Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number 5-43936
BANKUNITED FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Florida 65-0377773
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
255 Alhambra Circle, Coral Gables, Florida 33134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 569-2000
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
9% Noncumulative Perpetual Preferred Stock
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the Class A Common Stock and Class B Common
Stock held by non-affiliates of the Registrant, based upon the average price on
December 13, 2000, was $127,914,921.* The Class A Common Stock is the only
publicly traded voting security of the Registrant.
The shares of the Registrant's common stock outstanding as of December 13,
2000 were as follows:
Class Number of Shares
Class A Common Stock, $.01 par value 17,794,408
Class B Common Stock, $.01 par value 446,262
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Definitive Proxy Statement for its 2001 Annual Meeting of
Stockholders will be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K
pursuant to General Instruction G(3) of the Form 10-K. Information from such
Definitive Proxy Statement will be incorporated by reference into Part III,
Items 10, 11, 12 and 13 hereof.
- -----------
* Based on reported beneficial ownership of all directors and executive
officers of the Registrant; this determination does not, however,
constitute an admission of affiliated status for any of these individual
stockholders.
BANKUNITED FINANCIAL CORPORATION
Form 10-K Index
PART I Page
Item 1.
Business..................................................................... 2
Market Area and Competition.................................................. 3
Lending Activities........................................................... 4
Asset Quality................................................................ 12
Investments and Mortgage-Backed Securities................................... 14
Mortgage Loan Servicing...................................................... 16
Sources of Funds............................................................. 16
Activities of Subsidiaries................................................... 21
Employees.................................................................... 21
Regulation................................................................... 22
Taxation..................................................................... 30
Item 2. Properties................................................................... 33
Item 3. Legal Proceedings............................................................ 33
Item 4. Submission of Matters to a Vote of Security Holders.......................... 33
Item 4A. Executive Officers of the Registrant......................................... 34
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters.................................................................... 37
Item 6. Selected Financial Data...................................................... 38
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 40
Item 7A. Quantitative and Qualitative Disclosures about Market Risk................... 61
Item 8. Consolidated Financial Statements and Supplementary Data..................... 69
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................... 111
PART III
Item 10. Directors and Executive Officers of the Registrant........................... 111
Item 11. Executive Compensation....................................................... 111
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 111
Item 13. Certain Relationships and Related Transactions............................... 111
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............. 112
1
Forward-Looking Statements
When used in this Form 10-K or future filings by BankUnited Financial
Corporation ("BankUnited") with the Securities and Exchange Commission, in
BankUnited's press releases or other public or shareholder communications, or in
oral statements made with the approval of an authorized executive officer, the
word or phrases "will likely result," "expect," "will continue," "anticipate,"
"estimate," "project," "believe" and similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. BankUnited wishes to caution readers
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made, and to advise readers that various factors, including
general economic factors and conditions, changes in levels of market interest
rates, credit risks of lending activities, competitive and regulatory factors,
and expansion strategies could affect BankUnited's financial performance and
could cause BankUnited's actual results for future periods to differ materially
from those anticipated or projected. BankUnited does not undertake, and
specifically disclaims any obligation, to publicly release the result of any
revisions, which may be made to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.
PART I
Item 1. Business
BUSINESS OF BANKUNITED FINANCIAL CORPORATION
General
BankUnited is a Florida corporation and the savings and loan holding
company for BankUnited, FSB (the "Bank"). BankUnited's principal business
currently consists of the operations of the Bank. The Bank was founded in 1984
as a savings and loan association. In 1993, the Bank was converted to a
federally chartered savings bank and became a wholly-owned subsidiary of
BankUnited, pursuant to a plan of reorganization approved by its shareholders.
The Bank's revenues are derived principally from interest earned on loans,
mortgage-backed securities and investments, and its primary expenses arise from
interest paid on deposits and borrowings and non-interest operating expenses
incurred in operations. At September 30, 2000, BankUnited had assets of $4.6
billion, deposits of $2.6 billion and stockholders' equity of $ 0.2 billion.
Prior to 1998, the primary business strategy of BankUnited was to generate
stable interest-bearing deposits and use the proceeds to purchase residential
mortgages in the secondary market. In 1998, BankUnited initiated several
fundamental changes in its business strategy. During the first half of 1998,
through the Consumers Bancorp, Inc. ("Consumers") and Central Bank ("Central")
acquisitions, the Bank expanded its deposit base and product lines to include
new consumer and commercial products. In December 1998, after consideration of
several factors, the decision was made to reposition BankUnited. First, because
of continued competition from other investors and unfavorable changes in the
rate environment, the yields from purchased residential mortgages no longer
provided sufficient returns to BankUnited or to other institutions
2
with similar investment strategies. Second, increased competition for
certificates of deposit and other long-term savings from online brokers, mutual
funds and other out of market institutions resulted in an increase in interest
rates relative to earnings on assets. Third, numerous acquisitions of local
banks by sizeable out-of-state institutions created a large number of
dissatisfied customers who were seeking a strong, community-based bank and who
were willing to move their relationships. Fourth, the increasing velocity of
change and commoditization of the financial services industry made it
increasingly critical that surviving participants define customer bases and core
competencies and begin to deliver around them.
BankUnited commenced this repositioning process by hiring a new President
and executive management team, under whose direction a restructuring to
streamline the organization, lower expenses, increase profit margins and improve
the use of its deposit base was completed. As a result of this restructuring,
BankUnited has eliminated its dependence on purchasing residential mortgage
loans in the secondary market; instead the focus is on originating residential
loans, and on increasing its emphasis on commercial lending, consumer lending
and small business banking. New products and services were implemented to meet
customer needs, and the expansion of the branch network continued.
BankUnited currently has thirty-two branch offices in southeast Florida and
one in southwest Florida and anticipates opening four to six additional branch
offices in fiscal year 2001. BankUnited is also re-evaluating existing branch
locations to ensure that its markets are optimally served.
The Bank is a member of the Federal Home Loan Bank of Atlanta (the "FHLB")
and is subject to comprehensive regulation, examination and supervision by the
Office of Thrift Supervision (the "OTS") and the Federal Deposit Insurance
Corporation (the "FDIC"). Deposits in the Bank are insured by the Savings
Association Insurance Fund to the maximum extent permitted by law.
Market Area and Competition
BankUnited conducts business in Miami-Dade, Broward, Palm Beach and Collier
counties ("South Florida") which geographic region, at June 30, 2000, had a
total of approximately $86 billion in deposits at commercial banks and savings
institutions (42.4% of the total $202.7 billion of deposits in Florida).
BankUnited intends to continue to strategically establish or acquire branch
offices in its market area and may expand into other parts of Florida.
BankUnited encounters strong competition in attracting retail and business
deposits and loans. BankUnited's most direct competition for deposits
historically has been from commercial banks, brokerage houses, other savings
associations, and credit unions located in its market area. Recently, BankUnited
has also experienced competition from out-of-state organizations that offer
premium deposit rates to offset their lack of physical locations in the market
area. Many non-bank competitors actively seek a share of deposit business and
some brokerage houses compete directly for small business loans. BankUnited also
competes in its market area with the branch offices of several regional and
super-regional commercial banks and savings associations that are substantially
larger and have more extensive operations than BankUnited, including
3
several formerly independent entities, which have recently been acquired by
larger institutions headquartered out of state.
The consolidation of the financial services industry has created
opportunities and challenges for BankUnited. Mergers among institutions have
disrupted many customer relationships and created an opening for BankUnited to
acquire new customers. Larger institutions, however, have been able to achieve
economies of scale in operational processes, offer a broader and more
sophisticated product mix, have a reduced cost of capital and offer more
extensive electronic banking facilities. BankUnited's goal is to compete for
savings and other deposits by offering depositors a higher level of personal
service, together with a wide range of deposit products offered at competitive
rates.
The competition in originating real estate and other loans comes
principally from commercial banks, mortgage banking companies and other savings
associations. BankUnited competes for loan originations primarily through the
interest rates and loan fees that it charges, the types of loans that it offers,
and the efficiency and quality of service that it provides. While BankUnited has
been, and intends to continue to be, primarily a residential lender, BankUnited
has recently increased its emphasis on commercial real estate, construction,
commercial and consumer lending, as discussed more fully below. Factors that
effect competition in lending include general and local economic conditions,
current interest rates and volatility of the mortgage markets. Management
continues to evaluate market needs and products to meet those needs that also
allow BankUnited to control the growth of its assets and liabilities. As with
its deposit products, BankUnited's strategy is to promote a higher level of
personal service and to position itself as a community bank offering a full
range of financial services.
Lending Activities
From inception in 1984 through 1998, BankUnited's primary source of earning
assets was the purchase of one-to-four family residential mortgage loans in the
secondary market. During the last six months of fiscal 1998 and the first six
months of fiscal 1999,BankUnited experienced significant prepayment of these
loans and as a result BankUnited discontinued purchasing One-Year CMT loans
which are adjustable-rate mortgages with an index tied to the weekly average
yield on one-year U.S. Treasury securities adjusted to a constant maturity
published by the Federal Reserve ("One-Year CMT"),altered its practice of
purchasing loans in the secondary market, and turned its focus to producing
assets. BankUnited's current lending strategy includes originating residential
mortgages and expanding its commercial real estate, real estate construction,
commercial, and small business lending, as well as offering consumer loans, such
as home equity loans and lines, and automobile loans. The credit approval
process generally involves both a credit scoring process and traditional
underwriting methodologies. BankUnited's credit approval policies and procedures
are updated as necessary to encompass new products and services.
Loan Portfolio. BankUnited's loan portfolio primarily consists of mortgage
loans secured by one-to-four family residential and commercial real estate. As
of September 30, 2000, BankUnited's loan portfolio before deferred fees and
allowance for loan loss ("net items") totaled $3.7 billion, of which $3.2
billion or 87.8% consisted of one-to-four family residential mortgage loans. At
the
4
present time, BankUnited's residential real estate loans are primarily
"conventional" loans not insured by the Federal Housing Administration (the
"FHA") or guaranteed by the Veterans Administration (the "VA"). BankUnited is,
however, approved to originate FHA and VA loans. As of September 30, 2000, the
remainder of BankUnited's loan portfolio consisted of $155.6 million of
commercial real estate loans (4.2% of total loans); $83.0 million of commercial
business loans (2.3% of total loans); $73.3 million of construction and land
loans (2.0% of total loans); $66.5 million of consumer loans (1.8% of total
loans); and $71.0 million of multi-family (five-or-more units) residential real
estate loans (1.9 % of total loans).
