting the
Company's customers other than borrowers and their ability to transact
profitable business with the Company;
COMPETITION AND PRODUCT AVAILABILITY
o increased competition for deposits and loans adversely affecting rates and
terms;
o changes in availability of loans originated by other financial institutions or
the Company's ability to purchase such loans on favorable terms;
o changes in availability of single family servicing rights in the marketplace
and the Company's ability to purchase such assets on favorable terms;
o the Company's ability to make acquisitions of other depository institutions,
their assets or their liabilities on terms favorable to the Company, and the
Company's successful integration of any such acquisitions;
CHANGE IN COMPANY'S ASSET MIX
o increased credit risk in the Company's assets and increased operating risk
caused by an increase in commercial and consumer loans and a decrease in
single family mortgage loans as a percentage of the total loan portfolio;
LIQUIDITY AND CAPITAL
o changes in availability of funds increasing costs or reducing liquidity;
o changes in the ability of the Company to pay dividends on its preferred
and common stock;
o increased asset levels and changes in the composition of assets and the
resulting impact on the Bank's capital levels and regulatory capital ratios;
SYSTEMS
o the Company's ability to acquire, operate, and maintain cost effective and
efficient systems;
PERSONNEL
o the loss of senior management or operating personnel and the potential
inability to hire qualified personnel at reasonable compensation levels;
REGULATORY, COMPLIANCE, AND LEGAL
o changes in applicable statutes and government regulations or their
interpretations;
o claims of noncompliance by the Company with statutory and regulatory
requirements;
o claims with respect to representations and warranties made by the Company
to purchasers and insurers of mortgage loans and to purchasers of MSRs;
o changes in the status of litigation to which the Company is a party.
For further information regarding these factors, see "Risk Factors" in the
prospectus dated August 4, 1999, relating to the universal shelf for the
issuance of up to $830 million in various securities filed with the SEC (File
No. 333-75937 and File No. 333-83797).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Company's principal market risk exposure is to changes in
interest rates. Interest rate risk arises primarily from timing differences in
the duration or repricing of the Company's assets, liabilities, and
off-balance-sheet financial instruments. The Company is most affected by changes
in U. S. Treasury rates and London InterBank Offered Rates ("LIBOR") because
many of the Company's financial instruments reprice based on these indices.
Substantial changes in these indices may adversely impact the
17
<PAGE>
BANK UNITED CORP.
Company's earnings. To that end, management actively monitors and manages its
interest rate risk exposure. This effort is accomplished through structuring the
balance sheet and off-balance-sheet portfolios by seeking to maximize net
interest income while maintaining an acceptable level of risk to changes in
market interest rates. The achievement of this goal requires a balance between
profitability, liquidity, and interest rate risk. See discussion in "Business -
Market Risk Analysis" in the Company's 1999 Annual Report on Form 10-K.
The following table represents an analysis of the changes inherent in the
Company's net interest income over a 12 month period and market value of
portfolio equity ("MVE") arising from hypothetical changes in market interest
rates. MVE is the market value of assets, less the market value of liabilities,
adjusted for the market value of off-balance-sheet instruments. The interest
rate scenarios presented in the table include interest rates at December 31,
1999 and September 30, 1999 and as adjusted by instantaneous parallel rate
changes upward and downward of up to 200 basis points. Each rate scenario has
unique prepayment, repricing, and reinvestment assumptions. Prepayments are
assumed to increase as rates decrease and to slow as rates increase.
DECEMBER 31, 1999 SEPTEMBER 30, 1999
------------------------- -------------------------
CHANGE IN NET INTEREST MARKET VALUE OF NET INTEREST MARKET VALUE OF
INTEREST RATES INCOME PORTFOLIO EQUITY INCOME PORTFOLIO EQUITY
- -------------- ------------ ------ ------------ ------
+200 (7.79)% (34.07)% (5.45)% (33.28)%
+100 (3.13) (14.25) (1.79) (13.82)
0 0.00 0.00 0.00 0.00
-100 1.34 8.88 0.54 11.63
-200 2.34 16.88 0.62 26.34
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 25, 1995 the Bank, the Parent Company, and Hyperion Partners LP
(collectively the "Plaintiffs") filed suit against the United States of America
in the United States Court of Federal Claims for alleged failures of the United
States (1) to abide by a capital forbearance that 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 that 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.
