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, 1996.

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the transition period from _________________ to __________________

                       Commission File Number: 0000906420

                               BANK UNITED CORP.
             (Exact name of registrant as specified in its charter)

              Delaware                                          13-3528556
   (State or other jurisdiction of                           (I.R.S. Employer
   incorporation or organization)                          Identification No.)

 3200 Southwest Freeway, Suite 1600
           Houston, Texas
   (Address of principal executive                                77027
              offices)                                          (Zip Code)

       Registrant's telephone number, including area code: (713) 543-7900
        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, par value $0.01 per share

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]  No [ ]

     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. [X]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant as of December 16, 1996 was $646,850,409.

     The number of shares outstanding as of the registrant's $0.01 par value
common stock as of December 16, 1996 were as follows:

         Title of Each Class                     Number of Shares
-------------------------------------  -------------------------------------
               Class A                              28,354,276
               Class B                              3,241,320

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive Proxy Statement for the registrant's 1996 Annual
Meeting of Shareholders are incorporated by reference to Part III of this Annual
Report on Form 10-K.
<PAGE>
                               BANK UNITED CORP.
                          1996 FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS
                                                                            Page
                                     PART I
ITEM  1.  BUSINESS............................................................ 1
               General........................................................ 1
               Community Banking Group........................................ 3
               Commercial Banking Group....................................... 5
               Financial Markets Group........................................ 6
               Mortgage Banking Group......................................... 7
               Loan Portfolio................................................. 8
               Loan Servicing Portfolio.......................................10
               Investment Portfolio...........................................13
               Deposits and Borrowings........................................15
               Asset and Liability Management.................................17
               Competition....................................................20
               Subsidiaries...................................................20
               Personnel......................................................21
               The Assistance Agreement.......................................21
               Regulation.....................................................24
               Taxation.......................................................40
ITEM  2.  PROPERTIES..........................................................46
ITEM  3.  LEGAL PROCEEDINGS...................................................46
ITEM  4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................48

                                     PART II
ITEM  5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS.................................................48
ITEM  6.  SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA......................50
ITEM  7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS.................................54
               Discussion of Results of Operations............................54
               Discussion of Financial Condition..............................63
               Asset Quality..................................................67
               Capital Resources and Liquidity................................74
               Contingencies and Uncertainties................................77
               Federal Financial Assistance...................................78
               Recently Issued Accounting Standards...........................78
               Forward-Looking Information....................................79
ITEM  8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................79
ITEM  9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE.................................79

                                       i
<PAGE>
                                                                            PAGE
                                    PART III
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................80
ITEM 11.  EXECUTIVE COMPENSATION..............................................80
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT..........................................................80
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................80

                                     PART IV
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON             81
          FORM 8-K............................................................
                                SIGNATURES                                    84

                INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                    86

                                       ii
<PAGE>
                                     PART I

ITEM 1.  BUSINESS

GENERAL

     Bank United Corp., a Delaware corporation (the "Company"), is a broad
based financial services provider to consumers and businesses in Texas and other
selected regional markets throughout the United States. Through Bank United, a
federally chartered savings bank (the "Bank"), the Company currently operates
70 Texas based community banking branches serving nearly 200,000 households and
businesses, 9 commercial banking offices and a nationwide network of mortgage
offices. At September 30, 1996, the Company had assets of $10.7 billion,
deposits of $5.1 billion, and stockholders' equity of $531.0 million. In August
1996, the Company filed a registration statement with the Securities and
Exchange Commission ("SEC") pursuant to which 12,075,000 shares of the Company
Class A common stock were sold to the public (the "Offering"). See
"Management's Discussion and Analysis -- Capital Resources and
Liquidity -- Capital". The Company was the largest publicly traded depository
institution headquartered in Texas, in terms of both assets and deposits at
September 30, 1996.

     In December 1996, the Company formed a new, wholly owned, Delaware
subsidiary, BNKU Holdings, Inc. ("Holdings"). After acquiring all the common
stock of Holdings, the Company contributed all the common stock of the Bank to
Holdings, and Holdings assumed the obligations of the Company's $115 million
8.05% senior notes due May 15, 1998 (the "Senior Notes"). As a result of these
transactions, Holdings is the sole subsidiary of the Company and the Bank is the
sole subsidiary of Holdings. In conjunction with the formation of Holdings, the
Company's corporate headquarters were relocated from Uniondale, New York to
Houston, Texas.

     From its incorporation in December 1988 through the early 1990's, the
Company's strategy was to obtain assets and deposits through the acquisition of
failed thrifts and through purchases from the Resolution Trust Corporation
("RTC"). Operationally, the Company focused on traditional single family
mortgage lending and on deposit gathering. As a complement to these activities,
the Company entered the retail and wholesale mortgage banking businesses,
leveraging management's experience in the origination, purchase, sale,
structuring, and securitization of mortgage loans and the purchase and sale of
mortgage servicing rights ("MSRs").

     The Company's financial priorities initially were focused towards
minimizing interest rate and credit risk, while maximizing the net value of the
Company's assets and liabilities. To this end, the Company maintained a highly
liquid pool of securitizable assets as the core holdings of its loan portfolio.
The Company was very active in the buying and selling of loans, mortgage-backed
securities ("MBS"), and MSRs when economically attractive.

     Over the past few years, the Company's management has pursued a strategy
designed to reduce its reliance on its traditional thrift and mortgage banking
lines of business by developing higher margin consumer and commercial lines of
business. During this time, the Company has engaged in more aggressive marketing
campaigns and has increased its portfolio of multi-family, residential
construction, consumer, and commercial loans and the level of lower cost
transaction and commercial deposit accounts. While the pursuit of this strategy
may entail risks different than those present in traditional single family
lending lines of business, the Company believes it has taken appropriate
measures to manage these risks adequately. To manage potential credit risk the
Company has developed comprehensive credit approval and underwriting policies
and procedures for these lines of business. To offset operational and
competitive risk, the Company has hired experienced commercial bank
professionals, trained other personnel to manage and staff these businesses, and
closely monitors the conduct and performance of the business. In addition to its
efforts to increase originations of commercial and consumer loans, the Company
has been increasing the retention of higher yielding single family and
multi-family mortgage loans that, in the past, may have been sold or
securitized. The Company intends to continue to pursue additional expansion
opportunities, including acquisitions, while maintaining adequate
capitalization.

     The Company's business is subject to various material business risks. For
example, changes in prevailing interest rates can have significant effects on
the Company's business. Some of the risks to which the Company's business are
subject may become more acute in periods of economic slowdown or recession.
During such periods, payment delinquencies and foreclosures generally increase
and could result in an increased incidence of

                                       1
<PAGE>
claims and legal actions against the Company. In addition, such conditions could
lead to a potential decline in demand for the Company's products and services.

     The Company's operating structure reflects its current business strategy,
with four business groups in two business segments.

                             --------------------
                            |  Bank United Corp. |
                            |   (the "Company")  |
                             --------------------
                                        |
                             ---------------------
                            | BNKU Holdings, Inc. |
                            |     ("Holdings")    |
                             ---------------------
                                        |
                             ---------------------
                            |      Bank United    |
                            |     (the "Bank")    |
                             ---------------------
                                        |
              -----------------         |        --------------------------
             | Banking Segment | ---------------| Mortgage Banking Segment |
              -----------------                  --------------------------
                         |                                             |
         ----------------+---------------------------                  |
        |                |                           |                 |
 ---------------       ---------------       ------------------     ----------
|   Community   |     |   Commercial  |     | Financial Markets|   | Mortgage |
| Banking Group |     | Banking Group |     |      Group       |   | Banking  |
 ---------------       ---------------       ------------------    |  Group   |
                                                                    ----------
Activities
 o Deposit             o Mortgage Banker     o Loan Acquisitions   o Retail
   Gathering             Finance                                     Mortgage
                                                                     Operations

 o Consumer Lending    o Multi-Family        o Wholesale Fundings  o Wholesale
                         Lending                                     Mortgage
                                                                     Operations

 o Small Business      o Residential         o Investment          o Mortgage
   Banking               Construction          Portfolio             Servicing
                         Lending               Management            Operations

 o Investment Product  o Commercial Real     o Securitization of
   Sales                 Estate Lending        Loans

                                       2
<PAGE>
     The tables below present an overview of the operating results of the
Company and its business segments for fiscal 1996, 1995, and 1994. See
"Management's Discussion and Analysis -- Discussion of Results of Operations"
and Note 18 to the Consolidated Financial Statements.

          EARNINGS (LOSS) BEFORE INCOME TAXES, AND MINORITY INTEREST,
                              BY BUSINESS SEGMENT

<TABLE>
<CAPTION>
                                           BANKING    MORTGAGE BANKING    BANK UNITED                            TOTAL
                                           SEGMENT        SEGMENT           CORP.(1)     ELIMINATIONS(2)       EARNINGS
                                           -------    ----------------    -----------    ---------------    ---------------
                                                                            (IN MILLIONS)
<S>                                        <C>             <C>               <C>             <C>                <C>
Years ended September 30,
     1996...............................   $ 82.4          $ (3.1)           $97.5           $(109.0)           $  67.8
     1995...............................     82.1            19.4             (5.0)             (6.4)              90.1
     1994...............................     73.8            24.4             (0.7)            (11.4)              86.1

                 OPERATING EARNINGS (LOSS) BY BUSINESS SEGMENT

                                           BANKING    MORTGAGE BANKING    BANK UNITED                       TOTAL OPERATING
                                           SEGMENT        SEGMENT          CORP.(1)      ELIMINATIONS(2)       EARNINGS
                                           -------    ----------------    -----------    ---------------    ---------------
                                                                            (IN MILLIONS)
Years ended September 30,
     1996...............................   $114.4          $ 11.8            $97.5           $(109.0)           $ 114.7
     1995...............................     83.3            19.4             (5.0)             (6.4)              91.3
     1994...............................     63.2            24.4             (0.7)            (11.4)              75.5
</TABLE>
------------
(1) Principally dividends received by the Company from the Bank, net of interest
    expense on the Senior Notes. In May 1996, the Bank paid a $100 million
    dividend on its common stock. See Notes 16 and 18 to the Consolidated
    Financial Statements.

(2) Reflects the elimination of dividends received by the Company from the Bank.

     Operating earnings represents income, including net gains (losses) on the
sales of single family servicing rights and single family warehouse loans,
before taxes and minority interest, and excludes net gains (losses) on
securities, MBS, and other loans. Operating earnings for fiscal 1996 excludes a
one-time Savings Association Insurance Fund ("SAIF") assessment, compensation
expense related to the adoption of a management compensation program, and a
charge related to the restructuring of the Mortgage Banking Group because these
items are considered non-recurring. See Notes 13, 15, and 18 to the Consolidated
Financial Statements. Management believes operating earnings reflects the
revenues and expenses of the Company's business segments and facilitates trend
analysis as it excludes transactions that are typically considered opportunistic
or non-recurring and not part of the routine core business operations of the
Company. Operating earnings is provided as other data and should not be
considered an alternative to net income as an indicator of the Company's
operating performance or to cash flow as a measure of liquidity.

COMMUNITY BANKING GROUP

     The Community Banking Group's principal activities include deposit
gathering, consumer lending, small-business banking, and investment product
sales. The Community Banking Group, which has marketed itself under the name
"Bank United" since 1993, currently operates a 70 branch community banking
network, a 24-hour telephone banking center, and a 66-unit ATM network, which
together serve as the platform for the Company's consumer and small business
banking activities. The community banking branch network includes 37 branches in
the greater Houston area, 29 branches in the Dallas / Ft. Worth metropolitan
area, and two branches each in Austin and San Antonio. Through this branch
network, the Company maintains approximately 440,000 accounts with an estimated
200,000 households and businesses.

     DEPOSIT GATHERING

     The Community Banking Group offers a variety of traditional deposit
products and services, including checking and savings accounts, money market
accounts, and certificates of deposits ("CDs") and offers deposit

                                       3
<PAGE>
products and services tailored specifically to small business needs. The
Community Banking Group's strategy is to become its customers' primary financial
services provider by emphasizing high levels of customer service and innovative
products. The Company has a history of introducing innovative products that have
helped it increase its competitive position within its primary banking markets.
At September 30, 1996, the Community Banking Group maintained over 338,000
deposit accounts with $4.1 billion in deposits.

     CONSUMER LENDING

     Since 1992, the Community Banking Group has engaged in consumer lending for
its own portfolio. At September 30, 1996, consumer loans outstanding totalled
$173.5 million. Through the Community Banking Group, the Company offers a
variety of consumer loan products, including home improvement loans, unsecured
lines of credit, and automobile loans. Home improvement loans are fixed-rate
loans and are offered for terms up to 15 years, unsecured loans are open ended
maturities with fixed and adjustable-rates, and automobile loans are offered for
terms up to six years on a fixed-rate basis. These loans are underwritten
utilizing credit scoring and collateral value, and are subject to collection,
collateral valuation, and fraud risks. In addition, while the Company has
offered its customers credit cards since 1990, the Company intends to begin
credit card lending for its own portfolio in fiscal 1997. The consumer lending
division of the Community Banking Group also offers home equity lines of credit
("HELOCs") outside of Texas. (Current laws prohibit HELOC lending in the state
of Texas; however, the Company has in place the systems and controls needed to
manage a Texas-based HELOC operation in anticipation of possible Texas
legislative and constitutional changes that would authorize such lending.)
During fiscal 1997, the Company intends to begin offering mortgages through its
community banking branch network. The Community Banking Group has developed the
technology required for efficient loan processing and underwriting, including
credit scoring and such services as taking loan applications by telephone.
Unsecured line of credit loans and credit card loans have the additional risks
of no collateral, greater chance of fraud and complex consumer protection laws
and regulations. In addition, the ease of credit card availability to the
consumer increases risk. Automobile loans carry the risk of collateral
depreciation and mobility. Also, repossession laws make it difficult to take
possession of the collateral to enforce lien rights.

     SMALL BUSINESS BANKING

     The Community Banking Group provides a broad range of credit services to
its small business customers, including lines of credit, working capital loans,
equipment loans, owner-occupied real estate loans, and Small Business
Administration ("SBA") loans. These loans are offered with both fixed and
adjustable-rates on a term basis, and adjustable-rate revolving basis with
maturities up to 10 years for term loans and one year for revolving loans. These
loans are underwritten on the financial strength of the guarantor, collateral
utilized, and projected cashflow of the business. Small business loan risks are
similar to the risks associated with unsecured commercial loans, but tend to be
magnified due to business cycles and the nature of the assets that small
businesses tend to maintain. Additionally, the Company requires borrowers to
provide periodic financial information for review and assessment. At September
30, 1996, the Community Banking Group had approximately 480 business credit
loans outstanding, totalling approximately $26.8 million. At September 30, 1996,
the Community Banking Group also had approximately $16.2 million in unfunded
commitments and another $1.3 million in pending applications for business credit
loans. The Community Banking Group's small business strategy is focused on
offering loan products and services tailored specifically to most small business
needs, with highly responsive credit decision-making. The Company is
aggressively seeking to increase its small business lending volume.
Specifically, the Company is offering a comprehensive line of small business
products and services. It has hired a number of experienced officers, developed
a formal customer calling program, trained community banking branch managers to
source small business loans from and in proximity to branches, is utilizing
modern loan application processing and credit scoring technology, and offering a
comprehensive line of cash and treasury management services to small business
customers. Small business lines of credit and working capital loans may be made
on an unsecured basis and therefore may have no secondary source of repayment.
When such loans are secured, the value of the collateral may fluctuate with
local economic conditions. Small business equipment loans are typically made for
longer terms and at higher loan-to-value ratios than other types of equipment
loans, and the collateral may have limited marketability or may become obsolete
during the term of the loan. Small business owner-occupied real estate loans may
be secured by single-use or limited-use real estate. The valuation of these
properties is based, in

                                       4
<PAGE>
part, upon their ability to operate successfully as going concerns. SBA loans
are typically originated at higher loan-to-value ratios and for longer terms
than other commercial loans and are made to borrowers that might not meet the
Company's underwriting guidelines for other commercial loans.

     INVESTMENT PRODUCT SALES

     Since 1993, a subsidiary of the Bank has been marketing investment products
to the Company's consumer customer base. At September 30, 1996, the investment
product sales force was comprised of 24 commissioned Series 7 and Group I
licensed registered representatives. A broad range of investment products,
including stocks, bonds, mutual funds, annuities, and securities are offered by
these registered representatives. Investment product sales increased to $157.2
million in fiscal 1996 from $81.0 million in fiscal 1995. Gross fee revenue from
such sales were $5.4 million and $3.6 million for fiscal 1996 and 1995,
respectively.

COMMERCIAL BANKING GROUP

     The Commercial Banking Group provides credit and a variety of cash
management and other services to certain real estate and real estate related
businesses. The Commercial Banking Group conducts its activities through four
units: Mortgage Banker Finance ("MBF"), a financial service provider to small-
and medium-sized mortgage companies; Multi-Family Lending; Residential
Construction Lending; and Commercial Real Estate Lending. Business is solicited
in Texas and in targeted regional markets throughout the United States. The
Commercial Banking Group earns fees on committed lines and fees and interest on
loans outstanding. The Commercial Banking Group is expanding its products and
industry specialties to include health care lending, asset-based lending, and
other industrial and commercial loan products.

     MORTGAGE BANKER FINANCE

     The Commercial Banking Group's MBF unit provides third-party mortgage
companies with credit facilities, including warehouse lines of credit,
repurchase agreements, term loans secured by MSRs, and working capital credit
lines, as well as cash management services. The loans provided by the MBF are
generally collateralized by single family mortgages or related servicing rights.
The Company lends based on a percentage of the loan market value. The collateral
for these loans typically is available for the period of time from the
origination of the loan by the borrower until its subsequent sale in the
secondary market. At September 30, 1996, the MBF unit had $199.2 million in
unfunded commitments and $139.9 million of loans outstanding. Since 1994, the
MBF unit has also offered commercial banking services (i.e., cash management,
document custody and deposit services) to its mortgage banking customers.
Deposits related to MBF activities totalled $879.3 million at September 30,
1996. MBF loans and lines of credit are subject to the risk of collateral that
fluctuates in value with changing interest rates. The loans are also subject to
the risk that the collateral may be fraudulently or improperly documented. MBF
loans are also generally made to borrowing entities that are more thinly
capitalized than other commercial borrowers.

     MULTI-FAMILY LENDING

     Since 1990, the Commercial Banking Group has been providing multi-family
financing for established, operating multi-family properties, real estate
investment trusts, and selected construction, acquisition, and rehabilitation
projects. Permanent and construction multi-family loans are offered on a fixed
or adjustable-rate basis. Multi-family lending is subject to the risk that the
borrower may not complete the improvements to the real estate collateral in a
timely manner or may fraudulently misrepresent the progress or status of the
project. Additionally, the value of the completed collateral is subject to
market fluctuations and may be adversely affected by the presence of undetected,
environmentally sensitive substances. The Company utilizes certain lending
practices to reduce these risks. These include limiting the loan amount to an
amount less than its appraised value, verifying historical cash flows, assessing
the general economic conditions and the financial condition of the borrower. At
September 30, 1996, the Multi-Family Lending unit had $152.3 million in unfunded
multi-family commitments and $511.2 million in such loans outstanding ($479.8
million in permanent loans and $31.4 million in construction loans). Loans are
solicited directly in Texas and in targeted regional markets throughout the
United States, through regional offices and selected preapproved multi-family
mortgage banking correspondents. From time to time, the Commercial Banking Group
also purchases servicing rights related to multi-family loans.

                                       5
<PAGE>
At September 30, 1996, the multi-family servicing portfolio totalled $716.9
million, of which $433.5 million represented loans in the Company's portfolio.

     RESIDENTIAL CONSTRUCTION LENDING

     Since 1989, the Commercial Banking Group has been active in making loans to
builders for the construction of single family residential properties and, on a
more limited basis, loans for acquisition and development of improved
residential lots. These loans are made on a commitment term that generally is
for a period of one to two years. Residential construction loans are subject to
the risk that a general downturn in the builder's local economy could prevent it
from marketing its product profitably. Such loans are also subject to the risk
that a builder might misrepresent the completion status of the homes against
which it has drawn loan funds. The Company seeks to limit these risks by
reviewing individual builders' experience and reputation, general financial
condition, and speculative inventory levels. Additionally, construction status
is reviewed by onsite inspections and the builders' ongoing financial position
is monitored. During fiscal 1995 and 1994, the Company expanded into several
other major markets outside of Texas, including Atlanta, Chicago, Denver,
Orlando, Phoenix, and Philadelphia. Current markets in Texas include Houston,
Dallas, Austin, and San Antonio. At September 30, 1996, the Company had $175.9
million in unfunded commitments for single family residential construction loans
and $242.5 million of such loans outstanding.

     COMMERCIAL REAL ESTATE LENDING

     The Commercial Banking Group is engaged in commercial real estate lending
for specific products, emphasizing permanent mortgages on income producing
properties, such as assisted living facilities and retail shopping centers. At
September 30, 1996, the Company had $40.8 million in permanent commercial real
estate loans outstanding. Commercial real estate loans are typically made to
single-purpose business entities with limited secondary sources of repayment
outside the specific project financed. The value of the collateral for such
loans may be adversely affected by local market conditions and by the presence
of environmentally sensitive substances. Competitive marketplace underwriting
guidelines are followed in evaluating each loan transaction.

FINANCIAL MARKETS GROUP

     The Financial Markets Group manages the Company's asset portfolio
activities, including loan acquisition and management and the securitization of
loans. Additionally, under the supervision of the Asset and Liability Committee
("ALCO"), the Financial Markets Group is responsible for the Company's
investment portfolio, for interest rate risk hedging strategies, and for
securing funding sources other than consumer and commercial deposits. See
" -- Asset and Liability Management".

     LOAN ACQUISITIONS

     The Financial Markets Group acquires residential loans, primarily single
family loans, through traditional secondary market sources (mortgage companies,
financial institutions, and investment banks), as well as from the Mortgage
Banking Group. Since September 1992, the Company has closed more than 60 loan
acquisition transactions representing more than $5.3 billion in loans. While the
Company intends to continue to pursue this strategy on a selective basis, no
assurance can be given as to the continued availability of portfolio acquisition
opportunities or the Company's ability to obtain such portfolios on favorable
terms. At September 30, 1996, a majority of the $7.3 billion of loans held to
maturity by the Company were managed by the Financial Markets Group.

     WHOLESALE FUNDINGS

     The Financial Markets Group arranges funding sources other than consumer
and commercial deposits for the Company. Wholesale funding sources include
advances from the Federal Home Loan Bank of Dallas ("FHLB Dallas"), borrowings
on securities sold under agreement to repurchase ("reverse repurchase
agreements"), and brokered CDs. At September 30, 1996, wholesale activities
provided $4.5 billion in funding. See "Management's Discussion and
Analysis -- Capital Resources and Liquidity" and Notes 8, 9, and 10 to the
Consolidated Financial Statements.

                                       6
<PAGE>
     INVESTMENT PORTFOLIO MANAGEMENT

     The Financial Markets Group manages the Company's investment portfolio,
which totalled nearly $2.4 billion at September 30, 1996. The Financial Markets
Group seeks to maintain a portfolio of assets that provides for liquidity needs
and maintains an interest rate spread over matched funded liabilities, including
assets that may be pledged as collateral for secured borrowings, and that
maximize utilization of the Bank's risk-based capital. See " -- Investment
Portfolio", "-- Asset and Liability Management", and Notes 2, 3, and 4 to the
Consolidated Financial Statements.

     SECURITIZATION OF LOANS

     From time to time, the Financial Markets Group evaluates the Company's loan
portfolio for securitization opportunities and, when appropriate, creates
securities and retains the master servicing. During the past four years, the
Financial Markets Group has structured seven securitization transactions,
creating $1.8 billion in MBS. The Company has sold substantially all of the
non-investment grade MBS created, thus enhancing the Bank's risk-based capital
ratios and credit quality. During fiscal 1996, the Financial Markets Group
purchased $58 million in SBA loans, a portion of which were pooled into seven
securities totalling $30.5 million. These securitization activities are separate
from the secondary marketing activities of the Mortgage Banking Group.

MORTGAGE BANKING GROUP

     The Mortgage Banking Group operates under the names "Bank United
Mortgage" in Texas and Virginia and "Commonwealth United Mortgage" elsewhere
in the United States. The Mortgage Banking Group originates and services first
mortgage loans for single family residences for both the Company's portfolio and
for investors. At December 31, 1995, with originations of $3.4 billion in fiscal
year 1995, the Company was ranked by the AMERICAN BANKER as among the 30 largest
originators of single family loans in the nation. In addition, the Company was
ranked by the AMERICAN BANKER as one of the 40 largest single family loan
servicers in the nation at December 31, 1995. The Company's servicing portfolio
at September 30, 1996 was $13.2 billion. To manage the risk on commitments to
originate mortgage loans ("mortgage pipeline"), the Company estimates the
portion of the loans that will close and then enters into forward sales of such
loans in the secondary market. See Note 12 to the Consolidated Financial
Statements.

     Consistent with the increasing emphasis on its community and commercial
banking business, the Company has been in the process of evaluating its
strategic alternatives with respect to its mortgage banking business. As a
result of this evaluation and in order to attempt to mitigate the negative
effect on profitability of increased competition in the loan origination
business of the Mortgage Banking Group, the Company initiated a profitability
improvement plan. The plan included the closure and consolidation of certain
mortgage origination branches, the closure and consolidation of several regional
operation centers, and related reductions in workforce. In addition, the plan
included process and operational restructuring, as well as changes in management
structure and compensation, all designed to create operational efficiencies and
promote profitability. In June 1996, the Company recorded a restructuring charge
of $10.7 million before tax, to recognize the costs of closing or consolidating
production offices and several regional operation centers and recorded $1.8
million of other expenses related to the mortgage origination business. As of
September 30, 1996, 31 mortgage origination branches and 6 regional operation
centers have been closed and the workforce was reduced by 208. No assurances can
be given regarding the efficacy of the profitability improvement plan or the
timing or impact of any further restructuring (including a possible future sale
or liquidation) of the Company's residential mortgage lending business.

     The Mortgage Banking Group principally engages in three activities: Retail
Mortgage Operations, Wholesale Mortgage Operations, and Mortgage Servicing
Operations.

     RETAIL MORTGAGE OPERATIONS

     The Mortgage Banking Group offers a variety of fixed and adjustable-rate
mortgage products for consumers through a nationwide network of retail mortgage
origination offices. For fiscal 1996, the Mortgage Banking Group originated $2.1
billion in retail mortgage loans. Loans are originated through direct contact
with individual borrowers by commissioned retail loan officers.

                                       7
<PAGE>
     WHOLESALE MORTGAGE OPERATIONS

     The Mortgage Banking Group provides qualified mortgage brokers nationwide
with a variety of fixed and adjustable-rate mortgage products through its
network of wholesale mortgage origination offices. For fiscal 1996, the Mortgage
Banking Group originated $1.7 billion in mortgage loans through its wholesale
operations. Loans are originated through contact with one of the Company's 3,086
mortgage brokers, serviced by the wholesale account executives. All loans
originated through wholesale mortgage operations are underwritten by the
Company's staff according to secondary market requirements and internal
guidelines. The loans are originated and closed in either the name of the
Company or, under certain circumstances, the mortgage broker's name with
immediate assignment to the Company.

     MORTGAGE SERVICING OPERATIONS

     The Mortgage Banking Group services residential mortgage loans owned by the
Company and by others, including the Government National Mortgage Association
(the "GNMA"), the Federal National Mortgage Association (the "FNMA"), the
Federal Home Loan Mortgage Corporation (the "FHLMC"), and private mortgage
investors. At September 30, 1996, the Mortgage Banking Group serviced over $13.2
billion in mortgage loans, including $3.8 billion for the Company's portfolio
and $9.4 billion for others. Mortgage servicing operations are technology and
process management intensive. The Company views itself as being competitively
positioned to service loans in an efficient and cost effective manner relative
to its peers. The Company has been ranked by ICM Consultants, Inc. as one of the
nation's top 10 servicing organizations in terms of efficiency and productivity
for the past three years. See " -- Loan Servicing Portfolio".

LOAN PORTFOLIO

     The Company has focused in recent years on originating and servicing
commercial banking assets. However, the loan portfolio still reflects the Bank's
origins as a thrift institution, with single family mortgage originations
constituting a majority of loans made. The following tables set out loan
origination levels, as well as the product and geographic distribution of the
loan portfolio. See the loan table in "Management's Discussion and
Analysis -- Discussion of Financial Condition" and see Note 5 to the
Consolidated Financial Statements.

                               LOAN ORIGINATIONS

                                           FOR THE YEAR ENDED SEPTEMBER 30,
                                       ----------------------------------------
                                           1996          1995          1994
                                       ------------  ------------  ------------
                                                    (IN THOUSANDS)
Single family........................  $  3,602,009  $  3,226,324  $  5,424,550
Single family residential
  construction.......................       554,260       239,481       133,609
Consumer.............................       125,596        99,249        94,153
Multi-family, commercial real estate,
  and business credit................       337,046       307,636       230,995
                                       ------------  ------------  ------------
          Total......................  $  4,618,911  $  3,872,690  $  5,883,307
                                       ============  ============  ============

                                       8
<PAGE>
                                 LOAN PORTFOLIO

                                                   AT SEPTEMBER 30,
                                       ----------------------------------------
                                           1996          1995          1994
                                       ------------  ------------  ------------
                                                    (IN THOUSANDS)
Single family........................  $  6,152,504  $  7,061,088  $  4,203,614
Single family residential
  construction.......................       242,525       115,436        57,786
Consumer.............................       173,518       123,096       108,179
Multi-family.........................       479,833       444,368       268,897
Multi-family construction............        31,355        35,430        20,437
Commercial real estate and business
  credit.............................        96,427        38,326        61,919
Mortgage banker finance line of
  credit.............................       139,872       109,339       147,754
Single family mortgage warehouse.....       260,745       411,287       252,153
                                       ------------  ------------  ------------
                                          7,576,779     8,338,370     5,120,739
Allowance for credit losses..........       (39,660)      (36,801)      (23,454)
Accretable unearned discount.........       (15,307)      (38,460)      (50,650)
Net deferred loan origination fees...        (2,324)       (1,727)         (461)
Unrealized losses....................       --             (1,142)      --
                                       ------------  ------------  ------------
          Total loans................  $  7,519,488  $  8,260,240  $  5,046,174
                                       ============  ============  ============

             GEOGRAPHIC DISTRIBUTION OF REAL ESTATE LOAN PORTFOLIO

                                                   AT SEPTEMBER 30,
                                       ----------------------------------------
                 STATE                     1996          1995          1994
-------------------------------------- ------------  ------------  ------------
                                                    (IN THOUSANDS)
California............................ $  3,404,731  $  3,958,293  $  1,764,531
Texas.................................    1,245,459     1,259,306     1,131,225
Florida...............................      436,338       479,379       456,812
Illinois..............................      166,783       190,801       138,072
Arizona...............................      139,264       115,260        30,142
Pennsylvania..........................      125,876       128,693        68,728
Georgia...............................      120,881        94,413        56,442
New Jersey............................      108,113       118,825        80,727
Virginia..............................      100,565       107,420        92,704
Washington............................       98,243        81,005        32,899
Other states..........................    1,088,044     1,202,943       827,480
Other -- single family mortgage
  warehouse...........................      260,745       411,287       252,153
                                       ------------  ------------  ------------
     Total real estate loans..........    7,295,042     8,147,625     4,931,915
Mortgage banker finance line of
  credit..............................      139,872       109,339       147,754
Business credit.......................       55,588         7,320       --
Non-real estate consumer..............       93,352        89,509        72,987
                                       ------------  ------------  ------------
                                          7,583,854     8,353,793     5,152,656
Non-accretable unearned discounts.....       (7,075)      (15,423)      (31,917)
                                       ------------  ------------  ------------
     Total............................ $  7,576,779  $  8,338,370  $  5,120,739
                                       ============  ============  ============

                                       9
<PAGE>
             GEOGRAPHIC AND PRODUCT DISTRIBUTION OF LOAN PORTFOLIO
                             AT SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
                                           SINGLE       SINGLE                               SINGLE
                                           FAMILY       FAMILY                 COMMERCIAL    FAMILY        TOTAL      NON-REAL
                                             AND     RESIDENTIAL     MULTI-       REAL      MORTGAGE    REAL ESTATE    ESTATE
                 STATE                    CONSUMER   CONSTRUCTION    FAMILY      ESTATE     WAREHOUSE      LOANS       LOANS
----------------------------------------  ---------  ------------   --------   ----------   ---------   -----------   --------
                                                                         (DOLLARS IN THOUSANDS)
<S>                                       <C>          <C>          <C>         <C>         <C>          <C>          <C>
California..............................  $3,383,554   $ --         $ 21,177    $ --        $  --        $3,404,731   $    66
Texas...................................    851,832     124,941      242,554      26,132       --        1,245,459    119,999
Florida.................................    393,402      28,440       12,522       1,974       --          436,338         89
Illinois................................    155,920      10,863        --         --           --          166,783      --
Arizona.................................     97,763      14,611       26,890      --           --          139,264      --
Pennsylvania............................    109,816      13,582        2,478      --           --          125,876          1
Georgia.................................     56,022      33,820       31,039      --           --          120,881      --
New Jersey..............................    108,113      --            --         --           --          108,113      --
Virginia................................     98,568      --            1,997      --           --          100,565          3
Washington..............................     56,517      --           41,726      --           --           98,243      --
Other...................................    925,289      16,268      132,211      14,276     260,745     1,348,789    168,654
                                          ---------  ------------   --------   ----------   ---------   -----------   --------
    Total...............................  $6,236,796   $242,525     $512,594    $ 42,382    $260,745     $7,295,042   $288,812
                                          =========  ============   ========   ==========   =========   ===========   ========
% of Total..............................      82.24%       3.20%        6.76%       0.55%       3.44 %       96.19%      3.81%
                                          =========  ============   ========   ==========   =========   ===========   ========
</TABLE>

                                                      % OF
                 STATE                      TOTAL    TOTAL
----------------------------------------  ---------  ------

California..............................  $3,404,797  44.90%
Texas...................................  1,365,458   18.00
Florida.................................    436,427    5.75
Illinois................................    166,783    2.20
Arizona.................................    139,264    1.84
Pennsylvania............................    125,877    1.66
Georgia.................................    120,881    1.59
New Jersey..............................    108,113    1.42
Virginia................................    100,568    1.33
Washington..............................     98,243    1.30
Other...................................  1,517,443   20.01
                                          ---------  ------
    Total............................... $7,583,854  100.00%
                                          =========  ======
% of Total..............................     100.00%
                                          =========

LOAN SERVICING PORTFOLIO

     At September 30, 1996, the Mortgage Banking Group serviced $3.8 billion in
residential mortgage loans owned by the Company and $9.4 billion in mortgages
owned by others. Mortgage loan servicing consists of collecting and accounting
for principal and interest payments from borrowers, remitting principal and
interest payments to investors, making cash advances when required, collecting
funds for and paying mortgage-related expenses such as taxes and insurance,
inspecting mortgaged properties when required, collecting delinquent mortgages,
conducting foreclosures and property dispositions in the event of unremedied
defaults, and generally administering the loans.

     In return for performing the servicing functions listed above, the Mortgage
Banking Group receives servicing fees under loan administration contracts. These
fees are withheld from the monthly payments made to investors, are usually based
on the principal balance of the loan being serviced, generally range from 0.25%
to 0.50% annually of the outstanding principal amount of the loan, and are
collected only as payments are received. Minimum servicing fees for
substantially all loans serviced under MBS are set from time to time by the
sponsoring agencies. As a servicer of loans securitized by the GNMA, the FNMA,
and the FHLMC, the Company may be obligated to make timely payment of principal
and interest to security holders, whether or not such payments have been made by
borrowers on the underlying mortgage loans. With respect to mortgage loans
securitized under GNMA programs, the Company is insured by the Federal Housing
Administration (the "FHA") against foreclosure loss on FHA loans, and by the
Department of Veteran Affairs (the "VA") through guarantees on VA loans.
Although the GNMA, the FNMA, and the FHLMC are obligated to reimburse the
Company for principal and interest payments advanced by the Company as a
servicer, the funding of delinquent payments or the exercise of foreclosure
rights involves costs to the Company that may not be fully reimbursed or
recovered.

                                       10
<PAGE>
     The following table sets forth information on the Mortgage Banking Group's
single family servicing portfolio.

                       SINGLE FAMILY SERVICING PORTFOLIO

                                           FOR THE YEAR ENDED SEPTEMBER 30,
                                      ------------------------------------------
                                          1996           1995           1994
                                      -------------  -------------  ------------
                                                    (IN THOUSANDS)
Beginning servicing portfolio........ $  12,532,472  $   8,920,760  $  8,073,226
                                      -------------  -------------  ------------
Add: Servicing acquisitions
  transferred in(1)..................     1,189,387      3,730,401       567,010
      Servicing on loans purchased by
  the Company........................        21,192        439,834        97,681
      Servicing originated...........     3,689,994      3,338,628     5,406,548
      Subservicing acquired..........        22,538        254,959       --
                                      -------------  -------------  ------------
          Total additions............     4,923,111      7,763,822     6,071,239
                                      -------------  -------------  ------------
Less: Prepayments....................     1,600,195        937,509     1,050,849
      Foreclosures...................       104,572         79,790        40,764
      Servicing
  released/transferred(1)............     2,130,004      2,840,244     3,913,243
      Amortization...................       373,964        294,567       218,849
                                      -------------  -------------  ------------
          Total reductions...........     4,208,735      4,152,110     5,223,705
                                      -------------  -------------  ------------
Ending servicing portfolio........... $  13,246,848  $  12,532,472  $  8,920,760
                                      =============  =============  ============
COMPOSITION OF ENDING SERVICING
  PORTFOLIO BY TYPE
     Conventional.................... $   9,663,715  $   9,442,600  $  6,143,604
     Government......................     3,583,133      3,089,872     2,777,156
                                      -------------  -------------  ------------
Total servicing portfolio............ $  13,246,848  $  12,532,472  $  8,920,760
                                      =============  =============  ============
COMPOSITION OF ENDING SERVICING
  PORTFOLIO BY OWNER
     Company......................... $   3,752,060  $   4,010,700  $  2,714,291
     Others..........................     9,494,788      8,521,772     6,206,469
                                      -------------  -------------  ------------
Total servicing portfolio............ $  13,246,848  $  12,532,472  $  8,920,760
                                      =============  =============  ============
------------
(1) Represents loans transferred into the servicing portfolio during the fiscal
    year. The actual release or transfer of servicing does not necessarily take
    place during the same period as the related sale or purchase of MSRs.

     During fiscal 1996, 1995, and 1994, the Mortgage Banking Group purchased
MSRs associated with loan principal amounts of $1.2 billion, $594.7 million, and
$3.9 billion at premiums of $23.5 million, $12.5 million, and $50.9 million,
respectively. Certain MSR purchase transactions that occurred at or near
year-end in fiscal 1994 were not transferred in until fiscal 1995. See
"Management's Discussion and Analysis -- Discussion of Results of
Operations -- Non-Interest Income" and Note 6 to the Consolidated Financial
Statements.

     Gains on the sale of MSRs are affected by changes in interest rates as well
as the amount of MSRs capitalized at the time of loan origination or MSR
acquisition. Purchasers of MSRs analyze a variety of factors, including
prepayment sensitivity, to assess the purchase price they are willing to pay.
Lower market interest rates prompt an increase in prepayments as consumers
refinance their mortgages at lower rates of interest. As prepayments increase,
the life of the servicing portfolio is reduced, decreasing the servicing fee
revenue that will be earned over the life of that portfolio and the price
third-party purchasers are willing to pay. The fair value of servicing is also
influenced by the supply and demand of servicing available for purchase at any
point in time. Conversely, as interest rates rise, prepayments generally
decrease, resulting in an increase in the value of the servicing portfolio as
well as the gains on sales of MSRs. As indicated in the table above, prepayments
increased in fiscal 1996 as compared to fiscal 1995 reflecting the lower market
interest rates experienced during fiscal 1996. In addition, the valuation of
MSRs incorporates market assumptions regarding expected prepayment speeds. There
was no MSR valuation allowance at September 30, 1996.

                                       11
<PAGE>
     In September 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing Rights, an
amendment of FASB Statement No. 65," effective October 1, 1994. This statement
requires that, among other things, the book value of mortgage loans be allocated
at the time of origination between the MSRs and the related loans, provided
there is a plan to sell or securitize such loans. With the implementation of
SFAS No. 122, the original cost basis of the loan is allocated between the loan
and the MSRs, thus increasing the gains on sales of loans and reducing the gains
on sales of MSRs.

     Prior to fiscal 1996, the Company sold substantially all of its originated
MSRs ("OMSRs") related to non-portfolio loans. After the implementation of
SFAS No. 122, the Company began evaluating which of its OMSRs to retain for
portfolio and which of its OMSRs to sell based on the returns available and the
corresponding risks associated with the different types of servicing rights. The
Company may also retain servicing in order to maintain the servicing portfolio
at an acceptable level, particularly during periods of unusually high levels of
prepayments or low levels of new originations. See "Management's Discussion and
Analysis -- Discussion of Results of Operations -- Non-Interest Income".

     The following table presents the percentage of loans in the single family
servicing portfolio in each interest rate category.

<TABLE>
<CAPTION>
                                                                AT SEPTEMBER 30, 1996
                                       -----------------------------------------------------------------------
                                         LESS
                                         THAN       7.00-      8.01-     9.01-     10.01-    11.01-    12.01%
                                         7.00%      8.00%      9.00%     10.00%    11.00%    12.00%    & ABOVE
                                       ---------  ---------  ---------   ------    ------    ------    -------
<S>                                       <C>       <C>        <C>        <C>       <C>       <C>       <C>
Government...........................      7.3%     10.0%       7.4%      1.9%      0.3%      0.2%      -- %
Conventional.........................      7.1      29.2       27.5       6.6       1.6       0.5       0.4
                                       ---------  ---------  ---------   ------    ------    ------    -------
     Total...........................     14.4%     39.2%      34.9%      8.5%      1.9%      0.7%      0.4%
                                       =========  =========  =========   ======    ======    ======    =======
</TABLE>

     The weighted average interest rate in the single family servicing portfolio
has decreased from 9.57% at September 30, 1991 to 8.14% at September 30, 1996,
principally as a result of the origination of mortgage loans with increasingly
lower rates during fiscal 1991 to 1996, the prepayment and refinance of higher
rate mortgages, and purchases of MSRs on loans originated by others at lower
rates. At September 30, 1996, the weighted average contractual maturity
(remaining years to maturity) of the loans in the residential mortgage loan
servicing portfolio was 23.6 years.

     At September 30, 1996, the single family servicing portfolio was secured by
properties located in the following states:

                STATE                   PERCENT
-------------------------------------   -------
California...........................     27.8%
Texas................................     17.0
Florida..............................      5.8
Illinois.............................      5.6
New Jersey...........................      4.9
Arizona..............................      3.5
Other states, individually less than
  3%.................................     35.4
                                        -------
     Total...........................    100.0%
                                        =======

                                       12
<PAGE>
     Of the approximately 176,000 loans serviced by the Mortgage Banking Group,
at September 30, 1996, 4.43% were delinquent and an additional 0.61% were in
foreclosure. The following table presents certain information regarding the
number of the delinquent single family loans serviced by the Mortgage Banking
Group as of the dates indicated. Completed foreclosures and loans less than 30
days delinquent have been excluded from the table below.

                                           AT SEPTEMBER 30,
                                        ----------------------
                                        1996     1995     1994
                                        ----     ----     ----
30-59 Days Past Due..................   3.3 %    2.7 %    2.3 %
60-89 Days Past Due..................   0.6      0.6      0.5
90+ Days Past Due....................   0.5      0.9      0.8
Loans in foreclosure.................   0.6      0.6      0.7
                                        ----     ----     ----
     Total...........................   5.0 %    4.8 %    4.3 %
                                        ====     ====     ====

     Loan administration contracts with the FNMA, and typically with private
investors, provide for continuation of servicing over the term of the loan, but
permit termination for cause or termination without cause upon payment of a
cancellation fee. Loan administration contracts with the GNMA and the FHLMC are
terminable only for cause. Management believes that the Mortgage Banking Group
is currently in substantial compliance with all material rules, regulations, and
contractual obligations related to mortgage loan servicing.

INVESTMENT PORTFOLIO

     The Company maintains an investment portfolio for investment and liquidity
purposes.

                              INVESTMENT PORTFOLIO

                                                   AT SEPTEMBER 30,
                                       ----------------------------------------
                                           1996          1995          1994
                                       ------------  ------------  ------------
                                                    (IN THOUSANDS)
Securities purchased under agreements
  to resell and federal funds sold...  $    674,249  $    471,052  $    358,710
Trading account assets...............         1,149         1,081         1,011
Securities...........................        64,544       116,013       114,115
Mortgage-backed securities...........     1,657,908     2,398,263     2,828,903
                                       ------------  ------------  ------------
     Total...........................  $  2,397,850  $  2,986,409  $  3,302,739
                                       ============  ============  ============

     The investment portfolio consists primarily of MBS. MBS were acquired as a
means of investing in housing-related mortgage instruments while incurring less
credit risk than that which arises in holding a portfolio of non-securitized
loans. Additionally, MBS include securities created through the securitization
of the Company's single family loans. The MBS in the investment portfolio
include FNMA, FHLMC, and GNMA certificates, privately issued and credit enhanced
MBS ("non-agency securities"), and certain types of collateralized mortgage
obligations ("CMOs").

                                       13
<PAGE>
                           MORTGAGE-BACKED SECURITIES

<TABLE>
<CAPTION>
                                                              AT SEPTEMBER 30, 1996
                                       --------------------------------------------------------------------
                                                        GROSS         GROSS
                                        AMORTIZED     UNREALIZED    UNREALIZED                   CARRYING
                                           COST         GAINS         LOSSES      FAIR VALUE      VALUE
                                       ------------   ----------    ----------   ------------  ------------
                                                                  (IN THOUSANDS)
<S>                                    <C>              <C>          <C>         <C>
HELD TO MATURITY
  Agency CMOs -- fixed-rate..........  $      1,548     $    5       $ --        $      1,553
  Non-agency
     Fixed-rate......................         7,042      1,753            126           8,669
     Adjustable-rate.................       521,280        401         17,634         504,047
     CMOs -- fixed-rate..............        99,966      --             5,277          94,689
  Other..............................           212         55         --                 267
                                       ------------   ----------    ----------   ------------
          Held to maturity...........       630,048     $2,214       $ 23,037         609,225  $    630,048
                                       ------------   ==========    ==========   ------------  ============
AVAILABLE FOR SALE
  Agency
     Adjustable-rate.................       326,338     $1,860       $     13         328,185
     CMOs -- fixed-rate..............         1,818      --                 1           1,817
     CMOs -- adjustable-rate.........       224,081      1,414            192         225,303
  Non-agency
     Fixed-rate......................        61,893      2,253         --              64,146
     Adjustable-rate.................       373,876      1,119          1,702         373,293
     CMOs -- adjustable-rate.........        34,017      --               862          33,155
  Other..............................         1,961      --            --               1,961
                                       ------------   ----------    ----------   ------------
          Available for sale.........     1,023,984     $6,646       $  2,770       1,027,860  $  1,027,860
                                       ------------   ==========    ==========   ------------  ============
          Total mortgage-backed
            securities...............  $  1,654,032                              $  1,637,085
                                       ============                              ============
</TABLE>

     FNMA, FHLMC, and GNMA certificates are modified pass-through MBS that
represent undivided interests in underlying pools of fixed-rate or certain types
of adjustable-rate, single family loans issued by the GNMA, a governmental
agency, and by the FNMA and the FHLMC, government-sponsored enterprises. The
non-agency securities acquired by the Company have been pooled and sold by
private issuers and were generally underwritten by large investment banking
firms. These securities provide for the timely payments of principal and
interest either through insurance issued by a reputable insurer, or by
subordinating certain payments under other securities secured by the same
mortgage pool in a manner that is sufficient to have the senior MBS earn one of
the two highest credit ratings from one or more of the nationally recognized
statistical rating agencies. As of September 30, 1996, 99% of the non-agency MBS
had a credit rating of AA/Aa or higher as defined by the Standard & Poor's
Corporation or Moody's Investor Services, Inc., respectively.

     The securities purchased under agreements to resell ("repurchase
agreements") outstanding at September 30, 1996 were collateralized by single
family, multi-family, and commercial real estate loans, and MBS. The loans and
MBS underlying the repurchase agreements are held by the counterparty in
safekeeping for the account of the Company or by a third-party custodian for the
benefit of the Company. All of the investments in repurchase agreements and
federal funds sold at September 30, 1996 matured on or before October 21, 1996.
The repurchase agreements provide for the same loans and MBS to be delivered to
the repurchase counterparty at maturity.

     See Notes 1 through 4 to the Consolidated Financial Statements for
additional information related to the assets in the investment portfolio.

                                       14
<PAGE>
DEPOSITS AND BORROWINGS

  DEPOSITS

     The Company attracts deposits through the 70 community banking branches
located primarily in the Houston and Dallas/Ft. Worth areas including four
supermarket branches, three of which were opened in June of 1996. Currently, the
principal methods used by the Company to attract and retain deposit accounts
include offering generally competitive interest rates, having branch locations
in these major Texas markets, and offering a variety of services for the
Company's customers. The Company uses traditional marketing methods to attract
new customers and savings deposits, including newspaper, radio, and television
advertising. The Company offers a traditional line of deposit products that
currently includes checking, commercial checking, money market, savings
accounts, and CDs. These deposit products are specifically tailored to meet the
needs of the Company's consumer and small business banking customers.

     The following table illustrates the levels of deposits gathered by the
Company's community banking network at September 30, 1996.

                           COMMUNITY BANKING NETWORK

                                                                    AVERAGE
                                                                   DEPOSITS
                                        NUMBER OF     DEPOSITS        PER
              LOCATION                  BRANCHES    OUTSTANDING     BRANCH
-------------------------------------   ---------   ------------   ---------
                                               (DOLLARS IN THOUSANDS)
Houston Area.........................       37      $  2,449,487    $ 66,202
Dallas/Ft. Worth Area................       29         1,371,803      47,304
Other................................        4           229,765      57,441
                                            --
                                                    ------------
     Total deposits..................       70      $  4,051,055      57,872
                                            ==      ============   =========

     The Company also offers cash management services to its MBF customers.
These services are commercial deposit accounts comprised of operating accounts
of MBF customers, escrow deposits, and principal and interest payments on the
loans serviced by MBF customers. At September 30, 1996, these deposits totalled
$879.3 million. While the Company does not generally solicit brokered deposits,
the Company from time to time accepts brokered deposits when permitted by
regulation and available at favorable rates. Wholesale deposits are raised from
time to time through the Company's money desk from institutional investors.

                                       15
<PAGE>
     The following table sets forth, by account types, the aggregate amount and
weighted average rate of the Company's deposits.

                                    DEPOSITS

<TABLE>
<CAPTION>
                                                                AT SEPTEMBER 30,
                                       ------------------------------------------------------------------
                                               1996                   1995                   1994
                                       --------------------   --------------------   --------------------
                                                   WEIGHTED               WEIGHTED               WEIGHTED
                                                   AVERAGE                AVERAGE                AVERAGE
                                        AMOUNT       RATE      AMOUNT       RATE      AMOUNT       RATE
                                       ---------   --------   ---------   --------   ---------   --------
                                                             (DOLLARS IN THOUSANDS)
<S>                                    <C>            <C>     <C>           <C>      <C>           <C>
NON-INTEREST BEARING DEPOSITS........  $ 284,304     --   %   $ 181,196     --  %    $  76,498     --  %
INTEREST-BEARING DEPOSITS
  Transaction accounts...............    211,976      1.00      219,307     1.50       233,666     1.49
  Insured money fund accounts
    Consumer.........................    588,585      4.36      397,473     3.73       407,029     3.12
    Commercial.......................    810,743      5.29      857,669     5.82       416,571     4.84
                                       ---------   --------   ---------      ---     ---------      ---
      Subtotal.......................  1,399,328      4.90    1,255,142     5.16       823,600     3.99
                                       ---------   --------   ---------      ---     ---------      ---
  Savings accounts...................    130,137      2.48      144,301     2.73       222,769     2.60
  Certificates of deposit
    Consumer.........................  2,911,682      5.71    3,063,631     5.84     2,949,715     4.88
    Commercial.......................      2,667      4.88        2,273     5.36        --         --
    Wholesale........................    207,851     10.28      316,370     9.06       457,956     7.92
                                       ---------   --------   ---------      ---     ---------      ---
      Subtotal.......................  3,122,200      6.01    3,382,274     6.14     3,407,671     5.29
                                       ---------   --------   ---------      ---     ---------      ---
      Total interest-bearing
        deposits.....................  4,863,641      5.38    5,001,024     5.59     4,687,706     4.74
                                       ---------   --------   ---------      ---     ---------      ---
      Total deposits................. $5,147,945      5.08%  $5,182,220     5.40%   $4,764,204     4.67%
                                       =========   ========   =========      ===     =========      ===
Consumer............................. $3,939,631             $3,868,498             $3,834,239
Commercial...........................  1,000,463                997,352                472,009
Wholesale............................    207,851                316,370                457,956
                                       ---------              ---------              ---------
      Total deposits................. $5,147,945             $5,182,220             $4,764,204
                                       =========              =========              =========
</TABLE>

     The following table sets forth, by various interest rate categories, the
dollar amounts and the periods to maturity of the Company's time deposits at
September 30, 1996.

                               DEPOSIT MATURITIES

<TABLE>
<CAPTION>
                                             CERTIFICATES MATURING IN THE YEAR ENDING SEPTEMBER 30,
                                       ------------------------------------------------------------------
             STATED RATE                 1997       1998       1999       2000       2001      THEREAFTER     TOTAL
          -----------------            ---------  ---------  ---------  ---------  ---------   ----------   ---------
                                                                       (IN THOUSANDS)
<S>                                    <C>        <C>        <C>        <C>        <C>          <C>         <C>
2.99% and below......................  $   1,584  $  --      $  --      $  --      $  --        $ --        $   1,584
3.00% to 3.99%.......................     21,867        740          8     --         --               3       22,618
4.00% to 4.99%.......................    437,650     23,983     33,839      1,063      2,645          61      499,241
5.00% to 5.99%.......................    861,376    409,903     92,854      6,826     34,185         449    1,405,593
6.00% to 6.99%.......................    440,730    246,208     74,373     61,165     49,022       1,788      873,286
7.00% to 7.99%.......................     79,767      7,747      5,778     21,536     11,276       1,529      127,633
8.00% to 8.99%.......................      1,399        678      4,485      2,326        354          27        9,269
9.00% to 9.99%.......................        579      6,480      3,062         12        138         308       10,579
10.00% to 10.99%.....................     40,224     14,699     11,166        664         97         228       67,078
Over 10.99%..........................     88,281     16,757        281     --         --          --          105,319
                                       ---------  ---------  ---------  ---------  ---------   ----------   ---------
                                      $1,973,457  $ 727,195  $ 225,846  $  93,592  $  97,717    $  4,393   $3,122,200
                                       =========  =========  =========  =========  =========   ==========   =========
</TABLE>

                                       16
<PAGE>
     The following table sets forth the amount of the Company's CD's that are
$100,000 or greater by time remaining until maturity at September 30, 1996.