At September 30, 2000, $1.7 billion, or 47.2% of BankUnited's total loan
portfolio before net items, consisted of purchased mortgage loans and loan
participations, serviced by others. These loans were primarily one-to-four
family residential mortgage loans. At September 30, 2000, BankUnited's loan
portfolio included $445.6 million of residential mortgage loans to non-resident
aliens, which was 12.1% of total loans before net items. See "Residential
Mortgage Loan Originations and Purchases" for additional information on
BankUnited's loans to non-resident aliens.
5
Set forth below is a table showing BankUnited's loan origination, purchase
and sale activity for the periods indicated.
Year End September 30,
2000 1999 1998
-----------------------------------------------
(in thousands)
Total loans receivable, net, at beginning of period (1) ........ $ 3,302,866 $ 3,042,014 $ 1,765,723
Loans originated:
Residential real estate .................................... 667,466 592,899 312,749
Commercial real estate, business and consumer .............. 256,733 130,226 73,692
-----------------------------------------------
Total loans originated (1) ..................................... 924,199 723,125 386,441
Loans acquired in acquisition(2) ............................... -- -- 111,786
Loans purchased (3) ............................................ 5,465 803,329 2,747,061
Loans sold ..................................................... (10,210) (23,564) (173,498)
Loans securitized .............................................. -- -- (355,469)
Principal repayments and amortization of discounts and
premiums ..................................................... (543,321) (1,228,540) (1,435,075)
Increase in allowance for loan losses, net ..................... (925) (5,979) (2,435)
Transfers to real estate owned, net ............................ (7,305) (7,519) (2,520)
-----------------------------------------------
Total loans receivable, net, at end of period (1) .............. $ 3,670,769 $ 3,302,866 $ 3,042,014
===============================================
(1) Includes loans held for sale.
(2) Loans acquired in the Central and Consumers mergers included $69.6 million
of one-to-four family residential real estate loans, $15.3 million of
commercial real estate loans and $26.8 million of other types of loans. See
"Managements Discussion and Analysis of Financial Condition and Results of
Operations-Acquisitions" for additional information regarding the
acquisitions.
(3) Loans purchased are primarily one-to-four family residential real estate
loans.
The following table sets forth certain information with respect to the
composition of BankUnited's loan portfolio, including mortgage loans held for
sale, as of the dates indicated.
As of September 30,
--------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
First and second mortgage loans: (dollars in thousands)
One-to-four family residential loans ......... $ 3,218,868 87.8% $ 3,010,427 91.1% $ 2,788,838 91.6%
Multi-family residential loans ............... 70,856 1.9% 30,057 0.9% 24,392 0.8%
Commercial real estate ....................... 155,569 4.2% 141,090 4.3% 145,819 4.8%
Construction ................................. 38,786 1.1% 15,425 0.5% 7,827 0.3%
Land ......................................... 34,489 0.9% 23,659 0.7% 5,410 0.2%
--------------------------------------------------------------
Total first and second mortgage loans ...... 3,518,568 95.9% 3,220,658 97.5% 2,972,286 97.7%
Consumer loans ............................... 66,480 1.8% 33,878 1.0% 30,401 1.0%
Commercial business loans .................... 83,023 2.3% 48,173 1.5% 15,550 0.5%
--------------------------------------------------------------
Total loans receivable ....................... 3,668,071 100.0% 3,302,709 100.0% 3,018,237 99.2%
--------------------------------------------------------------
Deferred loan fees, premium and disc ......... 15,730 0.4 12,264 0.4 29,905 1.0
Allowance for loan losses .................... (13,032) (0.4)) (12,107) (0.4)) (6,128) (0.2))
--------------------------------------------------------------
Loans receivable, net ...................... $ 3,670,769 100.0% $ 3,302,866 100.0% $ 3,042,014 100.0%
==============================================================
As of September 30,
--------------------------------------
1997 1996
--------------------------------------
Amount Percent Amount Percent
------ ------- ------ -------
First and second mortgage loans: (dollars in thousands)
One-to-four family residential loans ......... $ 1,565,815 88.6% $ 570,951 88.3%
Multi-family residential loans ............... 32,163 1.8% 12,559 2.0%
Commercial real estate ....................... 130,197 7.4% 49,318 7.6%
Construction ................................. 7,477 0.4% -- --
Land ......................................... 7,997 0.5% 2,687 0.4%
--------------------------------------
Total first and second mortgage loans ...... 1,743,649 98.7% 635,515 98.3%
Consumer loans ............................... 1,748 0.1% 2,648 0.4%
Commercial business loans .................... 10,890 0.6% 5,822 0.9%
--------------------------------------
Total loans receivable ....................... 1,756,287 99.4% 643,985 99.6%
--------------------------------------
Deferred loan fees, premium and disc ......... 13,129 0.8 4,558 0.7
Allowance for loan losses .................... (3,693) (0.2)) (2,158) (0.3)
--------------------------------------
Loans receivable, net ...................... $ 1,765,723 100.0% $ 646,385 100.0%
======================================
6
Applicable regulations permit BankUnited to engage in various categories of
secured and unsecured commercial and consumer lending, in addition to
residential real estate financing, subject to limitations on the percentage of
total assets attributable to certain categories of loans. An additional
limitation imposed by regulation requires that certain types of loans only be
made in aggregate amounts that do not exceed specified percentages of the
institution's capital. The following table sets forth, as of September 30, 2000,
the amount of loans (including mortgage loans held for sale) by category and
expected principal repayments. These repayments are based on historical
experience.
Outstanding at
September 30, 2005- 2007- 2011 and
2000 2001 2002 2003 2004 2006 2010 Thereafter
----------------------------------------------------------------------------------------
First and second mortgage loans: (dollars in thousands)
One-to-four-family residential .......... $ 3,218,868 $ 507,980 $ 453,686 $ 392,764 $ 303,299 $ 431,986 $ 516,768 $ 612,385
Multi-family residential ................ 70,856 7,703 6,702 10,647 20,710 19,855 4,888 351
Commercial real estate .................. 155,569 42,376 38,250 19,226 14,036 23,145 17,102 1,434
Construction ............................ 38,786 2,662 23,417 12,649 -- -- -- --
Land .................................... 34,489 25,869 7,858 602 57 62 41 --
----------------------------------------------------------------------------------------
Total first and second mortgage loans ... 3,518,568 586,590 529,913 435,888 338,102 475,048 538,799 614,170
----------------------------------------------------------------------------------------
Consumer loans .......................... 66,480 16,762 12,828 9,046 5,067 5,624 5,844 11,309
Commercial business loans ............... 83,023 52,766 19,367 3,929 1,382 5,393 134 52
----------------------------------------------------------------------------------------
Total loans ............................. $ 3,668,071 $ 656,118 $ 562,108 $ 448,863 $ 344,551 $ 486,065 $ 544,777 $ 625,531
========================================================================================
7
As of September 30, 2000, 45.7% of BankUnited's loans receivable before net
items (36.8% of total assets) were secured by properties located in Florida and
11% of loans receivable before net items (8.8% of total assets) were secured by
properties located in California. No other state comprises more than 10%.
Because of this concentration, regional economic circumstances in those states
could affect the level of BankUnited's non-performing loans. The following table
sets forth, as of September 30, 2000, the distribution of the amount of
BankUnited's loans receivable before net items (including mortgage loans held
for sale) by state.
Outstanding at
State September 30, 2000
----- ------------------
(dollars in thousands)
Florida(l)............................ $ 1,677,336
California............................ 402,797
New York.............................. 132,423
Massachusetts......................... 113,297
Colorado.............................. 109,258
New Jersey............................ 91,948
Virginia.............................. 89,956
Texas................................. 86,157
Illinois.............................. 79,976
Maryland.............................. 79,585
Connecticut........................... 66,405
Michigan.............................. 60,315
Washington............................ 57,627
Georgia............................... 50,815
Arizona............................... 47,682
North Carolina........................ 47,582
Pennsylvania.......................... 43,114
Ohio.................................. 36,181
Utah.................................. 33,238
Oregon................................ 24,877
Tennessee............................. 20,631
Minnesota............................. 19,890
Nevada................................ 17,685
South Carolina........................ 16,842
District of Columbia.................. 12,404
Indiana............................... 11,804
New Mexico............................ 11,159
Missouri.............................. 10,401
Alabama............................... 9,484
Kansas................................ 9,244
Oklahoma.............................. 7,254
Wisconsin............................. 6,918
Idaho................................. 6,124
Arkansas.............................. 5,424
Kentucky.............................. 4,787
Louisiana............................. 4,713
Iowa.................................. 4,185
Wyoming............................... 3,983
Nebraska.............................. 3,671
Montana............................... 3,216
New Hampshire......................... 3,189
Hawaii................................ 3,107
Delaware.............................. 2,990
Maine................................. 2,570
Rhode Island.......................... 2,354
Mississippi........................... 1,817
Alaska................................ 1,638
Vermont............................... 1,411
Other................................. 860
Not secured by real estate............ 127,747
-----------
Total loans........................... $ 3,668,071
===========
(1) Does not include $ 5.7 million of tax certificates representing liens
secured by properties in Florida.
8
One-to-Four Family Residential Mortgage Loan Originations and Purchases.
BankUnited's lending primarily involves originating loans secured by first
mortgages on real estate improved with single-family dwellings. During fiscal
2000, BankUnited continued to reduce its dependence on purchasing residential
mortgage loans in the secondary market by focusing on originating these loans.
BankUnited originates one-to-four family residential mortgage loans through its
branches and its network of non-affiliated wholesale brokers. In fiscal 2000,
the wholesale brokers generated approximately 92% of BankUnited's one-to-four
family residential mortgage loan originations. Currently, BankUnited is
generating these loans with approximately 200 wholesale brokers located mainly
in South Florida. During fiscal year 2001, BankUnited plans to expand its
wholesale broker network throughout the State of Florida and other selected
states. Originations in the wholesale program, together with branch lending,
reached $667.5 million, $592.9 million, and $312.7 million for the years ended
September 30, 2000, 1999, and 1998, respectively.
