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 June 30, 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 August 2, 2004 was 29,471,990 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 35 pages.

The Index to Exhibits appears on page 35.

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 2004

TABLE OF CONTENTS


		Page No.
PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

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

Consolidated Statements of Income (unaudited) for the Three and Nine Months Ended June 30, 2004 and 2003		4

Consolidated Statements of Stockholders’ Equity (unaudited) for the Nine Months Ended June 30, 2004 and 2003		5

Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended June 30, 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 6. Exhibits and Reports on Form 8-K		33

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	June 30, 2004			September 30, 2003
	(Dollars in thousands, except share data)
Assets:
Cash	$	33,889		$	28,810
Federal Home Loan Bank overnight deposits		19,272			195,365
Federal funds sold		876			2,723
Investments available for sale, at fair value		329,354			296,677
Mortgage-backed securities available for sale, at fair value		2,280,089			2,064,981
Mortgage loans held for sale		31,102			286,796
Loans held in portfolio		5,179,336			3,925,077
Add: Unearned discounts, premiums and deferred fees, net		51,336			36,806
Less: Allowance for loan losses		(23,297	)		(22,295	)

Loans held in portfolio, net		5,207,375			3,939,588

FHLB stock and other earning assets		143,716			123,431
Office properties and equipment, net		23,764			20,278
Real estate owned		2,231			4,290
Accrued interest receivable		31,003			28,452
Mortgage servicing rights		14,984			12,930
Goodwill		28,353			28,353
Bank-owned life insurance		87,205			84,155
Prepaid expenses and other assets		28,800			28,314

Total assets	$	8,262,013		$	7,145,143

Liabilities and Stockholders’ Equity:
Liabilities:
Interest bearing deposits	$	3,207,865		$	3,038,594
Non-interest bearing deposits		237,625			197,512
Securities sold under agreements to repurchase		1,128,716			517,297
Advances from Federal Home Loan Bank		2,848,194			2,460,291
Senior notes		—			200,000
Convertible senior notes		120,000			—
Trust preferred securities and subordinated debentures		164,178			162,219
Interest payable		14,215			14,331
Advance payments by borrowers for taxes and insurance		41,874			47,081
Accrued expenses and other liabilities		37,859			60,445

Total liabilities		7,800,526			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—803,405 and 739,007 Outstanding shares—766,685 and 712,287 Treasury shares—26,720		(528	)		(528	)
Class A common stock, $0.01 par value		298			295
Authorized shares—60,000,000 Issued shares—29,806,782 and 29,476,616 Outstanding shares—29,469,290 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		333,276			328,017
Retained earnings		152,720			116,370
Deferred compensation		1,084			794
Accumulated other comprehensive (loss) income		(21,476	)		5,788

Total stockholders’ equity		461,487			447,373

Total liabilities and stockholders’ equity	$	8,262,013		$	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 June 30,						For the Nine Months Ended June 30,
	2004			2003			2004			2003
	(Dollars and shares in thousands, except per share data)
Interest income:
Interest and fees on loans	$	57,236		$	56,699		$	166,692		$	176,333
Interest on mortgage-backed securities		20,240			17,796			60,226			50,763
Interest and dividends on investments and other interest-earning assets		4,949			4,035			14,547			10,984

Total interest income		82,425			78,530			241,465			238,080

Interest expense:
Interest on deposits		17,856			19,715			54,028			63,471
Interest on borrowings		26,961			25,535			78,112			73,421
Preferred dividends of subsidiary trusts		1,792			4,922			6,466			15,057

Total interest expense		46,609			50,172			138,606			151,949

Net interest income before provision for loan losses		35,816			28,358			102,859			86,131
Provision for loan losses		1,200			1,375			3,375			3,925

Net interest income after provision for loan losses		34,616			26,983			99,484			82,206

Non-interest income:
Loan servicing fees, net of amortization		(164	)		(1,346	)		(1,254	)		(3,228	)
Impairment of mortgage servicing rights		—			—			(1,200	)		—
Loan fees		1,196			1,372			3,129			3,562
Deposit fees		1,060			1,017			3,223			3,037
Other fees		503			410			1,442			1,014
Net (loss) gain on sale of investments and mortgage-backed securities		(1,571	)		4,085			(1,833	)		4,840
Net gain on sale of loans and other assets		2,672			2,555			5,952			6,323
Insurance and investment services income		1,096			771			3,222			2,091
Other		1,690			1,158			3,972			4,180

Total non-interest income		6,482			10,022			16,653			21,819

Non-interest expenses:
Employee compensation and benefits		11,244			9,569			31,309			27,938
Occupancy and equipment		4,475			3,172			12,511			9,125
Telecommunications and data processing		1,485			1,310			4,278			3,729
Advertising and promotion expense		1,680			1,021			4,118			3,464
Professional fees-legal and accounting		1,176			864			3,520			3,211
Loan closing fees		6			827			1,421			2,362
Other operating expenses		2,495			5,915			5,719			12,395

Total non-interest expenses		22,561			22,678			62,876			62,224

Income before income taxes		18,537			14,327			53,261			41,801
Provision for income taxes		5,497			4,700			16,633			13,782

Net income	$	13,040		$	9,627		$	36,628		$	28,019


Earnings Per Share:
Basic earnings per share	$	0.43		$	0.35		$	1.22		$	1.07

Diluted earnings per share	$	0.41		$	0.33		$	1.14		$	0.99

Weighted average number of common shares outstanding:
Basic		29,894			27,124			29,805			25,973
Diluted		32,175			29,438			32,124			28,197

See accompanying condensed notes to consolidated financial statements

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	For the Nine Months Ended June 30, 2004 and 2003
	Preferred Stock		Common Stock		Paid-in Capital		Retained Earnings			Treasury Stock			Deferred Compensation		Accumulated Other Comprehensive Income (Loss) Net of Tax			Total Stockholders’ Equity
	(In thousands)
Balance at September 30, 2003	$	7	$	301	$	328,017	$	116,370		$	(3,904	)	$	794	$	5,788		$	447,373
Comprehensive income (loss):
Net income for the nine months ended June 30, 2004		—		—		—		36,628			—			—		—			36,628
Other comprehensive loss, net of tax		—		—		—		—			—			—		(27,264	)		(27,264	)