                      TIME DEPOSITS GREATER THAN $100,000

                                           NUMBER OF     DEPOSIT
                                            ACCOUNTS      AMOUNT
                                           ----------    --------
                                           (DOLLARS IN THOUSANDS)
Three months or less....................      1,234      $130,243
Over three through six months...........        551        57,661
Over six through twelve months..........        957       101,299
Over twelve months......................      1,813       190,973
                                           ----------    --------
                                              4,555      $480,176
                                           ==========    ========

  BORROWINGS

     The Company relies upon borrowings, primarily collateralized borrowings
such as advances from the Federal Home Loan Bank ("FHLB") and reverse
repurchase agreements, to fund its assets. Borrowings were the primary source of
funds for the recent asset growth and accounted for 45% of the funding of
average assets for fiscal 1996, 43% for fiscal 1995, and 31% for fiscal 1994.
Fixed and adjustable-rate advances are obtained from the FHLB Dallas under a
security and pledge agreement that restricts the amount of borrowings to the
greater of a percentage of (i) fully disbursed single family loans, unless
assets are physically pledged to the FHLB Dallas, and (ii) total assets. At
September 30, 1996, these limitations were 65% and 45%, respectively. The
Company's ability to borrow on reverse repurchase agreements is limited to the
amount and market value of collateral that is available to collateralize these
reverse repurchase agreements. At September 30, 1996, the Company had $1.2
billion in such collateral, $1.0 billion of which was collateralizing such
reverse repurchase agreements. See Notes 9 and 10 to the Consolidated Financial
Statements.

     The following table sets forth certain information regarding the borrowings
of the Company as of or for the period indicated.

                                   BORROWINGS

                                        AT OR FOR THE YEAR ENDED SEPTEMBER 30,
                                       ----------------------------------------
                                           1996          1995          1994
                                       ------------  ------------  ------------
                                                (DOLLARS IN THOUSANDS)
FHLB ADVANCES
  Balance outstanding period-end...... $  3,490,386  $  4,383,895  $  2,620,329
  Maximum outstanding at any
     month-end........................    4,384,798     4,386,605     2,697,829
  Daily average balance...............    4,073,297     3,560,844     2,285,630
  Average interest rate...............         6.07%         6.31%         3.98%
REVERSE REPURCHASE AGREEMENTS
  Balance outstanding at period-end... $    832,286  $  1,172,533  $    553,000
  Fair value of collateral at
     period-end.......................    1,020,405     1,239,527       673,000
  Maximum outstanding at any
     month-end........................    1,096,508     1,355,540       553,000
  Daily average balance...............      955,681       887,932       273,899
  Average interest rate...............         5.77%         5.99%         3.85%
FEDERAL FUNDS PURCHASED
  Balance outstanding at period-end... $    --       $    --       $    --
  Maximum outstanding at any
     month-end........................      --            --             15,000
  Daily average balance...............           27           521           767
  Average interest rate...............         6.02%         5.95%         3.73%

ASSET AND LIABILITY MANAGEMENT

     The Company's asset and liability management process is utilized to manage
the Company's interest rate risk through structuring the balance sheet and
off-balance-sheet portfolios to maximize net interest income while maintaining
acceptable levels of risk to changes in market interest rates. The achievement
of this goal requires a balance between profitability, liquidity, and interest
rate risk.

                                       17
<PAGE>
     Interest rate risk is managed by the ALCO, which is composed of senior
officers of the Company, in accordance with policies approved by the Company's
Board of Directors. The ALCO formulates strategies based on appropriate levels
of interest rate risk. In determining the appropriate level of interest rate
risk, the ALCO considers the impact on earnings and capital of the current
outlook on interest rates, potential changes in interest rates, regional
economies, liquidity, business strategies, and other factors. The ALCO meets
regularly to review, among other things, the sensitivity of assets and
liabilities to interest rate changes, the book and market values of assets and
liabilities, unrealized gains and losses, purchase and sale activity, the
mortgage pipeline, and the maturities of investments and borrowings.
Additionally, the ALCO reviews liquidity, cash flow flexibility, maturities of
deposits, consumer and commercial deposit activity, current market conditions,
and interest rates on both a local and national level.

     The "interest rate sensitivity gap" is defined as the difference between
interest-earning assets and interest-bearing liabilities maturing or repricing
within a given time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds interest rate sensitive assets. During a period of
rising interest rates, a negative gap would tend to affect net interest income
adversely, while a positive gap would tend to result in an increase in net
interest income. During a period of falling interest rates, a negative gap would
tend to result in an increase in net interest income, while a positive gap would
tend to affect net interest income adversely. Different types of assets and
liabilities with the same or similar maturities may react differently to changes
in overall market rates or conditions, thus changes in interest rates may affect
net interest income positively or negatively even if an institution were
perfectly matched in each maturity category. The Company's one year cumulative
interest rate gap position at September 30, 1996 was negative $483.5 million or
4.51% of total assets. This is a one-day position which is continually changing
and is not necessarily indicative of the Company's position at any other time.
Additionally, the gap analysis does not consider the many factors accompanying
interest rate movements. While the interest rate sensitivity gap is a useful
measurement and contributes toward effective asset and liability management, it
is difficult to predict the effect of changing interest rates solely on that
measure, without accounting for alterations in the maturity or repricing
characteristics of the balance sheet that occur during changes in market
interest rates. During periods of rising interest rates the Company's assets
tend to have prepayments that are slower than those in an interest rate
sensitivity gap and would increase the negative gap position. Conversely, during
a period of falling interest rates the Company's assets would tend to prepay
faster than expected thus decreasing the negative gap.

     To effectively measure and manage interest rate risk, the Company uses
simulation analysis to determine the impact on net interest income under various
interest rate scenarios, balance sheet trends, and strategies. From these
simulations, interest rate risk is quantified and appropriate strategies are
developed and implemented. Additionally, duration and market value sensitivity
measures are utilized when they provide added value to the overall interest rate
risk management process. The overall interest rate risk position and strategies
are reviewed by executive management and the Company's Board of Directors on an
ongoing basis. The Company has traditionally managed its business to reduce its
overall exposure to changes in interest rates. However, under current policies
of the Company's Board of Directors, management has been given some latitude to
increase the Company's interest rate sensitivity position within certain limits
if, in management's judgment, that will enhance profitability. As a result,
changes in market interest rates may have a greater impact on the Company's
financial performance in the future than they have had historically.

     The Company enters into certain financial instruments with
off-balance-sheet risk in the ordinary course of business to reduce its exposure
to changes in interest rates. The Company does not enter into instruments such
as leveraged derivatives or structured notes. The financial instruments used for
hedging interest rate risk include interest rate swaps, caps, floors, financial
options, financial futures contracts, and forward delivery contracts. A hedge is
an attempt to reduce risk by creating a relationship whereby any losses on the
hedged asset or liability are expected to be offset in whole or in part by gains
on the hedging financial instrument. Thus, market risk resulting from a
particular off-balance-sheet instrument is normally offset by other on or
off-balance-sheet transactions. See Note 12 to the Consolidated Financial
Statements.

                                       18

<PAGE>
     The following table sets forth the expected repricing characteristics of
the Company's consolidated assets and liabilities at September 30, 1996,
utilizing assumptions noted below:

                           ASSET/LIABILITY REPRICING
<TABLE>
<CAPTION>
                                                          AMOUNTS MATURING OR REPRICING IN
                                        --------------------------------------------------------------------
                                                         AFTER
                                                         THREE          AFTER         AFTER
                                        LESS THAN       MONTHS       SIX MONTHS      ONE YEAR
                                          THREE       BUT WITHIN     BUT WITHIN     BUT WITHIN      AFTER         NON-
                                          MONTHS      SIX MONTHS      ONE YEAR      FIVE YEARS    FIVE YEARS    REPRICING
                                        ----------    -----------    -----------    ----------    ----------    ---------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                     <C>           <C>             <C>           <C>            <C>          <C>
ASSETS(1)(2)
  Cash and investment
    securities(3)....................   $  950,698    $   52,600      $  --         $  --          $ 35,327     $  --
  Adjustable-rate loans and
    mortgage-backed securities.......    3,448,182     1,847,089      1,296,890     1,070,999        53,714        --
  Fixed-rate loans and
    mortgage-backed securities.......       51,630        51,204        101,226       641,860       312,254        --
  Single family mortgage warehouse...      260,745        --             --            --            --            --
  Other assets.......................       64,251        --             --            --            --           473,708
                                        ----------    -----------    -----------    ----------    ----------    ---------
      Total assets...................   $4,775,506    $1,950,893      $1,398,116    $1,712,859     $401,295     $ 473,708
                                        ==========    ===========    ===========    ==========    ==========    =========
LIABILITIES AND STOCKHOLDERS' EQUITY
  Certificates of deposit............   $  820,917    $  455,130      $ 699,554     $1,142,401     $  4,198     $  --
  Checking and savings(4)............    2,025,745        --             --            --            --            --
                                        ----------    -----------    -----------    ----------    ----------    ---------
      Total deposits.................    2,846,662       455,130        699,554     1,142,401         4,198        --
  Senior Notes.......................       --            --             --           115,000        --            --
  FHLB advances and other
    borrowings.......................    3,881,427       365,000         50,000        23,545         2,700        --
  Other liabilities..................      310,217        --             --            --            --           100,000
  Minority interest..................       --            --             --            --            --           185,500
  Stockholders' equity...............       --            --             --            --            --           531,043
                                        ----------    -----------    -----------    ----------    ----------    ---------
      Total liabilities, minority
        interest, and stockholders'
        equity.......................   $7,038,306    $  820,130      $ 749,554     $1,280,946     $  6,898     $ 816,543
                                        ==========    ===========    ===========    ==========    ==========    =========
Gap before off-balance-sheet
  financial instruments..............  $(2,262,800)   $1,130,763      $ 648,562     $ 431,913      $394,397     $(342,835)
OFF-BALANCE-SHEET(5)
  Interest rate swap
    agreements -- pay floating.......      (25,000)       25,000         --            --            --            --
                                        ----------    -----------    -----------    ----------    ----------    ---------
Gap..................................  $(2,287,800)   $1,155,763      $ 648,562     $ 431,913      $394,397     $(342,835)
                                        ==========    ===========    ===========    ==========    ==========    =========
Cumulative gap.......................  $(2,287,800)  $(1,132,037)     $(483,475)
                                                                     ===========
Cumulative gap as a percentage of
  total assets.......................       (21.36)%      (10.57 )%       (4.51)%

                                         TOTAL
                                       ----------
ASSETS(1)(2)
  Cash and investment
    securities(3)....................  $1,038,625
  Adjustable-rate loans and
    mortgage-backed securities.......   7,716,874
  Fixed-rate loans and
    mortgage-backed securities.......   1,158,174
  Single family mortgage warehouse...     260,745
  Other assets.......................     537,959
                                       ----------
      Total assets................... $10,712,377
                                       ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
  Certificates of deposit............  $3,122,200
  Checking and savings(4)............   2,025,745
                                       ----------
      Total deposits.................   5,147,945
  Senior Notes.......................     115,000
  FHLB advances and other
    borrowings.......................   4,322,672
  Other liabilities..................     410,217
  Minority interest..................     185,500
  Stockholders' equity...............     531,043
                                       ----------
      Total liabilities, minority
        interest, and stockholders'
        equity....................... $10,712,377
                                       ==========
Gap before off-balance-sheet
  financial instruments..............
OFF-BALANCE-SHEET(5)
  Interest rate swap
    agreements -- pay floating.......
Gap..................................
Cumulative gap.......................
Cumulative gap as a percentage of
  total assets.......................
</TABLE>
------------
(1) Fixed-rate loans and MBS are distributed based on their contractual maturity
    adjusted for anticipated prepayments, and adjustable-rate loans and MBS are
    distributed based on the interest rate reset date and contractual maturity
    adjusted for anticipated prepayments. Loans and MBS runoff and repricing
    assumes a constant prepayment rate based on coupon rate and maturity. The
    weighted average annual projected prepayment rate was 19%.

(2) Assets repricing to lagging rate indices are adjusted to reflect the delay
    in the repricing of the index to market interest rates. The lagging indices
    are based on a blended cost of funds, primarily the FHLB 11th District Cost
    of Funds Index. These indices are assumed to take 18 months to reprice fully
    to a change in the general level of interest rates.

(3) Investment securities include repurchase agreements, federal funds sold,
    trading account assets, securities, and FHLB stock.

(4) Checking and savings deposits are presented in the earliest repricing period
    since amounts in these accounts are subject to withdrawal upon demand.

(5) The above table includes only those off-balance-sheet financial instruments
    which impact the gap in all interest rate environments. The Company also has
    certain off-balance-sheet financial instruments which hedge specific
    interest rate risks.

                                       19
<PAGE>
COMPETITION

     The Company competes primarily with seven commercial banks and five thrift
institutions, all of which have a substantial presence in the same markets as
the Company. Competitors for deposits include thrift institutions, commercial
banks, credit unions, full service and discount broker dealers, and other
investment alternatives, such as mutual funds, money market funds, and savings
bonds or other government securities. The Company and its peers compete
primarily on price at which products are offered and on customer service.

     The Company competes for mortgage originations with thrift institutions,
banks, insurance companies, and mortgage companies, many of which operate
nationwide mortgage origination networks similar to that of the Company. Primary
competitive factors include service quality, relationships with builders and
real estate brokers, and rates and fees. Many of the Company's competitors are,
or are affiliated with, organizations with substantially larger asset and
capital bases (including regional and multi-national banks and bank holding
companies) and with lower funding costs.

SUBSIDIARIES

     At September 30, 1996, the Company had no direct subsidiaries other than
the Bank. The Bank is permitted to invest in the capital stock, obligations, and
other securities of its service corporations in an aggregate amount not to
exceed 2% of the Bank's assets, plus an additional 1% of assets if such
investment is used for community development or inner-city development purposes.
In addition, if the Bank meets minimum regulatory capital requirements, it may
make certain conforming loans in an amount not exceeding 50% of the Bank's
regulatory capital to service corporations of which the Bank owns more than 10%
of the stock. At September 30, 1996, the Bank was authorized to have a maximum
investment of approximately $320.8 million in its subsidiaries.

  BNKU HOLDINGS, INC.

     In December 1996, the Company formed a new, wholly owned, Delaware
subsidiary, Holdings. After acquiring all the common stock of Holdings, the
Company contributed all the common stock of the Bank to Holdings, and Holdings
assumed the obligations of the Company's Senior Notes. As a result of these
transactions, Holdings is the sole subsidiary of the Company and the Bank is the
sole subsidiary of Holdings.

  COMMONWEALTH UNITED MORTGAGE COMPANY

     The Bank is the sole shareholder of Commonwealth United Mortgage Company, a
Texas corporation formed in 1992 to function as a licensed mortgage banker in
the state of Vermont.

  UNITED AGENCY CORPORATION

     United Agency Corporation is a wholly-owned subsidiary of the Bank whose
primary purpose is holding the stock of Commonwealth General Services Agency,
Inc., an Arkansas corporation incorporated in 1951 ("CGSA"). CGSA is a
managing general insurance agency that contracts with insurance companies and
agencies that offer insurance products to the Bank's mortgage loan customers.
CGSA earns a commission on each insurance policy sold by the insurance companies
or agencies with which CGSA contracts.

  UNITED CAPITAL MANAGEMENT CORPORATION

     The Bank is the sole shareholder of United Capital Management Corporation,
a Texas corporation formed in 1985 to function in the deposit referral business
and is currently inactive.

  UNITED FINANCIAL MARKETS, INC.

     The Bank is the sole shareholder of United Financial Markets, Inc.
("UFM"), a Texas corporation, which acts as a full-service broker-dealer. UFM,
through its institutional division, sells various securities products and whole
loans, and engages in the deposit referral business with institutional and
sophisticated retail customers. Through its retail division, UFM markets
annuities and securities, including mutual funds, stocks and bonds, to the
Bank's retail customers. UFM is a broker-dealer registered with the SEC and a
member of the National Association of Securities Dealers ("NASD"). UFM
commenced operations in late 1992, and its activities have been expressly
approved by the Office of Thrift Supervision ("OTS").

                                       20
<PAGE>
  UNITED GREENWAY SECURITIES SERVICES, INC.

     The Bank is the sole shareholder of United Greenway Securities Services,
Inc., a Texas corporation formed in 1989 to make mutual funds and other
non-deposit products available to retail customers through referrals to a
registered broker-dealer. This subsidiary is currently inactive.

  UNITED MORTGAGE SECURITIES CORPORATION

     The Bank is the sole shareholder of United Mortgage Securities Corporation,
a Delaware corporation formed in 1993 to issue MBS securitized with mortgage
loans purchased from the Bank.

  USAT MORTGAGE SECURITIES, INC.

     The Bank is the sole shareholder of USAT Mortgage Securities, Inc., a Texas
corporation formed in 1985 to function as an issuer of three series of CMOs.
This subsidiary is currently inactive.

PERSONNEL

     As of September 30, 1996, the Company employed 2,216 full-time employees
and 166 part-time employees. The employees are not represented by a collective
bargaining agreement, and the Company believes that it has good relations with
its employees. See Note 13 to the Consolidated Financial Statements.

THE ASSISTANCE AGREEMENT

     In 1988, the Company acquired from the Federal Savings and Loan Insurance
Corporation ("FSLIC") certain of the assets and assumed all the deposits and
certain other liabilities of United Savings Association of Texas ("Old USAT"),
an insolvent thrift (the "Acquisition"). In connection with the Acquisition,
the Bank, the Company and certain of their direct and indirect parent entities
entered into an overall agreement with the FSLIC and the Federal Home Loan Bank
Board ("FHLBB") that was evidenced by several written agreements (the
"Agreements"). The principal contract relating to the Acquisition was the
agreement, dated December 30, 1988, among the FSLIC, the Company, the Bank, and
certain of the Bank's other direct and indirect parent entities pursuant to
which the FSLIC agreed to provide the Bank with certain forms of financial
assistance and which set forth certain mutual, interdependent commitments of the
parties with respect to the Acquisition ("Assistance Agreement"). The other
written agreements comprising the overall agreement were the Acquisition
Agreement, dated December 30, 1988, between the FSLIC and the Bank; the warrant
agreement ("Warrant Agreement"), dated December 30, 1988, between the FSLIC
and the Bank; the Regulatory Capital Maintenance Agreement, dated December 30,
1988, among the FSLIC, the Bank, the Company, Hyperion Holdings Inc., a Delaware
Corporation ("Hyperion Holdings"), and Hyperion Partners L.P., a Delaware
limited partnership ("Hyperion Partners"); and a forbearance letter (the
"Forbearance Agreement"), dated February 15, 1989, among the FHLBB, the Bank,
the Company, Hyperion Holdings, and Hyperion Partners. The Acquisition Agreement
set forth the terms of the Bank's acquisition of substantially all of the assets
of Old USAT and the assumption of Old USAT's secured, deposit and certain tax
liabilities. The Warrant Agreement granted the FSLIC a warrant ("Warrant") to
purchase up to 158,823 shares of common stock of the Bank at an exercise price
of $0.01 per share. See " -- Warrant Agreement". The Regulatory Capital
Maintenance Agreement placed certain restrictions on the Bank's payment of
dividends on the common stock of the Bank. The Agreement for Operating Policies
required the Bank to prepare a three year business plan and certain specified
written operating policies. The Forbearance Agreement granted forbearances to
the Bank, the Company, Hyperion Holdings and Hyperion Partners from regulatory
action relating to capital requirements and accounting procedures. All of the
Agreements have terminated except one provision of the Assistance Agreement
granting certain indemnities to the Bank, the Company, Hyperion Holdings,
Hyperion Partners, the Forbearance Agreement and the tax benefit agreement
("Tax Benefits Agreement"), dated December 28, 1993, among the Bank, the
Company, Hyperion Holdings, and Hyperion Partners, which governs the sharing of
tax benefits with the Federal Deposit Insurance Corporation ("FDIC") as
manager of the FSLIC Resolution Fund (the "FRF"), ("FDIC-FRF").

     The Company also succeeded to substantial net operating loss carryforwards
("NOLs") as a result of the Acquisition and has recorded substantial
additional NOLs for tax purposes due to the exclusion of assistance payments
received from the FRF under the Assistance Agreement from taxable income and the
deduction of

                                       21
<PAGE>
losses and writedowns on certain assets (the "Covered Assets") for which
tax-free assistance payments were received. See " -- Taxation -- FSLIC
Assistance".

     The Assistance Agreement was terminated on December 23, 1993, when the
Company, the Bank, certain of their direct and indirect parent entities, and the
FDIC entered an agreement settling certain disputes with respect to various
matters relating to the Acquisition and the Assistance Agreement (the
"Settlement Agreement"). Pursuant to the Settlement Agreement, the Assistance
Agreement was terminated, the Bank no longer managed or owned the Covered Assets
(except for certain of the Covered Assets that were "uncovered" and retained),
and, as of December 28, 1993, the Bank no longer received any significant
financial assistance from the FRF. The Settlement Agreement also provided for
the continuation of certain of the Company's and the Bank's claims against the
United States in the United States Court of Federal Claims. See
" -- Forbearance".

     Pursuant to the Assistance Agreement and the Settlement Agreement, the Bank
received substantial payments from the FRF during fiscal 1994 as follows:

                                           (IN THOUSANDS)
Payments affecting the results of
  operations............................      $ 23,143
Other payments
     Settlement payment.................       195,300
     Other..............................           468
                                           --------------
          Total FRF payments............      $218,911
                                           ==============

  WARRANT AGREEMENT

     Concurrent with the execution of the Assistance Agreement, the Bank and the
FSLIC entered into the Warrant Agreement pursuant to which the FSLIC was granted
the Warrant to purchase up to 158,823 shares of common stock of the Bank at an
exercise price of $0.01 per share. Pursuant to the Settlement Agreement, the
Bank and the FDIC-FRF entered into the First Amendment to the Warrant Agreement
on December 28, 1993 (the "First Amendment to Warrant Agreement"). References
to the Warrant Agreement below are to the Warrant Agreement as amended by the
First Amendment to Warrant Agreement.

     Pursuant to the Settlement Agreement, all disputes with respect to the
Warrant were resolved, and the parties agreed that the Bank was to make payments
in lieu of dividends to the holder of the Warrant upon any payment of dividends
on the common stock of the Bank (other than dividends for which anti-dilution
adjustments are made) beginning December 28, 1993 until December 30, 1998 or
such earlier date as the Warrant was no longer outstanding. In May 1996, the
Bank made a payment in lieu of dividends to the FDIC-FRF of $5.9 million in
connection with the declaration of a $100 million dividend on the common stock
of the Bank.

     In August 1996, the FDIC surrendered a portion of the Warrant for a cash
payment of $6.1 million, exercised the remainder of the Warrant for common stock
of the Bank, and immediately exchanged the shares of common stock of the Bank it
received for 1,503,560 shares of common stock of the Company. The FDIC sold all
of the 1,503,560 shares of common stock of the Company in the Offering.

  FORBEARANCE

     In connection with the original acquisition of the Bank by the Company, the
FHLBB also approved the Forbearance Agreement. Under the terms of the
Forbearance Agreement, the FSLIC agreed to waive or forbear from the enforcement
of certain regulatory provisions with respect to regulatory capital
requirements, liquidity requirements, accounting requirements and other matters.
After the enactment of Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA"), the OTS took the position that the capital standards
set forth in FIRREA applied to all savings institutions, including those
institutions that had been operating under previously granted capital and
accounting forbearances, and that FIRREA eliminated these forbearances. While
the Bank has not had to rely on such forbearances or waivers in order to remain
in compliance with existing capital requirements as interpreted by the OTS, the
position of the OTS has adversely affected the Bank by curtailing the growth and
reducing the leverage contemplated by the terms of the Forbearance Agreement.
The Bank also has been and continues to be in compliance with all of the other
referenced regulatory capital provisions and, accordingly, has not had to rely
on the waivers or forbearances provided in the Acquisition.

                                       22
<PAGE>
Pursuant to the Settlement Agreement, the Company, the Bank and certain of their
then-direct and indirect parent entities have retained all causes of action and
claims relating to the forbearances against the United States in the United
States Court of Federal Claims, and the FDIC and the other governmental parties
to the lawsuit have reserved any and all defenses to such causes of actions and
claims.

     On July 25, 1995, the Bank, the Company, and Hyperion Partners
(collectively "Plaintiffs") filed suit against the United States in the Court
of Federal Claims for alleged failures of the United States (i) to abide by a
capital forbearance, which would have allowed the Bank to operate for ten years
under negotiated capital levels lower than the levels required by the then
existing regulations or successor regulations, (ii) to abide by its commitment
to allow the Bank to count $110 million of subordinated debt as regulatory
capital for all purposes and (iii) to abide by an accounting forbearance, which
would have allowed the Bank to count as capital for regulatory purposes, and to
amortize over a period of twenty-five years, the $30.7 million difference
between certain FSLIC payment obligations to the Bank and the discounted present
value of those future FSLIC payments. The lawsuit is in a preliminary stage. The
lawsuit was stayed pending the United States Supreme Court's review in UNITED
STATES V. WINSTAR CORP., an action by three other thrifts raising similar issues
(the "Winstar cases"). On July 1, 1996, the Supreme Court upheld lower court
rulings that the United States had breached the contracts involved in the
WINSTAR cases and remanded the cases for further proceedings on the issue of
damages. Since the Supreme Court ruling, the Chief Judge of the Court of Federal
Claims convened a number of status conferences to establish a case management
protocol for the more than 100 lawsuits on the Court of Federal Claims docket,
that, like Plaintiffs' case, involve issues similar to those raised in the
WINSTAR case.

     Following a number of status conferences, Chief Judge Loren Smith of the
United States Court of Federal Claims transferred all WINSTAR-related cases to
his own docket and entered an Omnibus Case Management Order governing
proceedings in such cases, including the Company's case. Under the Omnibus Case
Management Order, Chief Judge Smith serves as the "Managing Judge" for all
WINSTAR-related cases and may assign other judges of the United States Court of
Federal Claims to resolve pre-trial discovery disputes and common legal issues
and to conduct trials. The Government and Plaintiffs in WINSTAR-related cases
were directed to exchange certain significant documents as early as October 2,
1996. Trials on damages in two of the three WINSTAR cases that were decided by
the United States Supreme Court in July 1996 are scheduled for early 1997.
Damages trials in the remaining cases subject to the Omnibus Case Management
Plan are scheduled to begin four months after completion of the first two
damages trials. The Company's case is one of thirteen cases that "shall be
accorded priority in the scheduling" of the damages trials under the Omnibus
Case Management Order.

     While the Company expects the Plaintiffs' claims for damages to exceed $200
million, the Company is unable to predict the outcome of Plaintiffs' suit
against the United States and the amount of judgment for damages, if any, that
may be awarded. The Company, on November 27, 1996, moved for partial summary
judgement on liability and is pursuing an early trial on damages. Uncertainties
remain concerning the administration of the Omnibus Case Management Order and
the future course of the Company's lawsuit pursuant to the Omnibus Case
Management Order. Accordingly, the Company cannot predict the timing of any
resolution of its claims. The Company expects the trial of its case to commence
during the first quarter of fiscal 1998. The Company is also unable to predict
the outcome of its suit against the United States and the amount of judgment for
damages, if any, that may be awarded. Consequently, no assurances can be given
as to the results of this suit. See "Legal Proceedings".

     The Company and the Bank have entered into an agreement with Hyperion
Partners acknowledging the relative value, as among the parties, of their claims
in the pending litigation. The agreement confirms that the Company and the Bank
are entitled to receive 85% of the amount, if any, recovered as a result of any
settlement of or a judgment on such claims, and that Hyperion Partners is
entitled to receive 15% of such amount. The agreement was approved by the
disinterested directors of the Company. Plaintiffs will continue to cooperate in
good faith and will use their best efforts to maximize the total amount, if any,
that they may recover.

                                       23
<PAGE>
REGULATION

REGULATION OF SAVINGS AND LOAN HOLDING COMPANIES

     The Company is a savings and loan holding company that is regulated and
subject to examination by the OTS. The activities of savings and loan holding
companies are governed by the provisions of the Home Owners' Loan Act, as
amended (the "HOLA"). Pursuant to the HOLA, a savings and loan holding company
may not (i) acquire control of a savings association or savings and loan holding
company without prior OTS approval; (ii) acquire, except with prior OTS
approval, by process of merger, consolidation, or purchase of assets of another
savings association or savings and loan holding company, all or substantially
all of the assets of any such association or holding company; or (iii) acquire,
by purchase or otherwise, more than 5% of the voting shares of a savings
association that is not a subsidiary, or of a savings and loan holding company
that is not a subsidiary. Other restrictions on activities of a savings and loan
holding company do not apply to the Company because its savings association
subsidiary is a qualified thrift lender. See " -- Safety and Soundness
Regulations -- Investment Authority -- QTL Test". Every subsidiary savings
association of a savings and loan holding company must give the OTS not less
than 30 days of advance notice of proposed dividend declarations.

SAFETY AND SOUNDNESS REGULATIONS

  CHARTER, SUPERVISION, AND EXAMINATION

     CHARTER.  The Bank is chartered under the HOLA, which imposes certain
obligations and restrictions upon, and grants certain powers to, federally
chartered savings banks such as the Bank. The provisions of the HOLA are
implemented by regulations adopted and administered by the OTS.

     OTS.  Federally chartered savings banks, such as the Bank, are subject to
extensive regulation by the OTS and must regularly file financial and other
reports with that agency. The supervision and regulation to which the Bank is
subject is intended primarily for the protection of its depositors. The OTS
performs periodic examinations of the Bank to test compliance by the Bank with
various regulatory requirements. The OTS may revalue assets of an insured
institution based upon appraisals and require establishment of specific reserves
in amounts equal to the difference between such revaluation and the book value
of the assets, as well as require specific charge-offs relating to such assets.

     The OTS prescribes regulations for the collection of fees in order to
recover the expenses of the agency, the cost of supervision of savings
associations, the examination of savings associations and their subsidiaries,
and the processing of applications, filings, notices, and certain other requests
of savings associations filed with the OTS. The OTS adopted a two-pronged
sliding scale approach in 1990 by which all institutions pay a general
assessment and troubled institutions pay an additional premium assessment. The
Bank has never been subject to a premium assessment. The Bank's general
assessments amounted to approximately $1.5 million and $1.2 million in the
aggregate during fiscal 1996 and 1995, respectively.

     FDIC.  The FDIC administers the SAIF, which insures the deposits of savings
associations such as the Bank. The Bank's deposits are insured by the SAIF to a
maximum of $100,000 for each insured depositor. In addition, the FDIC has
certain regulatory and full examination authority over OTS regulated savings
associations. The FDIC may also recommend enforcement actions against savings
associations to the OTS and, if the OTS fails to act on the FDIC's
recommendation, the FDIC may, under certain circumstances, compel the OTS to
take the requested enforcement action.

     INSURANCE ASSESSMENTS.  The FDIC establishes premium assessment rates for
SAIF deposit insurance. There is no statutory limit on the maximum assessment
and the percent of increase in the assessment that the FDIC may impose in any
one year. Effective January 1, 1993, the FDIC adopted risk-based assessment
regulations.

     To arrive at a risk-based assessment for each bank and thrift, the FDIC
places it in one of nine risk categories using a two-step process based first on
capital ratios and then on relevant supervisory information. Each institution is
assigned to one of three groups (well-capitalized, adequately capitalized, or
undercapitalized) based on its capital ratios. A "well-capitalized"
institution is one that has at least a 10% "total risk-based capital" ratio
(the ratio of total capital to risk-weighted assets), a 6% "tier 1 risk-based
capital" ratio (the ratio of

                                       24
<PAGE>
tier 1 (core) capital to risk-weighted assets) and a 5% "leverage capital"
ratio (the ratio of core capital to adjusted total assets). An "adequately
capitalized" institution has at least an 8% total risk-based capital ratio, a
4% tier 1 (core) risk-based capital ratio and a 4% leverage capital ratio. An
"undercapitalized" institution is one that does not meet either the definition
of well-capitalized or adequately capitalized.

     The FDIC also assigns each institution to one of three supervisory
subgroups based on an evaluation of the risk posed by the institution. These
supervisory evaluations modify premium rates within each of the three capital
groups. The nine risk categories and the corresponding SAIF assessment rates are
as follows:

                                            SUPERVISORY SUBGROUP
                                       -------------------------------
                                           A          B          C
                                          --         --         --
Meets numerical standards for:
     Well-capitalized................     23         26         29
     Adequately capitalized..........     26         29         30
     Undercapitalized................     29         30         31

     For purposes of assessments of FDIC insurance premiums, as of September 30,
1996, the Company believes that the Bank is a "well-capitalized" institution.
FDIC regulations prohibit disclosure of the supervisory subgroup to which an
insured institution is assigned. The Bank's insurance assessments for fiscal
1996 and 1995 were $12.0 million and $11.4 million, respectively.

     Both the SAIF and the Bank Insurance Fund ("BIF"), the deposit insurance
fund that covers most commercial bank deposits, are statutorily required to
achieve and maintain a reserve ratio equal to 1.25% of estimated insured
deposits. As a result of the BIF reaching the 1.25% level, on August 16, 1995,
the FDIC lowered the deposit insurance premium assessment rate for BIF members
to between .04% and .31% of insured deposits, while retaining the assessment
rate of .23% to .31% of insured deposits for members of SAIF. On November 14,
1995, the FDIC further reduced insurance premiums on BIF deposits by 0.04% of
insured deposits, creating an assessment range of 0% to .27% of insured
deposits, subject to a statutory requirement that all institutions pay at least
$2,000 annually. Approximately 92% of BIF members qualify for the lowest
assessment rate. As a result of the significant disparity in the deposit
insurance premiums paid by well-capitalized SAIF members, such as the Bank, and
well-capitalized BIF members, SAIF members were at a competitive disadvantage to
BIF members with respect to the pricing of loans and deposits and the ability to
achieve lower operating costs.

     On September 30, 1996, President Clinton signed into law the Economic
Growth and Paperwork Reduction Act of 1996 (the "1996 Act"). The 1996 Act
required the FDIC to impose a one-time assessment on institutions holding SAIF
deposits in an amount sufficient to increase the SAIF's net worth to 1.25% of
SAIF-insured deposits, as of October 1, 1996. The special assessment, which was
collected on November 27, 1996, was 65.7 basis points times the amount of
deposits held by an institution as of March 31, 1995. The special assessment is
deductible in the tax year paid.

     As a result of the special assessment, the SAIF is deemed to have met its
designated reserve ratio as of October 1, 1996. On October 8, 1996, the FDIC
proposed new risk-based assessments for SAIF-insured institutions. The SAIF base
assessment rates would effectively range from 0 to 27 basis points beginning
October 1, 1996. For the last calendar quarter of 1996, a special interim
schedule of rates ranging from 18 to 27 basis points would apply, reflecting the
assessments necessary to pay interest on the Financing Corporation ("FICO")
bonds. Any excess assessments collected under the prior assessment schedule will
be refunded or credited, with interest. Thus, except to the extent of FICO
assessments, SAIF and BIF institutions will have the same assessment schedule as
of January 1, 1997.

     Under the 1996 Act, during the period beginning January 1, 1997 through
December 31, 1999, SAIF-insured institutions will pay 6.44 basis points toward
FICO bonds and BIF-insured institutions will pay 1.29 basis points. Starting in
the year 2000, BIF and SAIF institutions will begin sharing the FICO burden on a
pro rata basis until termination of the FICO obligation in 2017, thus
eliminating all assessment disparities.

                                       25
<PAGE>
     TERMINATION OF INSURANCE.  The FDIC may terminate the deposit insurance of
any insured depository institution if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, or order, or any condition imposed by an agreement
with the FDIC. It also may suspend deposit insurance temporarily during the
hearing process for the permanent termination of insurance if the institution
has no tangible capital. If insurance of an institution's accounts is
terminated, the accounts at the institution at the time of such termination,
less subsequent withdrawals, would continue to be insured for a period of six
months to two years, as determined by the FDIC.

     AUDIT REQUIREMENTS.  In May 1993, the FDIC adopted rules establishing
annual independent audits and financial reporting requirements for all
depository institutions with assets of more than $500 million, and for their
management, and their independent auditors. The rules also establish
requirements for the composition, duties, and authority of such institutions'
audit committees and boards of directors. Among other things, all depository
institutions with assets in excess of $500 million are required to prepare and
make available to the public annual reports on their financial condition and
management, including statements of management's responsibility for preparing
the institution's financial statements, for establishing and maintaining an
internal control structure and procedures for financial reporting, and for
complying with specified laws and regulations relating to safety and soundness,
and an assessment of the effectiveness of such internal controls and procedures
and the institution's compliance with laws and regulations designated by the
FDIC. The institution's independent auditors are required to attest to these
management assessments. Each such institution also is required to have an audit
committee composed of directors who are independent of management of the
institution. Audit committees of large institutions (institutions with assets
exceeding $3.0 billion) must: (i) include members with banking or related
financial management expertise; (ii) have the ability to engage their own
independent legal counsel; and (iii) must not include any entities designated as
"large customers" of the institution. In some cases, the institution's
responsibilities under these rules may be fulfilled by its holding company.

     The 1996 Act repealed the requirement that an independent auditor attest on
the procedures employed by financial institutions to detect and report
violations of designated laws. The 1996 Act also authorizes the appropriate
Federal banking agency to permit the independent audit committee to contain
inside as well as outside directors if the institution has encountered hardships
in recruiting and retaining outside directors to serve on the committee.

     FEDERAL RESERVE BOARD.  The Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") requires all depository institutions
(including savings associations) to maintain reserves against their transaction
accounts (primarily NOW and Super NOW checking accounts) and non-personal time
deposits. Reserves of 3% must be maintained against total transaction accounts
of $52.0 million or less (subject to adjustment by the Federal Reserve Board)
and an initial reserve of $1,560,000 plus 10% (subject to adjustment by the
Federal Reserve Board to a level between 8% and 14%) must be maintained when
total transaction accounts exceed such amount. 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. See " -- Investment
Authority -- Liquidity".

     Savings associations are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board regulations require savings
associations to exhaust other reasonable alternative sources of funds, including
FHLB advances, before borrowing from the Federal Reserve Bank.

     FEDERAL HOME LOAN BANKS.  The Bank is a member of the FHLB Dallas, which is
one of 12 regional FHLBs, each subject to supervision and regulation by the
Federal Housing Finance Board. The FHLBs provide a central credit facility
primarily for member thrift institutions, as well as for qualified commercial
banks and other entities involved in home mortgage finance. The Bank, as a
member of the FHLB Dallas, is required to purchase and hold shares of the
capital stock in that FHLB in an amount at least equal to the greater of: (i) 1%
of the aggregate principal amount of its unpaid mortgage loans, home purchase
contracts and similar obligations at the beginning of each year; (ii) 0.3% of
its assets; or (iii) 5% (or such greater fraction as established by the FHLB) of
its advances (I.E., borrowings) from the FHLB.

                                       26
<PAGE>
     CAPITAL REQUIREMENTS

     REQUIREMENTS AND STANDARDS.  The OTS capital regulations have three
components: a leverage limit, a tangible capital requirement, and a risk-based
capital requirement. See Note 15 to the Consolidated Financial Statements for
compliance with the regulatory capital requirements. The OTS has broad
discretion to impose capital requirements in excess of minimum applicable
ratios. See " -- Enforcement".

     LEVERAGE LIMIT.  The leverage limit requires that a savings association
maintain "core capital" of at least 3% of its adjusted total assets. For
purposes of this requirement, total assets are adjusted to exclude intangible
assets and investments in certain subsidiaries, and to include the assets of
certain other subsidiaries, certain intangibles arising from prior period
supervisory transactions, and permissible MSRs. "Core capital" includes common
shareholders' equity and retained earnings, noncumulative perpetual preferred
stock and related surplus and minority interests in consolidated subsidiaries,
minus intangibles, plus certain MSRs and certain goodwill arising from prior
regulatory accounting practices.

     Although accounted for under Generally Accepted Accounting Principles
("GAAP") as an intangible asset, certain MSRs need not be deducted in
computing core and tangible capital. Generally, the lower of 90% of the fair
market value of readily marketable MSRs, or the current unamortized book value
as determined under GAAP may be included in core and tangible capital up to a
maximum of 50% of core capital computed before the deduction of any disallowed
qualifying intangible assets. At September 30, 1996, the Bank's core capital
included $121.3 million of MSRs.

     In determining core capital, all investments in and loans to subsidiaries
engaged in activities not permissible for national banks, which are generally
more limited than activities permissible for savings associations and their
subsidiaries ("nonconforming subsidiaries"), must be deducted. Certain
exceptions are provided, including exceptions for mortgage banking subsidiaries
and subsidiaries engaged in agency activities for customers (unless determined
otherwise by the FDIC on safety and soundness grounds). Generally, all
subsidiaries engaged in activities permissible for national banks are required
to be consolidated for purposes of calculating capital compliance by the parent
savings association.

     TANGIBLE CAPITAL REQUIREMENT.  The tangible capital requirement mandates
that a savings association maintain tangible capital of at least 1.5% of
adjusted total assets. For purposes of this requirement, adjusted total assets
are calculated on the same basis as for the leverage limit. "Tangible capital"
is defined in the same manner as core capital, except that all intangible assets
except qualifying MSRs must be deducted. At September 30, 1996, the Bank's
tangible capital ratio was 6.57%.

     RISK-BASED CAPITAL REQUIREMENT.  The risk-based requirement promulgated by
the OTS is required by the HOLA to track the standard applicable to national
banks, except that the OTS may determine to reflect interest rate and other
risks not specifically included in the national bank standard. However, such
deviations from the national bank standard may not result in a materially lower
risk-based requirement for savings associations than for national banks. The
risk-based standard adopted by the OTS is similar to the Office of the
Comptroller of the Currency ("OCC") standard for national banks.

     The risk-based standards of the OTS require maintenance of core capital
equal to at least 4% of risk-weighted assets and total capital equal to at least
8% of risk-weighted assets. "Total capital" includes core capital plus
supplementary capital (except that includable supplementary capital may not
exceed core capital). Supplementary capital includes: cumulative perpetual
preferred stock; mutual capital certificates, income capital certificates and
net worth certificates; nonwithdrawable accounts and pledged deposits to the
extent not included in core capital; perpetual and mandatory convertible
subordinated debt and maturing capital instruments meeting specified
requirements; and general loan and lease loss allowances, up to a maximum of
1.25% of risk-weighted assets. At September 30, 1996, the Bank's core capital
and total capital ratios were 6.64% and 13.09%, respectively.

     In determining the amount of risk-weighted assets, all assets, including
certain off-balance-sheet assets, are multiplied by a risk factor ranging from
0% to 100%, as assigned by the OTS based on the risks it believes inherent in
the type of asset. Comparable weights are assigned to off-balance-sheet
activities.

                                       27
<PAGE>
     INTEREST RATE RISK ("IRR") COMPONENT.  OTS regulations add an IRR
component to the 8% risk-based capital requirement discussed above. Only savings
associations with more than a "normal" level of IRR are subject to IRR
requirements. The IRR component is calculated as one-half of the difference
between the institution's measured IRR and 2%, multiplied by the market value of
the institution's assets.

     On October 13, 1994, the OTS waived the IRR capital deduction until
guidelines under which institutions may appeal such a deduction were published.
The OTS extended the waiver on March 20, 1995 until further notice. On August
21, 1995, the OTS adopted and approved an appeal process, but again delayed the
IRR capital deduction indefinitely.

     FAILURE TO MEET REQUIREMENTS.  Any savings association that fails to meet
its regulatory capital requirements is subject to enforcement actions by the OTS
or the FDIC. The OTS must limit the asset growth of any undercapitalized
association and issue a capital directive against the association. See
" -- Enforcement -- Prompt Corrective Action".

     CAPITAL DISTRIBUTIONS.  Limitations are imposed upon all "capital
distributions" by savings associations, including cash dividends, payments by
an institution in a cash-out merger, and other distributions charged against
capital. The capital distribution regulation establishes a three-tiered system,
with the greatest flexibility afforded to well-capitalized institutions.

     Under the capital distribution regulation, an association that immediately
prior to a proposed capital distribution, and on a pro forma basis after giving
effect to a proposed capital distribution, has capital that is equal to or
greater than the amount of its fully phased-in capital requirement is a "tier 1
association". To qualify, an association must maintain the following capital
ratios: (i) tangible capital to adjusted total assets ratio of 1.50%, (ii) core
capital to adjusted total assets ratio of 3.00%, and (iii) total risk-based
capital to risk-weighted assets ratio of 8.00%, of which at least 4.00% must be
core capital. An association that immediately prior to a proposed capital
distribution, and on a pro forma basis after giving effect to a proposed capital
distribution, has capital that is equal to or in excess of its minimum capital
requirements is a "tier 2 association". An association that immediately prior
to a proposed capital distribution, and on a pro forma basis after giving effect
to a proposed capital distribution, has capital that is less than its minimum
regulatory capital requirement is a "tier 3 association". The Bank currently
qualifies as a tier 1 association. See "Management's Discussion and
Analysis -- Capital Resources and Liquidity -- Regulatory Matters".

     Upon 30 days' notice to the OTS, a tier 1 association may make capital
distributions during a calendar year up to the higher of 100% of its net income
to date during the calendar year, plus the amount that would reduce by one-half
its surplus capital ratio at the beginning of the calendar year or 75% of its
net income over the most recent four quarter period. A tier 1 association may
not make capital distributions in excess of the foregoing limitations except
upon notice to the OTS and an opportunity for the OTS to object to such capital
distribution. The OTS may prohibit an otherwise permissible capital distribution
upon a determination that making such a distribution would be an unsafe or
unsound practice. The OTS may notify an institution that qualifies as a tier 1
association that it is subject to more than normal supervision and thereafter,
treat it as a tier 2 or tier 3 association.

     Under the prompt corrective action provisions discussed below, no insured
depository institution may make a capital distribution if after such
distribution it would be undercapitalized. See " -- Enforcement -- Prompt
Corrective Action". The OTS has proposed to amend its capital distribution
regulation to conform to the prompt corrective action system and to provide
additional flexibility. Under the proposal, savings associations that have a
composite CAMEL rating (examination rating) of "1" or "2" and that are not
holding company subsidiaries need not notify the OTS before making a capital
distribution. Savings associations that were adequately or well-capitalized
under prompt corrective action and that would remain at least adequately
capitalized after a capital distribution would be permitted to make a
distribution after providing notice to the OTS. "Troubled" and
undercapitalized institutions could make capital distributions only by filing an
application and receiving OTS approval, which would be granted only under
certain limited conditions. The proposal defines "troubled condition" as a
function of an institution's examination rating, its capital condition, or on
the basis of supervisory directives issued or designation made by the OTS.

                                       28
<PAGE>
  INVESTMENT AUTHORITY

     PERMISSIBLE LOANS AND INVESTMENTS.  Federally chartered savings banks, such
as the Bank, are authorized to originate, invest in, sell, purchase, service,
participate, and otherwise deal in: (i) loans made on the security of
residential and nonresidential real estate, (ii) commercial loans, and (iii)
consumer loans, including credit card loans. The lending authority of federally
chartered associations is subject to numerous OTS requirements, including, as
applicable, requirements governing amortization, term, loan-to-value ratio,
percentage-of-assets limits, and loans-to-one-borrower limits. In September of
1996, the OTS substantially revised its investment and lending regulations
eliminating many of their specific requirements in favor of a more general
standard of "safety and soundness".

     A federally chartered savings association may invest, without limitation,
in the following assets: (i) obligations of the United States government or
certain agencies or instrumentalities thereof; (ii) stock issued or loans made
by the FHLBs or the FNMA; (iii) obligations issued or guaranteed by the FNMA,
the Student Loan Marketing Association, the GNMA, or any agency of the United
States government; (iv) certain mortgages, obligations, or other securities that
have been sold by the FHLMC; (v) stock issued by a national housing partnership
corporation; (vi) demand, time, or savings deposits, shares, or accounts of any
insured depository institution; (vii) certain "liquidity" investments approved
by the OTS to meet liquidity requirements; (viii) shares of registered
investment companies the portfolios of which are limited to investments that a
federal association is otherwise authorized to make; (ix) certain MBS; (x)
general obligations of any state of the United States or any political
subdivision or municipality thereof, PROVIDED that not more than 10% of a
savings association's capital may be invested in the general obligations of any
one issuer; (xi) loans on the security of liens upon residential real property;
(xii) credit card loans; and (xiii) education loans. Federally chartered savings
associations are authorized by the HOLA to make investments in business
development credit corporations, certain commercial paper and corporate debt
securities, service corporations, and small business investment companies, all
of which investments are subject to percentage-of-assets and various other
limitations.

     LENDING LIMITS.  Generally, savings associations, such as the Bank, are
subject to the same loans to one borrower limits that apply to national banks.
Generally, a savings association may lend to a single or related group of
borrowers, on an unsecured basis, in an amount not greater than 15% of its
unimpaired capital and unimpaired surplus. An additional amount, not greater
than 10% of the savings association's unimpaired capital and unimpaired surplus,
may be loaned if the loan is secured by readily marketable collateral, which is
defined to include certain securities and bullion, but generally does not
include real estate. Notwithstanding the general lending limits, a savings
association may make loans to one borrower of up to $500,000, or to develop
domestic residential housing units, up to the lesser of $30 million or 30% of
the savings association's unimpaired capital and unimpaired surplus, if certain
conditions are satisfied.

     In addition to limits on loans to one borrower, the HOLA also limits a
federal savings association's aggregate nonresidential real property loans to
400% of the savings association's capital as determined pursuant to the OTS's
capital requirements. See "-- Capital Requirements". The OTS may allow a
savings association to exceed the aggregate limitation if the OTS determines
that exceeding the limitation would pose no significant risk to the safe and
sound operations of the association and would be consistent with prudent
operating practices.

     SUBSIDIARIES -- SERVICE CORPORATIONS.  The HOLA authorizes federally
chartered savings associations, such as the Bank, to invest in the capital
stock, obligations or other securities of service corporations. The HOLA
authorizes a savings association to invest up to a total of 3% of its assets in
service corporations. The last 1% of the 3% statutory investment limit
applicable to service corporations must be primarily invested in community
development investments drawn from a broad list of permissible investments that
include, among others: government guaranteed loans; loans for investment in
small businesses; investments in revitalization and rehabilitation projects; and
investments in low- and moderate-income housing developments.

     Service corporations are authorized to engage in a variety of preapproved
activities, some of which (E.G.,securities brokerage and real estate
development) are ineligible activities for the parent savings association. The
OTS regulations implementing the service corporation authority contained in the
HOLA also provide that activities reasonably related to the activities of a
federally chartered savings association may be approved on a case-by-case basis
by the Director of the OTS.

                                       29
<PAGE>
     OPERATING SUBSIDIARIES.  All federal savings associations are authorized to
establish or acquire one or more operating subsidiaries. Operating subsidiaries
are subject to examination and supervision by the OTS to the same extent as the
parent thrift. An "operating subsidiary" is a corporation that meets all of
the following requirements: (i) it engages only in activities that a federal
savings association is permitted to engage in directly; (ii) the parent savings
association owns, directly or indirectly, more than 50% of the subsidiary's
voting stock; and (iii) no person or entity other than the parent thrift may
exercise "effective operating control" over the subsidiary. While a savings
association's investment in its service corporations is generally limited to an
amount that does not exceed 3% of the parent savings association's total assets,
OTS regulations do not limit the amount that a parent savings association may
invest in its operating subsidiaries. Operating subsidiaries may be incorporated
and operated in any geographical location where its parent may operate. An
operating subsidiary that is a depository institution may accept deposits in any
location, provided that the subsidiary has federal deposit insurance.

     FINANCE SUBSIDIARIES.  In accordance with OTS regulations, federal savings
associations may establish one or more finance subsidiaries. The sole purpose of
a finance subsidiary is to issue securities that a federal savings association
may issue directly and to remit the net proceeds of the issuance to the parent
savings association.

     In June 1996, the OTS proposed substantial revisions to its regulations
governing subsidiaries. If adopted as proposed, the revised regulations would,
among other things, expand the activities in which a service corporation may
engage, reclassify finance subsidiaries as operating subsidiaries, and permit
federal savings associations to invest in pass-through investments, including
limited partnerships and similar vehicles, whose activities are confined to
those the savings association could conduct directly.

     QTL TEST.  All savings associations are required to meet a QTL test for,
among other things, future eligibility for FHLB advances. An association must
have invested at least 65% of its portfolio assets in qualified thrift
investments and must maintain this level of qualified thrift investments on a
monthly average basis in nine of every 12 months.

     "Portfolio assets" is defined as total assets less intangibles,
properties used to conduct business and liquid assets (up to 20% of total
assets). The following assets may be included as qualified thrift investments
without limit: domestic residential housing or manufactured housing loans; home
equity loans and MBS backed by residential housing or manufactured housing
loans; FHLB stock as well as certain obligations of the FDIC and certain other
related entities. Other qualifying assets, which may be included up to an
aggregate of 20% of portfolio assets, are: (i) 50% of originated residential
mortgage loans sold within 90 days of origination; (ii) investments in debt or
equity of service corporations that derive 80% of their gross revenues from
housing-related activities; (iii) 200% of certain loans to, and investment in,
low cost one-to four-family housing; (iv) 200% of loans for residential real
property, churches, nursing homes, schools and small businesses in areas where
the credit needs of low- and moderate-income families are not met; (v) other
loans for churches, schools, nursing homes and hospitals; and (vi) personal,
family, household, or education loans (up to 10% of total portfolio assets).

     Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies. A savings association may
requalify the next time it meets the requirement in nine of the preceding 12
months, but it may requalify only one time. If a savings association converts to
a bank charter, it must remain SAIF-insured until the expiration of the
moratorium (the moratorium, enacted in 1989, effectively prohibits most
conversions from the SAIF to the BIF insurance fund), which will not occur until
the date on which the SAIF fund meets its designated reserve ratio. As a result
of the one-time assessment in SAIF deposits, the SAIF is deemed to have met its
designated reserve ratio as of October 1, 1996. If an institution that fails the
QTL test has not yet requalified and has not converted to a national bank, its
new investments and activities are limited to those permissible for a national
bank, it is immediately ineligible to receive any new FHLB advances, is subject
to national bank limits for payment of dividends, and may not establish a branch
office at any location at which a national bank located in the savings
association's home state could not establish a branch.

     The Economic Growth and Regulatory Paperwork Reduction Act of 1996 amended
the QTL test to permit small business, credit card, and student loans to be
counted without limitation toward the 65% of assets component of the QTL test.
The terms "small business" and "credit card" will be defined by the OTS. The
Act

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also creates an alternative test by which a thrift may demonstrate that it is a
qualified thrift lender for branching. A thrift may now qualify by meeting the
Internal Revenue Code test for being a domestic building and loan association,
as that term is defined in Section 7701(a)(19) of the Internal Revenue Code.

     LIQUIDITY.  The Bank is required to maintain an average daily balance of
"liquid assets" (cash, certain time deposits, bankers' acceptances, highly
rated corporate debt securities and commercial paper, securities of certain
mutual funds, reserves maintained pursuant to Federal Reserve Board
requirements, and specified government, state or federal agency obligations)
equal to a certain percentage of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. Currently, OTS regulations require a savings
association, such as the Bank, to maintain liquid assets equal to not less than
5% of its net withdrawable deposit accounts and borrowings payable in one year
or less and short-term liquid assets of not less than 1%. Penalties may be
imposed for failure to meet the liquidity requirements.

  MERGERS AND ACQUISITIONS

     RESTRICTIONS ON ACQUISITIONS.  As previously described, the Bank is
controlled by the Company. The Company must obtain approval from the OTS before
acquiring control of any other savings association. Such acquisitions are
generally prohibited if they result in a savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in supervisory acquisitions of failing savings associations. The Company may
acquire up to 5%, in the aggregate, of the voting stock of any non-subsidiary
savings association or savings and loan holding company without being deemed to
acquire control of the association or holding company. In addition, a savings
and loan holding company may hold shares of a savings association or a savings
and loan holding company for certain purposes, including as a bona fide
fiduciary, as an underwriter, or in an account solely for trading purposes.
Under certain conditions, a savings and loan holding company may acquire up to
15% of the shares of a savings association or savings and loan holding company
in a "qualified stock issuance".

