BANKUNITED FINANCIAL CORP - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2004

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

65-0377773

(State or other jurisdiction of

incorporation or organization)

(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 May 5, 2004 was 29,444,797 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, 2004

TABLE OF CONTENTS


		Page No.
PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statements of Financial Condition as of March 31, 2004 and September 30, 2003 (unaudited)		3

Consolidated Statements of Income (unaudited) for the Three and Six Months Ended March 31, 2004 and 2003		4

Consolidated Statements of Stockholders’ Equity (unaudited) for the Six Months Ended March 31, 2004 and 2003		5

Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended March 31, 2004 and 2003		6

Condensed Notes to Consolidated Financial Statements (unaudited)		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3. Quantitative and Qualitative Disclosures About Market Risk		31

Item 4. Controls and Procedures		32

PART II—OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds		33

Item 4. Submission of Matters to a Vote of Security Holders		33

Item 6. Exhibits and Reports on Form 8-K		33

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	March 31, 2004			September 30, 2003
	(Dollars in thousands, except share data)
Assets:
Cash	$	36,763		$	28,810
Federal Home Loan Bank overnight deposits		7,485			195,365
Federal funds sold		829			2,723
Investments available for sale, at fair value		339,506			296,677
Mortgage-backed securities available for sale, at fair value		2,226,105			2,064,981
Mortgage loans held for sale		123,590			286,796
Loans held in portfolio		4,555,023			3,925,077
Add: Unearned discounts, premiums and deferred fees, net		44,883			36,806
Less: Allowance for loan losses		(22,665	)		(22,295	)

Loans held in portfolio, net		4,577,241			3,939,588

FHLB stock and other earning assets		131,130			123,431
Office properties and equipment, net		22,198			20,278
Real estate owned		2,975			4,290
Accrued interest receivable		29,142			28,452
Mortgage servicing rights		13,585			12,930
Goodwill		28,353			28,353
Bank-owned life insurance		86,204			84,155
Prepaid expenses and other assets		24,897			28,314

Total assets	$	7,650,003		$	7,145,143

Liabilities and Stockholders’ Equity:
Liabilities:
Interest bearing deposits	$	3,190,898		$	3,038,594
Non-interest bearing deposits		235,346			197,512
Securities sold under agreements to repurchase		738,567			517,297
Advances from Federal Home Loan Bank		2,614,319			2,460,291
Senior notes		—			200,000
Convertible debt		120,000			—
Trust preferred securities and subordinated debentures		165,544			162,219
Interest payable		13,180			14,331
Advance payments by borrowers for taxes and insurance		27,000			47,081
Payable for securities purchased pending settlement		25,359			—
Accrued expenses and other liabilities		41,714			60,445

Total liabilities		7,171,927			6,697,770

Commitments and Contingencies (See notes 8 and 9)

Stockholders’ Equity:
Preferred Stock, $0.01 par value		8			7
Authorized shares—10,000,000 Issued shares—793,405 and 739,007 Outstanding shares—766,685 and 712,287 Treasury shares—26,720		(528	)		(528	)
Class A common stock, $0.01 par value		297			295
Authorized shares—60,000,000 Issued shares—29,736,553 and 29,476,616 Outstanding shares—29,399,061 and 29,139,124 Treasury shares—337,492		(2,891	)		(2,891	)
Class B common stock, $0.1 par value		6			6
Authorized shares—3,000,000 Issued shares—622,762 and 580,262 Outstanding shares—536,562 Treasury shares—86,200 and 43,700		(1,010	)		(485	)
Additional paid-in capital		331,795			328,017
Retained earnings		139,778			116,370
Deferred compensation		1,039			794
Accumulated other comprehensive income		9,582			5,788

Total stockholders’ equity		478,076			447,373

Total liabilities and stockholders’ equity	$	7,650,003		$	7,145,143

See accompanying condensed notes to consolidated financial statements

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME


	For the Three Months Ended March 31,						For the Six Months Ended March 31,
	2004			2003			2004			2003
	(Dollars and shares in thousands, except per share data)
Interest income:
Interest and fees on loans	$	55,095		$	58,421		$	109,456		$	119,634
Interest on mortgage-backed securities		20,189			19,296			39,986			32,967
Interest on short-term investments		123			110			215			227
Interest and dividends on long-term investments and other interest-earning assets		4,932			3,463			9,383			6,722

Total interest income		80,339			81,290			159,040			159,550

Interest expense:
Interest on deposits		17,902			21,112			36,172			43,756
Interest on borrowings		25,151			24,754			51,151			47,886
Preferred dividends of subsidiary trusts		2,322			5,259			4,674			10,135

Total interest expense		45,375			51,125			91,997			101,777

Net interest income before provision for loan losses		34,964			30,165			67,043			57,773
Provision for loan losses		1,200			1,250			2,175			2,550

Net interest income after provision for loan losses		33,764			28,915			64,868			55,223

Non-interest income:
Loan servicing fees, net of amortization		(317	)		(1,090	)		(1,090	)		(1,882	)
Impairment of mortgage servicing rights		(1,200	)		—			(1,200	)		—
Loan fees		994			1,146			1,933			2,190
Deposit fees		1,044			991			2,163			2,020
Other fees		459			312			939			604
Net (loss) gain on sale of investments and mortgage-backed securities		333			158			(262	)		755
Net gain on sale of loans and other assets		1,528			1,702			3,280			3,768
Insurance and investment services income		1,184			626			2,126			1,320
Other		1,084			2,212			2,282			3,022

Total non-interest income		5,109			6,057			10,171			11,797

Non-interest expenses:
Employee compensation and benefits		10,004			9,708			20,065			18,369
Occupancy and equipment		4,332			3,005			8,036			5,953
Telecommunications and data processing		1,409			1,209			2,793			2,419
Advertising and promotion expense		1,287			1,256			2,438			2,443
Professional fees-legal and accounting		1,024			1,200			2,344			2,347
Loan closing fees		672			709			1,415			2,202
Loan servicing expense		131			362			287			847
Postage and courier		447			349			869			666
Insurance		370			289			727			569
Other operating expenses		1,526			3,224			1,341			3,731

Total non-interest expenses		21,202			21,311			40,315			39,546

Income before income taxes		17,671			13,661			34,724			27,474
Provision for income taxes		5,633			4,055			11,136			9,082

Net income	$	12,038		$	9,606		$	23,588		$	18,392


Earnings Per Share:
Basic earnings per share	$	0.40		$	0.37		$	0.79		$	0.72

Diluted earnings per share	$	0.37		$	0.35		$	0.72		$	0.67

Weighted average number of common shares outstanding:
Basic		29,835			25,539			29,760			25,398
Diluted		32,683			27,710			32,553			27,572

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, 2004 and 2003
	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, 2003	$	7	$	301	$	328,017	$	116,370		$	(3,904	)	$	794	$	5,788	$	447,373
Comprehensive income:
Net income for the six months ended March 31, 2004		—		—		—		23,588			—			—		—		23,588
Other comprehensive income, net of tax		—		—		—		—			—			—		3,794		3,794

Total comprehensive income		—		—		—		—			—			—		—		27,382
Payment of preferred stock dividends				—		—		(180	)		—			—		—		(180	)
Deferral of compensation		—		—		—		—			—			245		—		245
Purchase of stock		—		—		—		—			(525	)		—		—		(525	)
Stock options and restricted stock		1		2		3,778		—			—			—		—		3,781

Balance at March 31, 2004	$	8	$	303	$	331,795	$	139,778		$	(4,429	)	$	1,039	$	9,582	$	478,076



	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 six months ended March 31, 2003		—		—		—		18,392			—		—		—		18,392
Other comprehensive income, net of tax		—		—		—		—			—		—		2,817		2,817

Total comprehensive income		—		—		—		—			—		—		—		21,209
Payment of preferred stock dividends		—		—		—		(158	)		—		—		—		(158	)
Deferral of compensation		—		—		—		—			—		169		—		169
Purchase of stock		—		—		—		—			(485	)	—		—		(485	)
Stock options and restricted stock		1		5		3,696		—			—		—		—		3,702

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

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,
	2004			2003
	(In thousands)
Cash flows used in operating activities	$	(58,056	)	$	(293,465	)
Cash flows from investing activities:
Net increase in loans		(577,036	)		(28,794	)
Purchase of investment securities available for sale		(51,347	)		(77,461	)
Purchase of mortgage-backed securities available for sale		(663,746	)		(1,225,953	)
Purchase of other earning assets		(56,049	)		(59,248	)
Purchase of bank-owned life insurance		—			(20,000	)
Purchase of office properties and equipment		(4,075	)		(1,698	)
Proceeds from repayments of investment securities available for sale		33			—
Proceeds from repayments of mortgage-backed securities available for sale		403,370			491,334
Proceeds from repayments of other earning assets		48,350			49,450
Proceeds from sale of investment securities available for sale		11,044			40,892
Proceeds from sale of mortgage-backed securities available for sale		297,194			274,078
Proceeds from sale of real estate owned and other assets		4,198			919

