BANKUNITED FINANCIAL CORP - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-13921

BankUnited Financial Corporation

(Exact name of registrant as specified in its charter)

Florida

(State or other jurisdiction of

incorporation or organization)

65-0377773

(I.R.S. Employer

Identification Number)

255 Alhambra Circle, Coral Gables, Florida 33134

(Address of principal executive offices) (Zip Code)

(305) 569-2000

(Registrant’s telephone number, including area code)

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

The number of shares outstanding of the registrant’s common stock at the close of business on April 29, 2003 was 25,080,425 shares of Class A Common Stock, $.01 par value, and 536,562 shares of Class B Common Stock, $.01 par value.

This Form 10-Q contains 36 pages.

The Index to Exhibits appears on page 36.

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31, 2003

TABLE OF CONTENTS

		Page No.
PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statements of Financial Condition as of March 31, 2003 (unaudited) and September 30, 2002		3

Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended March 31, 2003 and March 31, 2002		4

Consolidated Statements of Stockholders’ Equity (unaudited) for the Six Months Ended March 31, 2003 and March 31, 2002		5

Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended March 31, 2003 and March 31, 2002		6

Condensed Notes to Consolidated Financial Statements (unaudited)		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13

Item 3. Quantitative and Qualitative Disclosures about Market Risk		30

Item 4. Controls and Procedures		32

PART II—OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K		32

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	March 31, 2003			September 30, 2002
	(Dollars in thousands, except share data)
Assets:
Cash	$	84,980		$	48,609
Federal Home Loan Bank overnight deposits		285			419,946
Federal funds sold and securities purchased under agreements to resell		2,398			3,735
Investments available for sale, at fair value		211,635			171,585
Mortgage-backed securities available for sale, at fair value		1,967,638			1,136,634
Loans receivable, net		3,729,780			3,713,365
Mortgage loans held for sale (fair value of approximately $328,948 and $284,239 at March 31, 2003 and September 30, 2002, respectively)		323,568			278,759
Other earning assets		100,522			90,724
Office properties and equipment, net		17,145			17,744
Real estate owned		4,765			3,003
Accrued interest receivable		30,457			28,861
Mortgage servicing rights		9,119			6,746
Goodwill		28,353			28,353
Bank-owned life insurance		74,591			53,180
Prepaid expenses and other assets		24,910			27,304

Total assets	$	6,610,146		$	6,028,548

Liabilities and Stockholders’ Equity:
Liabilities:
Deposits	$	3,072,212		$	2,976,171
Securities sold under agreements to repurchase		532,761			355,042
Advances from Federal Home Loan Bank		2,009,271			1,806,089
Senior notes		200,000			200,000
Company obligated mandatorily redeemable trust preferred securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures of BankUnited		260,463			253,761
Interest payable		14,357			13,938
Advance payments by borrowers for taxes and insurance		21,805			40,593
Liability for securities purchased pending settlement		90,651			—
Accrued expenses and other liabilities		39,040			37,805

Total liabilities		6,240,560			5,683,399

Stockholders’ Equity:
Preferred Stock, Authorized shares—10,000,000. Issued shares—Noncumulative Convertible Preferred Stock, Series B—724,007 and 574,007 at March 31, 2003 and September 30, 2002, respectively; Outstanding shares—Noncumulative Convertible Preferred Stock Series B—697,287 and 547,287 at March 31, 2003 and September 30, 2002, respectively		7			6
Class A Common Stock, $0.01 par value. Authorized shares—60,000,000. Issued shares—25,370,596 and 25,008,515 at March 31, 2003 and September 30, 2002, respectively. Outstanding shares—25,037,596 and 24,675,515 at March 31, 2003 and September 30, 2002, respectively
		254			250
Class B Common Stock, $0.01 par value. Authorized shares—3,000,000. Issued shares—580,262 and 536,562, at March 31, 2003 and September 30, 2002, respectively. Outstanding shares—536,562 at March 31, 2003 and September 30, 2002.		6			5
Additional paid-in capital		257,207			253,511
Retained earnings		95,800			77,566
Common Treasury Stock—376,700 and 333,000 shares at March 31, 2003 and September 30, 2002, respectively		(3,279	)		(2,794	)
Preferred Treasury Stock—26,720 shares		(528	)		(528	)
Deferred compensation and option shares		697			528
Accumulated other comprehensive income		19,422			16,605

Total stockholders’ equity		369,586			345,149

Total liabilities and stockholders’ equity	$	6,610,146		$	6,028,548

See accompanying condensed notes to consolidated financial statements

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended March 31,				For the Six Months Ended March 31,
	2003		2002		2003		2002
	(Dollars and shares in thousands, except per share data)
Interest income:
Interest and fees on loans	$	58,421	$	64,161	$	119,634	$	130,248
Interest on mortgage-backed securities		19,296		15,183		32,967		28,633
Interest on short-term investments		110		163		227		314
Interest and dividends on long-term investments and other interest-earning assets		3,463		2,886		6,722		5,843

Total interest income		81,290		82,393		159,550		165,038

Interest expense:
Interest on deposits		21,112		25,882		43,756		54,803
Interest on borrowings		24,754		23,131		47,886		46,366
Preferred dividends of subsidiary trusts		5,259		4,945		10,135		9,874

Total interest expense		51,125		53,958		101,777		111,043

Net interest income before provision for loan losses		30,165		28,435		57,773		53,995
Provision for loan losses		1,250		2,450		2,550		5,400

Net interest income after provision for loan losses		28,915		25,985		55,223		48,595

Non-interest income:
Service fees on loans		56		635		308		1,056
Service fees on deposits		991		819		2,020		1,635
Service fees other		312		237		604		439
Insurance and investment services income		626		1,084		1,320		2,181
Net gain on sale of investments and mortgage-backed securities		158		52		755		882
Net gain on sale of loans and other assets		1,702		921		3,768		1,512
Other		2,212		664		3,022		1,220

Total non-interest income		6,057		4,412		11,797		8,925

Non-interest expenses:
Employee compensation and benefits		9,708		7,635		18,369		14,413
Occupancy and equipment		3,005		2,692		5,953		5,316
Telecommunications and data processing		1,209		1,154		2,419		2,161
Advertising and promotion expense		1,256		1,725		2,443		3,280
Professional fees-legal and accounting		1,200		1,241		2,347		2,256
Loan servicing expense		362		809		847		1,732
Insurance		289		269		569		517
Other operating expenses		4,282		2,792		6,599		5,117

Total non-interest expenses		21,311		18,317		39,546		34,792

Income before income taxes		13,661		12,080		27,474		22,728
Provision for income taxes		4,055		4,615		9,082		8,326

Net income	$	9,606	$	7,465	$	18,392	$	14,402


Earnings Per Share:
Basic earnings per share	$	0.37	$	0.29	$	0.72	$	0.57
Diluted earnings per share	$	0.35	$	0.28	$	0.67	$	0.54
Weighted average number of common shares outstanding:
Basic		25,539		25,195		25,398		25,131
Diluted		27,710		26,929		27,572		26,846

See accompanying condensed notes to consolidated financial statements

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	For the Six Months Ended March 31, 2003 and 2002
	Preferred Stock		Common Stock		Paid-in Capital		Retained Earnings			Treasury Stock			Deferred Compensation		Accumulated Other Comprehensive Income Net of Tax			Total Stockholders’ Equity
	(In thousands)
Balance at September 30, 2002	$	6	$	255	$	253,511	$	77,566		$	(3,322	)	$	528	$	16,605		$	345,149
Comprehensive income:
Net income for the nine months ended June 30, 2002		—		—		—		18,392			—			—		—			18,392
Other comprehensive income, net of tax		—		—		—		—			—			—		2,817			2,817

Total comprehensive income		—		—		—		—			—			—		—			21,209
Payments of dividends on preferred stock		—		—		—		(158	)		—			—		—			(158	)
Deferred Compensation Obligation		—		—		—		—			—			169		—			169
Purchase of Stock		—		—		—		—			(485	)		—		—			(485	)
Issuance of stock, stock options and other awards		1		5		3,696		—			—			—		—			3,702

Balance at March 31, 2003	$	7	$	260	$	257,207	$	95,800		$	(3,807	)	$	697	$	19,422		$	369,586


	Preferred Stock		Common Stock		Paid-in Capital		Retained Earnings			Treasury Stock			Deferred Compensation		Accumulated Other Comprehensive Income (Loss) Net of Tax			Total Stockholders’ Equity
	(In thousands)
Balance at September 30, 2001	$	4	$	254	$	249,788	$	47,502		$	(2,794	)	$	—	$	5,692		$	300,446
Comprehensive income:
Net income for the nine months ended June 30, 2002		—		—		—		14,402			—			—		—			14,402
Other comprehensive loss, net of tax		—		—		—		—			—			—		(8,546	)		(8,546	)

Total comprehensive income		—		—		—		—			—			—		—			5,856
Payments of dividends on preferred stock		—		—		—		(101	)		—			—		—			(101	)
Deferred Compensation Obligation		—		—		—		—			—			528		—			528
Purchase of Stock		—		—		—		—			(528	)		—		—			(528	)
Issuance of stock, stock options and other awards		2		—		2,695		—			—			—		—			2,697

Balance at March 31, 2002	$	6	$	254	$	252,483	$	61,803		$	(3,322	)	$	528	$	(2,854	)	$	308,898

