DEF 14A 1 ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant    x

Filed by a Party Other Than the Registrant    ¨

Check the appropriate box:

 

¨        Preliminary Proxy Statement

 

¨        Confidential, for use of the Commission only
(as permitted by Rule 14a-6(e)(2))

x        Definitive Proxy Statement

 

¨        Definitive Additional Materials

 

¨        Soliciting Material Pursuant to §240.14a-12

 

BANKUNITED FINANCIAL CORPORATION

 

 

(Name of Registrant as Specified in Its Articles of Incorporation)

Payment of Filing Fee (Check the appropriate box):

x    No fee required.

¨    Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  1) Title of each class of securities to which transaction applies:                                                                          

 

  2) Aggregate number of securities to which transaction applies:                                                                         

 

  3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:                                                                                                                                                                                      

 

  4) Proposed maximum aggregate value of transaction (set forth the amount on which the filing fee is calculated and state how it was determined):                                                                                                          

 

  5) Total fee paid:                                                                                                                                                                    

¨    Fee paid previously with preliminary materials.

 

  ¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  1) Amount Previously Paid:                                                                                                                                               

 

  2) Form, Schedule or Registration Statement No.:                                                                                                     

 

  3) Filing Party:                                                                                                                                                                        


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LOGO

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON FRIDAY, JUNE 27, 2008

NOTICE IS HEREBY GIVEN that a special meeting of stockholders, or the “Special Meeting,” of BankUnited Financial Corporation, a Florida corporation (the “Company”), will be held at Shula’s Hotel & Golf Club, 6842 Main Street, Miami Lakes, FL 33014 on Friday, June 27, 2008 at 7:30 A.M. local time for the following purposes:

(1) To vote upon an amendment to Article VI of the Company’s Amended Articles of Incorporation to increase the number of shares of Series I Class A Common Stock, par value $0.01 per share, that the Company is authorized to issue, from 200,000,000 shares to 500,000,000 shares.

(2) To transact such other business as may properly come before the Special Meeting and any postponements or adjournments thereof.

Pursuant to the Company’s Bylaws, the Board of Directors has fixed the close of business on June 16, 2008 as the record date for the determination of the stockholders entitled to notice of and to vote at the Special Meeting.

By Order of the Board of Directors
/s/    LAWRENCE H. BLUM

LAWRENCE H. BLUM

Secretary

Coral Gables, Florida

June 17, 2008

YOUR VOTE IS VERY IMPORTANT TO US. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE VOTE BY PROXY CARD OR VOTE OVER THE TELEPHONE OR THE INTERNET, AS INSTRUCTED HEREIN. IF YOU VOTE BY PROXY CARD, PLEASE COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE PRE-PAID RETURN ENVELOPE ENCLOSED HEREIN. SENDING IN YOUR PROXY CARD WILL NOT PREVENT YOU FROM VOTING YOUR SHARES IN PERSON AT THE SPECIAL MEETING IF YOU DESIRE TO DO SO.


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BANKUNITED FINANCIAL CORPORATION

255 Alhambra Circle • Coral Gables, Florida 33134

Telephone: (305) 569-2000

PROXY STATEMENT

INTRODUCTION

We are sending this Proxy Statement to you as a stockholder of BankUnited Financial Corporation, a Florida corporation (the “Company,” “we” or “us”), in connection with the solicitation of proxies for the special meeting of stockholders (the “Special Meeting”) to be held at Shula’s Hotel & Golf Club, 6842 Main Street, Miami Lakes, FL 33014 on Friday, June 27, 2008. Our Board of Directors (the “Board” or “Board of Directors”) is soliciting proxies for use at the Special Meeting and at any postponements or adjournments thereof. Only stockholders of record as of the close of business on June 16, 2008, which we refer to as the record date, will be entitled to vote at the Special Meeting. The proxy solicitation materials for the Special Meeting will be distributed to stockholders of record on or about June 17, 2008.

ANSWERS TO YOUR QUESTIONS ABOUT VOTING AND SOLICITATION OF PROXIES

Why am I receiving these materials?

This Proxy Statement and the related proxy materials are being sent to our stockholders in connection with the Special Meeting, which will be held on June 27, 2008. These materials are being furnished to you in connection with a solicitation of proxies by our Board of Directors to vote on the proposals described herein.

What is the purpose of the Special Meeting?

At the Special Meeting, our stockholders will consider and vote on the following proposals:

(1) an amendment to Article VI of our Amended Articles of Incorporation to increase the number of shares of Series I Class A Common Stock that the Company is authorized to issue from 200,000,000 shares to 500,000,000 shares. We refer to this as “Proposal One.”

(2) to transact such other business as may properly come before the Special Meeting and any postponements or adjournments thereof.

If other matters are properly presented, it is the intention of the persons designated as proxies on the enclosed proxy card to vote as proxies on such matters in accordance with their judgment.