The Bank services loans that it originates and endeavors to purchase loans
servicing-released when available and appropriate. At September 30, 2000, $3.2
billion or 87.7%, of BankUnited's total loan portfolio consisted of one-to-four
family residential loans, of which $1.5 billion, or 46.9%, were adjustable rate
mortgage ("ARM") loans and $1.7 billion, or 53.1%, were fixed rate mortgage
loans. BankUnited's first mortgage loans purchased or originated are generally
repayable over 15 or 30 years. Additionally, BankUnited offers 40 year ARM loans
on a limited basis. Residential loans typically remain outstanding for shorter
periods than their contractual maturities because borrowers prepay the loans in
full upon sale of the mortgaged property or upon refinancing of the original
loan.
BankUnited's ARMs generally have interest rates that adjust after an
initial 1 month, 3 month, or 3, 5 or 7 year fixed-rate term ("hybrid" ARMs) and,
to a lesser extent, semi-annually or annually with subsequent interest rate
adjustments at a margin over the One-Year CMT or the 12 month moving average of
the monthly average yield on U.S. Treasury securities adjusted to a constant
maturity of one year published by the Federal Reserve ("MTA's"). Further, a
portion of these ARMs provide for initial rates of interest which are
significantly below the rates which would prevail were the contractual interest
rate index and margin used for repricing applied initially. Such loans are
commonly referred to as being in their teaser rate period. These loans adjust to
the contractual rate on the first scheduled interest rate adjustment date. The
maximum interest rate adjustment of BankUnited's ARMs is generally 1%
semi-annually and 6% over the life of the loan, above or below the initial rate
on the loan for semi-annual adjustable, or 2% annually and 6% over the life of
the loan, above or below the initial rate on the loan for annual adjustable and
hybrid ARMs. The maximum interest rate adjustment for Hybrid ARMs which are tied
to the MTA index range from none to 2%, periodically, and up to 11.95% over the
life of the loan.
Applicable regulations permit BankUnited to lend up to 100% of the
appraised value of the real property securing a loan ("loan-to-value ratio").
When terms are favorable, BankUnited may purchase or originate single-family
mortgage loans with loan-to-value ratios between 80% and 95%. In most of these
cases, BankUnited will, as a matter of policy, require the borrower to obtain
private mortgage insurance which insures that portion of the loan exceeding the
80% loan-to-value ratio, thereby reducing the risk to no more than 80% of
appraised value. All loans are reviewed by BankUnited's underwriters to ensure
that guidelines are met or that waivers are obtained in situations where
offsetting factors exist.
For loan originations, upon receipt of a completed loan application from an
applicant, BankUnited generally orders a credit report, confirms income,
employment and other significant information of the applicant and obtains an
appraisal of the property securing the loan. BankUnited obtains the appraisal of
the property from an independent third party to determine the adequacy of the
collateral, and such appraisal is confirmed by one of the underwriters.
9
In its loan purchases, BankUnited generally reserves the right to reject
particular loans from a loan package being purchased and rejects loans in a
package that do not meet its commitment criteria. In determining whether to
purchase a loan, BankUnited assesses both the borrower's ability to repay the
loan and the adequacy of the proposed collateral. In determining the borrower's
ability to repay, BankUnited reviews information concerning the income,
financial condition, employment and credit history of the applicant and
generally obtains a credit report on the borrower separate from that provided by
the loan seller. BankUnited reviews the appraisal obtained by the loan seller or
originator and, based upon pre-determined criteria and review of the loan file,
may arrange for an updated review appraisal before purchasing the loan. An
appraisal will generally be ordered if the property securing the loan is located
in a designated area (such as a geographic region known for fluctuating property
values), if the loan size or loan-to-value ratio meets certain thresholds, or
if an underwriter or other Bank officer, upon review of the loan file,
determines that it is prudent to order an appraisal. With respect to a
substantial percentage of loans purchased, the collateral value is confirmed by
reference to a review appraisal. Otherwise, the collateral value is determined
by reference to the documentation contained in the original file. A legal review
of every loan file is conducted to determine the adequacy of the legal
documentation. BankUnited receives various representations and warranties from
the sellers of the loans regarding the quality and characteristics of the loans.
BankUnited has adopted written, non-discriminatory underwriting standards
for use in the underwriting and review of every loan considered for origination
or purchase. These underwriting standards are reviewed and approved annually by
BankUnited's Board of Directors. BankUnited's underwriting standards for
residential mortgage loans generally conform to standards established by the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation (the "FHLMC"), except that BankUnited's underwriting
standards allow it to make loans (i) to non-resident aliens, as discussed below,
(ii) exceeding the FNMA or FHLMC limits, and (iii) in cases where specific
characteristics of the loan or borrower may compensate for the lack of
conformity with the FNMA or FHLMC criteria.
Borrowers are required to obtain casualty insurance and, if applicable,
flood insurance in amounts at least equal to the outstanding loan balance or the
maximum amount allowed by law. BankUnited also requires that a survey be
conducted and title insurance be obtained, insuring the priority of its mortgage
lien.
BankUnited originates first mortgage loans to non-resident aliens in a
manner similar to that described above for other residential loans. At September
30, 2000, approximately $445.6 million, or 12%, of the BankUnited's loan
portfolio before net items were first mortgage loans to non-resident aliens
secured by single-family residences located in Florida. Loans to non-resident
aliens generally afford BankUnited an opportunity to receive rates of interest
higher than those available from other single-family residential loans.
Nevertheless, certain aspects of such loans may involve a greater degree of risk
than conforming single-family residential mortgage loans. The ability to obtain
access to the borrower is more limited for non-resident aliens, as is the
ability to attach or verify assets located in foreign countries. BankUnited has
attempted to minimize these risks through its underwriting standards for such
loans including generally more conservative loan-to-value ratios and
qualification based on verifiable assets located in the United States.
Commercial Real Estate and Multi-Family Lending. BankUnited's commercial
real estate lending division originates or participates in multi-family and
commercial real estate loans. BankUnited sells a participating interest in the
majority of the larger loans for risk management purposes in the normal course
of business. The lending policy limits the Bank's risk to $25 million for a
single loan and no more than $40 million to a single borrower. BankUnited's
strategy is to promote commercial lending together with private banking, as both
areas seek to develop long-term relationships with select businesses, real
estate investors, and professionals. At September 30, 2000, BankUnited had
$226.4
10
million of commercial real estate loans and multi-family loans, representing a
total of 6.17% of BankUnited's loan portfolio before net items.
BankUnited's commercial real estate loan portfolio includes loans secured
by apartment buildings, office buildings, industrial/warehouses, retail centers
and other properties, which are located in BankUnited's primary market area.
Commercial real estate loans generally are originated in amounts up to 75% of
the appraised value of the property securing the loan. Because commercial real
estate and commercial lending requests are generally more complicated and
involve larger dollar amounts, evaluation of such credit requests continues to
rely on traditional credit analysis, including income projection, participation
by the buyer, breakeven analysis and internal and external collateral
evaluations. In determining whether to originate or purchase multi-family or
commercial real estate loans, BankUnited also considers such factors as the
financial condition and track record of the borrower, and the debt service
coverage of the property. Commercial real estate loans are made at both fixed
and adjustable interest rates, typically for terms of less than 60 months, but
may be up to 15 years.
Loans secured by commercial real estate and multi-family properties
generally involve a greater degree of risk than one-to-four family residential
mortgage loans. Commercial real estate loans typically involve large loan
balances concentrated with single borrowers or groups of related borrowers. In
addition, the payment experience on loans secured by income-producing properties
usually depends on the successful operation of the real estate project that
secures the loans and, thus, may be subject, to a greater extent, to adverse
conditions in the real estate market or in the economy, particularly the
interest rate environment.
Real Estate Construction Lending. BankUnited makes real estate construction
loans to individuals for the construction of their residences, as well as to
builders and real estate developers for the construction of one-to-four-family
residences and commercial and multi-family real estate. At September 30, 2000,
BankUnited had $38.8 million of construction loans representing a total of 1.1%
of BankUnited's loan portfolio before net items. Construction loans to
individuals for their private residences are structured to be converted to
permanent loans with the Bank at the end of the construction phase. Such
residential construction loans are generally underwritten pursuant to the same
guidelines used for originating permanent residential mortgage loans. The Bank's
residential construction loans typically have terms of up to nine months and
have rates higher than permanent residential mortgage loans offered by the Bank.
During the construction phase, the borrower pays interest only. Generally, the
maximum loan-to-value ratio of an owner occupied single-family construction loan
is 90%.
The Bank makes construction loans on commercial real estate projects
secured by apartments, retail centers, industrial warehouse properties, office
buildings, medical facilities or other property. These loans are structured to
be converted to permanent loans at the end of the construction phase, which
generally runs from 12 to 24 months. These construction loans have rates, which
are higher than permanent commercial real estate loans currently offered by the
Bank and the terms are generally consistent with those of permanent loans. These
loans generally provide for the payment of interest and loan fees from loan
proceeds. The loans are underwritten to the same standards as commercial real
estate loans described above. Because of the uncertainties inherent in
estimating construction costs and the market for the project upon completion, it
is often difficult to determine the total loan funds that will be required to
complete a project, the related loan-to-value ratios and the likelihood of
ultimate success of a project. Construction loans to borrowers other than
owner-occupants also involve many of the same risks discussed above regarding
commercial real estate loans and tend to be more sensitive to general economic
conditions than many other types of loans.
Land. BankUnited makes land loans to individuals for the purchase of land
for their residences, as well as to builders and real estate developers for
purchase of land for future commercial development.
11
Generally, the Bank requires for all land loans that they be developed within
twelve to eighteen months. As a matter of policy the Bank does not make
speculative land loans. At September 30, 2000, BankUnited had $34.5 million of
land loans representing a total of 0.9% of BankUnited's loan portfolio before
net items.