Total comprehensive income		—		—		—		—			—			—		—			9,364
Payment of preferred stock dividends				—		—		(278	)		—			—		—			(278	)
Deferral of compensation		—		—		—		—			—			290		—			290
Purchase of stock		—		—		—		—			(525	)		—		—			(525	)
Stock options and restricted stock		1		3		5,259		—			—			—		—			5,263

Balance at June 30, 2004	$	8	$	304	$	333,276	$	152,720		$	(4,429	)	$	1,084	$	(21,476	)	$	461,487



	Preferred Stock		Common Stock		Paid-in Capital		Retained Earnings			Treasury Stock			Deferred Compensation	Accumulated Other Comprehensive Income Net of Tax		Total Stockholders’ Equity
	(In thousands)
Balance at September 30, 2002	$	6	$	255	$	253,511	$	77,566		$	(3,322	)	$528	$	16,605	$	345,149
Comprehensive income:
Net income for the nine months ended June 30, 2003		—		—		—		28,019			—		—		—		28,019
Other comprehensive income, net of tax		—		—		—		—			—		—		195		195

Total comprehensive income		—		—		—		—			—		—		—		28,214
Payment of preferred stock dividends		—		—		—		(237	)		—		—		—		(237	)
Deferral of compensation		—		—		—		—			—		169		—		169
Purchase of stock		—		—		—		—			(485	)	—		—		(485	)
Issuance of stock, stock options and restricted stock		1		45		72,639		—			—		—		—		72,685

Balance at June 30, 2003	$	7	$	300	$	326,150	$	105,348		$	(3,807	)	$697	$	16,800	$	445,495

See accompanying condensed notes to consolidated financial statements

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Nine Months Ended June 30,
	2004			2003
	(In thousands)
Cash flows used in operating activities	$	(106,757	)	$	(490,955	)
Cash flows from investing activities:
Net increase in loans held in portfolio		(1,183,821	)		(113,094	)
Purchase of investment securities available for sale		(43,769	)		(202,768	)
Purchase of mortgage-backed securities available for sale		(1,115,137	)		(1,681,620	)
Purchase of other earning assets		(108,385	)		(98,516	)
Purchase of bank-owned life insurance		—			(27,500	)
Purchase of office properties and equipment		(7,119	)		(3,630	)
Proceeds from repayments of investment securities available for sale		3,034			50,303
Proceeds from repayments of mortgage-backed securities available for sale		729,313			821,388
Proceeds from repayments of other earning assets		88,100			72,867
Proceeds from sale of investment securities available for sale		2,867			41,051
Proceeds from sale of mortgage-backed securities available for sale		439,566			552,780
Proceeds from sale of real estate owned and other assets		6,142			2,672

Net cash used in investing activities		(1,189,209	)		(586,067	)

Cash flows from financing activities:
Net increase in deposits		209,384			182,248
Net increase in Federal Home Loan Bank advances		387,903			513,158
Net increase in securities sold under agreements to repurchase		611,419			8,495
Guarantee fees for senior notes		—			(113	)
Maturity of senior notes		(200,000	)		—
Redemption of Trust Preferred Securities		—			(159,580	)
Proceeds from issuance of convertible senior notes		116,661			—
Net proceeds from issuance of Trust Preferred Securities		—			65,630
Net proceeds from issuance of stock		3,223			71,681
Dividends paid on preferred stock		(278	)		(237	)
Decrease in advances from borrowers for taxes and insurance		(5,207	)		(6,531	)

Net cash provided by financing activities		1,123,105			674,751

Decrease in cash and cash equivalents		(172,861	)		(402,271	)
Cash and cash equivalents at beginning of period		226,898			472,290

Cash and cash equivalents at end of period	$	54,037		$	70,019

Supplemental disclosure of non-cash investing and financing activities:
Securitization of mortgage loans held for sale	$	319,810		$	506,999
Transfer of loans held for sale to portfolio	$	99,796		$	4,361
Securities purchased pending settlement		—		$	247,313
Securities sold pending settlement		—		$	58,501

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 June 30, 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 June 30, 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 nine-month periods ended June 30, 2004 compared to the same period in the prior year:


	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2004			2003			2004			2003
	(Dollars in thousands)
Net income, as reported	$	13,040		$	9,627		$	36,628		$	28,019
Add: Total stock-based employee and director compensation expense included in net income, net of related tax effects		460			16			1,134			16
Deduct: Total stock-based employee and director compensation expense determined under the fair value based method for all awards, net of related tax effects		(935	)		(611	)		(2,455	)		(1,372	)

Pro forma net income	$	12,565		$	9,032		$	35,307		$	26,663

Earnings per share:
Basic — as reported	$	0.43		$	0.35		$	1.22		$	1.07

Basic — pro forma	$	0.42		$	0.33		$	1.18		$	1.02

Diluted — as reported	$	0.41		$	0.33		$	1.14		$	0.99

Diluted — pro forma	$	0.39		$	0.31		$	1.10		$	0.95

Assumptions for weighted average grant-date fair value of options using the Black Scholes option pricing model are as follows:
Dividend yield		—			—			—			—
Expected volatility		32	%		38	%		32	%		38	%
Risk free interest rate		3.85	%		3.11	%		3.34	%		3.55	%
Expected life (years)		5.81			7.00			5.25			7.00

(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. Currently, BankUnited Capital is the only trust subsidiary consolidated by BankUnited. BankUnited meets the consolidation criteria under FIN 46 with respect to BankUnited Capital due to its ownership of the majority of preferred shares issued by that trust. 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. FIN 46 does not require restatement of prior year balances. FIN 46 and FIN 46R have 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 June 30, 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. Accounting guidance issued prior to SAB 105 requires entities, that make mortgage-loan commitments on loans it intends to sell, to recognize them on the balance at fair value through expiration or funding, but does not address how to measure fair value. SAB 105 clarifies this guidance by defining measurement of fair value at the balance sheet date as only the difference 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. Prior to SAB 105, BankUnited based 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, therefore, SAB 105 will not have an impact on its financial statements.