     The Change in Bank Control Act and the savings and loan holding company
provisions of the HOLA, together with the regulations of the OTS under such
Acts, require that the consent of the OTS be obtained prior to any person or
company acquiring control of a savings association or a savings and loan holding
company. Under OTS regulations, "control" is conclusively presumed to exist if
an individual or company acquires more than 25% of any class of voting stock of
a savings association or holding company. Control is rebuttably presumed to
exist if a person acquires more than 10% of any class of voting stock (or more
than 25% of any class of non-voting stock) and is subject to any of several
"control factors". The control factors relate, among other matters, to the
relative ownership position of a person, the percentage of debt and/or equity of
the association or holding company controlled by the person, agreements giving
the person influence over a material aspect of the operations of the association
or holding company, and the number of seats on the board of directors thereof
held by the person or his designees. The regulations provide a procedure for
challenge of the rebuttable control presumption. Certain restrictions applicable
to the operations of savings and loan holding companies and certain conditions
imposed by the OTS in connection with its approval of companies to become
savings and loan holding companies may deter companies from seeking to obtain
control of the Bank.

     Insured depository institutions are authorized to merge or engage in
purchase and assumption transactions with other insured depository institutions
with the prior approval of the federal banking regulator of the resulting
entity.

     BRANCHING.  Subject to certain statutory restrictions in the HOLA and the
Federal Deposit Insurance Act (the "FDIA"), the Bank is authorized to branch
on a nationwide basis. Branching by savings associations is also subject to
other regulatory requirements, including compliance with the Community
Reinvestment Act (the "CRA") and its implementing regulations.

  OFFICERS, DIRECTORS, AND CONTROLLING SHAREHOLDERS

     INSIDER LOANS.  Loans to an executive officer, director, or to any person
who directly or indirectly, or acting through or in concert with one or more
persons, owns, controls, or has the power to vote more than 10% of any class of
voting securities of such institution ("Principal Shareholder") and their
related interests (I.E., any

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company controlled by such executive officer, director, or Principal
Shareholder), or to any political or campaign committee, the funds or services
of which will benefit such executive officer, director or Principal Shareholder,
or which is controlled by such executive officer, director or Principal
Shareholder, are subject to Sections 22(g) and 22(h) of the Federal Reserve Act
(the "FRA") and the regulations promulgated thereunder. Among other things,
such loans must be made on terms substantially the same as those prevailing on
transactions made to unaffiliated individuals, and certain extensions of credit
to such persons must first be approved in advance by a disinterested majority of
a savings association's entire board of directors. Section 22(h) of the FRA
prohibits loans to any such individuals where the aggregate amount exceeds an
amount equal to 15% of an insured institution's unimpaired capital and surplus,
plus an additional 10% of unimpaired capital and surplus (as defined) in the
case of loans that are fully secured by readily marketable collateral, or when
the aggregate amount on all such extensions of credit outstanding to all such
persons would exceed the Bank's unimpaired capital and unimpaired surplus.
Section 22(g) identifies limited circumstances in which the Bank is permitted to
extend credit to executive officers.

     CHANGES IN DIRECTORS AND SENIOR EXECUTIVE OFFICERS.  Section 32 of the
FDIA, as amended by the Economic Growth and Regulatory Paperwork Reduction Act
of 1996, requires a depository institution or holding company thereof to give 30
days' prior written notice to its primary federal regulator of any proposed
appointment of a director or senior executive officer if the institution is not
in compliance with the minimum capital requirements or otherwise is in a
troubled condition. The regulator then has the opportunity to disapprove any
such appointment.

  TRANSACTIONS WITH AFFILIATES

     Pursuant to Section 11 of the HOLA, savings associations are subject to
restrictions regarding transactions with affiliates ("Covered Transactions")
substantially similar to those imposed upon member banks under Sections 23A and
23B of the FRA. Savings associations are also prohibited from extending credit
to any affiliate engaged in an activity not permissible for a bank holding
company.

     The term "affiliate" includes any company that controls or is controlled
by a company that controls the Bank, or a bank or savings association subsidiary
of the Bank. The term "affiliate" also includes any company controlled by
controlling stockholders of the Bank or the Company and any company sponsored
and advised on a contractual basis by the Bank or any subsidiary or affiliate of
the Bank. The Company is an affiliate of the Bank.

     Section 23A of the FRA limits Covered Transactions with any one affiliate
to 10% of an association's capital stock and surplus (as defined therein) and
limits aggregate affiliate transactions to 20% of the Bank's capital stock and
surplus. A Covered Transaction is defined generally as a loan to an affiliate,
the purchase of securities issued by an affiliate, the purchase of assets from
an affiliate, the acceptance of securities issued by an affiliate as collateral
for a loan, or the issuance of a guarantee, acceptance or letter of credit on
behalf of an affiliate. In addition, the Bank generally may not purchase
securities issued or underwritten by an affiliate. Sections 23A and 23B of the
FRA provide that a loan transaction with an affiliate generally must be
collateralized (but may not be collateralized by a low quality asset or
securities issued by an affiliate) and that all Covered Transactions, as well as
the sale of assets, the payment of money, or the provision of services by the
Bank to an affiliate, must be on terms and conditions that are substantially the
same, or at least as favorable to the Bank, as those prevailing for comparable
nonaffiliate transactions.

     The OTS generally requires savings associations, such as the Bank, to
attribute to an affiliate the amounts of all transactions conducted with
subsidiaries of that affiliate and grants the Director of the OTS the authority
to deem certain non-bank or non-thrift subsidiaries of a savings association as
affiliates.

  ENFORCEMENT

     PROMPT CORRECTIVE ACTION.  The OTS is required by statute to take certain
actions against savings associations that fail to meet certain capital-based
requirements. Each of the federal banking agencies, including the OTS, is
required to establish five levels of insured depository institutions based on
leverage limit and risk-based capital requirements established for institutions
subject to their jurisdiction plus, in each agency's discretion, individual
additional capital requirements for such institutions.

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     Under the final rules that have been adopted by each of the federal banking
agencies, an institution will be designated well-capitalized if the institution
has a total risk-based capital ratio of 10% or greater, a core risk-based
capital ratio of 6% or greater, and a leverage ratio of 5% or greater, and the
institution is not subject to an order, written agreement, capital directive, or
prompt corrective action directive to meet and maintain a specific capital level
for any capital measure.

     An institution will be designated adequately capitalized if the institution
has a total risk-based capital ratio of 8% or greater, a core risk-based capital
ratio of 4% or greater, and a leverage ratio of 4% or greater (or a leverage
ratio of 3% or greater if the institution is rated a composite 1 in its most
recent report of examination). An institution will be designated
undercapitalized if the institution has a total risk-based capital ratio of less
than 8%, a core risk-based capital ratio of less than 4%, or a leverage ratio of
less than 4% (or a leverage ratio of less than 3% if the institution is rated
composite 1 in its most recent report of examination). An institution will be
designated significantly undercapitalized if the institution has a total
risk-based capital ratio of less than 6%, a core risk-based capital ratio of
less than 3%, or a leverage ratio of less than 3%. An institution will be
designated critically undercapitalized if the institution has a ratio of
tangible equity to total assets equal to or less than 2%.

     Undercapitalized institutions are required to submit capital restoration
plans to the appropriate federal banking agency and are subject to certain
operational restrictions. Moreover, companies controlling an undercapitalized
institution are required to guarantee the subsidiary institution's compliance
with the capital restoration plan subject to an aggregate limitation of the
lesser of 5% of the institution's assets, or the amount of the capital
deficiency when the institution first failed to meet the plan.

     Significantly or critically undercapitalized institutions and
undercapitalized institutions that have not submitted or complied with
acceptable capital restoration plans are subject to regulatory sanctions. A
forced sale of shares or merger, restrictions on affiliate transactions, and
restrictions on rates paid on deposits are required to be imposed unless the
supervisory agency has determined that such restrictions would not further
capital improvement. The agency may impose other specified regulatory sanctions
at its option. Generally, the appropriate federal banking agency is required to
authorize the appointment of a conservator or receiver within 90 days after an
institution becomes critically undercapitalized.

     The federal banking agencies have adopted uniform procedures for the
issuance of directives by the appropriate federal banking agency. Under these
procedures, an institution will generally be provided advance notice when the
appropriate federal banking agency proposes to impose one or more of the
sanctions set forth above. These procedures provide an opportunity for the
institution to respond to the proposed agency action or, where circumstances
warrant immediate agency action, an opportunity for administrative review of the
agency's action.

     ADMINISTRATIVE ENFORCEMENT AUTHORITY.  The OTS exercises extensive
enforcement authority over all savings associations and their
"institution-affiliated parties" (i.e., officers, directors, controlling
shareholders, employees, as well as attorneys, appraisers or accountants) who
knowingly or recklessly participate in a wrongful action likely to have adverse
effect on an insured institution. This enforcement authority includes, among
other things, the ability to assess civil money penalties, to issue
cease-and-desist or removal and prohibition orders, and to initiate injunctive
actions. In general, these enforcement actions may be initiated for violations
of laws and regulations and unsafe or unsound practices. The OTS may use written
agreements to correct compliance deficiencies with respect to applicable laws
and regulations and to ensure safe and sound practices. Except under certain
narrow circumstances, public disclosure of final enforcement actions by the
federal banking agencies, including the OTS, is required.

     The OTS has the authority, when statutorily prescribed grounds exist, to
appoint a conservator or receiver for a savings association. Grounds for such
appointment include: insolvency; substantial dissipation of assets or earnings;
existence of an unsafe or unsound condition to transact business; likelihood
that the association will be unable to pay its obligations in the normal course
of business; undercapitalization where the association (i) has no reasonable
prospect of becoming adequately capitalized, (ii) fails to become adequately
capitalized when required to do so, (iii) fails timely to submit an acceptable
capital restoration plan, or (iv) materially fails to implement a capital
restoration plan; or where the association is "critically undercapitalized" or
"otherwise has substantially insufficient capital".

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CONSUMER PROTECTION REGULATIONS

     The Bank is subject to many federal consumer protection statutes and
regulations including, but not limited to, the following:

  MORTGAGE AND CONSUMER LENDING

     THE TRUTH IN LENDING ACT ("TILA").  The TILA, enacted into law in 1968,
is designed to ensure that credit terms are disclosed in a meaningful way so
that consumers may compare credit terms more readily and knowledgeably. As a
result of the TILA, all creditors must use the same credit terminology and
expressions of rates, the annual percentage rate, the finance charge, the amount
financed, the total of payments, and the payment schedule.

     The TILA is implemented by the Federal Reserve Board's Regulation Z.
Regulation Z contains disclosure and advertising rules, rules related to the
calculation of annual percentage rates, document retention rules, and error
resolution procedures. The appendices to the regulation set forth model forms
and clauses that creditors may use when providing open-end and closed-end
disclosures. The appendices also contain detailed rules for calculating the
annual percentage rate. Official staff interpretations of the regulation are
published in the Federal Reserve Board's Commentary. Good faith compliance with
the Commentary protects creditors from civil liability under the TILA.

     Under certain circumstances involving extensions of credit secured by the
borrower's principal dwelling, the TILA and Regulation Z thereunder provide a
right of rescission. The period within which the consumer may exercise the right
to rescind runs for three business days from the last of three events: (i) the
occurrence that gives rise to the right of rescission; (ii) delivery of all
required material disclosures, I.E., the annual percentage rate, the finance
charge, the amount financed, the total of payments, and the payment schedule; or
(iii) delivery to the consumer of the required rescission notice. When a
creditor has failed to take the action necessary to start the three-day
rescission period running, the right to rescind automatically lapses on the
occurrence of the earliest of the following three events: (i) the expiration of
three years after the occurrence giving rise to the right of rescission; (ii)
transfer of all the consumer's interest in the property; or (iii) sale of the
consumer's interest in the property. After that time, depending on state law, a
consumer may assert a right of rescission as a defense in a foreclosure action
under certain circumstances. Under the TILA, the consumer cannot be required to
pay any amount in the form of money or property either to the creditor or to a
third party as a part of the transaction in which a consumer exercises the right
of rescission. Any amounts of this nature already paid by the consumer must be
refunded. "Any amount" includes finance charges already accrued, as well as
other charges such as application and commitment fees or fees for a title search
or appraisal. Once the creditor has fulfilled its rescission obligation under
the TILA, the consumer must tender to the creditor any property or money the
creditor has already delivered to the consumer.

     The regulatory agencies are authorized to order creditors to make monetary
and other adjustments to the accounts of consumers in cases where an annual
percentage rate or finance charge is inaccurately disclosed. Generally, the
agencies order restitution when such disclosure errors resulted from a clear and
consistent pattern or practice of violation or gross negligence or a willful
violation that was intended to mislead the person to whom the credit was
extended. However, the agencies are not precluded from ordering restitution for
isolated disclosure errors. The TILA also provides for statutory damages of
twice the finance charge, with a minimum of $200 and a maximum of $2,000 for
closed end loans secured by real property or a dwelling. If successful, the
borrower is entitled to reasonable attorneys' fees and the costs of bringing the
action. The TILA also provides for class actions for actual damages and for
statutory damages of the lesser of $500,000 or 1% of the creditor's net worth,
plus court costs and attorneys' fees.

     On September 30, 1995, President Clinton signed into law the Truth In
Lending Amendments of 1995 (the "1995 Amendments"). The 1995 Amendments
increase finance charge tolerances, limit the liability of assignees and loan
servicers, and provide protection from civil liability for claims based on
certain disclosure rules covered by the 1995 Amendments, including prohibiting
the maintenance of certain class action cases not certified as class actions
prior to January 1, 1995. The 1995 Amendments also clarify that third party fees
not required or

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<PAGE>
retained by a lender, taxes levied on a security interest, and fees to prepare
all loan-related documents for real estate loans, as well as pest and flood
inspections, are excluded from the finance charge.

     The Bank attempts in good faith to comply with the TILA and Regulation Z
thereunder. The requirements are complex, however, and even inadvertent
non-compliance could result in civil liability or the extension of the
rescission period for a mortgage loan for up to three years from the date the
loan was made. During the past several years, numerous individual claims and
purported consumer class action claims were commenced against a number of
financial institutions, their subsidiaries, and other mortgage lending
institutions, seeking civil statutory and actual damages and rescission under
the TILA, as well as remedies for alleged violations of various state unfair
trade practices acts and restitution or unjust enrichment in connection with
certain mortgage loan transactions.

     THE FAIR HOUSING ACT ("FH ACT").  The FH Act, enacted into law in 1968,
regulates many practices, including making it unlawful for any lender to
discriminate in its housing-related lending activities against any person
because of race, color, religion, national origin, sex, handicap, or familial
status.

     Section 805 of the FH Act, which applies to the financing of housing, makes
it unlawful for a bank to deny a loan or any other financial assistance for the
purpose of purchasing, constructing, improving, repairing, or maintaining a
dwelling because of the race, color, religion, national origin, sex, handicap,
or familial status of the loan applicant, any person associated with the loan
applicant, any present or prospective owner of the dwelling, any lessees, or any
tenants or occupants. It is also unlawful to discriminate in fixing the amount,
interest rates, duration, or other terms of the credit.

     Section 813 of the FH Act provides that aggrieved persons may sue anyone
who they believe has discriminated against them. Section 814 of the FH Act
provides that the Attorney General of the United States may sue for an
injunction against any pattern or practice that denies civil rights granted by
the FH Act. Section 810 of the FH Act allows a person to file a discrimination
complaint with the Department of Housing and Urban Development ("HUD"). The
HUD will investigate the complaint and may attempt to resolve the grievance
through conciliation or persuasion. Penalties for violation of the FH Act
include actual damages suffered by the aggrieved person and injunctive or other
equitable relief. The court's order may also assess civil penalties.

     THE EQUAL CREDIT OPPORTUNITY ACT ("ECOA").  The ECOA, enacted into law in
1974, prohibits discrimination in any credit transaction, whether for consumer
or business purposes, on the basis of race, color, religion, national origin,
sex, marital status, age (except in limited circumstances), receipt of income
from public assistance programs, or good faith exercise of any rights under the
Consumer Credit Protection Act. Regulation B, which implements the ECOA, covers
all individuals and institutions that regularly participate in decisions to
extend credit. In addition to prohibiting outright discrimination on any of the
impermissible bases listed above, an effects test has been applied to the
analysis of discrimination under Regulation B. This means that if a creditor's
actions have had the effect of discriminating, the creditor may be held
liable -- even when there is no intent to discriminate.

     In addition to actual damages, the ECOA provides for punitive damages of up
to $10,000 in individual lawsuits and up to the lesser of $500,000 or 1% of the
creditor's net worth in class action suits. Successful complainants may also be
entitled to an award of court costs and attorneys' fees.

     THE REAL ESTATE SETTLEMENT PROCEDURES ACT ("RESPA").  The RESPA, enacted
into law in 1974, requires lenders to provide borrowers with disclosures
regarding the nature and cost of real estate settlements. Also, the RESPA
prohibits certain abusive practices, such as kickbacks, and places limitations
on the amount of money that a lender may require a borrower to place in an
escrow account. Regulation X, which implements RESPA, also establishes escrow
accounting procedures and mandates the use of aggregate accounting for
determining the maximum dollar amount that may be collected in connection with
escrow accounts.

     RESPA is applicable to all federally related mortgage loans. A "federally
related mortgage loan" includes any loan secured by a first or subordinate lien
on residential real property designed for occupancy by one to four families,
including a refinancing of an existing loan secured by the same property, if:
(i) the loan is made by any lender, the deposits of which are federally insured
or any lender that is regulated by a federal agency; or (ii) the

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loan is insured, guaranteed or supplemented by a federal agency; or (iii) the
loan is intended to be sold to the FNMA, the GNMA, or the FHLMC; or (iv) the
loan is made by any creditor who makes or invests in residential real estate
loans aggregating more than $1 million per year.

     Section 8 of the RESPA prohibits any person from giving or receiving a fee
or a thing of value (payments, commissions, fees, gifts, or special privileges)
for a referral of settlement business. Such "kickbacks" include payments in
excess of the reasonable value of goods provided or services rendered.
Violations of Section 8 of the RESPA may result in imposition of the following
penalties: (i) civil liability equal to three times the amount of any charge
paid for the settlement services; (ii) the possibility that court costs and
attorneys' fees can be recovered; and (iii) a fine of not more than $10,000 or
imprisonment for not more than one year, or both.

     The Bank attempts in good faith to comply with the requirements of the
RESPA and its implementing regulations. The requirements are complex, however,
and even inadvertent non-compliance could result in civil or criminal liability.
During the past several years, numerous individual claims and purported consumer
class action claims were commenced against a number of financial institutions,
their subsidiaries, and other mortgage lending institutions alleging violations
of the RESPA's escrow account rules and seeking civil damages, court costs, and
attorneys' fees.

     THE HOME MORTGAGE DISCLOSURE ACT ("HMDA").  The HMDA, enacted into law in
1975, is intended to provide public information that can be used to help
determine whether financial institutions are serving the housing credit needs of
the neighborhoods and communities in which they are located and to assist in
identifying possible discriminatory lending patterns.

     The HMDA requires institutions to report data regarding applications for
one-to four-family loans, home improvement loans, and multi-family loans, as
well as information concerning originations and purchases of such types of
loans. The HMDA also requires most lenders to report the race, sex, and income
of mortgage applicants and borrowers. Generally, insured institutions, like the
Bank, are also required to indicate the reasons for decisions not to grant
credit.

     Compliance with the HMDA implementing regulations is enforced by the
appropriate federal banking agency, or, in some cases, by HUD. Administrative
sanctions, including civil money penalties, may be imposed by supervisory
agencies for violations.

     THE COMMUNITY REINVESTMENT ACT.  The CRA, enacted into law in 1977, is
intended to encourage insured depository institutions, while operating safely
and soundly, to help meet the credit needs of their communities. The CRA
specifically directs the federal regulatory agencies, in examining insured
depository institutions, to assess their record of helping to meet the credit
needs of their entire community, including low-and moderate-income
neighborhoods, consistent with safe and sound banking practices. The CRA further
requires the agencies to take a financial institution's record of meeting its
community credit needs into account when evaluating applications for, among
other things, domestic branches, consummating mergers or acquisitions, or
holding company formations. Under the CRA, which is implemented by uniform
regulations adopted by each of the bank regulatory agencies, including the OTS,
financial institutions are required to describe their local community by
outlining the community on a map. If the financial institution has more than one
local community, it must describe each one. A financial institution's local
community consists of the areas surrounding each deposit-taking office or
cluster of offices, including any low- or moderate-income neighborhoods within
that area.

     The regulations require the banking agencies to assess each financial
institution's record of performance in helping to meet the credit needs of its
community by reviewing 12 assessment factors. These assessment factors include:
(i) activities conducted by a financial institution to ascertain the credit
needs of its community; (ii) the extent of marketing and special credit related
programs to make members of the community aware of credit services; (iii) the
extent of participation of the financial institution's board of directors in
formulating policy and reviewing performance; (iv) the presence or absence of
practices intended to discourage applications for types of credit set forth in
the institution's CRA statement; (v) the geographic distribution for the
financial institution's credit extensions, credit applications, and denials;
(vi) the presence or absence of evidence of prohibited discriminatory or other
illegal credit practices; (vii) the financial institution's record of opening
and closing offices and providing services at offices; (viii) the financial
institution's participation, including investments, in

                                       36
<PAGE>
local community development projects; (ix) the financial institution's
origination or purchase of residential mortgage loans, housing rehabilitation
loans, home improvement loans, and small business and farm loans within its
community; (x) the financial institution's participation in governmentally
insured, guaranteed, or subsidized loan programs for housing and small farms and
businesses; (xi) the financial institution's ability to meet various community
credit needs based on its financial condition, size, and other factors; and
(xii) any other factors, that in the agencies' judgment, reasonably bear on the
extent to which a financial institution has helped to meet the credit needs of
its community.

     The agencies use the CRA assessment factors in order to provide a rating to
the financial institution. The ratings range from a high of "outstanding" to a
low of "substantial noncompliance".

     On April 19, 1995, the agencies jointly adopted revised CRA regulations.
Under the new system, the 12 assessment factors used to evaluate the CRA
performance of most large retail institutions, such as the Bank, will be
replaced with three tests, the lending, investment, and service tests, with the
lending test carrying the primary importance. To receive a satisfactory or
better rating, an institution must achieve at least a satisfactory lending
performance.

     The lending test evaluates an institution's record of helping to meet the
credit needs of its assessment area(s) through its lending activities by
considering, among other things, the number, amount, geographic distribution,
and certain borrower characteristics of the institution's home mortgage, small
business, small farm, and community development lending. The investment test
evaluates an institution's record of helping to meet the credit needs of its
assessment area or areas through "qualified investments" (lawful investments,
deposits, membership shares, or grants that have community development as their
primary purpose). The service test evaluates an institution's record of helping
to meet the credit needs of its assessment area or areas by analyzing the
availability and effectiveness of an institution's systems for delivering retail
banking services and an institution's community development services. An
institution may elect to be evaluated on the basis of a strategic plan approved
by its primary regulator rather than the three tests.

     Although the regulations became effective on July 1, 1995, the primary
provisions are subject to a two-year phase-in period. Most large retail
institutions will become subject to the new examination criteria beginning July
1, 1997, although institutions may elect to be examined with the new tests
beginning January 1, 1996. Finally, new data collection requirements that became
effective on January 1, 1996 are included in the new regulations.

     While the Bank is strongly committed to serving all of its CRA communities,
including its low- and moderate-income neighborhoods, the OTS might determine
the Bank's CRA-related programs to be insufficient. The Bank was last examined
for CRA compliance by its primary regulator, the OTS, on October 14, 1995 and
received a CRA assessment rating of "outstanding". The Bank's previous CRA
assessment rating, as of March 8, 1993, was also "outstanding".

  SAVINGS AND CHECKING ACCOUNTS AND PUBLIC ACCOMMODATIONS

     THE BANK SECRECY ACT ("BSA") AND MONEY LAUNDERING LAWS.  The BSA, enacted
into law in 1970, requires every financial institution within the United States
to file a Currency Transaction Report with the Internal Revenue Service
("IRS") for each transaction in currency of more than $10,000 not exempted by
the Treasury Department. The reports must be filed within 15 days of the
transaction. A "transaction in currency" is defined by the regulations to
include any transaction "involving the physical transfer of currency from one
person to another". The Treasury Department deems multiple transactions by the
same person on the same day exceeding $10,000 in the aggregate to be reportable.
Financial institutions are also required to file a Suspicious Activity Report
with respect to any known or suspected criminal conduct or suspicious
activities, including transactions valued at more than $5,000 that the
institution knows or suspects involve funds derived from illegal activities, are
designed to evade the requirements of the BSA, have no business or apparent
lawful purpose, or are not the sort in which the particular customer would
normally be expected to engage.

     In 1988, Congress enacted the Money Laundering Prosecution Improvements Act
(the "1988 Act"). The 1988 Act expanded the BSA's definition of "financial
institution" and broadened the BSA's reporting requirements to require
financial institutions, typically banks, to verify and record the identity of
the purchaser

                                       37
<PAGE>
upon the issuance or sale of bank checks or drafts, cashier's checks, traveler's
checks, or money orders involving $3,000 or more in cash. Institutions must also
verify and record the identity of the originator and beneficiary of certain
funds transfers.

     Under the FDIA, a receiver or conservator may be appointed for an insured
depository institution on the receipt of written notice from the Attorney
General that an insured depository institution has been found guilty of a
criminal money laundering offense or criminal offense under the BSA. The FDIC
may also take action to terminate the deposit insurance of an institution
convicted of criminal violations of the BSA and money laundering offenses. Any
person who willfully causes a violation of the BSA's record-keeping requirements
for insured institutions is subject to the imposition of up to a $50,000 civil
money penalty, in addition to any other applicable penalties.

     The Bank has instituted a policy against money laundering that is
communicated by top management to the Bank's employees. The policy includes
safeguards to prevent money laundering, including, but not limited to, regular
education programs to teach employees the requirements of the federal money
laundering laws and to make them aware of the innovative and ever-changing
techniques employed by money launderers.

     ELECTRONIC FUND TRANSFER ACT (THE "EFTA").  The EFTA, enacted into law in
1978, provides a basic framework establishing the rights, liabilities, and
responsibilities of participants in "electronic fund transfer systems",
defined to include automated teller machine transfers, telephone bill-payment
services, point-of-sale terminal transfers, and preauthorized transfers from or
to a consumer's account (E.G., direct deposit of Social Security payments). Its
primary objective is to protect the rights of individuals using these systems.
The EFTA limits a consumer's liability for certain unauthorized electronic fund
transfers and requires certain error resolution procedures.

     Unless an error is resolved in accordance with the error-resolution
procedures specified in the EFTA, the institution may be liable for civil
damages. The statutory damages the institution would have to pay in a successful
individual action are actual damages and statutory damages between $100 and
$1,000, as determined by the court, plus court costs and attorneys' fees. In a
successful class action, the institution would have to pay actual damages and
statutory damages up to the lesser of $500,000 or 1% of the institution's net
worth, plus court costs and reasonable attorneys' fees. The EFTA also sets forth
provisions for criminal liability for certain EFTA violations. Penalties under
these provisions run from a $5,000 fine and one year's imprisonment for
knowingly and willfully failing to comply with the EFTA, to a $10,000 fine and
10 years' imprisonment for fraudulent use of a debit card.

     THE EXPEDITED FUNDS AVAILABILITY ACT ("EXPEDITED FUNDS ACT").  The
Expedited Funds Act, enacted into law in 1987, seeks to insure prompt
availability of funds deposited into a customer's account and to expedite the
return of checks. The Expedited Funds Act is implemented by the Federal Reserve
Board's Regulation CC. The Act and Regulation CC include specific detailed
provisions requiring a financial institution to: (i) make funds available to its
customers within specified time frames; (ii) ensure that interest accrues on
funds in interest-bearing transaction accounts not later than the day the
financial institution receives credit; and (iii) disclose the financial
institution's funds-availability policies to its customers.

     In addition to administrative enforcement, there is civil liability for
violations of the Expedited Funds Act. Any depository institution that fails to
comply with any requirement of the Expedited Funds Act or regulation with
respect to any person other than another depository institution is liable to
such person in an amount equal to the sum of actual damages, such additional
amount as the court may allow (with a minimum of $100 and a maximum of $1,000 in
an individual action and, in a class action, a maximum of the lesser of $500,000
or 1% of the net worth of the depository institution), plus court costs and
attorneys' fees in the case of any successful action.

     THE TRUTH IN SAVINGS ACT ("TISA").  The TISA, enacted into law in 1991,
is principally a disclosure law, the purpose of which is to encourage
comparative shopping for deposit products. The common denominator used by the
TISA to facilitate comparison shopping of interest payable on deposit accounts
is the Annual Percentage Yield (the "APY"). TISA is implemented by Regulation
DD. The TISA and Regulation DD thereunder require depository institutions to pay
interest on the full amount of the principal in the account for each day, under
either

                                       38
<PAGE>
the "daily balance method" or the "average daily balance method". No other
balance calculation methods are permitted by the TISA.

     In addition to administrative enforcement, TISA violations carry civil
liability. Any depository institution that fails to comply with any requirement
of the TISA with respect to any person who is an account holder is liable to
such person in an amount equal to the sum of actual damages, such additional
amount as the court may allow (with a minimum of $100 and a maximum of $1,000 in
an individual action and, in a class action, a maximum of the lesser of $500,000
or 1% of the net worth of the depository institution), plus court costs and
attorneys' fees in the case of any successful action.

     The Economic Growth and Regulatory Paperwork Reduction Act of 1996 repeals
the civil liability provisions of the TISA effective September 30, 2001.

     THE AMERICANS WITH DISABILITIES ACT ("ADA").  The ADA, enacted into law
in 1990, prohibits private employers, state and local governments, employment
agencies, and labor unions from discriminating against qualified individuals
with disabilities in connection with job application procedures, hiring, firing,
advancement, compensation, job training, and other terms, conditions, and
privileges of employment. An individual with a disability is a person who: (i)
has a physical or mental impairment that substantially limits one or more major
life activities; (ii) has a record of such an impairment; or (iii) is regarded
as having such an impairment.

     Title 3 of the ADA covers banks, thrifts, credit unions, and finance
companies -- all of which are considered to be "public accommodations".
Section 302(a) of the ADA provides that "no individual shall be discriminated
against on the basis of disability in the full and equal enjoyment of the goods,
services, or facilities, privileges, advantages, or accommodations of any place
of public accommodation". Section 302(b) of the ADA sets forth specific
requirements and prohibitions for public accommodations; for example, a place of
public accommodation, such as a retail branch office of the Bank, may not impose
eligibility criteria that screen out persons with disabilities. Discrimination
also includes the failure to provide the auxiliary aids and services necessary
to enable individuals with disabilities to take advantage of a financial
institution's services, unless the financial institution can demonstrate that
providing the aids and services would "fundamentally" alter the nature of the
service or would result in an "undue burden". Another significant provision of
Section 302 of the ADA is the requirement to remove from public accommodations
all architectural barriers and communication barriers that are structural in
nature if the removal is "readily achievable". "Readily achievable" is
defined as "easily accomplishable and able to be carried out without much
difficulty or expense". In deciding whether a particular action is readily
achievable, the size of the institution and the nature and the cost of the
action will be considered. The last substantive provision of Title 3 of the ADA
that applies to financial institutions is Section 303, dealing with new
construction. It provides that any building opening to the public after January
26, 1993 must be "readily accessible to and useable by individuals with
disabilities" unless doing so is structurally impracticable.

     Anyone who has been discriminated against on the basis of a disability in
relation to employment may file an action with the United States Equal
Employment Opportunity Commission and may be entitled to remedies that include
rehiring, promotion, reinstatement, back pay or remuneration, or reasonable
accommodation including reassignment. Such individuals may also be entitled to
damages intended to compensate for future pecuniary losses, mental anguish, and
inconvenience. The ADA authorizes the Attorney General to sue institutions that
are engaged in a pattern or practice of discrimination. At the Attorney
General's request, the court may impose civil penalties of $50,000 for a first
violation and $100,000 for any subsequent violation or certain other remedies.

     The Bank attempts in good faith to assure compliance with the requirements
of the consumer protection statutes to which it is subject, as well as the
regulations that implement the statutory provisions. The requirements are
complex, however, and even inadvertent non-compliance could result in civil and,
in some cases, criminal liability. Based on the Bank's history of claims under
the consumer protection statutes and regulations to which it is subject,
management does not believe that claims are likely to be asserted that will have
a material adverse effect on the Bank's or the Company's financial condition,
results of operations, or liquidity.

                                       39
<PAGE>
LEGISLATION

     Federal legislation and regulation have significantly affected the
operations of federally insured savings associations, such as the Bank, and
other federally regulated financial institutions in the past several years and
have increased competition among savings associations, commercial banks, and
other financial institutions. The operations of regulated depository
institutions will continue to be subject to changes in applicable statutes and
regulations from time to time, which changes could adversely affect the Bank and
its affiliates.

     On September 30, 1996, President Clinton signed into law the Economic
Growth and Regulatory Paperwork Reduction Act of 1996. The Act, among other
things imposed a special assessment on SAIF deposits held as of March 31, 1995,
to capitalize the SAIF.

TAXATION

  FEDERAL TAXATION

     Bank United Corp. is a savings and loan holding company (the "Parent
Company") and the Bank is a federal savings bank. Both are subject to
provisions of Internal Revenue Code of 1986, as amended (the "Code"), in the
same manner, with certain exceptions, as other corporations. The Parent Company
and the Bank participate in the filing of a consolidated federal income tax
return with their "affiliated group", as defined by the Code. For financial
reporting purposes, however, the Parent Company and the Bank compute their tax
on a separate company basis. The accompanying Consolidated Financial Statements
include provisions for income taxes as a result of the Parent Company's and the
Bank's taxable income for fiscal 1996, 1995, and 1994. In addition to federal
income taxes, the Bank is required to make payments in lieu of federal income
taxes pursuant to the Assistance Agreement with the FSLIC. The tax benefit
sharing provisions contained in the Assistance Agreement were replaced by
similar provisions contained in the Tax Benefits Agreement entered into in
connection with the Settlement Agreement; these provisions, relating to the
obligation to share tax benefit utilization, will continue through the taxable
year ending nearest to September 30, 2003. See " -- FSLIC Assistance" and Note
14 to the Consolidated Financial Statements.

  ENACTED LEGISLATION

     The Small Business Job Protection Act of '96 ("The Small Business Act")
was signed into law on August 20, 1996. The legislation requires recapture of a
thrift's post-1987 tax bad debt reserve over a six taxable year period with the
opportunity to defer recapture by up to two years if certain residential loan
requirements are met. Under the Small Business Act, thrift institutions, which
are treated as banks for computing bad debt, with over $500 million in assets
("Large Banks"), will be required to use the specific charge-off method to
account for bad debts. The Small Business Act also repeals the ability of thrift
institutions to use NOLs to offset income from a residual interest in a Real
Estate Mortgage Investment Conduit ("REMIC") that meets a significant value
test.

     The effective date of the enacted legislation for the Bank is fiscal 1997.
The amendment to a thrift's ability to utilize NOLs against residual income from
a REMIC with significant value does not apply to any residual interest held by
the taxpayer on November 1, 1995 and at all times thereafter. All residual
interests held by the Bank that meet a significant value test are grandfathered
under this clause. See " -- Residual Interest".

     It is management's belief the Bank will not have the opportunity to defer
recapture of the bad debt reserve because it has been determined the residential
loan requirements will not be met. There will be no financial statement impact
on the Company from this recapture as a deferred tax liability has already been
provided for on the Bank's post-1987 tax bad debt reserves. At September 30,
1996, the Bank had approximately $90 million of post-1987 tax bad debt reserves.
The current tax liability resulting from recapture of this reserve will be
reduced by NOLs available to offset this income.

     The pre-1988 reserve will be required to be recaptured into income under
certain circumstances, including any distribution in redemption of stock of the
Bank (with certain exceptions for preferred stock); partial or complete
liquidation of the Bank following the merger or liquidation; or a dividend
distribution in excess of certain earnings and profits. If a thrift with a
pre-1988 reserve is merged, liquidated tax free, or acquired by another
depository institution, the remaining institution will inherit the thrift's
pre-1988 reserve and post-1951

                                       40
<PAGE>
earning and profits. Because management believes the circumstances requiring
recapture of the pre-1988 reserve in the amount of $52 million are not likely to
occur, deferred taxes of $18 million have not been provided.

     Legislation was signed into law on September 30, 1996, which resulted in an
assessment on all SAIF-insured deposits in such amounts that will
fully-capitalize the SAIF at a reserve ratio of 1.25% of SAIF-insured deposits.
See " -- Regulation -- Charter, Supervision, and Examination -- Insurance
Assessments" and Note 15 to the Consolidated Financial Statements. This
one-time assessment is not tax-deductible until fiscal 1997, when it will be
paid. The deduction associated with the one-time assessment was deferred with
the tax effect included as a deferred tax asset.

  RESIDUAL INTEREST

     The Bank is a holder of residual interests in REMICs as defined by the
Code. The Code limits the amount of NOLs that may be used to offset the taxable
income derived by holders of residual interests in a REMIC. However, the Code
states that this limitation does not apply to certain financial institutions
that are holders of residual interests that meet a significant value test
prescribed by applicable Treasury regulations. The Bank incurs taxable income
from residual interests that meet such test and, therefore, may be offset by
NOLs without respect to this limitation. Also, the Bank incurs taxable income
from residual interests that does not meet such test and, therefore, may not be
offset by NOLs. This income caused the Bank to incur a regular tax liability for
fiscal 1994.

     Enacted legislation repeals the ability of a thrift institution to use a
NOL to offset its income from a residual interest in a REMIC. This does not
apply to any residual interest in a REMIC held by a taxpayer on November 1,
1995, and at all times thereafter. See "-- Enacted Legislation".

  DOMESTIC BUILDING AND LOAN ("DBL") TEST

     Savings institutions such as the Bank that meet the definitional DBL test
prescribed by the Code may benefit from certain favorable provisions regarding
their deductions from taxable income for annual additions to their bad debt
reserve. The DBL test consists of a supervisory test, a business operations
test, and an asset test. If the Bank fails to meet these tests, the transition
from the reserve method to the direct charge-off method of tax accounting for
bad debts would result in a recapture of this reserve into taxable income. At
September 30, 1996, the Bank was in excess of the minimum thresholds. Enacted
legislation has repealed the reserve method of accounting for bad debts by large
thrifts for taxable years beginning after 1995; thereby eliminating the Bank's
requirement to meet the definitional DBL test. See "-- Enacted Legislation".

  BAD DEBT DEDUCTION

     For purposes of the bad debt reserve deduction, loans are separated into
"qualifying real property loans", which generally are loans secured by certain
interests in real property, and "non-qualifying loans", which are all other
loans. The deduction with respect to non-qualifying loans must be computed under
the experience method, which generally allows a deduction based on a savings
association's actual bad debt loss experience, consisting of the current year
and the prior five years. The bad debt reserve deduction with respect to
qualifying real property loans, however, may be the larger of the amounts
computed under (i) the experience method, or (ii) the percentage of taxable
income method. The percentage of taxable income method generally permits a
qualifying savings association to deduct 8% of its taxable income prior to such
deduction, as adjusted for certain items. Enacted legislation has repealed the
bad debt reserve deduction for Large Banks effective for taxable years beginning
after December 31, 1995.

     Savings associations, such as the Bank, that file federal income tax
returns as part of a consolidated group are required by applicable Treasury
regulations to reduce their taxable income, for purposes of computing the
percentage of taxable income deduction, for losses attributable to activities of
the non-savings association members of the consolidated group that are
functionally related to the activities of the savings association member.
Currently, the Bank is computing its bad debt deduction pursuant to the
experience method. Due to enacted legislation, the Bank's post-1987 bad debt
reserve will be required to be recaptured into taxable income with the specific
charge-off method being used to account for bad debts for taxable years
beginning with fiscal 1997. See "-- Enacted Legislation".

                                       41
<PAGE>
  ALTERNATIVE MINIMUM TAX ("AMT")

     In addition to regular income taxes, corporations including saving and loan
holding companies and savings associations are subject to an AMT, which is
generally equal to 20% of alternative minimum taxable income ("AMTI") (taxable
income increased by tax preference items and adjusted for other items). The
preference item principally affecting the Bank relates to the adjusted current
earnings ("ACE") adjustment, which includes FRF assistance. See "-- The
Assistance Agreement". Although the amounts received by the Bank pursuant to
the Assistance Agreement are not taxable for federal income tax purposes, a
portion of such amounts are considered to be an ACE adjustment. For fiscal 1996
and 1995, AMTI was incurred that was offset by the utilization of AMT NOLs.
However, corporations may offset only 90% of their AMTI with the related NOLs.
For fiscal 1994, an AMT liability was not incurred.

  ENVIRONMENTAL TAX

     The Code imposes an additional tax at the rate of .12% on the modified AMTI
of a corporation. Because the tax was enacted to provide funds for various
environmental programs, it is denominated as an environmental tax. Modified AMTI
is essentially AMTI without regard to any utilization of available AMT NOLs less
$2 million.

  FSLIC ASSISTANCE

     Pursuant to the Assistance Agreement, the FRF, as successor to the FSLIC,
was obligated to provide the Bank with financial assistance in connection with
various matters that arose under the Assistance Agreement. See "-- The
Assistance Agreement". The tax treatment of the assistance payments to savings
associations that acquire assets from institutions in receivership (such as the
predecessor to the Bank) has been amended several times in recent years.
Payments to the Bank pursuant to the Assistance Agreement were subject to the
applicable provisions of the Code that were in effect in 1988, the year of the
Acquisition. Payments from the FRF to the Bank pursuant to the Assistance
Agreement were not included in the Bank's taxable income, and the Bank was not
required to reduce its basis in the Covered Assets by the amount of such
financial assistance; however, certain writedowns and losses were limited as
discussed below. Accordingly, there was no requirement to pay federal income
taxes with respect to any amount of the assistance payments received pursuant to
the Assistance Agreement. The Bank also succeeded to substantial NOLs as a
result of the Acquisition.

     The Assistance Agreement required the Bank to pay to the FRF an amount
equal to one-third of the sum of federal and state net tax benefits ("Net Tax
Benefits") (as defined by the Assistance Agreement). The Net Tax Benefits shall
be equal to the excess of any of the federal income tax liability which would
have been incurred if the tax benefit item had not been deducted or excluded
from income over the federal income tax liability actually incurred. The Net Tax
Benefits items are the tax savings resulting from (i) the utilization of the
deduction by the Bank of any amount of NOLs, capital loss carryforwards, and
certain other carryforwards on the books and records of Old USAT, (ii) the
exclusion from gross income of the amount of certain interest or assistance
payments made to the Bank by the FRF, and (iii) the deduction of certain costs,
expenses, or losses incurred by the Bank for which the FRF has made tax-free
assistance payments. These provisions were replaced by similar provisions in the
Tax Benefits Agreement entered into in connection with the termination of the
Assistance Agreement. Pursuant to the Tax Benefits Agreement, these provisions
relating to the obligation to share tax benefit utilization will continue
through the taxable year ending nearest to September 30, 2003.

     Under the Assistance Agreement, the Bank received assistance payments from
the FRF for writedowns and losses from the sales of Covered Assets. For federal
income tax purposes, the Bank included the writedowns and losses from the sale
of Covered Assets in its calculation of the bad debt deduction, using the
experience method. However, the Revenue Reconciliation Act of 1993 denied the
inclusion of writedowns and losses from the sale of Covered Assets in the
calculation of bad debt deductions for assistance payments credited on or after
March 4, 1991. Amendment of federal tax returns for fiscal 1991 and 1992 did not
cause any additional federal tax liabilities to be incurred. However, the new
tax law reduced the Bank's federal NOLs by approximately $259 million.

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<PAGE>
     The aforementioned tax relief provided savings (costs) on the amount of
taxes required to be paid. The estimated tax savings (costs), by year, were as
follows (in millions):

         FOR THE YEAR ENDED
            SEPTEMBER 30,               SAVINGS (COSTS)
-------------------------------------   ---------------
     1991............................        $(1.7)
     1992............................         (2.8)
     1993............................         10.5
     1994............................          3.6
     1995............................         31.4
     1996............................         19.8

  NET OPERATING LOSSES

     The Company's total NOLs at September 30, 1996 were $817 million, of which
$754 million are attributable to tax relief discussed above. The remaining NOLs
of $63 million are a result of the Company's taxable losses from business
operations in years prior to fiscal 1993. Included in the $817 million is $33
million of Old USAT's NOLs that will expire in fiscal 2003 if not utilized.
Because Old USAT's NOLs are "separate return limitation year" losses within
the meaning of the consolidated return Treasury regulations, their utilization
is limited to future taxable income of the Bank. The remaining $784 million of
NOLs are attributable to operations for fiscal 1989 to 1994, and will begin
expiring in fiscal 2004 if not utilized. These NOLs may be utilized against the
taxable income of the other companies within the consolidated group of which the
Parent Company and the Bank are members. See Note 14 to the Consolidated
Financial Statements.

  NET OPERATING LOSS LIMITATIONS

     In the event of an Ownership Change ("Ownership Change", as defined
below), Section 382 of the Code imposes an annual limitation on the amount of
taxable income a corporation may offset with NOLs and certain recognized
built-in losses. The limitation imposed by Section 382 of the Code for any
post-change year would be determined by multiplying the value of the Company's
stock (including both common stock and preferred stock) at the time of the
Ownership Change by the applicable long-term tax exempt rate (which was 5.80%
for September 1996). Any unused annual limitation may be carried over to later
years, and the limitation may under certain circumstances be increased by the
built-in gains in assets held by the Company at the time of the change that are
recognized in the five-year period after the change. Under current conditions,
if an Ownership Change were to occur, the Company's annual NOL utilization would
be limited to a maximum of approximately $32 million.

     The Company would undergo an Ownership Change if, among other things, the
stockholders who own or have owned, directly or indirectly, 5% or more of the
common stock of the Company or are otherwise treated as 5% stockholders or a
"higher tier entity" under Section 382 of the Code and the regulations
promulgated thereunder ("5% Stockholders"), increase their aggregate
percentage ownership of such stock by more than 50 percentage points over the
lowest percentage of such stock owned by such stockholders at any time during
the Testing Period (generally the preceding three years). In applying Section
382 of the Code, at least a portion of the stock sold pursuant to the Offering
would be considered to be acquired by a new 5% Stockholder even if no person
acquiring the stock in fact owns as much as 5% of the issuer's stock. While the
application of Section 382 of the Code is highly complex and uncertain in some
respects, the Offering, the conversion of the Warrant, and the issuance of stock
options during fiscal 1996 did not cause an Ownership Change. In addition,
events could occur in future periods that are beyond the control of the Company
which could result in an Ownership Change.

     In an effort to protect against a future Ownership Change that is not
initiated by the Company, the Company's Restated Certificate of Incorporation
(the "Certificate of Incorporation") and the Company's By-Laws (the
"By-Laws") limit Transfers, subject to certain exceptions, at any time during
the three years following the Offering of shares of common stock that would
either cause a person or entity to become a 5% Stockholder or increase a 5%
Stockholder's percentage ownership interest. "Transfers" are defined to
include any sale, transfer, assignment, conveyance, pledge, short sale,
hypothecation or other disposition or the issuance of any option to sell,
transfer, assign, convey, pledge or otherwise dispose. While such Transfers are
deemed

                                       43
<PAGE>
prohibited by the Certificate of Incorporation and the Company is authorized not
to recognize any transferee of such a Transfer as a stockholder to the extent of
such Transfer, these restrictions are incomplete since the Company cannot,
consistent with National Association of Securities Dealers, Inc., Automated
Quotations System ("NASDAQ") requirements, prevent the settlement of
transactions through NASDAQ, and because the prohibition on Transfers by 5%
Stockholders does not limit transactions in the securities of such 5%
Stockholders that could give rise to ownership shifts within the meaning of the
applicable Section 382 rules. Moreover, the Company's Board of Directors retains
the discretion to waive these limitations or to take certain other actions that
could trigger an Ownership Change, including through the issuance of additional
shares of common stock in subsequent public or private offerings or through
subsequent merger or acquisition transactions.

     Because the Company has utilized a substantial portion of its available
ownership limitation in connection with the Offering, the Company may not be
able to engage in significant transactions that would create a further shift in
ownership within the meaning of Section 382 of the Code within the following
three-year period without triggering an Ownership Change. There can be no
assurance that future actions on the part of the Company's stockholders or the
Company itself will not result in the occurrence of an Ownership Change.

     Preferred stock that meets the requirements of section 1504(a)(4) of the
Code is not considered stock when calculating an Ownership Change. Preferred
stock meets the definition under section 1504(a)(4) of the Code if such stock:
(i) is not entitled to vote; (ii) is limited and preferred as to dividends and
does not participate in corporate growth to any significant extent; (iii) has
redemption and liquidation rights which do not exceed the issue price of such
stock (except for a reasonable redemption or liquidation premium); and (iv) is
not convertible into another class of stock.

     In fiscal 1995, the Bank publicly issued 4,000,000 shares, $25 liquidation
preference per share, of 9.60% Preferred Stock, Series B (par value $0.01). In
fiscal 1993, the Bank publicly issued 3,420,000 shares, $25 liquidation
preference per share, of 10.12% noncumulative Preferred Stock, Series A (par
value $0.01). The Preferred Stock, Series A and Series B, are collectively
referred to as the "Bank Preferred Stock". Management believes that the Bank's
issuance of the Bank Preferred Stock met the requirements of Section 1504(a)(4)
of the Code and, therefore, did not result in an Ownership Change.

     The tax laws in effect in 1988 that applied to the Acquisition provided
that generally applicable limitations on the ability of an acquiring corporation
to utilize the NOLs, and built-in losses, of acquired savings associations did
not apply in the case of the acquisition of assets from insolvent savings and
loan associations. Pursuant to this exception to the generally applicable law,
which existed in 1988, the Bank is allowed to use the NOLs and built-in losses
of Old USAT without limitation.

     If an Ownership Change should occur, the Company's ability to utilize its
NOLs will be limited as described above, and the Company's ability to deduct its
built-in losses, if any, as they are realized will be subject to the same
limitation. Limitation of the utilization of these tax benefits could have a
material impact on the Company's financial condition.

  CONSOLIDATED GROUP

     The Parent Company and the Bank were and are members of an "affiliated
group" of corporations, as defined in the Code and, accordingly, participate in
the filing of a consolidated tax return. One of the requirements of being a
member of an affiliated group is that 80% of the total voting power and 80% of
the total value of stock be owned, directly or indirectly, by other members of
the affiliated group. Stock for this purpose does not include preferred stock
that meets certain definitional requirements prescribed by the Code. Therefore,
the Bank did not cease to be a member of an affiliated group as a result of the
prior issuance of the Bank Preferred Stock. However, if subsequent events occur
that cause the Bank Preferred Stock to no longer meet these requirements (as
could occur if a default in dividends permitted the holders of such stock to
vote in the election of Bank directors), the Bank may cease to be a member of
the affiliated group. If the Bank ceases to be a member of the affiliated group,
other members of the affiliated group will lose their ability to utilize the
Bank's nonseparate return year limitation NOLs in the amount of $759 million.
See " -- Net Operating Losses".

                                       44
<PAGE>
  TAX SHARING AGREEMENT

     The Parent Company and the Bank are parties to a tax sharing agreement
pursuant to which the Bank will pay to the Parent Company amounts equal to the
taxes that the Bank would be required to pay if it were to file a return
separately from the affiliated group of which the Parent Company is the common
parent. The tax sharing agreement will not increase the amounts payable by the
Bank over the amounts that it would have to pay if it were not a member of the
Parent Company's affiliated group.

  ACCOUNTING FOR INCOME TAXES

     Effective October 1, 1992, the Company adopted SFAS No. 109, "Accounting
for Income Taxes", which changed the method of computing income taxes for
financial statement purposes by adopting the liability method under which the
net deferred tax asset or liability is determined based on the tax effects of
tax benefits attributable to tax carryforwards such as NOLs, investment tax
credits and capital losses, and the differences between the book and tax bases
of the various assets and liabilities. The deferred tax asset must be reduced by
a valuation allowance if, based on available evidence, it is more likely than
not that some portion of the tax benefit will not be realized. Accounting
guidance under Accounting Principles Board No. 11, "Accounting for Income
Taxes", did not require these amounts to be recognized previously.

     In June 1996, the Parent Company's Certificate of Incorporation and By-Laws
were restated with the intent to preserve certain beneficial tax attributes
limiting the disposition of certain common stock and other interests in the
Parent Company by certain of its stockholders. The preservation of certain tax
attributes allowed the recognition of tax benefits of $85.2 million by the Bank
in June 1996 for the expected utilization of $365 million of NOLs against future
taxable income. These tax benefits were not recognized in prior periods due to
limitations on the utilization of NOLs if an Ownership Change had occurred. In
June 1996, the Parent Company and the Bank entered into a tax sharing agreement.
This agreement resulted in the recognition of a tax benefit of $16.5 million by
the Parent Company for the expected utilization of $47 million of the Parent
Company's NOLs by the Bank. The total tax benefit of $101.7 million was
recognized as a reduction of income tax expense and an increase in the net
deferred tax asset, in accordance with SFAS No. 109.

     In fiscal 1995, no tax benefits were recorded by the Parent Company or the
Bank. The Parent Company recognized no benefit for its stand alone NOLs as it
did not generate taxable income to offset such losses and it was not party to a
federal tax sharing agreement with the Bank at that time. The Bank recognized no
tax benefits due to limitations on the utilization of its NOLs if an Ownership
Change had occurred.

     In fiscal 1994, no tax benefits were recorded by the Parent Company due to
circumstances similar to those described in the preceding paragraph. The Bank
recognized a $58.2 million tax benefit in fiscal 1994 for the expected
utilization of $249 million of its NOLs against future taxable income.

  STATE TAXATION

     The Parent Company and the Bank file unitary and combined state returns
with certain subsidiaries and also file separate state returns. The location of
mortgage bank branches, loan solicitations, or real property securing loans
creates jurisdiction for taxation in certain states, which results in the filing
of state income tax returns. Amounts for state tax liabilities are included in
the Statements of Operations for fiscal 1996, 1995, and 1994. See Note 14 to the
Consolidated Financial Statements.

                                       45
<PAGE>
ITEM 2.  PROPERTIES

     Effective December 1996, the headquarters of the Company were relocated to
leased premises in Houston, Texas in conjunction with the formation of Holdings.

     The leases for the Company's headquarters have terms expiring from one to
four years, with annual rental expenses of $4.4 million, subject to increases
under certain circumstances. The following table sets forth the number and
location of the community banking, commercial banking, and mortgage banking
offices of the Company as of September 30, 1996:

<TABLE>
<CAPTION>
                                                              NUMBER OF OFFICES
                                        --------------------------------------------------------------
                                           COMMUNITY
                                            BANKING
                                           BRANCHES          COMMERCIAL
                                        ---------------       BANKING        MORTGAGE BANKING
LOCATION                                OWNED    LEASED    OFFICES LEASED     OFFICES LEASED     TOTAL
-------------------------------------   -----    ------    --------------    ----------------    -----
<S>                                       <C>      <C>           <C>                 <C>          <C>
Houston Area.........................     14       23             1                   3            41
Dallas/Ft. Worth Area................     12       17             1                   2            32
Other Texas..........................    --         4            --                   2             6
California...........................    --       --              1                  14            15
Florida..............................    --       --              1                   4             5
Other U.S............................    --       --              5                  60            65
                                        -----    ------         ---                 ---          -----
    Total............................     26       44             9                  85           164
                                        =====    ======         ===                 ===          =====
</TABLE>

     A majority of leases outstanding at September 30, 1996 expire within five
years or less. See Note 17 to the Consolidated Financial Statements.