See accompanying condensed notes to consolidated financial statements

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Six Months Ended March 31,
	2003			2002
	(In thousands)
Cash flows used in operating activities	$	(351,123	)	$	(150,172	)
Cash flows from investing activities:
Other net decreases (increases) in loans		28,864			(81,687	)
Purchase of investment securities available for sale		(77,461	)		(17,228	)
Purchase of mortgage-backed securities available for sale		(1,225,953	)		(423,595	)
Purchase of other earning assets		(59,248	)		(36,449	)
Purchase of bank-owned life insurance		(20,000	)		(30,000	)
Purchase of office properties and equipment		(1,698	)		(1,942	)
Proceeds from repayments of investment securities available for sale		—			10,037
Proceeds from repayments of mortgage-backed securities held to maturity		—			52,039
Proceeds from repayments of mortgage-backed securities available for sale		491,334			164,180
Proceeds from repayments of other earning assets		49,450			28,100
Proceeds from sale of investment securities available for sale		40,892			7,230
Proceeds from sale of mortgage-backed securities available for sale		274,078			118,236
Proceeds from sale of real estate owned		919			2,354

Net cash used in investing activities		(498,823	)		(208,725	)

Cash flows from financing activities:
Net increase in deposits		96,041			232,227
Net increase in Federal Home Loan Bank advances		203,182			167,176
Net increase (decrease) in other borrowings		177,719			(6,092	)
Guarantee fees for senior notes		(113	)		(164	)
Decrease in advances from borrowers for taxes and insurance		(18,788	)		(13,262	)
Redemption of trust preferred securities		(46,501	)		(15,325	)
Net proceeds from issuance of trust preferred securities		51,080			43,648
Net proceeds from issuance of stock		2,857			2,493
Purchase of Series B Preferred Stock		—			(528	)
Dividends paid on preferred stock		(158	)		(101	)

Net cash provided by financing activities		465,319			410,072

(Decrease) increase in cash and cash equivalents		(384,627	)		51,175
Cash and cash equivalents at beginning of period		472,290			294,753

Cash and cash equivalents at end of period	$	87,663		$	345,928

Supplemental disclosure of non-cash investing and financing activities:
Securitization of loans receivable and mortgage loans held for sale	$	286,132		$	168,264
Transfer of loans to real estate owned	$	2,825		$	5,924
Securities purchased pending settlement	$	90,651		$	—

See accompanying condensed notes to consolidated financial statements

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of BankUnited Financial Corporation (“BankUnited”) and its subsidiaries, including BankUnited, FSB (the “Bank”). All significant intercompany transactions and balances have been eliminated.

The unaudited consolidated financial statements have been prepared in conformity with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission and therefore do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. However, all adjustments (consisting of normal recurring accruals), which, in the opinion of management, are necessary for a fair presentation of the financial statements, have been included. Operating results for the six-month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending September 30, 2003. For further information, refer to the Consolidated Financial Statements and Notes thereto included in BankUnited’s Annual Report on Form 10-K for the fiscal year ended September 30, 2002.

Certain prior period amounts have been reclassified to conform to the March 31, 2003 consolidated financial statements.

2. Significant Accounting Policies

During the quarter ended March 31, 2002, BankUnited adopted accounting policies pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock Based Compensation—Transition and Disclosure.” See note 10. Impact of New Accounting Pronouncements for a discussion of the requirements of SFAS No. 148 and note 11. Stock Options for the new disclosure required by SFAS No. 148.

3. Earnings Per Share

The following tables reconcile basic and diluted earnings per share for the three and six months ended March 31, 2003 and 2002.

	For the Three Months ended March 31,				For the Six Months ended March 31,
	2003		2002		2003		2002
	(Dollars and shares in thousands, except per share data)
Basic earnings per share:
Numerator:
Net income	$	9,606	$	7,465	$	18,392	$	14,402
Preferred stock dividends		79		51		158		101

Net income available to common stockholders	$	9,527	$	7,414	$	18,234	$	14,301

Denominator:
Weighted average common shares outstanding		25,539		25,195		25,398		25,131

Basic earnings per share	$	0.37	$	0.29	$	0.72	$	0.57

Diluted earnings per share:
Numerator:
Net income available to common stockholders	$	9,527	$	7,414	$	18,234	$	14,301
Plus:
Convertible preferred stock dividends		79		51		158		101

Diluted net income available to common stockholders	$	9,606	$	7,465	$	18,392	$	14,402

Denominator:
Weighted average common shares outstanding		25,539		25,195		25,398		25,131
Plus:
Number of common shares from the conversion of options		1,088		1,150		1,116		1,153
Number of common shares from the conversion of preferred stock		1,083		584		1,058		562

Diluted weighted average shares outstanding		27,710		26,929		27,572		26,846

Diluted earnings per share	$	0.35	$	0.28	$	0.67	$	0.54

Basic earnings per share is calculated by dividing net income, adjusted for dividends declared on preferred stock, by the weighted number of shares of common stock outstanding.

Diluted earnings per share is calculated under the treasury stock method by dividing net income by the weighted average number of shares of common outstanding, assuming conversion of outstanding convertible preferred stock from the beginning of the period and the exercise of stock options. Such adjustments to net income and the weighted average number of shares of common stock are made only when such adjustments dilute earnings per share.

Company Obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trusts Holding Solely Junior Subordinated Deferrable Interest Debentures of BankUnited

BankUnited Statutory Trust IV, BankUnited Statutory Trust V, and BankUnited Statutory Trust VI are wholly owned trust subsidiaries (“Trust Subsidiaries”) of BankUnited which were created under Connecticut law during the six months ended March 31, 2003 for the purpose of issuing Trust Preferred Securities and investing the proceeds from the sale thereof in Junior Subordinated Deferrable Interest Debentures issued by BankUnited (the “Junior Subordinated Debentures”). The Trust Preferred Securities were issued and sold in private placement offerings. All of the proceeds from the sale of the Trust Preferred Securities and the common securities issued by the Trust Subsidiaries are invested in Junior Subordinated Debentures, which are the sole assets of the Trust Subsidiaries. The Trust Subsidiaries pay preferential cumulative cash distributions on the Trust Preferred Securities at the same rate as the distributions paid by BankUnited on the Junior Subordinated Debentures held by the Trust Subsidiaries. Taken together, the undertakings made by BankUnited with respect to the Trust Preferred Securities constitute a full and unconditional guarantee by BankUnited of the obligations of the Trust Preferred Securities.

The following table provides information on the issuances of Trust Preferred Securities by BankUnited during the six months ended March 31, 2003:

	Original
	Trust Preferred Securities Issued		Common Securities Issued		Junior Subordinated Debentures Held		Annual Rate of Preferential Cash Distribution	Maturity Date
	(Dollars in thousands)
BankUnited Statutory Trust IV	$	20,000	$	619	$	20,619	3-Month LIBOR + 3.40%(1)	11/15/2032
BankUnited Statutory Trust V		15,000		464		15,464	3-Month LIBOR + 3.25%(2)	12/19/2032
BankUnited Statutory Trust VI		17,640		546		18,186	3-Month LIBOR + 3.15%(3)	3/26/2033

	$	52,640	$	1,629	$	54,269

(1)

The annual rate adjusts quarterly not to exceed 11.90% prior to November 15, 2007.

(2)

The annual rate adjusts quarterly not to exceed 11.75% prior to December 26, 2007.

(3)

The annual rate is fixed at 4.41% until June 26, 2003, upon which time rates adjust quarterly not to exceed 11.75% prior to March 26, 2008.

On February 26, 2003 BankUnited Financial Corporation announced that it would redeem all of the 9.60% Junior Subordinated Debentures held by its trust subsidiary, BankUnited Capital II, and BankUnited Capital II would redeem all of its outstanding 9.60% Cumulative Trust Preferred Securities (Nasdaq: BKUNZ). The Trust Preferred Securities were redeemed on March 28, 2003 at a price of $25.00 per share plus accumulated and unpaid interest.

Treasury Stock

The following table provides information on Treasury Stock held by BankUnited as of March 31, 2003 and September 30, 2002:

	March 31, 2003			September 30, 2002
	(In thousands)
Common Treasury Stock:
Class A Common—333,000 shares	$	(2,794	)	$	(2,794	)
Class B Common—20,440 shares		(316	)		—
Class B Common (held in Rabbi Trust)—23,260 shares		(169	)		—

Total Common Treasury Stock	$	(3,279	)	$	(2,794	)

Preferred Treasury Stock:
Noncumulative Convertible Preferred Stock, Series B (held in Rabbi Trust)—26,720 shares	$	(528	)	$	(528	)

Total Treasury Stock	$	3,807		$	3,322

In the first quarter of fiscal 2003, the Chief Executive Officer (“CEO”) surrendered 20,440 shares of Class B Common Stock to BankUnited as consideration for the exercise of 43,700 shares of Class B Common Stock. The 20,440 shares surrendered had a value of $316 thousand and are reflected in treasury stock in the equity section of BankUnited’s Consolidated Statement of Financial Condition. The shares due to the CEO upon the option exercise, were 23,260 shares of Class B Common Stock with a value of $169 thousand, which have been deferred by the CEO are being held in a trust established by BankUnited. These shares are reflected in treasury stock in the equity section of BankUnited’s Consolidated Statement of Financial Condition. The obligation to deliver the shares to the CEO is also reflected in the equity section of BankUnited’s Consolidated Statement of Financial Condition in deferred compensation.