Commercial Business and Small Business Lending. Commercial and small
business loans totaled $83.0 million as of September 30, 2000, representing 2.3
% of total loans before net items. Commercial business loans are made to
companies with annual sales revenue in excess of $5.0 million in BankUnited's
market area. Small business loans are made to companies with annual sales
revenue less than $5.0 million and the loans do not typically exceed $1.0
million. BankUnited also offers payroll and merchant services through outside
vendors, as well as in-house treasury management services. BankUnited makes both
secured and unsecured loans, although the majority of these loans are on a
secured basis. Accounts receivable, inventory, equipment, and/or general
corporate assets of the borrowers, as well as the personal guarantee of the
principal typically secure the loans. The loans typically have fixed and
variable prime-based interest rates and are originated for terms ranging from 1
to 5 years. In its loan underwriting, BankUnited evaluates the value of the
collateral securing the loan and assesses the borrower's creditworthiness and
ability to repay. A credit scoring approval is used, and exceptions to credit
policy guidelines are discouraged, but may be available depending on all the
circumstances. While these loans generally are made for shorter terms and at
higher yields than one-to-four-family residential loans, such loans generally
involve a higher level of risk than one-to-four-family residential loans because
the risk of borrower default is greater and the collateral may be more difficult
to liquidate and more likely to decline in value.
Consumer Lending. Consumer loans totaled $66.5 million as of September 30,
2000, representing 1.8% of total loans before net items. This portfolio consists
primarily of automobile loans and home equity lines of credit. During fiscal
1999, BankUnited ceased its strategy of purchasing indirect paper from auto
dealers and shifted its emphasis to primarily home equity lines and consumer
loans. Consumer loans, with the exception of home equity lines of credit, are
offered primarily on a fixed-rate, short-term basis. The underwriting standards
employed by BankUnited for consumer loans include a determination of the
applicant's payment history on other debts, an assessment of the borrower's
ability to make payments on the proposed loan and other indebtedness and a
review of the value of the security. In addition, BankUnited utilizes an on-line
application and credit scoring system to assist in determining an applicant's
creditworthiness. BankUnited's consumer loans tend to have higher interest rates
and shorter maturities than one-to-four family residential loans because the
risk of borrower default is greater and the collateral is more likely to decline
in value.
BankUnited's home equity lines of credit are originated on owner-occupied,
one-to-four family residential properties. These loans are generally limited to
aggregate outstanding indebtedness secured by up to 90% of the appraised value
of the property. Such lines are underwritten based upon guidelines established
by BankUnited in order to evaluate the borrower's ability and willingness to
repay the debt.
Asset Quality
Federal regulations require a savings institution to review its assets on a
regular basis and, if appropriate, to classify assets as "substandard,"
"doubtful," or "loss" depending on the likelihood of loss. General allowances
for loan losses are required to be established for assets classified as
substandard or doubtful. For assets classified as loss, the institution must
either establish specific allowances equal to the amount classified as a loss or
charge off such amount. Assets that do not require classification as substandard
but that possess credit deficiencies or potential weaknesses deserving
management's close attention are required to be designated as "special mention."
The deputy director of the appropriate OTS regional office may approve,
disapprove or modify any classifications of assets and any allowance for
12
loan losses established. BankUnited's Portfolio Management Committee reviews and
classifies BankUnited's assets and reports the results to the Board of Directors
monthly.
Additionally, under standard banking practices, an institution's asset
quality is also measured by the level of non-performing loans in the
institution's portfolio and real estate acquired in foreclosure ("REO").
Non-performing loans consist of (i) non-accrual loans; (ii) loans that are more
than 90 days contractually past due as to interest or principal but that are
well-secured and (iii) loans that have been renegotiated to provide a deferral
of interest or principal because of a deterioration in the financial condition
of the borrower. BankUnited issues delinquency notices to borrowers when loans
are 30 or more days past due, and places these loans on non-accrual status when
more than 90 days past due. When a loan is placed on non-accrual status,
BankUnited reverses all accrued and uncollected interest and also begins
appropriate legal procedures to obtain repayment of the loan or otherwise
satisfy the obligation.
As of September 30, 2000, BankUnited had $23.9 million in substandard
assets of which $23.5 million are classified as non-performing assets.
Substandard assets consisted of the following:
As of September 30, 2000
------------------------
(in thousands)
One-to-four family residential loans ............... $13,073
Multi-family residential ........................... 557
Commercial real estate ............................. 1,579
Land ............................................... 1,104
Commercial business and consumer loans ............. 5,260
REO ................................................ 2,286
-------
Total Substandard Assets ......... $23,859
=======
In addition, $517,000 of commercial business loans for which reserves have
been established were classified as loss as of September 30, 2000.
BankUnited's allowance for loan losses is established and maintained based
upon management's evaluation of the risks inherent in BankUnited's loan
portfolio including the economic trends and other conditions in specific
geographic areas as they relate to the nature of BankUnited's portfolio.
BankUnited's one-to four family residential loans and consumer loans are
homogeneous in nature and no single loan is individually significant in terms of
its size or potential risk of loss. Therefore, management evaluates these loans
as a group of loans. Management utilizes historical loan losses, current trends
in delinquencies and charge-offs, plans for problem loan administration and
resolution, the views of its regulators, and other relevant factors, such as
assumptions and projections of future conditions in order to determine the
adequacy of the allowance for loan losses on these loans. For commercial real
estate loans, an estimated value of the property or collateral securing the loan
is determined through an appraisal, where possible. In instances where
BankUnited has not taken possession of the property or does not otherwise have
access to the premises and therefore cannot obtain an appraisal, a real estate
broker's opinion as to the value of the property is obtained based primarily on
a drive-by inspection. If the unpaid balance of the loan is greater than the
estimated fair value of the property, a reserve is established for the
difference between the carrying value and the estimated fair value. Other loans
such as non-mortgage commercial loans are evaluated individually as well. For
these loans, a determination is made of the value of the collateral, if any,
through examination of current financial information. If the unpaid balance of
the loan is greater than estimated fair value of the property, a reserve is
established for the difference between the carrying value and the estimated fair
value.
13
General valuation allowances are also established on all classes of the
performing portfolio and represent loss allowances that have been established to
recognize the unspecified losses inherent in the loan portfolio. In determining
the adequacy of the unallocated reserves, management considers changes in the
size and composition of the loan portfolio, historical loan loss experience,
current and anticipated economic conditions and BankUnited's credit
administration and asset management philosophies and procedures.
The above-described method of establishing an adequate provision for the
allowance for loan losses inherently lacks precision. Because of the many
factors that can affect recoverability, the estimated loss on an individual loan
or group of loans may not be the same as the ultimate loss, if any, actually
sustained. BankUnited performs the reserve analysis on a monthly basis which
provides a mechanism for ensuring that estimated losses reasonably approximate
ultimate losses, as any differences between estimated losses and ultimate losses
will be immediately addressed in the evaluation and resulting loan loss
provision. See "Management Discussion and Analysis of Financial Condition and
Results of Operations - Asset Quality."
Investments and Mortgage-backed Securities
BankUnited maintains an investment portfolio consisting primarily of
federal agency securities, trust preferred securities and tax certificates.
Federal regulations limit the instruments in which BankUnited may invest its
funds. BankUnited's current investment policy permits purchases primarily of
investments rated in one of the three highest grades by a nationally recognized
rating agency.
Mortgage-backed securities are primarily acquired for their liquidity,
yield, and credit characteristics. Such securities may be used as collateral for
borrowing or pledged as collateral for certain deposits, including public funds
deposits. Mortgage-backed securities acquired include fixed and adjustable rate
agency securities (GNMA, FNMA and FHLMC), private issue securities and
collateralized mortgage obligations.
BankUnited's portfolio also includes tax certificates issued by various
counties in the State of Florida. Tax certificates represent tax obligations
that are auctioned by county taxing authorities on an annual basis in order to
collect delinquent real estate taxes. Although tax certificates have no stated
maturity, the certificate holder has the right to collect the delinquent tax
amount, plus interest, and can file for a tax deed if the delinquent tax amount
is unpaid at the end of two years. Tax certificates have a claim superior to
most other liens. If the holder does not file for deed within seven years, the
certificate becomes null and void. BankUnited discontinued purchasing tax
certificates in fiscal 1999.
Also included in BankUnited's investment portfolio are trust preferred
securities issued by affiliates of FDIC-insured financial institutions or their
holding companies. Such securities are primarily acquired for their liquidity
and yield characteristics.
14
The following table sets forth information regarding BankUnited's
investments and mortgage-backed securities as of the dates indicated. Amounts
shown are carrying value. For additional information regarding BankUnited's
investments and mortgage-backed securities, including the carrying values and
approximate market values of such securities, see Notes to Consolidated
Financial Statements.
As of September 30
----------------------------------
2000 1999 1998
-------- -------- --------
(dollars in thousands)
Federal agency securities ............................ $ 5,341 $ 6,752 $ 22,188
Tax Certificates ..................................... 5,699 14,815 40,007
Mortgage-backed securities ........................... 342,355 347,224 345,756
Other (1) ............................................ 17,124 18,307 16,015
-------- -------- --------
Total investment securities ............ $370,519 $387,098 $423,966
======== ======== ========
Weighted average yield ................. 6.93% 6.74% 6.61%
======== ======== ========
(1) Includes $14.3 million, $14.7 million and $15.5 million of trust preferred
securities of other issuers as of September 30, 2000, 1999 and 1998,
respectively.
The following table sets forth information regarding the maturities of
BankUnited's investments as of September 30, 2000. Amounts shown are carrying
value:
Periods to Maturity
from September 30, 2000
As of ------------------------------------------------------------
September 30, Within 1 Through 5 Through Over 10 Equity
2000 1 Year 5 Years 10 Years Years Securities
-------- -------- -------- -------- -------- --------
(dollars in thousands)
Federal agency securities ........... $ 5,341 $ 341 $ 5,000 $ -- $ -- $ --
Tax certificates (1) ................ 5,699 5,699 -- -- -- --
Mortgage-backed securities (1)....... 342,355 1,827 6,838 2,818 330,872 --
Other ............................... 17,124 -- 25 -- 14,309 2,790
-------- -------- -------- -------- -------- --------
Total ................. $370,519 $ 7,867 $ 11,863 $ 2,818 $345,181 $ 2,790
======== ======== ======== ======== ======== ========
Weighted average yield .............. 6.93% 7.09% 6.19% 6.29% 6.25% N/A
======== ======== ======== ======== ======== ========
- --------------
(1) Maturities are based on historical experience.