3. Securities Portfolio

Investments

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


	June 30, 2004
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
U.S. government agency securities	$	52,049	$	—	$	(514	)	$	51,535
Preferred stock of the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Federal National Mortgage Association (“FNMA”)		96,091		103		(2,435	)		93,759
Equity securities		932		—		(1	)		931
Trust preferred securities of other issuers		88,609		3,136		(349	)		91,396
Other(1)		94,424		23		(2,714	)		91,733

Total	$	332,105	$	3,262	$	(6,013	)	$	329,354


	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
Preferred stock of the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Federal National Mortgage Association (“FNMA”)		81,393		319		(242	)		81,470
Equity securities		861		—		—			861
Trust preferred securities of other issuers		85,493		3,931		(682	)		88,742
Other(1)		72,734		34		(858	)		71,910

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

(1)

Other includes mutual funds and other bonds.

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Investment securities available for sale as of June 30, 2004, by contractual maturity, are shown below.


	June 30, 2004
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	9,779	$	9,761
Due after one year through five years		37,603		37,543
Due after five years through ten years		52,505		51,578
Due after ten years		231,286		229,541
Equity securities		932		931

Total	$	332,105	$	329,354

Mortgage-Backed Securities

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


	June 30, 2004
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
GNMA mortgage-backed securities(1)	$	1,573	$	78	$	(5	)	$	1,646
FNMA mortgage-backed securities		408,373		439		(8,207	)		400,605
FHLMC mortgage-backed securities		119,678		93		(2,463	)		117,308
Collateralized mortgage obligations		9,164		17		(45	)		9,136
Mortgage pass-through certificates		1,771,269		1,999		(21,874	)		1,751,394

Total(2)	$	2,310,057	$	2,626	$	(32,594	)	$	2,280,089


	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 June 30, 2004 and September 30, 2003, there were $1.1 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 June 30, 2004, by expected maturities, are shown below.


	June 30, 2004
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	829,178	$	818,421
Due after one year through five years		1,319,821		1,302,700
Due after five years through ten years		59,733		58,958
Due after ten years		101,325		100,010

Total	$	2,310,057	$	2,280,089

Based on the internal model used by BankUnited, estimated average duration of the mortgage-backed securities portfolio as of June 30, 2004 was 2.67 years. This duration is extended to 3.14 years in a hypothical scenario which adds 100 basis points to market interest rates. The reader needs to be cautioned that the model used by BankUnited is based on assumptions which may differ from their eventual outcome.

4. Convertible Senior Notes

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 which had no value at issuance and at June 30, 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 ended 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.

Current accounting guidance provides that until the conversion contingency is met, the shares underlying the notes are not included in the calculation of 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. The Emerging Issues Task Force the FASB (“EITF”) reached a tentative conclusion on Issue No. 04-8, “Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect of Diluted Earnings Per Share” (“EITF Issues No. 04-8”), which would require all shares that are contingently issuable under convertible debt instruments be included in the calculation of diluted earnings per share, disregarding the conversion contingency. The EITF agreed that the tentative

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

conclusion would be applied by retroactively restating previously reported diluted earnings per share. This transition differs from the standard EITF transition, but is consistent with the transition provisions of previous consensuses and other accounting standards that have affected the computation and presentation of earnings per share. If the tentative conclusion is adopted by the EITF, the expected effective date would be for fiscal periods ending after December 15, 2004.

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. As of June 30, 2004, BankUnited did not have any senior secured indebtedness.

5. Earnings Per Share

The following tables reconcile basic and diluted earnings per share for the three and nine months ended June 30, 2004 and 2003.


	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2004		2003		2004		2003
	(Dollars and shares in thousands, except per share data)
Basic earnings per share:
Numerator:
Net income	$	13,040	$	9,627	$	36,628	$	28,019
Preferred stock dividends		98		79		278		237

Net income available to common stockholders	$	12,942	$	9,548	$	36,350	$	27,782

Denominator:
Weighted average common shares outstanding		29,894		27,124		29,805		25,973

Basic earnings per share	$	0.43	$	0.35	$	1.22	$	1.07

Diluted earnings per share:
Numerator:
Net income available to common stockholders	$	12,942	$	9,548	$	36,350	$	27,782
Plus:
Convertible preferred stock dividends		98		79		278		237

Diluted net income available to common stockholders	$	13,040	$	9,627	$	36,628	$	28,019

Denominator:
Weighted average common shares outstanding		29,894		27,124		29,805		25,973
Plus:
Stock options and restricted stock		1,508		1,231		1,556		1,157
Convertible preferred stock		773		1,083		763		1,067

Diluted weighted average shares outstanding		32,175		29,438		32,124		28,197

Diluted earnings per share	$	0.41	$	0.33	$	1.14	$	0.99

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Diluted earnings per share is calculated under the treasury stock method by dividing net income by the weighted average number of shares of common 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; antidilutive options and restricted stock awards are not considered in the computation of dilutive earnings per share.

6. Regulatory Capital

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


	As of June 30, 2004			As of September 30, 2003
	(Dollars in thousands)
Tier 1 Leverage Capital
Amount	$	584,345		$	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	$	584,345		$	514,690
Actual Ratio		15.1	%		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	$	605,021		$	534,062
Actual Ratio		15.6	%		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.

In April of 2004, BankUnited Financial Corporation contributed $30 million in additional capital to the Bank funded by proceeds it received from the issuance of $120 million of convertible senior notes in February and March of 2004.

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7. Comprehensive (Loss) Income

BankUnited’s comprehensive income includes all items which comprise net income, plus other comprehensive (loss) income. For the three and nine months ended June 30, 2004 and 2003 BankUnited’s other comprehensive (loss) income was as follows:


	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2004			2003			2004			2003
	(In thousands)
Net income	$	13,040		$	9,627		$	36,628		$	28,019
Other comprehensive (loss) income, net of tax:
Unrealized (loss) income arising during the period on securities, net of tax (benefit) expense of $(15,992) and $(40) for the three months ended June 30, 2004 and 2003, respectively, and $(14,093), and $2,211 for the nine months ended June 30, 2004 and 2003, respectively		(29,699	)		(73	)		(26,173	)		3,931
Unrealized loss on cash flow hedges, net of tax benefit of $824 and $340 for the three months ended June 30, 2004 and 2003, respectively, and $602, and $657 for the nine months ended June 30, 2004 and 2003, respectively		(1,530	)		(636	)		(1,119	)		(1,168	)
Less reclassification adjustment for:
Realized gains on securities sold included in net income, net of tax of $1,106 for the three months ended June 30, 2003, and $254, and $1,676 for the nine months ended June 30, 2004 and 2003, respectively		—			2,070			472			2,979
Realized losses on cash flow hedges, net of tax benefit of $92 and $84 for the three months ended June 30, 2004 and 2003, respectively, and $269 and $231 for the nine months ended June 30, 2004 and 2003, respectively		(171	)		(157	)		(500	)		(411	)