6. Regulatory Capital

The Office of Thrift Supervision (“OTS”) requires that the Bank meet minimum regulatory, core and risk-based capital requirements. Currently, the Bank exceeds all regulatory capital requirements. The Bank’s required, actual and excess regulatory capital levels as of March 31, 2003 and 2002 were as follows:

	Regulatory Capital
	Required				Actual				Excess
	2003		2002		2003		2002		2003		2002
	(Dollars in thousands)
Core capital	$	195,902	$	167,315	$	487,882	$	386,869	$	291,980	$	219,554
		3.0%		3.0%		7.5%		6.9%		4.5%		3.9%
Risk based capital	$	241,917	$	216,839	$	509,644	$	402,837	$	267,727	$	185,998
		8.0%		8.0%		16.9%		14.9%		8.9%		6.9%

7. Comprehensive Income

BankUnited’s comprehensive income includes all items which comprise net income after preferred stock dividends, plus other comprehensive income. For the three months and six months ended March 31, 2003 and 2002, BankUnited’s other comprehensive income (loss) was as follows:

	For the Three Months Ended March 31,						For the Six Months Ended March 31,
	2003			2002			2003			2002
	(In thousands)
Net income	$	9,606		$	7,465		$	18,392		$	14,402
Other comprehensive income (loss), net of tax:
Unrealized income (loss) arising during the period on securities, net of tax expense (benefit) of $2,382 and $(2,008) for the three months ended March 31, 2003 and 2002, respectively and $1,233 and $(5,896) for the six months ended March 31, 2003 and 2002, respectively		4,235			(2,947	)		2,186			(9,148	)
Unrealized losses on cash flow hedges, net of tax benefit of $85 and $169 for the three and six months ended March 31, 2003, respectively		(144	)		—			(278	)		—
Less reclassification adjustment for:
Amortization of unrealized losses on transferred securities, net of tax expense of $15 and $38 for the three and six months ended March 31, 2002, respectively		—			24			—			60
Realized gains on securities sold included in net income, net of tax expense of $20 for the three months ended March 31, 2002, and $569 and $340 for the six months ended March 31, 2003 and 2002, respectively		—			31			909			542

Total other comprehensive income (loss), net of tax		4,091			(2,892	)		2,817			(8,546	)

Comprehensive income	$	13,697		$	4,573			$21,209		$	5,856

8. Accounting For Derivatives and Hedging Activities

BankUnited expects $62 thousand of the amounts currently reported in other comprehensive income related to cash flow hedges to be reclassified into earnings within the next twelve months.

During the three months ended March 31, 2003, BankUnited settled an interest rate swap which was used to hedge the 9.60% Cumulative Trust Preferred Securities issued by BankUnited Capital II. This settlement was made in conjunction with the redemption of the 9.60% Trust Preferred Securities which took place simultaneously and resulted in a gain of $87 thousand. See footnote 3. Company Obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Deferrable Interest Debentures of BankUnited in the Financial Statements for a further discussion of the redemption of the BankUnited Capital II securities.

9. Commitments and Contingencies

Standby letters of credit are conditional commitments issued by BankUnited to guarantee the performance of a customer to a third party. BankUnited had outstanding standby letters of credit in the amount of $8.4 million and $8.0 million as of March 31, 2003 and September 30, 2002, respectively. Approximately $1.5 million of the standby letters of credit outstanding at March 31, 2003 were issued subsequent to December 31, 2002. BankUnited’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for standby letters of credit is represented by the contractual amounts of those instruments. BankUnited uses the same credit policies in establishing conditional obligations as those for on-balance sheet instruments. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies but may include cash, accounts receivable, inventory, equipment, marketable

securities and property. Since certain letters of credit are expected to expire without being drawn upon, they do not necessarily represent future cash requirements.

BankUnited is a party to certain claims and litigation arising in the ordinary course of business. In the opinion of management, the resolution of such claims and litigation will not materially affect BankUnited’s consolidated financial position or results of operations.

10. Impact of New Accounting Pronouncements

SFAS No. 145

In May of 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002”. Under SFAS No. 4, all gains and losses from extinguishment of debt were required to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. This was an exception to Accounting Principals Board Opinion No. 30, “Reporting the Results of Operations—“Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (“APB No. 30”), which defines extraordinary items as events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence.

SFAS No. 145 eliminates Statement No. 4 and, thus, the exception to applying APB No. 30 to all gains and losses related to extinguishments of debt (other than extinguishment of debt to satisfy sinking-fund requirements). As a result gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria in APB No. 30. Applying APB No. 30 will distinguish transactions that are part of an entity’s recurring operations from those that are unusual or infrequent in nature or that meet the criteria for classification as an extraordinary item. The provisions of SFAS No. 145 related to the rescission of Statement No. 4 shall be applied in fiscal years beginning after May 15, 2002. BankUnited adapted the provisions of SFAS No. 145 related to the rescission of Statement No. 4 beginning October 1, 2002, which resulted in a reclassification of extraordinary item to non-interest income in the consolidated statement of operations.

SFAS No. 148

In December of 2002, the FASB issued SFAS No. 148, “Accounting for Stock Based Compensation-Transition and Disclosure.” Under SFAS No. 148, alternative methods of transition are provided for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS 123, “Accounting for Stock Based Compensation” to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.

As permitted by SFAS No. 123, BankUnited continues to follow the intrinsic value method of accounting for stock-based compensation under the provisions of Accounting Principles Board (“APB”) No. 25, “Accounting for Stock Issued to Employees.” Accordingly, the alternative methods of transition for the fair value based method of accounting for stock-based employee compensation provided by SFAS No. 148 do not apply to BankUnited. BankUnited is required under the provisions of SFAS No. 148 amending SFAS 123 and APB No. 28, “Interim Financial Reporting,” to provide additional disclosures in both annual and interim financial statements. See note 11. Stock Options for required interim disclosures.

11. Stock Options

The new disclosure requirements under SFAS No. 148 for interim financial statements are effective and were adopted by BankUnited on January 1, 2003. The following table provides the newly required disclosures for the three and six-month periods ended March 31, 2003 compared to the same periods in the prior year:

	For the Three Months Ended March 31,						For the Six Months Ended March 31,
	2003			2002			2003			2002
	(Dollars in thousands)
Net income, as reported	$	9,606		$	7,465		$	18,392		$	14,402
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects (1)		(407	)		(317	)		(783	)		(605	)

Pro forma net income	$	9,199		$	7,148		$	17,609		$	13,797

Earnings per share:
Basic—as reported	$	0.37		$	0.29		$	0.72		$	0.57

Basic—pro forma	$	0.36		$	0.28		$	0.69		$	0.55


Diluted—as reported	$	0.35		$	0.28		$	0.67		$	0.54

Diluted—pro forma	$	0.33		$	0.27		$	0.64		$	0.51

(1)

The fair value of each option has been estimated on the date of the grant using the Black Scholes option pricing model.

12. Related Party Transactions

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used in this Form 10-Q, “BankUnited,” “we,” “us” and “our” refers to BankUnited and its subsidiaries on a consolidated basis. The following discussion and analysis and the related financial data present a review of BankUnited’s consolidated operating results for the three and six-month periods ended March 31, 2003 and 2002 and consolidated financial condition as of March 31, 2003. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in BankUnited’s Annual Report on Form 10-K for the year ended September 30, 2002.

This Quarterly Report on Form 10-Q contains forward-looking statements. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Words and phrases such as: “will likely result,” “expect,” “will continue,” “anticipate,” “estimate,” “project,” “believe,” “intend,” “should,” “may,” “can,” “plan,” “target” and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, discussions concerning:

•

Projections of revenues, expenses, income, earnings per share, margin, asset growth, loan production, deposit growth, and other performance measures;

•

Expansion of operations, including branch openings, entrance into new markets, development of products and services and plans for new marketing strategies; and

•

Discussions on the outlook of the economy.

BankUnited cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and are not historical facts. Actual results may differ materially from the results discussed in these forward looking statements due to the following factors, among other things: general economic conditions, either nationally or regionally; changes or fluctuations in the interest rate environment; a deterioration in credit quality and/or a reduced demand for credit; reduced deposit flows and loan demand; competition from other financial services companies in our markets; legislative or regulatory changes, including changes in accounting standards, guidelines and policies; changes in the regulation of financial services companies; the issuance of additional equity or debt securities; the concentration of operations in south Florida, if the Florida economy or real estate values decline; and the threat and impact of war and terrorism. BankUnited cautions that the foregoing factors are not exclusive. BankUnited does not undertake, and specifically disclaims any obligations, to publicly release the result of any updates which might be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Critical Accounting Policies

BankUnited’s financial position and results of operations are impacted by management’s application of accounting policies involving judgments made to arrive at the carrying value of certain assets. Management’s greatest challenge in implementing its policies is the need to make estimates about the effect of matters that are inherently less than certain. Critical accounting policies applied by BankUnited are those that relate to the loan portfolio, which includes the allowance for loan losses and the valuation of mortgage servicing rights pertaining to the sale of, or securitization of mortgage loans. A variety of estimates impact the carrying value of the loan portfolio, including the amount of the allowance for loan losses, the placement of loans on non-accrual status, and the valuation of loans held for sale and mortgage servicing rights.

For a more detailed discussion on these critical accounting policies, see “Critical Accounting Policies” on page 21 of BankUnited’s Annual Report on Form 10-K for the year ended September 30, 2002.

Recent Developments

On February 3, 2003, BankUnited announced the addition of Sharon A. Brown as an independent member of its Board of Directors. Ms. Brown will serve on the Audit Committee and will qualify as an “audit committee financial expert” in compliance with rules adopted by the Securities and Exchange Commission. Ms. Brown is Director of Alumni and External Affairs for the University of Miami School of Business Administration and previously served as Assistant Dean for Administration and Development. Ms. Brown was a partner at Coopers & Lybrand, where she worked for 25 years, prior to joining the University of Miami in 1992. At Coopers & Lybrand, Ms. Brown’s clients included financial institutions, non-profit organizations and major organizations in government and education. She advised senior management on accounting, auditing, financial, and operations issues, and developed expertise in financial reporting, internal control reviews, major financing, acquisition reviews and other areas. She became a partner of that firm in 1979. Ms. Brown is a member of the Audit Committee of the School Board of Miami-Dade County, and served on the five-member citizen board appointed by Governor Chiles in 1998 to oversee the financial recovery of the City of Miami. Ms. Brown is a long-standing member of the Florida Institute of Certified Public Accountants where she has chaired various committees, including County Agency Audits, State and Local Government, Relations with Financial Institutions, and Structure and Governance. She also served as the organization’s President in 1986. The Florida House of Representatives recognized Ms. Brown for her service as president of the FICPA and for having devoted most of her professional career to improving the quality and integrity of local governmental audits.