Who is entitled to vote?

All stockholders of record of our Series I Class A Common Stock, Class B Common Stock and Noncumulative Convertible Preferred Stock, Series B (also referred to as our “Class A common stock,” “Class B common stock” and “Series B preferred stock,” respectively), as of the close of business on June 16, 2008, are entitled to vote at the Special Meeting and any postponements or adjournments thereof.

Each share of Class A common stock is entitled to one-tenth of one vote, each share of Class B common stock is entitled to one vote and each share of Series B preferred stock is entitled to two and one-half votes on each matter for which such shares are entitled to vote. As of the record date, 35,190,741 shares of Class A common stock, 479,734 shares of Class B common stock, and 1,238,133 shares of Series B preferred stock were outstanding.

How do I cast my vote?

If you are a stockholder on the record date, you may vote by one of the following methods: (1) in person at the Special Meeting; (2) via the Internet; (3) by telephone; or (4) by mail. Whichever method you use, the

 

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proxies identified on the proxy card will vote your shares in accordance with your instructions. If a proxy card is submitted without giving specific voting instructions, the proxies will vote your shares as recommended by our Board of Directors, which will be a vote “FOR” the adoption of Proposal One.

If you wish to vote by electronic means, you may vote at www.voteproxy.com. Alternatively, you may vote your shares by telephone if you reside in the United States by calling 1-800-PROXIES (1-800-776-9437). Please refer to your proxy card when accessing the web or voting by telephone and follow the instructions listed on the proxy card.

If you own your shares in “street name,” you must instruct the broker or nominee as to how your shares should be voted. Your broker or nominee will provide you with appropriate instructions on completing this process. If you vote your shares in this manner, you will not be able to vote in person at the Special Meeting unless you receive a proxy to do so from the broker or nominee.

How Do I Vote in Person at the Special Meeting?

You may vote shares held directly in your name as the stockholder of record in person at the Special Meeting. If you choose to vote your shares in person at the Special Meeting, please bring the enclosed proxy card or proof of identification. The Special Meeting will be held at Shula’s Hotel & Golf Club, 6842 Main Street, Miami Lakes, FL 33014 on Friday, June 27, 2008. To obtain directions to Shula’s Hotel & Golf Club, you can contact BankUnited Investor Relations at (305) 569-3449.

How do I revoke or change my vote?

A proxy may be revoked at any time prior to the use of that proxy in voting. Any stockholder may revoke a proxy previously delivered by (1) delivering written notice of revocation to our Secretary; (2) submitting a later-dated proxy card; or (3) voting in person at the Special Meeting.

Any stockholder holding shares in “street name,” i.e. through a brokerage account or in another nominee form, must contact the broker or nominee to obtain instructions for revoking the proxy instructions.

Can the proxy materials be accessed electronically?

We are sending the proxy materials to stockholders as of the record date by first-class U.S. mail. The proxy materials are also available on the Internet and can be accessed at www.bankunited.com.

Who will count the votes?

American Stock Transfer & Trust Company, our transfer agent, will tabulate the votes for the Special Meeting using an automated system.

What is the vote required for approval?

Proposal One requires the affirmative vote of a majority of the votes that are cast by the Class A common stock with the Class B common stock and the Series B preferred stock voting as a single class and that are present in person or by proxy at the Special Meeting and entitled to vote. Votes withheld and broker non-votes will not be considered affirmative votes for this purpose and therefore will have the effect of a vote against each proposal. A broker non-vote is a proxy received from a broker or other nominee holding shares on behalf of a client who has not given specific voting instructions on non-routine matters, such as those that are to be voted on at the Special Meeting.

As of May 5, 2008, our directors and executive officers held shares representing in the aggregate approximately 51.8% of the votes entitled to be cast on Proposal One.

 

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How is a quorum determined?

The presence of a quorum at the Special Meeting will be necessary for action on any proposal. The presence, in person or by proxy, of shares representing at least a majority of the votes entitled to be cast at the Special Meeting is necessary to constitute a quorum for the transaction of business at the meeting.

Abstentions and broker non-votes are included in the calculation of the number of votes represented at the Special Meeting for purposes of determining whether a quorum has been achieved. A broker non-vote is a proxy received from a broker or other nominee holding shares on behalf of a client who has not given specific voting instructions on non-routine matters, such as those that are to be voted on at the Special Meeting. In the event there are not sufficient represented shares for a quorum, the Special Meeting may be adjourned from time to time until a quorum is obtained.

Who is making this solicitation?