15
Mortgage Loan Servicing
BankUnited's mortgage loans servicing agreements generally provide for loan
servicing fees ranging from 0.25% to 0.50% per annum of the declining principal
amount of the loans, plus any late charges or other ancillary fees. Loan
servicing fees for loans serviced under mortgage-backed securities programs are
either subject to negotiation with the sponsoring agency or in certain instances
set by the sponsoring agency. Servicing fees for loans sold to private investors
are determined by agreement with the investor. Income from servicing is
calculated based upon the contractual servicing fee, net of amortization of the
carrying value of the mortgage servicing rights. At September 30, 2000 and 1999
BankUnited serviced mortgage loans for investors with unpaid principal balances
of approximately $343.6 million and $421.8 million respectively, which are not
reflected in the accompanying Consolidated Statements of Financial Condition.
BankUnited is subject to certain costs and risks related to servicing
delinquent loans. Servicing agreements relating to the mortgage-backed security
programs of FNMA and FHLMC require the servicer to advance funds to make
scheduled payments of interest, taxes and insurance, and in some instances
principal, if such payments have not been received from the borrowers. However,
BankUnited recovers substantially all of the advanced funds upon cure of default
by the borrower, or through foreclosure proceedings and claims against agencies
or companies that have insured or guaranteed the loans. Certain servicing
agreements for loans sold directly to other investors require BankUnited to
remit funds to the loan purchaser only upon receipt of payments from the
borrower and, accordingly, the investor bears the risk of loss. BankUnited,
however, is subject to the risk that declines in the market rates of interest
for mortgage loans or other economic conditions will result in a revaluation of
its servicing assets as borrowers refinance or otherwise prepay higher interest
rate loans (See "Item 7a. Quantitative and Qualitative Disclosure about Market
Risk").
Sources of Funds
BankUnited's primary sources of funds for its investment and lending
activities are customer deposits, loan repayments, funds from operations,
BankUnited's capital (including trust preferred securities), Senior Notes and
FHLB advances.
Deposits. BankUnited offers a full variety of deposit accounts ranging from
passbook accounts to certificates of deposit with maturities of up to five
years. BankUnited also offers transaction accounts, which include personal and
commercial checking accounts, negotiable order of withdrawal ("NOW") accounts,
insured money market deposit accounts and the Diamond Program accounts. The
Diamond Program is a package account that offers a suite of financial services.
The rates paid on deposits are established periodically by management based on
BankUnited's need for funds and the rates being offered by BankUnited's
competitors with the goal of remaining competitive without offering the highest
rates in the market area.
BankUnited has placed increasing reliance on passbook accounts, money
market accounts, short term certificates of deposit and other savings
alternatives that are more responsive to market conditions than long-term,
fixed-rate certificates. While market-sensitive savings instruments permit
BankUnited to reduce its cost of funds during periods of declining interest
rates, such savings instruments also increase BankUnited's vulnerability to
periods of high interest rates. There are no regulatory interest rate ceilings
on BankUnited's accounts (See "Item 7a. Quantitative and Qualitative Disclosure
about Market Risk").
16
The following table sets forth information concerning BankUnited's deposits
by account type and the weighted average nominal rates at which interest is paid
thereon as of the dates indicated:
As of September 30,
-----------------------------------------------------------------------
2000 1999 1998
-------------------- ---------------------- ---------------------
Amount Rate Amount Rate Amount Rate
---------- ----- ---------- ----- ---------- -----
(dollars in thousands)
Passbook accounts................................... $ 324,894 4.86% $ 379,503 4.57% $ 258,158 4.72%
---------- ---------- ----------
Checking:
Non-interest bearing.............................. 72,253 - 50,075 -- 46,748 --
NOW accounts...................................... 116,032 2.73% 125,617 2.75% 71,431 3.26%
Insured money market.............................. 90,531 4.79% 92,785 4.04% 115,104 4.05%
---------- ---------- ----------
Total transaction accounts..................... 278,816 268,477 233,283
---------- ---------- ----------
Total passbook and checking accounts........... 603,710 647,980 491,441
---------- ---------- ----------
Certificates:
30 - 89 day certificates of deposit............... 1,128 3.83% 2,260 4.40% 3,485 4.63%
3 - 5 month certificates of deposit............... 19,547 5.66% 28,943 4.63% 96,221 5.20%
6 - 8 month certificates of deposit............... 130,461 6.09% 273,090 4.92% 516,674 5.47%
9 - 11 month certificates of deposit.............. 280,019 6.45% 138,684 5.26% 104,296 5.69%
12 - 17 month certificates of deposit............. 776,084 6.33% 688,792 5.21% 618,385 5.62%
18 - 23 month certificates of deposit............. 184,924 6.18% 83,369 5.55% 9,770 5.64%
24 - 29 month certificates of deposit............. 148,593 5.85% 102,394 5.66% 35,497 5.76%
30 - 35 month certificates of deposit............. 32,493 6.09% 26,550 5.97% 15,040 5.89%
36 - 60 month certificates of deposit............. 151,279 6.18% 109,686 6.13% 72,856 6.07%
Public Funds...................................... 281,300 6.02% 178,050 4.98% 86,159 5.35%
Brokered certificates of deposit.................. -- -- 75,000 5.66%
---------- ---------- ----------
Total certificates............................. 2,005,828 1,631,818 1,633,383
---------- ---------- ----------
Totals..................................... $2,609,538 $2,279,798 $2,124,824
========== ========== ==========
Weighted average rates............. 5.67% 4.83% 5.18%
17
The following table sets forth information by various categories regarding
the amount of BankUnited's certificate accounts (under $100,000) as of September
30, 2000 that mature during the period indicated.
Periods to Maturity
from September 30, 2000
As of ----------------------------------------------------
September 30, Within 1 to 2 to More than
2000 1 Year 2 Years 3 Years 3 Years
---------- ---------- ---------- --------- ----------
(dollars in thousands)
Certificate accounts
3.00% to 3.99% ....................... $ 1,134 $ 1,134 $ -- $ -- $ --
4.00% to 4.99% ....................... 44,341 43,745 360 27 209
5.00% to 5.99% ....................... 401,608 360,908 23,341 4,793 12,566
6.00% to 6.99% ....................... 729,879 551,096 133,570 29,881 15,332
7.00% to 7.99% ....................... 156,660 87,102 57,825 9,795 1,938
---------- ---------- ---------- --------- ----------
Total certificate accounts
(under $100,000) ................... $1,333,622 $1,043,985 $ 215,096 $ 44,496 $ 30,045
========== ========== ========== ========= ==========
The following table sets forth information by various rate categories
regarding the amounts of the BankUnited's jumbo ($100,000 and over) certificate
accounts as of September 30, 2000 that mature during the periods indicated.
Periods to Maturity
from September 30, 2000
As of --------------------------------------------
September 30, Within 1 to 2 to More than
2000 1 Year 2 Years 3 Years 3 Years
-------- -------- -------- -------- --------
(dollars in thousands)
Jumbo certificate accounts
3.00% to 3.99% ....................... $ -- $ -- $ -- $ -- $ --
4.00% to 4.99% ....................... 92,983 66,580 16,298 10,105 --
5.00% to 5.99% ....................... 138,626 109,883 23,703 2,837 2,203
6.00% to 6.99% ....................... 253,314 217,939 25,760 5,200 4,415
7.00% to 7.99% ....................... 187,283 144,377 33,291 7,146 2,469
-------- -------- -------- -------- --------
Total Jumbo certificate accounts ..... $672,206 $538,779 $ 99,052 $ 25,288 $ 9,087
======== ======== ======== ======== ========
Included in the table of jumbo certificate accounts above, are $281.3
million in certificates of deposit issued to the State of Florida, referred to
as public funds, which have interest rates ranging from 4.19% to 7.21%. These
certificates are collateralized with GNMA, FNMA, and FHLMC mortgage backed
securities with market values of approximately $147 million at September 30,
2000.
Of BankUnited's total deposits, excluding public funds, at September 30,
2000, 1999 and 1998, 16.8%, 13%, and 12.3%, respectively, were deposits of
$100,000 or more issued to the general public. Although jumbo certificates of
deposit are generally more rate sensitive than smaller size deposits, management
believes that BankUnited will retain many of these deposits.
18
Borrowings. When BankUnited's primary sources of funds are not sufficient
to meet deposit outflows, loan originations and purchases and other cash
requirements, BankUnited may borrow funds from the FHLB of Atlanta and from
other sources. The FHLB system acts as an additional source of funding for
financial institutions. In addition, BankUnited uses subordinated notes,
securities sold under agreements to repurchase and trust preferred securities in
order to increase available funds.
FHLB borrowings, known as "advances," are made on a secured basis, and the
terms and rates charged for FHLB advances vary in response to general economic
conditions. As a shareholder of the FHLB of Atlanta, the Bank is authorized to
apply for advances from this bank. FHLB of Atlanta offers a wide variety of
borrowing plans, each with its own maturity and interest rate. A significant
portion of BankUnited's advances were obtained through a convertible advances
program that permits the FHLB to convert an advance from a fixed-rate basis to a
floating-rate basis at its discretion on a specified "call" date which generally
occurs every three months following an initial period ranging from three months
to three years. Should the FHLB elect to exercise this option, BankUnited can
either accept the converted advance or repay it in full.
BankUnited also has advances under the FHLB "knockout" advance program. In
general, a knockout advance is structured as a fixed rate advance that the FHLB
may convert to a floating rate indexed to the 3-month LIBOR rate if, at the end
of any given three month period after the non-conversion period, the 3-month
LIBOR rate equals or exceeds an agreed upon threshold rate. Should a particular
advance be converted by the FHLB, its rate will reset quarterly for the
remainder of the term.
The FHLB of Atlanta will consider various factors, including an
institution's regulatory capital position, net income, quality and composition
of assets, lending policies and practices, and level of current borrowings from
all sources, in determining the amount of credit to extend to an institution. In
addition, an institution that fails to meet the qualified thrift lender test may
have restrictions imposed on its ability to obtain FHLB advances. The Bank
currently meets the qualified thrift lender test.