     Net investment in premises and equipment totalled $40.2 million at
September 30, 1996.

ITEM 3.  LEGAL PROCEEDINGS

  MAXXAM, INC.

     On December 7, 1995, Maxxam, Inc. ("Maxxam") filed a Petition for Review
in the United States Court of Appeals for the Fifth Circuit seeking to modify,
terminate, and set aside the order, dated December 30, 1988 (the "Order"), of
the FSLIC approving the Acquisition, which was consummated on December 31, 1988
and involved substantially all the Bank's initial assets and liabilities. See
"Business -- Assistance Agreement". On December 8, 1995, Maxxam filed a Motion
to Intervene and a Complaint in Intervention in an action pending in the U.S.
District Court for the Southern District of Texas, entitled FEDERAL DEPOSIT
INSURANCE CORPORATION V. CHARLES E. HURWITZ, also seeking to set aside the
Order. Maxxam's Motion to Intervene was granted by the District Court Judge on
November 21, 1996. Maxxam contends, in both cases, that it submitted the most
favorable bid to acquire the assets and liabilities of Old USAT and that it
should have been selected as the winning bidder. In its brief to the Court of
Appeals, Maxxam has asserted that the Court should order the OTS "to award Bank
United to Maxxam" and that the Company would bear no harm in that event because
it is entitled to full indemnification by the FDIC-FRF, pursuant to Section
7(a)(2) of the Assistance Agreement.

     The Company is not a party to either of these proceedings. The Bank
intervened in the Fifth Circuit case and may file a Motion to Intervene in the
District Court case at a later date. On December 10, 1996, the Fifth Circuit
Court, in a PER CURIAM opinion and order, affirmed the order approving the
Acquisition in all respects. The time for appeal to the Supreme Court of the
United States has not yet expired, and the Company does not know whether Maxxam
will appeal the Fifth Circuit decision. Management believes, after consultation
with legal counsel, that the claims of Maxxam are barred by applicable time
limits, have no basis for assertion under existing law, and will not have a
material adverse effect on the Bank's or the Company's financial condition,
results of operations, or liquidity.

  REGULATORY ACTIONS

     The Bank's operations are subject to various consumer protection statutes
and regulations, including, for example, the TILA, the FH Act, the CRA, the
ECOA, the HMDA, the RESPA, the EFTA, the Expedited Funds Act, the TISA, and the
ADA. See "Business -- Regulation -- Consumer Protection Regulations". During
the

                                       46
<PAGE>
past several years, numerous individual claims and purported consumer class
action claims were commenced against a number of financial institutions, their
subsidiaries, and other mortgage lending institutions seeking civil statutory
and actual damages and rescission under the TILA, as well as remedies for
alleged violations of various state unfair trade practices laws and restitution
or unjust enrichment in connection with certain mortgage loan transactions.
Also, there have been numerous individual claims and purported consumer class
action claims commenced against a number of financial institutions, their
subsidiaries, and other mortgage lending institutions seeking declaratory relief
that certain of the lenders' escrow account servicing practices violate the
RESPA and breach the lenders' contracts with borrowers. Such claims also
generally seek actual damages and attorneys' fees.

     In addition to the foregoing, mortgage lending institutions have been
subjected to an increasing number of other types of individual claims and
purported consumer class action claims that relate to various aspects of the
origination, pricing, closing, servicing, and collection of mortgage loans and
that allege inadequate disclosure, breach of contract, breach of fiduciary duty,
or violation of federal or state laws. Claims have involved, among other things,
interest rates and fees charged in connection with loans, interest rate
adjustments on adjustable-rate mortgage loans, timely release of liens upon loan
payoffs, the disclosure and imposition of various fees and charges, and the
placing of collateral protection insurance. The Bank has had asserted against it
one putative class action claim under the TILA, one putative class action claim
under the RESPA and three separate putative class action claims involving the
Bank's loan servicing practices. Management does not expect these claims, in the
aggregate, to have a material adverse impact on the Company's financial
condition, results of operation, or liquidity.

  WINSTAR-BASED CLAIMS

     On July 25, 1995, Plaintiffs filed suit against the United States of
America in the United States Court of Federal Claims for breach of contract and
taking of property without compensation in contravention of the Fifth Amendment
of the United States Constitution. The action arose because the passage of
FIRREA and the regulations adopted by the OTS pursuant to FIRREA deprived
Plaintiffs of their contractual rights.

     In December 1988, the United States, through its agencies, entered into
certain agreements with the Plaintiffs that resulted in contractual obligations
owed to Plaintiffs. Plaintiffs contend that the obligations were undertaken to
induce, and did induce, the Company's acquisition of substantially all of the
assets and the secured, deposit, and certain tax liabilities of Old USAT, an
insolvent savings and loan association, thereby relieving the FSLIC, an agency
of the United States government, of the immense costs and burdens of taking over
and managing or liquidating the institution. The FSLIC actively solicited buyers
for Old USAT, and in the weeks preceding the Acquisition the Company and the
FSLIC negotiated the terms of a complex transaction involving some six
contractual documents. To accomplish this transaction, the FSLIC and its
regulating agency, the FHLBB, which was also an agency of the United States
government, were required to undertake to pay certain other amounts of money
over time and to count for regulatory purposes certain monies and book entries
of the Bank in ways that allowed the Company greater leverage to increase the
size of the Bank prudently and profitably. The United States obtained the right
to share in this leveraged growth through warrants for stock and through
so-called "tax benefit payments" to the United States from the Company and the
Bank.

     The lawsuit alleges breaches of the United States' contractual obligations
(i) to abide by a capital forbearance, which would have allowed the Bank to
operate for ten years under negotiated capital levels lower than the levels
required by the then existing regulations or successor regulations, (ii) to
abide by its commitment to allow the Bank to count $110 million of subordinated
debt as regulatory capital for all purposes and (iii) to abide by an accounting
forbearance, which would have allowed the Bank to count as capital for
regulatory purposes, and to amortize over a period of twenty-five years, the
$30.7 million difference between certain FSLIC payment obligations to the Bank
and the discounted present value of those future FSLIC payments. The lawsuit
seeks monetary relief for the breaches by the United States of its contractual
obligations to Plaintiffs and, in the alternative, seeks just compensation for a
taking of property and for a denial of due process under the Fifth Amendment to
the United States Constitution.

     The lawsuit was stayed from the outset by a judge of the Court of Federal
Claims pending the Supreme Court's decision in the WINSTAR cases. Since the
Supreme Court ruling, the Chief Judge of the Court of Federal Claims convened a
number of status conferences to establish a case management protocol for the
more than 100

                                       47
<PAGE>
lawsuits on the Court of Federal Claims docket, that, like Plaintiffs' case,
involve issues similar to those raised in the WINSTAR cases.

     Following a number of status conferences, Chief Judge Loren Smith of the
United States Court of Federal Claims transferred all WINSTAR-related cases to
his own docket and entered an Omnibus Case Management Order governing
proceedings in such cases, including the Company's case. Under the Omnibus Case
Management Order, Chief Judge Smith serves as the "Managing Judge" for all
WINSTAR-related cases and may assign other judges of the United States Court of
Federal Claims to resolve pre-trial discovery disputes and common legal issues
and to conduct trials. The Government and plaintiffs in WINSTAR-related cases
were directed to exchange certain significant documents as early as October 2,
1996. Trials on damages in two of the three WINSTAR cases that were decided by
the United States Supreme Court in July 1996 are scheduled for early 1997.
Damages trials in the remaining cases subject to the Omnibus Case Management
Plan are scheduled to begin four months after completion of the first two
damages trials. The Company's case is one of thirteen cases that "shall be
accorded priority in the scheduling" of the damages trials under the Omnibus
Case Management Order.

     There have been no decisions determining damages in any of the over 100
similar cases pending in the Court of Federal Claims. While the Company expects
Plaintiffs' claims for damages to exceed $200 million, the Company is unable to
predict the outcome of Plaintiffs' suit against the United States and the amount
of judgment for damages, if any, that may be awarded. The Company, on November
27, 1996, moved for partial summary judgement on liability and is pursuing an
early trial on damages. Uncertainties remain concerning the administration of
the Omnibus Case Management Order and the future course of the Company's lawsuit
pursuant to the Omnibus Case Management Order. Accordingly, the Company cannot
predict the timing of any resolution of its claims. The Company expects the
trial of its case to commence during the first quarter of fiscal 1998. The
Company is also unable to predict the outcome of its suit against the United
States and the amount of judgment for damages, if any, that may be awarded.
Consequently, no assurances can be given as to the results of this suit.

     The Company and the Bank have entered into an agreement with Hyperion
Partners acknowledging the relative value, as among the parties, of their claims
in the pending litigation. The agreement confirms that the Company and the Bank
are entitled to receive 85% of the amount, if any, recovered as a result of any
settlement of or a judgment on such claims, and that Hyperion Partners is
entitled to receive 15% of such amount. The agreement was approved by the
disinterested directors of the Company. Plaintiffs will continue to cooperate in
good faith and will use their best efforts to maximize the total amount, if any,
that they may recover.

     The Bank is involved in other legal proceedings occurring in the ordinary
course of business that management believes, after consultation with legal
counsel, are not, in the aggregate, material to the financial condition, results
of operations, or liquidity of the Bank or the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

     The Company has two classes of common stock, Class A common stock and Class
B common stock. The Class A and Class B common stock have identical dividend and
other rights, except that the Class B common stock, is non-voting and is
convertible into Class A common stock upon sale or transfer to unaffiliated
parties or, subject to certain limitations, at the election of the holder
thereof.

     The Company's Class A common stock is listed on the NASDAQ National Market
System under the symbol "BNKU".

     In August 1996, the Company filed a registration statement with the SEC
pursuant to which 12,075,000 shares of the Company's Class A common stock were
sold to the public. Prior to the Offering, the Company's common stock was
privately held and not listed on any public exchange or actively traded. The
Company had a total 31,595,596 shares of common stock outstanding at September
30, 1996. At December 16, 1996, there were

                                       48
<PAGE>
98 shareholders of record for the Company's Class A common stock and 7
shareholders of record for the Company's Class B common stock.

     The high and low prices of the Company's Class A common stock as reported
on the NASDAQ system for the fourth quarter of fiscal 1996 were $24 7/8 and
$22 3/8, respectively.

     On December 5, 1996, the Company's Board declared a dividend of $0.14 per
share, payable on December 26, 1996 to holders of record of the Company's Class
A and Class B common stock on December 16, 1996. This was the first dividend
declared since the Offering. The Company intends, subject to its financial
results, contractual, legal, and regulatory restrictions, and other factors that
the Company's Board of Directors may deem relevant, to declare and pay a
dividend for the Company's common stock on a quarterly basis.

     OTS regulations impose restrictions on the payment of dividends by savings
institutions. See "Business -- Regulation -- Capital Requirements -- Capital
Distributions" for a discussion of these restrictions.

                                       49

<PAGE>
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

     The following selected consolidated financial and other data as of and for
each of the years in the five-year period ended September 30, 1996 are derived
from the Company's audited Consolidated Financial Statements. The information
set forth below should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations". The Consolidated Statements of
Financial Condition as of September 30, 1996 and 1995, and the Consolidated
Statements of Operations for each of the years in the three year period ended
September 30, 1996, and the report thereon of Deloitte & Touche LLP are included
elsewhere in this document.

           FIVE-YEAR CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                          AT SEPTEMBER 30,
                                      --------------------------------------------------------
                                          1996        1995       1994       1993       1992
                                      ----------- ----------- ---------- ---------- ----------
                                          (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND
                                                               RATIOS)
<S>                                    <C>         <C>         <C>        <C>        <C>
SUMMARY OF FINANCIAL CONDITION
ASSETS
Cash and cash equivalents............  $  119,523  $  112,931  $  76,938  $  65,388  $  94,723
Securities purchased under agreements
  to resell and federal
  funds sold.........................     674,249     471,052    358,710    547,988    206,000
Trading account assets...............       1,149       1,081      1,011      1,006     94,691
Securities...........................      64,544     116,013    114,115     43,430      4,909
Mortgage-backed securities...........   1,657,908   2,398,263  2,828,903  2,175,925    833,425
Loans................................   7,519,488   8,260,240  5,046,174  4,862,379  4,101,716
Covered Assets and related
assets(1)............................      --          --         --        392,511    610,901
All other assets.....................     675,516     623,954    484,310    351,929    308,918
                                      ----------- ----------- ---------- ---------- ----------
        Total assets................. $10,712,377 $11,983,534 $8,910,161 $8,440,556 $6,255,283
                                      =========== =========== ========== ========== ==========
LIABILITIES, MINORITY INTEREST, AND
  STOCKHOLDERS' EQUITY
Deposits.............................  $5,147,945  $5,182,220 $4,764,204 $4,839,388 $4,910,760
Federal Home Loan Bank advances(2)...   3,490,386   4,383,895  2,620,329  2,185,445    632,345
Securities sold under agreements to
  repurchase and federal funds
  purchased..........................     832,286   1,172,533    553,000    310,000     --
Note payable to related party........      --          --         --         --          4,090
Long-term debt ("15.75% Notes")....        --          --         --         --        102,000
Senior Notes.........................     115,000     115,000    115,000    115,000     --
All other liabilities................     410,217     448,283    320,766    516,020    373,715
                                      ----------- ----------- ---------- ---------- ----------
        Total liabilities............   9,995,834  11,301,931  8,373,299  7,965,853  6,022,910
                                      ----------- ----------- ---------- ---------- ----------
        Minority
          interest -- Subsidiary
          Preferred Stock(3).........     185,500     185,500     85,500     85,500     --
        Total stockholders' equity...     531,043     496,103    451,362    389,203    232,373
                                      ----------- ----------- ---------- ---------- ----------
          Total liabilities, minority
            interest, and
            stockholders'
            equity(4)................ $10,712,377 $11,983,534 $8,910,161 $8,440,556 $6,255,283
                                      =========== =========== ========== ========== ==========
</TABLE>
                                       50
<PAGE>
<TABLE>
<CAPTION>
                                               AT OR FOR THE YEAR ENDED SEPTEMBER 30,
                                       -------------------------------------------------------
                                          1996        1995       1994       1993       1992
                                       ----------  ----------  ---------  ---------  ---------
                                          (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND
                                                               RATIOS)
<S>                                    <C>         <C>         <C>        <C>        <C>
SUMMARY OF OPERATIONS
Interest income......................  $  812,312  $  746,759  $ 494,706  $ 482,490  $ 502,854
Interest expense.....................     584,778     552,760    320,924    300,831    348,291
                                       ----------  ----------  ---------  ---------  ---------
    Net interest income..............     227,534     193,999    173,782    181,659    154,563
Provision for credit losses..........      16,469      24,293      6,997      4,083     21,133
                                       ----------  ----------  ---------  ---------  ---------
    Net interest income after
      provision for credit losses....     211,065     169,706    166,785    177,576    133,430
Non-interest income
    Net gains (losses)
        Sales of single family
          servicing rights and single
          family warehouse loans.....      43,074      60,495     63,286     67,403     67,223
        Securities and
          mortgage-backed
          securities.................       4,002          26     10,404     43,702      2,022
        Other loans..................       3,189      (1,210)       163      1,496      4,759
    Loan servicing fees and
      charges........................      44,230      43,508     31,741     21,780     20,823
    Other............................      15,541      12,162     13,295     12,310      8,963
                                       ----------  ----------  ---------  ---------  ---------
    Total non-interest income........     110,036     114,981    118,889    146,691    103,790
                                       ----------  ----------  ---------  ---------  ---------
Non-interest expense
    Compensation and benefits........      87,640      83,520     86,504     81,472     69,476
    SAIF deposit insurance
      premiums.......................      45,690      11,428     11,329     10,162     11,101
    Amortization of intangibles......      20,432      21,856     18,247     24,469     22,832
    Restructuring charges............      10,681      --         --         --         --
    Other............................      88,822      77,772     83,513     85,861     77,006
                                       ----------  ----------  ---------  ---------  ---------
    Total non-interest expense.......     253,265     194,576    199,593    201,964    180,415
                                       ----------  ----------  ---------  ---------  ---------
    Income before income taxes,
      minority interest, and
      extraordinary loss.............      67,836      90,111     86,081    122,303     56,805
Income tax (benefit) expense.........     (75,765)     37,415    (31,899)   (26,153)       200
                                       ----------  ----------  ---------  ---------  ---------
    Income before minority interest
      and extraordinary loss.........     143,601      52,696    117,980    148,456     56,605
Less minority interest
    Subsidiary Preferred Stock
      dividends(3)...................      18,253      10,600      8,653      6,537     --
    Payments in lieu of
      dividends(6)...................       6,413         377        357     --         --
                                       ----------  ----------  ---------  ---------  ---------
    Income before extraordinary
      loss...........................     118,935      41,719    108,970    141,919     56,605
Extraordinary loss(7)................      --          --         --         14,549     --
                                       ----------  ----------  ---------  ---------  ---------
    Net income(8)....................  $  118,935  $   41,719  $ 108,970  $ 127,370  $  56,605
                                       ==========  ==========  =========  =========  =========
    Net income applicable to common
      shares.........................  $  113,327  $   38,824  $ 102,519  $ 118,640  $  52,406
                                       ==========  ==========  =========  =========  =========
Earnings per common share(9)
    Income before extraordinary
      loss...........................  $     3.87  $     1.35  $    3.55  $    4.61  $    1.85
    Extraordinary loss...............      --          --         --           0.50     --
                                       ----------  ----------  ---------  ---------  ---------
    Net income.......................  $     3.87  $     1.35  $    3.55  $    4.11  $    1.85
                                       ==========  ==========  =========  =========  =========
Book value per common share(9).......  $    16.81  $    17.19  $   15.64  $   13.48  $    8.19
Average number of common shares
  outstanding(9).....................      29,260      28,863     28,863     28,863     28,366

CERTAIN RATIOS AND OTHER DATA(10)
Operating earnings(11)...............  $  114,659  $   91,295  $  75,514  $  77,105  $  50,024
Regulatory capital ratios of the
  Bank(12)
    Tangible capital.................        6.57%       6.20%      6.01%      6.17%      4.24%
    Core capital.....................        6.64        6.29       6.17       6.43       5.04
    Total risk-based capital.........       13.09       13.45      14.02      14.87      12.19
Return on average assets(13).........        1.28        0.50       1.42       1.83       0.89
Return on average common equity......       23.06        8.80      26.32      44.87      28.18
Stockholders' equity to assets.......        4.96        4.14       5.07       4.61       3.71
Tangible stockholders' equity to
  tangible assets....................        4.81        3.93       4.68       4.14       2.58
Net yield on interest-earning
  assets(14).........................        2.10        1.92       2.20       2.61       2.60
Interest rate spread(14).............        1.78        1.61       1.95       2.41       2.54
</TABLE>
                                       51
<PAGE>
<TABLE>
<CAPTION>
                                               AT OR FOR THE YEAR ENDED SEPTEMBER 30,
                                       -------------------------------------------------------
                                          1996        1995       1994       1993       1992
                                       ----------  ----------  ---------  ---------  ---------
                                      (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S>                                    <C>         <C>         <C>        <C>        <C>
CERTAIN RATIOS AND OTHER
  DATA -- CONTINUED(10)
Average interest-earning assets to
  average interest-bearing
  liabilities........................        1.06        1.06       1.06       1.04       1.01
Non-interest expense to average total
  assets.............................        2.26%       1.86%      2.41%      2.76%      2.85%
Net operating expense ratio(15)......        1.28        0.76       0.97       0.76       1.21
Efficiency ratio(16).................       74.97       59.50      66.38      65.11      63.98
Nonperforming assets to total
  assets.............................        1.12        0.84       1.09       0.72       0.89
Net nonaccrual loans to total
  loans..............................        1.19        0.91       1.51       0.85       0.92
Allowance for credit losses to net
  nonaccrual loans...................       44.24       48.74      30.73      71.71      74.04
Allowance for credit losses to
  nonperforming assets...............       32.95       36.65      24.18      49.28      50.54
Allowance for credit losses to total
  loans..............................        0.52        0.44       0.46       0.61       0.68
Net loan charge-offs to average
  loans..............................        0.17        0.16       0.30       0.05       0.07
Full-time equivalent employees.......       2,310       2,663      2,894      3,122      2,720
Number of community banking
  branches...........................          70          65         62         62         65
Number of commercial banking
  origination offices................           9           9          5          3          2
Number of mortgage banking
  origination offices................          85         122        145        109         93
Single family servicing portfolio.... $13,246,848 $12,532,472 $8,920,760 $8,073,226 $7,187,000
Single family originations(17).......   3,762,198   3,447,250  5,484,111  6,737,762  6,118,363
Loans purchased for held to maturity
  portfolio..........................     148,510   2,658,093  1,406,275  1,212,103    916,613
CERTAIN RATIOS AND OTHER
  DATA -- EXCLUDING NON-RECURRING AND
  CERTAIN OTHER ITEMS(5)
Net income...........................  $   56,392  $   41,719  $  50,804  $  97,736  $  56,605
Net income applicable to common
  shares.............................      53,295      38,824     47,585     91,461     52,406
Earnings per common share............        1.82        1.35       1.65       3.17       1.85
Return on average assets(13).........        0.67%       0.50%      0.72%      1.42%      0.89%
Return on average common equity......       11.47        8.80      12.27      34.43      28.18
Efficiency ratio(16).................       58.85       59.50      66.38      65.11      63.98
</TABLE>
------------
 (1) Reflects assets governed under the Assistance Agreement between the Bank
     and the FRF. See "Business -- The Assistance Agreement".

 (2) FHLB advances with maturities greater than one year were $926,291,
     $1,992,010, $782,129, $708,945, and $55,445 at September 30, 1996, 1995,
     1994, 1993, and 1992, respectively. See Note 9 to the Consolidated
     Financial Statements.

 (3) During fiscal 1993, the Bank issued Bank Preferred Stock, Series A, and
     during fiscal 1995, the Bank issued Bank Preferred Stock, Series B. None of
     the shares of Bank Preferred Stock are owned by the Company. All of the
     outstanding shares of common stock of the Bank are owned by the Company.

 (4) In August 1996, the Company filed a registration statement with the SEC and
     12,075,000 shares of the Company Class A common stock were sold to the
     public. The Company sold 910,694 shares and certain shareholders ("Selling
     Shareholders") sold 11,164,306 shares. See "Management's Discussion and
     Analysis -- Capital Resources and Liquidity -- Capital" and Note 16 to the
     Consolidated Financial Statements.

 (5) Certain items have been excluded as they are deemed to be non-recurring and
     not part of the routine core business operations of the Company.
     Non-recurring items for fiscal 1996 were comprised of: (i) a one-time SAIF
     assessment charge of $33,657 ($20,729 net of tax); (ii) compensation
     expense of $7,820 ($4,816 net of tax); (iii) charges totalling $12,537
     ($7,729 net of tax), related to the restructuring of and items associated
     with the mortgage origination business; (iv) a contractual payment to
     previous minority interests of $5,883; and (v) a tax benefit of $101,700.
     Non-recurring items totalled $2.05 per common share for fiscal 1996. See
     Notes 13, 14, 15, 16, and 18 to the Consolidated Financial Statements.
     During fiscal 1994, a tax benefit of $58,166 or $1.90 per common share was
     recorded. During fiscal 1993, a tax benefit of $44,183 and an extraordinary
     loss of $14,549 (see note 7 below) were recorded, reducing earnings per
     common share by $0.94 in fiscal 1993.

 (6) The Bank had issued to the FDIC-FRF the Warrant to acquire 158,823 shares
     of common stock of the Bank at an exercise price of $0.01 per share.
     Payments in lieu of dividends related to the Warrant. In August 1996, the
     FDIC surrendered a portion of the Warrant for a cash payment of $6.1
     million, exercised the remainder of the Warrant and immediately exchanged
     the shares of common stock of the Bank it received for 1,503,560 shares of
     common stock of the Company. The FDIC sold all of these shares in the
     Offering. See "Business -- The Assistance Agreement -- Warrant
     Agreement".

 (7) Reflects costs and charges associated with the repayment of the note
     payable to related party and the 15.75% Notes (as defined, see
     "Management's Discussion and Analysis -- Capital Resources and
     Liquidity -- Notes Payable") and the issuance of the Senior Notes.

 (8) Net income for fiscal 1994, 1993, and 1992 included $23.1 million, $9.3
     million, and $32.1 million, respectively of financial assistance payments
     received from the FRF. No such payments were received during fiscal 1996 or
     1995 as a result of the termination of the Assistance Agreement in December
     1993. See "Business -- Assistance Agreement".

                                         (FOOTNOTES CONTINUED ON FOLLOWING PAGE)

                                       52
<PAGE>
 (9) Earnings per common share represents net income (adjusted for earnings on
     the common stock equivalents attributable to the Bank's Warrant) divided by
     the weighted average number of common shares outstanding. Per share results
     have been restated to reflect an 1,800 to one common stock conversion in
     June 1996. See Notes 1 and 16 to the Consolidated Financial Statements.

(10) Ratio, yield, and rate information are based on weighted average daily
     balances for fiscal 1996, 1995, 1994, and 1993 and average monthly balances
     for prior periods, with the exception of return on average common equity,
     which is based on average monthly balances for all periods presented.

(11) Operating earnings represents income, including net gains (losses) on the
     sales of single family servicing rights and single family warehouse loans,
     before taxes, minority interest, and extraordinary loss and excludes net
     gains (losses) on securities, MBS, and other loans and excludes certain
     non-recurring items in fiscal 1996. See "Business -- General."

(12) Regulatory capital ratios presented are those of the Bank. No regulatory
     capital ratios are presented for the Company because there are no such
     applicable requirements for savings and loan holding companies such as the
     Company. For a discussion of the regulatory capital requirements applicable
     to the Bank, see "Business -- Regulation -- Safety and Soundness
     Regulations -- Capital Requirements".

(13) Return on average assets represents income before minority interest and
     extraordinary loss, divided by average total assets.

(14) Net yield on interest-earning assets represents net interest income as a
     percentage of average interest-earning assets. Interest rate spread
     represents the difference between the average yield on interest-earning
     assets and the average rate on interest-bearing liabilities.

(15) Net operating expense ratio represents total non-interest expense less
     total non-interest income as a percentage of average assets for each
     period.

(16) Efficiency ratio represents non-interest expenses (excluding goodwill
     amortization), divided by net interest income plus non-interest income,
     excluding net gains (losses) on securities, MBS, and other loans.

(17) Includes $129.0 million, $135.3 million, $100.3 million, $116.5 million,
     and $127.0 million of brokered and purchased loans for fiscal 1996, 1995,
     1994, 1993, and 1992, respectively.

                                       53

<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

DISCUSSION OF RESULTS OF OPERATIONS

  OVERVIEW.

     1996 COMPARED TO 1995.  Net income was $118.9 million ($3.87 per share) for
fiscal 1996, compared to $41.7 million ($1.35 per share) for fiscal 1995. The
increase was primarily due to the recognition of a $101.7 million ($3.33 per
share) tax benefit for the expected utilization of NOLs. No such benefits were
recorded during fiscal 1995. Net income for 1996, excluding the $101.7 million
tax benefit and certain non-recurring charges discussed below, was $56.4 million
($1.82 per share) compared to $41.7 million ($1.35 per share) in the prior year.
Operating earnings, as defined in "Business -- General", were $114.7 million
for fiscal 1996, compared to $91.3 million for fiscal 1995, a 26% increase.
Higher levels of interest-earning assets and an increase in the yield on
interest-earning assets contributed to the increase in net income and operating
earnings, partially offset by lower gains on sales of single family MSRs and
single family warehouse loans and increased expenses attributable to the
minority interests. The single family loan servicing portfolio increased to
$13.2 billion at September 30, 1996.

     Results for fiscal 1996 included several non-recurring charges: (i) a
one-time SAIF assessment charge of $33.7 million ($20.7 million after tax or
$0.67 per share); (ii) charges totalling $12.5 million ($7.8 million after tax
or $0.25 per share) relating to the restructuring of and items associated with
the mortgage origination business; (iii) $7.8 million of compensation expense
($4.8 million after tax or $0.16 per share) relating to a management
compensation program adopted in connection with the Offering; and (iv) a $5.9
million contractual payment ($0.20 per share) to previous minority interests.

     1995 COMPARED TO 1994.  Net income was $41.7 million ($1.35 per share) for
fiscal 1995, compared to $109.0 million ($3.55 per share) for fiscal 1994. The
decrease primarily reflects the effect of a tax benefit of $58.2 million ($1.90
per share) recognized in fiscal 1994 for the expected utilization of NOLs under
SFAS No. 109, a lower net interest-rate spread, lower gains on sales of
securities and MBS, and higher provisions for credit losses in fiscal 1995. Net
income for fiscal 1995 was favorably impacted by the effect of higher levels of
interest-earning assets during fiscal 1995 compared to fiscal 1994 and an
increase in the single family servicing portfolio. The single family servicing
portfolio increased to $12.5 billion at September 30, 1995 compared to $8.9
billion at September 30, 1994, contributing to increased loan servicing fees and
charges during fiscal 1995.

     Operating earnings were $91.3 million for fiscal 1995, compared to $75.5
million for fiscal 1994. This increase primarily reflects the higher levels of
interest-earning assets and increased loan servicing fees and charges, partially
offset by higher provisions for credit losses.

                                       54
<PAGE>
     The following table sets forth a reconciliation of Bank and Company net
income.

                                        FOR THE YEAR ENDED SEPTEMBER 30,
                                       -----------------------------------
                                          1996         1995        1994
                                       -----------  ----------  ----------
                                                 (IN THOUSANDS)
BANK
Net income...........................  $   134,196  $   62,708  $  124,761
Preferred stock dividends............      (18,253)    (10,600)     (8,653)
                                       -----------  ----------  ----------
  Net income available for Bank's
     common stock....................      115,943      52,108     116,108
Dividends to Company(1)..............     (109,011)     (6,409)    (11,435)
Payments in lieu of dividends(1).....       (6,413)       (377)       (357)
                                       -----------  ----------  ----------
  Undistributed income of Bank.......          519      45,322     104,316
                                       -----------  ----------  ----------
COMPANY
Dividends from Bank..................      109,011       6,409      11,435
Interest expense.....................      (10,353)    (10,407)    (10,177)
Income tax benefit(2)................       20,898       1,397       5,299
Other expense, net...................       (1,140)     (1,002)     (1,903)
                                       -----------  ----------  ----------
  Net income (loss) of Company
     without including undistributed
     income of Bank..................      118,416      (3,603)      4,654
                                       -----------  ----------  ----------
  Consolidated net income............  $   118,935  $   41,719  $  108,970
                                       ===========  ==========  ==========
------------
(1) In May 1996, the Bank paid a $100 million dividend on the common stock of
    the Bank and paid $5.9 million in lieu of dividends to the FDIC-FRF. See
    "Business -- Assistance Agreement -- Warrant Agreement".

(2) During fiscal 1996, the Company recognized a tax benefit for the expected
    utilization of NOLs against future taxable income. See " -- Income Taxes".

  MORTGAGE BANKING RESTRUCTURE

     The Company has been in the process of evaluating its strategic
alternatives with respect to its mortgage banking business in order to mitigate
the negative effect on profitability resulting from increased competition in the
loan origination business. Increased competition has resulted in the Company
receiving lower fees and lower rates on originated loans. Additionally,
profitability is impacted by fluctuations in the volume of originations due to
changes in market interest rates. The Company initiated a profitability
improvement program in an effort to reduce the amount of fixed charges necessary
to operate its loan origination business in response to lower levels of fee
revenue and to reduce the volume of staff necessary to process loan applications
and to complete the loan origination process. The plan included the closure and
consolidation of 24 mortgage origination branches, the closure of 6 regional
operation centers, and a workforce reduction of approximately 265 employees. As
of September 30, 1996, 31 mortgage origination branches and 6 regional operation
centers had been closed and the workforce was reduced by 208. The plan also
included a process and operational restructuring, as well as changes in
management structure and compensation, all designed to create operational
efficiencies and promote profitability. As a result of the office closures,
workforce reductions, and related actions, the Company recorded a $10.7 million
restructuring charge and recorded $1.8 million of other expenses related to the
mortgage origination business in June 1996. The restructuring charge includes
estimated costs for severance and other benefits of $800,000, asset write-downs
of $5.3 million, lease termination costs of $3.4 million, and other costs of
$1.2 million. The non-cash write-off of $5.3 million reflects $3.5 million of
goodwill and $1.8 million of fixed assets and leasehold improvements written off
in connection with the closed production offices. At September 30, 1996, the
unpaid liability relating to the restructuring charge was $4.6 million and is
expected to be paid in full by fiscal 1999. No assurances can be given regarding
the efficacy of the profitability improvement plan or the timing or impact of
any further restructuring (including a possible future sale or liquidation) of
the Company's residential mortgage lending business.

                                       55
<PAGE>
  NET INTEREST INCOME

     Net interest income is based on the relative amounts of interest-earning
assets and interest-bearing liabilities and the spread between the yields earned
on assets and rates paid on liabilities. The net interest-rate spread is
affected by changes in general market interest rates, including changes in the
relationship between short- and long-term interest rates (the yield curve), the
effects of periodic caps on the Company's adjustable-rate mortgage and MBS
portfolios and the interest rate sensitivity position or "gap". The Company
has traditionally managed its business to limit its overall exposure to changes
in interest rates. However, under current policies of the Company's Board of
Directors, management has been given some latitude to increase the Company's
interest rate sensitivity position within certain limits if, in management's
judgment, that will enhance profitability. As a result, changes in market
interest rates may have a greater impact on the Company's financial performance
in the future than they have had historically. See "Business -- General" and
"Business -- Asset and Liability Management".

     The Company enters into certain financial instruments with
off-balance-sheet risk in the ordinary course of business to reduce its exposure
to changes in interest rates. The Company does not enter into instruments such
as leveraged derivatives or structured notes. The financial instruments used for
hedging interest rate risk include interest rate swaps, caps, floors, financial
options, financial futures contracts, and forward delivery contracts. A hedge is
an attempt to reduce risk by creating a relationship whereby any losses on the
hedged asset or liability are expected to be offset in whole or in part by gains
on the hedging financial instrument. Thus, market risk resulting from a
particular off-balance-sheet instrument is normally offset by other on or
off-balance-sheet transactions. See Note 12 to the Consolidated Financial
Statements.

                                       56
<PAGE>
                      AVERAGE BALANCES AND AVERAGE YIELDS
<TABLE>
<CAPTION>
                                                                     FOR THE YEAR ENDED SEPTEMBER 30,
                                          --------------------------------------------------------------------------------------
                                                       1996                             1995
                                          ------------------------------   ------------------------------
                                           AVERAGE                YIELD/    AVERAGE                YIELD/
                                           BALANCE    INTEREST     RATE     BALANCE    INTEREST     RATE
                                          ----------  ---------   ------   ----------  ---------   ------
                                                                          (DOLLARS IN THOUSANDS)
<S>                                       <C>         <C>         <C>      <C>         <C>         <C>
      INTEREST-EARNING ASSETS:
        Short-term interest-earning
          assets........................  $  668,657  $  39,302    5.88%   $  466,276  $  29,675    6.36%
        Trading account assets..........       1,154         67    5.81         1,079         62    5.75
        Securities(1)...................      76,637      3,917    5.11       116,934      5,893    5.04
        Mortgage-backed securities(1)...   1,968,230    128,143    6.51     2,618,990    173,155    6.61
        Loans(2)........................   7,889,828    627,940    7.96     6,707,868    526,528    7.85
        FHLB stock......................     213,242     12,943    6.07       180,416     11,446    6.34
        Covered Assets and related
          assets........................      --         --        --          --         --        --
                                          ----------  ---------   ------   ----------  ---------   ------
          TOTAL INTEREST-EARNING
            ASSETS......................  10,817,748    812,312    7.51    10,091,563    746,759    7.40
      Non-interest-earning assets.......     411,683                          345,500
                                         -----------                      -----------
          Total assets.................. $11,229,431                      $10,437,063
                                         ===========                      ===========
      INTEREST-BEARING LIABILITIES:
        Deposits:
          Transaction accounts..........  $  218,859      2,593    1.18    $  225,799      3,384    1.50
          Insured money fund accounts...   1,464,577     69,100    4.72     1,032,873     57,848    5.60
          Savings accounts..............     138,007      3,598    2.61       171,308      4,715    2.75
          Certificates of deposit.......   3,244,291    196,929    6.07     3,560,420    198,419    5.57
                                          ----------  ---------   ------   ----------  ---------   ------
              Total deposits............   5,065,734    272,220    5.37     4,990,400    264,366    5.30
                                          ----------  ---------   ------   ----------  ---------   ------
        FHLB advances...................   4,073,297    247,093    6.07     3,560,844    224,767    6.31
        Reverse repurchase agreements
          and federal funds purchased...     955,708     55,112    5.77       888,453     53,220    5.99
        Senior Notes....................     115,000     10,353    9.00       115,000     10,407    9.05
        Other...........................      --         --        --          --         --        --
                                          ----------  ---------   ------   ----------  ---------   ------
          TOTAL INTEREST-BEARING
            LIABILITIES.................  10,209,739    584,778    5.73     9,554,697    552,760    5.79
        Non-interest-bearing liabilities
          and stockholders' equity......   1,019,692                          882,366
                                         -----------                      -----------
          Total liabilities and
            stockholders' equity........ $11,229,431                      $10,437,063
                                         ===========                      ===========
      Net interest income/interest rate
        spread..........................              $ 227,534    1.78%               $ 193,999    1.61%
                                                      =========   ======               =========   ======
      Net yield on interest-earning
        assets..........................                           2.10%                            1.92%
                                                                  ======                           ======
      Ratio of average interest-earning
        assets to average
        interest-bearing liabilities....        1.06                             1.06
                                          ==========                       ==========

                                           FOR THE YEAR ENDED SEPTEMBER 30,
                                            ------------------------------
                                                         1994
                                            ------------------------------
                                             AVERAGE                YIELD/
                                             BALANCE   INTEREST      RATE
                                            ---------  ---------    ------
      INTEREST-EARNING ASSETS:
        Short-term interest-earning
          assets........................    $ 461,530  $  19,019      4.12%
        Trading account assets..........        1,026       (144)   (14.04)
        Securities(1)...................      108,751      5,007      4.60
        Mortgage-backed securities(1)...    2,595,163    151,972      5.86
        Loans(2)........................    4,524,158    308,804      6.83
        FHLB stock......................      132,277      5,558      4.20
        Covered Assets and related
          assets........................       74,547      4,490      6.02
                                            ---------  ---------    ------
          TOTAL INTEREST-EARNING
            ASSETS......................    7,897,452    494,706      6.26
      Non-interest-earning assets.......      386,175
                                           ----------
          Total assets..................   $8,283,627
                                           ==========
      INTEREST-BEARING LIABILITIES:
        Deposits:
          Transaction accounts..........    $ 237,537      3,753      1.58
          Insured money fund accounts...      582,126     18,508      3.18
          Savings accounts..............      284,885      7,311      2.57
          Certificates of deposit.......    3,662,043    179,462      4.90
                                            ---------  ---------    ------
              Total deposits............    4,766,591    209,034      4.39
                                            ---------  ---------    ------
        FHLB advances...................    2,285,630     91,060      3.98
        Reverse repurchase agreements
          and federal funds purchased...      274,666     10,574      3.85
        Senior Notes....................      115,000     10,177      8.85
        Other...........................        3,350         79      2.36
                                            ---------  ---------    ------
          TOTAL INTEREST-BEARING
            LIABILITIES.................    7,445,237    320,924      4.31
        Non-interest-bearing liabilities
          and stockholders' equity......      838,390
                                           ----------
          Total liabilities and
            stockholders' equity........   $8,283,627
                                           ==========
      Net interest income/interest rate
        spread..........................               $ 173,782      1.95%
                                                       =========    ======
      Net yield on interest-earning
        assets..........................                              2.20%
                                                                    ======
      Ratio of average interest-earning
        assets to average
        interest-bearing liabilities....         1.06
                                            =========
</TABLE>
------------
(1)  For purposes of computing yields, the effects of SFAS No. 115, "Accounting
     for Certain Investments in Debt and Equity Securities", have been excluded
     from the average balances.

(2)  Includes nonaccrual loans.

                                    57
<PAGE>
     The following table analyzes net interest income in terms of changes in the
volume of interest-earning assets and interest-bearing liabilities and changes
in yields and rates. The table reflects the extent to which changes in the
interest income and interest expense are attributable to changes in volume
(changes in volume multiplied by prior year rate) and changes in rate (changes
in rate multiplied by prior year volume). Changes attributable to the combined
impact of volume and rate have been allocated proportionately to changes due to
volume and changes due to rate.

                              RATE/VOLUME ANALYSIS

<TABLE>
<CAPTION>
                                                         FOR THE YEAR ENDED SEPTEMBER 30,
                                       ---------------------------------------------------------------------
                                                 1996 VS. 1995                      1995 VS. 1994
                                       ---------------------------------  ----------------------------------
                                         VOLUME      RATE        NET        VOLUME       RATE        NET
                                       ----------  ---------  ----------  ----------  ----------  ----------
                                                                  (IN THOUSANDS)
<S>                                    <C>         <C>        <C>         <C>         <C>         <C>
INTEREST INCOME
  Short-term interest-earning
     assets..........................  $   12,015  $  (2,388) $    9,627  $      198  $   10,458  $   10,656
  Trading account assets.............           4          1           5          (7)        213         206
  Securities.........................      (2,057)        81      (1,976)        390         496         886
  Mortgage-backed securities.........     (42,429)    (2,583)    (45,012)      1,418      19,765      21,183
  Loans..............................      93,941      7,471     101,412     166,278      51,446     217,724
  FHLB stock.........................       2,002       (505)      1,497       2,453       3,435       5,888
  Covered assets and related
     assets..........................      --         --          --          (4,490)     --          (4,490)
                                       ----------  ---------  ----------  ----------  ----------  ----------
          Total......................      63,476      2,077      65,553     166,240      85,813     252,053
                                       ----------  ---------  ----------  ----------  ----------  ----------
INTEREST EXPENSE
  Deposits...........................       4,189      3,665       7,854      10,219      45,113      55,332
  FHLB advances......................      31,178     (8,852)     22,326      65,246      68,461     133,707
  Reverse repurchase agreements and
     federal funds purchased.........       3,906     (2,014)      1,892      34,151       8,495      42,646
  Senior Notes.......................      --            (54)        (54)     --             230         230
  Other..............................      --         --          --             (79)     --             (79)
                                       ----------  ---------  ----------  ----------  ----------  ----------
          Total......................      39,273     (7,255)     32,018     109,537     122,299     231,836
                                       ----------  ---------  ----------  ----------  ----------  ----------
NET CHANGE IN NET INTEREST INCOME....  $   24,203  $   9,332  $   33,535  $   56,703  $  (36,486) $   20,217
                                       ==========  =========  ==========  ==========  ==========  ==========
</TABLE>

     1996 COMPARED TO 1995.  Net interest income increased $33.5 million or 17%
to $227.5 million for fiscal 1996, compared to $194.0 million for fiscal 1995.
The increase in net interest income is primarily attributable to a $726.2
million, or 7%, increase in average interest-earning assets and a 18 basis point
increase in the net yield on interest-earning assets.

     Interest-earning assets are primarily comprised of single family mortgage
loans and MBS. Interest-bearing liabilities primarily include deposits and FHLB
advances. The increase in average interest-earning assets during fiscal 1996 can
be principally attributed to two single family loan purchases during the second
half of fiscal 1995, approximating $1.9 billion. The increase in average
interest-earning assets was funded primarily with FHLB advances and reverse
repurchase agreements.

     Approximately 78% of the Company's interest-earning assets at September 30,
1996 were adjustable-rate assets, a portion of which are tied to indices that
normally lag the changes in market interest rates. Substantially all of the
Company's adjustable-rate assets are subject to periodic and/or lifetime
interest rate caps. Periodic caps limit the amount by which the interest rate on
a particular mortgage loan may increase at its next interest rate reset date. In
a rising-rate environment, the interest rate spread may be negatively impacted
when the repricing of interest-earning assets is limited by caps on periodic
interest rate adjustments, compared to market interest rate movements.

                                       58
<PAGE>
     During fiscal 1995, the periodic caps on loans and MBS with adjustable
rates limited the increase in income relative to the cost of deposits and
borrowings, as average market interest rates increased during fiscal 1995. The
net interest rate spread for fiscal 1996 reflects an improvement over fiscal
1995 due to a lessening of the impact of caps. As of September 30, 1996,
substantially all of the mortgages subject to caps would have no limitation on
their next scheduled rate reset due to the level of market interest rates and
the related reset margin being less than the current coupon rate on the mortgage
loan plus the applicable periodic cap limitation. The net interest rate spread
was also positively impacted during fiscal 1996 due to higher yields earned on
loans purchased in the later part of fiscal 1995.

     1995 COMPARED TO 1994.  Net interest income increased $20.2 million, or
12%, to $194.0 million for fiscal 1995, compared to $173.8 million for fiscal
1994. Average interest-earning assets increased $2.2 billion, or 28%, during the
period, principally attributable to single family loan purchases during the
second half of fiscal 1995. The increase in average interest-earning assets was
funded primarily with FHLB advances and reverse repurchase agreements. Increased
net interest income resulting from higher volumes of interest-earning assets was
offset, to some extent, by unfavorable changes in the net spread between the
yield on interest-earning assets and the cost of funds. The net interest rate
spread decreased 34 basis points as a result of the rapid rise in market
interest rates during the early part of fiscal 1995. Increases in market
interest rates and the effect of lagging rate indices and caps on
adjustable-rate assets and the sale of higher yielding assets in fiscal 1994 all
contributed to the drop in the net yield on interest-earning assets.

  PROVISION FOR CREDIT LOSSES

     1996 COMPARED TO 1995.  The provision for credit losses decreased to $16.5
million for fiscal 1996 down from $24.3 million for fiscal 1995. Decreased loan
purchases during fiscal 1996 resulted in lower single family provisions of $6.8
million for fiscal 1996 compared to $18.5 million for fiscal 1995. Consumer loan
provisions increased to $7.8 million for fiscal 1996, compared to $4.2 million
for fiscal 1995, reflecting increased losses and charge-offs on the unsecured
line of credit portfolio. See "-- Asset Quality" and Note 5 to the
Consolidated Financial Statements.

     1995 COMPARED TO 1994.  The provision for credit losses increased to $24.3
million for fiscal 1995 compared to $7.0 million for fiscal 1994. This increase
primarily resulted from provisions on single family loans, which totalled $18.5
million for fiscal 1995 compared to $2.4 million for fiscal 1994. The single
family loan portfolio increased to $7.1 billion at September 30, 1995 from $4.2
billion at September 30, 1994, which included loan purchases totalling $2.7
billion and originations retained for portfolio of $1.0 billion during fiscal
1995. The growth in the consumer lending business and loss experience on the
unsecured consumer line of credit portfolio also increased consumer provisions
to $4.2 million for fiscal 1995, from $2.8 million for fiscal 1994. Consumer
loans increased to $123.1 million at September 30, 1995, from $108.2 million at
September 30, 1994, while consumer charge-offs increased to $2.8 million for
fiscal 1995, from $1.3 million for fiscal 1994. See "-- Asset Quality" and
Note 5 to the Consolidated Financial Statements.

                                       59
<PAGE>
     NON-INTEREST INCOME

     Non-interest income includes gains from sales of single family servicing
rights and single family warehouse loans, gains (losses) on securities and MBS,
gains (losses) on other loans, loan servicing fees and charges, and other fees
and charges.

                              NON-INTEREST INCOME

                                           FOR THE YEAR ENDED SEPTEMBER 30,
                                       ----------------------------------------
                                           1996          1995          1994
                                       ------------  ------------  ------------
                                                    (IN THOUSANDS)
NON-INTEREST INCOME
  Net gains (losses)
     Sales of single family servicing
       rights........................  $      4,678  $     34,080  $     67,198
     Single family warehouse loans...        38,396        26,415        (3,912)
                                       ------------  ------------  ------------
                                             43,074        60,495        63,286
     Securities and mortgage-backed
       securities....................         4,002            26        10,404
     Other loans.....................         3,189        (1,210)          163
  Loan servicing fees and charges....        44,230        43,508        31,741
  Other..............................        15,541        12,162        13,295
                                       ------------  ------------  ------------
          Total non-interest
          income.....................  $    110,036  $    114,981  $    118,889
                                       ============  ============  ============
PRINCIPAL SOLD
  MSRs...............................  $  1,488,885  $  2,854,114  $  4,521,491
  Single family warehouse loans......     2,984,211     2,100,662     4,786,413

     1996 COMPARED TO 1995.  Non-interest income was $110.0 million for fiscal
1996 compared to $115.0 million for fiscal 1995, a decrease of $5.0 million.
During fiscal 1996 and 1995, $1.5 billion and $2.9 billion, respectively, of
single family MSRs were sold. The decrease in single family MSR sales during
fiscal 1996 reflects management's decision to retain a greater portion of MSRs
in response to the implementation of SFAS No. 122, "Accounting for Mortgage
Servicing Rights, an Amendment of Financial Accounting Standards Board Statement
No. 65". See "Business -- Loan Servicing Portfolio". Fiscal 1995 included
substantial gains on sales of servicing rights originated in prior years. Gains
on sales of single family warehouse loans were $38.4 million during fiscal 1996,
compared to $26.4 million during fiscal 1995, reflecting an increase in the
volume of single family warehouse loans sold. Excluding gains from sales of
single family MSRs and single family warehouse loans, non-interest income
increased $12.5 million in fiscal 1996 compared to fiscal 1995, primarily due to
increased gains on sales of securities and MBS and other loans.

     Net gains on securities and MBS were $4.0 million and $26,000 for fiscal
1996 and 1995, respectively. During fiscal 1996, the net gains on MBS were from
the sale of $293.0 million of MBS. See " -- Discussion of Financial
Condition".

     Net gains (losses) on other loans were $3.2 million and $(1.2) million for
fiscal 1996 and 1995, respectively. During fiscal 1996, the Company sold $98.1
million of single family loans held by the Financial Markets Group for a gain of
$608,000 and $178.4 million of multi-family loans for a gain of $2.7 million.
See " -- Discussion of Financial Condition".

     During fiscal 1996, loan servicing fees and charges increased $722,000, or
2% from the prior year. This increase is due primarily to an increase in the
portfolio of single family servicing for others, $9.5 billion at September 30,
1996 compared to $8.5 billion at September 30, 1995. Offsetting this increase
was a decrease in the average service fee rate due to a change in the mix of the
portfolio.

     Other non-interest income was $15.5 million in fiscal 1996 compared to
$12.2 million in fiscal 1995. The increase was primarily due to growth in mutual
fund and annuity sales. The growth in the sale of these products reflected the
low interest rate environment, more experienced salespeople, and increased
marketing of those products.

                                       60
<PAGE>
     1995 COMPARED TO 1994.  Non-interest income was $115.0 million for fiscal
1995, a $3.9 million decrease from $118.9 million for fiscal 1994. This decrease
is attributable, in part, to a $2.8 million decrease in gains on sales of single
family MSRs and single family warehouse loans which were $60.5 million and $63.3
million, respectively, for fiscal 1995 and 1994.

     In September 1995, the Company adopted SFAS No. 122, effective October 1,
1994. This statement requires that, among other things, the book value of
mortgage loans be allocated at the time of origination between the MSRs and the
related loans, provided there is a plan to sell or securitize such loans. With
the implementation of SFAS No. 122, the original cost basis of the loan is
allocated between the loan and the MSRs, thus increasing the gains on sales of
loans and reducing the gains on sales of MSRs.

     The implementation of SFAS No. 122 resulted in the capitalization of $28.7
million of originated MSRs during fiscal 1995 and an increase to net income and
stockholders' equity of $9.8 million. This implementation also had the effect of
decreasing the gains on sales of single family MSRs by $17.7 million and
increasing the gains on single family warehouse loans by $34.6 million.
Excluding the effects of implementing SFAS No. 122, the gains on sales of single
family MSRs and the gains (losses) on single family warehouse loans would have
been $51.8 million and $(8.2) million, respectively. In accordance with the
requirements of SFAS No. 122, the prior year amounts were not restated.

     Excluding the effects of SFAS No. 122 in fiscal 1995, the gains on single
family MSRs were $51.8 million, compared to $67.2 million for fiscal 1994.
During fiscal 1995, single family MSRs were sold at an average premium of 181
basis points, compared to 149 basis points during fiscal 1994. The average
premiums on MSRs sold in fiscal 1994 were lower compared to fiscal 1995,
reflecting the lower interest rate environment during the first half of fiscal
1994. The rise in market interest rates during the second half of fiscal 1994,
and continuing through the beginning of fiscal 1995 had a positive effect on the
average premiums on servicing rights sold, reflecting an increase in the value
of the servicing portfolio due to actual and anticipated declines in
prepayments. The increase in interest rates during the second half of fiscal
1994 and during fiscal 1995 also resulted in a decrease in originations. The
decrease in originations and the retention of a greater proportion of originated
loans for the Company's own portfolio decreased the volume of MSRs available for
sale during fiscal 1995.

     Excluding the effects of SFAS No. 122 in fiscal 1995, the losses on single
family warehouse loans were $(8.2) million in fiscal 1995 and $(3.9) million in
1994. Increased losses in fiscal 1995 reflect the increasingly competitive
pricing in the market during that period.

     Net gains on securities and MBS were $26,000 and $10.4 million for fiscal
1995 and 1994, respectively. The gains in fiscal 1994 primarily relate to the
sale of $213.0 million of MBS created when the Company securitized single family
loans from its own portfolio.

     Loan servicing fees and charges increased $11.8 million, or 37%, during
fiscal 1995 compared to fiscal 1994. The increase was due primarily to an
increase in the portfolio of single family servicing for others and an increase
in the average fees collected on those loans due to a change in the composition
of that portfolio. The portfolio of single family servicing for others increased
to $8.5 billion at September 30, 1995, compared to $6.2 billion at September 30,
1994, primarily due to loan originations and purchases of MSRs. See " --
Discussion of Financial Condition". The increase in the single family loan
servicing portfolio during fiscal 1995 includes $3.4 billion of loans associated
with MSRs purchased in fiscal 1994 that were not transferred to the Company
until fiscal 1995 and were not included in the portfolio as of September 30,
1994. See Note 6 to the Consolidated Financial Statements.