The solicitation of proxies is being made by and on behalf of the Company. We will bear all the costs of preparing, printing and mailing the materials in connection with this solicitation of proxies. In addition, we may retain a solicitor to assist in the solicitation and distribution of proxies for a fee not expected to exceed $20,000 plus reasonable and other related expenses. Our directors, officers and regular employees may solicit proxies personally or by U.S. mail, telephone or facsimile. Such persons will receive no additional compensation for performing such activities. We will reimburse persons holding our stock in their names or in the names of nominees, but not owning such shares beneficially, such as brokerage houses, banks and other fiduciaries, for the expense of forwarding solicitation materials to their principals.

 

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PROPOSAL ONE

Approval of an amendment of our Amended Articles of Incorporation to increase the authorized shares of Class A common stock from 200,000,000 to 500,000,000.

Description of the Amendment

The Board of Directors has unanimously approved and is submitting to stockholders for approval an amendment to Article VI of our Amended Articles of Incorporation to increase the number of authorized shares of Class A common stock from 200,000,000 shares to 500,000,000 shares. The text of this amendment is attached to this Proxy Statement as Exhibit A. The Amended Articles of Incorporation currently authorize the issuance of up to 200,000,000 shares of the Class A common stock, 3,000,000 shares of Class B common stock and 10,000,000 shares of preferred stock. As of June 16, 2008, 35,190,741 shares of Class A common stock, 479,734 shares Class B common stock and 1,238,133 shares of Series B preferred stock were outstanding. The Series B preferred stock is currently the only outstanding series of preferred stock.

Background

The Board of Directors has unanimously approved an amendment to Article VI of our Amended Articles of Incorporation to increase the number of shares of Class A common stock to 500,000,000 from 200,000,000, subject to the approval of our stockholders. We are submitting this Proposal One for your vote and are asking that you approve this amendment to our Amended Articles of Incorporation.

Once our stockholders approve a level of authorized shares for any class of our capital stock, no subsequent approval by stockholders is required for the issuance of shares of that class in an amount up to the number of shares authorized, except to the extent required under the rules of the NASDAQ Global Select Market. Pursuant to our Amended Articles of Incorporation, the Board of Directors may determine the relative rights our Class A common stock and preferred stock, including voting, conversion, liquidation and dividend rights and sinking fund provisions. Our Amended Articles of Incorporation provide that no holder of our capital stock will have any preemptive rights to acquire any of our securities. The proposed amendment would increase the number of authorized shares of Class A common stock by 300,000,000. The rights of the additional authorized shares of Class A common stock would be identical to the rights of the shares of Class A common stock currently outstanding, including the right to cast one-tenth of one vote per share and to participate in dividends when and to the extent declared and paid.

Reasons for the Proposed Amendment

The Board of Directors is recommending an increase in the number of authorized shares of Class A common stock from 200,000,000 to 500,000,000 shares notwithstanding the fact that, on Tuesday May 27, 2008, our shareholders approved an amendment to our Amended Articles of Incorporation to increase the number of authorized shares of Class A common stock from 100,000,000 to 200,000,000 shares. Although management and the Board of Directors believed that the increase in the number of authorized shares of Class A common stock to 200,000,000 shares would be sufficient, management and the Board of Directors now believe that in light of the continued deterioration of the real estate and credit markets a further increase is necessary to provide us with sufficient flexibility to seek to raise capital.

At this time, based on consultations with their advisors, our management and Board of Directors believe that we should seek to offer common equity that provides us approximately $400 million of proceeds. In order to insure sufficient available shares for the offering and for other corporate purposes, management and the Board of Directors have determined that it would be prudent and advisable to further increase the amount of authorized shares of Class A common stock from 200,000,000 to 500,000,000 shares.

 

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If the proposal is not approved, it is possible that the Company will not be able to raise the level of capital that the Board of Directors believes is necessary to address the continued deterioration in the real estate and credit markets.

Dilution of Existing Shareholders

Currently the Company has 35,190,741 shares of Class A common stock outstanding 2,970,136 shares reserved for issuance upon the exercise of options and 7,866,626 reserved for issuance upon the conversion of convertible instruments. If the proposed amendment is approved at the Special Meeting, the number of shares of our Class A common stock would increase by 150%. If our shareholders approve the proposed amendment to increase the number of authorized shares of Class A common stock to 500,000,000, we could issue additional shares of Class A common stock without further stockholder approval in one or more public offerings or private placements of securities that could be economically increasingly dilutive to the existing stockholders. The closing price of our Class A common stock on the NASDAQ Global Select Market was $3.51 on June 13, 2008.