During the 1997 and 1998 fiscal years, BankUnited issued an aggregate of
$227.2 million in Junior Subordinated Deferrable Interest Debentures, which were
purchased by its Delaware trust subsidiaries primarily with proceeds from the
sale of trust preferred securities. See Notes to Consolidated Financial
Statements for a description of the Junior Subordinated Deferrable Interest
Debentures and the trust preferred securities. In November 1999, the Board of
Directors of BankUnited authorized the purchase from time to time in the open
market, or otherwise, of up to 300,000 shares of trust preferred securities
issued by BankUnited's trust subsidiaries. As of September 30, 2000 BankUnited
had purchased a total of 158,499 shares of trust preferred securities issued by
its trust subsidiaries on the open market at a cost of $4.4 million.
During November 1998, the Bank established a medium-term note program which
permits the issuance, from time to time, of up to a total of $500 million
aggregate principal amount of the Senior Notes, with maturities from 9 months to
10 years from the date of issuance. As a condition of issuance, interest,
principal and any redemption premium on all offered Senior Notes are supported
by an irrevocable standby letter of credit of the FHLB of Atlanta. The Senior
Notes provide an additional source of funding, potentially with longer
maturities with attractive rates. In February 1999, the Bank issued and sold
$200 million of Senior Notes that mature five years from the date of issuance
and bear interest at an annual rate of 5.40% payable semiannually. The Bank used
the net proceeds from the sale of the notes for general corporate purposes, loan
financing, and assisting in the Bank's asset/liability management. The notes
have been rated "Aaa" by Moody's Investors Service, Inc. and "AAA" by Standard
and Poor's Rating Services.
Securities sold under agreements to repurchase is another source of
borrowed funds which is available to BankUnited. Under this type of borrowing,
securities are pledged against borrowed funds and are released when the funds
are repaid. BankUnited uses this type of borrowing alternative short term as
maturities are
19
usually within thirty to sixty days from inception. At September 30, 2000
BankUnited held $9.2 million in repurchase agreements which matured overnight
and had $11.1 million in investments and mortgage-backed securities pledged
against these agreements.
The following tables set forth information as to BankUnited's borrowings as
of the dates and for the periods indicated.
At September 30,
-----------------------------------------------------------------
2000 1999 1998
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Balance Rate Balance Rate Balance Rate
---------- ----- ---------- ----- ---------- -----
(dollars in thousands)
Period End Balances:
FHLB advances (1) ........................... $1,251,426 6.28% $1,096,447 5.46% $1,021,466 5.61%
Company obligated mandatorily
redeemable Trust Preferred
Securities of subsidiary trusts
holding solely junior subordinated
deferrable interest debentures of
BankUnited(2) ............................ 212,393 9.53% 218,500 9.53% 218,500 9.53%
Senior notes ................................ 200,000 5.40% 200,000 5.40% -- --
Securities sold under agreements
to repurchase(3) ......................... 9,205 6.42% 31,701 5.34% 121,148 5.43%
---------- ----- ---------- ----- ---------- -----
Total borrowings ......................... $1,673,024 6.47% $1,546,648 6.02% $1,361,114 6.22%
========== ===== ========== ===== ========== =====
For the Year Ended September 30,
-----------------------------------------------------------------
2000 1999 1998
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Balance Rate Balance Rate Balance Rate
---------- ----- ---------- ----- ---------- -----
(dollars in thousands)
Average Balances:
FHLB advances (1) ........................... $1,008,161 5.88% $ 917,560 5.41% $ 901,269 5.64%
Company obligated mandatorily
redeemable Trust Preferred
Securities of subsidiary trusts
holding solely junior subordinated
deferrable interest debentures of
BankUnited(2) ............................ 215,600 9.69% 218,500 9.68% 173,288 9.81%
Senior notes ................................ 200,000 5.71% 132,055 5.76% -- --
Securities sold under agreements
to repurchase(3) ......................... 10,621 8.23% 25,311 5.86% 97,292 5.69%
---------- ----- ---------- ----- ---------- -----
Total borrowings ......................... $1,434,382 6.45% $1,293,426 6.18% $1,171,849 6.26%
========== ===== ========== ===== ========== =====
- -----------------
(1) The maximum amount of FHLB advances outstanding during the years ended
September 30, 2000, 1999 and 1998 was $1.3 billion, $1.1 billion, $1.3
billion, respectively.
(2) The maximum amount of trust preferred securities outstanding was $218.5
million during the years ended September 30, 2000, 1999, and 1998.
(3) The maximum amount of securities sold under agreements to repurchase at any
month-end during the years ended September 30, 2000, 1999, and 1998 was
$30.8 million, $96.9 million, and $192.6 million, respectively.
20
Activities of Subsidiaries
T&D Properties of South Florida, Inc., a Florida corporation ("T&D"), is a
wholly owned operating subsidiary of the Bank that invests in tax certificates
and holds title to, maintains, manages and supervises the disposition of real
property acquired through tax deeds. T&D was established in 1991 for the purpose
of insulating the Bank from risk of liability concerning the maintenance,
management and disposition of real property.
Bay Holdings, Inc., a Florida corporation ("Bay Holdings"), is a wholly
owned operating subsidiary of the Bank that holds title to, maintains, manages
and supervises the disposition of one-to-four family residential property
acquired through foreclosure. Bay Holdings was established in 1994 for the
purpose of insulating the Bank from risk of liability concerning maintenance,
management and disposition of one-to-four family residential property.
BankUnited Mortgage Corporation, a Florida corporation ("BMC"), is a wholly
owned operating subsidiary of BankUnited which was established in 1996 for the
purpose of servicing loans secured by real property. BMC is currently inactive.
BankUnited Capital, BankUnited Capital II and BankUnited Capital III (the
"Trusts") are Delaware statutory business trusts wholly owned by BankUnited.
BankUnited Capital was formed in 1996, and BankUnited Capital II and BankUnited
Capital III were formed in 1997, for the purpose of issuing Trust Preferred
Securities and investing the proceeds in Junior Subordinated Deferrable Interest
Debentures issued by BankUnited.
BUFC Financial Services, Incorporated, a Florida corporation (BUFC), is a
wholly owned operating subsidiary of BankUnited organized in 1997 for the
purpose of selling annuities, insurance and securities products. BUFC sells
fixed and variable annuities and mutual funds to customers of the Bank and
others. Licensed insurance agents/registered securities representatives under
the supervision of a registered broker-dealer conduct the program separate from
the business of the Bank. BUFC also sells long-term care insurance products.
CRE America, Inc. formerly BankUnited Financial Services, Inc., a Florida
corporation, is a wholly owned operating subsidiary of BankUnited, organized in
1997, renamed in 2000, for the purpose of brokering loans.
CRE Properties, Inc., a Florida corporation, is a wholly owned operating
subsidiary of the Bank that holds title to, and maintains, manages and
supervises the disposition of commercial real estate acquired through
foreclosure. CRE Properties, Inc. was established in 1998 for the purpose of
insulating the Bank from risk of liability concerning maintenance, management
and disposition of commercial real estate.
Employees
At September 30, 2000, BankUnited had 475 full-time equivalent employees.
BankUnited's employees are not represented by a collective bargaining group, and
BankUnited considers its relations with its employees to be excellent.
BankUnited provides employee benefits customary in the savings industry, which
include group medical, dental and life insurance, a 401(k) profit sharing plan
and paid vacations. BankUnited also provides incentive compensation plans
(including stock bonus and stock option plans) for officers, directors and
employees.
21
REGULATION
General
BankUnited is a unitary savings and loan holding company and is subject to
OTS regulations, examination, supervision and reporting requirements pursuant to
certain provisions of the Home Owners' Loan Act (the "HOLA") and the Federal
Deposit Insurance Act (the "FDIA"). As an insured institution and a subsidiary
of a savings and loan holding company, the Bank is subject to extensive
regulation and examination by the OTS, its primary federal regulator and its
deposit accounts are insured by the Federal Deposit Insurance Corporation (the
"FDIC") through the Savings Association Insurance Fund (the "SAIF").
Savings and Loan Holding Company Regulations
Activities Limitations. Because BankUnited is a unitary savings and loan
holding company which was in existence or applied for before May 4, 1999, and
the Bank meets the definition of a qualified thrift lender ("QTL"), as discussed
below, BankUnited generally has the broadest authority to engage in various
types of business activities, including nonfinancial activities. The
Gramm-Leach-Bliley Act ("GLB"), which became law in November 1999 prohibits
companies that become unitary savings and loan holding companies pursuant to an
application filed with the OTS after May 4, 1999 from engaging in nonfinancial
activities or affiliating with nonfinancial entities. In addition, a holding
company that acquires another institution and maintains it as a separate
subsidiary or whose sole subsidiary fails to meet the QTL test will become
subject to the activities limitations applicable to multiple savings and loan
holding companies.
The Director of the OTS has oversight authority for all holding company
affiliates, and is authorized under federal law to take enforcement action if
there is reasonable cause to believe that the continuation by a savings bank
holding company of any particular activity constitutes a serious risk to the
financial safety, soundness, or stability of the holding company's subsidiary
savings institution. The Director of the OTS may, as necessary, limit the
payment of dividends by the savings institution, limit transactions between the
savings institution, the holding company and the subsidiaries or affiliates of
either or limit any activities of the savings institution that might create a
serious risk that the liabilities of the holding company and its affiliates may
be imposed on the savings institution.
Transactions with Affiliates. Transactions between the Bank and its
affiliates are regulated under the HOLA and OTS regulations, which incorporate
Sections 23A, 23B, 22(g) and 22(h) of the Federal Reserve Act and Regulation O
adopted by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"). An "affiliate" of a savings institution generally includes
entities controlling the savings institution and entities under common control
with the institution. BankUnited and its subsidiaries, therefore, are affiliates
of the Bank under these regulations.
The laws and regulations governing affiliate transactions require that
covered transactions and certain other transactions with affiliates be on terms
and conditions consistent with safe and
22
sound banking practices which are substantially the same, or at least as
favorable to the institution or its subsidiary, as those for comparable
transactions with non-affiliated parties. These laws and regulations also impose
quantitative restrictions on the amount of covered transactions in which an
institution may engage and set collateralization requirements on covered
transactions. "Covered transactions" generally include loans or extensions of
credit to an affiliate, purchases of securities issued by an affiliate,
purchases of assets from an affiliate (except as may be exempted by order or
regulation), and certain other transactions. In addition, a savings institution
is prohibited from extending credit to an affiliate (other than a subsidiary of
the institution), unless the affiliate is engaged only in activities that the
Federal Reserve Board has determined, by regulation, to be permissible for bank
holding companies. Limitations are also imposed on loans and extensions of
credit from an institution to its executive officers, directors and principal
shareholders and each of their related interests.