                                       61
<PAGE>
  NON-INTEREST EXPENSE

     Non-interest expense was comprised of the following significant items:

                              NON-INTEREST EXPENSE

                                        FOR THE YEAR ENDED SEPTEMBER 30,
                                       ----------------------------------
                                          1996        1995        1994
                                       ----------  ----------  ----------
                                                 (IN THOUSANDS)
Compensation and benefits............  $   87,640  $   83,520  $   86,504
Occupancy............................      18,415      18,713      17,196
Data processing......................      16,196      16,360      15,821
Advertising and marketing............       8,025       9,262      10,796
Amortization of intangibles..........      20,432      21,856      18,247
SAIF deposit insurance premiums......      45,690      11,428      11,329
Furniture and equipment..............       6,121       6,428       6,810
Restructuring charges................      10,681      --          --
Other................................      40,065      27,009      32,890
                                       ----------  ----------  ----------
     Total non-interest expense......  $  253,265  $  194,576  $  199,593
                                       ==========  ==========  ==========

     1996 COMPARED TO 1995.  Non-interest expense was $253.3 million for fiscal
1996 and $194.6 million for fiscal 1995, or 2.26% and 1.86%, respectively, of
average total assets for those same periods. Non-interest expense for fiscal
1996 included several non-recurring items including $7.8 million in compensation
expense, $33.7 million in SAIF deposit insurance premiums, and a $10.7 million
restructuring charge. Excluding these non-recurring items, non-interest expense
was $201.1 million for fiscal 1996 compared to $194.6 million for fiscal 1995,
or 1.79% and 1.86%, respectively, of average total assets for those same
periods. The $7.8 million compensation charge related to a management
compensation program adopted in June 1996 in connection with the Offering. This
program provided, among other things, for a cash bonus and the award of Company
common stock to certain executives and officers of the Company. See Note 13 to
the Consolidated Financial Statements. Excluding the $7.8 million charge,
compensation and benefits decreased to $79.8 million in fiscal 1996 compared to
$83.5 million in fiscal 1995. This decrease reflects a decrease in the number of
average full-time equivalent employees to 2,548 for fiscal 1996, from 2,729 for
fiscal 1995. The $33.7 million SAIF deposit insurance premium charge reflects a
one-time assessment on all SAIF-insured deposits aimed at fully-capitalizing the
SAIF. The United States Congress passed legislation that was signed into law on
September 30, 1996 that mandated this assessment, which was set at 65.7 basis
points of SAIF-assessable deposits at March 31, 1995. See "Business --
Regulation -- Charter, Supervision, and Examination -- Insurance Assessments".
The $10.7 million restructuring charge is discussed above in " -- Mortgage
Banking Restructure". During fiscal 1996 and 1995, $878,000 and $11.2 million,
respectively, of gains on sales of Real Estate Owned ("REO") properties were
recognized and included in other non-interest expense.

     1995 COMPARED TO 1994.  Non-interest expense was $194.6 million for fiscal
1995 compared to $199.6 million for fiscal 1994, or 1.86% and 2.41%,
respectively, of average total assets for those periods. Compensation and
benefits were $83.5 million for fiscal 1995 and $86.5 million for fiscal 1994,
or 43% of total non-interest expense for both of these periods. Advertising
expenses were lower during fiscal 1995 reflecting the introduction of community
banking products in the prior year. During fiscal 1995 and 1994, $11.2 million
and $5.8 million, respectively, of gains on sales of REO properties were
recognized and included in other non-interest expense. Amortization of
intangibles increased in fiscal 1995, reflecting increased amortization of MSRs
due to servicing acquisitions.

  INCOME TAXES

     The provision for income taxes is comprised of current federal income
taxes, deferred federal income taxes, state income taxes, and payments due in
lieu of taxes. The provision for income taxes was a net benefit of $75.8 million
for fiscal 1996, an expense of $37.4 million for fiscal 1995, and a net benefit
of $31.9 million in fiscal 1994. In June 1996, Parent Company's Certificate of
Incorporation and By-Laws were restated with the intent to

                                       62
<PAGE>
preserve certain beneficial tax attributes limiting the disposition of certain
common stock and other interests in the Parent Company by certain of its
stockholders. The preservation of certain tax attributes allowed the recognition
of tax benefits in June 1996 for the expected utilization of NOLs. These tax
benefits were not recognized in prior periods due to limitations on the
utilization of NOLs if an Ownership Change had occurred. In June 1996, the
Parent Company and the Bank entered into a tax sharing agreement. This agreement
resulted in the recognition of a tax benefit for the expected utilization of the
Parent Company's NOLs by the Bank. As a result of the tax sharing agreement and
the restatement of the Parent Company's Certificate of Incorporation and
By-laws, a total tax benefit of $101.7 million was recognized in fiscal 1996 as
a reduction of income tax expense and an increase in the net deferred tax asset.
No tax benefits were recorded in fiscal 1995 due to limitations on NOLs if an
Ownership Change had occurred. During fiscal 1994, tax benefits of $58.2 million
were recorded due to the expected utilization of NOLs against future taxable
income. See "Business -- Taxation" and Note 14 to the Consolidated Financial
Statements.

     As of September 30, 1996, future taxable income of $721 million would fully
utilize the net deferred tax asset. The Company earned taxable income of $130
million in fiscal 1995 and estimates taxable income of $80 million for fiscal
1996.

  MINORITY INTEREST

     Dividends on Bank Preferred Stock paid by the Bank increased to $18.3
million for fiscal 1996 from $10.6 million for fiscal 1995, due to the Bank's
issuance of Bank Preferred Stock, Series B during the fourth quarter of fiscal
1995. These shares are not owned by the Company and, accordingly, are reflected
as minority interest in the Consolidated Financial Statements. Payments in lieu
of dividends increased during the year due to the contractual payment of $5.9
million made to the FDIC-FRF in connection with the declaration of a $100
million dividend on the common stock of the Bank. See "Business -- The
Assistance Agreement -- Warrant Agreement" and Note 16 to the Consolidated
Financial Statements.

DISCUSSION OF FINANCIAL CONDITION

  OVERVIEW

     The Company, through the Bank, is a broad based financial services provider
to consumers and businesses in Texas and other selected regional markets
throughout the United States. Historically, the Company focused on traditional
single family mortgage lending and deposit gathering, as well as retail and
wholesale mortgage banking activities. Over the past few years, however, the
Company's management has pursued a strategy designed to reduce the Bank's
reliance on its thrift and mortgage banking lines of business by developing
potentially higher margin community banking and commercial banking lines of
business. During this time, the Company has engaged in more aggressive marketing
campaigns and has increased its originations and retention of commercial and
consumer loans and increased the level of lower cost transaction and commercial
deposit accounts. While the pursuit of this strategy entails risks different
from and in addition to those found in traditional thrift and mortgage banking
lines of business, the Company believes it has taken appropriate measures to
manage these risks adequately. To manage potential credit risk, the Company has
developed comprehensive credit approval and underwriting policies and procedures
for these lines of business. To offset operational and competitive risk, the
Company has hired experienced commercial bank professionals, trained other
personnel to manage and staff these businesses, and has closely monitored the
conduct and performance of the businesses. In addition to its efforts to
increase originations of commercial and consumer loans, the Company plans to
increase the retention of higher-yielding single family and multi-family
mortgage loans that, in the past, may have otherwise been sold or securitized.
The Company intends to continue to pursue additional expansion opportunities,
including through acquisitions, while maintaining adequate capital.

                                       63
<PAGE>
     The following table reflects activity in the MBS portfolio.

                           MORTGAGE-BACKED SECURITIES

                                           FOR THE YEAR ENDED SEPTEMBER 30,
                                       ----------------------------------------
                                           1996          1995          1994
                                       ------------  ------------  ------------
                                                    (IN THOUSANDS)
HELD TO MATURITY
Beginning balance....................  $  2,051,304  $  2,394,978  $    358,896
  Loans securitized..................       --            --            906,652
  Purchases..........................         3,841        38,515        83,854
  Net change in unrealized gains
     (losses) before tax.............         2,841           162       (10,202)
  Sales..............................       --            --            (38,252)
  Repayments.........................      (178,926)     (390,364)     (162,328)
  Transfers..........................    (1,244,945)      --          1,260,971
  Other..............................        (4,067)        8,013        (4,613)
                                       ------------  ------------  ------------
Ending balance.......................  $    630,048  $  2,051,304  $  2,394,978
                                       ============  ============  ============
AVAILABLE FOR SALE
Beginning balance....................  $    346,959  $    433,925  $  1,817,029
  Loans securitized..................       --            --            275,520
  Purchases..........................       --                230       583,444
  Net change in unrealized gains
     (losses) before tax.............         3,660         8,415       (61,613)
  Sales..............................      (292,990)      (77,610)     (174,702)
  Repayments.........................      (272,059)      (16,346)     (760,111)
  Transfers..........................     1,244,945       --         (1,260,971)
  Other..............................        (2,655)       (1,655)       15,329
                                       ------------  ------------  ------------
Ending balance.......................  $  1,027,860  $    346,959  $    433,925
                                       ============  ============  ============

     The unrealized gains on the MBS held to maturity portfolio were $2.2
million at September 30, 1996, $14.5 million at September 30, 1995, and $1.8
million at September 30, 1994. The unrealized losses on the MBS held to maturity
portfolio were $23.0 million at September 30, 1996, $34.6 million at September
30, 1995, and $56.0 million at September 30, 1994. The changes in the unrealized
gains and losses in the MBS held to maturity portfolio relate to changes in
market conditions relating to MBS. At September 30, 1996, the Company's MBS held
to maturity portfolio was comprised primarily of privately-issued and
credit-enhanced MBS, of which 99% were rated AA/Aa or higher by the Standard &
Poor's Corporation or Moody's Investor Services, Inc., respectively. These
ratings and the individual MBS are reviewed monthly to ensure that no credit
deterioration has occurred. At September 30, 1996, none of the MBS in the held
to maturity portfolio were on credit watch for possible downgrading by either of
the rating agencies. See "Business -- Investment Portfolio."

                                       64
<PAGE>
     The following table reflects activity in the loan portfolio.

                                     LOANS

                                            FOR THE YEAR ENDED SEPTEMBER 30,
                                       -----------------------------------------
                                           1996           1995           1994
                                       -------------  -------------  -----------
                                                     (IN THOUSANDS)
HELD TO MATURITY
Beginning balance....................  $   7,763,676  $  4,780,328  $ 3,434,440
  Originations
     Single family...................        818,563     1,012,771    1,319,020
     Single family residential
       construction..................        554,260       239,481      133,609
     Consumer........................        125,596        99,249       94,153
     Multi-family, commercial real
       estate, and business credit...        248,185       246,131      207,546
  Purchases
     Single family...................        140,583     2,640,755    1,312,827
     Consumer........................       --                  68       24,982
     Multi-family and commercial real
       estate........................          7,927        17,270       68,466
  Net change in mortgage banker
     finance line of credit..........         30,481       (38,124)    (238,223)
  Repayments.........................     (2,298,915)   (1,188,489)    (807,574)
  Securitized loans sold or
     transferred.....................       --            --         (1,125,050)
  Transfers (to) from held for
     sale............................       (104,235)          805      398,645
  Sales..............................         (4,420)      (34,865)     (26,930)
  Other..............................        (54,548)      (11,704)     (15,583)
                                       -------------  ------------  -----------
Ending balance.......................  $   7,227,153  $  7,763,676  $ 4,780,328
                                       =============  ============  ===========
HELD FOR SALE
Beginning balance....................  $     496,564  $    265,846  $ 1,427,939
  Originations
     Single family...................      2,783,446     2,213,553    4,105,530
     Multi-family, commercial real
       estate, and business credit...         88,861        61,505       23,449
  Purchases
     Single family...................         85,715        65,103       60,900
     Multi-family, commercial real
       estate, and business
       credit........................         57,594        38,823     --
  Repayments.........................        (15,581)       (3,667)     (54,846)
  Securitized loans sold or
     transferred(1)..................     (2,669,406)   (1,864,313)  (4,470,275)
  Transfers from (to) held to
     maturity........................        104,235          (805)    (398,645)
  Sales..............................       (642,559)     (273,747)    (430,342)
  Other..............................          3,466        (5,734)       2,136
                                       -------------  ------------  -----------
Ending balance.......................  $     292,335  $    496,564  $   265,846
                                       =============  ============  ===========

------------

(1) Includes $2.6 billion, $1.9 billion, and $4.4 billion of loans securitized
    by the Mortgage Banking Group and sold to third parties during fiscal 1996,
    1995, and 1994, respectively.

     1996 ACTIVITY.  Total assets decreased by $1.3 billion, or 11%, to $10.7
billion at September 30, 1996 down from $12.0 billion at September 30, 1995.
This decrease primarily resulted from loan and MBS sales and repayments.

     Repurchase agreements and federal funds sold increased to $674.2 million at
September 30, 1996 from $471.1 million at September 30, 1995. The increase
primarily reflects the Company's decision to borrow and invest funds at a
positive spread on a short-term basis.

     Securities decreased $51.5 million, to $64.5 million at September 30, 1996
from $116.0 million at September 30, 1995 reflecting the purchase of $22.4
million and the sale of $96.5 million in securities. During

                                       65
<PAGE>
fiscal 1996, $58.0 million of SBA loans were purchased, a portion of which were
pooled into securities totalling $30.5 million. At September 30, 1996, $6.5
million of the securities created remain in the Company's portfolio.

     MBS decreased $740.4 million during fiscal 1996, primarily due to sales and
repayments. During fiscal 1996, the Company sold $293.0 million in MBS for a
gain of $2.7 million, compared to $77.6 million in sales for a gain of $16,000
during fiscal 1995. The increase in repayments resulted from a decline in market
interest rates.

     In November 1995, the Financial Accounting Standards Board ("FASB")
issued "A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities". This implementation guide provided
the Company the opportunity to reassess the appropriateness of the
classification of its securities, and provided that reclassifications of
securities from the held to maturity category resulting from this one-time
reassessment would not call into question the intent to hold other securities to
maturity in the future. During the first quarter of fiscal 1996, the Company
reassessed its securities portfolios and reclassified $1.2 billion in MBS from
the held to maturity portfolio to the available for sale portfolio. An
unrealized gain of $4.2 million before tax, or $2.6 million after tax, was
recorded in stockholders' equity as a result of this transfer. At September 30,
1996 and 1995, the Company had unrealized losses on securities and MBS available
for sale, net of tax, of $2.2 million and $6.6 million, respectively. See Note 4
to the Consolidated Financial Statements.

     The increase in single family loan originations during fiscal 1996 resulted
from a decline in market interest rates in comparison to a year ago. The decline
in market interest rates prompted borrowers to refinance their mortgages at
lower rates of interest, resulting in an increase in repayments as well as in
single family mortgage loan originations. Refinancings approximated $1.2 billion
and $600.6 million, or 31% and 17% of total single family mortgage loan
originations during fiscal 1996 and 1995, respectively. Multi-family, commercial
real estate, and business credit loan originations increased $29.4 million
during fiscal 1996 as compared to fiscal 1995. The increase in multi-family,
commercial real estate, and business credit loan originations, as well as the
increase in residential construction loan originations during fiscal 1996, as
compared to fiscal 1995, reflects the geographic expansion of the offering of
these products. Increased consumer loan originations during fiscal 1996 as
compared to fiscal 1995 are primarily due to increased home improvement loan
originations resulting from increased marketing efforts.

     As a result of the decline in market interest rates during fiscal 1996, the
MBF line of credit portfolio increased $30.5 million to $139.9 million at
September 30, 1996.

     Single family loan purchases were $226.3 million during fiscal 1996,
compared to $2.7 billion during fiscal 1995. The decrease in purchases reflects
a decrease in products available at attractive yields.

     During fiscal 1996, total loans decreased $740.8 million, primarily due to
sales and repayments. During this period, the Company sold $98.1 million of
single family portfolio loans for a gain of $608,000 and $178.4 million of
multi-family loans for a gain of $2.7 million.

     MSRs increased $48.3 million to $123.4 million at September 30, 1996 from
$75.1 million at September 30, 1995. During fiscal 1996, the Company purchased
servicing rights associated with $1.2 billion of single family loans at a
premium of $23.5 million.

     In the aggregate, FHLB advances, reverse repurchase agreements, and federal
funds purchased decreased $1.3 billion to $4.3 billion at September 30, 1996
from $5.6 billion at September 30, 1995, reflecting a reduction in the Company's
asset base.

     The decrease in deposits is primarily due to maturities of consumer and
wholesale CD's that were not renewed. These decreases were partially offset by
increased consumer checking and insured money fund deposits, reflecting the
Company's emphasis on high levels of customer service and innovative products.

     1995 ACTIVITY.  Total assets increased to $12.0 billion at September 30,
1995 from $8.9 billion at September 30, 1994, reflecting an increase of $3.1
billion. The majority of this increase occurred in the loan portfolio, primarily
as a result of single family adjustable-rate loan originations retained for the
Company's portfolio and purchases of single family loans.

                                       66
<PAGE>
     Repurchase agreements and federal funds sold increased to $471.1 million at
September 30, 1995 from $358.7 million at September 30, 1994. The increase
primarily reflected the Company's decision to borrow and invest funds on a
short-term basis.

     MBS decreased $430.6 million during fiscal 1995, primarily due to
repayments of $406.7 million. The decrease in purchases to $38.7 million for
fiscal 1995 from $667.3 million for fiscal 1994 reflected lower yields available
in the marketplace on MBS during fiscal 1995. The decreased volume of MBS sales,
to $77.6 million for fiscal 1995 as compared to $213.0 million during fiscal
1994, primarily resulted from reduced sales of securitized assets. There were no
loans securitized during fiscal 1995, as compared to $1.2 billion securitized
during fiscal 1994. The $515.7 million decrease in repayments for fiscal 1995,
as compared to fiscal 1994, reflected rising interest rates beginning in the
second half of fiscal 1994.

     At September 30, 1995 and 1994, unrealized losses on securities and MBS
available for sale, net of tax, were $6.6 million and $13.4 million,
respectively. The decrease resulted principally from a decline in market prices
due to increased interest rates in the second half of fiscal 1994 and
prepayments of certain high yielding securities. See Note 4 to the Consolidated
Financial Statements.

     During fiscal 1995, loans increased $3.2 billion, primarily as a result of
the retention of single family adjustable-rate loan originations for the
Company's portfolio and purchases of single family loans.

     While the total loan portfolio increased, single family loan originations
decreased $2.2 billion, or 41%, in fiscal 1995 compared to fiscal 1994 and $1.2
billion, or 18%, in fiscal 1994 compared to fiscal 1993. The decrease in single
family loan originations during fiscal 1995 and 1994 can be attributed to higher
interest rates during those periods leading to a decline in mortgage loan
refinance activity during fiscal 1995 and 1994. Refinancings approximated $600.6
million and $2.0 billion, or 17% and 37%, respectively, of total originations in
fiscal 1995 and 1994. Despite lower origination volumes, the Company retained a
greater percentage of originations for its portfolio due to an increase in the
proportion of adjustable-rate loans as compared to fixed-rate loans originated
by the Mortgage Banking Group. During fiscal 1995, 30% of single family loan
originations were retained for portfolio, as compared to 24% in fiscal 1994. The
higher market interest rates also resulted in a decline in the MBF line of
credit portfolio.

     During fiscal 1994 and 1995, despite the decline in single family mortgage
loan originations, the Company's single family loan portfolio increased as a
result of purchases from third parties. While purchases of single family loans
increased during these periods, purchases of MBS decreased. During fiscal 1995,
yields on loan purchases were higher than yields on MBS purchased. During fiscal
1995, $2.7 billion of single family loans yielding 8.46% were purchased,
including a $1.3 billion purchase consisting of adjustable-rate loans, compared
to $38.7 million of MBS purchased at a yield of 5.93%.

     Increased single family residential construction, multi-family, and
commercial real estate loan originations in fiscal 1995 reflect geographic
expansion of the offering of these products.

     Total deposits increased $418.0 million, to $5.2 billion at September 30,
1995, from $4.8 billion at September 30, 1994. The majority of the increase is
due to an increase in commercial deposits from MBF customers, reflecting the
Company's effort to build its customer base for this type of deposit.

     In the aggregate, FHLB advances, reverse repurchase agreements, and federal
funds purchased increased to $5.6 billion at September 30, 1995 from $3.2
billion at September 30, 1994, primarily to fund asset originations and
purchases. In connection with the increase in FHLB advances, FHLB stock was
purchased to maintain the required balance of such stock. The Bank was in
compliance with such stock requirements at September 30, 1995.

     During fiscal 1995, the Bank issued the Bank Preferred Stock, Series B.
Costs incurred in connection with the stock issuance were recorded as a
reduction to paid-in capital. The Bank's total capital was increased by $96.2
million as a result of this offering.

ASSET QUALITY

     The Company is exposed to certain credit risks related to the value of the
collateral that secures loans held in its portfolio and the ability of borrowers
to repay their loans during the term thereof. The Company has a Credit

                                       67
<PAGE>
Committee comprised of senior officers, that continually monitors the loan and
REO portfolios for potential problems and reports to the Board of Directors at
regularly scheduled meetings. The Company also has established an Asset
Classification Committee comprised of senior management. This committee reviews
the classification of assets and reviews the allowance for credit losses. This
committee reviews all assets and periodically reports its findings directly to
the Board of Directors. The Company also has an Asset Review Department, the
function of which is to provide to the Board of Directors an independent ongoing
review and evaluation of the quality of assets.

     Nonperforming assets consist of nonaccrual loans and REO. Loans are usually
placed on nonaccrual status when the loan is past due 90 days or more, or the
ability of a borrower to repay principal and interest is in doubt. At September
30, 1994 and 1993, nonaccrual loans included $5.7 million and $9.0 million,
respectively, of single family loans 90 days delinquent that were subject to
government guaranty and upon which interest continued to accrue. There were no
such loans at September 30, 1996, 1995, and 1992. At September 30, 1995, single
family nonaccrual loans included $10.2 million of loans which were contractually
current pursuant to the borrowers' court-approved bankruptcy plans. At September
30, 1996, $10.6 million of such loans were excluded from single family
nonaccrual loans.

                              NONPERFORMING ASSETS
<TABLE>
<CAPTION>
                                                            AT SEPTEMBER 30,
                                       ----------------------------------------------------------
                                          1996        1995        1994        1993        1992
                                       ----------  ----------  ----------  ----------  ----------
                                                             (IN THOUSANDS)
<S>                                    <C>         <C>         <C>         <C>         <C>
NONACCRUAL LOANS
     Single family(1)................  $   92,187  $   83,954  $   85,722  $   61,451  $   60,209
     Single family residential
       construction..................      --             505      --          --             672
     Consumer........................       1,039         563         506         427      --
     Multi-family....................         144         213       3,802       3,233      --
     Commercial real estate and
       business credit...............         350      --           2,342      --          --
                                       ----------  ----------  ----------  ----------  ----------
                                           93,720      85,235      92,372      65,111      60,881
                                       ----------  ----------  ----------  ----------  ----------
DISCOUNTS
     Accretable(2)...................        (286)       (560)       (669)       (781)     (1,524)
     Non-accretable(3)...............      (3,791)     (9,167)    (15,384)    (22,684)    (21,250)
                                       ----------  ----------  ----------  ----------  ----------
                                           (4,077)     (9,727)    (16,053)    (23,465)    (22,774)
                                       ----------  ----------  ----------  ----------  ----------
          Net nonaccrual loans.......      89,643      75,508      76,319      41,646      38,107
REO, primarily single family
  properties.........................      30,730      24,904      20,684      18,954      17,722
                                       ----------  ----------  ----------  ----------  ----------
          Total nonperforming
            assets...................  $  120,373  $  100,412  $   97,003  $   60,600  $   55,829
                                       ==========  ==========  ==========  ==========  ==========
</TABLE>
------------
(1) Originated single family nonaccrual loans to total single family nonaccrual
    loans were 28.82%, 20.64%, and 13.66% at September 30, 1996, 1995, and 1994,
    respectively.

(2) Accretable discount arises principally from the purchase of performing
    single family residential loans in the secondary market. The discount in
    effect functions principally as an additional reserve by lowering the book
    value of the outstanding loans. If the accretable discount is included with
    the allowance for credit losses, the resulting ratio of the allowance for
    credit losses to total loans would have been 0.73% at September 30, 1996.

(3) The loan principal amount related to the non-accretable discounts were $29.5
    million, $33.7 million, $60.2 million, $41.4 million, and $43.1 million at
    September 30, 1996, 1995, 1994, 1993, and 1992, respectively.

                                       68
<PAGE>
                         SELECTED ASSET QUALITY RATIOS
<TABLE>
<CAPTION>
                                                AT OR FOR THE YEAR ENDED SEPTEMBER 30,
                                         -----------------------------------------------------
                                           1996       1995       1994       1993       1992
                                         ---------  ---------  ---------  ---------  ---------
<S>                                        <C>        <C>        <C>        <C>        <C>
Allowance for credit losses to net
  nonaccrual loans
     Single family...................      32.46%     39.74%     22.70%     39.69%     41.61%
     Total...........................      44.24      48.74      30.73      71.71      74.04
Allowance for credit losses to
  nonperforming assets...............      32.95      36.65      24.18      49.28      50.54
Allowance for credit losses and
  non-accretable discounts to net
  nonaccrual loans...................      48.47      60.88      50.89     126.18     129.80
Allowance for credit losses to total
  loans..............................       0.52       0.44       0.46       0.61       0.68
Nonperforming assets to total
  assets.............................       1.12       0.84       1.09       0.72       0.89
Net nonaccrual loans to total
  loans..............................       1.19       0.91       1.51       0.85       0.92
Nonperforming assets to total loans
  and REO............................       1.59       1.21       1.91       1.23       1.35
Net loan charge-offs to average loans
     Single family...................       0.12       0.08       0.04       0.05       0.07
     Total...........................       0.17       0.16       0.30       0.05       0.07
</TABLE>
             PORTFOLIO OF GROSS NONACCRUAL LOANS BY STATE AND TYPE
                             AT SEPTEMBER 30, 1996

                                                                 % OF
       STATE             SINGLE FAMILY    OTHER      TOTAL       TOTAL
------------------------ -------------    ------   ---------     ------
                                         (IN THOUSANDS)
California..............    $53,093       $ --     $  53,093      56.65%
Florida.................      8,657           97       8,754       9.34
Texas...................      4,359          905       5,264       5.62
Illinois................      4,500         --         4,500       4.80
New Jersey..............      3,251         --         3,251       3.47
New York................      2,592         --         2,592       2.77
Maryland................      1,642         --         1,642       1.75
Pennsylvania............      1,588           22       1,610       1.72
Virginia................      1,162         --         1,162       1.24
Oregon..................      1,025         --         1,025       1.09
Other...................     10,318          509      10,827      11.55
                         -------------    ------   ---------     ------
     Total..............    $92,187       $1,533   $  93,720     100.00%
                         =============    ======   =========     ======
     % of Total.........      98.36%        1.64%     100.00%
                         =============    ======   =========

     The allowance for credit losses to net nonaccrual loans decreased from a
five year high of 74.04% at September 30, 1992 to 48.74% at September 30, 1995.
The decrease in the ratio resulted from the charge-off of $10.1 million in
fiscal 1994 and $3.4 million in fiscal 1995 related to a single large commercial
real estate loan which reduced the amount of the reserve. The ratio decreased to
44.24% at September 30, 1996 primarily due to loan originations and purchases in
the latter half of 1995.

     The allowance for credit losses to net nonaccrual loans was 44.24% at
September 30, 1996 and 48.74% at September 30, 1995. This compares to ratios for
peer institutions (thrifts with assets over $5.0 billion) of 83.47% and 80.94%
at June 30, 1996 and 1995, respectively. The Company's charge-off ratios were
0.17% and 0.16% in fiscal 1996 and 1995, respectively, compared to 0.51% and
0.52% for the twelve months ended June 30, 1996 and 1995, respectively, for peer
institutions. Because 98% of the Company's nonaccrual loans are single family
mortgages, its allowance is lower than is typical of its peers. The Company
believes that because of its underwriting standards and substantial purchase
discounts, historical charge-offs on its single family loans have been lower in
the aggregate than the corresponding aggregate net gains from the sales of the
underlying collateral. The Company believes that its allowance levels
approximate the allowances for future potential losses.

                                       69
<PAGE>
At September 30, 1995 and 1994 the Company's single family loan portfolio
represented 84.8% and 82.1%, respectively, of gross loans outstanding compared
to 72.22% and 65.80% for peer institutions.

     Total nonperforming assets increased $20.0 million to $120.4 million at
September 30, 1996 from $100.4 million at September 30, 1995. The single family
nonaccrual loans increased $8.2 million, reflecting, in part, the effects of the
loan purchases which occurred in the second half of 1995.

     The portion of the purchase discount attributable to potential credit risk
on certain acquired delinquent single family loans is treated as non-accretable
discount. The Company believes that these purchase discounts are sufficient to
cover losses from these portfolios and to provide a market rate of return. The
non-accretable discount on nonaccrual loans decreased $5.4 million to $3.8
million at September 30, 1996 from $9.2 million at September 30, 1995. This
decrease resulted primarily from loan sales and loans being foreclosed upon and
transferred to REO. At September 30, 1996, total non-accretable discount was
$7.1 million, of which $3.8 million related to nonaccrual loans. The
non-accretable discount will reduce future REO losses. REO increased $5.8
million to $30.7 million at September 30, 1996 from $24.9 million at September
30, 1995. This increase primarily resulted from higher levels of delinquencies
on a larger loan portfolio.

     Total nonperforming assets increased $3.4 million to $100.4 million at
September 30, 1995 from $97.0 million at September 30, 1994. The multi-family
and commercial real estate nonaccrual loans decreased $5.9 million from
September 30, 1994. This decrease resulted primarily from loans being paid in
full, and improvement in performance and cash flows. The non-accretable discount
decreased $6.2 million to $9.2 million at September 30, 1995 from $15.4 million
at September 30, 1994. This decrease resulted primarily from loans being
foreclosed upon and transferred to REO. REO increased $4.2 million to $24.9
million at September 30, 1995 from $20.7 million at September 30, 1994. This
increase resulted primarily from increased volumes in the single family
portfolio.

     The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan", and SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures, an amendment of SFAS No. 114",
effective October 1, 1995. These statements address the accounting by creditors
for impairment of certain loans. They apply to all creditors and to all loans,
uncollateralized as well as collateralized, except for large groups of
small-balance homogeneous loans that are collectively evaluated for impairment,
loans that are measured at fair value or at lower of cost or fair value, leases
and debt securities. These statements apply to all loans that are restructured
in a troubled debt restructuring involving a modification of terms. Loans within
the scope of these statements are considered impaired when, based on current
information and events, it is probable that all principal and interest amounts
due will not be collected in accordance with the contractual terms of the loans.
At September 30, 1996, the recorded investment in impaired loans, pursuant to
SFAS No. 114, totalled $3.9 million. There was no allowance for credit losses
determined in accordance with SFAS No. 114 related to these impaired loans
because the measured values of the loans exceeded the recorded investments in
the loans.

                                       70
<PAGE>
     Criticized and classified assets are identified pursuant to management's
asset classification policy, which was established in accordance with regulatory
guidelines.

             RECONCILIATION OF CRITICIZED AND CLASSIFIED ASSETS TO
                              NONPERFORMING ASSETS
                             AT SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
                                           NONPERFORMING    PERFORMING     TOTAL
                                           -------------    ----------   ----------
                                                        (IN THOUSANDS)
<S>                                          <C>             <C>         <C>
Criticized assets
  Special Mention
     Multi-family.......................     $ --            $ 10,288    $   10,288
     Commercial real and business
       credit...........................       --               2,440         2,440
                                           -------------    ----------   ----------
          Total criticized assets.......       --              12,728        12,728
                                           -------------    ----------   ----------
Classified
  Substandard
     Single family......................        88,522         --            88,522
     Consumer...........................           942         --               942
     Multi-family.......................           115         17,781        17,896
     Commercial real estate and business
       credit...........................           234          2,652         2,886
     Real estate owned..................        30,730         --            30,730
                                           -------------    ----------   ----------
                                               120,543         20,433       140,976
  Doubtful
     Multi-family.......................       --                 339           339
     Commercial real estate and business
       credit...........................           116         --               116
                                           -------------    ----------   ----------
                                                   116            339           455
  Loss..................................       --              --            --
          Total classified assets.......       120,659         20,772       141,431
                                           -------------    ----------   ----------
          Total criticized and
            classified assets...........     $ 120,659       $ 33,500    $  154,159
                                           =============    ==========   ==========
          Total classified assets as a %
            of total gross loans........                                       1.87%
          Total allowance for credit
            losses as a % of total
            classified assets...........                                      28.04%
</TABLE>
     The allowance for credit losses is established based on management's
periodic evaluation of the loan portfolio and considers such factors as
historical loss experience, delinquency status, identification of adverse
situations that may affect the ability of obligators to repay, known and
inherent risks in the portfolio, assessment of economic conditions, regulatory
policies, and the estimated value of the underlying collateral, if any. Although
the credit management systems have resulted in a very low loss experience, there
can be no assurance that such results will continue in the future. The allowance
for credit losses is based principally on delinquency status and historical loss
experience.

     The following table presents the allowance for credit losses. See Note 5 to
the Consolidated Financial Statements for activity in the allowance for credit
losses by loan type.

                          ALLOWANCE FOR CREDIT LOSSES

                                           FOR THE YEAR ENDED SEPTEMBER
                                                        30,
                                          -------------------------------
                                            1996       1995       1994
                                          ---------  ---------  ---------
                                                  (IN THOUSANDS)
Beginning balance.......................  $  36,801  $  23,454  $  29,864
     Provision..........................     16,469     24,293      6,997
     Charge-offs net of recoveries......    (13,610)   (10,946)   (13,407)
                                          ---------  ---------  ---------
Ending balance..........................  $  39,660  $  36,801  $  23,454
                                          =========  =========  =========

                                       71
<PAGE>
                   ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES

                                              AT SEPTEMBER 30,
                                       -------------------------------
                                         1996       1995       1994
                                       ---------  ---------  ---------
                                               (IN THOUSANDS)
Single family........................  $  28,645  $  29,594  $  15,905
Single family residential
  construction.......................        693        361        399
Consumer.............................      5,219      3,247      1,822
Multi-family.........................      4,118      2,855      2,329
Multi-family construction............        232        199        127
Commercial real estate and business
  credit.............................        314         97      2,112
Mortgage banker finance line of
  credit.............................        412        410        684
Single family mortgage warehouse.....         27         38         76
                                       ---------  ---------  ---------
     Total...........................  $  39,660  $  36,801  $  23,454
                                       =========  =========  =========

     The allowance for credit losses increased to $39.7 million at September 30,
1996 from $36.8 million at September 30, 1995. The single family allowance for
credit losses decreased to $28.6 million at September 30, 1996 from $29.6
million at September 30, 1995. This decrease primarily resulted from a reduced
level of single family loans as repayments exceeded originations. The consumer
allowance for credit losses increased to $5.2 million at September 30, 1996 from
$3.2 million at September 30, 1995. This increase primarily resulted from
increased losses related to the unsecured line of credit portfolio. The
multi-family allowance for credit losses increased to $4.1 million at September
30, 1996 from $2.9 million at September 30, 1995. This increase primarily
resulted from an increase in the multi-family held to maturity portfolio.

     The allowance for credit losses increased to $36.8 million at September 30,
1995 from $23.5 million at September 30, 1994. The single family allowance for
credit losses increased to $29.6 million at September 30, 1995 from $15.9
million at September 30, 1994. This increase primarily resulted from an increase
in the single family loan portfolio to $7.1 billion at September 30, 1995 from
$4.2 billion at September 30, 1994 due to purchases of $2.7 billion during
fiscal 1995 and additional originations retained for portfolio of $1.0 billion.
The consumer allowance for credit losses increased to $3.2 million at September
30, 1995 from $1.8 million at September 30, 1994, reflecting increased losses
related to the unsecured consumer line of credit portfolio.

     The Company charges-off loans, other than consumer loans, when all attempts
have been exhausted to resolve any outstanding loan or legal issues. For
consumer loans, all loans are charged-off when they contractually become 120
days delinquent.

                                       72

<PAGE>
The components of charge-offs and recoveries by property type for the periods
indicated are as follows:

                              NET LOAN CHARGE-OFFS

                                        FOR THE YEAR ENDED SEPTEMBER 30,
                                       ----------------------------------
                                          1996        1995        1994
                                       ----------  ----------  ----------
                                                 (IN THOUSANDS)
CHARGE-OFFS
     Single family...................  $   (7,751) $   (4,840) $   (1,722)
     Consumer........................      (5,995)     (2,847)     (1,365)
     Multi-family....................      --          --            (233)
     Commercial real estate and
       business credit...............         (39)     (3,389)    (10,145)
     Single family mortgage
       warehouse.....................      --              (2)     --
                                       ----------  ----------  ----------
          Total charge-offs..........     (13,785)    (11,078)    (13,465)
                                       ----------  ----------  ----------
RECOVERIES
     Single family...................          31          36          20
     Consumer........................         144          94          38
     Multi-family....................      --               2      --
                                       ----------  ----------  ----------
          Total recoveries...........         175         132          58
                                       ----------  ----------  ----------
          Total net charge-offs......  $  (13,610) $  (10,946) $  (13,407)
                                       ==========  ==========  ==========
          Net loan charge-offs to
            average loans............        0.17%       0.16%       0.30%

     Net loan charge-offs for all loan types increased to $13.6 million for
fiscal 1996 from $10.9 million for fiscal 1995. The loan portfolio consists
primarily of single family mortgage loans. Net charge-offs on the single family
portfolio increased to $7.7 million for fiscal 1996 from $4.8 million for fiscal
1995. This resulted in net charge-offs as a percentage of single family loans on
average of 0.12% and 0.08%, respectively, for fiscal 1996 and 1995. Net single
family REO gains of $17.6 million exceeded net single family charge-offs of
$16.4 million for the four years ended September 30, 1996. REO gains have
historically been significant because of discounts attributable to the original
loan purchases. Net charge-offs on the consumer loan portfolio increased to $5.9
million for fiscal 1996 from $2.8 million for fiscal 1995. The increase
primarily relates to the unsecured consumer line of credit portfolio.

     Net loan charge-offs for all loans decreased to $10.9 million for fiscal
1995 compared to $13.4 million for fiscal 1994. Net charge-offs on the
commercial real estate and business credit portfolio decreased to $3.4 million
for fiscal 1995 compared to $10.1 million for fiscal 1994. The charge-off in
fiscal 1994 resulted primarily from a $10.1 million charge-off related to a
single commercial real estate loan. The charge-off in fiscal 1995 included an
additional $3.4 million charge related to the sale of the single commercial real
estate loan. Excluding the commercial real estate loan charge-offs, net
charge-offs to average loans outstanding would have been $7.5 million and $3.3
million or 0.11% and 0.07%, respectively, for fiscal 1995 compared to fiscal
1994. Net charge-offs on the single family portfolio increased to $4.8 million
for fiscal 1995 compared to $1.7 million for fiscal 1994. This resulted in net
charge-offs as a percentage of single family loans on average of 0.08% and
0.04%, respectively, for fiscal 1995 compared to fiscal 1994. Net charge-offs on
the consumer loan portfolio increased to $2.8 million for fiscal 1995 compared
to $1.3 million for fiscal 1994. This increase primarily relates to the
unsecured consumer line of credit portfolio.

     The only credit product that has had charge-offs higher than its original
formula reserves is the unsecured consumer line of credit, which was first
offered in fiscal 1993. This product has loans outstanding at September 30, 1996
of $51.2 million, for which allowances for credit losses were recently increased
from 4% to 6% of loans outstanding. Due to the initial growth and loss
experience in this portfolio, underwriting, approval and collection processes
were modified. Net of charge-offs, the portfolio has had positive net interest
income after loss provisions. The Company believes that its current formula
reserve policy is appropriate for this product.

                                       73
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY

     Liquidity refers to the ability or the financial flexibility to manage
future cash flows to meet the needs of depositors and borrowers and fund
operations on a timely and cost-effective basis. The Bank is required by the OTS
to maintain average daily balances of liquid assets and short-term liquid assets
in amounts equal to 5% and 1%, respectively, of net-withdrawable deposits plus
borrowings payable on demand or with remaining maturities of one year or less.
The average daily liquidity ratio for September 1996 was 5.95%, and the average
short-term liquidity ratio for September 1996 was 3.40%.

     The primary sources of funds have consisted of deposits, advances from the
FHLB, reverse repurchase agreements, principal repayments on loans and MBS, and
proceeds from the issuance of Bank Preferred Stock. Liquidity may also be
provided from other sources including investments in short-term high credit
quality instruments. At September 30, 1996, these instruments generally
comprised repurchase agreements, federal funds sold, trading account assets, and
MBS and securities available for sale. These instruments totalled $1.8 billion,
$933.2 million, and $905.4 million at September 30, 1996, 1995, and 1994,
respectively. Funding resources are principally used to meet ongoing commitments
to fund deposit withdrawals, repay borrowings, fund existing and continuing loan
commitments, and maintain liquidity. See Notes 8, 9, 10, and 12 to the
Consolidated Financial Statements.

     In December 1996, the Company contributed all of the outstanding stock of
its subsidiary, the Bank to Holdings, and Holdings assumed the obligations of
the Senior Notes. The Company has no significant assets other than its equity in
Holdings and the Company's ability to pay dividends on its common stock and to
meet its other cash obligations is dependent upon the receipt of dividends from
Holdings. Holding's ability to pay dividends to the Company and meet debt
service requirements on the Senior Notes will be dependent on the extent to
which it receives common stock dividends from the Bank. The declaration of
dividends by the Bank on all classes of its capital stock is subject to the
discretion of the Board of Directors of the Bank, the terms of the Bank
Preferred Stock, applicable regulatory requirements, and compliance with the
covenants of the Senior Notes. The Bank currently has outstanding 7,420,000
shares of the Bank Preferred Stock, stated value $25 per share or $185.5 million
in the aggregate. Total aggregate annual dividend requirements on the Bank
Preferred Stock are $18.25 million. While the Bank Preferred Stock is
noncumulative, common stock dividends may not be paid by the Bank if full
dividends on the Bank Preferred Stock have not been paid for the four most
recent quarterly dividend periods. Thus, if for any reason the Bank failed to
declare and pay full quarterly dividends on the Bank Preferred Stock, Holdings
would not receive any cash dividends from the Bank until four full quarterly
dividends on the Bank Preferred Stock had been paid. While it is the present
intention of the Board of Directors of the Bank to declare dividends in an
amount sufficient to provide the cash flow necessary to meet debt service
obligations in respect of the Senior Notes and to pay dividends to the holders
of the Company's common stock, subject to applicable regulatory restrictions, no
assurance can be given that circumstances which would limit or preclude the
declaration of such dividends will not exist in the future. At September 30,
1996, the Bank would be permitted to pay $152.7 million of dividends on its
capital stock without prior approval of the OTS, and the Company would be able
to pay $76.8 million of dividends on its common stock under the covenants of the
Senior Notes. See "Business -- Regulation -- Safety and Soundness
Regulations -- Capital Requirements -- Capital Distributions" and Notes 11, 15,
and 16 to the Consolidated Financial Statements.

     DEPOSITS

     Deposits have provided the Company with a source of relatively stable and
low cost funds. Average deposits funded 45% of average total assets for fiscal
1996, 48% for fiscal 1995, and 58% for fiscal 1994. The relationship of the
Company's deposits to its average assets has decreased over the past three
years, while overall deposit levels have remained constant. This change in the
relationship of deposit funding is due to the opportunities for leverage created
by increased capital raised through the issuance of the Bank Preferred Stock in
1993 and 1995 and earnings retained by the Company. Additionally, other
financial instrument opportunities available to consumers, who have
traditionally invested in bank deposit products, have become more widely used as
an alternative to deposit products.

                                       74
<PAGE>
     The following table reflects net activity in the Company's deposit
accounts:

                            DEPOSIT ACCOUNT ACTIVITY

                                         FOR THE YEAR ENDED SEPTEMBER 30,
                                       -------------------------------------
                                          1996         1995         1994
                                       -----------  -----------  -----------
                                                  (IN THOUSANDS)
Consumer accounts
     Checking accounts (including
       interest-bearing and
       non-interest bearing).........  $    43,541  $     4,984  $     5,467
     Savings accounts................      (17,762)     (83,089)     (97,286)
     Money market accounts...........      171,064      (24,028)      (1,275)
     Time deposits...................     (231,656)      35,425     (389,465)
                                       -----------  -----------  -----------
          Total consumer activity....      (34,813)     (66,708)    (482,559)
Commercial deposits..................      (45,682)     482,726      384,387
Wholesale deposits...................     (125,859)    (157,019)    (108,196)
                                       -----------  -----------  -----------
          Total activity before
            interest credited........     (206,354)     258,999     (206,368)
Interest credited....................      172,079      159,017      131,184
                                       -----------  -----------  -----------
          Net change in deposits.....  $   (34,275) $   418,016  $   (75,184)
                                       ===========  ===========  ===========

     The Company has historically utilized CDs to compete for consumer deposits.
Beginning in 1995, the Company's strategy has been to increase checking and
money market deposit accounts which are the core relationships that provide a
stable source of funding for the Company. As a complement to this strategy, the
Company continues to offer traditional deposit products, such as savings
accounts and CDs. See Note 8 to the Consolidated Financial Statements.

     The Company offers cash management services to its MBF customers. These
services are commercial deposit accounts comprised of (i) operating accounts of
MBF customers, (ii) escrow deposits, and (iii) principal and interest payments
on the loans serviced by the MBF customers. At September 30, 1996, 1995, and
1994, these deposits totalled $879.3 million, $911.8 million, and $402.5
million, respectively. The Company also raises wholesale deposits from
institutional customers through its Financial Markets Group. These deposits tend
to be interest rate sensitive and are subject to withdrawal if the rates paid on
these deposits are not competitive with other market rates. While the Company
does not generally solicit brokered deposits, the Company may accept brokered
deposits when permitted by regulation and available at favorable rates.

     BORROWINGS

     The Company relies upon borrowings, primarily collateralized borrowings
such as advances from the FHLB and reverse repurchase agreements, to fund its
assets. Borrowings were the primary source of funds for the recent asset growth
and accounted for 45% of the funding of average assets for fiscal 1996, 43% for
fiscal 1995, and 31% for fiscal 1994. Fixed and adjustable-rate advances are
obtained from the FHLB Dallas under a security and pledge agreement that
restricts the amount of borrowings to the greater of a percentage of (i) fully
disbursed single family loans, unless assets are physically pledged to the FHLB
Dallas, and (ii) total assets. At September 30, 1996, these limitations were 65%
and 45%,respectively. The Company's ability to borrow on reverse repurchase
agreements is limited to the amount and market value of collateral that is
available to collateralize those reverse repurchase agreements. At September 30,
1996, the Company had $1.2 billion in such collateral, $1.0 billion of which was
collateralizing such reverse repurchase agreements. See Notes 9 and 10 to the
Consolidated Financial Statements.

     NOTES PAYABLE

     In May 1993, the Company issued $115 million of Senior Notes at an initial
rate of 8.05% and repaid long-term debt (the "15.75% Notes") and a note
payable to a related party. The interest rate on the Senior Notes was subject to
increase in certain circumstances and the PER ANNUM interest rate was increased
to 8.55% in October 1993, and to 9.05% in February 1994. The Senior Notes mature
on May 15, 1998. An exchange offer ("Exchange Offer") was consummated in
August 1996, which satisfied the condition of the Senior Notes pursuant to which
the interest rate on the Senior Notes reverted from 9.05% to 8.05% PER ANNUM in
September 1996. See Note 11 to the Consolidated Financial Statements.

                                       75
<PAGE>
     COMMITMENTS

     At September 30, 1996, the Company had mandatory forward delivery contracts
for single family loans of $322 million and had warehouse loans and mortgage
pipeline loans of single family loans of $261 million and $175 million,
respectively, available to fill these contracts. At September 30, 1996 the
Company had $988 million of commitments to extend credit. Because such
commitments may expire without being drawn upon, the commitments do not
necessarily represent future cash requirements. Scheduled maturities of CDs and
borrowings (including advances from the FHLB and reverse repurchase agreements)
during the twelve months following September 30, 1996, total $2.0 billion and
$3.4 billion, respectively. Management believes that the Company has adequate
resources to fund all of its commitments.

     CAPITAL

     On May 6, 1996, the Bank paid a $100 million dividend to the Company on the
common stock of the Bank and on the same day, the Company paid a dividend on its
common stock in the amount of $100 million.

     Prior to June 1996, the Company was a subsidiary of Hyperion Holdings,
which in turn was a subsidiary of Hyperion Partners. In June 1996, the following
actions were taken (collectively, the "Restructuring"): (i) Hyperion Holdings
exchanged shares of a newly created class of its nonvoting common stock for
certain shares of its voting common stock held by Hyperion Partners; (ii)
Hyperion Partners then distributed the Hyperion Holdings common stock owned by
it to its limited and general partners in accordance with the terms of the
limited partnership agreement of Hyperion Partners (the "Distribution"); and
(iii) following the Distribution, Hyperion Holdings was merged with and into the
Company (the "Merger"). As a result of the Merger, the common stockholders of
Hyperion Holdings (i.e. the limited and general partners of Hyperion Partners)
received shares of Class A voting and Class B nonvoting common stock of the
Company. As of the date of the Merger, Hyperion Holdings had no significant
assets, liabilities or business other than its investment in the Company. The
Merger was accounted for in a manner similar to a pooling of interests. Due to
the immaterial nature of the assets, liabilities, and operations of Hyperion
Holdings prior to the Merger, prior period results were not restated.

     Prior to June 1996, the Company had 13,238 shares of Class A and 2,797
shares of Class C common stock outstanding. The June 1996 Merger and
Restructuring discussed above included a 1,800 to one stock conversion and the
conversion of all Class C and certain Class A shares to Class B shares. The
Class C shares were then cancelled. Also in June 1996, 318,342 shares of Class B
common stock with restrictions on its transferability for a period of three
years from its issuance ("Restricted Stock") were awarded as part of the
management compensation program. See Note 13 to the Consolidated Financial
Statements.

     In August 1996, the Company filed a registration statement with the SEC and
12,075,000 shares of the Company Class A common stock were sold to the public.
The Company sold 910,694 shares and Selling Shareholders sold 11,164,306 shares.
The net proceeds to the Company, proceeds to the Selling Shareholders, and the
underwriting discount were $14.0 million, $210.4 million, and $13.9 million,
respectively. The net proceeds to the Company from the Offering will be
contributed to the capital of the Bank in the first quarter of fiscal 1997 for
general corporate purposes.

     Concurrent with the execution of the Assistance Agreement, the Bank and the
FSLIC entered into the Warrant Agreement pursuant to which the FSLIC was granted
the Warrant to purchase up to 158,823 shares of common stock of the Bank at an
exercise price of $0.01 per share. In August 1996, the FDIC surrendered a
portion of the Warrant for a cash payment of $6.1 million and exercised the
remainder of the Warrant. The FDIC immediately exchanged the shares of common
stock of the Bank it received for 1,503,560 shares of common stock of the
Company. The FDIC sold all of the 1,503,560 shares of common stock of the
Company in the Offering.

     At September 30, 1996, after the 1,800 to one stock conversion, the
issuance of Restricted Stock, the Offering, and the Warrant conversion, the
Company had a total of 31,595,596 shares of common stock (par value $0.01)
outstanding as follows: Class A (voting) -- 27,735,934 shares and Class B
(nonvoting) -- 3,859,622 shares. The authorized stock of the Company consists of
the following: Class A common stock -- 40,000,000 shares, Class B common
stock -- 40,000,000 shares, and preferred stock -- 10,000,000 shares. Class B
common stock may be converted to Class A common stock subject to certain
restrictions. At December 16, 1996, the Company had 28,354,276 shares of Class A
common stock and 3,541,320 shares of Class B common stock outstanding.

                                       76
<PAGE>
     In December 1996, the Company contributed all of the outstanding common
stock of its subsidiary, the Bank, to Holdings, and Holdings assumed the
obligations of the Senior Notes.

     REGULATORY MATTERS

     The Bank is subject to regulatory capital requirements as defined in the
OTS capital regulations. The Bank's capital level at September 30, 1996 and 1995
qualified it as "well-capitalized", the highest of five tiers under applicable
regulatory definitions. See "Business -- Regulation -- Safety and Soundness
Regulations -- Capital Requirements," and Note 15 to the Consolidated Financial
Statements.

     The following table sets forth the regulatory capital ratios of the Bank as
of the dates indicated.

                           REGULATORY CAPITAL RATIOS

                                              AT SEPTEMBER 30,
                                       -------------------------------
                                         1996       1995       1994
                                       ---------  ---------  ---------
Tangible capital.....................     6.57%      6.20%      6.01%
Core capital.........................     6.64%      6.29%      6.17%
Total risk-based capital.............    13.09%     13.45%     14.02%
Tier I capital.......................    12.40%     12.82%     13.44%

     During fiscal 1993, the Bank issued its Preferred Stock, Series A and
during fiscal 1995, the Bank issued its Preferred Stock, Series B. Shares
totalling $85.5 million were issued as a result of the Preferred Stock, Series A
offering and shares totalling $100 million were issued as a result of the
Preferred Stock, Series B offering. These shares are not owned by the Company.
Bank Preferred Stock, which is treated as core capital for regulatory purposes,
was issued to increase total capital to support further growth.

     The United States Congress passed legislation that was signed into law on
September 30, 1996, which resulted in an assessment on all SAIF-insured deposits
in such amounts that will fully-capitalize the SAIF at a reserve ratio of 1.25%
of SAIF-insured deposits. This one-time assessment has been set at 65.7 basis
points of SAIF-assessable deposits at March 31, 1995. The Bank's assessment of
$33.7 million, $20.7 million net of tax, was recorded in the fourth quarter of
fiscal 1996 and will be paid in the first quarter of fiscal 1997.

     As a result of this one-time assessment, the SAIF has met its designated
reserve ratio at October 1, 1996. For the first quarter of fiscal 1997, a
special interim rate of 18 to 27 basis points will apply to pay interest on the
FICO obligations. Effective January 1, 1997, SAIF institutions will pay a base
assessment rate of 0 to 27 basis points and FICO assessments of 6.44 basis
points.

CONTINGENCIES AND UNCERTAINTIES

     Maxxam has filed a petition for review in the United States Court of
Appeals for the Fifth Circuit seeking to modify, terminate, and set aside the
order approving the Acquisition, which involved substantially all the Bank's
initial assets and liabilities. In its brief to the Court of Appeals, Maxxam has
asserted that the Court of Appeals should order the OTS "to award Bank United
to Maxxam" and that the Company would bear no harm in that event because it is
entitled to full indemnification by the FDIC-FRF pursuant to Section 7(a)(2) of
the Assistance Agreement. The same petitioner has filed a Motion to Intervene
and a Complaint in Intervention in an action pending in the United States
District Court for the Southern District of Texas, also seeking to set aside the
order approving the Acquisition. Maxxam contends, in both cases, that it
submitted the most favorable bid to acquire the assets and liabilities of Old
USAT and that it should have been selected as the winning bidder.

     The Company is not a party to either of these proceedings. The Bank has
intervened in the Fifth Circuit case and may file a Motion to Intervene in the
District Court case at a later date. Management believes, after consultation
with legal counsel, that the claims of the petitioner are barred by applicable
time limits, have no basis for assertion under existing law, and will not have a
material adverse effect on the Bank's or the Company's financial condition,
results of operations, or liquidity. See "Legal Proceedings".

     The Bank, in its various operations, is subject to substantial statutory
and regulatory compliance obligations. See "Business -- Regulation". The Bank
attempts in good faith to comply with the requirements of the various statutes
and regulations to which it is subject. These statutes and regulations are
complex, however, and even inadvertent noncompliance could result in civil and,
in some cases, criminal liability. In this regard, a substantial part of the
Bank's business has involved the origination, purchase, and sale of mortgage
loans. During the past several years, numerous individual claims and purported
consumer class action claims have been commenced against a number of financial
institutions, their subsidiaries, and other mortgage lending institutions,
alleging

                                       77
<PAGE>
violations of various state and regulatory provisions relating to mortgage
lending and servicing, including the TILA and the RESPA.

     In addition to the foregoing, mortgage lending institutions have been
subjected to an increasing number of other types of individual claims and
purported consumer class action claims that relate to various aspects of the
origination, pricing, closing, servicing and collection of mortgage loans, and
that allege inadequate disclosure, breach of fiduciary duty, breach of contract,
or violation of federal or state laws. Claims have involved, among other things,
interest rates and fees charged in connection with loans, interest rate
adjustments on adjustable-rate mortgage loans, timely release of liens upon loan
payoffs, the disclosure and imposition of various fees and charges, and the
placing of collateral protection insurance. The Bank has had asserted against it
one putative class action claim under the TILA, one putative class action claim
under the RESPA and three separate putative class action claims involving the
Bank's loan servicing practices. Management does not expect these claims, in the
aggregate, to have a material adverse effect on the Bank's or the Company's
financial condition, results of operations or liquidity. See "Legal
Proceedings".