Total other comprehensive (loss) income, net of tax		(31,058	)		(2,622	)		(27,264	)		195

Comprehensive (loss) income	$	(18,018	)	$	7,005		$	9,364		$	28,214

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 statements of income during the three and nine months ended June 30, 2004 and 2003:


	For the Three Months Ended June 30,					For the Nine Months Ended June 30,
	2004			2003		2004		2003
	(In thousands)
Fair Value Hedges
Net (loss) gain recorded in earnings due to ineffectiveness	$	187		$	—	$	188	$	—

Other Derivatives (1)
Net (loss) gain recorded in earnings	$	(111	)	$	30	$	630	$	206

Note:

There was no ineffectiveness related to cash flow hedges during the three and nine months ended June 30, 2004 and 2003. Within the next 12 months, BankUnited estimates that $0.1 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 $49.0 million and $51.6 million as of June 30, 2004 and September 30, 2003, respectively. Fees collected on standby letters of credit and risk participations are deferred and amortized over their term, which is typically one year or less.

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

10. Related Party Transactions

The following table provides an analysis of changes in the amounts of related party loans during the nine months ended June 30, 2004:


	Related Party Loans
	(in thousands)
Beginning balance, September 30, 2003	$	6,307
Additions		827
Payments		(852	)
Other (1)		(937	)

Ending balance, June 30, 2004	$	5,345

(1)

Other represents loans to individuals who are no longer related parties.

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 nine month periods ended June 30, 2004 and 2003 and consolidated financial condition as of June 30, 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 FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 interest rates; 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 two quarters ended June 30, 2004.

RESULTS OF OPERATIONS

For the Three Months Ended June 30, 2004 Compared to the Same Period in 2003

General

Net income reached $13.0 million for the three months ended June 30, 2004, up 35% over $9.6 million for the same period in 2003. Basic and diluted earnings were $0.43 and $0.41 per share, respectively, for the quarter, up from $0.35 and $0.33 per share, respectively, for the same quarter last year. The increase in net income of $3.4 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. Yields on loans are reduced by prepayments through accelerated amortization of deferred loan origination costs and premiums.

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 June 30,
	2004							2003
	Average Balance			Interest		Yield/ Rate		Average Balance			Interest		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans, net(1)	$	4,943,639		$	57,236	4.66	%	$	4,074,481		$	56,699	5.57	%
Mortgage-backed securities		2,321,678			20,240	3.51			1,859,634			17,796	3.83
Short-term investments(2)		15,384			66	1.73			21,183			113	2.11
Investment securities and FHLB stock		473,588			4,883	4.15			350,010			3,922	4.48

Total interest-earning assets		7,754,289			82,425	4.25			6,305,308			78,530	4.98

Interest-bearing liabilities:
NOW/money market		606,654			1,021	0.68			579,712			1,224	0.85
Savings		1,024,578			4,355	1.71			778,996			3,228	1.66
Certificates of deposit		1,784,028			12,480	2.81			1,719,289			15,263	3.56
Trust preferred securities and subordinated debentures(3)		165,497			1,792	4.35			266,262			4,922	7.39
Senior notes(4)		120,000			1,070	3.59			200,000			2,796	5.59
FHLB advances and other borrowings		3,736,288			25,891	2.79			2,533,910			22,739	3.55

Total interest-bearing liabilities	$	7,437,045		$	46,609	2.50	%	$	6,078,169		$	50,172	3.29	%

Excess of interest-earning assets over interest-bearing liabilities	$	317,244						$	227,139

Net interest income				$	35,816						$	28,358

Interest rate spread						1.75	%						1.69	%

Net interest margin						1.86	%						1.81	%

Ratio of interest-earning assets to interest-bearing liabilities		104.27	%						103.74	%

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 $16.9 million and $44.6 million for the three months ended June 30, 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 senior notes issued in February and March of 2004, and senior notes up until February 2004, which matured at that time.

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 June 30, 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)	$	12,103		$	(11,566	)	$	537
Mortgage-backed securities		4,424			(1,980	)		2,444
Short-term investments(2)		(31	)		(16	)		(47	)
Investment securities and FHLB stock		1,384			(423	)		961

Total interest-earning assets		17,880			(13,985	)		3,895

Interest expense attributable to:
NOW/money market		57			(260	)		(203	)
Savings		1,019			108			1,127
Certificates of deposit		576			(3,359	)		(2,783	)
Trust Preferred Securities and subordinated debentures(3)		(1,861	)		(1,269	)		(3,130	)
Senior notes(4)		(1,118	)		(608	)		(1,726	)
FHLB advances and other borrowings		10,670			(7,518	)		3,152

Total interest-bearing liabilities		9,343			(12,906	)		(3,563	)

Increase (decrease) in net interest income	$	8,537		$	(1,079	)	$	7,458

(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 senior notes issued in February and March of 2004, and interest expense on senior notes up until February 2004, which matured at that time.

Net interest income before provision for loan losses was $35.8 million for the three months ended June 30, 2004, compared to $28.4 million for the same period in 2003. This improvement is primarily 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 $7.4 million is net the result of favorable volume changes of $8.5 million due substantially to growth in earning assets offset by unfavorable changes of $1.1 million due mainly to a decrease in net yield.

Net interest margin for the three months ended June 30, 2004 was 1.86% compared to 1.81% for the same period in 2003. The improvement resulted primarily from an increase in net interest spread and increased funding from non-interest bearing liabilities.

Interest Income. Interest income increased by $3.9 million for the three months ended June 30, 2004, compared to the same period in 2003. This is the net result of an increase of $17.9 million due to growth in volume of earning assets, offset by a decrease of $14.0 million in yields earned on those assets.

The volume related increases stem mostly from an increase in interest earned on loans of $12.1 million and also includes increases of $4.4 million from interest earned on mortgage-backed securities, and $1.4 million from interest earned on investment securities and FHLB stock. Average loan volume grew by 21% for the third quarter compared to the same period last year and average investment volume grew by 26% over the same period in the prior year. The rate related decreases stem mostly from a decrease in the yield on loans of $11.6 million, and a decrease of $2.0 million from changes in yield on mortgage-backed securities, respectively.