Acquisitions. The HOLA prohibits a savings bank holding company from
directly or indirectly acquiring, without prior OTS approval, control of a
savings association or savings association holding company, all or substantially
all of the assets of a savings association or savings association holding
company (including through an acquisition by merger, consolidation or purchase
of assets, of any savings association), or more than 5% of the voting shares of
a non-subsidiary savings association or savings association holding company. In
determining whether to approve any such transaction, the OTS will consider,
among other things, the competitive effects of the transaction, financial and
managerial resources, future prospects of the holding company and its bank or
thrift subsidiaries following the transaction, and compliance records of such
subsidiaries with the Community Reinvestment Act.
Annual Reporting and Examinations. Under HOLA and OTS regulations, a
savings bank holding company must file periodic reports with the OTS and comply
with OTS recordkeeping requirements. BankUnited is also subject to holding
company examination by the OTS.
Savings Institution Regulations
Federal savings institutions such as the Bank are chartered by the OTS, are
members of the FHLB system, and have their deposits insured by the SAIF. They
are subject to comprehensive OTS and FDIC regulations that are intended
primarily to protect depositors. Federal laws empower federal savings
institutions like the Bank to accept deposits and pay interest on them, make
loans on residential and other real estate, make limited amounts of consumer
loans and commercial loans, invest in corporate obligations, government debt
securities and other securities, offer various banking services to their
customers, and engage in, directly or through subsidiaries, activities such as
trust operations and real estate investment, subject to applicable requirements
for notice to, or approval by, the institution's primary federal regulator.
SAIF-insured, federally chartered institutions may not enter into certain
transactions unless applicable regulatory tests are met or they obtain necessary
approvals. They are also required to file reports with the OTS describing their
activities and financial condition, and periodic examinations by the OTS test
compliance by institutions with various regulatory requirements, some of which
are described below.
23
Insurance of Accounts. The Bank's deposits are insured by the SAIF up to
$100,000 for each insured account holder, subject to applicable terms and
conditions, the maximum amount currently permitted by law.
As an insurer, the FDIC issues regulations and conducts examinations of its
insured members. SAIF insurance of deposits may be terminated by the FDIC, after
notice and hearing, upon a finding that an institution has engaged in unsafe and
unsound practices, cannot continue operations because it is in an unsafe and
unsound condition, or has violated any applicable law, regulation, rule, order
or condition imposed by the OTS or FDIC. When conditions warrant, the FDIC may
impose less severe sanctions as an alternative to termination of insurance. The
Bank's management does not know of any present condition pursuant to which the
FDIC would seek to impose sanctions on the Bank or terminate insurance of its
deposits.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions which the
FDIC considers well capitalized and financially sound pay the lowest premium,
while institutions that are less than adequately capitalized and of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period. The
FDIC is authorized to increase or decrease assessment rates on a semiannual
basis, up to a maximum increase or decrease of 5 basis points after aggregating
all increases and decreases, if it determines that the reserve ratio of the SAIF
will be less than the designated reserve ratio of 1.25% of SAIF insured
deposits. In setting these increased assessments, the FDIC must seek to restore
the reserve ratio to that designated reserve level, or such higher reserve ratio
as is established by the FDIC. The FDIC may also impose special assessments on
SAIF members to repay amounts borrowed from the United States Treasury or for
any other reason deemed necessary by the FDIC.
24
In September 1996, Congress enacted legislation to eliminate any
competitive disadvantage between the Bank Insurance Fund (the "BIF") and SAIF
member institutions, from SAIF deposit insurance premiums, which were generally
higher than BIF deposit insurance premiums. The legislation provided for a
one-time assessment to be imposed on all deposits assessed at the SAIF rates, as
of March 31, 1995, in order to recapitalize the SAIF. As a result of the special
assessment, the Bank's deposit insurance premiums were initially reduced to 6.7
basis points, and as of 1996 the SAIF deposit assessment was reduced to zero.
These premiums are subject to change in future periods.
In addition to deposit insurance assessments, the FDIC is authorized to
collect assessments against insured deposits to be paid to the Finance
Corporation ("FICO") to service FICO debt incurred in the 1980s. The FICO
assessment rate is adjusted quarterly. Before 2000, the FICO assessment rate for
SAIF-insured deposits was five times higher than the rate for BIF-insured
deposits. Beginning in 2000, SAIF- and BIF-insured deposits are being assessed
at the same rate by FICO. During fiscal 2000, the annualized rate was $0.02
cents per $100 of insured deposits.
Regulatory Capital Requirements. OTS regulations incorporate a risk-based
capital requirement that is designed to be no less stringent than the capital
standard applicable to national banks. It is modeled in many respects on, but
not identical to, the risk-based capital requirements adopted by the FDIC.
Associations whose exposure to interest-rate risk is deemed to be above normal
will be required to deduct a portion of such exposure in calculating their
risk-based capital. The OTS may establish, on a case-by-case basis, individual
minimum capital requirements for a savings association that vary from the
requirements that otherwise would apply under the OTS capital regulations. The
OTS has not established such individual minimum capital requirements for the
Bank, and, as of September 30, 2000, the Bank exceeded all applicable regulatory
requirements. See Notes to Consolidated Financial Statements. Under current law
and regulations, there are no capital requirements directly applicable to
BankUnited.
In addition, the OTS and other federal banking regulators have established
capital levels for institutions to implement the "prompt corrective action"
provisions of the FDICIA. Based on these capital levels, insured institutions
will be categorized as well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized or critically undercapitalized.
If an institution becomes categorized as "undercapitalized" under the
definitions established by the "prompt corrective action" provisions of the
FDICIA, it will become subject to certain restrictions. The FDICIA requires
federal banking regulators, including the OTS, to take prompt corrective action
to solve the problems of those institutions that fail to satisfy their
applicable minimum capital requirements. The level of regulatory scrutiny and
restrictions imposed become increasingly severe as an institution's capital
level falls.
An institution's category depends upon where its capital levels are in
relation to relevant capital measures, which include a risk-based capital
measure, a leverage ratio capital measure, and certain other factors. A "well
capitalized" institution must have a ratio of total capital to risk-weighted
assets (a "total risk-based capital ratio") of 10% or more, a ratio of core
capital to risk-weighted assets ("Tier I risk-based capital ratio") of 6% or
more and a ratio of core capital to adjusted total assets ("Tier 1 leverage
ratio") of 5% or more, and may not be subject to any
25
written agreement, order, capital directive, or prompt corrective action
directive issued by the OTS. An institution will be categorized as "adequately
capitalized" if it has a total risk-based capital ratio of 8% or more, a Tier 1
risk-based capital ratio of 4% or more, and either a leverage ratio of 4% or
more or a leverage ratio of 3% or more and a CAMEL rating of 1. Any institution
that is neither well capitalized nor adequately capitalized will be considered
undercapitalized. The Bank is a well capitalized institution under the
definitions as adopted.
In the case of an institution that is categorized as "undercapitalized," or
worse, such an institution must submit a capital restoration plan to the OTS. An
undercapitalized depository institution generally will not be able to acquire
other banks or thrifts, establish additional branches, pay dividends, or engage
in any new lines of business unless consistent with its capital plan. A
"significantly undercapitalized" institution will be subject to additional
restrictions on its affiliate transactions, the interest rates paid by the
institution on its deposits, the institution's asset growth, compensation of
senior executive officers, and activities deemed to pose excessive risk to the
institution. Regulators may also order a significantly undercapitalized
institution to hold elections for new directors, terminate any director or
senior executive officer employed for more than 180 days prior to the time the
institution became significantly undercapitalized, or hire qualified senior
executive officers approved by the regulators.
The FDICIA provides that an institution that is "critically
undercapitalized" must be placed in conservatorship or receivership within 90
days of becoming categorized as such unless the institution's regulator and the
FDIC jointly determine that some other course of action would result in a lower
resolution cost to the institution's insurance fund. Thereafter, the
institution's regulator must periodically reassess its determination to permit a
particular critically undercapitalized institution to continue to operate. A
conservator or receiver must be appointed for the institution at the end of an
approximately one-year period following the institution's initial classification
as critically undercapitalized unless a number of stringent conditions are met,
including a determination by the regulator and the FDIC that the institution has
positive net worth and a certification by such agencies that the institution is
viable and not expected to fail.
Federal law requires that the federal banking agencies risk-based capital
guidelines take into account various factors including interest rate risk,
concentration of credit risk, risks associated with nontraditional activities,
and the actual performance and expected risk of loss of multi-family mortgages.
In 1994, the federal banking agencies jointly revised their capital standards to
specify that concentration of credit and nontraditional activities are among the
factors that the agencies will consider in evaluating capital adequacy. In that
year, the OTS and FDIC amended their risk-based capital standards with respect
to the risk weighting of loans made to finance the purchase or construction of
multi-family residences. The OTS adopted final regulations adding an interest
rate risk component to the risk-based capital requirements for savings
associations such as the Bank, although implementation of the regulation has
been delayed. Management believes that the effect of including such an interest
rate risk component in the calculation of risk-adjusted capital will not cause
the Bank to cease to be well-capitalized.
The final rules establishing the capital levels for purposes of the FDICIA
also indicate that the federal regulators intend to lower or eliminate the core
capital requirement from the definitions of well capitalized, adequately
capitalized and undercapitalized after the requirement to deduct an IRR
component from total capital becomes effective. This action has not yet been
taken. See "Regulatory Capital Requirements" above.
26
In addition to the foregoing prompt corrective action provisions, the
FDICIA also sets forth requirements that the federal banking agencies, including
the OTS, review their capital standards every two years to ensure that their
standards require sufficient capital to facilitate prompt corrective action and
to minimize loss to the SAIF and the BIF.