BankUnited announced on February 3, 2003 that it was added to the S&P Small Cap 600 GICS (Global Industry Classification Standard) Banks sub-industry after the close of trading on Tuesday, February 4, 2003. The S&P SmallCap 600 Index consists of 600 domestic stocks chosen for market size, liquidity and industry group representation.

BankUnited believes that the branch network will continue to play a vital role in building banking relationships and toward this objective has opened its 41st branch location during the 2nd quarter of fiscal 2003 in the Broward County community of Wilton Manors. In addition, BankUnited opened a wholesale lending office in the state of Maryland just after quarter-end.

Shortly following the close of the quarter ended March 31, 2003, BankUnited launched its micro-market strategy for the retail banking operation. The initiative, which divided the company’s marketplace into eleven micro markets, is designed to provide BankUnited customers with an even greater level of high-touch service and to enhance community ties. Emphasizing that it is a true market-driven strategy, the company has empowered its micro-market managers with enhanced decision-making abilities, greater latitude in community sponsorship and involvement, and customer-centric promotions and product bundles. This should prove to be a highly effective approach in our efforts to build true long-term, loyal, banking relationships. By offering our customers the advantages of community-bank service, localized decision-making, and market-savvy bankers backed by our asset strength and broad product array, we hope to change the banking landscape in our markets. We intend to continue to carve a niche for ourselves by offering more products and services than our community bank competitors, and more high-touch, personalized and flexible service than our larger regional competitors.

RESULTS OF OPERATIONS

For the Three Months Ended March 31, 2003 Compared to the Same Period in 2002

General

Net income was $9.6 million for the three months ended March 31, 2003, a 28% increase compared to $7.5 million for the same period in 2002. Basic and diluted earnings per share for the quarter were $0.37 and $0.35, respectively, versus $0.29 and $0.28, respectively, for the same period in 2002. This improvement reflects an increase in net interest income of $1.7 million, a reduction of provision for loan losses of $1.2 million, an increase in non-interest income of $1.6 million, and a reduction of income tax provision of $560 thousand. This was offset by an increase in non-interest expense of $3 million.

Analysis of Net Interest Income

The following discussion of net interest income should be reviewed in conjunction with the Yields Earned and Rates Paid and Rate/Volume Analysis tables.

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. The following table sets forth certain information relating to the categories of BankUnited’s interest-earning assets and interest-bearing liabilities for the periods indicated. All yield and rate information is calculated on an annualized basis by dividing the annualized interest income or expense for the period by the average balance of the appropriate balance sheet item during the period. Net interest margin is calculated by dividing annualized net interest income by each category of average interest-earning assets. Non-accrual loans are included in asset balances for the appropriate period, whereas recognition of interest on such loans is discontinued and any remaining accrued interest receivable is reversed, in conformity with Generally Accepted Accounting Principles and regulatory requirements. The yields and net interest margins have been calculated on a pre-tax basis.

Yields Earned and Rates Paid

	For the Three Months Ended March 31,
	2003							2002
	Average Balance			Interest		Yield/ (1) Rate		Average Balance			Interest		Yield/ (1) Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net(2)	$	4,013,507		$	58,421	5.82	%	$	3,906,684		$	64,161	6.58	%
Mortgage-backed securities		1,793,259			19,296	4.30			992,438			15,183	6.12
Short-term investments(3)		12,623			110	3.49			24,968			163	2.61
Long-term investments and FHLB stock(4)		296,332			3,463	4.67			210,900			2,886	5.47

Total interest-earning assets	$	6,115,721		$	81,290	5.32	%	$	5,134,990		$	82,393	6.43	%

Interest-bearing liabilities:
NOW/Money market	$	578,844		$	1,570	1.08	%	$	375,924		$	1,336	1.44	%
Savings		706,397			3,161	1.79			704,820			4,647	2.67
Certificates of deposit		1,786,009			16,381	3.67			1,759,505			19,899	4.59
Trust preferred securities(5)		289,142			5,259	7.28			213,597			4,945	9.26
Senior notes		200,000			2,796	5.59			200,000			2,834	5.67
FHLB advances and other borrowings		2,380,854			21,958	3.69			1,707,170			20,297	4.76

Total interest-bearing liabilities	$	5,941,246		$	51,125	3.46	%	$	4,961,016		$	53,958	4.38	%

Excess of interest-earning assets over interest-bearing liabilities	$	174,475						$	173,974

Net interest income				$	30,165						$	28,435

Interest rate spread						1.86	%						2.05	%

Net interest margin						1.96	%						2.20	%

Ratio of interest-earning assets to interest-bearing liabilities		102.94	%						103.51	%

(1)

The yields and rates along with the corresponding interest rate spread and net interest margin represent the yields earned and rates paid on BankUnited’s interest-earnings assets and interest-bearing liabilities, respectively, during the three-month periods ended March 31, 2003 and 2002 and do not include any estimates of the effect that accelerated amortization of premiums would have on the yields earned.

(2)

Includes average non-accruing loans of $33.6 million and $26.9 million for the three months ended March 31, 2003 and 2002, respectively. The yields on loans receivable, net include amortization of loan fees.

(3)

Short-term investments include FHLB overnight deposits, federal funds sold, and securities purchased under agreements to resell.

(4)

Long-term investments include agency securities, and trust preferred securities of other issuers.

(5)

Interest and rates include the effect of interest rate swaps.

Rate/Volume Analysis

The following table presents, for the periods indicated, the changes in interest income and the changes in interest expense attributable to the changes in interest rates and the changes in the volume of interest-earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing liabilities, information is provided on the changes attributable to: (i) changes in volume (change in volume multiplied by prior year rate); (ii) changes in rate (change in rate multiplied by prior year volume); (iii) changes in rate/volume (change in rate multiplied by change in volume); and (iv) total changes in rate and volume.

	For the three month period ended March 31, 2003 vs. 2002
	Increase (Decrease) Due to
	Changes in Volume			Changes in Rate			Changes in Rate/ Volume			Total Increase (Decrease)
	(Dollars in thousands)
Interest income attributable to:
Loans receivable, net	$	1,757		$	(7,399	)	$	(98	)	$	(5,740	)
Mortgage-backed securities		12,253			(4,505	)		(3,635	)		4,113
Short-term investments(1)		(81	)		55			(27	)		(53	)
Long-term investments and FHLB stock(2)		1,168			(419	)		(172	)		577

Total interest-earning assets	$	15,097			(12,268	)	$	(3,932	)	$	(1,103	)

Interest expense attributable to:
NOW/Money market	$	731		$	(334	)	$	(163	)	$	234
Savings		11			(1,551	)		54			(1,486	)
Certificates of deposit		304			(4,052	)		230			(3,518	)
Trust preferred securities(3)		1,749			(1,060	)		(375	)		314
Senior notes		—			(38	)		—			(38	)
FHLB advances and other borrowings		8,017			(4,571	)		(1,785	)		1,661

Total interest-bearing liabilities		10,812			(11,606	)		(2,039	)		(2,833	)

Increase (decrease) in net interest income	$	4,285		$	(662	)	$	(1,893	)	$	1,730

(1)

Short-term investments include FHLB overnight deposits, federal funds sold, and securities purchased under agreements to resell.

(2)

Long-term investments include agency securities, and trust preferred securities of other issuers.

(3)

Includes the effect of interest rate swaps.

BankUnited continued to experience a high level of mortgage loan pre-payments as a consequence of historically low mortgage rates during the quarter ended March 31, 2003. Although we produced record residential loan production of $539 million during the quarter, including consumer mortgage loans originated through the branch network, those loans were originated at rates less than the rates of loans which were paid off. This coupled with market-driven competitive deposit pricing, has resulted in a decrease of our net interest margin to 1.96% this quarter as compared to 2.20% for the same period in the prior year, and 2.04% in the previous quarter.

The effect of pre-payments was felt strongly by BankUnited particularly in the area of loans serviced by others (“LSBOs”), which were purchased several years ago. The LSBOs portfolio has pre-paid at a rate more than double that of the bank’s self-originated residential portfolio, and now has a balance of $385 million. BankUnited anticipates continued rapid pre-payments and substantial depletion of this portfolio over the next several quarters, which will continue to have an adverse effect on the company’s interest-rate margin until reaching its end. Notwithstanding the high pre-payment levels, BankUnited’s self-originated total loan portfolio showed growth of $183 million over the quarter ended December 31, 2002. BankUnited expects that it will continue to be able to offset the LBSO run-off with BankUnited-originated loans and that this strategy will help strengthen the interest margin over time.

The average balance of Mortgage-Backed Securities increased significantly during the three months ended March 31, 2003. This increase generated sufficient interest income due to changes in volume to help offset the

margin compression experienced during the quarter. These securities were purchased at the end of the quarter ended December 31, 2002. The result was an increase in net interest income of $1.7 million for the three months ended March 31, 2003 as compared to 2002.

Analysis of Non-Interest Income and Expenses

	For the Three Months Ended March 31,
	2003		2002		Change
	(Dollars in thousands)
Non-interest income:
Service fees on loans(1)	$	56	$	635	$	(579	)	(91.2	)%
Service fees on deposits		991		819		172		21.0	%
Service fees on other		312		237		75		31.6	%
Insurance and investment services income		626		1,084		(458	)	(42.3	)%
Net gain on sale of investment and mortgage-backed securities		158		52		106		203.8	%
Net gain on sale of loans and other assets		1,702		921		781		84.8	%
Other		2,212		664		1,548		233.1	%

Total non-interest income	$	6,057	$	4,412	$	1,645		37.3	%

(1)

Includes loan servicing fees, net of amortization of servicing rights and loan fees.

Non-interest income reached $6.1 million for the three months ended March 31, 2003, which is an increase of $1.6 million over the same period in the prior year. The decrease in service fees on loans, net of $579 thousand includes an increase in servicing fee income of $183 thousand, an increase in amortization of mortgage servicing rights of $675 thousand and a decrease in loan fees of $87 thousand. The increase in amortization of mortgage servicing rights is largely the result of a high level of pre-payments occurring during the three months in the current low interest rate environment. The increase in service fees on deposits of 21.0% is the direct result of growth in core deposits, particularly non-interest bearing accounts. We expect continued improvement in generating service fees as we focus on expanding our banking office system and implementing our micro-market strategy.