     As of September 30, 1996, the Company had NOLs of $817 million available to
reduce taxable income in future years. There can be no assurance that the tax
deductions associated with these NOLs will be allowed by the IRS. In addition,
such tax deductions would be subject to significant limitation under Section 382
of the Code if the Company undergoes an Ownership Change. In the event of an
Ownership Change, Section 382 of the Code imposes an annual limitation on the
amount of taxable income a corporation may offset with NOLs and certain
recognized built-in losses. See "Business -- Taxation -- Net Operating Loss
Limitations".

FEDERAL FINANCIAL ASSISTANCE

     Pursuant to the Assistance Agreement and the Settlement Agreement the Bank
received substantial payments from the FRF during fiscal 1994 as follows:

                                        (IN THOUSANDS)
Payments affecting the results of
  operations.........................      $ 23,143
Other Payments
     Settlement payment..............       195,300
     Other...........................           468
                                        --------------
               Total FRF payments....      $218,911
                                        ==============

     FRF Assistance on Covered Assets was offset by the interest expense to
carry these assets and certain related operating expenses, neither of which were
reimbursed by the FRF.

     Pursuant to the Settlement Agreement, all financial assistance and related
payments ceased to accrue as of December 28, 1993, and, as of that date, the
Bank no longer managed or owned any Covered Assets. There was no material
adverse effect on the Company or the Bank as a result of the Settlement
Agreement, the transfer of certain Covered Assets to the FDIC, and the retention
of the remainder of such Covered Assets without financial assistance. See
"Business -- The Assistance Agreement".

RECENTLY ISSUED ACCOUNTING STANDARDS

     In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" was issued. This statement
establishes accounting standards for recognizing and measuring impairment of
long-lived assets (and related goodwill) to be held and used and for such assets
held for disposal. The statement is effective for financial statements with
fiscal years beginning after December 15, 1995. Implementation of this
pronouncement should have no material effect on the Consolidated Financial
Statements.

     In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation"
was issued. This statement defines a fair value based method of accounting for
an employee stock option or similar equity instrument and encourages adoption of
that method for all employee stock compensation plans. However, it also allows
an entity to continue to measure compensation cost for those plans using the
intrinsic value based method currently being followed and make pro forma
disclosures of net income and earnings per share under the fair value based
method of accounting. This statement is effective for financial statements with
fiscal years beginning after December 15, 1995. Management is currently
evaluating the proposed alternatives under this statement.

     In June 1996, SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" was issued. This statement
requires that, after a transfer of financial assets, an entity recognize the
financial and servicing assets it controls and the liabilities it has incurred,
derecognize financial

                                       78
<PAGE>
assets when control has been surrendered, and derecognize liabilities when
extinguished. This statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. This statement is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1996, and
is to be applied prospectively. Earlier or retroactive application is not
permitted. Implementation of this pronouncement should have no material effect
on the Consolidated Financial Statements.

FORWARD-LOOKING INFORMATION

     Statements and financial discussion and analysis by management contained
herein that are not historical facts are forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve a number of risks and
uncertainties. The important factors that could cause actual results to differ
materially from the forward-looking statements include, without limitation,
changes in interests rates and economic conditions; the shift in the Company's
emphasis from residential mortgage lending to community and commercial banking
activities; the restructuring of the Company's Mortgage Banking origination
business; increased competition for deposits and loans; changes in the
availability of funds; changes in local economic and business conditions;
changes in availability of residential mortgage loans originated by other
financial institutions or the Company's ability to purchase such loans on
favorable terms; transactions in the Company's common stock that might result in
an Ownership Change triggering an annual limitation on the use of the Company's
NOLs under Section 382 of the Code; changes in the ability of the Bank to pay
dividends on its common stock; changes in applicable statutes and government
regulations or their interpretation; the continuation of the significant
disparity in the deposit insurance premiums paid by thrift institutions and
commercial banks; changes in government programs that facilitate the issuance of
MBS or the Company's continued eligibility to participate in such programs; the
loss of senior management or operating personnel; claims with respect to
representations and warranties made by the Company to purchasers and insurers of
mortgage loans and to purchasers of MSRs; claims of noncompliance by the Company
with statutory and regulatory requirements; and changes in the status of
litigation to which the Company is a party. For further information regarding
these factors, see "Risk Factors" in the prospectus dated August 8, 1996,
relating to the initial public offering of the Company's common stock filed with
the SEC (File No. 333-06229).

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See the index included on page 86 and the Consolidated Financial Statements
which begin on page 88.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.

                                       79
<PAGE>
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information on directors and executive officers of the Company contained
under the caption "Election of Directors" in the Company's definitive Proxy
Statement relating to the 1996 Annual Meeting of Shareholders is incorporated
herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     Information concerning executive compensation contained under the caption
"Executive Compensation" in the Company's definitive Proxy Statement relating
to the 1996 Annual Meeting of Shareholders is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information on beneficial ownership of the Company's voting securities by
each director and all officers and directors as a group, and by any person known
to beneficially own more than 5% of voting security of the Company contained
under the caption "Security Ownership of Certain Beneficial Owners and
Management" in the Company's definitive Proxy Statement relating to the 1996
Annual Meeting of Shareholders is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information on certain relationships and related transactions contained
under the caption "Certain Relationships and Related Transactions" of the
Company's definitive Proxy Statement relating to the 1996 Annual Meeting of
Shareholders is incorporated herein by reference.

                                       80

<PAGE>
                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (A).  (1) CONSOLIDATED FINANCIAL STATEMENTS

               1.   Independent Auditors' Report

               2.   Consolidated Statements of Financial Condition --
                    September 30, 1996 and 1995

               3.   Consolidated Statements of Operations -- Years Ended
                    September 30, 1996, 1995, and 1994

               4.   Consolidated Statements of Stockholders' Equity -- Years
                    Ended September 30, 1996, 1995, and 1994

               5.   Consolidated Statements of Cash Flows -- Years Ended
                    September 30, 1996, 1995, and 1994

               6.   Notes to Consolidated Financial Statements -- Years Ended
                    September 30, 1996, 1995, and 1994

           (2) FINANCIAL STATEMENTS SCHEDULES

               Any required schedules are included with the Consolidated
               Financial Statements, which begin on page 88.

          (3)  EXHIBITS

               Exhibits followed by a parenthetical reference are incorporated
               by reference herein from the document described in such
               parenthetical reference.

EXHIBIT NO.                      DESCRIPTION
-----------                      -----------
  2.1   -- Form of Letter Agreement, by and among the general and limited
           partners of Hyperion Partners, L.P., dated as of June 17, 1996,
           relating to certain transactions consummated prior to the Offering.
           (Exhibit 2.1 to Form S-1 filed on June 18, 1996)

  2.2   -- Merger Agreement, dated as of June 17, 1996, by and between the
           Company and Hyperion Holdings related to the Merger. (Exhibit 2.2 to
           Form S-1 filed on August 7, 1996)

  3.1   -- Form of Restated Certificate of Incorporation of the Registrant,
           as amended. (Exhibit 3.1 to Form S-1 filed on June 18, 1996)

  3.2   -- Form of By-Laws of the Registrant. (Exhibit 3.2 to Form S-1 filed
           on June 18, 1996)

  4.1   -- Indenture, dated as of May 15, 1993, between the Registrant and
           Bank of New York, as Trustee, relating to the Registrant's 8.05%
           Senior Notes due May 15, 1998. (Exhibit 4.1 to Form S-1 filed on June
           18, 1996)

  4.2   -- Form of 8.05% Senior Note due May 15, 1998 (included in the
           Indenture filed as Exhibit 4.1 hereto). (Exhibit 4.2 to Form S-1
           filed on June 18, 1996)

  4.3   -- Exchange and Registration Rights relating to Registrant's 8.05%
           Senior Notes due May 15, 1998. (Exhibit 4.3 to Form S-1 filed on June
           18, 1996)

  4.4   -- First Supplemental Indenture, dated as of January 23, 1995,
           between the Registrant and the Bank of New York, as Trustee, relating
           to Registrant's 8.05% Senior Notes due May 15, 1998. (Exhibit 4.4 to
           Form S-1 filed on June 18, 1996)

  4.5   -- Form of Class A common stock Certificate. (Exhibit 4.5 to Form S-1
           filed on July 25, 1996)

 10.1   -- Assistance Agreement, dated December 30, 1988, among the Bank, the
           Registrant, Hyperion Holdings, Hyperion Partners, and the FSLIC.
           (Exhibit 10.1 to Form S-1 filed on June 18, 1996)

 10.1a  -- Settlement and Termination Agreement, dated as of December 23,
           1993, among the Bank, the Registrant, Hyperion Holdings, Hyperion
           Partners and the FDIC. (Exhibit 10.1a to Form S-1 filed on June 18,
           1996)

 10.1b  -- Tax Benefits Agreement, dated December 28, 1993, among the Bank,
           the Registrant, Hyperion Holdings, Hyperion Partners and the FDIC.
           (Exhibit 10.1b to Form S-1 filed on June 18, 1996)

 10.2   -- Acquisition Agreement, dated December 30, 1988, between the Bank
           and the FSLIC.(Exhibit 10.2 to Form S-1 filed on June 18, 1996)

                              81
<PAGE>
 10.3   -- Warrant Agreement, dated December 30, 1988, between the Bank and
           the FSLIC. (Exhibit 10.3 to Form S-1 filed on June 18, 1996)

 10.3a  -- Amended and Restated Warrant Agreement dated December 28, 1993,
           between the Bank and the FDIC. (Exhibit 10.3a to Form S-1 filed on
           June 18, 1996)

 10.4   -- Regulatory Capital Maintenance Agreement, dated December 30, 1988
           among the Bank, the Registrant, Hyperion Holdings, Hyperion Partners,
           and the FSLIC (terminated). (Exhibit 10.4 to Form S-1 filed on June
           18, 1996)

 10.5   -- Federal Stock Charter of the Bank and First Amendment to charter
           approved on August 26, 1992. (Exhibit 10.5 to Form S-1 filed on June
           18, 1996)

 10.6   -- Amended and Restated Federal Stock Charter of the Bank and Second
           Amendment approved on October 30, 1992. (Exhibit 10.6 to Form S-1
           filed on June 18, 1996)

 10.6a  -- Third Amendment to the Federal Stock Charter of the Bank approved
           on April 23, 1996. (Exhibit 10.6a to Form S-1 filed on June 18, 1996)

 10.6b  -- Amended and Restated Bylaws of the Bank. (Exhibit 10.6b to Form
           S-1 filed on June 18, 1996)

 10.7   -- Specimen Preferred Stock, Series A, certificate, $25.00 per share
           stated value of the Bank. (Exhibit 10.7 to Form S-1 filed on June 18,
           1996)

 10.7a  -- Certificate of Designation of Noncumulative Preferred Stock,
           Series A, of the Bank. (Exhibit 10.7a to Form S-1 filed on June 18,
           1996)

 10.7b  -- Specimen Preferred Stock, Series B, certificate, $25.00 per share
           stated value, of the Bank. (Exhibit 10.7b to Form S-1 filed on June
           18, 1996)

 10.7c  -- Certificate of Designation of Noncumulative Preferred Stock,
           Series B, of the Bank. (Exhibit 10.7c to Form S-1 filed on June 18,
           1996)

 10.8   -- Data Processing Agreement, dated January 1, 1992, between the Bank
           and Systematics Financial Services, Inc., and First Amendment (dated
           October 28, 1992) and Second Amendment (dated September 1, 1992).
           (Exhibit 10.8 to Form S-1 filed on June 18, 1996)

 10.8a  -- Third Amendment, dated December 17, 1993, to the Data Processing
           Agreement, dated January 1, 1992, between the Bank and Systematics
           Financial Services, Inc. (Exhibit 10.8a to Form S-1 filed on June 18,
           1996)

 10.8b  -- Fourth Amendment, dated March 28, 1994, to the Data Processing
           Agreement, dated January 1, 1992, between the Bank and Systematics
           Financial Services, Inc. (Exhibit 10.8b to Form S-1 filed on June 18,
           1996)

 10.8c  -- Fifth Amendment, dated April 1, 1994 to the Data Processing
           Agreement, dated January 1, 1992, between the Bank and Systematics
           Financial Services, Inc. (Exhibit 10.8c to Form S-1 filed on June 18,
           1996)

 10.8d  -- Sixth Amendment, dated February 26, 1996 to the Data Processing
           Agreement, dated January 1, 1992, between the Bank and Systematics
           Financial Services, Inc. (Exhibit 10.8d to Form S-1 filed on June 18,
           1996)

 10.9   -- Management and Consulting Services Agreement, dated January 1,
           1992, between the Bank and Systematics Financial Services, Inc., and
           First Amendment (dated March 18, 1992) and Second Amendment (dated
           September 1, 1992). (Exhibit 10.9 to Form S-1 filed on June 18, 1996)

 10.10  -- Lease Agreement, dated April 1, 1989, between the Bank and Homart
           Development Co. (Leased premises at 3200 Southwest Freeway) and First
           Amendment thereto dated January 31, 1990. (Exhibit 10.10 to Form S-1
           filed on June 18, 1996)

 10.10a -- Second Amendment, dated November 14, 1994 to Lease Agreement dated
           April 1, 1989, between the Bank and Homart Development Co. (assigned
           to HD Delaware Properties, Inc.). (Exhibit 10.10a to Form S-1 filed
           on June 18, 1996)

 10.10b -- Third Amendment, dated January 8, 1996 to Lease Agreement dated
           April 1, 1989 between the Bank and Homart Development Co.
           (predecessor in interest of HMS Office, L.P.). (Exhibit 10.10b to
           Form S-1 filed on June 18, 1996)

 10.11  -- Lease Agreement, dated November 20, 1990, between the Bank and
           Greenway Plaza, LTD. (Leased premises at 3800 Buffalo Speedway).
           (Exhibit 10.11 to Form S-1 filed on June 18, 1996)

 10.12  -- Employment Agreement, dated March 18, 1991, between the Bank and
           Barry C. Burkholder. (Exhibit 10.12 to Form S-1 filed on June 18,
           1996)

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<PAGE>
 10.12a -- Amendment, dated April 10, 1996, to the Employment Agreement
           between the Bank and Barry C. Burkholder. (Exhibit 10.12a to Form S-1
           filed on June 18, 1996)

 10.13  -- Letter Agreement Related to Employment, dated April 4, 1990,
           between the Bank and Anthony J. Nocella. (Exhibit 10.13 to Form S-1
           filed on June 18, 1996)

 10.14  -- Letter Agreement Related to Employment, dated June 18, 1990
           between the Bank and George R. Bender. (Exhibit 10.14 to Form S-1
           filed on June 18, 1996)

 10.15  -- Letter Agreement Related to Employment, dated April 6, 1990,
           between the Bank and Jonathon K. Heffron. (Exhibit 10.15 to Form S-1
           filed on June 18, 1996)

 10.16  -- Letter Agreement Related to Employment, dated May 10, 1991,
           between the Bank and Leslie H. Green. (Exhibit 10.16 to Form S-1
           filed on June 18, 1996)

 10.17  -- Management Incentive Plan, dated April 20, 1992. (Exhibit 10.17 to
           Form S-1 filed on June 18, 1996)

 10.18  -- Letter Agreement, dated January 5, 1990, between Hyperion Partners
           and certain shareholders of the Registrant with respect to the
           provision of managerial assistance to the Registrant. (Exhibit 10.18
           to Form S-1 filed on June 18, 1996)

 10.22  -- Supplemental Executive Savings Plan of the Bank. (Exhibit 10.22 to
           Form S-1 filed on June 18, 1996)

 10.23  -- Directors Supplemental Savings Plan of the Bank. (Exhibit 10.23 to
           Form S-1 filed on June 18, 1996)

 10.24  -- Warrant Purchase and Exchange Agreement, dated July 23, 1996, by
           and among the Company, the Bank and the Federal Deposit Insurance
           Corporation. (Exhibit 10.24 to Form S-1 filed on July 25, 1996)

*10.25  -- Tax Sharing Agreement dated as of May 1, 1996, by and between the
           Company and the Bank.

 10.26  -- Form of The Company's 1996 Stock Incentive Plan. (Exhibit 10.26 to
           Form S-1 filed on July 25, 1996)

 10.27  -- Form of The Company's Director Stock Plan. (Exhibit 10.27 to Form
           S-1 filed on July 25, 1996)

*10.28  -- Employment Agreement, dated August 1, 1996, between the Company
           and Barry C. Burkholder.

*10.29  -- Employment Agreement, dated August 1, 1996, between the Company
           and Anthony J. Nocella.

*10.30  -- Employment Agreement, dated August 1, 1996, between the Company
           and Jonathon K. Heffron.

*10.31  -- Employment Agreement, dated August 1, 1996, between the Company
           and Ronald D. Coben.

 10.32  -- Form of Nontransferable Stock Agreement. (Exhibit 10.32 to Form
           S-1 filed on July 25, 1996)

 10.33  -- Form of Stock Option Agreement. (Exhibit 10.33 to Form S-1 filed
           on July 25, 1996)

*10.34  -- Consulting Agreement.

*10.35  -- Recovery Agreement.

 10.36  -- Stock Purchase Agreement, dated January 15, 1993, between Hyperion
           Partners and Hyperion Holdings. (Exhibit 10.36 to Form S-1 filed on
           July 25, 1996)

 21     -- Subsidiaries of the Registrant. (Exhibit 21 to Form S-1 filed on
           August 7, 1996)

*27     -- Financial Data Schedule.
------------
* Filed herewith.

     (b).  REPORTS ON FORM 8-K

     The Company filed no reports on Form 8-K during the last quarter of fiscal
1996.

                                       83
<PAGE>
                                   SIGNATURES

     PURSUANT TO THE REQUIREMENTS OF SECTION 13, OR 15(D) OF THE SECURITIES ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN HOUSTON, STATE OF TEXAS, ON
DECEMBER 20, 1996.

                                          BANK UNITED CORP.
                                          By /s/ BARRY C. BURKHOLDER
                                                 PRESIDENT AND CHIEF EXECUTIVE
                                                 OFFICER

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS
BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN
THE CAPACITIES AND ON THE DATES INDICATED BELOW.

         SIGNATURES                     TITLE                     DATE
         ----------                     -----                     ----
(1)  Principal Executive Officer:

     /s/ BARRY C. BURKHOLDER         President and Chief      December 20, 1996
         BARRY C. BURKHOLDER         Executive Officer

(2)  Principal Financial and
      Accounting Officer:

     /s/ ANTHONY J. NOCELLA          Chief Financial          December 20, 1996
         ANTHONY J. NOCELLA          Officer

(3)  Directors:
     /s/ LEWIS S. RANIERI            Director                 December 20, 1996
         LEWIS S. RANIERI

     /s/ SALVATORE A. RANIERI        Director                 December 20, 1996
         SALVATORE A. RANIERI

     /s/ SCOTT A. SHAY               Director                 December 20, 1996
         SCOTT A. SHAY

     /s/ BARRY C. BURKHOLDER         Director                 December 20, 1996
         BARRY C. BURKHOLDER

     /s/ LAWRENCE CHIMERINE, PH.D    Director                 December 20, 1996
         LAWRENCE CHIMERINE, PH.D.

     /s/ DAVID M. GOLUSH             Director                 December 20, 1996
         DAVID M. GOLUSH

     /s/ PAUL M. HORVITZ, PH.D       Director                 December 20, 1996
         PAUL M. HORVITZ, PH.D.

                                       84
<PAGE>
     /s/ ALAN E. MASTER              Director                 December 20, 1996
         ALAN E. MASTER

     /s/ ANTHONY J. NOCELLA          Director                 December 20, 1996
         ANTHONY J. NOCELLA

     /s/ PATRICIA A. SLOAN           Director                 December 20, 1996
         PATRICIA A. SLOAN

     /s/ MICHAEL S. STEVENS          Director                 December 20, 1996
         MICHAEL S. STEVENS

     /s/ KENDRICK R. WILSON III      Director                 December 20, 1996
         KENDRICK R. WILSON III
                                       85
<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                        PAGE
                                        ----
Independent Auditors' Report.........    87

Consolidated Statements of Financial
  Condition as of September 30, 1996
  and 1995...........................    88

Consolidated Statements of Operations
  for the Years Ended September 30,
  1996, 1995, and 1994...............    89

Consolidated Statements of
  Stockholders' Equity for the Years
  Ended September 30, 1996, 1995, and
  1994...............................    90

Consolidated Statements of Cash Flows
  for the Years Ended September 30,
  1996, 1995, and 1994...............    91

Notes to Consolidated Financial
  Statements.........................    93

     All supplemental schedules are omitted as inapplicable or because the
required information is included in the Consolidated Financial Statements or
Notes thereto.

                                       86
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
of Bank United Corp.:

     We have audited the accompanying consolidated statements of financial
condition of Bank United Corp. and its subsidiary (collectively known as the
"Company") as of September 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company at
September 30, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1996 in
conformity with generally accepted accounting principles.

     Our audits were conducted for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The information as of
September 30, 1994, 1993, and 1992 and for the years ended September 30, 1993
and 1992 included in notes 3, 4, 5, and 8 is presented for the purpose of
additional analysis and is not a required part of the basic consolidated
financial statements. This information is the responsibility of the Company's
management. Such information has been subjected to the auditing procedures
applied in our audits of the basic consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
consolidated financial statements from which such information has been derived.

     As discussed in notes 1 and 6 to the consolidated financial statements,
effective October 1, 1994, the Company changed its method of accounting for
mortgage servicing rights to conform with Statement of Financial Accounting
Standards No. 122.

DELOITTE & TOUCHE LLP
Houston, Texas
October 28, 1996

                                       87
<PAGE>
                               BANK UNITED CORP.
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                 (IN THOUSANDS)

                                                          AT SEPTEMBER 30,
                                                    ----------------------------
                                         NOTES          1996           1995
                                       ----------   -------------  -------------
ASSETS
Cash and cash equivalents............              $     119,523  $     112,931
Securities purchased under agreements
  to resell and federal funds sold...      2             674,249        471,052
Trading account assets, at fair
  value..............................                      1,149          1,081
Securities                               3, 12
     Held to maturity, at amortized
      cost (fair value of $169
      thousand in 1996 and $2.7
      million in 1995)...............                        168          1,902
     Available for sale, at fair
      value..........................                     64,376        114,111
Mortgage-backed securities             4, 9, 10
     Held to maturity, at amortized
      cost (fair value of $609.2
      million in 1996 and $2,031
      million in 1995)...............                    630,048      2,051,304
     Available for sale, at fair
      value..........................                  1,027,860        346,959
Loans                                    5, 9
     Held to maturity (net of the
      allowance for credit losses of
      $39.6 million in 1996 and $36.8
      million in 1995)...............                  7,227,153      7,763,676
     Held for sale...................                    292,335        496,564
Federal Home Loan Bank stock.........                    179,643        225,952
Premises and equipment...............                     40,209         37,687
Mortgage servicing rights............      6             123,392         75,097
Intangible assets....................                     16,922         26,519
Real estate owned (net of allowance
  for losses of $986 thousand in 1996
  and $1.1 million in 1995)..........                     29,744         23,764
Deferred tax asset...................     14             168,323         77,571
Other assets.........................                    117,283        157,364
                                                   -------------  -------------
TOTAL ASSETS.........................              $  10,712,377  $  11,983,534
                                                   =============  =============
LIABILITIES, MINORITY INTEREST, AND
  STOCKHOLDERS' EQUITY
LIABILITIES
Deposits.............................      8       $   5,147,945  $   5,182,220
Federal Home Loan Bank advances......   4, 5, 9        3,490,386      4,383,895
Securities sold under agreements to
  repurchase and federal funds
  purchased..........................    4, 10           832,286      1,172,533
Senior Notes.........................     11             115,000        115,000
Advances from borrowers for taxes and
  insurance..........................                    146,634        183,968
Other liabilities....................                    263,583        264,315
                                                   -------------  -------------
          Total liabilities..........                  9,995,834     11,301,931
                                                   -------------  -------------
COMMITMENTS AND CONTINGENCIES........ 12, 15, 17
MINORITY INTEREST
Preferred stock issued by
  consolidated subsidiary............     16             185,500        185,500
                                                   -------------  -------------
STOCKHOLDERS' EQUITY.................   15, 16
Common stock.........................                        316            289
Paid-in capital......................                    129,286        117,722
Retained earnings....................                    403,674        384,739
Unrealized gains (losses) on
  securities and mortgage-backed
  securities available for sale, net
  of tax.............................      4              (2,233)        (6,647)
                                                   -------------  -------------
          Total stockholders'
            equity...................                    531,043        496,103
                                                   -------------  -------------
TOTAL LIABILITIES, MINORITY INTEREST,
  AND
  STOCKHOLDERS' EQUITY...............              $  10,712,377  $  11,983,534
                                                   =============  =============

          See accompanying Notes to Consolidated Financial Statements.

                                       88
<PAGE>
                               BANK UNITED CORP.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                               FOR THE YEAR ENDED SEPTEMBER 30,
                                               -------------------------------
                                       NOTES     1996       1995       1994
                                       ------  ---------  ---------  ---------
INTEREST INCOME
Short-term interest-earning assets...          $  39,302  $  29,675  $  19,019
Trading account assets...............                 67         62       (144)
Securities...........................    3         3,917      5,893      5,007
Mortgage-backed securities...........    4       128,143    173,155    151,972
Loans................................    5       627,940    526,528    308,804
Federal Home Loan Bank stock.........             12,943     11,446      5,558
Covered Assets and related assets....    7        --         --          4,490
                                               ---------  ---------  ---------
         Total interest income.......            812,312    746,759    494,706
                                               ---------  ---------  ---------
INTEREST EXPENSE
Deposits.............................    8       272,220    264,366    209,034
Federal Home Loan Bank advances......    9       247,093    224,767     91,060
Securities sold under agreements to
  repurchase and federal funds
  purchased..........................    10       55,112     53,220     10,574
Senior Notes.........................    11       10,353     10,407     10,177
Other................................             --         --             79
                                               ---------  ---------  ---------
         Total interest expense......            584,778    552,760    320,924
                                               ---------  ---------  ---------
         Net interest income.........            227,534    193,999    173,782
PROVISION FOR CREDIT LOSSES..........    5        16,469     24,293      6,997
                                               ---------  ---------  ---------
         Net interest income after
           provision for credit
           losses....................            211,065    169,706    166,785
                                               ---------  ---------  ---------
NON-INTEREST INCOME
Net gains (losses)
    Sales of single family servicing
     rights and single family
     warehouse loans.................             43,074     60,495     63,286
    Securities and mortgage-backed
     securities......................   3, 4       4,002         26     10,404
    Other loans......................              3,189     (1,210)       163
Loan servicing fees and charges......             44,230     43,508     31,741
Other................................             15,541     12,162     13,295
                                               ---------  ---------  ---------
         Total non-interest income...            110,036    114,981    118,889
                                               ---------  ---------  ---------
NON-INTEREST EXPENSE
Compensation and benefits............    13       87,640     83,520     86,504
Occupancy............................    17       18,415     18,713     17,196
Data processing......................    17       16,196     16,360     15,821
Advertising and marketing............              8,025      9,262     10,796
Amortization of intangibles..........             20,432     21,856     18,247
SAIF deposit insurance premiums......    15       45,690     11,428     11,329
Furniture and equipment..............              6,121      6,428      6,810
Restructuring charges................    18       10,681     --         --
Other................................             40,065     27,009     32,890
                                               ---------  ---------  ---------
         Total non-interest
           expense...................            253,265    194,576    199,593
                                               ---------  ---------  ---------
         Income before income taxes
           and minority interest.....             67,836     90,111     86,081
INCOME TAX (BENEFIT) EXPENSE.........    14      (75,765)    37,415    (31,899)
                                               ---------  ---------  ---------
INCOME BEFORE MINORITY INTEREST......            143,601     52,696    117,980
Less minority interest:
    Subsidiary preferred stock
     dividends.......................             18,253     10,600      8,653
    Payments in lieu of dividends....    16        6,413        377        357
                                               ---------  ---------  ---------
NET INCOME...........................          $ 118,935  $  41,719  $ 108,970
                                               =========  =========  =========
EARNINGS PER COMMON SHARE............    16    $    3.87  $    1.35  $    3.55
                                               =========  =========  =========

          See accompanying Notes to Consolidated Financial Statements.

                                       89
<PAGE>
                               BANK UNITED CORP.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                       (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                                         COMMON STOCK
                                                 -------------------------------------------------------------
                                                       CLASS A              CLASS B              CLASS C
                                                 -------------------   -----------------   -------------------    PAID-IN
                                                   SHARES     AMOUNT    SHARES    AMOUNT     SHARES     AMOUNT    CAPITAL
                                                 -----------  ------   ---------  ------   -----------  ------   ---------
<S>                                               <C>          <C>        <C>      <C>       <C>         <C>     <C>
BALANCE AT SEPTEMBER 30, 1993..................   23,828,400   $239       --       $ --      5,034,600   $ 50    $ 121,480
    Net income.................................      --          --       --         --        --          --       --
    Change in unrealized gains (losses)........      --          --       --         --        --          --       --
                                                 -----------  ------   ---------  ------   -----------  ------   ---------
BALANCE AT SEPTEMBER 30, 1994..................   23,828,400    239       --         --      5,034,600     50      121,480
    Net income.................................      --          --       --         --        --          --       --
    Cost of subsidiary's preferred stock
      issuance.................................      --          --       --         --        --          --       (3,758)
    Change in unrealized gains (losses)........      --          --       --         --        --          --       --
                                                 -----------  ------   ---------  ------   -----------  ------   ---------
BALANCE AT SEPTEMBER 30, 1995..................   23,828,400    239       --         --      5,034,600     50      117,722
    Net income.................................      --          --       --         --        --          --       --
    Dividend declared: common stock ($3.46 per
      share)...................................      --          --       --         --        --          --       --
    Restricted Stock issued (Note 13)..........      --          --      318,342      3        --          --        3,706
    Conversion of Warrant (Note 16)............      --          --    1,503,560     15        --          --       (6,099)
    Redistribution of common stock (Note 16)...    2,996,840     29    2,037,760     21     (5,034,600)   (50)      --
    Common stock offering (Note 16)............      910,694      9       --         --        --          --       13,957
    Change in unrealized gains (losses)........      --          --       --         --        --          --       --
                                                 -----------  ------   ---------  ------   -----------  ------   ---------
BALANCE AT SEPTEMBER 30, 1996..................   27,735,934   $277    3,859,662   $ 39        --        $ --    $ 129,286
                                                 ===========  ======   =========  ======   ===========  ======   =========
</TABLE>
<TABLE>
<CAPTION>
                                                             UNREALIZED        TOTAL
                                                 RETAINED       GAINS      STOCKHOLDERS'
                                                 EARNINGS     (LOSSES)        EQUITY
                                                 ---------   -----------   -------------
<S>                                              <C>          <C>            <C>
BALANCE AT SEPTEMBER 30, 1993..................  $ 234,050    $  33,384      $ 389,203
    Net income.................................    108,970       --            108,970
    Change in unrealized gains (losses)........     --          (46,811)       (46,811)
                                                 ---------   -----------   -------------
BALANCE AT SEPTEMBER 30, 1994..................    343,020      (13,427)       451,362
    Net income.................................     41,719       --             41,719
    Cost of subsidiary's preferred stock
      issuance.................................     --           --             (3,758)
    Change in unrealized gains (losses)........     --            6,780          6,780
                                                 ---------   -----------   -------------
BALANCE AT SEPTEMBER 30, 1995..................    384,739       (6,647)       496,103
    Net income.................................    118,935       --            118,935
    Dividend declared: common stock ($3.46 per
      share)...................................   (100,000)      --           (100,000)
    Restricted Stock issued (Note 13)..........     --           --              3,709
    Conversion of Warrant (Note 16)............     --           --             (6,084)
    Redistribution of common stock (Note 16)...     --           --            --
    Common stock offering (Note 16)............     --           --             13,966
    Change in unrealized gains (losses)........     --            4,414          4,414
                                                 ---------   -----------   -------------
BALANCE AT SEPTEMBER 30, 1996..................  $ 403,674    $  (2,233)     $ 531,043
                                                 =========   ===========   =============
</TABLE>
          See accompanying Notes to Consolidated Financial Statements.

                                       90
<PAGE>
                               BANK UNITED CORP.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                       FOR THE YEAR ENDED SEPTEMBER 30,
                                                                                  -------------------------------------------
                                                                                      1996           1995           1994
                                                                                  -------------  -------------  -------------
<S>                                                                               <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................................  $     118,935  $      41,719  $     108,970
Adjustments to reconcile net income to net cash provided (used) by operating
  activities:
     Provision for credit losses................................................         16,469         24,293          6,997
     Deferred tax (benefit) expense.............................................        (93,401)        16,615        (31,436)
     Net gains on sales of assets...............................................        (53,491)       (72,918)       (80,524)
     Net depreciation, amortization, and accretion..............................        (12,095)       (49,335)        (7,921)
     Amortization of intangibles................................................         20,432         21,856         18,247
     Federal Home Loan Bank stock dividend......................................        (12,943)       (11,446)        (5,558)
     Purchases of trading account assets........................................        (12,955)          (203)           (46)
     Proceeds from sales of trading account assets..............................         12,819            143            103
     Originations of loans held for sale........................................     (2,872,307)    (2,275,058)    (4,128,979)
     Purchases of loans held for sale...........................................       (143,309)      (103,926)       (60,900)
     Proceeds from sales of loans held for sale.................................      3,321,599      2,164,407      4,838,051
     Change in mortgage servicing rights........................................        (62,142)       (29,251)       (50,955)
     Change in loans held for sale..............................................         17,991          5,661         53,117
     Change in interest receivable..............................................         25,957        (37,778)       (10,284)
     Change in other assets.....................................................         19,397         (3,068)        86,496
     Change in other liabilities................................................         (3,274)        89,056        (44,432)
     Management Restricted Stock award..........................................          3,709       --             --
                                                                                  -------------  -------------  -------------
          Net cash provided (used) by operating activities......................        291,391       (219,233)       690,946
                                                                                  -------------  -------------  -------------
CASH FLOWS FROM INVESTING ACTIVITIES
     Net change in securities purchased under agreements to resell and federal
       funds sold...............................................................       (203,197)      (117,342)       189,278
     Purchases of securities held to maturity...................................         (6,327)        (2,920)       (32,812)
     Proceeds from maturities of securities held to maturity....................          7,715          3,472         33,000
     Purchases of mortgage-backed securities held to maturity...................         (3,841)       (38,515)       (83,854)
     Proceeds from sales of mortgage-backed securities held to maturity.........       --             --               38,294
     Repayments of mortgage-backed securities held to maturity..................        178,926        390,364        162,328
     Purchases of securities available for sale.................................        (16,029)      --             (135,930)
     Proceeds from sales of securities available for sale.......................         96,815       --               61,482
     Purchases of mortgage-backed securities available for sale.................       --                 (230)      (735,757)
     Proceeds from sales of mortgage-backed securities available for sale.......        295,702         77,626        187,189
     Repayments of mortgage-backed securities available for sale................        272,059         16,346        760,111
     Change in mortgage-backed securities available for sale....................       --             --              (12,148)
     Purchases of loans held to maturity........................................       (148,510)    (2,658,093)    (1,406,275)
     Proceeds from sales of loans held to maturity..............................          3,539         31,543         27,093
     Change in loans held to maturity...........................................        509,704       (379,229)      (734,276)
     Change in Covered Assets...................................................       --             --              318,176
     Purchases of Federal Home Loan Bank stock..................................       --             (100,190)          (793)
     Redemption of Federal Home Loan Bank stock.................................         59,252         18,500       --
     Purchases of premises and equipment........................................         (9,394)        (6,132)       (10,379)
     Proceeds from sales of real estate owned acquired through
       foreclosure..............................................................         42,741         34,137         31,212
     Proceeds from sales of servicing rights....................................         33,187         48,237         58,880
                                                                                  -------------  -------------  -------------
          Net cash provided (used) by investing activities......................      1,112,342     (2,682,426)    (1,285,181)
                                                                                  -------------  -------------  -------------
</TABLE>
                                                   (CONTINUED ON FOLLOWING PAGE)

                                       91
<PAGE>
                               BANK UNITED CORP.
              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
                                 (IN THOUSANDS)

                                           FOR THE YEAR ENDED SEPTEMBER 30,
                                      -----------------------------------------
                                         1996           1995           1994
                                      -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
     Change in deposits.............. $   (34,378)   $   419,738    $   (73,290)
     Proceeds from Federal Home Loan
       Bank advances.................   1,498,700      3,821,754      2,161,384
     Repayment of Federal Home Loan
       Bank advances.................  (2,391,764)    (2,058,200)    (1,726,500)
     Net change in securities sold
       under agreements to repurchase
       and federal funds purchased...    (340,247)       619,533        243,000
     Change in advances from
       borrowers for taxes and
       insurance.....................     (37,334)        38,585          1,191
     Proceeds from issuance of common
       stock.........................      13,966        --             --
     Cost of converting Bank common
       stock Warrant.................      (6,084)       --             --
     Proceeds from issuance of the
       Bank's preferred stock........     --              96,242        --
     Payment of common stock
       dividends.....................    (100,000)       --             --
                                      -----------    -----------    -----------
          Net cash (used) provided by
            financing activities.....  (1,397,141)     2,937,652        605,785
                                      -----------    -----------    -----------
NET INCREASE IN CASH AND CASH
  EQUIVALENTS........................       6,592         35,993         11,550
CASH AND CASH EQUIVALENTS AT
  BEGINNING OF YEAR..................     112,931         76,938         65,388
                                      -----------    -----------    -----------
CASH AND CASH EQUIVALENTS AT END OF
  YEAR............................... $   119,523    $   112,931    $    76,938
                                      ===========    ===========    ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION AND NONCASH INVESTING
  ACTIVITIES
     Cash paid for interest.......... $   606,911    $   523,250    $   313,092
     Cash paid for income taxes......       3,953          9,863          5,102
     Cash paid in lieu of taxes......      12,096            157          4,000
     Real estate owned acquired
       through foreclosure...........      70,843         49,403         44,753
     Securitization of loans.........      33,167        --           1,182,172
     Transfer of loans from held to
       maturity to held for sale.....     188,957            810         88,100
     Transfer of loans from held for
       sale to held to maturity......      84,722          1,615        486,745
     Transfer of mortgage-backed
       securities from available for
       sale to held to maturity......     --             --           1,318,877
     Transfer of mortgage-backed
       securities from held to
       maturity to available for
       sale..........................   1,244,945        --              68,741
     Change in unrealized gains
       (losses) on securities and
       mortgage-backed securities
       available for sale............       4,414          6,780        (46,811)

          See accompanying Notes to Consolidated Financial Statements.

                                       92
<PAGE>
                               BANK UNITED CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

     Bank United Corp. (the "Parent Company") was incorporated in the State of
Delaware on December 19, 1988, and became the holding company for Bank United, a
federal savings bank (the "Bank") upon the Bank's formation on December 30,
1988. The Parent Company has no significant assets other than its equity
interest in the Bank. The Parent Company owns all of the outstanding common
stock of the Bank. The Parent Company and the Bank, are referred to on a
consolidated basis as the "Company". Substantially all of the Company's
consolidated revenues are derived from the operations of the Bank.

     Prior to June 1996, the Company was a subsidiary of Hyperion Holdings Inc.,
a Delaware corporation ("Hyperion Holdings"), which in turn was a subsidiary
of Hyperion Partners L.P., a Delaware limited partnership ("Hyperion
Partners"). In June 1996, in contemplation of a public offering of the
Company's common stock, the following actions were taken (collectively, the
"Restructuring"): (i) Hyperion Holdings exchanged shares of a newly created
class of its nonvoting common stock for certain shares of its voting common
stock held by Hyperion Partners; (ii) Hyperion Partners then distributed the
Hyperion Holdings common stock owned by it to its limited and general partners
in accordance with the terms of the limited partnership agreement of Hyperion
Partners (the "Distribution"); and (iii) following the Distribution, Hyperion
Holdings was merged with and into the Company (the "Merger"). As a result of
the Merger, the common stockholders of Hyperion Holdings (i.e. the limited and
general partners of Hyperion Partners) received shares of Class A voting and
Class B nonvoting common stock of the Company. As of the date of the Merger,
Hyperion Holdings had no significant assets, liabilities, or business other than
its investment in the Company. The Merger was accounted for in a manner similar
to a pooling of interests. Due to the immaterial nature of the assets,
liabilities, and operations of Hyperion Holdings prior to the Merger, prior
period results were not restated.

     The Company is a broad based financial services provider to consumers and
businesses in Texas and other selected regional markets throughout the United
States. The Company currently operates 70 Texas based community banking branches
serving nearly 200,000 households and businesses, 9 commercial banking offices,
and a nationwide network of mortgage offices.

     The accompanying consolidated financial statements include the accounts of
the Parent Company, the Bank, and the Bank's wholly-owned subsidiaries. To date,
the results of operations of the Bank's subsidiaries have not been significant
to the consolidated results of operations. All significant intercompany accounts
and balances have been eliminated in consolidation.

     The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

     The accounting and reporting policies conform to generally accepted
accounting principles and general practices within the thrift and mortgage
banking industries.

SHORT-TERM INTEREST-EARNING ASSETS

     Short-term interest-earning assets are comprised of cash, cash equivalents,
securities purchased under agreements to resell ("repurchase agreements"), and
federal funds sold. Short-term instruments with original maturities of three
months or less (measured from their acquisition date) and highly liquid
instruments readily convertible to cash are generally considered to be cash
equivalents. Cash and cash equivalents consist primarily of interest-earning and
non-interest earning deposits in other banks.

     The Board of Governors of the Federal Reserve System ("Federal Reserve
Board") regulations require average cash reserve balances based on deposit
liabilities to be maintained by the Bank with the Federal Reserve

                                       93
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Bank. The required reserve balances were approximately $48.7 million and $63.7
million for the periods including September 30, 1996 and 1995, respectively. The
Bank was in compliance with these requirements for each of these periods.

TRADING ACCOUNT ASSETS, SECURITIES, AND MORTGAGE-BACKED SECURITIES

     Debt and equity securities, including mortgage-backed securities ("MBS"),
are classified into one of three categories: held to maturity, available for
sale, or trading.

     Trading account assets are carried at fair value with any realized or
unrealized gains and losses recognized in current operations. Trading account
assets are generally comprised of assets that are actively and frequently bought
and sold with the objective of generating income on short-term changes in price.

     Securities and MBS that the Company has the positive intent and ability to
hold to maturity are classified as held to maturity and recorded at cost,
adjusted for the amortization of premiums and the accretion of discounts. Under
certain circumstances (including the deterioration of the issuer's
creditworthiness or a change in tax law, statutory requirements, or regulatory
requirements), securities and MBS held to maturity may be sold or transferred to
another portfolio.

     Securities and MBS that the Company intends to hold for indefinite periods
of time are classified as available for sale and are recorded at fair value.
Unrealized holding gains or losses are excluded from earnings and reported net
of tax as a separate component of stockholders' equity until realized.

     In connection with the securitization of certain loans, a portion of the
original loan basis is allocated to an excess servicing receivable for all loans
having a servicing fee rate greater than the "normal" servicing fee rate. This
receivable represents the present value of the estimated future servicing
revenue in excess of a "normal" service fee. The securitized portion of the
receivable is classified and accounted for as MBS in the Consolidated Statements
of Financial Condition. That portion of the receivable not securitized is
classified as other assets in the Consolidated Statements of Financial Condition
and is amortized to operations over the lives of the underlying mortgages. The
Company reviews this asset periodically for valuation impairment in a manner
similar to its mortgage servicing rights ("MSRs").

     The overall return or yield earned on MBS depends on the amount of interest
collected over the life of the security and the amortization of any premium or
discount. Premiums and discounts are recognized in income using the level-yield
method over the assets' remaining lives (adjusted for anticipated prepayments).
The actual yields and maturities of MBS depend on the timing of the payment of
the underlying mortgage principal and interest. Accordingly, changes in interest
rates and prepayments can have a significant impact on the yields of MBS.

     If the fair value of a security or MBS classified as held to maturity or
available for sale was to decline for reasons other than temporary market
conditions, the carrying value of such a security would be written down to
current fair value by a charge to operations.

     Net gains or losses on sales of trading account assets, securities, and MBS
are computed on the specific identification method.

LOANS

     Loans that the Company has the intent and ability to hold to maturity are
classified as held to maturity and are carried at unpaid principal balances,
adjusted for unamortized premiums, unearned discounts, the allowance for credit
losses, and net deferred loan origination fees or costs ("Book Value"). Loans
held for sale, excluding single family mortgage warehouse loans, are carried at
the lower of allocated Book Value, as applicable, or fair value on an aggregate
basis, as determined by discounting contractual cash flows (adjusted for
anticipated prepayments) and using discount rates based on secondary market
sources. Single family mortgage warehouse loans held for sale are carried at the
lower of aggregate allocated Book Value or market value, as determined by

                                       94
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

commitments from investors or current investor yield requirements. Any net
unrealized losses on loans held for sale are recognized in a valuation allowance
by a charge to current operations. The Book Value is allocated to loans and the
MSRs in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 122. See "-- Loan Servicing".

     Interest income on loans, including impaired loans, is recognized
principally using the level-yield method. Based upon management's periodic
evaluation or at the time a loan is ninety days past due ("nonperforming"),
the related accrued interest is generally reversed by a charge to operations and
the subject loan is simultaneously placed on nonaccrual. Once a loan becomes
current and the borrower demonstrates a continuation of its ability to repay the
loan, the loan is returned to accrual status.

     Premiums, discounts, and loan fees (net of certain direct loan origination
costs) on warehouse loans held for sale are recognized in income when the
related loans are sold. Premiums, discounts, and loan fees (net of certain
direct loan origination costs) associated with other loans for which collection
is probable and estimable are recognized in income using the level-yield method,
over the loans' remaining lives (adjusted for anticipated prepayments) or when
such loans are sold. Net discounts associated with loans for which collection
may not be probable and estimable are not accreted to income ("non-accretable
discounts"). These non-accretable discounts relate to bulk purchases of loans,
a portion of which were nonperforming and acquired at discounts from their
principal balance. Management periodically evaluates current loss estimates on
loans with non-accretable discounts to determine if the remaining non-accretable
discounts should be accreted to income.

ALLOWANCE FOR CREDIT LOSSES

     The allowance for credit losses is maintained at levels management deems
adequate to cover estimated losses on loans. The adequacy of the allowance is
based on management's periodic evaluation of the loan portfolio and considers
such factors as historical loss experience, delinquency status, identification
of adverse situations that may affect the ability of obligors to repay, known
and inherent risks in the portfolio, assessment of economic conditions,
regulatory policies, and the estimated value of the underlying collateral, if
any. Provisions for credit losses are charged to current operations when they
are determined to be both probable and estimable. Losses are charged to the
allowance for credit losses when the loss actually occurs or when a
determination is made that a loss is likely to occur. Cash recoveries are
credited to the allowance for credit losses.

     The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures, an amendment of SFAS No. 114,"
effective October 1, 1995. These statements address the accounting by creditors
for impairment of certain loans. They apply to all creditors and to all loans,
uncollateralized as well as collateralized, except for large groups of
small-balance homogenous loans that are collectively evaluated for impairment,
loans that are measured at fair value or at lower of cost or fair value, leases,
and debt securities. These statements apply to the Company's single family
residential construction, multi-family, commercial real estate, business credit,
and mortgage banker finance line of credit loan categories in the held to
maturity portfolio. See Note 5. These statements apply to all loans that are
restructured in a troubled debt restructuring involving a modification of terms.
Loans within the scope of these statements are considered impaired when, based
on current information and events, it is probable that all principal and
interest amounts due will not be collected in accordance with the contractual
terms of the loans.

     The adoption of SFAS No. 114 did not result in additional provisions for
credit losses. SFAS No. 114 requires that impaired loans that are within the
scope of this statement be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. Any excess of the Company's
recorded investment in the loans (unpaid principal balance, adjusted for
unamortized premium or discount, net deferred loan origination fees or costs and
accrued interest receivable) over the measured value of the loans is provided
for in the allowance for credit losses.

                                       95
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

LOAN SERVICING

     In September 1995, the Company adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights, an amendment of Financial Accounting Standards Board
Statement No. 65," effective October 1, 1994. This statement requires mortgage
loan servicing rights to be recognized as separate assets from the related
loans, regardless of how those servicing rights are acquired. Upon origination
of a mortgage loan, the Book Value of the mortgage loan is allocated to the MSR
and to the loan (without the MSR) based on its estimated relative fair value,
provided there is a plan to sell or securitize the related loan. The allocation
of the Book Value of the loan between the MSR and the loan basis results in
increased gains on the sales of the loan, reflecting the value of the servicing
rights. Prior to the implementation of SFAS No. 122, the value of the originated
mortgage servicing rights ("OMSRs") was not recognized until the servicing
rights were sold.

     The statement further requires that MSRs, both OMSRs and purchased mortgage
servicing rights ("PMSRs"), periodically be evaluated for impairment based on
the fair value of those rights. The fair value of MSRs is determined by
discounting the present value of estimated expected future cash flows using a
discount rate commensurate with the risks involved. This method of valuation
incorporates assumptions that market participants would use in their estimates
of future servicing income and expense, including assumptions about prepayment,
default, and interest rates. For purposes of measuring impairment, the loans
underlying the MSRs are stratified on the basis of interest rate and type
(conventional or government). The amount of impairment is the amount by which
the MSRs, net of accumulated amortization, exceed their fair value. Impairment,
if any, is recognized through a valuation allowance and a charge to current
operations.

     MSRs, net of valuation allowances, are amortized in proportion to, and over
the period of, the estimated net servicing revenue of the underlying mortgages,
which are collateralized by single family properties. The amortization expense
is reflected in amortization of intangibles in the Consolidated Statements of
Operations.

     An allowance for other losses associated with the mortgage servicing
portfolio and certain receivables, advances, and other assets associated with
that portfolio is established for expected costs that are incurred as a result
of the Company's responsibility as servicer of Federal Housing Administration
("FHA") insured and Department of Veteran Affairs ("VA") guaranteed loans
and is determined based on a number of variables. The allowance is netted
against the related assets in the Consolidated Statements of Financial Condition
and the related provision is included in non-interest expense in the
Consolidated Statements of Operations.

SALES OF SINGLE FAMILY LOANS

     Loans are sold periodically to institutional and private investors. Gains
or losses on loan sales are recognized at the time of sale, determined using the
specific identification method, and reflect the extent that net sales proceeds
differ from the allocated Book Value of the loans. Single family mortgage
warehouse loans are generally packaged into pools and sold as MBS. Accordingly,
gains or losses on loan sales include both gains from sales of MBS created from
single family mortgage warehouse loans and whole loan sales. Certain of the
loans and servicing rights are sold with general representations and warranties
under contracts for sales of loans and servicing rights. Repurchases of the
loans and servicing rights may be required when a loan fails to meet certain
conditions specified in the contract pursuant to which the loans and servicing
rights were sold and that failure was caused by a matter covered by the general
representations and warranties. An accrual is determined for the estimated
future costs of such obligations and is maintained at a level management
believes is adequate to cover estimated losses. This accrual is included in
other liabilities on the Consolidated Statements of Financial Condition and the
related expense is reflected in non-interest expense in the Consolidated
Statements of Operations.

FEDERAL HOME LOAN BANK STOCK

     As a member of the Federal Home Loan Bank ("FHLB") System, the Bank is
required to purchase and maintain stock in the FHLB of Dallas in an amount equal
to the greater of 1% of the aggregate unpaid balance of

                                       96
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

loans and securities secured by single family and multi-family properties, .3%
of total assets, or 5% of total FHLB advances. FHLB stock is redeemable at par
value at the discretion of the FHLB of Dallas and is used to collateralize FHLB
advances.

PREMISES AND EQUIPMENT

     Premises and equipment are carried at cost, less accumulated depreciation,
and include certain branch facilities and the related furniture, fixtures, and
equipment. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets ranging from two to 40 years.

INTANGIBLE ASSETS

     Intangible assets consist of the excess cost over fair value of net assets
acquired and debt issuance costs. The excess of cost over fair value of net
assets acquired is comprised of identifiable and unidentifiable intangibles. The
identifiable portion relates to core deposit premiums paid and the value of
mortgage origination networks acquired. The core deposit premiums are amortized
using an accelerated method over the estimated lives of the deposit
relationships acquired. The premiums paid for mortgage origination networks are
amortized using the straight-line method over 5 years. The unidentifiable
intangible, or goodwill, resulting from thrift related acquisitions is amortized
at a constant rate applied to the carrying amount of the long-term
interest-earning assets acquired that are expected to be outstanding at the
beginning of each subsequent period based on their terms. The original estimated
lives of these long-term interest-earning assets ranged from one to 26 years.
The identifiable and unidentifiable intangibles are evaluated on an ongoing
basis to determine whether events and circumstances have developed that warrant
revision of the estimated lives of the related assets or their write-off. Debt
issuance costs are being amortized over the life of the notes using the
straight-line method.

REAL ESTATE OWNED ("REO")

     At the time of foreclosure, REO is recorded at the lower of the outstanding
loan amount (including accrued interest, if any) or fair value (less estimated
costs to sell). The resulting loss, if any, is charged to the allowance for
credit losses. Subsequent to foreclosure, REO is carried at the lower of its new
cost basis or fair value, with any further declines in fair value charged to
current operations. Revenues, expenses, gains or losses on sales, and increases
or decreases in the allowance for losses are charged to operations as incurred.
Net gains on sales of certain REO properties, primarily single family
residences, are deferred (a) when such properties are acquired through the
foreclosure of loans that are part of discounted bulk purchases of loans and (b)
uncertainty exists as to the total gains or losses that would be realized from
foreclosures associated with the bulk loan purchase. Upon obtaining sufficient
loss history or seasoning of the purchases, the deferred net gains are
recognized.

OTHER FINANCIAL INSTRUMENTS

     The Company enters into traditional financial instruments such as interest
rate exchange agreements ("swaps"), interest rate caps and floors, financial
options and futures contracts, and forward delivery contracts in the normal
course of business in an effort to reduce its exposure to changes in interest
rates. Fees incurred to enter into these financial contracts are amortized over
the lives of the contracts as a component of the income or expense on the asset
or liability hedged. Gains or losses on early termination of such contracts, if
any, are amortized over the remaining terms of the hedged items. The Company
does not utilize instruments such as leveraged derivatives or structured notes.

     INTEREST RATE EXCHANGE AGREEMENTS, CAPS, FLOORS, AND OPTIONS.  Amounts
receivable and payable are accrued and offset against interest income or expense
on the hedged items.

     FINANCIAL FUTURES CONTRACTS.  Changes in the market value of futures
contracts are deferred and recognized as interest income or expense over the
remaining terms of the hedged items or recognized at the time the hedged items
are sold.

                                       97
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     FORWARD DELIVERY CONTRACTS.  Any gains or losses resulting from entering
into forward delivery contracts are recognized when the hedged items are sold as
net gains (losses) on sales of single family warehouse loans. Fees paid for
commitments to deliver loans are charged to other non-interest expense if the
likelihood that the commitment will be exercised is remote or the fees are
offset against the related net gains as the commitment is filled.

     OTHER OFF-BALANCE-SHEET INSTRUMENTS.  The Company has entered into other
off-balance-sheet financial instruments consisting of commitments to extend
credit. Such financial instruments are recorded in the financial statements when
they are funded.