Interest Expense. Interest expense decreased by $3.6 million for the three months ended June 30, 2004, compared to the same period in 2003. This is the net result of a $9.3 million increase due to growth in volume of interest bearing liabilities, offset by a $12.9 million decrease due to a reduction in rates paid on those liabilities.

The most significant volume related activity stems from an increase of 47% in average balances of FHLB advances and other borrowings, which increased interest expense by $10.7 million. The rate related decreases stem from a decrease in interest paid on all categories of interest bearing liabilities with the exception of an increase in interest paid on savings accounts. The most significant decreases related to FHLB advances and other borrowings and certificates of deposit.

Provision for loan losses. The provision for loan losses for the three months ended June 30, 2004 was $1.2 million, compared to $1.4 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 June 30,
	2004			2003			Increase/ (Decrease)
	(Dollars in thousands)
Non-interest income:
Loan servicing fees	$	793		$	579		$	214		37.0	%
Amortization of mortgage servicing rights		(957	)		(1,925	)		968		(50.3	)
Loan fees		1,196			1,372			(176	)	(12.8	)
Deposit fees		1,060			1,017			43		4.2
Other fees		503			410			93		22.7
Net (loss) gain on sale of investment and mortgage-backed securities		(1,571	)		4,085			(5,656	)	(138.5	)
Net gain on sale of loans and other assets		2,672			2,555			117		4.6
Insurance and investment services income		1,096			771			325		42.2
Other		1,690			1,158			532		45.9

Total non-interest income	$	6,482		$	10,022		$	(3,540	)	(35.3	)%


	For the Three Months Ended June 30,
	2004		2003		Increase/ (Decrease)
	(Dollars in thousands)
Non-interest expenses:
Employee compensation and benefits	$	11,244	$	9,569	$	1,675		17.5	%
Occupancy and equipment		4,475		3,172		1,303		41.1
Telecommunications and data processing		1,485		1,310		175		13.4
Advertising and promotion expense		1,680		1,021		659		64.5
Professional fees — legal and accounting		1,176		864		312		36.1
Other operating expenses		2,501		6,742		(4,241	)	(62.9	)

Total non-interest expenses	$	22,561	$	22,678	$	(117	)	(0.5	)%

Analysis of Non-Interest Income and Expenses

Total non-interest income was $6.5 million for the three months ended June 30, 2004, down 35% from the same period in 2003, during which time there was a $4.3 million gain on sales of securities.

BankUnited experienced a slower amortization of mortgage servicing rights for the three months ended June 30, 2004. BankUnited provided for the amortization of $1.0 million of servicing rights for the three months ended June 30, 2004, compared to $1.9 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 $0.2 million from loan servicing fees for the three months ended June 30, 2004 compared to a net loss of $1.3 million for the same period in 2003.

BankUnited realized a net loss of $1.6 million on the sale of mortgage-backed securities during the three months ended June 30, 2004 generated from BankUnited’s securitization activities. During the same period in 2003, BankUnited realized a net gain of $4.3 million on the sale of investment securities and mortgage-backed securities available for sale offset by a loss of $0.2 million generated from BankUnited’s securitization activities.

The net gain on sale of loans and other assets of $2.7 million during the three months ended June 30, 2004, is due mostly to the sale of securitized loans upon which BankUnited retains servicing rights. The net gain on sale of loans and other assets of $2.6 million during the same period in 2003 is also due mostly to the sale of securitized loans.

Insurance and investment services income for the three months ended June 30, 2004, included approximately $1.1 million in commissions from the sale of annuity and other investment products. This amount represents an increase of 42% over such sales during the same period in 2003.

Other income of $1.7 million for the three months ended June 30, 2004 reflects $0.5 million of non-recurring items recognized during the quarter.

Total non-interest expense decreased by $0.1 million or 0.5% for the three months ended June 30, 2004, compared to the same period in 2003. Employee compensation and benefits increased by 17.5% during the three months ended June 30, 2004 over the same period in 2003 reflecting primarily BankUnited’s growth. Occupancy and equipment also increased by 41.1% during the same period mostly as a result of growth in branches and support facilities. Included in other operating expenses for 2003, was a $3.7 million charge related to the redemption of trust preferred securities. Without this occurrence, expenses related to operations for the quarter ended June 30, 2004 would have shown an 18% year over year increase. There was also a decrease of $0.8 million in other operating expenses for the three months ended June 30, 2004 compared to the same period in 2003 due primarily to a reduction in loan documentation review expenses.

Provision for Income Taxes. The effective income tax rate for the three months ended June 30, 2004 was 29.7% compared to 32.8% for the same period in 2003. The provision for the three months ended June 30, 2004 includes approximately $0.5 million in refund claims resulting from amendments of prior period income tax returns. Excluding this amount, the effective income tax rate would have been 32.2%. 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 Nine Months Ended June 30, 2004 Compared to the Same Period in 2003

General


	For the Nine Months Ended June 30,
	2004							2003
	Average Balance			Interest		Yield/ Rate		Average Balance			Interest		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans, net(1)	$	4,571,527		$	166,692	4.87	%	$	4,039,442		$	176,333	5.82	%
Mortgage-backed securities		2,178,089			60,226	3.69			1,617,548			50,763	4.18
Short-term investments(2)		16,459			282	2.28			15,919			340	2.81
Investment securities and FHLB stock		449,989			14,265	4.23			301,428			10,644	4.71

Total interest-earning assets		7,216,064			241,465	4.46			5,974,337			238,080	5.31

Interest-bearing liabilities:
NOW/money market		581,409			2,951	0.68			552,514			4,311	1.04
Savings		951,514			11,990	1.68			740,458			10,460	1.89
Certificates of deposit		1,793,400			39,087	2.91			1,750,181			48,700	3.72
Trust preferred securities and subordinated debentures(3)		165,276			6,466	5.23			273,423			15,057	7.34
Senior notes		144,818			5,709	5.27			200,000			8,408	5.61
FHLB advances and other borrowings		3,268,742			72,403	2.96			2,250,642			65,013	3.81

Total interest-bearing liabilities	$	6,905,159		$	138,606	2.66	%	$	5,767,218			151,949	3.50	%

Excess of interest-earning assets over interest-bearing liabilities	$	310,905						$	207,119

Net interest income				$	102,859						$	86,131

Interest rate spread						1.79	%						1.81	%

Net interest margin						1.90	%						1.94	%

Ratio of interest-earning assets to interest-bearing liabilities		104.50	%						103.59	%

Note:

(1)

Includes loans held for sale. Also includes average non-accruing loans of $25.1 million and $37.5 million for the nine months ended June 30, 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, and senior notes up until February 2004, which matured at that time.