BankUnited realized $1.9 million from the sale of assets, in the form of loans and securitized loans which were originated for sale. Also included in other non-interest income was a life insurance benefit payment of $1.1 million.

	For the Three Months Ended March 31,
	2003		2002		Change
	(Dollars in thousands)
Non-interest expenses:
Employee compensation and benefits	$	9,708	$	7,635	$	2,073		27.2	%
Occupancy and equipment		3,005		2,692		313		11.6	%
Telecommunications and data processing		1,209		1,154		55		4.8	%
Advertising and promotion expense		1,256		1,725		(469	)	(27.2	)%
Professional fees—legal and accounting		1,200		1,241		(41	)	(3.3	)%
Loan servicing expense(1)		362		809		(447	)	(55.3	)%
Insurance		289		269		20		7.4	%
Other operating expenses		4,282		2,792		1,490		53.4	%

Total non-interest expenses	$	21,311	$	18,317	$	2,994		16.3	%

(1)

Loan servicing expense relates to LSBOs.

Non-interest expenses increased by $3 million for the three months ended March 31, 2003 compared to the same period in 2002. As BankUnited continues to expand its operations, it is expected that non-interest expenses

may increase. The largest portion of the increase for the period ended March 31, 2003 was $2.1 million in employee and benefits. There were 689 full time equivalent employees at March 31, 2003 as compared to 610 at March 31, 2002. The reduction in advertising and promotion expense of $469 thousand during the three months ended March 31, 2003 compared to the prior year reflects management’s intention to minimize such expenditures until they could be aligned with BankUnited’s micro market strategy for the retail banking operation. Management expects that advertising expenditures may increase, as well as the return on those expenditures as BankUnited heads in that strategic direction. Loan servicing fees are decreasing as the LSBO’s run off. In addition, a $1.8 million charge was recorded in other operating expense during the three months ended March 31, 2003 related to the redemption of BankUnited’s 9.60% Trust Preferred Securities. Excluding the increase in employee compensation of $2.1 million and the $1.8 million charge related to the redemption of Trust Preferred Securities, non-interest expenses have decreased, demonstrating our efforts to reduce such costs. Management continues to institute expense control programs while allowing for expenditures that will enhance infrastructure and promote growth.

The decrease in the provision for income taxes of $560 thousand for the three months ended March 31, 2003, compared to 2002, reflects a change in BankUnited’s effective tax rate due to the non-taxable nature of a life insurance benefit payment of $1.1 million received in the second quarter of fiscal 2003 as well as tax planning strategies.

For the Six Months Ended March 31, 2003 Compared to the Same Period in 2002.

General

Net income for the first six months of fiscal 2003 was $18.4 million compared to $14.4 million for the same period last year, a 28% increase. Basic and diluted earnings per share for the six months ended March 31, 2003, were $0.72 and $0.67, respectively, versus $0.57 and $0.54, respectively, for the same period in the prior year. This represents increases of 26% and 24% for basic and diluted earnings per share, respectively. This improvement reflects an increase in net interest income of $3.8 million, a reduction of provision for loan losses of $2.9 million, an increase in non-interest income of $2.9 million, offset by an increase in non-interest expense of $4.8 million and an increase of income tax provision of $756 thousand.

Analysis of Net Interest Income

Yields Earned and Rates Paid

	For the Six Months Ended March 31,
	2003							2002
	Average Balance			Interest		Yield/(1) Rate		Average Balance			Interest		Yield/(1) Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net(2)	$	4,021,920		$	119,634	5.95	%	$	3,887,871		$	130,248	6.70	%
Mortgage-backed securities		1,496,505			32,967	4.41			935,782			28,633	6.12
Short-term investments(3)		13,287			227	3.32			18,558			314	3.35
Long-term investments and FHLB stock(4)		277,137			6,722	4.85			207,453			5,843	5.63

Total interest-earning assets	$	5,808,849		$	159,550	5.49	%	$	5,049,664		$	165,038	6.54	%

Interest-bearing liabilities:
NOW/Money markets	$	538,914		$	3,086	1.15	%	$	350,587		$	2,494	1.43	%
Savings		721,189			7,232	2.01			684,421			9,804	2.87
Certificates of deposit		1,765,628			33,438	3.79			1,752,766			42,505	4.86
Trust Preferred Securities(5)		277,003			10,135	7.32			210,039			9,874	9.40
Senior notes		200,000			5,611	5.61			200,000			5,664	5.66
FHLB advances and other borrowings		2,109,009			42,275	4.01			1,664,553			40,702	4.84

Total interest-bearing liabilities	$	5,611,743		$	101,777	3.61	%	$	4,862,366		$	111,043	4.56	%

Excess of interest-earning assets over interest-bearing liabilities	$	197,106						$	187,298

Net interest income				$	57,773						$	53,995

Interest rate spread						1.88	%						1.98	%

Net interest margin						2.00	%						2.15	%

Ratio of interest-earning assets to interest-bearing liabilities		103.51	%						103.85	%

(1)

The yields and rates along with the corresponding interest rate spread and net interest margin represent the yields earned and rates paid on BankUnited’s interest-earnings assets and interest-bearing liabilities, respectively, during the six-month periods ended March 31, 2003 and 2002 and do not include any estimates of the effect that accelerated amortization of purchased premiums would have on the yields earned.

(2)

Includes average non-accruing loans of $31.5 million and $28.1 million for the six months ended March 31, 2003 and 2002, respectively.

(3)

Short-term investments include FHLB overnight deposits, federal funds sold, and securities purchased under agreements to resell.

(4)

Long-term investments agency securities, and trust preferred securities by other issuers.

(5)

Interest and rates include the effect of interest rate swaps.

Rate/Volume Analysis

	For the six month period ended March 31, 2003 vs. 2002
	Increase (Decrease) Due to
	Changes in Volume			Changes in Rate			Changes in Rate/ Volume			Total Increase (Decrease)
	(Dollars in thousands)
Interest income attributable to:
Loans receivable, net	$	4,491		$	(14,597	)	$	(508	)	$	(10,614	)
Mortgage-backed securities		17,158			(8,020	)		(4,804	)		4,334
Short-term investments(1)		(88	)		6			(5	)		(87	)
Long-term investments and FHLB stock(2)		1,962			(808	)		(275	)		879

Total interest-earning assets		23,523			(23,419	)		(5,592	)		(5,488	)

Interest expense attributable to:
NOW/Money Market		1,347			(499	)		(256	)		592
Savings		528			(2,958	)		(142	)		(2,572	)
Certificates of deposit		313			(9,398	)		18			(9,067	)
Trust Preferred Securities(3)		3,147			(2,187	)		(699	)		261
Senior notes		0			(53	)		—			(53	)
FHLB advances and other borrowings		10,756			(6,916	)		(2,267	)		1,573

Total interest-bearing liabilities		16,091			(22,011	)		(3,346	)		(9,266	)

Increase in net interest income	$	7,432		$	(1,408	)	$	(2,246	)	$	3,778

(1)

Short-term investments include FHLB overnight deposits, federal funds sold, and securities purchased under agreements to resell.

(2)

Long-term investments include agency securities, and trust preferred securities by other issuers.

(3)

Includes the effect of interest rate swaps.

As indicated in the discussion of results for the three months ended March 31, 2003, the high levels of residential loan pre-payments resulting from historically low mortgage rates, coupled with market-driven competitive deposit pricing, has resulted in compression of the net interest margin. The net interest margin for the six months ended March 31, 2003 was of 2.00% compared to 2.15% for the same period in the prior year. The effect of pre-payments was especially evident in the area of LSBOs, which were purchased several years ago. This portfolio, which stood at $687 million at September 30, 2002, has pre-paid at a rate more than double that of the bank’s self-originated residential portfolio, and now has a balance of $385 million. BankUnited anticipates continued rapid pre-payments and substantial depletion of this portfolio over the next several quarters, which will continue to have an adverse effect on the company’s interest-rate margin until reaching its end. BankUnited will continue to offset the LSBO run-off with BankUnited originated loans and expects this strategy to help strengthen the interest rate margin over time. Despite the negative impacts of pre-payments, BankUnited was able to generate $4.5 million in additional interest income from additional loan volume.

The interest income generated from an increase in average mortgage-backed securities for the six months ended March 31, 2003 compared to 2002 helped to reduce margin compression by generating an additional $12.3 million in interest income. While interest expense decreased significantly for the six months ended March 31, 2003 compared to 2002 due to lower deposit and borrowing rates, competition prevented BankUnited from significantly lowering rates on deposits to offset the reduction of yield on its assets. There was also an increase in interest expense of $1.6 from FHLB advances fueled mostly by an increase in average balances. BankUnited utilizes advances from the FHLB to fund growth mostly in the loan and securities portfolios.

Analysis of Non-Interest Income and Expenses

	For the Six Months Ended March 31
	2003		2002		Change
	(Dollars in thousands)
Non-interest income:
Service fees on loans(1)	$	308	$	1,056	$	(748	)	(70.8	)%
Service fees on deposits		2,020		1,635		385		23.5	%
Service fees on other		604		439		165		37.6	%
Insurance and investment service income		1,320		2,181		(861	)	(39.5	)%
Net gain on sale of investment and mortgage-backed securities		755		882		(126	)	(14.4	)%
Net gain on sale of loans and other assets		3,768		1,512		2,255		149.2	%
Other		3,022		1,220		1,802		147.7	%

Total non-interest income	$	11,797	$	8,925	$	2,872		32.2	%

(1)

Includes loan servicing fees, net of amortization of servicing assets and loan fees.