Net cash used in investing activities		(588,064	)		(556,481	)

Cash flows from financing activities:
Net increase in deposits		190,138			96,041
Net decrease in Federal Home Loan Bank advances		154,028			203,182
Net increase in other borrowings		221,270			177,719
Guarantee fees for senior notes		—			(113	)
Maturity of senior notes		(200,000	)		—
Redemption of Trust Preferred Securities		—			(46,501	)
Proceeds from issuance of convertible debt		116,661			—
Net proceeds from issuance of Trust Preferred Securities		—			51,080
Net proceeds from issuance of stock		2,463			2,857
Dividends paid on preferred stock		(180	)		(158	)
Decrease in advances from borrowers for taxes and insurance		(20,081	)		(18,788	)

Net cash provided by financing activities		464,299			465,319

(Decrease) increase in cash and cash equivalents		(181,821	)		384,627
Cash and cash equivalents at beginning of period		226,898			472,290

Cash and cash equivalents at end of period	$	45,077		$	87,663

Supplemental disclosure of non-cash investing and financing activities:
Securitization of mortgage loans held for sale	$	177,051		$	286,132
Transfer of loans held for sale to portfolio	$	70,760		$	—
Securities purchased pending settlement	$	25,359		$	96,651

See accompanying condensed notes to consolidated financial statements

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of BankUnited Financial Corporation (“BankUnited”) and its subsidiaries, including BankUnited, FSB (the “Bank”), with the exception of BankUnited’s trust subsidiaries which do not meet the criteria for consolidation under FASB Interpretation No. 46, (see discussion FIN No. 46R in note 2. Impact of Certain Accounting Pronouncements). All significant intercompany transactions and balances associated with consolidated subsidiaries 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 three-month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending September 30, 2004. These condensed notes should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in BankUnited’s Annual Report on Form 10-K for the fiscal year ended September 30, 2003.

Certain prior period amounts have been reclassified to conform to the March 31, 2004 consolidated financial statements presentation.

2. Impact of Certain Accounting Pronouncements

(a) Stock Based Compensation

SFAS No. 148

In December of 2002, the Financial Accounting Standards Board (“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.

The 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 required disclosures for the three and six-month periods ended March 31, 2004 compared to the same period in the prior year:


	For the Three Months Ended March 31,						For the Six Months Ended March 31,
	2004			2003			2004			2003
	(Dollars in thousands)
Net income, as reported	$	12,038		$	9,606		$	23,588		$	18,392
Add: Total stock-based employee and director compensation expense included in net income, net of related tax effects		474			95			674			160
Deduct: Total stock-based employee and director compensation expense determined under the fair value based method for all awards, net of related tax effects		(962	)		(502	)		(1,520	)		(943	)

Pro forma net income	$	11,550		$	9,199		$	22,742		$	17,609

Earnings per share:
Basic — as reported	$	0.40		$	0.37		$	0.79		$	0.72
Basic — pro forma	$	0.38		$	0.36		$	0.76		$	0.69
Diluted — as reported	$	0.37		$	0.35		$	0.73		$	0.67
Diluted — pro forma	$	0.35		$	0.33		$	0.70		$	0.64
Assumptions for weighted average grant-date fair value of options using the Black Scholes option pricing model are as follows:
Dividend yield		—			—			—			—
Expected volatility		36	%		38	%		36	%		38	%
Risk free interest rate		3.24	%		3.23	%		3.24	%		3.23	%
Expected life (years)		5.15			5.50			5.15			5.50

(b) Impact of New Accounting Pronouncements

FIN 46R

On December 24, 2003, the FASB issued a revision to Interpretation 46 (“FIN 46R”) to clarify some of the provisions of FASB Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”). Under the new guidance contained in FIN 46R, special effective date provisions apply to enterprises that have fully or partially applied FIN 46 prior to issuance of FIN 46R. Under the original provisions of FIN 46, beginning with the interim period beginning after June 15, 2003, BankUnited would no longer consolidate variable interest entities in which a variable interest was acquired prior to February 1, 2003 that do not meet the consolidation criteria under FIN 46. Under the new guidance contained in FIN 46R, the effective date has been moved up to the first interim period ending after December 15, 2003 for special purpose entities only. As a result of FIN 46, BankUnited recognizes investments in common securities of its non-consolidated trust subsidiaries in other assets and reports the amount of subordinated debentures issued by BankUnited Financial Corporation to those trust subsidiaries in the liability section of its Consolidated Statement of Financial Condition. Currently, BankUnited is the primary beneficiary, and therefore consolidates only one of its trust subsidiaries. FIN 46 does not require restatement of prior year balances. FIN 46R has not had a significant impact on BankUnited’s consolidated financial condition or results of operations. The following information is being provided in accordance with disclosure requirements of FIN 46R.

BankUnited operates wholly-owned trust subsidiaries (“Trust Subsidiaries”) 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 “Subordinated Debentures”). All of the proceeds of the Trust Preferred

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Securities plus common securities issued by the Trust Subsidiaries are invested in Subordinated Debentures, which represent the sole assets of the Trust Subsidiaries. The Trust Preferred Securities pay preferential cumulative cash distributions at the same rate as the Junior Subordinated Debentures held by the Trust Subsidiaries. As of March 31, 2004, BankUnited had an investment in the common stock of its Trust Subsidiaries of $7 million and Subordinated Debentures sold to its Trust Subsidiaries totaling $168 million. The Trust Subsidiaries had liabilities of $161 million in the form of Trust Preferred Securities.

SAB 105

On March 9, 2004, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 105, (“SAB105”) “Application of Accounting Principles to Loan Commitments.” SAB 105 pertains to recognizing and disclosing loan commitments, and is effective for commitments to originate mortgage loans held for sale that are entered into after March 31, 2004. Current accounting guidance requires entities that make mortgage-loan commitments to recognize them on the balance sheet at fair value through expiration or funding, but does not address how to measure fair value. SAB 105 requires that fair-value measurement, at the balance sheet date, include only the differences between the guaranteed interest rate in the loan commitment and market interest rate, excluding any expected future cash flows related to customer relationships or loan servicing. Since BankUnited currently bases the fair value of loan commitments held for sale solely on the relationship to market interest rate, absent any expected cash flows from the customer relationship or servicing rights, SAB 105 will not have a material impact on its financial statements.

3. Securities Portfolio

Investments

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


	March 31, 2004
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
U.S. government agency securities	$	52,956	$	1,014	$	—		$	53,970
Equity securities		928		—		—			928
Trust preferred securities of other issuers		88,593		4,677		(549	)		92,721
Other(1)		189,906		3,068		(1,087	)		191,887

Total	$	332,383	$	8,759	$	(1,636	)	$	339,506


	September 30, 2003
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
U.S. government agency securities	$	52,980	$	714	$	—		$	53,694
Equity securities		861		—		—			861
Trust preferred securities of other issuers		85,493		3,931		(682	)		88,742
Other(1)		154,127		353		(1,100	)		153,380

Total	$	293,461	$	4,998	$	(1,782	)	$	296,677

(1)

“Other” includes preferred stock of the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Federal National Mortgage Association (“FNMA”), mutual funds, and other bonds.

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Investment securities available for sale as of March 31, 2004, by contractual maturity, are shown below.


	March 31, 2004
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	11,886	$	11,895
Due after one year through five years		38,051		38,318
Due after five years through ten years		51,906		54,169
Due after ten years		229,612		234,196
Equity securities		928		928

Total	$	332,383	$	339,506

Mortgage-Backed Securities

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


	March 31, 2004
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
GNMA mortgage-backed securities(1)	$	1,824	$	91	$	(1	)	$	1,914
FNMA mortgage-backed securities		361,053		2,338		(1,848	)		361,543
FHLMC mortgage-backed securities		70,229		369		(26	)		70,572
Collateralized mortgage obligations		5,581		20		(62	)		5,539
Mortgage pass-through certificates		1,777,389		11,675		(2,527	)		1,786,537

Total(2)	$	2,216,076	$	14,493	$	(4,464	)	$	2,226,105


	September 30, 2003
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
GNMA mortgage-backed securities	$	2,399	$	116	$	—		$	2,515
FNMA mortgage-backed securities		450,997		4,806		(1,937	)		453,866
FHLMC mortgage-backed securities		35,903		549		(155	)		36,297
Collateralized mortgage obligations		63,442		40		(335	)		63,147
Mortgage pass-through certificates		1,505,278		8,568		(4,690	)		1,509,156

Total(2)	$	2,058,019	$	14,079	$	(7,117	)	$	2,064,981

(1)

GNMA stands for Government National Mortgage Association.