	For the Nine Month Period Ended June 30, 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)	$	23,226		$	(32,867	)	$	(9,641	)
Mortgage-backed securities		17,573			(8,110	)		9,463
Short-term investments(2)		12			(70	)		(58	)
Investment securities and FHLB stock		5,248			(1,627	)		3,621

Total interest-earning assets		46,059			(42,674	)		3,385

Interest expense attributable to:
NOW/money market		225			(1,585	)		(1,360	)
Savings		2,992			(1,462	)		1,530
Certificates of deposit		1,206			(10,819	)		(9,613	)
Trust Preferred Securities and subordinated debentures(3)		(5,953	)		(2,638	)		(8,591	)
Senior notes		(2,322	)		(377	)		(2,699	)
FHLB advances and other borrowings		29,091			(21,701	)		7,390

Total interest-bearing liabilities		25,239			(38,582	)		(13,343	)

Increase (decrease) in net interest income	$	20,820		$	(4,092	)	$	16,728

(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, and interest expense on senior notes up until February 2004, which matured at that time.

Net interest income before provision for loan losses was $103 million for the nine months ended June 30, 2004, $16.7 million over the same period in 2003. The net improvement is the result of an increase of $20.8 million due primarily to growth in average earning asset volume of 21%, offset by a decrease of $4.1 million due mainly to changes in the yields earned on earning assets and rates paid on interest bearing liabilities.

Net interest margin for the nine months ended June 30, 2004 was 1.90% compared to 1.94% for the same period in 2003. This decline in net interest margin is primarily reflective of compression in the interest rate spread. Efforts by BankUnited to reduce the volume of higher cost 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.

Interest Income. Interest income for the nine months ended June 30, 2004 remained relatively flat at $241 million compared to $238 million for the same period in 2003 as a result of an increase of $46 million related to volume, offset by a $43 million decrease due to lower yields on earning assets.

The volume related increases of $46 million resulted from an increase in interest earned on loans of $23.2 million, $17.6 million in interest earned on mortgage-backed securities, and $5.2 million from interest earned on long-term investments and FHLB stock. The rate related decreases resulted mostly from a decrease in interest earned on loans of $33 million, and a decrease of $8.1 million from interest earned on mortgage-backed securities. Average earning assets increased by 21% during the nine months ended June 30, 2004 compared to the same period in 2003.

Interest Expense. Interest expense decreased by $13.3 million for the nine months ended June 30, 2004, compared to the same period in 2003. This is the result of an increase of $25.2 million due to an increase in volume of interest bearing liabilities, offset by a decrease of $38.6 million due to a reduction in rates paid on those liabilities.

The most significant volume related changes was an increase in interest expense of $29.1 million from additional FHLB advances and other borrowings. Borrowed funds increased by 31% during the nine months ended June 30, 2004 compared to the same period in 2003. In addition, there was a decrease in interest expense of $6.0 million which is substantially the result of BankUnited’s redemption of its higher cost trust preferred securities. The most significant rate related changes in interest expense were due to a downward re-pricing of deposits during the nine months ended June 30, 2004, which reduced interest expense by $10.8 million, and a decrease of $21.7 million due to lower rates paid on FHLB on advances and other borrowings. In addition, interest expense decreased by $2.6 million on trust preferred securities and subordinated debentures due in part to the use of interest rate swaps.

Provision for loan losses. The provision for loan losses for the nine months ended June 30, 2004 was $3.4 million, compared to $3.9 million for the same period in 2003, primarily 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 Nine Months Ended June 30,
	2004			2003			Increase/(Decrease)
	(Dollars in thousands)
Non-interest income:
Loan servicing fees	$	2,307		$	1,542		$	765		49.6	%
Amortization of mortgage servicing rights		(3,561	)		(4,770	)		1,209		25.3
Impairment of mortgage servicing rights		(1,200	)		—			(1,200	)	(100.0	)
Loan fees		3,129			3,562			(433	)	(12.2	)
Deposit fees		3,223			3,037			186		6.1
Other fees		1,442			1,014			428		42.2
Net (loss) gain on sale of investment and mortgage-backed securities		(1,833	)		4,840			(6,673	)	(137.9	)
Net gain on sale of loans and other assets		5,952			6,323			(371	)	(5.9	)
Insurance and investment services income		3,222			2,091			1,131		54.1
Other		3,972			4,180			(208	)	(5.0	)

Total non-interest income	$	16,653		$	21,819		$	(5,166	)	(23.7	)%


	For the Nine Months Ended June 30,
	2004			2003			Increase/(Decrease)
	(Dollars in thousands)
Non-interest expenses:
Employee compensation and benefits	$	31,309		$	27,938		$	3,371		12.1	%
Occupancy and equipment		12,511			9,125			3,386		37.1
Telecommunications and data processing		4,278			3,729			549		14.7
Advertising and promotion expense		4,118			3,464			654		18.9
Professional fees — legal and accounting		3,520			3,211			309		9.6
Other operating expenses		7,140			14,757			(7,617	)	(51.6	)

Total non-interest expenses	$	62,876		$	62,224		$	652		1.0	%

Analysis of Non-Interest Income and Expenses

Total non-interest income was $16.7 million for the nine months ended June 30, 2004, down $5.2 million, or 24% from the same period in 2003 during which there was a gain on the sale of securities of $5.7 million.

BankUnited provided for the amortization of $3.6 million of servicing rights for the nine months ended June 30, 2004, compared to $4.8 million for the same period in the previous year. This amortization, offset by fees earned on these loans of $2.3 million, resulted in a net loss of $1.3 million from loan servicing fees for the nine months ended June 30, 2004 compared to a net loss of $3.2 million for the same period in 2003. In addition, BankUnited recorded a $1.2 million impairment charge during the nine months ended June 30, 2004, based on a valuation of its mortgage servicing assets by independent third parties, and none during the same period in 2003.