Non-interest income reached $11.8 million for the six months ended March 31, 2003, which is an increase of $2.9 million over the same period in the prior year. The decrease in service fees on loans, net of $748 thousand includes an increase in servicing fee income of $317 thousand, an increase in amortization of mortgage servicing rights of $1.2 million and an increase in loan fees of $149 thousand. The increase in amortization of mortgage servicing rights is largely the result of increased levels of pre-payments occurring during the six months in the current low interest rate environment. The increase in service fees on deposits of 23.5% is the direct result of growth in core deposits, particularly non-interest bearing accounts. As we focus on expanding our banking office system and implementing our micro-market strategy, we expect continued improvement in these categories.

BankUnited realized gains of $3.1 million from the sale of assets, in the form of loans and securitized loans, which were originated for sale. Also included in other non-interest income was a life insurance benefit payment of $1.1 million.

	For the Six Months Ended March 31
	2003		2002		Change
	(Dollars in thousands)
Non-interest expenses:
Employee compensation and benefits	$	18,369	$	14,413	$	3,956		27.4	%
Occupancy and equipment		5,953		5,316		637		12.0	%
Telecommunications and data processing		2,419		2,161		258		11.9	%
Advertising and promotion expense		2,443		3,280		(837	)	(25.50	)%
Professional fees—legal and accounting		2,347		2,256		91		4.0	%
Loan servicing expense(1)		847		1,732		(885	)	(51.1	)%
Insurance		569		517		52		10.1	%
Other operating expenses		6,599		5,117		1,482		29.0	%

Total non-interest expenses	$	39,546	$	34,792	$	4,754		13.7	%

(1)

Loan servicing expenses relate to LSBOs.

Non-interest expense increased by $4.8 million for the six months ended March 31, 2003 compared to the same period in 2002. The largest portion of the increase was due to increases in employee compensation and benefits. It was expected that employee compensation and benefits would increase as BankUnited invests in key personnel, including senior executives hired in fiscal 2003, hires branch personnel for our new banking centers, adds sales and service personnel, absorbs an increase in health care costs of over 30%, and as commissions increase from higher production volumes for loans, deposits and other products. A significant number of the new employees were hired to support residential mortgage lending. Occupancy increased as we opened two branch

offices during the first six months of fiscal 2003 and a residential loan operations center. The reduction in advertising and promotion expense of $837 thousand during the six months ended March 31, 2003 compared to the prior year reflects management’s intention to minimize such expenditures until they could be aligned with BankUnited’s micro market strategy for the retail banking operation. Management expects advertising expenditures to increase, as well as the return on those expenditures as BankUnited heads in that strategic direction. Loan servicing fees are decreasing as LSBOs run off. In addition, a $1.8 million charge was recorded in other operating expenses during the second quarter of fiscal 2003 related to the redemption of BankUnited’s 9.60% Cumulative Trust Preferred Securities. Excluding the increase in employee compensation of $4.0 million and the $1.8 million charge related to the redemption of Trust Preferred Securities, non-interest expenses have decreased, demonstrating our efforts to reduce such costs. Management continues to institute expense control programs while allowing for expenditures that will enhance infrastructure and promote growth.

The increase in the provision for income taxes of $756 thousand for the three months ended March 31, 2003, compared to 2002, reflects an increase in taxable income but also reflects a change in BankUnited’s effective tax rate due to the non-taxable nature of a life insurance benefit payment of $1.1 million received in the second quarter of fiscal 2003 as well as tax planning strategies.

LIQUIDITY

BankUnited’s objective in managing liquidity is to meet all cash flow requirements, including those from operating activities, customer demands on deposits and debt obligations, in a cost-effective manner. This objective is achieved through the implementation of BankUnited’s Asset/Liability Management Policy, which also strives to maintain earnings performance consistent with long-term goals and within acceptable levels of risk, while satisfying regulatory capital requirements. For information on the capital requirements that must be maintained by BankUnited, see note 6. Regulatory Capital to the Accompanying Condensed Notes to Consolidated Financial Statements.

In managing liquidity, BankUnited analyzes various sources of short-term funding used to meet short-term demands. In addition to funds provided by operating activities, BankUnited also relies on funds provided by both investing and financing activities. Funds provided by investing activities include: proceeds from the sale and/or maturities of investments, mortgage-backed securities, and securitized loans. Funds provided by financing activities include: deposits from customers, advances from the FHLB, proceeds from securities sold under agreements to repurchase and other borrowings, issuances of trust preferred securities, and issuance of stock.

Cash and cash equivalents decreased by approximately $385 million for the six months ended March 31, 2003, to $88 million versus $472 million at September 30, 2002. The relatively large cash and cash equivalent balance at the end of fiscal 2002 anticipated funding investments in mortgage-backed securities during fiscal 2003. The net increase in the mortgage-backed securities portfolio of $831 million was funded in part with this decrease in cash and cash equivalents. Other means of funding the increase in mortgage-backed securities came from an increase in deposits and additional borrowings from securities sold under agreements to repurchase and FHLB advances. See the discussion below on sources and uses of funds.

Cash used in operating activities for the six months ended March 31, 2003 was $351 million. The most significant items in that figure include net income of $18.4 million, the funding of loans originated for sale of $433 million, and proceeds from the sale of loans of $49 million.

Significant sources of funds from investing activities for the six months ended March 31, 2003 include payments on loans, investment, and mortgage-backed securities of $1.3 billion, $49 million, and $491 billion, respectively, and proceeds from the sale of loans, investments, and mortgage-backed securities of $49 million, $41 million and $274 million, respectively.

Significant sources of funds provided by financing activities include: a net increase in deposits, FHLB advances, and other borrowings of $96 million, $203 million, and $178 million, respectively. In addition, BankUnited received $51 million through the issuance of trust preferred securities.

Significant uses of funds in investing activities for the six months ended March 31, 2003 included; funding $1.5 billion in loans, and purchasing $1.2 billion and $77 million in mortgage-backed and investment securities.

In addition, BankUnited purchased $59 million of other earning assets and $20 million of bank-owned life insurance.

Significant uses of funds in financing activities for the six months ended March 31, 2003 include the redemption of 9.60% Trust Preferred Securities of $46 million. BankUnited anticipates retiring additional high-interest debt through funds raised through additional equity or debt offerings in the near future.

On March 11, 2002, BankUnited Financial Corporation requested that Moody’s Investor Services withdraw its ratings of the Company’s subsidiaries, BankUnited FSB, BankUnited Capital, BankUnited Capital II and BankUnited Capital III, which were involved in the issue of certain indebtedness, including trust preferred securities. This request followed BankUnited’s recent call for redemption of its 9.60% Cumulative Trust Preferred Securities (Nasdaq: BKUNZ), which had been rated by Moody’s. Certain of its other trust preferred securities, also previously rated by Moody’s, may be called, in whole or in part, in the near future.

As of March 31, 2003, BankUnited had $556 million in investments and mortgage-backed securities pledged against securities sold under agreements to repurchase with an outstanding balance of $533 million.

As of March 31, 2003 BankUnited had approximately $562 million in additional borrowing capacity not including funds that may be raised through additional debt or equity offerings.

BankUnited is not aware of any events, or uncertainties, which may impede liquidity in the short or long-term.

FINANCIAL CONDITION

The following is a discussion of significant changes from September 30, 2002 to March 31, 2003 in the Statement of Financial Condition. For a discussion of changes in cash and cash equivalents, see LIQUIDITY.

Assets continue to grow, and now total $6.6 billion versus $6.0 billion at September 30, 2002. The Bank is maintaining its strong capital position well in excess of regulatory requirements, with core and risk-based capital ratios of 7.5% and 16.9%, respectively.

Assets

Investments available for sale—Investments available for sale increased by $40 million or 23.3%, to $212 million at March 31, 2003. This increase is the net result of $77 million in purchases and $39 million in sales which resulted in a gain of $1.4 million. In addition, there was an increase of $2 million due to an adjustment for the changes in fair value as of March 31, 2003. Included in the purchases of $77 million were investments in agency notes and preferred securities of $55 million, and trust preferred securities issued by others of $19 million. The sales of $39 million includes $25 million of agency notes, $10.5 million of trust preferred securities of other issuers by others, and the balance of $3.5 million from the sale of equity securities.

Mortgage-backed securities available for sale—Mortgage-backed securities available for sale increased by $831 million or 73.1%, to just under $2.0 billion at March 31, 2003. This net increase is primarily the result of purchases of $1.3 billion, including $91 million pending settlement, and securitizations of $286 million. This was offset with repayments of $491 million, and sales of $274 million of securities created through the securitization of residential mortgage loans. The sales of $274 million resulted in losses of $684 thousand which is reflected in net gain on sale of investments and mortgage-backed securities in the consolidated statement of operations. In addition, there was a reduction due to the amortization of premiums and discounts of $6.7 million, and an increase of $1.1 million due to change in fair value as of March 31, 2003. The relatively high level of amortization of premiums and discounts during the six-month period is the result of increased levels of pre-payments occurring in the current low interest rate environment.

Loans—Loans receivable, net (including loans held for sale) increased by $61 million to $4.1 billion at March 31, 2003. This net increase stems primarily from funding loans in the amount of $1.5 billion, offset by repayments of $ 1.1 billion, securitizations of $286 million, and sales of $45 million. The sales resulted in gains of $3.8 million, which also includes activity in connection with the securitization of loans.

Mortgage servicing rights—Mortgage servicing rights increased by $2.4 million to $9.1 million at March 31, 2003. This net increase is the result of recognizing $5.2 million in servicing rights upon the sale of loans which will continue to be serviced by BankUnited. This increase was offset by the amortization of $2.8 million resulting mostly from acceleration in prepayments as a result of the low interest rate environment.

Other earning assets—Other earning assets increased by $9.8 million to $101 million at March 31, 2003. This category consists primarily of FHLB stock, which must be purchased in proportion to advances received from the FHLB.