(2)

As of March 31, 2004 and September 30, 2003, there were $4.4 million and $37.3 million, respectively, of retained securities from securitized loans included in BankUnited’s portfolio of mortgage-backed securities. These amounts represent the fair value of those securities and do not include servicing rights.

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Mortgage-backed securities available for sale as of March 31, 2004, by contractual maturity, and adjusted for anticipated repayments, are shown below.


	March 31, 2004
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	567,780	$	569,154
Due after one year through five years		1,357,475		1,361,134
Due after five years through ten years		249,159		254.155
Due after ten years		41,662		41,662

Total	$	2,216,076	$	2,226,105

4. Convertible Debt

BankUnited issued $120 million principal amount of convertible senior notes due 2034 in a private placement to certain qualified institutional buyers in February and March of 2004. The notes bear interest at the rate of 3.125% per year payable on March 1 and September 1 of each year, beginning on September 1, 2004. Beginning on March 1, 2011 BankUnited will pay additional contingent interest on the notes if the average trading price of the notes is above a specified level. This contingent interest feature is an embedded derivative to which no value has been assigned at issuance and at March 31, 2004.

The notes are convertible by holders into shares of BankUnited’s Class A Common Stock at an initial conversion rate of 26.2771 shares of Class A Common Stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of $38.06 per share of Class A Common Stock (subject to adjustment in certain events), only under the following circumstances: (1) during any fiscal quarter after the first fiscal quarter ending March 31, 2004 if the closing sale price of our Class A Common Stock exceeds 125% of the then current conversion price for at least 20 consecutive trading days in the 30 consecutive trading-day period ending on the last trading day of the immediately preceding fiscal quarter, (2) during prescribed periods, upon the occurrence of specified corporate transactions, or (3) if we have called the notes for redemption.

The conversion rate of the notes is subject to adjustments for certain events, including but not limited to the issuance of stock dividends on our Class A Common Stock, the issuance of rights or warrants, subdivisions, or combinations of our Class A Common Stock, distributions of capital stock indebtedness or assets, cash dividends and issuer tender or exchange offers. The conversion rate may not be adjusted for other events that may adversely affect the trading price of the notes or the Class A Common Stock into which such notes may be convertible.

Upon conversion of the notes BankUnited may, at its discretion, in lieu of delivering shares of Class A Common Stock, deliver cash or a combination of cash and shares of Class A Common Stock. The notes will mature on March 1, 2034. BankUnited may redeem for cash some or all of the notes at any time on or after March 1, 2011 at 100% of the principal amount of the notes plus any accrued and unpaid interest, contingent interest and additional amounts, if any.

Until the conversion contingency is met, the shares underlying the notes are not included in the calculation of basic (if converted) or fully diluted earnings per share. Should this contingency be met, diluted earnings per share could decrease as a result of the possible inclusion of all or a part of the underlying shares in the fully diluted earnings per share calculation.

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Holders may require BankUnited to purchase all or part of the notes for cash at a purchase price of 100% of the principal amount of the notes plus accrued and unpaid interest including contingent interest and additional amounts, if any, on March 1, 2011, March 1, 2014, March 1, 2019, March 1, 2024 and March 1, 2029 or upon the occurrence of a fundamental change.

The notes are senior unsecured obligations, ranking equally in right of payment with all of BankUnited’s existing and future unsecured senior indebtedness. The notes are effectively subordinated to BankUnited’s entire senior secured indebtedness and all indebtedness and liabilities of its subsidiaries.

5. Earnings Per Share

The following tables reconcile basic and diluted earnings per share for the three and six months ended March 31, 2004 and 2003.


	For the Three Months Ended March 31,				For the Six Months Ended March 31,
	2004		2003		2004		2003
	(Dollars and shares in thousands, except per share data)
Basic earnings per share:
Numerator:
Net income	$	12,038	$	9,606	$	23,588	$	18,392
Preferred stock dividends		99		79		180		158

Net income available to common stockholders	$	11,939	$	9,527	$	23,408	$	18,234

Denominator:
Weighted average common shares outstanding		29,835		25,539		29,760		25,398

Basic earnings per share	$	0.40	$	0.37	$	0.79	$	0.72

Diluted earnings per share:
Numerator:
Net income available to common stockholders	$	11,939	$	9,527	$	23,408	$	18,234
Plus:
Convertible preferred stock dividends		99		79		180		158

Diluted net income available to common stockholders	$	12,038	$	9,606	$	23,588	$	18,392

Denominator:
Weighted average common shares outstanding		29,835		25,539		29,760		25,398
Plus:
Stock options and restricted stock		2,090		1,088		2,035		1,116
Convertible preferred stock		758		1,083		758		1,058

Diluted weighted average shares outstanding		32,683		27,710		32,553		27,572

Diluted earnings per share	$	0.37	$	0.35	$	0.72	$	0.67

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.

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Diluted earnings per share is calculated under the treasury stock method by dividing net income by the weighted average number of shares of common stock outstanding, assuming conversion of outstanding convertible preferred stock from the beginning of the period, the exercise of stock options, and unvested restricted stock. 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. There was no antidilutive effect from stock options, restricted stock, and convertible securities during the three or six month periods ending March 31, 2004 and 2003.

6. Regulatory Capital

The Bank’s regulatory capital levels as of March 31, 2004 and September 30, 2003 were as follows:


	As of March 31, 2004			As of September 30, 2003
	(Dollars in thousands)
Tier 1 Leverage Capital
Amount	$	542,868		$	514,690
Actual Ratio		7.2	%		7.3	%
Well-Capitalized Minimum Ratio(1)		5.0	%		5.0	%
Adequately Capitalized Minimum Ratio(1)		4.0	%		4.0	%

Tier 1 Risk-Based Capital
Amount	$	542,868		$	514,690
Actual Ratio		14.9	%		15.5	%
Well-Capitalized Minimum Ratio(1)		6.0	%		6.0	%
Adequately Capitalized Minimum Ratio(1)		4.0	%		4.0	%

Total Risk-Based Capital
Amount	$	563,503		$	534,062
Actual Ratio		15.5	%		16.1	%
Well-Capitalized Minimum Ratio(1)		10.0	%		10.0	%
Adequately Capitalized Minimum Ratio(1)		8.0	%		8.0	%

(1)

Based on Office of Thrift Supervision regulations.

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7. Comprehensive Income

BankUnited’s comprehensive income includes all items which comprise net income, plus other comprehensive income. For the three and six months ended March 31, 2004 and 2003 BankUnited’s other comprehensive income was as follows:


	For the Three Months Ended March 31,					For the Six Months Ended March 31,
	2004		2003			2004		2003
	(In thousands)
Net income	$	12,038	$	9,606		$	23,588	$	18,392
Other comprehensive income, net of tax:
Unrealized income arising during the period on securities, net of tax of $5,060 and $2,382 for the three months ended March 31, 2004 and 2003, respectively, and $1,390, and $1,233 for the six months ended March 31, 2004 and 2003, respectively		9,398		4,235			2,582		2,186
Unrealized gain (loss) on cash flow hedges, net of tax expense (benefit) of $454 and $(85) for the three months ended March 31, 2004 and 2003, respectively, and $399, and $(169) for the six months ended March 31, 2004 and 2003, respectively		843		(144	)		740		(278	)
Less reclassification adjustment for:
Realized gains on securities sold included in net income, net of tax of $263 for the three months ended March 31, 2004, and $254, and $569 for the six months ended March 31, 2004 and 2003, respectively		488		—			472		909

Total other comprehensive income, net of tax		10,729		4,091			3,794		2,817

Comprehensive income	$	22,767	$	13,697		$	27,382	$	21,209

8. Accounting For Derivatives and Hedging Activities

Loan Commitments

BankUnited commits to originate one-to-four family residential mortgage loans with potential borrowers at specified interest rates for short periods of time, usually thirty days. If potential borrowers meet underwriting standards, these loan commitments obligate BankUnited to fund the loans, but do not obligate the potential borrowers to accept the loans. If the borrowers do not allow the commitments to expire, the loans are funded, and either placed into BankUnited’s loan portfolio or held for sale. Based on historical experience, the interest rate environment, and the underlying loan characteristics, BankUnited estimates the amount of commitments that will ultimately become loans held for sale and accounts for those as derivatives during the commitment period. As derivatives, the changes in the fair value of the commitments are recorded in current earnings under other non-interest expense with an offset to the consolidated statement of financial condition in other liabilities. Fair values are based solely on the relationship of observable market interest rates and are prepared by third parties.