In March 1999, the United States Court of Federal Claims granted the
Company's motion for summary judgment on the issue of liability and held that
the United States was liable for claims in the case filed by the Plaintiffs. On
August 5, 1999, the Court denied a motion for summary judgment filed by the
United States of America on the issue of lost profits damages. The Company's
case proceeded to trial on the amount of damages on September 13, 1999, and the
taking of evidence by the Court was concluded on October 21, 1999. The parties
have now submitted post-trial briefs and the final oral argument was held on
February 7, 2000. A decision by the Court is expected in the first half of
calendar year 2000. The Plaintiffs' seek and offered evidence in support of
damages of approximately $560 million. The government argued that damages to
Plaintiffs as a result of the breach, if any, approached zero. The Company is
unable to predict the outcome of the Plaintiffs' suit against the United States
and the amount of judgment for damages, if any, that may be awarded. No
assurances can be given on the outcome of this case.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
18
<PAGE>
BANK UNITED CORP.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6A. EXHIBITS
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
*15.1 - Letter in Lieu of Consent of KPMG LLP, independent
accountants
*27.1 - Financial Data Schedule, Quarter Ended December 31, 1999
* Filed herewith.
ITEM 6B. REPORTS ON FORM 8-K
The Company did not file a report on Form 8-K during the three months ended
December 31, 1999.
19
<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 FEBRUARY 8, 2000 /s/ BARRY C. BURKHOLDER
-------------------------------------- -------------------------
Barry C. Burkholder
President
Chief Executive Officer
(Duly Authorized Officer)
Date FEBRUARY 8, 2000 /s/ ANTHONY J. NOCELLA
------------------------------------- ------------------------
Anthony J. Nocella
Vice Chairman
Chief Financial Officer
20
EXHIBIT 15.1
Bank United Corp.
3200 Southwest Freeway
Houston, Texas 77027
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Bank United Corp. and subsidiaries for the three month period
ended December 31, 1999, as indicated in our report dated January 24, 2000;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in the
Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999,
is incorporated by reference in Post-effective Amendment No. 6 to Form S-1
(Registration Statement No. 333-19237) on Form S-3, Post-effective Amendment No.
2 to Form S-1 (Registration Statement No. 333-37645) on Form S-3, Form S-8
(Registration Statement No. 333-42765), and Pre-effective Amendment No. 2 to
Form S-3 (Registration Statement No. 333-75937 and No. 333-83797).
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
KPMG LLP
Houston, Texas
January 24, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 265,603
<INT-BEARING-DEPOSITS> 60,990
<FED-FUNDS-SOLD> 488,714
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 737,885
<INVESTMENTS-CARRYING> 309,453
<INVESTMENTS-MARKET> 300,574
<LOANS> 13,997,174
<ALLOWANCE> 87,773
<TOTAL-ASSETS> 17,352,201
<DEPOSITS> 8,361,782
<SHORT-TERM> 5,849,415
<LIABILITIES-OTHER> 275,073
<LONG-TERM> 1,747,386
0
160,000
<COMMON> 325
<OTHER-SE> 772,720
<TOTAL-LIABILITIES-AND-EQUITY> 17,352,201
<INTEREST-LOAN> 265,764
<INTEREST-INVEST> 24,143
<INTEREST-OTHER> 4,767
<INTEREST-TOTAL> 294,674
<INTEREST-DEPOSIT> 88,066
<INTEREST-EXPENSE> 195,008
<INTEREST-INCOME-NET> 99,666
<LOAN-LOSSES> 7,142
<SECURITIES-GAINS> 633
<EXPENSE-OTHER> 69,275
<INCOME-PRETAX> 56,588
<INCOME-PRE-EXTRAORDINARY> 31,777
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,777
<EPS-BASIC> 0.89
<EPS-DILUTED> 0.87
<YIELD-ACTUAL> 2.60
<LOANS-NON> 94,673
<LOANS-PAST> 1,270
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 82,705
<CHARGE-OFFS> (2,247)
<RECOVERIES> 173
<ALLOWANCE-CLOSE> 87,773
<ALLOWANCE-DOMESTIC> 87,773
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