Bank-owned life insurance—Bank-owned life insurance increased by $21 million due to additional purchases of coverage under the policies of $20 million and a net increase in the cash surrender value of $1.4 million.

Liabilities

Deposits—Deposits grew by $96 million to $3.1 billion as of March 31, 2003. As a result of BankUnited’s increased efforts to attract transaction accounts through business relationships, the deposit mix continues to shift towards core deposits. Core deposits, which include checking, savings, and money market accounts provide BankUnited with funds at a lower cost than time deposits. This is most evident by a sharp increase in non-interest bearing deposits of $28 million or 24% compared to September 30, 2002. The total increase in core deposits for the six months ended March 31, 2003 was $72 million, compared to $24 million for time deposits. BankUnited believes that the expansion of the branch network will continue to play a vital role in building banking relationships. Coupled with BankUnited’s micro-market strategy, management expects the branch network to facilitate a further shift in deposit mix towards core deposits.

Securities sold under agreements to repurchase—Securities sold under agreements to repurchase increased by $179 million to reach $533 million as of March 31, 2003. BankUnited utilized these borrowings primarily, to fund the increase of mortgage-backed securities and loans.

Advances from Federal Home Loan Bank—FHLB advances increased by $203 million to reach $2 billion as of March 31, 2003. BankUnited utilized these advances primarily, to fund the purchase of mortgage-backed securities.

Trust Preferred Securities—Trust preferred securities increased by $6.7 million, to $260 million at March 31, 2002. The net increase of $6.7 million is primarily the result of $51 million of net proceeds received from the issuance by BankUnited Statutory Trust IV, BankUnited Statutory Trust V, and BankUnited Statutory Trust VI offset by the redemption in the second quarter of fiscal 2003 of $46 million in 9.60% trust preferred securities issued by BankUnited Capital II (see note 4. Company Obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trusts Holding Solely Junior Subordinated Deferrable Interest Debentures of BankUnited of the Accompanying Condensed Notes to Consolidated Financial Statements). The redemption resulted in the write off of approximately $1.8 million, which was recorded in the same period. In addition, there was an increase of $311 thousand as a result of an adjustment as required by Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.” See note 8. Accounting for Derivatives and Hedging Activities of the Accompanying Condensed Notes to Consolidated Financial Statements for a full description of this transaction.

Asset Quality

Non-performing assets as of March 31, 2003 were $42.6 million, which represents an increase of $10.9 million, or 34%, from $31.7 million as of September 30, 2002.

BankUnited places great importance on safeguarding its credit quality, and supports this through high credit standards and a centralized credit policy area. Second quarter results, however, indicated a sharp increase in non-performing loans as a percentage of total loans primarily as a result of one commercial credit that BankUnited expects to be resolved next quarter. BankUnited expects no additional impairment associated with this particular credit. BankUnited’s allowance for loan losses as a percentage of total loans is currently at 0.53% as of March 31, 2003, up from 0.51% as of September 30, 2002.

The following table sets forth additional information concerning BankUnited’s non-performing assets at March 31, 2003 and September 30, 2002.

	March 31, 2003			September 30, 2002
	(Dollars in thousands)
Non-accrual loans	$	36,931		$	27,664
Restructured loans		311			315
Loans past due 90 days and still accruing(1)		—			—

Total non-performing loans		37,242			27,979
Non-accrual tax certificates		537			696
Real estate owned		4,765			3,003

Total non-performing assets	$	42,544		$	31,678

Allowance for losses on tax certificates	$	606		$	771
Allowance for loan losses		21,662			20,293

Total allowance	$	22,268		$	21,064

Non-performing assets as a percentage of total assets		0.64	%		0.53	%
Non-performing loans as a percentage of total loans		0.91	%		0.70	%
Allowance for loan losses as a percentage of total loans		0.53	%		0.51	%
Allowance for loan losses as a percentage of non-performing loans		58.17	%		72.53	%
Total allowance as a percentage of non-performing assets		52.34	%		66.49	%
Net annualized year-to-date charge-offs as a percentage of average total loans		0.06	%		0.12	%

BankUnited’s allowance for loan losses is established and maintained based upon management’s evaluation of the risks inherent in BankUnited’s loan portfolio, including the economic trends and other conditions in specific geographic areas as they relate to the nature of BankUnited’s portfolio.

The following table sets forth the change in BankUnited’s allowance for loan losses for the three and six months ended March 31, 2003 and 2002.

	For the Three Months Ended					For the Six Months Ended
	March 31, 2003		March 31, 2002			March 31, 2003		March 31, 2002
	(In thousands)
Allowance for loan losses, balance (at beginning of period)	$20,853		$	17,684		$20,293		$	15,940
Provisions for loan losses	1,250			2,450		2,550			5,400
Loans charged off :
One-to-four family residential mortgages(1)	(88	)		(248	)	(169	)		(320	)
Commercial real estate	—			(887	)	—			(887	)
Commercial business	(339	)		(1,187	)	(976	)		(2,201	)
Consumer(1)	(44	)		(19	)	(77	)		(183	)

Total loans charged off	(471	)		(2,341	)	(1,222	)		(3,591	)

Recoveries
Commercial business	22			32		27			70
Consumer(1)	8			6		14			12

Total recoveries	30			38		41			82



Allowance for loan losses, balance (at end of period)	$21,662		$	17,831		$21,662		$	17,831

(1)

Specialty consumer mortgage loans originated through our branch network are included in one-to-four family residential loans.

The following table sets forth BankUnited’s allocation of the allowance for loan losses by category as of March 31, 2003 and September 30, 2002.

	March 31, 2003		September 30, 2002
	(In thousands)
Balance at the end of the period applicable to:
One-to-four family residential mortgages(1)	$	4,489	$	4,096
Multi-family residential mortgages		415		281
Commercial real estate		4,888		3,834
Construction		1,532		1,007
Land		745		746
Commercial business		5,119		5,420
Consumer(1)		2,171		2,094
Unallocated		2,303		2,815

Total allowance for loan losses	$	21,662	$	20,293

(1)

Specialty consumer mortgage loans originated through our branch network are included in one-to-four family residential loans.

Loan Portfolio

The following table sets forth the composition of BankUnited’s loan portfolio, including loans held for sale, at March 31, 2003 and September 30, 2002.

	March 31, 2003					September 30, 2002
	Amount			Percent of Total(1)		Amount			Percent of Total(1)
	(Dollars in thousands)
Mortgage loans:
One-to-four family residential mortgages(2)	$	3,122,413		83.7	%	$	3,096,312		83.4	%
Multi-family residential mortgages		35,334		1.0	%		25,456		0.7	%
Commercial real estate		178,576		4.8	%		183,311		4.9	%
Construction		137,554		3.7	%		98,697		2.7	%
Land		25,230		0.7	%		27,636		0.7	%

Total mortgage loans		3,499,107		93.9	%		3,431,412		92.4	%

Other loans:
Commercial business		112,900		3.0	%		168,679		4.5	%
Consumer(2)		105,936		2.8	%		103,118		2.8	%

Total other loans		218,836		5.8			271,797		7.3	%

Total loans		3,717,943		99.7	%		3,703,209		99.7	%
Unearned discounts, premiums and deferred loan fees, net		33,499		0.9	%		30,449		0.8	%
Allowance for loan losses		(21,662	)	(0.6	)%		(20,293	)	(0.5	%)

Loans held for investment, net	$	3,729,780		100.0	%	$	3,713,365		100.0	%

Mortgage loans held for sale		323,568					278,759

Total loans, net	$	4,053,348				$	3,992,124

(1)

Percent of Total is calculated using “Loans held for investment, net” in the denominator.

(2)

Specialty consumer mortgage loans originated through our branch network are included in one-to-four family residential loans.

Securities Portfolio

Investments

Presented below is an analysis of investments designated as available for sale.

	March 31, 2003
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
U.S. government agency securities	$	53,003	$	942	$	(192	)	$	53,753
Equity securities		880		15		—			895
Trust preferred securities of other issuers		70,401		2,451		(1,843	)		71,009
Other(1)		83,752		2,227		(1	)		85,978

Total	$	208,036	$	5,635	$	(2,036	)	$	211,635


	September 30, 2002
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
U.S. government agency securities	$	53,082	$	65	$	(387	)	$	52,760
Equity securities		4,242		132		(216	)		4,158
Trust preferred securities of other issuers		58,875		2,621		(1,386	)		60,110
Other(1)		53,829		801		(73	)		54,557

Total	$	170,028	$	3,619	$	(2,062	)	$	171,585

(1)

Other includes mutual funds, preferred stock of FHLMC, and bonds.

Investment securities available for sale as of March 31, 2003 and September 30, 2002, by contractual maturity, are shown below.

	March 31, 2003				September 30, 2002
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	( In thousands)
Due in one year or less	$	—	$	—	$	—	$	—
Due after one year through five years		6,009		6,107		3,081		3,146
Due after five years through ten years		77,740		80,144		52,830		26,850
Due after ten years		123,407		124,489		109,875		137,431
Equity securities		880		895		4,242		4,158

Total	$	208,036	$	211,635	$	170,028	$	171,585

Mortgage-Backed Securities

Presented below is an analysis of mortgage-backed securities designated as available for sale.