Restrictions on Dividends and Other Capital Distributions. OTS Regulations
limit the ability of savings institutions to pay dividends and make other
capital distributions. Savings institutions, such as the Bank, which are
subsidiaries of a savings and loan holding company, must provide the OTS with at
least 30 days written notice before declaring any dividend or obtaining board
approval of any capital distribution. All such capital distributions are also
subject to the OTS' right to object on safety and soundness grounds.
In addition, a savings institution must obtain prior approval from the OTS
if (i) it fails to meet certain regulatory conditions which qualify it for
expedited treatment under OTS regulations, (ii) after giving effect to the
proposed distribution, the association's capital distributions in a calendar
year would exceed its year-to-date net income plus retained net income for the
preceding two years, (iii) the association would not be at least adequately
capitalized following the distribution, or (iv) the distribution would violate a
statute, regulation, regulatory agreement or a regulatory condition to which the
association is subject. The OTS may disapprove a notice or deny an application,
in whole or in part, if the association would be undercapitalized or worse after
the distribution, if the OTS determines that the distribution raises safety or
soundness concerns, or if the distribution violates any applicable statute,
regulation, agreement between the OTS and the association or condition imposed
by an OTS-approved application or notice.
Federal Home Loan Bank System. The Bank is a member of the Federal Home
Loan Bank ("FHLB") system, which consists of 12 regional FHLBs governed and
regulated by the Federal Housing Finance Board. The FHLBs provide a central
credit facility for member institutions, The Bank, as a member of the FHLB of
Atlanta, is required to acquire and hold shares of capital stock in the FHLB of
Atlanta in an amount at least equal to the greater of 1% of the aggregate
principal amount of its unpaid residential mortgage loans, home purchase
contracts and similar obligations as of the close of each calendar year, or 5%
of its borrowings from the FHLB of Atlanta (including advances and letters of
credit issued by the FHLB on the Bank's behalf). The Bank is currently in
compliance with this requirement, with a $62.6 million investment in stock of
the FHLB of Atlanta as of September 30, 2000.
The FHLB of Atlanta makes advances to members in accordance with policies
and procedures periodically established by the Federal Housing Finance Board and
the Board of Directors of the FHLB of Atlanta. Currently outstanding advances
from the FHLB of Atlanta are required to be secured by a member's shares of
stock in the FHLB of Atlanta and by certain types of mortgages and other assets.
Eligible collateral is further limited in certain respects. Interest rates
charged for advances vary depending on maturity, the cost of funds to the FHLB
of Atlanta and the purpose of the borrowing. As of September 30, 2000, advances
from the FHLB of Atlanta totaled $1.3 billion.
Qualified Thrift Lender Test. The qualified thrift lender test measures the
proportion of a savings institution's assets invested in loans or securities
supporting residential
27
construction and home ownership. A savings institution qualifies as a QTL if its
qualified thrift investments equal or exceed 65% of its portfolio assets on a
monthly average basis in nine of every 12 months. Qualified thrift investments,
include (i) certain housing-related loans and investments, (ii) certain
obligations of the FSLIC, the FDIC, the FSLIC Resolution Fund and the RTC, (iii)
loans to purchase or construct churches, schools, nursing homes and hospitals
(subject to certain limitations), (iv) consumer loans (subject to certain
limitations), (v) shares of stock issued by any FHLB, and (vi) shares of stock
issued by the FHLMC or the FNMA (subject to certain limitations). Portfolio
assets consist of total assets minus (a) goodwill and other intangible assets,
(b) the value of properties used by the savings institution to conduct its
business, and (c) certain liquid assets in an amount not exceeding 20% of total
assets.
Any savings institution that fails to become or remain a QTL must either
convert to a national bank charter or be subject to restrictions specified in
the OTS regulations. Any such savings institution that does not become a bank
will be: (i) prohibited from making any new investment or engaging in activities
that would not be permissible for national banks; (ii) prohibited from
establishing any new branch office in a location that would not be permissible
for a national bank in the institution's home state; (iii) ineligible to obtain
new advances from any FHLB; and (iv) subject to limitations on the payment of
dividends comparable to the statutory and regulatory dividend restrictions
applicable to national banks. Also, beginning three years after the date on
which the savings association ceases to be a QTL, the savings association will
be prohibited from retaining any investment or engaging in any activity not
permissible for a national bank and would be required to repay any outstanding
advances to any FHLB. A savings institution may requalify as a QTL if it
thereafter complies with the QTL test. At September 30, 2000, the Bank exceeded
the QTL requirements.
Liquidity. OTS regulations currently require member savings institutions to
maintain for each calendar quarter an average daily balance of liquid assets
(cash and certain time deposits, securities of certain mutual funds, bankers'
acceptances, corporate debt securities and commercial paper, and specified U.S.
government, state government and federal agency obligations) equal to at least
4% of either the amount of its liquidity base at the end of the preceding
calendar quarter or the average daily balance of its liquidity base during the
preceding quarter. "Liquidity base" means the institution's net withdrawable
deposits and short-term borrowings (generally borrowings having maturities of
one year or less). The Director of the OTS may vary this liquidity requirement
from time to time within a range of 4% to 10%. Monetary penalties may be imposed
for failure to meet liquidity requirements. For the month of September 2000, the
Bank's liquidity ratio was 8.77%. The Bank is also required to maintain cash
reserve requirements at the Federal Home Loan Bank. At September 30, 2000 this
cash reserve requirement was $13.2 million.
General Lending Regulations
The Bank's lending activities are subject to federal regulation, including
the Equal Credit Opportunity Act, the Truth in Lending Act, the Real Estate
Settlement Procedures Act and the Community Reinvestment Act. Because the Bank
is a federally-chartered savings bank, the Bank generally may extend credit as
authorized under federal law, without regard to state laws purporting to
regulate or affect its credit activities, other than state contract and
commercial laws, real property laws, homestead laws, tort laws, criminal laws
and other state laws designated by the OTS.
28
Community Reinvestment Act. Under the Community Reinvestment Act (the
"CRA"), as implemented by OTS regulations, a savings institution has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with its examination of a financial
institution, to assess the institution's record of meeting the credit needs of
its community and to take such records into account in its evaluation of certain
applications.
Under regulations adopted by the OTS with the other federal banking
agencies, there are three tests for the evaluation of a savings institution's
performance. The lending test evaluates a savings institution's record of
helping to meet the credit needs of its assessment area through its lending
activities, by considering an institution's home mortgage, small business, small
farm, and community development lending. The investment test evaluates a savings
institution's record of helping to meet the credit needs of its assessment area
through qualified investments that benefit its assessment area or a broader
statewide or regional area including the assessment area, and the service test
evaluates a savings institution by analyzing both the availability and the
effectiveness of the institution's systems for delivering retail banking
services and the extent and innovativeness of its community development
services. Based upon the savings institution's performance under the lending,
investment and service tests, and any other tests which may be applicable to the
institution under the regulations, the OTS assigns the savings institution one
of four ratings prescribed under the regulations. The four possible ratings of
meeting community credit needs are outstanding, satisfactory, needs to improve,
and substantial noncompliance. Based upon the OTS examination in fiscal 2000,
the Bank's CRA rating is satisfactory.
Loans-to-one-borrower Limitations. The loans-to-one borrower limits
applicable to national banks also apply to savings institutions. Generally,
under current limits, loans and extensions of credit outstanding at one time to
a single borrower and not fully secured may not exceed 15% of the savings
institution's unimpaired capital and unimpaired surplus. Loans and extensions of
credit fully secured by certain readily marketable collateral may represent an
additional 10% of unimpaired capital and unimpaired surplus. As of September 30,
2000, the Bank was in compliance with the loans-to-one-borrower limitations.
Federal Reserve System
The Bank is subject to certain regulations promulgated by the Federal
Reserve Board. Pursuant to such regulations, savings institutions are required
to maintain reserves against their transaction accounts (primarily
interest-bearing and noninterest-bearing checking accounts) and non-personal
time deposits. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements
imposed by the OTS. In addition, Federal Reserve Board regulations limit the
periods within which depository institutions must provide availability for and
pay interest on deposits to transaction accounts. Depository institutions are
required to disclose their check-hold policies and any changes to those policies
in writing to customers. The Bank is in compliance with all such Federal Reserve
Board regulations.
29
Numerous other regulations promulgated by the Federal Reserve Board affect
the business operations of the Bank. These include regulations relating to equal
credit opportunity, electronic fund transfers, collection of checks, truth in
lending, truth in savings and availability of funds.
Other Regulation
Regulation of Non-Banking Affiliates. BUFC Financial Services, Incorporated
("BUFC"), an insurance agency subsidiary of BankUnited doing business in the
State of Florida, sells fixed and variable annuities, mutual funds and long-term
care insurance products. BUFC's activities must comply with Florida insurance
laws and regulations, and BUFC employees are licensed insurance agents and
subject to continuing education, licensing and oversight by the Florida
Department of Insurance. In addition, BUFC's employees are also registered
representatives of Essex National Securities, Inc., a broker-dealer regulated by
the NASD. BUFC's activities are further regulated by regulations and guidelines
jointly adopted by the federal banking agencies, which specify requirements for
the sale of non-deposit insurance products, including, without limitation,
requirements pertaining to disclosures, physical separation of activities from
banking activities and due diligence and oversight functions.
Legislative and Regulatory Developments
Pursuant to the GLB, the federal banking agencies have jointly adopted a
privacy regulation with which savings institutions must comply on and after July
1, 2001. Subject to certain exceptions, the privacy regulation requires each
financial institution to give a consumer notice of its privacy policies and
practices before disclosing nonpublic personal information about the consumer to
any non-affiliated third party, to give each customer notice of its privacy
policies and procedures at the time a customer relationship is established and
annually thereafter, and to give each consumer an opt out notice and reasonable
opportunity for the customer to opt out of having his nonpublic personal
information disclosed by the financial institution to non-affiliated third
parties. The Bank is in the process of making all necessary and appropriate
preparations to comply with the new privacy requirements.
TAXATION
BankUnited reports its income and expenses under an accrual method of
accounting and, prior to 1994, filed federal income tax returns on a calendar
year basis. Since 1994, BankUnited and its subsidiaries have elected to file
consolidated tax returns on the basis of a fiscal year ending September 30. The
Tax Reform Act of 19