FEDERAL INCOME TAXES

     The Parent Company and the Bank are members of a consolidated group of
corporations as defined by the Internal Revenue Code of 1986, as amended (the
"Code") and accordingly participate in the filing of a consolidated tax
return. For financial reporting purposes, however, the Parent Company and the
Bank each compute their tax on a separate company basis and the results are
combined for purposes of preparing the consolidated financial statements.
Deferred tax assets and liabilities are recognized for the estimated tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. A deferred tax asset has been recognized for certain net operating losses
("NOLs") and credit carryforwards that will be utilized against future taxable
income. The valuation allowance reduces the net deferred tax asset to an amount
management believes will more likely than not be realized.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" was issued. This statement
establishes accounting standards for recognizing and measuring impairment of
long-lived assets (and related goodwill) to be held and used and for such assets
held for disposal. The statement is effective for financial statements with
fiscal years beginning after December 15, 1995. Implementation of this
pronouncement should have no material effect on the Consolidated Financial
Statements.

     In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation"
was issued. This statement defines a fair value based method of accounting for
an employee stock option or similar equity instrument and encourages adoption of
that method for all employee stock compensation plans. However, it also allows
an entity to continue to measure compensation cost for those plans using the
intrinsic value based method currently being followed and make pro forma
disclosures of net income and earnings per share under the fair value based
method of accounting. This statement is effective for financial statements with
fiscal years beginning after December 15, 1995. Management is currently
evaluating the proposed alternatives under this statement. Existing stock-based
employee compensation plans have been accounted for in accordance with
Accounting Principals Board Opinion No. 25 "Accounting for Stock Issued to
Employees."

     In June 1996, SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" was issued. This statement
requires that, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. This statement provides consistent
standards of distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. This statement is effective for transfers
and servicing of financial assets and extinguishment of liabilities occurring
after December 31, 1996, and is to be applied prospectively. Earlier or
retroactive application is not permitted. Implementation of this pronouncement
should have no material effect on the Consolidated Financial Statements.

                                       98
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EARNINGS PER COMMON SHARE

     Earnings per common share is calculated by dividing net income (adjusted
for earnings on the common stock equivalents attributable to the Bank's Warrant)
by the weighted average number of shares of common shares outstanding. Common
stock equivalents on the Bank's Warrant were computed using the treasury stock
method. Average shares and per common share results have been restated for all
periods presented to reflect an 1,800 to one stock conversion in June 1996.

RECLASSIFICATIONS

     Certain amounts within the accompanying Consolidated Financial Statements
and the related Notes as of September 30, 1995, 1994, 1993, and 1992 have been
reclassified to conform to the current presentation. Such reclassifications had
no effect on previously presented net income or retained earnings.

2.  SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND
    FEDERAL FUNDS SOLD

                                        FOR THE YEAR ENDED SEPTEMBER 30,
                                       ----------------------------------
                                          1996        1995        1994
                                       ----------  ----------  ----------
                                             (DOLLARS IN THOUSANDS)
REPURCHASE AGREEMENTS
     Balance outstanding at
       period-end....................  $  649,249  $  428,052  $  248,710
     Fair value of collateral at
       period-end....................     693,306     449,152     255,210
     Maximum outstanding at any
       month-end.....................     785,178     602,274     768,200
     Daily average balance...........     608,102     420,355     422,745
     Average interest rate...........       5.83%       6.28%       4.04%

FEDERAL FUNDS SOLD
     Balance outstanding at
       period-end....................  $   25,000  $   43,000  $  110,000
     Maximum outstanding at any
       month-end.....................     110,000      75,000     110,000
     Daily average balance...........      50,418      37,493      16,948
     Average interest rate...........       5.36%       5.68%       4.01%

     The repurchase agreements outstanding at September 30, 1996 were
collateralized by single family, multi-family and commercial real estate loans,
and MBS. The loans and MBS underlying the repurchase agreements are held by the
counterparty in safekeeping for the account of the Company or by a third party
custodian for the benefit of the Company. All of the investments in repurchase
agreements and federal funds sold at September 30, 1996 matured on or before
October 21, 1996. The repurchase agreements provide for the same loans and MBS
to be resold at maturity. At September 30, 1996, the following concentrations of
repurchase agreements and federal funds sold outstanding with individual
counterparties exceeded ten percent of stockholders' equity:

                                        CARRYING VALUE
                                        --------------
                                        (IN THOUSANDS)
Salomon Brothers Holding Company
  Inc. ..............................      $107,000
Paine Webber Real Estate Securities
  Inc................................       107,000
Bear Stearns and Company, Inc........       106,547
Donaldson, Lufkin, and Jenrette
  Mortgage Capital...................        95,524
Lehman Brothers......................        77,000
                                        --------------
                                           $493,071
                                        ==============

                                       99
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3.  SECURITIES
<TABLE>
<CAPTION>
                                                              AT SEPTEMBER 30,
                                       --------------------------------------------------------------
                                                      GROSS         GROSS
                                       AMORTIZED    UNREALIZED    UNREALIZED      FAIR      CARRYING
                                          COST        GAINS         LOSSES       VALUE       VALUE
                                       ----------   ----------    ----------   ----------  ----------
                                                               (IN THOUSANDS)
<S>                                    <C>            <C>           <C>        <C>         <C>
1996
HELD TO MATURITY
     Federal agency..................  $      168     $   1         $  --      $      169  $      168
                                                    ==========    ==========               ==========
AVAILABLE FOR SALE
     Federal agency..................      12,082     $ --          $   40         12,042
     U.S. Treasury notes.............      52,544       --             210         52,334
                                       ----------   ----------    ----------   ----------
          Available for sale.........      64,626     $ --          $  250         64,376  $   64,376
                                       ----------   ==========    ==========   ----------  ==========
          Total securities...........  $   64,794                              $   64,545
                                       ==========                              ==========

1995
HELD TO MATURITY
     Federal agency..................  $    1,902     $  799        $    1     $    2,700  $    1,902
                                                    ==========    ==========               ==========
AVAILABLE FOR SALE
     U.S. Treasury notes.............     114,924     $ --          $  813        114,111  $  114,111
                                       ----------   ==========    ==========   ----------  ==========
          Total securities...........  $  116,826                              $  116,811
                                       ==========                              ==========

1994
HELD TO MATURITY
     Federal agency..................  $    1,894     $  541        $   76     $    2,359
     U.S. Treasury notes.............         464       --            --              464
                                       ----------   ----------    ----------   ----------
          Held to maturity...........       2,358     $  541        $   76          2,823  $    2,358
                                       ----------   ==========    ==========   ----------  ==========
AVAILABLE FOR SALE
     U.S. Treasury notes.............     114,833     $ --          $3,076        111,757  $  111,757
                                       ----------   ==========    ==========   ----------  ==========
          Total securities...........  $  117,191                              $  114,580
                                       ==========                              ==========
</TABLE>
     During fiscal 1996, there were $96.5 million of available for sale
securities sold with proceeds of $96.8 million and a net gain of $267,000.
During fiscal 1994, there were $62.7 million of available for sale securities
sold with proceeds of $61.5 million and a gross loss of $1.2 million. There were
no sales of securities during fiscal 1995. At September 30, 1996, securities
with carrying values totalling $1.0 million and fair values totalling $1.0
million, were pledged toward margin requirements for interest rate swap
agreements.

     Securities outstanding at September 30, 1996 mature as follows:
<TABLE>
<CAPTION>
                                                      HELD TO MATURITY             AVAILABLE FOR SALE
                                                   ----------------------        ----------------------
                                                   AMORTIZED      FAIR           AMORTIZED      FAIR
                                                      COST        VALUE             COST        VALUE
                                                   ----------   ---------        ----------   ---------
                                                                      (IN THOUSANDS)
<S>                                                   <C>       <C>               <C>         <C>
Due in one year or less.........................      $ --      $      --         $ 52,544    $  52,334
Due from one to five years......................       168            169           --           --
Due from five to ten years......................        --             --           12,082       12,042
                                                   ----------   ---------        ----------   ---------
                                                      $168      $     169         $ 64,626    $  64,376
                                                   ==========   =========        ==========   =========
</TABLE>
                                      100
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4.  MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
                                                                 AT SEPTEMBER 30,
                                       --------------------------------------------------------------------
                                                        GROSS         GROSS
                                        AMORTIZED     UNREALIZED    UNREALIZED       FAIR        CARRYING
                                           COST         GAINS         LOSSES        VALUE         VALUE
                                       ------------   ----------    ----------   ------------  ------------
                                                                  (IN THOUSANDS)
<S>                                    <C>              <C>          <C>         <C>            <C>
1996
HELD TO MATURITY
     Agency
       CMOs -- fixed-rate............  $      1,548     $    5       $ --        $      1,553
     Non-agency
       Fixed-rate....................         7,042      1,753            126           8,669
       Adjustable-rate...............       521,280        401         17,634         504,047
       CMOs -- fixed-rate............        99,966      --             5,277          94,689
     Other...........................           212         55         --                 267
                                       ------------   ----------    ----------   ------------
          Held to maturity...........       630,048     $2,214       $ 23,037         609,225  $    630,048
                                       ------------   ==========    ==========   ------------  ============
AVAILABLE FOR SALE
     Agency
       Adjustable-rate...............       326,338     $1,860       $     13         328,185
       CMOs -- fixed-rate............         1,818      --                 1           1,817
       CMOs -- adjustable-rate.......       224,081      1,414            192         225,303
     Non-agency
       Fixed-rate....................        61,893      2,253         --              64,146
       Adjustable-rate...............       373,876      1,119          1,702         373,293
       CMOs -- adjustable-rate.......        34,017      --               862          33,155
     Other...........................         1,961      --            --               1,961
                                       ------------   ----------    ----------   ------------
          Available for sale.........     1,023,984     $6,646       $  2,770       1,027,860  $  1,027,860
                                       ------------   ==========    ==========   ------------  ============
          Total mortgage-backed
            securities...............  $  1,654,032                              $  1,637,085
                                       ============                              ============
</TABLE>
                                      101
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
                                                                 AT SEPTEMBER 30,
                                       --------------------------------------------------------------------
                                                        GROSS         GROSS
                                        AMORTIZED     UNREALIZED    UNREALIZED       FAIR        CARRYING
                                           COST         GAINS         LOSSES        VALUE         VALUE
                                       ------------   ----------    ----------   ------------  ------------
1995                                                              (IN THOUSANDS)
<S>                                       <C>          <C>           <C>            <C>        <C>
HELD TO MATURITY
     Agency
       Fixed-rate....................  $      4,259    $    167      $     77    $      4,349
       Adjustable-rate...............       489,412       5,212         2,711         491,913
       CMOs -- fixed-rate............        57,935          96         1,623          56,408
     Non-agency
       Fixed-rate....................       126,562       4,489           318         130,733
       Adjustable-rate...............     1,130,102       4,343        21,256       1,113,189
       CMOs -- fixed-rate............       239,487         173         8,643         231,017
     Other...........................         3,547          56        --               3,603
                                       ------------   ----------    ----------   ------------
          Held to maturity...........     2,051,304    $ 14,536      $ 34,628       2,031,212  $  2,051,304
                                       ------------   ==========    ==========   ------------  ============
AVAILABLE FOR SALE
     Agency
       CMOs -- adjustable-rate.......       250,208    $  1,132      $    217         251,123
     Non-agency
       Fixed-rate....................        22,060         627        --              22,687
       CMOs -- fixed-rate............        36,895      --               640          36,255
       CMOs -- adjustable-rate.......        37,580           7           693          36,894
                                       ------------   ----------    ----------   ------------
          Available for sale.........       346,743    $  1,766      $  1,550         346,959  $    346,959
                                       ------------   ==========    ==========   ------------  ============
          Total mortgage-backed
            securities...............  $  2,398,047                              $  2,378,171
                                       ============                              ============

1994
HELD TO MATURITY
     Agency
       Fixed-rate....................  $      5,313    $     20      $     15    $      5,318
       Adjustable-rate...............       563,629         830        15,290         549,169
       CMOs -- fixed-rate............        81,395      --             3,967          77,428
     Non-agency
       Fixed-rate....................       184,929         603         2,057         183,475
       Adjustable-rate...............     1,288,271         226        23,048       1,265,449
       CMOs -- fixed-rate............       267,658      --            11,601         256,057
     Other...........................         3,783         113        --               3,896
                                       ------------   ----------    ----------   ------------
          Held to maturity...........     2,394,978    $  1,792      $ 55,978       2,340,792  $  2,394,978
                                       ------------   ==========    ==========   ------------  ============
AVAILABLE FOR SALE
     Agency
       Fixed-rate....................        85,492    $  1,688      $  1,552          85,628
       CMOs -- adjustable-rate.......       254,933      --             2,727         252,206
     Non-agency
       Fixed-rate....................        22,141      --             1,198          20,943
       CMOs -- fixed-rate............        41,825      --             2,634          39,191
       CMOs -- adjustable-rate.......        37,733      --             1,776          35,957
                                       ------------   ----------    ----------   ------------
          Available for sale.........       442,124    $  1,688      $  9,887         433,925  $    433,925
                                       ------------   ==========    ==========   ------------  ============
          Total mortgage-backed
            securities...............  $  2,837,102                              $  2,774,717
                                       ============                              ============
</TABLE>
                                      102
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In November 1995, the Financial Accounting Standards Board ("FASB")
issued, "A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities." This implementation guide provided
the Company the opportunity to reassess the appropriateness of the
classifications of its securities and provided that reclassifications of
securities from the held to maturity category resulting from this one-time
reassessment would not call into question the intent to hold other securities to
maturity in the future. During the first quarter of fiscal 1996, the Company
reassessed its securities portfolios and reclassified $1.2 billion in MBS from
the held to maturity portfolio to the available for sale portfolio. An
unrealized gain of $4.2 million before tax, or $2.6 million after tax, was
recorded in stockholders' equity as a result of this transfer.

     During fiscal 1994, $68.7 million of fixed-rate collateralized mortgage
obligations ("CMOs") were transferred at fair value from the held to maturity
portfolio to the available for sale portfolio. The related unrealized gain
($66,000 at the time of transfer, before taxes) was included as a component of
stockholders' equity. This transfer was made in response to the classification
of securities as high-risk under the FASB's Emerging Issues Task Force
guidelines in effect at that time. Subsequent to the transfer, these securities
were sold.

     During fiscal 1994, $38.3 million of non-agency MBS that had been included
in the held to maturity portfolio were sold. This sale was made due to a
deterioration of the issuer's creditworthiness and resulted in a gross gain of
$42,000.

     MBS of approximately $1.3 billion were transferred from the available for
sale portfolio to the held to maturity portfolio at fair value during fiscal
1994. The gross unrealized loss of $10.8 million on these securities at the time
of transfer is included as a component of stockholders' equity and is being
amortized over the remaining lives of the securities.

     At September 30, 1996, MBS with carrying values totalling $1,105.7 million
and fair values totalling $1,095.2 million were used to collateralize FHLB
advances and securities sold under agreements to repurchase ("reverse
repurchase agreements").

                      CHANGES IN UNREALIZED GAINS (LOSSES)
<TABLE>
<CAPTION>
                                           MORTGAGE-BACKED
                                              SECURITIES
                                        -----------------------     SECURITIES
                                        AVAILABLE      HELD TO       AVAILABLE        TAX
                                        FOR SALE      MATURITY       FOR SALE       EFFECT       TOTAL
                                        ---------     ---------     -----------     -------     --------
                                                                 (IN THOUSANDS)
<S>                                      <C>          <C>             <C>           <C>         <C>
Balance at September 30, 1994........    $ (8,199)    $ (10,202)      $(3,076)      $ 8,050     $(13,427)
     Market value changes and the
       effect of prepayments.........       8,431        --             2,263        (4,005)       6,689
     (Gains) losses realized due to
       sales.........................         (16)       --            --                 6          (10)
     Amortization of held to
       maturity......................      --               162        --               (61)         101
                                        ---------     ---------     -----------     -------     --------
Balance at September 30, 1995........         216       (10,040)         (813)        3,990       (6,647)
                                        ---------     ---------     -----------     -------     --------
     Market value changes and the
       effect of prepayments.........       3,332        --               830        (1,561)       2,601
     (Gains) losses realized due to
       sales.........................      (2,712)       --              (267)        1,117       (1,862)
     Transfer from held to
       maturity......................       3,040         1,114        --            (1,558)       2,596
     Amortization of held to
       maturity......................      --             1,727        --              (648)       1,079
                                        ---------     ---------     -----------     -------     --------
Balance at September 30, 1996........    $  3,876     $  (7,199)      $  (250)      $ 1,340     $ (2,233)
                                        =========     =========     ===========     =======     ========
</TABLE>
                                      103
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In fiscal 1994, the Banking Segment securitized $1.2 billion of single
family loans into MBS. There were no securitizations of single family loans
during fiscal 1996 and 1995. In fiscal 1996, the Banking Segment securitized
business credit loans into securities totalling $30.5 million. There were no
business credit securitizations in fiscal 1995 and 1994. The activity in the
excess servicing receivable generated as a result of these securitizations was
as follows:

                          EXCESS SERVICING RECEIVABLE

                                        FOR THE YEAR ENDED SEPTEMBER
                                                     30,
                                       -------------------------------
                                         1996       1995       1994
                                       ---------  ---------  ---------
                                               (IN THOUSANDS)
Balance at beginning of period.......  $  11,116  $  12,182  $  15,023
     Additions.......................      2,645     --          2,044
     Amortization....................     (1,028)    (1,066)    (4,885)
     Allowance for losses............         (5)    --         --
                                       ---------  ---------  ---------
Balance at end of period.............  $  12,728  $  11,116  $  12,182
                                       =========  =========  =========

     Approximately $3.4 million, $4.0 million, and $4.3 million of the excess
servicing receivable balance at September 30, 1996, 1995, and 1994,
respectively, represented the securitized portion of the receivable, which was
included in the MBS portfolio. The remaining balance was included in other
assets.

     The following table provides information related to the sales of MBS
available for sale.

                                   FOR THE YEAR ENDED SEPTEMBER 30,
                                   ---------------------------------
                                      1996       1995        1994
                                   ----------  ---------  ----------
                                            (IN THOUSANDS)
Proceeds from sales..............  $  295,702  $  77,626  $  186,190
Gross gains on sales.............       3,529        217      16,300
Gross losses on sales............         817        201       4,812

                                      104
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5.  LOANS

     The loan portfolio, less the non-accretable unearned discounts and the
undisbursed portion of loans in process, was as follows:
<TABLE>
<CAPTION>
                                                                 AT SEPTEMBER 30,
                                       --------------------------------------------------------------------
                                           1996          1995          1994          1993          1992
                                       ------------  ------------  ------------  ------------  ------------
                                                                  (IN THOUSANDS)
<S>                                    <C>           <C>           <C>           <C>           <C>
HELD TO MATURITY
     Single family...................  $  6,152,504  $  7,061,088  $  4,203,614  $  2,847,602  $  2,302,073
     Single family residential
       construction..................       242,525       115,436        57,786        35,904        31,920
     Consumer........................       173,518       123,096       108,179        57,902        21,732
     Multi-family....................       479,833       356,587       256,362        94,120        50,741
     Multi-family construction.......        31,355        35,430        20,437        17,935       --
     Commercial real estate..........        40,839        31,006        61,919        49,510        58,521
     Business credit.................        22,798         6,495       --            --            --
     Mortgage banker finance line of
       credit........................       139,872       109,339       147,754       385,548       --
                                       ------------  ------------  ------------  ------------  ------------
                                          7,283,244     7,838,477     4,856,051     3,488,521     2,464,987
     Allowance for credit losses.....       (39,633)      (36,763)      (23,378)      (27,970)      (25,529)
     Accretable unearned discounts...       (12,846)      (34,784)      (50,384)      (25,486)      (53,174)
     Net deferred loan origination
       fees..........................        (3,612)       (3,254)       (1,961)         (625)         (402)
                                       ------------  ------------  ------------  ------------  ------------
          Held to maturity...........     7,227,153     7,763,676     4,780,328     3,434,440     2,385,882
                                       ------------  ------------  ------------  ------------  ------------
HELD FOR SALE
     Single family mortgage
       warehouse.....................       260,745       411,287       252,153       899,602     1,016,854
     Single family...................       --            --            --            528,579       783,002
     Multi-family....................       --             87,781        12,535       --            --
     Business credit.................        32,790           825       --            --            --
                                       ------------  ------------  ------------  ------------  ------------
                                            293,535       499,893       264,688     1,428,181     1,799,856
     Allowance for credit losses.....           (27)          (38)          (76)       (1,894)       (2,685)
     Unrealized losses...............       --             (1,142)      --            --            --
     Accretable unearned discounts...        (2,461)       (3,676)         (266)       (2,437)      (85,115)
     Net deferred loan origination
       costs.........................         1,288         1,527         1,500         4,089         3,778
                                       ------------  ------------  ------------  ------------  ------------
          Held for sale..............       292,335       496,564       265,846     1,427,939     1,715,834
                                       ------------  ------------  ------------  ------------  ------------
          Total loans................  $  7,519,488  $  8,260,240  $  5,046,174  $  4,862,379  $  4,101,716
                                       ============  ============  ============  ============  ============
SUPPLEMENTAL INFORMATION
     Non-accretable unearned
       discounts.....................  $     (7,075) $    (15,423) $    (31,917) $    (42,975) $    (41,060)
     Undisbursed portion of loans in
       process.......................      (262,081)     (179,737)     (136,797)      (39,162)      (41,534)
</TABLE>
                                      105
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table sets forth the geographic distribution of loans by
states with concentrations of 4% of loans or greater at September 30, 1996. The
geographic data was based on gross loan principal and excludes non-accretable
unearned discounts.
<TABLE>
<CAPTION>
                                                                           AT SEPTEMBER 30, 1996
                                       ---------------------------------------------------------------------------------------------
                                          SINGLE          SINGLE                                 SINGLE
                                          FAMILY          FAMILY                  COMMERCIAL     FAMILY        TOTAL       NON-REAL
                                            AND         RESIDENTIAL     MULTI-       REAL       MORTGAGE    REAL ESTATE     ESTATE
                STATE                    CONSUMER      CONSTRUCTION     FAMILY      ESTATE     WAREHOUSE       LOANS         LOANS
-------------------------------------  -------------   -------------   --------   ----------   ----------   ------------   ---------
                                                                          (DOLLARS IN THOUSANDS)
<S>                                     <C>              <C>           <C>         <C>          <C>          <C>           <C>
California...........................    $3,383,554      $ --          $ 21,177    $ --         $ --         $3,404,731    $     66
Texas................................      851,832         124,941      242,554      26,132       --          1,245,459     119,999
Florida..............................      393,402          28,440       12,522       1,974       --            436,338          89
Other................................    1,608,008          89,144      236,341      14,276      260,745      2,208,514     168,658
                                       -------------   -------------   --------   ----------   ----------   ------------   ---------
  Total..............................    $6,236,796      $ 242,525     $512,594    $ 42,382     $260,745     $7,295,042    $288,812
                                       =============   =============   ========   ==========   ==========   ============   =========
% of Total...........................        82.24%           3.20%        6.76%       0.55%        3.44%         96.19%       3.81%
                                       =============   =============   ========   ==========   ==========   ============   =========
</TABLE>

                                                   % OF
                STATE                    TOTAL    TOTAL
-------------------------------------  ---------  ------

California...........................  $3,404,797  44.90%
Texas................................  1,365,458   18.00
Florida..............................    436,427    5.75
Other................................  2,377,172   31.35
                                       ---------  ------
  Total..............................  $7,583,854 100.00%
                                       =========  ======
% of Total...........................     100.00%
                                       =========

     Contractual maturities of the loans held to maturity portfolio as of
September 30, 1996, were as follows:
<TABLE>
<CAPTION>
                                            PRINCIPAL PAYMENTS CONTRACTUALLY DUE IN YEARS ENDED SEPTEMBER 30,
                                       ---------------------------------------------------------------------------
                                                                          2000-      2002-      2007-    2012 AND
                                         1997       1998       1999       2001       2006       2011     THEREAFTER   TOTAL
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                                                           (IN THOUSANDS)
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
TYPE OF LOAN
Single family........................  $  94,810  $ 102,314  $ 110,413  $ 247,738  $ 812,708  $1,189,495 $3,595,026 $6,152,504
Single family residential
  construction.......................    242,525     --         --         --         --         --         --        242,525
Consumer.............................     86,119     11,175     12,353     28,747     35,124     --         --        173,518
Multi-family.........................     92,631    100,890     84,795     28,811    172,706     --         --        479,833
Multi-family construction............     13,134     13,173      1,763      3,285     --         --         --         31,355
Commercial real estate...............      1,576      1,708      1,853      3,156     20,096      7,367      5,083     40,839
Business credit......................      4,786      5,284      5,833      6,736        159     --         --         22,798
Mortgage banker finance line of
  credit.............................    137,186     --         --          2,686     --         --         --        139,872
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
    Total............................  $ 672,767  $ 234,544  $ 217,010  $ 321,159  $1,040,793 $1,196,862 $3,600,109 $7,283,244
                                       =========  =========  =========  =========  =========  =========  =========  =========
TYPE OF INTEREST
Fixed-rate loans.....................  $  47,176  $  51,297  $  55,790  $ 124,938  $ 411,665  $ 297,328  $  18,025  $1,006,219
Adjustable-rate loans................    625,591    183,247    161,220    196,221    629,128    899,534  3,582,084  6,277,025
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
    Total............................  $ 672,767  $ 234,544  $ 217,010  $ 321,159  $1,040,793 $1,196,862 $3,600,109 $7,283,244
                                       =========  =========  =========  =========  =========  =========  =========  =========
</TABLE>
     The performing single family loans are pledged, under a blanket lien, as
collateral securing advances from the FHLB at September 30, 1996.

                                      106
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                     PRINCIPAL BALANCE OF NONACCRUAL LOANS

                                                AT SEPTEMBER 30,
                                       ----------------------------------
                                          1996        1995        1994
                                       ----------  ----------  ----------
                                                 (IN THOUSANDS)
NONACCRUAL LOANS
     Single family...................  $   92,187  $   83,954  $   85,722
     Single family residential
       construction..................      --             505      --
     Consumer........................       1,039         563         506
     Multi-family....................         144         213       3,802
     Commercial real estate and
       business credit...............         350      --           2,342
                                       ----------  ----------  ----------
                                           93,720      85,235      92,372
     Discounts.......................      (4,077)     (9,727)    (16,053)
                                       ----------  ----------  ----------
     Net nonaccrual loans............  $   89,643  $   75,508  $   76,319
                                       ==========  ==========  ==========
ALLOWANCE FOR CREDIT LOSSES TO NET
  NONACCRUAL LOANS
     Single family...................       32.46%      39.74%      22.70%
     Total...........................       44.24       48.74       30.73

     At September 30, 1994, nonaccrual loans above included $5.7 million of
single family loans that were ninety days delinquent, subject to government
guaranty, and upon which interest continued to accrue. There were no such loans
at September 30, 1996 and 1995.

     If the nonaccrual loans as of September 30, 1996 had been performing in
accordance with their original terms throughout fiscal 1996, interest income
recognized would have been $8.3 million. The actual interest income recognized
on these loans for fiscal 1996 was $3.4 million. No commitments exist to lend
additional funds to borrowers whose loans were on nonaccrual status at September
30, 1996.

     At September 30, 1996, the recorded investment in impaired loans pursuant
to SFAS No. 114 totalled $3.9 million and the average outstanding balance for
fiscal 1996 was $4.4 million. No allowance for credit losses was required on
these loans because the measured values of the loans exceeded the recorded
investments in the loans. Interest income of $393,000 was recognized on impaired
loans during fiscal 1996, of which $355,000 was collected in cash.

                                      107

<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                          ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
                                                                   LOANS HELD TO MATURITY                                   LOANS
                                       ---------------------------------------------------------------------------------   HELD FOR
                                                                                                   COMMERCIAL                SALE
                                                                                                      REAL      MORTGAGE   ---------
                                                    SINGLE                                           ESTATE      BANKER     SINGLE
                                                    FAMILY                             MULTI-         AND       FINANCE     FAMILY
                                       SINGLE    RESIDENTIAL               MULTI-      FAMILY       BUSINESS    LINE OF    MORTGAGE
                                       FAMILY    CONSTRUCTION   CONSUMER   FAMILY   CONSTRUCTION     CREDIT      CREDIT    WAREHOUSE
                                       -------   ------------   --------   ------   ------------   ----------   --------   ---------
                                                                              (IN THOUSANDS)
<S>                                    <C>           <C>        <C>        <C>         <C>          <C>          <C>         <C>
Balance at
  September 30, 1991.................  $ 8,956       $186       $    81    $ 144       $--          $    552     $--         $ 229
    Provision........................   14,156        135            39       75       --              6,261      --           467
    Charge-offs......................   (2,835)     --              (76)    --         --             --          --          (118)
    Recoveries.......................        8      --            --        --         --             --          --         --
    Other............................   (6,817)     --              100     --         --              4,564      --         --
                                       -------   ------------   --------   ------   ------------   ----------   --------   ---------
Balance at
  September 30, 1992.................   13,468        321           144      219       --             11,377      --           578
    Provision........................    1,824         56           264    1,178          107            (25)       944       (265)
    Charge-offs......................   (2,167)       (71)          (72)    --         --             --          --          (148)
    Recoveries.......................        6      --               19     --         --             --          --         --
    Other............................      378      --            --         (31)           1             30      --         --
                                       -------   ------------   --------   ------   ------------   ----------   --------   ---------
Balance at
  September 30, 1993.................   13,509        306           355    1,366          108         11,382        944        165
    Provision........................    2,369         93         2,794    1,187           28            875       (260)       (89)
    Charge-offs......................   (1,722)     --           (1,365)    (233)      --            (10,145)     --         --
    Recoveries.......................       20      --               38     --         --             --          --         --
    Other............................    1,729      --            --           9           (9)        --          --         --
                                       -------   ------------   --------   ------   ------------   ----------   --------   ---------
Balance at
  September 30, 1994.................   15,905        399         1,822    2,329          127          2,112        684         76
    Provision........................   18,493        (38)        4,178      524           72          1,374       (274)       (36)
    Charge-offs......................   (4,840)     --           (2,847)    --         --             (3,389)     --            (2)
    Recoveries.......................       36      --               94        2       --             --          --         --
                                       -------   ------------   --------   ------   ------------   ----------   --------   ---------
Balance at
  September 30, 1995.................   29,594        361         3,247    2,855          199             97        410         38
    Provision........................    6,771        332         7,823    1,263           33            256          2        (11)
    Charge-offs......................   (7,751)     --           (5,995)    --         --                (39)     --         --
    Recoveries.......................       31      --              144     --         --             --          --         --
                                       -------   ------------   --------   ------   ------------   ----------   --------   ---------
Balance at
  September 30, 1996.................  $28,645       $693       $ 5,219    $4,118      $  232       $    314     $  412      $  27
                                       =======   ============   ========   ======   ============   ==========   ========   =========

                                       LOANS
                                        HELD
                                        FOR
                                        SALE
                                       -------
                                       SINGLE
                                       FAMILY     TOTAL
                                       -------   --------
Balance at
  September 30, 1991.................  $ --      $ 10,148
    Provision........................    --        21,133
    Charge-offs......................    --        (3,029)
    Recoveries.......................    --             8
    Other............................    2,107        (46)
                                       -------   --------
Balance at
  September 30, 1992.................    2,107     28,214
    Provision........................    --         4,083
    Charge-offs......................    --        (2,458)
    Recoveries.......................    --            25
    Other............................     (378)     --
                                       -------   --------
Balance at
  September 30, 1993.................    1,729     29,864
    Provision........................    --         6,997
    Charge-offs......................    --       (13,465)
    Recoveries.......................    --            58
    Other............................   (1,729)     --
                                       -------   --------
Balance at
  September 30, 1994.................    --        23,454
    Provision........................    --        24,293
    Charge-offs......................    --       (11,078)
    Recoveries.......................    --           132
                                       -------   --------
Balance at
  September 30, 1995.................    --        36,801
    Provision........................    --        16,469
    Charge-offs......................    --       (13,785)
    Recoveries.......................    --           175
                                       -------   --------
Balance at
  September 30, 1996.................  $ --      $ 39,660
                                       =======   ========
</TABLE>
                                      108
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6.  LOAN SERVICING

                       SINGLE FAMILY SERVICING PORTFOLIO
                               PRINCIPAL BALANCES

                                             AT SEPTEMBER 30,
                                       ----------------------------
                                           1996           1995
                                       -------------  -------------
                                              (IN THOUSANDS)
OWNED LOANS..........................  $   6,694,634  $   7,602,869
     Less: Loans serviced by
       others........................      2,700,049      3,476,733
                                       -------------  -------------
          Total owned loans serviced
            by Company...............      3,994,585      4,126,136
                                       -------------  -------------
LOANS SERVICED FOR OTHERS
     Purchased servicing rights......      4,841,534      4,652,081
     Loans originated and sold with
       servicing retained............      3,008,615      1,186,951
     Servicing sales -- not yet
       transferred from Company......        464,053      1,045,839
     Other...........................        349,389        276,457
                                       -------------  -------------
          Total loans serviced for
            others...................      8,663,591      7,161,328
MORTGAGE-BACKED SECURITIES
  SECURITIZED BY BANKING SEGMENT.....        831,197      1,360,443
                                       -------------  -------------
          Total servicing
            portfolio................  $  13,489,373  $  12,647,907
                                       =============  =============

     The table above includes single family, single family residential
construction, and single family mortgage warehouse loans. In addition to the
single family servicing portfolio, there were $283 million and $177 million of
multi-family loans serviced for others at September 30, 1996 and 1995,
respectively.

                FAIR VALUE OF SINGLE FAMILY SERVICING PORTFOLIO

                                             AT SEPTEMBER 30,
                                       ----------------------------
                                           1996           1995
                                       -------------  -------------
                                              (IN THOUSANDS)
PRINCIPAL
     Total loans serviced for
       others........................  $   8,663,591  $   7,161,328
     Mortgage-backed securities
       securitized by Banking
       Segment.......................        831,197      1,360,443
     Servicing sales -- not yet
       transferred from Company......       (464,053)    (1,045,839)
     Single family mortgage warehouse
       loans subject to SFAS No.
       122...........................        260,745        411,287
                                       -------------  -------------
          Total single family
            servicing portfolio, as
            adjusted.................  $   9,291,480  $   7,887,219
                                       =============  =============
FAIR VALUE...........................  $     168,971  $     122,250
                                       -------------  -------------
BOOK VALUE
     OMSR............................         62,571         23,062
     PMSR............................         60,821         52,035
                                       -------------  -------------
          Total book value...........        123,392         75,097
                                       -------------  -------------
          Fair value in excess of
            book value (see Note
            12)......................  $      45,579  $      47,153
                                       =============  =============

                                      109
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                           MORTGAGE SERVICING RIGHTS
<TABLE>
<CAPTION>
                                                FOR THE YEAR ENDED SEPTEMBER 30,
                                       -----------------------------------------------------
                                               1996                  1995            1994
                                       --------------------  --------------------  ---------
                                         OMSRS      PMSRS      OMSRS      PMSRS      PMSRS

                                                          (IN THOUSANDS)
<S>                                    <C>        <C>        <C>        <C>        <C>
Balance at beginning of period.......  $  23,062  $  52,035  $  --      $  56,677  $  10,650
     Additions.......................     48,412     23,535     28,694     12,546     50,955
     Amortization....................     (4,107)    (9,740)    (1,010)    (9,821)    (4,928)
     Deferred hedging gains..........     --         (2,140)    --         (7,173)    --
     Sales...........................     (4,796)    (2,869)    (4,622)      (194)    --
                                       ---------  ---------  ---------  ---------  ---------
Balance at end of period.............  $  62,571  $  60,821  $  23,062  $  52,035  $  56,677
                                       =========  =========  =========  =========  =========
</TABLE>
7.  COVERED ASSETS AND FEDERAL FINANCIAL ASSISTANCE

     Concurrent with the Bank's incorporation on December 30, 1988, the Parent
Company, the Bank, and certain of their direct and indirect parent entities
entered into an Assistance Agreement ("Assistance Agreement") with the Federal
Savings and Loan Insurance Corporation ("FSLIC") whereby the Bank acquired
substantially all of the assets and assumed all of the deposits and certain
liabilities of United Savings Association of Texas ("Old USAT"), an insolvent
thrift institution (the "Acquisition"). The majority of assets acquired were
designated as Covered Assets ("Covered Assets") and were subject to certain
provisions contained in the Assistance Agreement. The Assistance Agreement
provided for, among other things, financial assistance to the Bank.

     On December 23, 1993, the Parent Company, the Bank, and certain of their
direct and indirect parent entities, and the Federal Deposit Insurance
Corporation, ("FDIC") as manager of the FSLIC Resolution Fund ("FRF"),
entered into a Settlement and Termination Agreement (the "Settlement
Agreement") providing, among other things, for the termination of the
Assistance Agreement and the disposition of Covered Assets. Accordingly,
effective December 28, 1993, the Bank no longer owned or managed any Covered
Assets and stopped receiving financial assistance from the FRF. In connection
with this settlement, the Bank received a payment totalling $195.3 million. The
following table shows the composition of FRF payments received in fiscal 1994.

                                       (IN THOUSANDS)
Payments affecting the results of
  operations.........................     $ 23,143
Other payments
     Settlement payment..............      195,300
     Other...........................          468
                                       --------------
          Total FRF payments.........     $218,911
                                       ==============

                                      110
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8.  DEPOSITS
<TABLE>
<CAPTION>
                                                                   AT SEPTEMBER 30,
                                       ------------------------------------------------------------------------
                                                1996                     1995                     1994
                                       ----------------------   ----------------------   ----------------------
                                                     WEIGHTED                 WEIGHTED                 WEIGHTED
                                                     AVERAGE                  AVERAGE                  AVERAGE
                                         AMOUNT        RATE       AMOUNT        RATE       AMOUNT        RATE
                                       -----------   --------   -----------   --------   -----------   --------
                                                                (DOLLARS IN THOUSANDS)
<S>                                    <C>             <C>      <C>             <C>      <C>             <C>
NON-INTEREST BEARING DEPOSITS........  $   284,304     --   %   $   181,196     --  %    $    76,498     --  %
INTEREST-BEARING DEPOSITS
    Transaction accounts.............      211,976      1.00        219,307     1.50         233,666     1.49
    Insured money fund accounts
      Consumer.......................      588,585      4.36        397,473     3.73         407,029     3.12
      Commercial.....................      810,743      5.29        857,669     5.82         416,571     4.84
                                       -----------   --------   -----------      ---     -----------      ---
         Subtotal....................    1,399,328      4.90      1,255,142     5.16         823,600     3.99
                                       -----------   --------   -----------      ---     -----------      ---
    Savings accounts.................      130,137      2.48        144,301     2.73         222,769     2.60
    Certificates of deposit
      Consumer.......................    2,911,682      5.71      3,063,631     5.84       2,949,715     4.88
      Commercial.....................        2,667      4.88          2,273     5.36         --          --
      Wholesale......................      207,851     10.28        316,370     9.06         457,956     7.92
                                       -----------   --------   -----------      ---     -----------      ---
         Subtotal....................    3,122,200      6.01      3,382,274     6.14       3,407,671     5.29
                                       -----------   --------   -----------      ---     -----------      ---
         Total interest-bearing
           deposits..................    4,863,641      5.38      5,001,024     5.59       4,687,706     4.74
                                       -----------   --------   -----------      ---     -----------      ---
         Total deposits..............  $ 5,147,945      5.08%   $ 5,182,220     5.40%    $ 4,764,204     4.67%
                                       ===========   ========   ===========      ===     ===========      ===
Consumer.............................  $ 3,939,631              $ 3,868,498              $ 3,834,239
Commercial...........................    1,000,463                  997,352                  472,009
Wholesale............................      207,851                  316,370                  457,956
                                       -----------              -----------              -----------
         Total deposits..............  $ 5,147,945              $ 5,182,220              $ 4,764,204
                                       ===========              ===========              ===========

     At September 30, 1996, certificates of deposit ("CDs") summarized by
scheduled maturity by year and weighted average interest rate were as follows:

                                               CERTIFICATES MATURING IN THE YEAR ENDING SEPTEMBER 30,
                                       -----------------------------------------------------------------------
             STATED RATE                   1997         1998        1999       2000       2001      THEREAFTER      TOTAL
-------------------------------------  ------------  ----------  ----------  ---------  ---------   ----------   ------------
                                                                           (IN THOUSANDS)
2.99% and below......................  $      1,584  $   --      $   --      $  --      $  --         $  --        $      1,584
3.00% to 3.99%.......................        21,867         740           8     --         --              3           22,618
4.00% to 4.99%.......................       437,650      23,983      33,839      1,063      2,645         61          499,241
5.00% to 5.99%.......................       861,376     409,903      92,854      6,826     34,185        449        1,405,593
6.00% to 6.99%.......................       440,730     246,208      74,373     61,165     49,022      1,788          873,286
7.00% to 7.99%.......................        79,767       7,747       5,778     21,536     11,276      1,529          127,633
8.00% to 8.99%.......................         1,399         678       4,485      2,326        354         27            9,269
9.00% to 9.99%.......................           579       6,480       3,062         12        138        308           10,579
10.00% to 10.99%.....................        40,224      14,699      11,166        664         97        228           67,078
Over 10.99%..........................        88,281      16,757         281     --         --            --             105,319
                                       ------------  ----------  ----------  ---------  ---------   ----------   ------------
                                       $  1,973,457  $  727,195  $  225,846  $  93,592  $  97,717     $4,393     $  3,122,200
                                       ============  ==========  ==========  =========  =========   ==========   ============
</TABLE>
                                      111
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Scheduled maturities of CDs of $100,000 or more outstanding at September
30, 1996 were as follows:

                                        NUMBER OF    DEPOSIT
                                        ACCOUNTS      AMOUNT
                                        ---------    --------
                                             (DOLLARS IN
                                             THOUSANDS)
Three months or less.................     1,234      $130,243
Over three through six months........       551        57,661
Over six through twelve months.......       957       101,299
Over twelve months...................     1,813       190,973
                                        ---------    --------
          Total......................     4,555      $480,176
                                        =========    ========

                          INTEREST EXPENSE ON DEPOSITS

                                        FOR THE YEAR ENDED SEPTEMBER 30,
                                       ----------------------------------
                                          1996        1995        1994
                                       ----------  ----------  ----------
                                                 (IN THOUSANDS)
Transaction and insured money fund
  accounts...........................  $   71,693  $   61,232  $   22,261
Savings accounts.....................       3,598       4,715       7,311
Certificates of deposit..............     196,929     198,419     179,462
                                       ----------  ----------  ----------
     Total...........................  $  272,220  $  264,366  $  209,034
                                       ==========  ==========  ==========

9.  FEDERAL HOME LOAN BANK ADVANCES

                                           FOR THE YEAR ENDED SEPTEMBER 30,
                                       ----------------------------------------
                                           1996          1995          1994
                                       ------------  ------------  ------------
                                                (DOLLARS IN THOUSANDS)
Maximum outstanding at any
  month-end..........................  $  4,384,798  $  4,386,605  $  2,697,829
Daily average balance................     4,073,297     3,560,844     2,285,630
Average interest rate................          6.07%         6.31%         3.98%

     The aggregate amounts of principal maturities for FHLB advances for the
periods indicated were as follows:

                                            AT SEPTEMBER 30,
                            -------------------------------------------------
                                     1996                      1995
                            -----------------------   -----------------------
                                           WEIGHTED                  WEIGHTED
                                           AVERAGE                   AVERAGE
                               AMOUNT        RATE        AMOUNT        RATE
                            ------------   --------   ------------   --------
                                         (DOLLARS IN THOUSANDS)
1996......................  $    --          --  %    $  2,391,885     6.22%
1997......................     2,564,095     5.82        1,855,765     6.33
1998......................       905,046     5.47          115,000     6.60
1999......................         8,700     7.65            8,700     7.65
2000......................         2,700     7.80            2,700     7.80
2001......................         7,145     8.16            4,800     7.92
Thereafter................         2,700     8.04            5,045     8.33
                            ------------   --------   ------------   --------
          Total...........  $  3,490,386     5.74%    $  4,383,895     6.28%
                            ============   ========   ============   ========

                                      112
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10.  SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
     AND FEDERAL FUNDS PURCHASED

                                          FOR THE YEAR ENDED SEPTEMBER 30,
                                       --------------------------------------
                                           1996          1995         1994
                                       ------------  ------------  ----------
                                               (DOLLARS IN THOUSANDS)
REVERSE REPURCHASE AGREEMENTS
     Balance outstanding at
       period-end....................  $    832,286  $  1,172,533  $  553,000
     Fair value of collateral at
       period-end....................     1,020,405     1,239,527     673,000
     Maximum outstanding at any
       month-end.....................     1,096,508     1,355,540     553,000
     Daily average balance...........       955,681       887,932     273,899
     Average interest rate...........          5.77%         5.99%       3.85%
FEDERAL FUNDS PURCHASED
     Balance outstanding at
       period-end....................  $    --       $    --       $   --
     Maximum outstanding at any
       month-end.....................       --            --           15,000
     Daily average balance...........            27           521         767
     Average interest rate...........          6.02%         5.95%       3.73%

     Scheduled maturities of reverse repurchase agreements outstanding at
September 30, 1996 were as follows:

                                        (IN THOUSANDS)
October 1996.........................      $472,286
March 1997...........................       360,000
                                        --------------
                                           $832,286
                                        ==============

     The counterparties to all reverse repurchase agreements at September 30,
1996 have agreed to resell the same securities upon maturity of such agreements.
The securities collateralizing the reverse repurchase agreements have been
delivered to the counterparty or its agent. At September 30, 1996, the reverse
repurchase agreements were outstanding with the following counterparties:

                                        CARRYING VALUE
                                        ---------------
                                        (IN THOUSANDS)
Morgan Stanley and Co.
  Incorporated.......................      $ 360,000
Donaldson, Lufkin, and Jenrette
  Securities Corporation.............        301,524
Goldman, Sachs and Co................         57,000
Federal Home Loan Bank...............         45,000
CS First Boston Corporation..........         44,215
PaineWebber, Inc.....................         24,547
                                        ---------------
                                           $ 832,286
                                        ===============

11.  SENIOR NOTES

     In May 1993, the Parent Company issued $115 million of 8.05% Senior Notes
due May 15, 1998 ("Senior Notes") and repaid long-term debt and a note payable
to a related party.

     The Senior Notes were not registered under the Securities Act of 1933, as
amended (the "Securities Act"), but were offered and sold in a private
offering to qualified institutional investors in reliance on Rule 144A under the
Securities Act and to a limited number of institutional accredited investors
within the meaning of Rule 501 of Regulation D under the Securities Act.

     The Senior Notes had an initial interest rate of 8.05% PER ANNUM, payable
semi-annually. The interest rate on the Senior Notes was subject to increase in
certain circumstances if an exchange offer ("Exchange Offer")

                                      113
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
was not consummated by certain dates. The PER ANNUM interest rate on the Senior
Notes increased by 0.5%, to 8.55% in October 1993, and increased by 0.5% to
9.05% in February 1994. The Exchange Offer was consummated in August 1996 and
the interest rate reverted to the initial rate of 8.05% in September 1996.

     The Senior Notes are not redeemable prior to maturity, except upon the
occurrence of a change of control (as defined) of the Parent Company or the Bank
(i) at the option of the Parent Company, in whole but not in part, and (ii) at
the option of holders, in whole or in part, in each case, at 101% of their
principal amount plus accrued interest to the date of redemption. The Senior
Notes do not have the benefit of any sinking fund obligation.

     The cost of issuing the Senior Notes, including the costs of the Exchange
Offering, totalled $5.4 million, and amortization for fiscal 1996, 1995, and
1994 was $1.0 million, $976,000, and $977,000, respectively.

     The Parent Company's ability to meet its long-term obligations is
contingent on the Bank's ability to pay dividends on its common stock. As
discussed in Note 15, the ability of the Bank to pay dividends on its preferred
or common stock without prior Office of Thrift Supervision ("OTS") approval is
subject to its continued profitability and the maintenance of certain capital
ratios. Further, the payment of dividends by the Bank to the Parent Company on
the Bank's common stock is subordinate to the payment of dividends on the Bank's
preferred stock. See Note 16 for a discussion of the preferred stock of the
Bank. Under the Senior Note indenture, aggregate dividends paid by the Parent
Company on its common stock and by the Bank on its preferred stock, and certain
other payments or investments, is limited to the sum of (i) 50% of cumulative
consolidated net income (or, if negative 100% of such deficit) after March 31,
1993, subject to certain exclusions, (ii) the proceeds from any issuance of
capital stock by the Parent Company after March 31, 1993, and (iii) $12 million.
At September 30, 1996, $76.8 million was available for payment of future
dividends by the Parent Company under this restriction.

12.  FINANCIAL INSTRUMENTS

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

     SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires the disclosure of fair value information about financial instruments,
whether or not recognized in the statement of financial condition. Quoted market
prices, when available, are used as the measure of fair value. In cases where
quoted market prices are not available, fair values are based on present value
estimates or other valuation techniques. Because assumptions used in these
valuation techniques are inherently subjective in nature, the estimated fair
values cannot always be substantiated by comparison to independent market quotes
and, in many cases, the estimated fair values could not necessarily be realized
in an immediate sale or settlement of the instrument.

     The fair value estimates presented herein are based on relevant information
available to management as of September 30, 1996 and 1995. Management is not
aware of any factors that would significantly affect these estimated fair value
amounts. As these reporting requirements exclude certain financial instruments
and all non-financial instruments, the aggregate fair value amounts presented
herein do not represent management's estimate of the underlying value of the
Company. Additionally, such amounts exclude intangible asset values such as the
value of core deposit intangibles. The following methods and assumptions were
used to estimate the fair value of each class of financial instrument for which
it is practicable to estimate that value.

     SHORT-TERM INTEREST-EARNING ASSETS.  The carrying amount approximates fair
value.

     TRADING ACCOUNT ASSETS.  The carrying values are market values, which are
generally based on quoted market prices or dealer quotes, if available. If a
quoted market price is not available, market value is estimated using quoted
market prices for instruments with similar credit, maturity, and interest
characteristics.

     SECURITIES AND MORTGAGE-BACKED SECURITIES.  The carrying amounts for
certain securities and MBS approximate their fair values as they mature within
90 days and do not present significant credit concerns. The fair

                                      114
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

values of securities and MBS with longer maturities are estimated based on bid
prices published in financial newspapers or bid quotations received from
securities dealers.

     LOANS.  Fair values are estimated for portfolios of loans with similar
characteristics and include the value of related servicing rights, if
appropriate. Loans are segregated by type, by rate, and by performing and
nonperforming categories. As adjustable-rate loans (excluding single family)
reprice frequently, their carrying value approximates their fair value. For
fixed-rate loans and single family loans, excluding the single family mortgage
warehouse, fair value is estimated using contractual cash flows discounted at
secondary market rates, adjusted for prepayment estimates, or using current
rates offered for similar loans. Fair value of the single family mortgage
warehouse loans is estimated using outstanding commitment prices from investors
or current investor yield requirements. The fair value of nonperforming loans is
estimated using the carrying value less any related allowance for credit losses.

     FHLB STOCK.  The carrying amount approximates fair value as it is
redeemable at its par value.

     DEPOSITS.  Under SFAS No. 107, the estimated fair value of deposits with no
stated maturity, which includes demand deposits, money market, and other savings
accounts, is equal to the amount payable on demand. Although market premiums
paid for depository institutions reflect an additional value for these deposits,
SFAS No. 107 prohibits adjusting fair value for any value expected to be derived
from retaining those deposits for a future period of time or from the benefit
that results from the ability to fund interest-earning assets with these deposit
liabilities. The SFAS No. 107 fair value of fixed-maturity deposits is estimated
using a discounted cash flow model with rates currently offered by the Company
for deposits of similar remaining maturities.

     FHLB ADVANCES, REVERSE REPURCHASE AGREEMENTS, AND FEDERAL FUNDS
PURCHASED.  Fair values are estimated based on the discounted value of
contractual cash flows using rates currently available to the Company for
borrowings with similar terms and remaining maturities.

     SENIOR NOTES.  The fair value of the Senior Notes is based on discounting
future cash flows using the current rates at which similar debt would be issued
by issuers with similar credit ratings and remaining maturities.

     OTHER ASSETS AND LIABILITIES.  With the exception of that portion of the
excess servicing receivable classified as other assets, the carrying amounts of
financial instruments in these classifications are considered a reasonable
estimate of fair value due to their short-term nature. At September 30, 1996 and
1995, the fair value of the excess servicing receivable exceeded its carrying
value of $9.3 million and $7.1 million, by $5.2 million and $5.1 million,
respectively. The fair value of the excess servicing receivable is equal to the
present value of estimated net future cash flows discounted at a current market
rate.

     FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK.  The fair values of
financial instruments with off-balance-sheet risk are based on current market
prices.

     SERVICING PORTFOLIO.  See Note 1 for a description of the method used to
value the single family servicing portfolio.

                                      115
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                            SFAS NO. 107 FAIR VALUES
<TABLE>
<CAPTION>
                                                        AT SEPTEMBER 30,
                                       -----------------------------------------------------
                                                 1996                        1995
                                       -------------------------   -------------------------
                                         CARRYING      SFAS NO.      CARRYING      SFAS NO.
                                           VALUE       107 VALUE       VALUE       107 VALUE
                                       -------------   ---------   -------------   ---------
                                                          (IN THOUSANDS)
<S>                                    <C>             <C>         <C>             <C>
FINANCIAL ASSETS
     Short-term interest-earning
       assets........................  $     793,772   $ 793,772   $     583,983   $ 583,983
     Trading account assets..........          1,149       1,149           1,081       1,081
     Securities......................         64,544      64,545         116,013     116,811
     Mortgage-backed securities......      1,657,908   1,637,085       2,398,263   2,378,171
     Loans...........................      7,519,488   7,657,483       8,260,240   8,418,464
     FHLB stock......................        179,643     179,643         225,952     225,952
     Other assets....................        110,441     115,658         150,542     155,631
NON-FINANCIAL ASSETS.................        385,432         N/A         247,460         N/A
                                       -------------   =========   -------------   =========
          Total assets...............  $  10,712,377               $  11,983,534
                                       =============               =============
FINANCIAL LIABILITIES
     Deposits........................  $   5,147,945   $5,164,988  $   5,182,220   $5,215,438
     FHLB advances...................      3,490,386   3,493,086       4,383,895   4,395,965
     Reverse repurchase agreements
       and federal funds purchased...        832,286     832,328       1,172,533   1,171,884
     Senior Notes....................        115,000     118,396         115,000     115,383
     Other liabilities...............        170,870     170,870         162,073     162,073
NON-FINANCIAL LIABILITIES, MINORITY
  INTEREST, AND STOCKHOLDERS'
  EQUITY.............................        955,890         N/A         967,813         N/A
                                       -------------   =========   -------------   =========
          Total liabilities, minority
            interest, and
            stockholders' equity.....  $  10,712,377               $  11,983,534
                                       =============               =============
OTHER FINANCIAL ASSETS
  (LIABILITIES) -- FAIR VALUE
       Interest rate swaps...........                  $     (66)                  $  (1,517)
       Interest rate caps............                      1,057                       1,113
       Interest rate floors..........                      2,515                       4,895
       Financial options.............                     --                             103
       Financial futures contracts...                     --                          (1,869)
       Forward delivery contracts....                       (176)                     (2,877)
       Commitments to extend
          credit.....................                      2,238                         897
OTHER NON-FINANCIAL
  ASSETS -- UNREALIZED GAINS
       Single family servicing
          portfolio, as adjusted (See
          Note 6)....................                     45,579                      47,153
</TABLE>
     The carrying values of other financial assets (liabilities) and other
non-financial assets, if any, were included with the carrying values of the
related assets and liabilities.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

     The Company enters into certain financial instruments with
off-balance-sheet risk in the ordinary course of business to reduce its exposure
to changes in interest rates. The Company does not enter into instruments such
as leveraged derivatives or structured notes. The financial instruments used for
hedging interest rate risk include interest rate swaps, caps, and floors,
financial options, financial futures contracts, and forward delivery contracts.
A hedge is an attempt to reduce risk by creating a relationship whereby any
losses on the hedged asset or liability

                                      116
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

are expected to be offset in whole or part by gains on the hedging financial
instrument. Thus, market risk resulting from a particular off-balance-sheet
instrument is normally offset by other on or off-balance-sheet transactions. The
Company seeks to manage credit risk by limiting the total amount of arrangements
outstanding, both by counterparty and in the aggregate, by monitoring the size
and maturity structure of the financial instruments, by assessing the
creditworthiness of the counterparty, and by applying uniform credit standards
for all activities with credit risk.