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Forward Sales Contracts

BankUnited enters into forward sales contracts in order to economically hedge fair value exposure of loan commitments to a change in interest rates. Since both the loan commitments and forward sales contracts are derivatives, this hedging relationship does not qualify for hedge accounting under SFAS No. 133. Accordingly, the fair value changes of forward sales contracts, related to loan commitments, are also recorded in earnings under non-interest income or expense with an offset in other assets or liabilities on the balance sheet.

These forward contracts extend beyond the loan commitment period and are also used to offset fair value exposure of loans held for sale to a change in interest rates. This relationship exists until either the loan is sold or until the forward contract expires. These forward contracts may be allocated to loans held for sale in a relationship that qualifies for hedge accounting, in which case any ineffectiveness is charged to earnings under non-interest expense with an offset to the balance sheet in other liabilities. They may also be allocated to loans held for sale that are accounted for under the lower of cost or market method, in which case their changes in fair value are recorded in earnings under non-interest expense with an offset in other assets or liabilities on the balance sheet.

Interest Rate Swaps and Caps

BankUnited enters into interest rate swap and cap contracts as fair value and cash flow hedges (“hedge”) for the purpose of hedging long-term fixed and variable rate debt (“hedged item”). All terms of the hedge contracts, with the exception of the right to defer interest payments, are the same as those of the hedged item. BankUnited expects these hedge contracts to be highly effective in offsetting fair value changes for fair value hedges and cash flow changes for cash flow hedges of its long-term debt, and therefore applies hedge accounting treatment. Hedges designated by BankUnited to change the fixed interest rate to variable on fixed long-term debt are treated as qualifying fair value hedges. The accounting treatment for fair value hedges is to record the change in fair value during the period of both the hedge instrument and the hedged item into current earnings. Hedges designated by BankUnited to change the variable interest rate to fixed on variable long-term debt are treated as qualifying cash flow hedges. The accounting treatment for cash flow hedges is to record the effective portion of the gain or loss on the hedge instrument as a component of other comprehensive income, net of tax, with an offsetting amount recorded in either other assets or other liabilities. The amounts recorded in other accumulated comprehensive income will be reclassified into current earnings in the same period in which the hedged item affects earnings.

The following table summarizes certain information with respect to the use of derivatives and their impact on BankUnited’s financial statements during the three and six months ended March 31, 2004 and 2003:


	For the Three Months Ended March 31,					For the Six Months Ended March 31,
	2004			2003		2004		2003
	(In thousands)
Fair Value Hedges
Net (loss) gain recorded in earnings due to ineffectiveness	$	(79	)		—	$	1		—

Other Derivatives (1)
Net (loss) gain recorded in earnings	$	(147	)	$	167	$	741	$	176

Note:

There was no ineffectiveness related to cash flow hedges during the three and six months ended March 31, 2004 and 2003. Within the next 12 months, BankUnited estimates that $0.3 million will be reclassified out of comprehensive income as a charge to earnings.

(1)

These derivatives are used by BankUnited to hedge interest rate risk, but do not qualify for hedge accounting treatment.

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

9. Commitments and Contingencies

Standby letters of credit are off balance sheet instruments which represent conditional commitments issued by BankUnited to guarantee the performance of a customer to a third party. BankUnited had outstanding standby letters of credit, and risk participations, in the amount of $42.3 million and $51.6 million as of March 31, 2004 and September 30, 2003, respectively.

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.

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, 2004 and 2003 and consolidated financial condition as of March 31, 2004. 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, 2003.

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 business and 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; fiscal and monetary policies; the issuance or redemption of additional equity or debt securities; the concentration of operations in Florida, if the Florida economy or real estate values decline; volatility in the market price of its common stock, the threat and impact of war and terrorism, reliance on other companies for products and services; and other economic, competitive, servicing capacity, governmental, regulatory and technological factors affecting the company’s operations, pricing, products and delivery of services. 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. In implementing its policies, management must make estimates and assumptions about the effect of matters that are inherently less than certain. Actual results could differ significantly from these estimates which could materially affect the amounts of our assets, liabilities, income and expenses. Critical accounting policies applied by BankUnited include the allowance for loan losses and the valuation of mortgage servicing rights pertaining to the sale 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. On a periodic basis, management obtains a valuation of mortgage servicing rights prepared by independent third parties.

For a more detailed discussion on these critical accounting policies, see “Critical Accounting Policies” on page 20 of BankUnited’s Annual Report on Form 10-K for the year ended September 30, 2003.

Purchases of BankUnited Stock

BankUnited announced on October 24, 2002, that its Board of Directors had authorized a stock repurchase program on its Class A Common Stock. Under the program, BankUnited may purchase up to 1,000,000 shares of its Class A Common Stock in open market transactions, from time to time, at such prices and on such conditions as the Executive Committee of the Board determines to be advantageous. This plan does not have an expiration date. BankUnited initiated this program because its believes that the volatility of the financial markets, in general, have at times generated a market price that does not adequately reflect the real value of BankUnited stock or the level of confidence that management and the Board of Directors have in BankUnited’s ability to implement its strategy and achieve continued growth. The basis for the carrying value of BankUnited’s treasury stock is the purchase price or fair value of the shares in the open market at the time of purchase. To date, there have been no purchases under this plan. In addition, there were no other purchases of BankUnited stock during the quarter ended March 31, 2004.

RESULTS OF OPERATIONS

For the Three Months Ended March 31, 2004 Compared to the Same Period in 2003

General

Net income reached $12.0 million for the three months ended March 31, 2004, up 25% over $9.6 million for the same period in 2003. Basic and diluted earnings were $0.40 and $0.37 per share, respectively, for the quarter, up from $0.37 and $0.35 per share, respectively, for the same quarter last year. The increase in net income of $2.4 million for 2004 is primarily due to an improvement in net interest income resulting from the growth in earning assets, an increase in funding from non-interest bearing liabilities, and an increase in capital from an equity offering in May 2003.

Analysis of Net Interest Income

Yields Earned and Rates Paid 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 income or expense item for the period by the average balances during the period for the appropriate balance sheet item. Net interest margin is calculated by dividing net interest income by average interest-earning assets. Net interest spread is the difference between the yield earned on average interest earning assets and the rate paid on average interest bearing liabilities. Non-accrual loans are included for the appropriate periods, 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 federal regulations. The yields and net interest margins appearing in the following table have been calculated on a pre-tax basis.

Yields Earned and Rates Paid


	For the Three Months Ended March 31,
	2004							2003
	Average Balance			Interest		Yield/ Rate		Average Balance			Interest		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans, net(1)	$	4,487,524		$	55,095	4.92	%	$	4,013,507		$	58,421	5.82	%
Mortgage-backed securities		2,111,979			20,189	3.82	%		1,793,259			19,296	4.30
Short-term investments(2)		17,214			123	2.84	%		12,623			110	3.49
Investment securities and FHLB stock		455,803			4,932	4.33	%		296,332			3,463	4.67

Total interest-earning assets		7,072,520			80,339	4.55	%		6,115,721			81,290	5.32

Interest-bearing liabilities:
NOW and money market		575,182			971	0.68	%		578,844			1,570	1.08
Savings		962,222			4,037	1.69	%		706,397			3,161	1.79
Certificates of deposit		1,781,477			12,894	2.91	%		1,786,009			16,381	3.67
Trust preferred securities and subordinated debentures(3)		165,854			2,322	5.60	%		289,142			5,259	7.28
Senior notes(4)		113,846			1,203	4.23	%		200,000			2,796	5.59
FHLB advances and other borrowings		3,171,399			23,948	2.99	%		2,380,854			21,958	3.69

Total interest-bearing liabilities	$	6,769,980		$	45,375	2.67	%	$	5,941,246		$	51,125	3.46	%

Excess of interest-earning assets over interest-bearing liabilities	$	302,540						$	174.475

Net interest income				$	34,964						$	30.165

Interest rate spread						1.88	%						1.86	%

Net interest margin						1.99	%						1.96	%

Ratio of interest-earning assets to interest-bearing liabilities		104.47	%						102.94	%

Note:

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-earning assets and interest-bearing liabilities, respectively, for the periods presented and do not include any estimates of the effect that accelerated amortization of premiums or discounts would have on the yields earned. The yields are annualized and are not calculated on a tax equivalent basis.

(1)

Includes loans held for sale. Also includes average non-accruing loans of $25 million and $34 million for the three months ended March 31, 2004 and 2003, respectively.

(2)

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

(3)

Includes the effect of interest rate swaps. For more information on interest rate swaps see Note 8 of the accompanying condensed notes to consolidated financial statements.

(4)

Includes convertible debt issued in February and March of 2004.