BankUnited realized a net loss of $1.8 million on the sale of investment securities and mortgage-backed securities during the nine months ended June 30, 2004, comprised of $2.9 million in losses generated from BankUnited’s securitization activities offset by $1.1 million in gains from the sale of investment securities and mortgage-backed securities available for sale. During the same period in 2003, BankUnited realized a net gain of $4.8 million on the sale of investment securities and mortgage-backed securities, comprised of $0.9 million of losses generated from BankUnited’s securitization activities, and $5.7 million of gains from the sale of investment securities and mortgage-backed securities available for sale.

The net gain on sale of loans and other assets of $6.0 million during the nine months ended June 30, 2004, is due mostly to the sale of securitized loans upon which BankUnited retains servicing rights. The net gain on sale of loans and other assets of $6.3 million during the same period in 2003 is also due mostly to the sale of securitized loans.

Included in the insurance and investment services income for the nine months ended June 30, 2004, is approximately $3.3 million in commissions from the sale of annuity and other investment products. This amount represents an increase of $1.2 million, or 55% over such sales during the same period in 2003.

Total non-interest expense increased by $0.7 million or 1.0% for the nine months ended June 30, 2004, compared to the same period in 2003. Employee compensation and benefits increased by 12.1% during the nine months ended June 30, 2004 over the same period in 2003 reflecting BankUnited’s growth. Occupancy and equipment also increased by 37.1% during the same period as a result of growth in branches and support facilities. Included in other operating expenses for 2004, is a gain of $0.8 million from fair value adjustments to derivatives. See note 8. Accounting for Derivatives and Hedging Activities. Also included in other operating expenses for 2003, was a $5.5 million charge related to the redemption of trust-preferred securities, no comparable activity during the same period in 2004. In addition, there was a decrease of $0.9 million in other operating expenses for the nine months ended June 30, 2004 compared to the same period in 2003 due primarily to a reduction in loan documentation review expenses.

Provision for Income Taxes. The effective income tax rate for the nine months ended June 30, 2004 was 31.2% compared to 33.0% for the same period in 2003. The provision for the nine months ended June 30, 2004 includes approximately $0.5 million in refund claims resulting from amended income tax returns from prior periods. Excluding this amount, the effective income tax rate would have been 32.2%. 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 its 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. BankUnited is not aware of any events, or uncertainties, which may impede liquidity in the short or long-term.

As of June 30, 2004, BankUnited had $1.2 billion in investments and mortgage-backed securities pledged against securities sold under agreements to repurchase with an outstanding balance of $1.1 billion, of which, approximately $57 million mature overnight.

As of June 30, 2004, BankUnited had $2.8 billion of FHLB advances outstanding, including approximately $505 million maturing within 30 days. Approximately $675 million of the advances outstanding as of June 30, 2004 were convertible with a weighted average coupon rate approaching 6.00% which, due to their structure, are expected to remain outstanding for another four to five years. As of June 30, 2004, and August 3, 2004, BankUnited had approximately $182 million and $347 million, respectively, of additional borrowings available on its line of credit with the FHLB of Atlanta.

Significant Sources of Funds

During the nine months ended June 30, 2004 and 2003, BankUnited received $1.8 billion and $1.7 billion, respectively, in payments on loans. Proceeds from repayment of mortgage-backed securities for the nine months ended June 30, 2004 were $729 million compared to $821 million for the same period in 2003. BankUnited sold $440 million of mortgage-backed securities during the nine months ended June 30, 2004 compared to $553 million for the same period in 2003.

BankUnited received $388 million from Federal Home loan advances during the nine months ended June 30, 2004 compared to $513 million for the same period in 2003. BankUnited received $611 million from securities sold under agreements to repurchase during the nine months ended June 30, 2004 compared to $8.5 million for the same period in 2003. BankUnited also issued $120 million of convertible debt during the nine months ended June 30, 2004, and none during the same period in 2003. BankUnited received $209 million from additional deposits during the nine months ended June 30, 2004 compared to $182 million for the same period in 2003. During the nine months ended June 30, 2003, BankUnited raised net proceeds of $71.7 million and $65.6 million from the issuance of stock and Trust Preferred Securities, respectively; there were no such issuances during the same period in 2004.

Significant Uses of Funds

BankUnited used $107 million in cash for operating activities during the nine months ended June 30, 2004, compared to $491 million for the same period in 2003. The decrease in the amount of cash used in operating activities of $384 million is due mostly to a decrease in the amount of loans originated for sale of $247 million combined with a decrease in the amount of funds generated from the sale of loans held for sale of $125 million.

During the nine months ended June 30, 2004, BankUnited funded $2.9 billion of portfolio loans as

compared to $1.8 billion in the same period of 2003. In addition, BankUnited purchased $1.1 billion of investment and mortgage-backed securities during the nine months ended June 30, 2004 compared to $1.7 billion in the same period of 2003. BankUnited used $20 million to purchase additional bank-owned life insurance during the nine months ended June 30, 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 June 30, 2004; there were no such payments during the same period in 2003.

FINANCIAL CONDITION

The following is a discussion of significant changes from September 30, 2003 to June 30, 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 $32.7 million during the nine months ended June 30, 2004 to reach $329 million. This net increase is primarily due to purchases of $43.8 million, offset by unrealized losses incurred of $6.0 million, and sales of $3.0 million during the nine months ended June 30, 2004.

Mortgage-backed securities available for sale. Mortgage-backed securities available for sale increased by $215 million during the nine months ended June 30, 2004 to reach $2.3 billion. This net increase is primarily due to purchases of $1.1 billion and securitizations of $319 million, which were offset by repayments of $729 million, sales of $440 million and unrealized losses incurred of $36.9 million during the nine months ended June 30, 2004.

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

FHLB stock and other earning assets. FHLB stock and other earning assets increased by $20.3 million, or 16.5% from $123 million at September 30, 2003 to $143 million at June 30, 2004 from purchases of FHLB stock, which is required to be purchased in proportion to advances received from the FHLB of Atlanta.

Loans. Loans receivable, net (including loans held for sale) increased by $1.0 billion during the nine months ended June 30, 2004 to reach $5.2 billion. During the nine months ended June 30, 2004, BankUnited funded $3.2 billion of loans, which was offset by repayments of $1.8 billion, securitizations of $319 million, sales of $132 million, and a transfer to real estate owned of $3.3 million. The majority of the growth in the portfolio was in one-to-four family residential, which accounted for $1.0 billion of the $1.3 billion increase in the loan portfolio. Loans available for sale declined from $286.8 million as of September 30, 2003 to $31.1 million as of June 30, 2004.