     Notional principal amounts indicated in the following table represent the
extent of the Company's involvement in particular classes of financial
instruments and generally exceed the expected future cash requirements relating
to the instruments.

                                          AT SEPTEMBER 30,
                                       ----------------------
                                          1996        1995
                                       ----------  ----------
                                           (IN THOUSANDS)
Interest rate swaps..................  $   50,000  $  615,000
Interest rate caps...................     659,000     565,000
Interest rate floors.................     688,500     310,000
Financial options....................      --          23,000
Financial futures contracts..........      --         529,000
Forward delivery contracts...........     321,923     509,463
Commitments to extend credit.........     988,120     999,792

     Financial instruments with off-balance-sheet risk at September 30, 1996
were scheduled to mature as follows:
<TABLE>
<CAPTION>
                                          MATURING IN THE YEAR ENDING SEPTEMBER 30,
                                       ------------------------------------------------
                                           1997         1998       1999      THEREAFTER      TOTAL
                                       ------------  ----------  ---------   ----------   ------------
                                                               (IN THOUSANDS)
<S>                                    <C>           <C>         <C>          <C>         <C>
Interest rate swaps..................  $     50,000  $   --      $  --        $  --       $     50,000
Interest rate caps...................       237,000     121,000     58,000      243,000        659,000
Interest rate floors.................        60,000     250,000     --          378,500        688,500
Forward delivery contracts...........       321,923      --         --           --            321,923
Commitments to extend credit.........       844,112     100,459      9,728       33,821        988,120
                                       ------------  ----------  ---------   ----------   ------------
          Total......................  $  1,513,035  $  471,459  $  67,728    $ 655,321   $  2,707,543
                                       ============  ==========  =========   ==========   ============
</TABLE>
                                      117
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     INTEREST RATE SWAPS.  Below is an itemization of swaps by type and items
hedged. These swaps were entered into in an effort to more closely match the
repricing of the Company's liabilities with the related assets. During fiscal
1996, $565.0 million of interest rate swap contracts expired.
<TABLE>
<CAPTION>
                                        NOTIONAL     FIXED       FLOATING             HEDGED
                                         AMOUNT      RATE          RATE                ITEM
                                        --------    -------      --------       -------------------
                                                          (DOLLARS IN THOUSANDS)
<S>                                     <C>           <C>          <C>          <C>
AT SEPTEMBER 30, 1996
Receive Fixed/Pay Floating...........   $ 25,000      6.00%        5.50%(1)     Consumer deposits
                                          25,000      4.60         5.69(2)      Consumer deposits
                                        --------
     Total...........................   $ 50,000
                                        ========
AT SEPTEMBER 30, 1995
Receive Floating/Pay Fixed...........   $ 75,000      6.10         5.81(1)      FHLB advances
                                         340,000      6.50         5.86(1)      Reverse repurchase
                                                                                agreements
                                         100,000      6.58         6.00(2)      Commercial deposits
Receive Fixed/Pay Floating...........     75,000      4.32         5.88(2)      Consumer deposits
                                          25,000      6.00         5.81(1)      Consumer deposits
                                        --------
     Total...........................   $615,000
                                        ========
</TABLE>
(1) Based on the one month London InterBank Offered Rate ("LIBOR") as of the
    last reset prior to the date reported.

(2) Based on the three month LIBOR as of the last reset prior to the date
    reported.

     INTEREST RATE CAPS.  During fiscal 1995, interest rate caps with original
notional principal amounts totalling $565.0 million were entered into in an
effort to hedge certain adjustable-rate loans. After considering expected
prepayments and the amortization of the loans that were being hedged, the
amortized notional principal amounts of these caps totalled $459.0 million at
September 30, 1996. Interest rate caps with notional principal amounts totalling
$950.0 million were entered into during fiscal 1996 in an effort to hedge
certain adjustable-rate MBS and FHLB advances. During fiscal 1996, $750.0
million of the caps entered into during fiscal 1996 were sold as the MBS being
hedged were sold. The resulting gain on the sale of the caps of $1.9 million
partially offset the loss on the sale of the MBS.
<TABLE>
<CAPTION>

                                                NOTIONAL      INDEX       CONTRACTED
                                                 AMOUNT       RATE           RATE
                                                --------      -----       ----------
                                                       (DOLLARS IN THOUSANDS)
<S>                                    <C>      <C>           <C>           <C>
AT SEPTEMBER 30, 1996................  buy      $459,000      5.93%(1)       7.86%
                                                 200,000      5.66 (2)       6.19
                                       sell      459,000      5.93 (1)       8.57

AT SEPTEMBER 30, 1995................  buy       565,000      5.91 (1)       7.86
                                       sell      565,000      5.91 (1)       8.57
</TABLE>
(1) Based on the six month LIBOR as of the last reset prior to the date
    reported.

(2) Based on the three month LIBOR as of the last reset prior to the date
    reported.

                                      118
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     INTEREST RATE FLOORS.  Floor contracts were entered into during fiscal 1996
and 1995 in an effort to hedge the MSRs against declines in value as a result of
prepayments.

                                                                AVERAGE
                                        NOTIONAL    INDEX        FLOOR    HEDGED
                                         AMOUNT     RATE         RATE       ITEM
                                        --------    -----       -------   ------
                                                 (DOLLARS IN THOUSANDS)
AT SEPTEMBER 30, 1996................   $498,500    6.67%(1)      5.99%     MSRs
                                         190,000    6.88 (2)      6.25      MSRs
                                        --------
     Total...........................   $688,500
                                        ========

AT SEPTEMBER 30, 1995................   $260,000    6.01 (1)      6.70      MSRs
                                          50,000    6.17 (2)      7.20      MSRs
                                        --------
     Total...........................   $310,000
                                        ========

(1) Based on the five year Constant Maturity Treasury ("CMT") as of the last
    reset prior to the date reported.

(2) Based on the ten year CMT as of the last reset prior to the date reported.

     An interest rate floor agreement with a notional principal amount of $530.0
million hedging single family MSRs was sold prior to its original maturity
during fiscal 1995, resulting in a gain of $6.4 million. The gain was deferred
and is being accreted to operations offsetting the related MSR intangible
amortization expense. At September 30, 1996, the deferred gain remaining from
the sale of the interest rate floor was approximately $4.9 million. Interest
received on interest rate floor agreements totalled $2.1 million and $817,000 at
September 30, 1996 and 1995, respectively. The interest received was deferred
and is being amortized over the life of the MSRs.

     FINANCIAL OPTIONS.  At September 30, 1995 there was a Treasury call option
outstanding with a notional principal amount of $23.0 million. A Treasury call
option with a notional principal amount of $22.5 million was purchased and
expired during fiscal 1996. These options were entered into in an effort to
hedge MSRs against declines in value as a result of an increase in prepayments
caused by declining interest rates. The Treasury call option outstanding at
September 30, 1995 was sold during fiscal 1996, for a gain of $319,000 as the
MSRs being hedged were sold. This gain was included in the gain on the sale of
MSRs.

     During fiscal 1996, a Eurodollar put option with notional principal amount
of $2.0 billion was purchased in an effort to hedge certain MBS. The Eurodollar
put option was sold during fiscal 1996 for a loss of $49,000 as the MBS being
hedged were sold. The loss was included in the gain on the sale of the MBS.

     During fiscal 1996, Treasury put options with notional principal amounts
totalling $26.6 million were entered into in an effort to hedge loans the
Company originated for its own portfolio from the date that the interest rate is
locked until the date the loans are sold or funded ("portfolio pipeline").
These options were sold during fiscal 1996.

     A Treasury call option with a notional principal amount of $50.0 million
was purchased and expired during fiscal 1996. The option was entered into as
trading activity.

     At September 30, 1996 there were no options outstanding.

     FINANCIAL FUTURES CONTRACTS.  Treasury futures were entered into during
fiscal 1996 and 1995 in an effort to hedge loans in the portfolio pipeline. As
of September 30, 1996, all such Treasury futures contracts were closed or had
expired as the loans being hedged had been sold or were included in the held to
maturity loan portfolio. A net gain of $222,000 on the sale of Treasury futures
contracts as of September 30, 1996 was deferred and is being amortized over the
life of the loans. A loss of $6.0 million on the sale of Treasury futures
contracts was deferred as of September 30, 1995 and recognized into income
during fiscal 1996 as the loans being hedged were sold.

                                      119
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Eurodollar futures contracts outstanding at September 30, 1995 were
entered into in an effort to hedge the interest costs for a fixed period on
certain borrowings that reprice based on short-term rates. As of September 30,
1996, all of the Eurodollar futures contracts outstanding at September 30, 1995
were closed or had expired. At September 30, 1996, losses of $135,000 on closed
Eurodollar futures contracts were deferred and are being amortized over the life
of the borrowings.

     FORWARD DELIVERY CONTRACTS.  Forward delivery contracts are entered into to
sell single family mortgage warehouse loans and to manage the risk that a change
in interest rates will decrease the value of the single family mortgage loan
warehouse or commitments to originate mortgage loans ("mortgage pipeline").

                           FORWARD DELIVERY CONTRACTS

                                          AT SEPTEMBER 30,
                                       ----------------------
                                          1996        1995
                                       ----------  ----------
                                           (IN THOUSANDS)
COUNTERPARTY
     GNMA............................  $  197,389  $  205,250
     FNMA............................      89,203     264,797
     Other...........................      35,331      39,416
                                       ----------  ----------
          Total......................  $  321,923  $  509,463
                                       ==========  ==========
TYPE
     Fixed...........................  $  252,587  $  428,013
     Variable........................      69,336      81,450
                                       ----------  ----------
          Total......................  $  321,923  $  509,463
                                       ==========  ==========
LOANS AVAILABLE TO FILL COMMITMENTS
     Single family mortgage
     warehouse.......................  $  260,745  $  411,287
     Mortgage pipeline (estimated)...     174,883     185,204
                                       ----------  ----------
          Total......................  $  435,628  $  596,491
                                       ==========  ==========

     COMMITMENTS TO EXTEND CREDIT.  The Company's exposure to credit loss for
commitments to extend credit is represented by the contractual amount of those
agreements. The Company uses the same credit policies in making funding
commitments as it does for on-balance-sheet instruments. These commitments
generally have fixed expiration dates or other termination clauses and may
require the payment of a fee to the Company. Because commitments may expire
without being drawn upon, the total contract amounts do not necessarily
represent future cash requirements.

                          COMMITMENTS TO EXTEND CREDIT

                                          AT SEPTEMBER 30,
                                       ----------------------
                                          1996        1995
                                       ----------  ----------
                                           (IN THOUSANDS)
Single family........................  $  429,332  $  589,157
Other................................     558,788     410,635
                                       ----------  ----------
          Total......................  $  988,120  $  999,792
                                       ==========  ==========
Fixed................................  $  201,649  $  282,101
Variable.............................     786,471     717,691
                                       ----------  ----------
          Total......................  $  988,120  $  999,792
                                       ==========  ==========

                                      120
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Included in the commitments to extend credit amounts above were letters of
credit of $8.8 million and $5.4 million at September 30, 1996 and 1995,
respectively.

     RECOURSE OBLIGATIONS.  The Company had servicing of approximately $20.8
million and $26.6 million at September 30, 1996 and 1995, respectively, for
which certain recourse obligations apply. Management believes that it has
adequately provided reserves for its recourse obligations related to this
servicing.

13.  EMPLOYEE BENEFITS

SAVINGS PLAN

     The Company has an employee tax deferred savings plan (plan 401(k) under
the Code) available to all eligible employees. Through June 30, 1995, the
Company contributed dollar for dollar up to three percent of the participant's
earnings and employees could contribute up to twelve percent of their earnings
on a tax deferred basis. The Company's 401(k) plan was amended effective July 1,
1995. The Company currently contributes fifty cents for every dollar contributed
up to two percent of the participant's earnings, and dollar for dollar for
contributions between two and four percent of the participant's earnings. The
maximum contribution percentage is now fifteen percent of an employee's earnings
on a tax deferred basis, subject to Internal Revenue Service maximum
contributions limitations. This is a participant directed plan. Plan assets are
held in trust and managed by Fidelity Institutional Retirement Services Company.
Contributions to the plan are in such amounts and within certain limitations as
the Company may authorize. The Company's contributions to the plan were
approximately $1.5 million, $1.5 million, and $1.7 million, for fiscal 1996,
1995, and 1994, respectively.

MANAGEMENT COMPENSATION PROGRAM

     In June 1996, the Company's Board of Directors approved a management
compensation program for the Company's executive officers, other key officers
and employees, and certain directors containing the following provisions: (i) a
cash bonus of $4.0 million; (ii) the award of 318,342 shares of Company Class B
common stock with restrictions on its transferability for a period of three
years from its issuance ("Restricted Stock"); and (iii) the issuance of
1,154,520 options for purchase of an equivalent number of shares of Company
common stock (such options vest ratably over three years from the date of grant
and may not be exercised prior to the third anniversary of the date of grant).
The options' exercise price of $20.125 per share was set at an amount not less
than the fair market value at the date of the grant and the options will expire
if not exercised within ten years of the date of the grant.

     Compensation expense totalling $7.8 million, $4.8 million net of tax, was
recognized in the quarter ended June 30, 1996 for the cash bonus and the
Restricted Stock award. Compensation expense was not recognized for the stock
options, as the options had an exercise price approximating the fair value of
the Company's common stock at the date of issuance.

DIRECTOR STOCK COMPENSATION PLAN

     In June 1996, the Company's Board of Directors approved a director stock
plan for each member of the Company's Board who is not an employee of the
Company or any subsidiary of the Company ("Eligible Director"). Each Eligible
Director will be granted stock options to purchase 1,000 shares of Class A
common stock of the Company when first elected to the Company's Board of
Directors and following each annual stockholders' meeting thereafter. The
options exercise price is 115% of the fair value of the Company's common stock
at the date of grant. The Company granted 10,000 options under the director
stock plan during fiscal 1996. These options vest and become exercisable if and
when the fair value of the Company's common stock equals or exceeds the exercise
price of the option on any day during the 30-day period commencing on the first
anniversary of the date of the grant ("vesting window"). If these stock
options do not vest during the vesting window, they will be cancelled and all
vested options will expire if not exercised within ten years of the date of
grant.

                                      121
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14.  INCOME TAXES

                                        FOR THE YEAR ENDED SEPTEMBER 30,
                                       ----------------------------------
                                          1996        1995        1994
                                       -----------  ---------  ----------
                                                 (IN THOUSANDS)
CURRENT TAX EXPENSE (BENEFIT)
     Federal.........................  $     3,012  $   3,459  $    1,145
     State...........................        3,097      2,080       1,841
     Payments due in lieu of taxes...       11,528     15,261      (3,449)
DEFERRED TAX EXPENSE (BENEFIT)
     Federal.........................        8,910     16,575      17,681
     State...........................        1,388         40      (1,279)
     Change in valuation
       allowance -- utilization of
       NOLs..........................     (101,700)    --         (47,838)
     Change in valuation
       allowance -- reduction of
       NOLs..........................       (2,000)    --          --
                                       -----------  ---------  ----------
          Total income tax (benefit)
            expense..................  $   (75,765) $  37,415  $  (31,899)
                                       ===========  =========  ==========

     In June 1996, the Parent Company's Certificate of Incorporation and By-Laws
were restated with the intent to preserve certain beneficial tax attributes
limiting the disposition of certain common stock and other interests in the
Parent Company by certain of its stockholders. The preservation of certain tax
attributes allowed the recognition of tax benefits of $85.2 million by the Bank
in June 1996 for the expected utilization of $365 million of NOLs against future
taxable income. These tax benefits were not recognized in prior periods due to
limitations on the utilization of NOLs if an Ownership Change ("Ownership
Change," as defined in Section 382 of the Code) had occurred. In June 1996, the
Parent Company and the Bank entered into a tax sharing agreement. This agreement
resulted in the recognition of a tax benefit of $16.5 million by the Parent
Company for the expected utilization of $47 million of the Parent Company's NOLs
by the Bank. The total tax benefit of $101.7 million was recognized as a
reduction of income tax expense and an increase in the net deferred tax asset,
in accordance with SFAS No. 109, "Accounting for Income Taxes".

     In fiscal 1995, no tax benefits were recorded by the Parent Company or the
Bank. The Parent Company recognized no benefit for its stand alone NOLs as it
did not generate taxable income to offset such losses and it was not party to a
federal tax sharing agreement with the Bank at that time. The Bank recognized no
tax benefits due to limitations on the utilization of its NOLs if an Ownership
Change had occurred.

     In fiscal 1994, no tax benefits were recorded by the Parent Company due to
circumstances similar to those described in the preceding paragraph. The Bank
recognized a $58.2 million tax benefit in fiscal 1994 for the expected
utilization of $249 million of its NOLs against future taxable income.

     Tax NOLs at September 30, 1996 were as follows:

                                                       ALTERNATIVE    EXPIRATION
           YEAR GENERATED               REGULAR TAX    MINIMUM TAX       DATE
-------------------------------------   -----------    -----------    ----------
                                                     (IN MILLIONS)
December 30, 1988....................      $  33          $  53          2003
September 30, 1989...................        329            154          2004
September 30, 1990...................        296            141          2005
September 30, 1991...................        119             56          2006
September 30, 1992...................         33              7          2007
September 30, 1994...................          7          --             2009

     Utilization of the NOLs generated for the year ended December 30, 1988 is
subject to federal income tax rules that limit the utilization to federal
taxable income of the Bank and its subsidiaries only. The remaining NOLs may be
utilized against the federal taxable income of the other companies within the
"affiliated group" of which the Parent Company and the Bank are members.

                                      122
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Parent Company and the Bank are subject to regular income tax and
alternative minimum tax ("AMT"). For fiscal 1996 and 1995, the current federal
tax expense is the result of AMT. Even though the Parent Company and the Bank
have AMT net operating loss carryforwards ("AMT NOLs"), the Code limits the
amount of utilization of AMT NOLs by 90% of alternative minimum taxable income
("AMTI"). For fiscal 1994, the federal tax expense was the result of
residential interests in real estate mortgage investment conduits ("REMIC"),
which could not be offset by NOLs.

     Income tax and related payments differ from the amount computed by applying
the federal income tax statutory rate on income as follows:

                                        FOR THE YEAR ENDED SEPTEMBER 30,
                                       ----------------------------------
                                          1996        1995        1994
                                       -----------  ---------  ----------
                                                 (IN THOUSANDS)
TAXES CALCULATED.....................  $    23,743  $  31,539  $   34,356
INCREASE (DECREASE) FROM
     Reduction in valuation allowance
       for the utilization of NOLs...     (101,700)    --         (47,838)
     Reduction in valuation allowance
       for reduction of NOLs.........       (2,000)    --          --
     Change in estimate of net
       deferred tax assets...........      --          --         (11,340)
     Nontaxable assistance...........      --          --          (8,100)
     Benefit for payments due in lieu
       of taxes......................      --          --          (3,449)
     State income tax................        3,097      2,080       1,841
     Other...........................        1,095      3,796       2,631
                                       -----------  ---------  ----------
          Total......................  $   (75,765) $  37,415  $  (31,899)
                                       ===========  =========  ==========

                                      123
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                      DEFERRED TAX ASSETS AND LIABILITIES

                                           AT SEPTEMBER 30,
                                       ------------------------
                                          1996         1995
                                       -----------  -----------
                                            (IN THOUSANDS)
DEFERRED TAX ASSETS
     Net operating losses............  $   196,326  $   211,637
     Purchase accounting.............        6,252       10,064
     Capital loss carryforwards......        1,449      --
     Tax mark to market..............        3,654      --
     Unrealized losses on securities
      available for sale.............        1,340        3,990
     REMIC...........................        6,830        7,083
     Goodwill amortization...........        1,897          413
     State...........................        1,455        2,817
     AMT credit......................        4,065        2,985
     Depreciation -- premises and
      equipment......................        2,975        3,084
     SAIF assessment(1)..............       11,780      --
     Other...........................        9,832        2,926
                                       -----------  -----------
          Total deferred tax
            assets...................      247,855      244,999
                                       -----------  -----------
DEFERRED TAX LIABILITIES
     Bad debt reserve................       18,199       11,577
     FHLB stock......................       12,196        8,673
     OMSR............................       19,958      --
     REO.............................      --             7,096
     Tax mark to market..............      --             2,816
     State...........................      --                16
     Other...........................        1,679        6,050
                                       -----------  -----------
          Total deferred tax
            liabilities..............       52,032       36,228
                                       -----------  -----------
     Net deferred tax asset before
      valuation allowance............      195,823      208,771
     Valuation allowance.............      (27,500)    (131,200)
                                       -----------  -----------
          Net deferred tax assets....  $   168,323  $    77,571
                                       ===========  ===========
------------
(1) Assessed in fiscal 1996, but not tax-deductible until fiscal 1997 when paid.
    See Note 15.

     The Bank is permitted under the Code to deduct an annual addition to a
reserve for bad debts in determining taxable income, subject to certain
limitations. This addition differs from the provision for credit losses for
financial reporting purposes. Due to recently enacted legislation, the Bank's
post-1987 tax bad debt reserve will be required to be recaptured into income
beginning with fiscal 1997. The reserve will be recaptured over a six taxable
year period with the opportunity to defer recapture by up to two years if
certain residential loan requirements are met. Management believes the Bank will
not have the opportunity to defer recapture of the bad debt reserve as the
residential loan requirements will not be met. At September 30, 1996, the Bank
has approximately $90 million of post-1987 tax bad debt reserves. There will be
no financial statement impact from this recapture as a deferred tax liability
has already been provided for on the Bank's post-1987 tax bad debt reserves. The
current tax liability resulting from recapture of these reserves will be reduced
by NOLs available to offset this income.

     No deferred taxes have been provided on approximately $52 million of
pre-1988 tax bad debt reserves. This tax reserve for bad debts is included in
taxable income in later years if certain circumstances occur, such as, a
distribution in redemption of stock of the Bank (with certain exceptions for
preferred stock); partial or complete liquidation of the Bank following a merger
or liquidation; or a dividend distribution in excess of certain earnings

                                      124
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and profits. However, if a thrift with a pre-1988 reserve is merged, liquidated
on a tax free basis, or acquired by another depository institution, the
remaining institution will inherit the thrift's pre-1988 reserve and post-1951
earnings and profits. Because management believes the circumstances requiring
recapture of the reserve are not likely to occur, deferred income taxes of
approximately $18 million have not been provided.

PAYMENTS DUE IN LIEU OF TAXES

     Pursuant to the terms of the Assistance Agreement, the amount of financial
assistance paid to the Bank by the FRF was reduced each year by an amount equal
to one-third of any federal and state net tax benefits ("Net Tax Benefits")
(as defined by the Assistance Agreement). The Assistance Agreement further
provided that in no event would the amount paid to the FRF related to Net Tax
Benefits be less than a guaranteed minimum totalling $10 million payable over
five years. Additional payments due in lieu of taxes above the guaranteed
minimum payments are included in the Consolidated Statements of Operations as
incurred as a component of tax expense. The final guaranteed payment was made in
July 1994 for fiscal 1993. The Assistance Agreement was terminated in December
1993. As part of the Settlement Agreement, the Parent Company, the Bank, and
certain of their direct and indirect parent entities entered into a tax benefit
agreement (the "Tax Benefits Agreement"), pursuant to which the Bank will pay
one-third of certain tax benefits that are utilized by the Bank through the
taxable year ending nearest to September 30, 2003. The amounts reflected in the
Consolidated Financial Statements are based on estimated tax benefits utilized
by the Bank and may vary from amounts paid due to the actual utilization of tax
benefits reported in the federal income tax return.

15.  REGULATORY MATTERS

     The Bank is subject to regulatory capital requirements as defined in the
OTS capital regulations (as set forth in the table below). Any savings
association that fails to meet its regulatory capital requirements is subject to
enforcement actions by the OTS which could have a material effect on its
financial statements. Under the capital adequacy requirements and prompt
corrective action provisions, the Bank must meet specific capital requirements
based on its capital, assets, and certain off-balance-sheet items as calculated
under regulatory accounting practices.

     To meet the capital adequacy requirements, the Bank must maintain minimum
amounts and ratios of tangible capital, core capital, and total risk-based
capital (as set forth in the table below). As of September 30, 1996 and 1995,
the Bank met all capital adequacy requirements.

     As of September 30, 1996 and 1995, the most recent notification from the
OTS categorized the Bank as well-capitalized, the highest of five tiers, under
the prompt corrective action provisions. To be categorized as well-capitalized,
the Bank must maintain minimum amounts and ratios of core capital, tier 1
capital, and total risk-based capital (as set forth in the table below). As of
September 30, 1996, there are no conditions or events since the OTS notification
that management believes would change the institution's category.

                                      125
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following tables show the Bank's compliance with the regulatory capital
requirements:
<TABLE>
<CAPTION>
                                                                               AT SEPTEMBER 30,
                                                       ----------------------------------------------------------------
                                                                               CAPITAL ADEQUACY      WELL-CAPITALIZED
                                                              ACTUAL             REQUIREMENTS          REQUIREMENTS
                                                       --------------------  --------------------  --------------------
                                                         RATIO     AMOUNT      RATIO     AMOUNT      RATIO     AMOUNT
                                                       ---------  ---------  ---------  ---------  ---------  ---------
                                                                            (DOLLARS IN THOUSANDS)
<S>                                                         <C>   <C>             <C>     <C>           <C>   <C>
1996
Stockholders' equity of the Bank.....................             $ 793,527
  Add: Net unrealized losses.........................                 2,233
  Less: Intangible assets of the Bank................               (14,867)
      Non-qualifying deferred tax assets.............               (85,036)
      Non-qualifying MSRs............................                   (36)
                                                                  ---------
TANGIBLE CAPITAL.....................................       6.57%   695,821       1.50% $ 158,943
  Add: Core deposit intangibles......................                 8,087
                                                                  ---------
CORE CAPITAL.........................................       6.64% $ 703,908       3.00%   318,129       5.00% $ 530,216
                                                                  =========

TIER 1 CAPITAL.......................................      12.40% $ 703,908                             6.00%   340,734
  Add: Allowance for loan and MBS credit losses......                39,715
                                                                  ---------
TOTAL RISK-BASED CAPITAL.............................      13.09% $ 743,623       8.00%   454,312      10.00%   567,890
                                                                  =========

1995
Stockholders' equity of the Bank.....................             $ 794,678
  Add: Net unrealized losses.........................                 6,647
  Less: Intangible assets of the Bank................               (23,956)
      Non-qualifying deferred tax assets.............               (37,617)
      Non-qualifying MSRs............................                   (25)
                                                                  ---------
TANGIBLE CAPITAL.....................................       6.20%   739,727       1.50% $ 178,844
  Add: Core deposit intangibles......................                10,838
                                                                  ---------
CORE CAPITAL.........................................       6.29% $ 750,565       3.00%   358,013       5.00% $ 596,688
                                                                  =========

TIER 1 CAPITAL.......................................      12.82% $ 750,565                             6.00%   351,184
  Add: Allowance for loan and MBS credit losses......                36,855
                                                                  ---------
TOTAL RISK-BASED CAPITAL.............................      13.45% $ 787,420       8.00%   468,245      10.00%   585,307
                                                                  =========
</TABLE>
     The Bank meets its fully phased-in capital requirements. OTS regulations
generally allow dividends to be paid without prior OTS approval under certain
conditions provided that the level of regulatory capital, following the payment
of such dividends, meets the fully phased-in capital requirements. At September
30, 1996, there was an aggregate of approximately $152.7 million available for
the payment of dividends under these requirements.

     The Bank's net income and stockholders' equity figures as presented in the
Consolidated Statements of Financial Condition and Operations in the Bank's
Annual Report on Form 10-K agree with the information included in the Bank's
Thrift Financial Report filed with the OTS as of September 30, 1996.

FORBEARANCE

     Notwithstanding the above capital requirements, the Bank's capital
requirements were established pursuant to the forbearance letter (a
"Forbearance Agreement") issued simultaneously with the Assistance Agreement.
The OTS has taken the position, with which the Bank disagrees, that the capital
forbearances are no longer available because of the enactment of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"). Despite
the OTS position, management believes that all significant waivers, approvals,
and

                                      126
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

forbearances related to the Bank's acquisition, including the capital
forbearances, remain in full force and effect following the enactment of FIRREA.
Pursuant to the Settlement Agreement, the Bank has retained all claims relating
to the forbearances against the United States of America, and on July 25, 1995,
the Bank, the Parent Company, and Hyperion Partners (collectively,
"Plaintiffs") filed suit against the United States in the Court of Federal
Claims for alleged failures of the United States (i) to abide by a capital
forbearance which would have allowed the Bank to operate for ten years under
negotiated capital levels lower than the levels required by the then existing
regulations or successor regulations, (ii) to abide by its commitment to allow
the Bank to count $110 million of subordinated debt as regulatory capital for
all purposes and (iii) to abide by an accounting forbearance, which would have
allowed the Bank to count as capital for regulatory purposes, and to amortize
over a period of twenty-five years, the $30.7 million difference between certain
FSLIC payment obligations to the Bank and the discounted present value of those
future FSLIC payments. The lawsuit is in a preliminary stage. The lawsuit was
stayed pending the United States Supreme Court's review of UNITED STATES V.
WINSTAR CORP., an action by three other thrifts raising similar issues (the
"WINSTAR cases"). On July 1, 1996, the Supreme Court upheld lower court
rulings that the United States had breached the contracts involved in the
WINSTAR case and remanded the case for further proceedings on the issue of
damages. Since the Supreme Court ruling, the Chief Judge of the Court of Federal
Claims convened a number of status conferences to establish a case management
protocol for the more than 100 lawsuits on the Court of Federal Claims docket,
that, like Plaintiffs case, involve issues similar to those raised in the
WINSTAR case. Following a number of status conferences beginning on July 30,
1996, Chief Judge Loren Smith of the United States Court of Federal Claims has
transferred all WINSTAR-related cases to his own docket and entered an Omnibus
Case Management Order governing proceedings in such cases, including the
Company's case. Under the Omnibus Case Management Order, Chief Judge Smith
serves as the "Managing Judge" for all WINSTAR-related cases and may assign
other judges of the United States Court of Federal Claims to resolve pre-trial
discovery disputes and common legal issues and to conduct trials. The Government
and Plaintiffs in WINSTAR-related cases were directed to exchange certain
significant documents as early as October 2, 1996. Trials on damages in two of
the three WINSTAR cases that were decided by the United States Supreme Court in
July 1996 are scheduled for early 1997. Damages trials in the remaining cases
subject to the Omnibus Case Management Plan are scheduled to begin four months
after completion of the first two damages trials. The Company's case is one of
thirteen cases that "shall be accorded priority in the scheduling" of the
damages trials under the Omnibus Case Management Order.

     The Company intends to move promptly for partial summary judgement on
liability and to pursue an early trial on damages. Uncertainties remain
concerning the administration of the Omnibus Case Management Order and the
future course of the Company's lawsuit pursuant to this order. Accordingly, the
Company cannot predict the timing of any resolution of its claims. The Company
expects the trial of its case to commence during the first quarter of fiscal
1998. The Company is also unable to predict the outcome of its suit against the
United States and the amount of judgment for damages, if any, that may be
awarded. Consequently, no assurances can be given as to the results of this
suit. The Company and the Bank have entered into an agreement with Hyperion
Partners acknowledging the relative value, as among the parties, of their claims
in the pending litigation. The agreement confirms that the Company and the Bank
are entitled to receive 85% of the amount, if any, recovered as a result of any
settlement of or a judgment on such claims, and that Hyperion Partners is
entitled to receive 15% of such amount. The agreement was approved by the
disinterested directors of the Company. Plaintiffs will continue to cooperate in
good faith and will use their best efforts to maximize the total amount, if any,
that they may recover.

SAIF ASSESSMENT

     The United States Congress passed legislation that was signed into law on
September 30, 1996, which resulted in an assessment on all Savings Association
Insurance Fund ("SAIF")-insured deposits in such amounts that will
fully-capitalize the SAIF at a reserve ratio of 1.25% of SAIF-insured deposits.
This one-time assessment has been set at 65.7 basis points of SAIF-assessable
deposits at March 31, 1995. The Company's assessment of

                                      127
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$33.7 million, $20.7 million net of tax, was recorded in the fourth quarter of
fiscal 1996 and will be paid in the first quarter of fiscal 1997.

16.  MINORITY INTEREST AND STOCKHOLDERS' EQUITY

MINORITY INTEREST

     The Bank is authorized by its charter to issue a total of 10,000,000 shares
of preferred stock. In fiscal 1995, the Bank publicly issued 4,000,000 shares,
$25 liquidation preference per share, of 9.60% noncumulative preferred stock
(par value $0.01) (the "Preferred Stock, Series B"). In fiscal 1993, the Bank
publicly issued 3,420,000 shares, $25 liquidation preference per share, of
10.12% noncumulative preferred stock (par value $0.01) (the "Preferred Stock,
Series A"). Costs incurred in connection with the stock issuances were recorded
as reductions of paid-in capital. These shares are not owned by the Company.

     Shares of the Series A and Series B Preferred Stock are not subject to
redemption prior to December 31, 1997 and September 30, 2000, respectively,
except in the event of certain mergers and other transactions. The shares of
Series A and Series B Preferred Stock are redeemable at the option of the Bank,
in whole or in part, at any time on or after December 31, 1997 or September 30,
2000, at the redemption prices set forth in the table below:
<TABLE>
<CAPTION>
       SERIES A                    SERIES B                                 DOLLAR EQUIVALENT
BEGINNING DECEMBER 31,     BEGINNING SEPTEMBER 30,     REDEMPTION PRICE         PER SHARE
-----------------------    ------------------------    ----------------     -----------------
<S>                          <C>                              <C>                <C>
         1997                        2000                     105%               $ 26.25
         1998                        2001                     104                  26.00
         1999                        2002                     103                  25.75
         2000                        2003                     102                  25.50
         2001                        2004                     101                  25.25
  2002 and thereafter        2005 and thereafter              100                  25.00
</TABLE>
WARRANT

     In connection with the Acquisition, the Bank issued a warrant, which
entitled the FDIC to purchase 158,823 shares of the Bank's common stock for an
exercise price of $0.01 per share (the "Warrant"). In August 1996, the FDIC
surrendered a portion of the Warrant for a cash payment of $6.1 million, and
exercised the remainder of the Warrant. The FDIC immediately exchanged the
shares of common stock of the Bank it received for 1,503,560 shares of common
stock of the Company. The FDIC sold all of the 1,503,560 shares of common stock
of the Company in the offering discussed below.

     As part of the Settlement Agreement discussed in Note 7, the Bank made
payments to the FDIC in lieu of dividends on the common stock of the Bank from
December 1993 through August 1996 when the Warrant was no longer outstanding.

CAPITAL STOCK

     On May 6, 1996, the Bank paid a $100 million dividend to the Company on the
common stock of the Bank and on the same day, the Company paid a dividend on its
common stock in the amount of $100 million.

     Prior to June 1996, the Company had 13,238 shares of Class A and 2,797
shares of Class C common stock outstanding. The June 1996 Merger and
Restructuring discussed in Note 1 included a 1,800 to one stock conversion and
the conversion of Class C and certain Class A shares to Class B shares. After
conversion, the Class C shares were cancelled. Also in June 1996, 318,342 shares
of Restricted Stock were awarded as part of the management compensation program
discussed in Note 13.

     In August 1996, the Company filed a registration statement with the
Securities and Exchange Commission ("SEC") and 12,075,000 shares of the
Company Class A common stock were sold to the public (the

                                      128
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

"Offering"). The Company sold 910,694 shares and certain shareholders
("selling shareholders") sold 11,164,306 shares. The net proceeds to the
Company, proceeds to the selling shareholders and the underwriting discount were
$14.0 million, $210.4 million, and $13.9 million, respectively. The net proceeds
to the Company from the Offering will be contributed to the capital of the Bank
in the first quarter of fiscal 1997 for general corporate purposes.

     After the 1,800 to one stock conversion, the Warrant conversion, the
issuance of Restricted Stock, and the Offering, the Company had a total of
31,595,596 shares of common stock (par value $0.01) outstanding as follows:
Class A (voting) -- 27,735,934 shares and Class B (nonvoting) -- 3,859,662
shares. The authorized stock of the Company consists of the following: Class A
common stock -- 40,000,000 shares, Class B common stock -- 40,000,000 shares,
and preferred stock -- 10,000,000 shares. Class B common stock may be converted
to Class A common stock subject to certain restrictions.

EARNINGS PER COMMON SHARE

     The table below presents information necessary for the computation of
earnings per common share (in thousands, except per share data). The dilutive
effect of the Bank Warrant has been considered in computing earnings per common
share. Average shares and per share results have been restated to reflect the
1,800 to one stock conversion in June 1996.

                                       FOR THE YEAR ENDED SEPTEMBER 30,
                                       ---------------------------------
                                          1996       1995        1994
                                       ----------  ---------  ----------
Net income...........................  $  118,935  $ $41,719  $  108,970
Less: Bank's net income attributable
  to common stock equivalents on the
  Warrant............................      (5,608)    (2,895)     (6,451)
                                       ----------  ---------  ----------
Net income applicable to common
  shares.............................  $  113,327  $  38,824  $  102,519
                                       ==========  =========  ==========
Average number of common shares
  outstanding........................      29,260     28,863      28,863
                                       ==========  =========  ==========
EARNINGS PER COMMON SHARE............  $     3.87  $    1.35  $     3.55
                                       ==========  =========  ==========

17.  COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

     A petition for review has been filed in the United States District Court of
Appeals for the Fifth Circuit seeking to modify, terminate, and set aside the
order approving the Acquisition, which involved substantially all of the Bank's
initial assets and liabilities. The same petitioner filed a Motion to Intervene
and a Complaint in Intervention in an action pending in the U.S. District Court
of Texas, also seeking to set aside the order approving the Acquisition. The
petitioner contends, in both cases, that it submitted the most favorable bid to
acquire the assets and liabilities of Old USAT and that it should have been
selected as the winning bidder.

     The Parent Company is not a party to either of these proceedings. The Bank
has intervened in the Fifth Circuit case and may file a Motion to Intervene in
the District Court case at a later date. Management believes, after consultation
with legal counsel, that the claims of the petitioner are barred by applicable
time limits, have no basis for assertion under existing law, and will not have a
material adverse effect on the Bank's or the Company's financial condition,
results of operations, or liquidity.

                                      129
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A substantial part of the Bank's business has involved the origination,
purchase, and sale of mortgage loans. During the past several years, numerous
individual claims and purported consumer class actions were commenced against a
number of financial institutions, their subsidiaries, and other mortgage lending
companies seeking civil statutory and actual damages and rescission under the
federal Truth In Lending Act (the "TILA"), as well as remedies for alleged
violations of various state unfair trade practices laws and restitution or
unjust enrichment in connection with certain mortgage loan transactions.

     The Bank has a substantial mortgage loan servicing portfolio and maintains
escrow accounts in connection with this servicing. During the past several
years, numerous individual claims and purported consumer class action claims
were commenced against a number of financial institutions, their subsidiaries,
and other mortgage lending institutions generally seeking declaratory relief
that certain of the lenders' escrow account servicing practices violate the Real
Estate Settlement Practices Act and breach the lenders' contracts with
borrowers. Such claims also generally seek actual damages and attorney's fees.

     In addition to the foregoing, mortgage lending institutions have been
subjected to an increasing number of other types of individual claims and
purported consumer class action claims that relate to various aspects of the
origination, pricing, closing, servicing, and collection of mortgage loans and
that allege inadequate disclosure, breach of contract, or violation of state
laws. Claims have involved, among other things, interest rates and fees charged
in connection with loans, interest rate adjustments on adjustable-rate mortgage
loans, timely release of liens upon loan payoffs, the disclosure and imposition
of various fees and charges, and the placing of collateral protection insurance.

     While the Bank has had various claims similar to those discussed above
asserted against it, management does not expect these claims to have a material
adverse effect on the Bank's or the Company's financial condition, results of
operations, or liquidity.

     The Bank is involved in legal proceedings occurring in the ordinary course
of business that management believes, after consultation with legal counsel, are
not, in the aggregate, material to the financial condition, results of
operations, or liquidity of the Bank or the Company.

FACILITIES OPERATIONS

     Future minimum commitments on data processing agreements and significant
operating leases in effect at September 30, 1996 were as follows (in thousands):

            YEARS ENDING
            SEPTEMBER 30,               AMOUNT
-------------------------------------  ---------
   1997..............................  $  19,707
   1998..............................     15,900
   1999..............................      9,279
   2000..............................      2,331
   2001..............................      1,906
   Thereafter........................     10,853
                                       ---------
                                       $  59,976
                                       =========

     Total data processing and rental expense for fiscal 1996, 1995, and 1994
under the same or similar agreements as in the preceding table, after
consideration of certain credits and rental income, were $22.4 million, $22.9
million, and $22.4 million, respectively.

                                      130
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18.  FINANCIAL HIGHLIGHTS BY PRINCIPAL BUSINESS OPERATION

     The Company operates as a broad based financial services provider to
consumers and businesses in Texas and other selected regional markets throughout
the United States. This business is conducted through the Community Banking,
Financial Markets, and Commercial Banking Groups, which comprise the Banking
Segment, and the Mortgage Banking Segment. Summarized financial information by
business segment and for the Parent Company for the periods indicated, was as
follows:
<TABLE>
<CAPTION>
                                                            FOR THE YEAR ENDED SEPTEMBER 30,
                                          --------------------------------------------------------------------
                                                           MORTGAGE
                                             BANKING        BANKING     PARENT
                                             SEGMENT        SEGMENT     COMPANY   ELIMINATIONS     COMBINED
                                          -------------  -------------  -------   ------------   -------------
                                                                     (IN THOUSANDS)
<S>                                       <C>            <C>            <C>        <C>           <C>
1996
Revenues................................  $     248,968  $     103,161  $98,714    $ (113,273)   $     337,570
Earnings before income taxes and
  minority interest.....................         82,449         (3,120)  97,518      (109,011)          67,836
Depreciation and amortization of
  intangibles...........................          9,214         23,155    1,000        (4,262)          29,107
Capital expenditures....................          8,951            443      --           --              9,394
Average identifiable assets.............     10,947,844        640,780    9,972      (369,165)      11,229,431
Loan transfers to (from)................        818,563       (818,563)     --           --               --
Interest income (expense) on single
  family mortgage warehouse outstanding
  loan balance..........................         21,878        (21,878)     --           --               --
Servicing (expense) income on Banking
  Segment's loans.......................        (13,723)        13,723      --           --               --
1995
Revenues................................        203,115        119,601   (3,910)       (9,826)         308,980
Earnings before income taxes and
  minority interest.....................         82,163         19,357   (5,000)       (6,409)          90,111
Depreciation and amortization of
  intangibles...........................         12,305         20,965      976        (3,417)          30,829
Capital expenditures....................          5,859            273      --           --              6,132
Average identifiable assets.............     10,258,857        482,965    8,061      (312,820)      10,437,063
Loan transfers to (from)................      1,012,771     (1,012,771)     --           --               --
Interest income (expense) on single
  family mortgage warehouse outstanding
  loan balance..........................         19,903        (19,903)     --           --               --
Servicing (expense) income on Banking
  Segment's loans.......................        (12,672)        12,672      --           --               --
</TABLE>
                                      131
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDED SEPTEMBER 30,
                                          --------------------------------------------------------------------
                                                           MORTGAGE
                                             BANKING        BANKING     PARENT
                                             SEGMENT        SEGMENT     COMPANY   ELIMINATIONS     COMBINED
                                          -------------  -------------  -------   ------------   -------------
                                                                     (IN THOUSANDS)
<S>                                             <C>            <C>       <C>          <C>              <C>
1994
Revenues................................     $  189,378    $   115,544  $1,279      $ (13,530)      $  292,671
Earnings before income taxes and
  minority interest.....................         73,757         24,404    (645 )      (11,435)          86,081
Depreciation and amortization of
  intangibles...........................         16,560         10,696     977         (2,095)          26,138
Capital expenditures....................          5,456          4,962     --            --             10,418
Average identifiable assets.............      8,174,275        717,551   4,401       (612,600)       8,283,627
Loan transfers to (from)................      1,319,020     (1,319,020)    --            --               --
Interest income (expense) on single
  family mortgage warehouse outstanding
  loan balance..........................         33,173        (33,173)    --            --               --
Servicing (expense) income on Banking
  Segment's loans.......................        (10,223)        10,223     --            --               --
</TABLE>
     Revenues are comprised of net interest income (before the provision for
credit losses) and non-interest income, and, in the case of Parent Company only
revenue, dividends received from the Bank. On May 6, 1996, the Bank paid a $100
million dividend to the Parent Company on the common stock of the Bank. Interest
costs incurred by the Parent Company are included in its revenues above since
they relate to long-term debt and are not directly attributable to a specific
segment. Earnings before income taxes and minority interest equal revenue, less
the provision for credit losses and non-interest expenses. Non-interest expenses
of the Bank are fully allocated to each segment of the Bank. Non-interest
expenses incurred by support departments that are directly attributable to a
segment are charged to that segment. General corporate overhead expenses not
specifically identified to an individual segment, but necessary for the
maintenance of the Bank as a going concern, are also allocated to the two
segments. Parent Company expenses are not allocated to the Bank's business
segments. The elimination amounts reflect the following: (i) dividends received
by the Parent Company from the Bank, (ii) interest income and MSR amortization
expense relating to loans held by the Banking Segment serviced by the Mortgage
Banking Segment, and (iii) the single family mortgage warehouse funded by the
Banking Segment.

     For segment reporting purposes, the value of servicing related to loans
purchased from third parties by the Banking Segment is segregated from the
original loan basis and is allocated to the Mortgage Banking Segment. The
amortization of this capitalized amount approximated $2.3 million for fiscal
1996, $2.4 million for fiscal 1995, and $1.8 million for fiscal 1994 and is
reflected in the Mortgage Banking Segment figures above.

     For loans transferred from the Mortgage Banking Segment to the Banking
Segment, the difference, if any, between the Banking Segment's "purchase
price" and the actual Book Value of the loans is retained by the Mortgage
Banking Segment at the time of transfer. The amount retained is amortized to
operations of the Mortgage Banking Segment and approximated $1.9 million for
fiscal 1996, $1.0 million for fiscal 1995, and $283,000 for fiscal 1994.

MORTGAGE BANKING CHARGES

     In June 1996, the Company recorded a restructuring charge of $10.7 million
before tax, to recognize the costs of closing or consolidating production
offices and several regional operations centers and recorded $1.8 million of
other expenses related to the mortgage origination business. These closures and
consolidations will result in personnel reductions of approximately 265 people,
including both salaried and commissioned employees. The restructuring charge
included estimated costs for severance and other benefits of $800,000, asset
write-downs of $5.3 million, lease termination costs of $3.4 million and other
costs of $1.2 million. The non-cash write-off of $5.3 million reflects $3.5
million of goodwill and $1.8 million of fixed assets and leasehold

                                      132
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

improvements written off in connection with the closed production offices. At
September 30, 1996, the unpaid liability relating to the restructuring charge
was $4.6 million and is expected to be paid in full by fiscal 1999. As of
September 30, 1996, 31 mortgage origination branches and 6 regional operation
centers had been closed and the workforce was reduced by 208.

19.  QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following table represents summarized data for each of the quarters in
fiscal 1996 and 1995 (in thousands, except earnings per share).
<TABLE>
<CAPTION>
                                                          1996                                        1995
                                       ------------------------------------------  ------------------------------------------
                                        FOURTH      THIRD     SECOND      FIRST     FOURTH      THIRD     SECOND      FIRST
                                        QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Interest income......................  $ 191,893  $ 199,198  $ 203,436  $ 217,785  $ 224,308  $ 194,865  $ 172,992  $ 154,594
Interest expense.....................    136,752    138,737    148,548    160,741    166,580    146,220    129,915    110,045
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
    Net interest income..............     55,141     60,461     54,888     57,044     57,728     48,645     43,077     44,549
Provision for credit losses..........      6,314      4,305      3,181      2,669      9,663     10,473      3,223        934
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
Net interest income after provision
  for credit losses..................     48,827     56,156     51,707     54,375     48,065     38,172     39,854     43,615
Non-interest income..................     31,954     23,473     27,687     26,922     25,201     23,127     30,641     36,012
Non-interest expense.................     85,272     68,689     50,012     49,292     52,466     40,465     51,553     50,092
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
Income before income taxes and
  minority interest..................     (4,491)    10,940     29,382     32,005     20,800     20,834     18,942     29,535
Income tax (benefit) expense.........     (2,121)   (98,922)    12,144     13,134      8,169      9,060      8,062     12,124
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
Net income before minority
  interest...........................     (2,370)   109,862     17,238     18,871     12,631     11,774     10,880     17,411
Less minority interest:
    Subsidiary preferred stock
      dividends......................      4,564      4,563      4,563      4,563      4,111      2,163      2,163      2,163
    Payments in lieu of dividends....     --          6,189     --            224     --             71     --            306
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
    NET INCOME.......................  $  (6,934) $  99,110  $  12,675  $  14,084  $   8,520  $   9,540  $   8,717  $  14,942
                                       =========  =========  =========  =========  =========  =========  =========  =========
Net income applicable to common
  shares.............................  $  (6,934) $  94,143  $  11,824  $  13,144  $   7,936  $   8,851  $   8,086  $  13,951
Earnings per common share............  $   (0.23) $    3.26  $    0.41  $    0.46  $    0.28  $    0.31  $    0.28  $    0.48
Average common shares outstanding....     30,441     28,863     28,863     28,863     28,863     28,863     28,863     28,863
</TABLE>
     The 1995 figures have been restated to reflect the implementation of SFAS
No. 122 effective October 1, 1994. See Note 1. Average shares and per share
results have been restated to reflect the 1,800 to one stock conversion in June
1996. See Note 16.

                                      133
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

20.  CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

     The condensed financial statements of the Parent Company do not include all
of the information and notes normally included with financial statements
prepared in accordance with generally accepted accounting principles.

                                 PARENT COMPANY
                  CONDENSED STATEMENTS OF FINANCIAL CONDITION
                                 (IN THOUSANDS)

                                           SEPTEMBER 30,
                                       ----------------------
                                          1996        1995
                                       ----------  ----------
ASSETS
Cash and cash equivalents............  $   18,790  $        1
Securities purchased under agreements
  to resell..........................      --           2,121
Investment in Bank United............     608,027     609,178
Intangible assets....................       2,055       2,563
Deferred tax asset...................      19,527      --
Other assets.........................       5,281       1,287
                                       ----------  ----------
TOTAL ASSETS.........................  $  653,680  $  615,150
                                       ==========  ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Senior Notes.........................  $  115,000  $  115,000
Other liabilities....................       7,637       4,047
                                       ----------  ----------
          Total liabilities..........     122,637     119,047
                                       ----------  ----------
STOCKHOLDERS' EQUITY
Common stock.........................         316         289
Paid-in capital......................     129,286     117,722
Retained earnings....................     403,674     384,739
Unrealized gains (losses) on
  subsidiary's securities and
  mortgage-backed securities
  available for sale, net of tax.....      (2,233)     (6,647)
                                       ----------  ----------
          Total stockholders'
            equity...................     531,043     496,103
                                       ----------  ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
  EQUITY.............................  $  653,680  $  615,150
                                       ==========  ==========

   These condensed financial statements should be read in conjunction with the
              Consolidated Financial Statements and Notes thereto.

                                      134
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                 PARENT COMPANY
                       CONDENSED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)

                                       FOR THE YEAR ENDED SEPTEMBER 30,
                                       ---------------------------------
                                          1996       1995        1994
                                       ----------  ---------  ----------
INCOME
Dividends from the Bank..............  $  109,011  $   6,409  $   11,435
Short-term interest-earning assets...          56         88          21
                                       ----------  ---------  ----------
          Total income...............     109,067      6,497      11,456
                                       ----------  ---------  ----------
EXPENSE
Interest expense -- Senior Notes.....      10,353     10,407      10,177
Amortization of intangibles..........       1,000        976         977
Other................................         196        114         947
                                       ----------  ---------  ----------
          Total expense..............      11,549     11,497      12,101
                                       ----------  ---------  ----------
INCOME (LOSS) BEFORE UNDISTRIBUTED
  INCOME OF BANK AND INCOME TAXES....      97,518     (5,000)       (645)
Equity in undistributed income of the
  Bank...............................         519     45,322     104,316
                                       ----------  ---------  ----------
INCOME BEFORE INCOME TAXES...........      98,037     40,322     103,671
Income tax benefit...................     (20,898)    (1,397)     (5,299)
                                       ----------  ---------  ----------
NET INCOME...........................  $  118,935  $  41,719  $  108,970
                                       ==========  =========  ==========

   These condensed financial statements should be read in conjunction with the
              Consolidated Financial Statements and Notes thereto.

                                      135
<PAGE>
                               BANK UNITED CORP.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                 PARENT COMPANY
                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

                                        FOR THE YEAR ENDED SEPTEMBER 30,
                                       -----------------------------------
                                          1996        1995        1994
                                       ----------  ----------  -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...........................  $  118,935  $   41,719  $   108,970
Adjustments to reconcile net income
  to net cash
  (used) provided by operating
  activities:
     Equity in undistributed income
       of the Bank...................        (519)    (45,322)    (104,316)
     Deferred tax benefit............     (19,527)     --          --
     Amortization of intangibles.....       1,000         976          977
     Change in other assets..........      (4,486)      4,111       (5,393)
     Change in other liabilities.....       3,590         (73)         159
     Management Restricted Stock
       award.........................       3,709      --          --
                                       ----------  ----------  -----------
          Net cash provided by
            operating activities.....     102,702       1,411          397
                                       ----------  ----------  -----------
CASH FLOWS FROM INVESTING ACTIVITIES
     Net change in securities
       purchased under agreements to
       resell........................       2,121      (1,411)        (397)
                                       ----------  ----------  -----------
          Net cash provided (used) by
            investing activities.....       2,121      (1,411)        (397)
                                       ----------  ----------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from issuance of common
       stock.........................      13,966      --          --
     Payment of common stock
       dividends.....................    (100,000)     --          --
                                       ----------  ----------  -----------
          Net cash used by financing
            activities...............     (86,034)     --          --
                                       ----------  ----------  -----------
NET INCREASE IN CASH AND CASH
  EQUIVALENTS........................      18,789      --          --
CASH AND CASH EQUIVALENTS AT
  BEGINNING OF YEAR..................           1           1            1
                                       ----------  ----------  -----------
CASH AND CASH EQUIVALENTS AT END OF
  YEAR...............................  $   18,790  $        1  $         1
                                       ==========  ==========  ===========

   These condensed financial statements should be read in conjunction with the
              Consolidated Financial Statements and Notes thereto.

                                      136