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. 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); and (iii) changes in rate/volume (change in rate multiplied by change in volume, which were allocated to the changes in rate), were as follows:


	For the Three Month Period Ended March 31, 2004 vs. 2003
	Increase (Decrease) Due to
	Changes in Volume			Changes in Rate			Total Increase/ (Decrease)
	(Dollars in thousands)
Interest income attributable to:
Loans, net (1)	$	6,900		$	(10,226	)	$	(3,326	)
Mortgage-backed securities		3,430			(2,537	)		893
Short-term investments(2)		40			(27	)		13
Investment securities and FHLB stock		1,864			(395	)		1,469

Total interest-earning assets		12,233			(13,184	)		(951	)

Interest expense attributable to:
NOW/Money market		(10	)		(589	)		(599	)
Savings		1,145			(269	)		876
Certificates of deposit		(42	)		(3,445	)		(3,487	)
Trust Preferred Securities and subordinated debentures(3)		(2,242	)		(695	)		(2,937	)
Senior notes(4)		(1,204	)		(389	)		(1,593	)
FHLB advances and other borrowings		7,291			(5,301	)		1,990

Total interest-bearing liabilities		4,937			(10,687	)		(5,750	)

Increase (decrease) in net interest income	$	7,296		$	(2,497	)	$	4,799

(1)

Includes interest earned on loans held for sale.

(2)

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

(3)

Includes the effect of interest rate swaps. See Note 8 of the accompanying condensed notes to consolidated financial statements for more information on interest rate swaps.

(4)

Includes interest expense on convertible debt issued in February and March of 2004.

Net interest income before provision for loan losses was $35.0 million for the three months ended March 31, 2004, compared to $30.2 million for the same period in 2003. This improvement is the result of growth in earning assets, an increase in funding from both non-interest bearing liabilities and capital from an equity offering in May 2003. The increase in net interest income of $4.8 million is the result of favorable changes of $7.3 million due to volume offset by unfavorable changes due to rates of $2.5 million.

Net interest margin for the three months ended March 31, 2004 was 1.99% compared to 1.96% for the same period in 2003. The improvement resulted from decreased levels of mortgage loan pre-payments, deposits re-pricing at lower rates and reduced debt expense.

Interest Income. Interest income decreased by $1.0 million for the three months ended March 31, 2004, compared to the same period in 2003. This is the net result of an increase of $12.2 million due to an increase in volume of earning assets, offset by a decrease of $13.2 million in yields earned on those assets.

The volume related increases stem mostly from an increase in interest earned on loans of $6.9 million and also includes increases of $3.4 million from interest earned on mortgage-backed securities, and $1.9 million from interest earned on investment securities and FHLB stock. The rate related decreases stem mostly from a decrease in interest earned on loans of $10.2 million, and a decrease of $2.5 million from interest earned on mortgage-backed securities, respectively.

Interest Expense. Interest expense decreased by $5.8 million for the three months ended March 31, 2004, compared to the same period in 2003. This is the net result of a $4.9 million increase due to an increase in volume of interest bearing liabilities, offset by a $10.7 million decrease due to a reduction in rates paid on those liabilities.

The most significant volume related activity stems from an increase in FHLB advances and other borrowings, which increased interest expense by $7.3 million. The rate related decreases stem from a decrease in interest paid on all categories of interest bearing liabilities with the most significant decreases related to certificates of deposit, and FHLB advances and other borrowings.

Provision for loan losses. The provision for loan losses for the three months ended March 31, 2004 was $1.2 million, compared to $1.3 million for the same period in 2003, reflecting a low level of non-performing assets and charge-offs. See Asset Quality for more information concerning BankUnited’s allowance for loan losses.

Analysis of Non-Interest Income and Expenses


	For the Three Months Ended March 31,
	2004			2003			Increase/ (Decrease)
	(Dollars in thousands)
Non-interest income:
Loan servicing fees	$	776		$	505		$	271		53.7	%
Amortization of mortgage servicing rights		(1,093	)		(1,595	)		502		31.5
Impairment of mortgage servicing rights		(1,200	)		—			(1,200	)	—
Loan fees		994			1,146			(152	)	(13.3	)
Deposit fees		1,044			991			53		5.3
Other fees		459			312			147		47.1
Net gain on sale of investment and mortgage-backed securities		333			158			175		110.8
Net gain on sale of loans and other assets		1,528			1,702			(174	)	(10.2	)
Insurance and investment services income		1,184			626			558		89.1
Other		1,084			2,212			(1,128	)	(51.0	)

Total non-interest income	$	5,109		$	6,057		$	(948	)	(15.7	)%


	For the Three Months Ended March 31,
	2004		2003		Increase/ (Decrease)
	(Dollars in thousands)
Non-interest expenses:
Employee compensation and benefits	$	10,004	$	9,708	$	296		3.0	%
Occupancy and equipment		4,332		3,005		1,327		44.2
Telecommunications and data processing		1,409		1,209		200		16.5
Advertising and promotion expense		1,287		1,256		31		2.5
Professional fees — legal and accounting		1,024		1,200		(176	)	(14.7	)
Loan closing expense		672		709		(37	)	(5.2
Postage and courier		447		349		98		28.1
Loan servicing expense(1)		131		362		(231	)	(63.8	)
Insurance		370		289		81		28.0
Other operating expenses		1,526		3,224		(1,698	)	(52.7	)

Total non-interest expenses	$	21,202	$	21,311	$	(109	)	(0.5	)%

(1)

Loan servicing expense relates to loans serviced by others.

Analysis of Non-Interest Income and Expenses

Total non-interest income was $5.1 million for the three months ended March 31, 2004, down 16% from the same period in 2003, primarily due to an impairment charge on mortgage servicing rights recorded in the quarter ended March 31, 2004 and a $1.1 million life insurance benefit received during the quarter ended March 31, 2003.

As a result of a slow down in pre-payments of mortgage loans in BankUnited’s portfolio of residential loans serviced for others during the second quarter of March 31, 2004, BankUnited provided for the amortization of $1.1 million of servicing rights for the three months ended March 31, 2004, compared to $1.6 million for the same period in the previous year. This amortization, offset by fees earned on these loans of $0.8 million, resulted in a net loss of $0.3 million from loan servicing fees for the three months ended March 31, 2004 compared to a net loss of $1.1 million for the same period in 2003. In addition, BankUnited recorded a $1.2 million impairment charge for the three months ended March 31, 2004 based on a current valuation of its mortgage servicing assets by independent third parties.

Fee income, which includes loan fees, deposit fees, and other fees, but excluding servicing fees, was $2.5 million for the three months ended March 31, 2004, a 2% increase over the same period in 2003. This increase is the result of growth in core deposits and sales of other banking products and services.

BankUnited realized a net gain of $0.3 million on the sale of investments and mortgage-backed securities during the three months ended March 31, 2004, comprised of $0.8 million of losses generated from BankUnited’s securitization activities, and $1.1 million of gains from the sale of investment and mortgage-backed securities available for sale. During the same period in 2003, BankUnited realized a net gain of $0.2 million on the sale of investment and mortgage-backed securities generated mostly from BankUnited’s securitization activities.

The net gain on sale of loans and other assets of $1.5 million during the three months ended March 31, 2004, is due mostly from the sale of securitized loans upon which BankUnited retains servicing rights. The net gain on sale of loans and other assets of $1.7 million during the same period in 2003 is also due mostly from the sale of securitized loans.

Included in the insurance and investment services income for the three months ended March 31, 2004, is approximately $1.2 million in commissions from the sale of annuity and other investment products. This amount represents an increase of 80% over such sales during the same period in 2003.

Increases in the cash surrender value of bank-owned life insurance and life insurance benefits are reported in other non-interest income and represent the majority of the 51% decrease in that category for the three months

ended March 31, 2004, compared to the same period in 2003. During the three months ended March 31, 2003, BankUnited received a life insurance benefit of $1.1 million, none in 2004.

Total non-interest expense decreased by $0.1 million or 0.5% for the three months ended March 31, 2004, compared to the same period in 2003. Included in other operating expenses for 2003, was a $1.8 million charge related to the redemption of trust preferred securities. Without this occurrence, expenses related to normal operations for the quarter ended March 31, 2004 would have shown a 9% year over year increase. The most significant increase in non-interest expense was for occupancy and equipment, which increased by $1.3 million for the three months ended March 31, 2004 compared to the same period in 2003. This increase was the result of branch expansion and additional investment in infrastructure to support BankUnited’s growth.

Provision for Income Taxes. The effective income tax rate for the three months ended March 31, 2004 was 31.9% compared to 29.7% for the same period in 2003. The effective income tax rate for the three months ended March 31, 2003 reflects the recognition of a non-taxable life insurance benefit received during that quarter. BankUnited and its subsidiaries file tax returns in each of the tax jurisdictions in which they operate and are subject to the interpretation of the tax laws by each of those jurisdictions. No tax return is currently subject to examination.