The low balance in loans available for sale as of June 30, 2004 reflects consumer demand for BankUnited portfolio products, which are not Agency conforming. Growth has been centered in BankUnited’s Monthly Treasury Average (MTA) product which adjusts interest rates on a monthly basis but maintains a fixed minimum payment for a year and limits annual minimum payment increases. These loans may result in negative amortization increasing loan balances up to a limit of 115% of the original loan. The balance of one month MTA loans has grown from $319 million at September 30, 2003 to $1.1 billion as of June 30, 2004.

As of June 30, 2004, one to four family residential loans of $4.3 billion were comprised of $3.2 billion, or 74%, adjustable rate mortgages. Included in the adjustable portion of $3.2 billion were $1.7 billion of loans tied to the MTA index. As of September 30, 2003, one to four family residential loans of $3.6 billion were comprised of $2.3 billion, or 64%, adjustable rate mortgages. Included in the adjustable portion of $2.3 billion were $1.2 billion of loans tied to the MTA index.

Loans Receivable

Loans receivable consist of the following:


	As of June 30, 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	$	3,582,045		68.8	%	$	2,653,515		67.4	%
Specialty consumer mortgages		695,722		13.3			613,287		15.5

Total one-to-four family residential		4,277,767		82.1			3,266,802		82.9
Multi-family		52,512		1.0			32,583		0.8
Commercial real estate		268,367		5.2			196,237		5.0
Construction		164,301		3.2			132,778		3.4
Land		91,057		1.7			27,569		0.7

Total real estate loans		4,854,004		93.2			3,655,969		92.8

Other loans:
Commercial		167,451		3.2			152,663		3.9
Consumer(1)		157,881		3.0			116,445		3.0

Total other loans		325,332		6.2			269,108		6.9

Total loans held in portfolio		5,179,336		99.4			3,925,077		99.7
Unearned discounts, premiums and deferred fees, net		51,336		1.0			36,806		0.9
Allowance for loan losses		(23,297	)	(0.4	)		(22,295	)	(0.6	)

Total loans held in portfolio, net		5,207,375		100.0	%		3,939,588		100.0	%

Mortgage loans held for sale		31,102					286,796

Total loans, net	$	5,238,477				$	4,226,384

(1)

Includes home equity loans and lines of credit

Liabilities

Interest bearing deposits. Interest bearing deposits grew by $169 million during the nine months ended June 30, 2004 to reach $3.2 billion. This increase is due mostly to growth in interest bearing core deposits of $187 million offset by a decrease in time deposits of $18 million.

Non-interest bearing deposits. Non-interest bearing deposits grew by $40 million during the nine months ended June 30, 2004 to reach $238 million.

Securities sold under agreements to repurchase. Securities sold under agreements to repurchase increased by $611 million, or 118% to $1.1 billion as of June 30, 2004.

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.

FHLB advances. FHLB advances increased by $388 million, or 15.8%, to $2.8 billion as of June 30, 2004.

Equity

Equity. For information on changes in BankUnited’s stockholders’ equity for the nine months ended June 30, 2004, see BankUnited’s Consolidated Statement of Stockholders’ Equity. For information on senior notes convertible to equity, see Note 4 to the accompanying condensed notes to consolidated financial statements.

Asset Quality

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


	June 30, 2004			September 30, 2003
	(Dollars in thousands)
Non-accrual loans	$	17,549		$	37,080
Restructured loans		369			306
Loans past due 90 days and still accruing		16			276

Total non-performing loans		17,934			37,662
Non-accrual tax certificates		82			334
Real estate owned		2,231			4,290

Total non-performing assets		20,247			42,286

Allowance for losses on tax certificates		78			355
Allowance for loan losses		23,297			22,295

Total allowance	$	23,375		$	22,650

Non-performing assets as a percentage of total assets		0.25	%		0.59	%
Non-performing loans as a percentage of total loans		0.34	%		0.89	%
Allowance for loan losses as a percentage of total loans		0.44	%		0.52	%
Allowance for loan losses as a percentage of non-performing loans		129.90	%		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 nine months ended June 30, 2004 and 2003.


	For the Three Months Ended				For the Nine Months Ended
	June 30, 2004		June 30, 2003		June 30, 2004			June 30, 2003
	(In thousands)
Allowance for loan losses, balance (at beginning of period)	$22,665		$21,662		$	22,295		$	20,293
Provisions for loan losses	1,200		1,375			3,375			3,925
Loans charged off:
One-to-four family residential mortgages(1)	(49)		(85)			(336	)		(256	)
Commercial real-estate	—		—			—			—
Commercial business	(575)		(448)			(1,733	)		(1,423	)
Consumer(1)	(15)		(80)			(53	)		(156	)

Total loans charged off	(639	)	(613	)		(2,122	)		(1,835	)

Recoveries:
One-to-four family residential mortgages(1)	—		—			192			—
Commercial business	70		13			148			44
Consumer(1)	1		4			8			14

Total recoveries	71		17			348			58

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

Allowance for loan losses, balance (at end of period)	$23,297		$22,441		$	23,297		$	22,441

(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 June 30, 2004 and September 30, 2003.


	June 30, 2004		September 30, 2003
	(In thousands)
Balance at the end of the period applicable to:
One-to-four family residential mortgages(1)	$	4,512	$	3,807
Multi-family residential mortgages		420		358
Commercial real estate		3,026		4,166
Construction		1,314		1,461
Land		728		303
Commercial business		7,450		8,128
Consumer(1)		2,569		2,415
Unallocated		3,278		1,657

Total allowance for loan losses	$	23,297	$	22,295

(1)

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

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 nine months ended June 30, 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. Based on our current asset/liability model, a measured rise in interest rates over the next year is not expected to have a significant negative effect on interest rate margin.

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. We may make changes to our disclosure controls and procedures periodically, as we review their design and effectiveness on a continuing basis; no change in internal control over financial reporting occurred during the quarter ended June 30, 2004, that has materially affected, or is likely to materially affect, such internal control over financial reporting. 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.

PART II—OTHER INFORMATION

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

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.

(b) Reports on Form 8-K.

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

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: August 13, 2004

/s/ Bernardo Argudin

By:

Bernardo Argudin

Senior Vice President and Principal Accounting Officer

Exhibit Index


Exhibit No.		Description

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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