	March 31, 2003
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
GNMA mortgage-backed securities	$	42,205	$	2,566	$	—		$	44,771
FNMA mortgage-backed securities		344,951		9,893					354,844
FHLMC mortgage-backed securities		164,282		4,111		—			168,393
Collateralized mortgage obligations		32,232		178		(7	)		32,403
Mortgage pass-through certificates		1,356,084		11,706		(563	)		1,367,227

Total	$	1,939,754	$	28,454	$	(570	)	$	1,967,638

	September 30, 2002
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
GNMA mortgage-backed securities	$	61,804	$	3,311	$	—	$	65,115
FNMA mortgage-backed securities		335,755		10,887		—		346,642
FHLMC mortgage-backed securities		176,426		4,951		—		181,377
Collateralized mortgage obligations		91,819		1,618		—		93,437
Mortgage pass-through certificates		444,022		6,041		—		450,063

Total	$	1,109,826	$	26,808	$	—	$	1,136,634

Mortgage-backed securities available for sale as of March 31, 2003 and September 30, 2002, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2003				September 30, 2002
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	43	$	44	$	—	$	—
Due after one year through five years		486		504		21,037		21,411
Due after five years through ten years		23,683		24,097		36,455		37,596
Due after ten years		1,915,542		1,942,993		1,052,334		1,077,627

Total	$	1,939,754	$	1,967,638	$	1,109,826	$	1,136,634

When BankUnited securitizes and sells residential mortgage loans, it retains mortgage servicing rights and securities, which are considered retained interests in the securitized loans. Gain or loss on the sale of the receivables depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of the transfer. Fair value is derived from current market information and assumptions for similar products. The investors in the securitized assets have no recourse to BankUnited for failure of debtors to pay when due.

During the six months ended March 31, 2003, BankUnited securitized $286 million of residential mortgage loans. These loans were securitized with Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporatopn (“FHLMC”) and transferred into BankUnited’s mortgage-backed securities available for sale portfolio. During the same period BankUnited sold $275 million of securitized loans,

recognizing net gains of $2.7 million. In connection with the sale of the securitized loans during the six months ended March 31, 2003, BankUnited retained mortgage servicing rights with a fair value of $4.7 million. At March 31, 2003, BankUnited’s retained interests from securitized loans, not including mortgage servicing rights, had a fair value of $74.1 million.

When BankUnited retains servicing responsibilities from these securitization transactions, it receives annual servicing fees approximating 0.25% of the outstanding receivable balance.

The value of the retained interest is subject to prepayment risk on the transferred financial assets, and the general level of interest rates. At March 31, 2003, key economic assumptions and the sensitivity of the current fair value of securities remaining from securitizations to immediate 10% and 20% adverse changes in those assumptions are as follows:

	Retained Securities
	(Dollars in thousands)
Carrying amount (fair value) of retained securities	$	74,072
Weighted average life in years		1.5
Annual prepayment assumption		24.93	%
Impact on fair value of 10% adverse change	$	(400	)
Impact on fair value of 20% adverse change	$	(609	)
Annual cash flow discount rate		2.25	%
Impact on fair value of 10% adverse change	$	(396	)
Impact on fair value of 20% adverse change	$	(764	)

Credit losses do not affect the valuation due to FNMA’s and FHLMC’s full guarantee to BankUnited for losses on loans collateralizing the securities.

The sensitivities presented above are hypothetical and are presented for informational purposes only. As the amounts indicate, the fair values due to a variation in any assumption generally cannot be extrapolated because the relationship of the change in any assumption to the change in fair value may not be linear. The effect of a change in a particular assumption on the fair value of the retained securities is calculated without considering the changes in other assumptions. However, changes in one assumption may result in changes in another.

The total principal amount of loans underlying the retained securities at March 31, 2003 was $70.7 million, none of which was 60 days or more past due. There were no credit losses during the six months ended March 31, 2003 from the loans underlying the retained securities outstanding at March 31, 2003.

Related Party Transactions

The Bank, as an insured depository institution as defined under Section 3 of the Federal Deposit Investment Act, extends loans to entities in which its directors have significant interests. As of March 31, 2003, there were approximately $3.5 million in loans receivable from an entity in which a director has interests. As of September 30, 2002 there were approximately $1 million in loans receivables from entities in which two directors had interests. These loans were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with persons, and did not involve more than the normal risk of collectibility or present other unfavorable features. These loans and their terms have been reviewed and approved by the Bank’s board of directors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The discussion contained in BankUnited’s Annual Report on Form 10-K for the year ended September 30, 2002, under Item 7a, “Quantitative and Qualitative Disclosures about Market Risk,” provides detailed

quantitative and qualitative disclosures about market risk and should be referenced for information thereon. In addition, the following discussion addresses the sources and effects of developments during the six months ended March 31, 2003 which related to risks associated with investments and mortgage-backed securities.

Risks Associated with Changing Interest Rates. As a financial intermediary, BankUnited invests in various types of interest-earning assets (primarily loans, mortgage-backed securities, and investment securities), which are funded largely by interest-bearing liabilities (primarily deposits, FHLB advances, senior notes, and Trust Preferred Securities). Such financial instruments have varying levels of sensitivity to changes in market interest rates, which creates interest rate risk for BankUnited. Accordingly, BankUnited’s net interest income, the most significant component of its net income, is subject to substantial volatility due to changes in interest rates or market yield curves, particularly if there are differences, or gaps, in the re-pricing frequencies of its interest-earning assets and the interest-bearing liabilities which fund them. BankUnited monitors such interest rate gaps and seeks to manage its interest rate risk by adjusting the re-pricing frequencies of its interest-earning assets and interest-bearing liabilities. Additionally, BankUnited utilizes, on a limited basis, derivative financial instruments designed to reduce the interest rate risks associated with its interest-earning assets and interest-bearing liabilities.

Risks Associated with Investments and Mortgage-Backed Securities. BankUnited purchases fixed and adjustable rate mortgage-backed securities and other securities for liquidity, yield and risk management purposes. Changes in market interest rates associated with BankUnited’s investments and mortgage-backed securities could have a material adverse effect on BankUnited’s carrying value of its securities. Such changes in the carrying value of mortgage-backed securities and other securities classified as available-for-sale would be reflected, net of taxes, as a component of stockholders’ equity. See note 7. Comprehensive Income to the Accompanying Condensed Notes to Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Securities Portfolio.”

Derivative and Hedging Activities. BankUnited uses derivative instruments as part of its interest rate risk management activities to reduce risks associated with its borrowing activities. Derivatives used for interest rate risk management include various interest rate swaps that relate to the pricing of specific on-balance sheet instruments and forecasted transactions. In connection with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), we recognize all derivatives as either assets or liabilities on the consolidated balance sheet and report them at fair value with realized and unrealized gains and losses included in either earnings or in other comprehensive income, depending on the purpose for which the derivative is held and whether the derivative qualifies for hedge accounting.

BankUnited has interest rate swap agreements that qualify as fair value hedges and those that qualify as cash flow hedges. Fair value hedges are used to hedge fixed rate debt. BankUnited uses cash flow hedges to hedge interest rate risk associated with variable rate debt.

In connection with its interest rate management activities, BankUnited may use other derivatives as economic hedges of on-balance sheet assets and liabilities or forecasted transactions which do not qualify for hedge accounting under SFAS 133. Accordingly, these derivatives are reported as fair value on the consolidated balance sheet with realized gains and losses included in earnings.

By using derivative instruments, BankUnited is exposed to credit and market risk. Credit risk, which is the risk that a counterparty to a derivative instrument will fail to perform, is equal to the extent of the fair value gain in a derivative. Credit risk is created when the fair value of a derivative contract is positive, since this generally indicates that the counterparty owes us. When the fair value of a derivative is negative, no credit risk exists since BankUnited would owe the counterparty. BankUnited minimizes the credit risk in derivative instruments by entering into transactions with high-quality counterparties as evaluated by management. Market risk is the adverse effect on the value of a financial instrument from a change in interest rates or implied volatility of rates. We manage the market risk associated with interest rate contracts by establishing and monitoring limits as to the types and degree of risk that may be undertaken. The market risk associated with derivatives used for interest rate risk management activity is fully incorporated into our market risk sensitivity analysis.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation of the effectiveness of the design and operation of BankUnited’s disclosure controls and procedures was carried out by BankUnited, within 90 days prior to the filing date of this report, under the supervision and with the participation of BankUnited’s management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that BankUnited’s disclosure controls and procedures have been designed and are being operated in a manner that provides reasonable assurance that the information required to be disclosed by BankUnited in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. A controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Subsequent to the date of the most recent evaluation of BankUnited’s internal controls, there were no significant changes in BankUnited’s internal controls or in other factors that could significantly affect the internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II—OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

3.1

BankUnited Financial Corporation’s Articles of Incorporation as amended.

10.1

Form of Change in Control Agreement between BankUnited Financial Corporation and Robert Marsden.*

10.2

Form of Change in Control Agreement between BankUnited Financial Corporation and Carlos Fernandez-Guzman.*

10.3

Form of Change in Control Agreement between BankUnited Financial Corporation and Douglas Sawyer.*

10.4

Form of change in Control Agreement between BankUnited Financial Corporation and Roberta Kressel.*

99.1

Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Contract with Management

(b) Reports on Form 8-K.

None

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized.

BANKUNITED FINANCIAL CORPORATION

/s/ Humberto L. Lopez

By:

Humberto L. Lopez

Senior Executive Vice President and Chief Financial Officer

Date: May 02, 2003

I, Alfred R. Camner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of BankUnited Financial Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 02, 2003



		/s/ Alfred R. Camner
		Alfred R. Camner Chairman of the Board and Chief Executive Officer

I, Humberto L. Lopez, certify that:

1. I have reviewed this quarterly report on Form 10-Q of BankUnited Financial Corporation;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: May 02, 2003



		/s/ Humberto L. Lopez
		Humberto L. Lopez Senior Executive Vice President and Chief Financial Officer

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2003

INDEX TO EXHIBITS

Exhibit No.		Numbered Page
3.1		BankUnited Financial Corporation’s Articles of Incorporation as amended.
10.1		Form of Change in Control Agreement between BankUnited Financial Corporation and Robert Marsden.*
10.2		Form of Change in Control Agreement between BankUnited Financial Corporation and Carlos Fernandez-Guzman.*
10.3		Form of Change in Control Agreement between BankUnited Financial Corporation and Douglas Sawyer.*
10.4		Form of change in Control Agreement between BankUnited Financial Corporation and Roberta Kressel.*
99.1		Certifications of Chief Executive Officer and Chief Financial Officer.

Contract with Management.

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