For the Six Months Ended March 31, 2004 Compared to the Same Period in 2003

General

Net income reached $23.6 million for the six months ended March 31, 2004, up 28% over $18.4 million for the same period in 2003. Basic and diluted earnings were $0.79 and $0.72 per share, respectively, for the quarter, up from $0.72 and $0.67 per share, respectively, for the same period last year. The increase in net income of $5.2 million for 2004 is primarily due to growth in net interest income.


	For the Six Months Ended March 31,
	2004							2003
	Average Balance			Interest		Yield/ Rate		Average Balance			Interest		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans, net(1)	$	4,386,490		$	109,456	4.99	%	$	4,021,920		$	119,634	5.95	%
Mortgage-backed securities		2,106,686			39,986	3.80	%		1,496,505			32,967	4.41
Short-term investments(2)		16,993			215	2.49	%		13,287			227	3.32
Investment securities and FHLB stock		438,255			9,383	4.28	%		277,137			6,722	4.85

Total interest-earning assets		6,948,424			159,040	4.58	%	$	5,808,849		$	159,550	5.49	%

Interest-bearing liabilities:
NOW and money market		568,856			1,931	0.68	%	$	538,914		$	3,086	1.15	%
Savings		915,182			7,634	1.67	%		721,189			7,232	2.01
Certificates of deposit		1,798,060			26,607	2.96	%		1,765,628			33,438	3.79
Trust preferred securities and subordinated debentures(3)		165,641			4,674	5.64	%		277,003			10,135	7.32
Senior notes		157,158			4,639	5.90	%		200,000			5,611	5.61
FHLB advances and other borrowings		3,036,245			46,512	3.01	%		2,109,009			42,275	4.01

Total interest-bearing liabilities	$	6,641,142		$	91,997	2.75	%	$	5,611,743		$	101,777	3.61	%

Excess of interest-earning assets over interest-bearing liabilities	$	307,282						$	197,106

Net interest income				$	67,043						$	57,773

Interest rate spread						1.83	%						1.88	%

Net interest margin						1.95	%						2.00	%

Ratio of interest-earning assets to interest-bearing liabilities		104.63	%						103.51	%

Note:

(1)

Includes loans held for sale. Also includes average non-accruing loans of $29 million and $31.5 million for the six months ended March 31, 2004 and 2003, respectively.

(2)

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

(3)

Includes the effect of interest rate swaps. For more information on interest rate swaps see Note 8 of the accompanying condensed notes to consolidated financial statements.

(4)

Includes convertible debt issued in February and March of 2004.


	For the Six Month Period Ended March 31, 2004 vs. 2003
	Increase (Decrease) Due to
	Changes in Volume			Changes in Rate			Total Increase/ (Decrease)
	(Dollars in thousands)
Interest income attributable to:
Loans, net(1)	$	10,846		$	(21,024	)	$	(10,178	)
Mortgage-backed securities		13,454			(6,435	)		7,019
Short-term investments(2)		62			(74	)		(12	)
Investment securities and FHLB stock		3,907			(1,246	)		2,661

Total interest-earning assets		28,269			(28,779	)		(510	)

Interest expense attributable to:
NOW/Money market		172			(1,327	)		(1,155	)
Savings		1,950			(1,548	)		402
Certificates of deposit		615			(7,446	)		(6,831	)
Trust Preferred Securities and subordinated debentures(3)		(4,076	)		(1,385	)		(5,461	)
Senior notes		(1,202	)		230			(972	)
FHLB advances and other borrowings		18,591			(14,354	)		4,237

Total interest-bearing liabilities		16,050			(25,830	)		(9,780	)

Increase (decrease) in net interest income	$	12,219		$	(2,949	)	$	(9,270	)

(1)

Includes interest earned on loans held for sale.

(2)

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

(3)

Includes the effect of interest rate swaps. See Note 8 of the accompanying condensed notes to consolidated financial statements for more information on interest rate swaps.

(4)

Includes interest expense on convertible debt issued in February and March of 2004.

Net interest income before provision for loan losses was $67 million for the six months ended March 31, 2004, a $9.3 million improvement over the same period in 2003. The net increase is the result of an increase of $12.2 million due to volume increases, offset by a decrease of $2.9 million due to changes in the yields earned and rates paid.

Net interest margin for the six months ended March 31, 2004 was 1.95% compared to 2.00% for the same period in 2003. This decline in net interest margin is reflective of declining interest rates and the high level of residential pre-payments and refinancing activity during the second half of fiscal 2003. The refinancing activity

impacting the industry as a whole, resulted in a larger decline on the yield of earning assets than the decline in the cost of interest bearing liabilities. Efforts by BankUnited to reduce the volume of trust preferred securities and subordinated debentures over the past several periods, combined with increased funding from non-interest bearing funds, helped to reduce the impact of margin compression by reducing the overall cost of funds. Evidence of improvement can be seen when comparing the net interest margin for the three months ended March 31, 2004 of 1.99% to the previous quarter’s net interest margin of 1.91%.

Interest Income. Interest income for the six months ended March 31, 2004 remained relatively flat at $159 million compared to the same period in 2003 as a result of an increase of $28 million related to volume, offset by relatively the same amount of decrease due to lower yields on earning assets.

The volume related increases of $28.3 million stem from an increase in interest earned on loans of $10.8 million, $13.4 million in interest earned on mortgage-backed securities, and $3.9 million from interest earned on long-term investments and FHLB stock. The rate related decreases stem mostly from a decrease in interest earned on loans of $21 million, and a decrease of $6.4 million from interest earned on mortgage-backed securities.

Interest Expense. Interest expense decreased by $9.8 million for the six months ended March 31, 2004, compared to the same period in 2003. This is the result of an increase of $16.1 million due to an increase in volume of interest bearing liabilities, offset by a decrease of $25.8 million due to a reduction in rates paid on those liabilities.

The most significant volume related changes were an increase in interest expense of $18.6 million from additional FHLB advances and other borrowing used during the six month period ending March 31, 2004 compared to the same period in 2003 and a decrease in interest expense of $4.1 million which is the result of BankUnited redeeming its higher cost trust preferred securities. The most significant rate related changes in interest expense were decreases due to a downward repricing of deposits which reduced interest expense by $7.4 million, and a decrease of $14.4 million due to lower rates paid on FHLB on advances and other borrowings.

Provision for loan losses. The provision for loan losses for the six months ended March 31, 2004 was $2.2 million, compared to $2.6 million for the same period in 2003, reflecting a lower level of non-performing assets. See Asset Quality for more information concerning BankUnited’s allowance for loan losses.

Analysis of Non-Interest Income and Expenses


	For the Six Months Ended March 31,						Increase/(Decrease)
	2004			2003			Change
	(Dollars in thousands)
Non-interest income:
Loan servicing fees	$	1,514		$	963		$	551		57.2	%
Amortization of mortgage servicing rights		(2,604	)		(2,845	)		241		(8.5	)
Impairment of mortgage servicing rights		(1,200	)		—			(1,200	)	—
Loan fees		1,933			2,190			(257	)	(11.7	)
Deposit fees		2,163			2,020			143		7.1
Other fees		939			604			335		55.5
Net (loss) gain on sale of investment and mortgage-backed securities		(262	)		755			(1,017	)	(134.7	)
Net gain on sale of loans and other assets		3,280			3,768			(488	)	(13.0	)
Insurance and investment services income		2,126			1,320			806		61.1
Other		2,282			3,022			(740	)	(24.5	)

Total non-interest income	$	10,171		$	11,797		$	(1,626	)	(13.8	)%


	For the Six Months Ended March 31,				Increase/(Decrease)
	2004		2003		Change
	(Dollars in thousands)
Non-interest expenses:
Employee compensation and benefits	$	20,065	$	18,369	$	1,696		9.2	%
Occupancy and equipment		8,036		5,953		2,083		35.0
Telecommunications and data processing		2,793		2,419		374		15.5
Advertising and promotion expense		2,438		2,443		(5	)	(0.2	)
Professional fees — legal and accounting		2,344		2,347		(3	)	(0.1	)
Loan closing expense		1,415		2,202		(787	)	(35.7	)
Postage and courier		287		847		(560	)	(66.1	)
Loan servicing expense(1)		869		666		203		30.5
Insurance		727		569		158		27.8
Other operating expenses		1,341		3,731		(2,390	)	(64.1	)

Total non-interest expenses	$	40,315	$	39,546	$	769		1.9	%

(1)

Loan servicing expense relates to loans serviced by others.

Analysis of Non-Interest Income and Expenses

Total non-interest income for the six months ended March 31, 2004 decreased by $1.6 million or 14% from the same period in 2003, primarily due to an impairment charge on mortgage servicing rights recorded in the quarter ended March 31, 2004 and a $1.1 million life insurance benefit received during the quarter ended March 31, 2003.

As a result of pre-payments of mortgage loans in BankUnited’s portfolio of residential loans serviced for others, BankUnited provided for the amortization of $2.6 million of servicing rights for the six months ended March 31, 2004, compared to $2.8 million for the same period in the previous year. This amortization, offset by fees earned on these loans of $1.5 million, resulted in a net loss of $1.1 million from loan servicing fees. In addition, BankUnited recorded a $1.2 million impairment charge for the six months ended March 31, 2004, based on a current valuation of its mortgage servicing assets by independent third parties.

Fee income, including loan fees, deposit fees, and other fees, but excluding loan servicing fees, was $5.0 million for the six months ended March 31, 2004 and contributed to the 5% increase in non-interest income for the period. This increase is also the result of growth in core deposits and sales of other banking products and services.

BankUnited realized a net loss of $0.3 million on the sale of investments and mortgage-backed securities during the six months ended March 31, 2004, comprised of $1.4 million in losses generated from BankUnited’s securitization activities offset by $1.1 million in gains from the sale of investment and mortgage-backed securities available for sale. During the same period in 2003, BankUnited realized a net gain of $0.8 million on the sale of investment and mortgage-backed securities, comprised of $0.6 million of losses generated from BankUnited’s securitization activities, and $1.4 million of gains from the sale of investment securities available for sale.

The net gain on sale of loans and other assets of $3.3 million during the six months ended March 31, 2004, is due mostly from the sale of securitized loans upon which BankUnited retains servicing rights. The net gain on sale of loans and other assets of $3.8 million during the same period in 2003 is also due mostly from the sale of securitized loans.

Included in the insurance and investment services income for the six months ended March 31, 2004, is approximately $2.2 million in commissions from the sale of annuity and other investment products. This amount represents an increase of 64% over such sales during the same period in 2003.

Increases in the cash surrender value of bank-owned life insurance and life insurance benefits are reported in other non-interest income and represent the majority of the 25% decrease in that category for the six months ended March 31, 2004, compared to the same period in 2003. During the six months ended March 31, 2003, BankUnited received a life insurance benefit of $1.1 million, none for the same period in 2004. The appreciation of the cash surrender value for the six months ended March 31, 2004 was $2.0 million, a $0.6 million increase over the appreciation for the same period in 2003.

Total non-interest expense increased by $0.8 million or 1.9% for the six months ended March 31, 2004, compared to the same period in 2003. Included in other operating expenses for 2004, is a gain of $0.7 million from fair value adjustments to derivatives. See note 8. Accounting for Derivatives and Hedging Activities. Included in other operating expenses for 2003, was a $1.8 million charge related to the redemption of trust preferred securities. The most significant increase in non-interest expense was for occupancy and equipment, which increased by $2.1 million for the six months ended March 31, 2004 compared to the same period in 2003. This increase was the result of branch expansion and additional investment in infrastructure to support BankUnited’s growth.

Provision for Income Taxes. The effective income tax rate for the six months ended March 31, 2004 was 32.1% compared to 33.1% for the same period in 2003. BankUnited and its subsidiaries file tax returns in each of the tax jurisdictions in which they operate and are subject to the interpretation of the tax laws by each of those jurisdictions. No tax return is currently subject to examination.

LIQUIDITY

Liquidity management is the process of allocating assets and structuring liabilities to provide sufficient cash or cash equivalents to meet an entity’s daily operating needs on an ongoing basis. It is the policy of BankUnited to manage our funds so that there is no need to make unplanned sales of assets or to borrow funds under emergency conditions. Sources of liquidity include: cash and cash equivalents, retail deposit growth, FHLB advances, loan repayments, investment portfolio run-off, liquidation of investments and mortgage-backed securities, and overnight and term reverse repurchase agreements.

BankUnited’s objective in managing liquidity is to maintain sufficient resources of available cash to address both short and long-term business funding needs such as loan demand, investment purchases, deposit fluctuations, and debt service requirements. In doing so, BankUnited maintains an overall liquidity position that has an aggregate amount of readily accessible and marketable assets, cash flow and borrowing capacity to meet unexpected deposit outflows and/or increases in loan demand. Cash levels may vary but are maintained at levels required by regulation and necessary to meet the projected anticipated needs for business operations.

Significant Sources of Funds

During the six months ended March 31, 2004 and 2003, BankUnited received $1.1 billion in payments on loans. Proceeds from repayment of mortgage-backed securities for the six months ended March 31, 2004 were $403 million compared to $491 million for the same period in 2003. BankUnited sold $297 million of mortgage-backed securities during the six months ended March 31, 2004 compared to $274 million for the same period in 2003.

In addition, BankUnited sold $11 million of investment securities during the six months ended March 31, 2004, compared to $41 million for the same period in 2003. BankUnited received $221 million from additional other borrowings during the six months ended March 31, 2004 compared to $178 million for the same period in 2003. BankUnited also issued $120 million of convertible debt during the six months ended March 31, 2004, compared to none during the same period in 2003. BankUnited received $190 million from additional deposits during the six months ended March 31, 2004 compared to $96 million for the same period in 2003.

Significant Uses of Funds

During the six months ended March 31, 2004, BankUnited funded $161 million in loans held for sale compared to $376 million for the same period in 2003. This decrease in funding of loans explains the majority of the decrease in cash used by operating activities from $293 million for the six months ended March 31, 2003, compared to $61 million during the same period in 2004.

During the six months ended March 31, 2004, BankUnited funded $1.7 billion of portfolio loans as compared to $1.2 billion in the same period of 2003. In addition, BankUnited purchased $664 million of investment and mortgage-backed securities during the six months ended March 31, 2004 compared to $1.2 billion in the same period of 2003. BankUnited used $20 million to purchase additional bank-owned life insurance during the six months ended March 31, 2003; there were no such purchases during the same period in 2004. BankUnited paid $200 million in maturing senior notes during the three months ended March 31, 2004; there were no such payments during the same period in 2003.

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

As of March 31, 2004, BankUnited had $800 million in investments and mortgage-backed securities pledged against securities sold under agreements to repurchase with an outstanding balance of $739 million.

As of March 31, 2004 BankUnited had approximately $275 million of additional borrowings available on its line of credit with the FHLB of Atlanta.

FINANCIAL CONDITION

The following is a discussion of significant changes from September 30, 2003 to March 31, 2004 in the Statement of Financial Condition. For a discussion of changes in cash and cash equivalents, see LIQUIDITY.

Assets

Investment securities available for sale. Investment securities available for sale increased by $42 million during the six months ended March 31, 2004 to reach $340 million. This net increase is primarily due to purchases of $51 million, offset by sales of $13 million. In addition, there was an unrealized gain of $3.9 million during the six months ended March 31, 2004.

Mortgage-backed securities available for sale. Mortgage-backed securities available for sale increased by $161 million during the six months ended March 31, 2004 to reach $2.2 billion. This net increase is primarily due to purchases of $689 million and securitizations of $177 million, offset by repayments of $403 million, and sales of $297 million. In addition, there was an unrealized gain of $3.1 million during the six months ended March 31, 2004.

(See Note 3. of the accompanying condensed notes to consolidated financial statements for information on investment and mortgage-backed securities).

Loans. Loans receivable, net (including loans held for sale) increased by $474 million during the six months ended March 31, 2004 to reach $4.7 billion. During the six months ended March 31, 2004, BankUnited funded $1.8 billion of loans, which was offset by repayments of $1.1 billion, securitizations of $177 million, sales of $77 million, and a transfer to real estate owned of $2.7 million. The majority of the growth in the portfolio was in one-to-four family residential.

Loans Receivable

Loans receivable held for investment consist of the following:


	As of March 31, 2004					As of September 30, 2003
	Amount			Percent of Total		Amount			Percent of Total
	(Dollars in thousands)
Real estate loans:
One-to-four family residential:
Residential mortgages	$	3,070,115		67.1	%	$	2,653,515		67.4	%
Specialty consumer mortgages		657,860		14.4			613,287		15.5

Total one-to-four family residential		3,727,975		81.5			3,266,802		82.9
Multi-family		41,057		0.9			32,583		0.8
Commercial real estate		241,492		5.3			196,237		5.0
Construction		167,730		3.6			132,778		3.4
Land		57,252		1.2			27,569		0.7

Total real estate loans		4,235,506		92.5			3,655,969		92.8

Other loans:
Commercial		170,710		3.7			152,663		3.9
Consumer(1)		148,807		3.3			116,445		3.0

Total other loans		319,517		7.0			269,108		6.9

Total loans held in portfolio		4,555,023		99.5			3,925,077		99.7
Unearned discounts, premiums and deferred fees, net		44,883		1.0			36,806		0.9
Allowance for loan losses		(22,665	)	(0.5	)		(22,295	)	(0.6	)

Total loans held in portfolio, net		4,577,241		100.0	%		3,939,588		100.0	%

Mortgage loans held for sale		123,590					286,796

Total loans, net	$	4,700,831				$	4,226,384

(1)

Includes home equity loans and lines of credit

Liabilities

Deposits. Deposits grew by $190 million during the six months ended March 31, 2004 to reach $3.4 billion. This increase is due mostly to an increase in core deposits of $188 million.

Securities sold under agreements to repurchase. Securities sold under agreements to repurchase increased by $221 million or 43% during the six months ended March 31, 2004 to reach $739 million as of that date.

Senior notes. Senior notes of $200 million matured during the second fiscal quarter of 2004.

Convertible debt. BankUnited issued $120 million in convertible debt during the second fiscal quarter of 2004. See Note 4 of accompanying condensed notes to consolidated financial statements for more information on the convertible debt.

Advance payments by borrowers for taxes and insurance. Advance payments by borrowers for taxes and insurance decreased by $20 million, or 43%, during the six months ended March 31, 2004 to $27 million as of March 31, 2004. This decrease reflects tax payments by BankUnited during the first quarter of fiscal 2004.

Payable for securities purchased pending settlement. BankUnited purchased $25 million of securities at the end of the quarter which do not settle until the quarter ending June 30, 2004.

Equity

Equity. For information on changes in BankUnited’s stockholders’ equity for the six months ended March 31, 2004, see BankUnited’s Consolidated Statement of Stockholders’ Equity.

Asset Quality

Non-performing assets were $25.3 million as of March 31, 2004, which represents a decrease of $17 million, or 40%, from $42.3 million as of September 30, 2003. The net annualized charge-off ratio decreased from 0.08% for the year ended September 30, 2003 to 0.05% for the quarter ended March 31, 2004.

The following table sets forth additional information concerning BankUnited’s non-performing assets at March 31, 2004 and September 30, 2003.


	March 31, 2004			September 30, 2003
	(Dollars in thousands)
Non-accrual loans	$	21,645		$	37,080
Restructured loans		371			306
Loans past due 90 days and still accruing		52			276

Total non-performing loans		22,068			37,662
Non-accrual tax certificates		212			334
Real estate owned		2,975			4,290

Total non-performing assets		25,255			42,286

Allowance for losses on tax certificates		208			355
Allowance for loan losses		22,665			22,295

Total allowance	$	22,873		$	22,650

Non-performing assets as a percentage of total assets		0.33	%		0.59	%
Non-performing loans as a percentage of total loans		0.47	%		0.89	%
Allowance for loan losses as a percentage of total loans		0.48	%		0.52	%
Allowance for loan losses as a percentage of non-performing loans		102.71	%		59.20	%
Net annualized year-to-date charge-offs as a percentage of average total loans		0.05	%		0.08	%

The following table sets forth the change in BankUnited’s allowance for loan losses for the six months ended March 31, 2004 and 2003.


	For the Three Months Ended				For the Six Months Ended
	March 31, 2004		March 31, 2003		March 31, 2004			March 31, 2003
	(In thousands)
Allowance for loan losses, balance (at beginning of period)	$22,125		$20,853		$	22,295		$	20,293
Provisions for loan losses	1,200		1,250			2,175			2,550
Loans charged off:
One-to-four family residential mortgages(1)	(151)		(88)			(286	)		(169	)
Commercial real-estate	(298)		—			(298	)		—
Commercial business	(253)		(339)			(860	)		(976	)
Consumer(1)	(25)		(44)			(38	)		(77	)

Total loans charged off	(727	)	(471	)		(1,482	)		(1,222	)

Recoveries:
One-to-four family residential mortgages(1)	—		—			192
Commercial business	66		22			77			27
Consumer(1)	7		8			7			14

Total recoveries	67		30			276			41

Reclassification of letter of credit reserve to other liabilities	—		—			(599	)		—

Allowance for loan losses, balance (at end of period)	$22,665		$21,662		$	22,665		$	21,662

(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, 2004 and September 30, 2003.


	March 31, 2004		September 30, 2003
	(In thousands)
Balance at the end of the period applicable to:
One-to-four family residential mortgages(1)	$	4,136	$	3,807
Multi-family residential mortgages		328		358
Commercial real estate		2,992		4,166
Construction		1,342		1,461
Land		458		303
Commercial business		7,808		8,128
Consumer(1)		2,507		2,415
Unallocated		3,094		1,657

Total allowance for loan losses	$	22,665	$	22,295

(1)

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

BankUnited’s allowance for loan losses as a percentage of total loans was 0.48% as of March 31, 2004, down from 0.52% as of September 30, 2003. As a consequence of the decline in non-performing assets through the repayment of loans, the allowance for loan losses allocated to commercial real estate and commercial loans declined from September 30, 2003 to March 31, 2004. The portfolio risk management allowance, reflected as unallocated in the table above, increased during this period reflecting risk factors associated with the portfolio as a whole. Management believes the allowance for loan losses to be adequate given the composition of it loan portfolio, with more than 90% of loans secured by real estate, and considering the asset quality factors noted above.

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, 2003, 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, 2004 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 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. 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 loan origination and borrowing activities. Derivatives used for interest rate risk management include various interest rate swaps and caps 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 uses interest rate swap and cap 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, as of period end 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On February 27, 2004, BankUnited issued an aggregate of $100 million of 3.125% Convertible Senior Notes due 2034, to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. BankUnited issued an additional $20 million principal amount of the notes on March 4, 2004, to qualified institutional buyers pursuant to Rule 144A. BankUnited received approximately $116.3 million of net proceeds from the convertible debt issuance, after deducting the initial purchasers’ discounts and commissions and offering expenses. The initial purchasers of this offering were Bear, Stearns & Co., Inc. and UBS Securities LLC. The notes are convertible into shares of BankUnited’s Class A Common Stock initially at a conversion rate of 26.2771 shares of Class A Common Stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $38.06 per share of Class A Common Stock (subject to adjustment in certain events). The notes pay cash interest semi-annually on March 1 and September 1 of each year at an annual rate of 3.125% of the principal amount of the notes. BankUnited will pay additional interest on the notes if the average trading price of the notes is above a specified level. Holders of the notes may convert their notes only if: (i) the price of BankUnited’s Class A Common Stock issuable upon conversion of a note reaches a specified threshold; (ii) specified corporate transactions occur; or (iii) BankUnited calls the notes for redemption. The notes are effectively subordinated to all of BankUnited’s senior secured indebtedness and all indebtedness and liabilities of BankUnited’s subsidiaries.

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

See Part II, Item 4, of BankUnited’s Form 10-Q for the quarterly period ended December 31, 2003, as filed with the Securities and Exchange Commission on February 12, 2004, for the information called for by this item.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

4.1

Amendment to the Articles of Incorporation, as amended.

4.2

Indenture, dated February 27, 2004, between BankUnited Financial Corporation and U.S. Bank National Association.

4.3

Registration Rights Agreement, dated February 27, 2004, between BankUnited Financial Corporation and the initial purchasers named therein.

4.4

Form of 3.125% Convertible Senior Note due 2034 (included as Exhibit A to the Indenture).

4.5

Purchase Agreement, dated February 24, 2004, between BankUnited Financial Corporation and the initial purchasers named therein.

31.1

Certification of the Chief Executive Officer pursuant to Section 302, of the Sarbanes-Oxley Act of 2002.

31.2

Certification of the Chief Financial Officer pursuant to Section 302, of the Sarbanes-Oxley Act of 2002.

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.

A current Report on Form 8-K was filed on January 27, 2004 relating to BankUnited’s January 27, 2004 press release setting forth BankUnited’s first quarter 2004 earnings.

A current Report on Form 8-K was filed on February 24, 2004 relating to BankUnited’s February 23, 2004 press release announcing its intent to offer $100 million of convertible senior notes due 2034 to qualified institutional buyers.

A current Report on Form 8-K was filed on February 24, 2004 relating to BankUnited’s February 24, 2004 press release announcing the pricing of its 3.125% convertible senior notes due 2034.

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 12, 2004

/s/ Bernardo Argudin

By:

Bernardo Argudin

Senior Vice President and Principal Accounting Officer

Exhibit Index


Exhibit No.		Description

4.1		Amendment to the Articles of Incorporation, as amended.

4.2		Indenture, dated February 27, 2004, between BankUnited Financial Corporation and U.S. Bank National Association.

4.3		Registration Rights Agreement, dated February 27, 2004, between BankUnited Financial Corporation and the initial purchasers named therein.

4.4		Form of 3.125% Convertible Senior Note due 2034 (included as Exhibit A to the Indenture).

4.5		Purchase Agreement, dated February 24, 2004, between BankUnited Financial Corporation and the initial purchasers named therein.

31.1		Certification of the Chief Executive Officer pursuant to Section 302, of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer pursuant to Section 302, of the Sarbanes-Oxley Act of 2002.

32		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.

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