Proposed Change of Share Voting

In connection with our efforts to raise capital, we have determined that the success of such efforts would be enhanced if there were equivalent voting rights across its classes of shares. At this time, the holders of the Company’s shares of Class A common stock have one-tenth of one vote per share, the holders of our shares of Class B common stock have one vote per share and the holders of our shares of Series B preferred stock have two and one-half votes per share. Alfred R. Camner, our chairman of the Board and chief executive officer and the beneficial owner of 93% of the Series B preferred stock and 87% of the Common B common stock, has proposed to a committee of independent directors who do not own any shares of Class B Common Stock or Series B preferred stock that, if we sell shares of Class A common stock or securities convertible or exchangeable for Class A common stock in an amount that results in at least $400 million of gross proceeds, he would exchange his shares of Class B common stock and Series B preferred stock over which he has beneficial ownership for shares of a new series of preferred stock. The new series of preferred stock would have one-tenth of a vote per share, which is the same vote per share as the Class A common stock, instead of the two and one-half votes per shares of the Series B preferred stock or the one vote per share, of the Class B common stock. In addition to the different voting rights, the new series of preferred stock would differ from the shares of Class B common stock and shares of Series B preferred stock with respect to dividends, conversion, liquidation preference, and redemption. Whereas the shares of Series B preferred stock receive non-cumulative, annual cash dividends when, as, and if declared by the board of directors at a rate of $0.55 per share and the shares of Class B common stock have no rights to receive dividends except that holders of shares of Class A common stock receive dividends equal to 110% of any dividends paid to the holders of shares of Class B common stock, the shares of new preferred stock would receive non-cumulative, annual cash dividends, when, as, and if declared by the board of directors, at the rate of $0.37 per share. Each of the shares of new preferred stock would be convertible on a one for one basis into shares of Class A common stock. As stated above, the Class B common stock is convertible on a one for one basis whereas the Series B preferred stock is convertible on the basis of 1.4959 shares of Class B common stock for each share of Series B preferred stock. The conversion rate on the new preferred stock would adjust based on standard adjustment provisions for similar securities. The liquidation preference on the new preferred stock would be $4.93 per share, whereas the liquidation preference on the Series B preferred stock is $7.375 per share and the Class B common stock has no liquidation preference. The new preferred stock would be perpetual but redeemable by the Company after 2018 at a redemption price of $4.93 per share. Finally, the new preferred stock will rank senior to the Class A common stock, as does the Series B preferred stock, but the Class B common stock ranks equal to the Class A common stock.

Shares of the new class of preferred stock would be issued on a one for one basis for each outstanding shares of Class B common stock and on a 1.4959 share basis for each share of Series B preferred stock. This exchange ratio is based on the conversion rates of the Class B common stock and Series B preferred stock into shares of Class A common stock. Each share of Class B common stock is convertible into one share of Class A

 

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common stock and each share of Series B preferred stock is convertible into 1.4959 shares of Class B common stock. As of May 31, 2008, 649,338 shares of Class B common stock were outstanding, and 1,264,853 shares of Series B preferred stock were outstanding. Under the proposal, 1,174,224 shares of Preferred B stock and 566,301 shares of Class B common stock beneficially owned by Mr. Camner and his family would be exchanged for a total of 2,153,219 shares of the new series of preferred stock, provided that we sell shares of Class A common stock or securities convertible into or exchangeable for shares of Class A common stock in an amount that results in at least $400 million of gross proceeds. If the members of our Board who own shares of Class B common stock or Series B preferred stock also exchanged their shares, they would exchange an aggregate of 67,490 shares of Class B common stock and 58,361 shares of Series B preferred stock for 154,792 shares of the new class of preferred stock. Under the proposal, all stock options for the purchase of shares of Series B preferred stock would be settled in shares of the new series of preferred stock and all stock options for the purchase of shares of Class B common stock would be settled in shares of Class A common stock. In connection with this exchange of shares and reduction of voting rights, Series B preferred stock holders and Class B common stock holders would receive a total of $1,000,000 in cash and warrants for the purchase of up to 2,475,000 shares of Class A common stock. One-third of the warrants would have an exercise price for Class A common stock that is 15% higher than the public offering price, one-third would have an exercise price that is 30% higher than the public offering price and the final third would have an exercise price that is 45% higher than the public offering price in a potential offering of Class A common stock. All warrants would have a term of five years.

Possible Anti-Takeover Effects of the Amendment

Our authorized but unissued capital stock could be used to make an attempt to effect a change in control more difficult.

In addition, we have opted not to be governed by the affiliated transactions and control-share acquisitions provisions of the Florida Business Corporation Act. Florida’s control-share acquisitions statute provides that shares of issuing public corporations that are acquired in a control share acquisition generally will have no voting rights unless such rights are conferred on those shares by the vote of the holders of a majority of all of the outstanding shares other than interested shares. A control-share acquisition is defined, with certain exceptions, as the acquisition of the ownership of voting shares which would cause the acquirer, directly or indirectly, alone or as part of a group, to have voting power within the following ranges or to move upward from one range into another: (i) 20% or more but not less than 33 1/3%; (ii) 33 1/3% or more but not less than 50%; or (iii) 50% or more of all voting power. Interested shares are shares of an issuing public corporation in respect of which any of the following persons may exercise or direct the exercise of the voting power to elect directors: (i) an acquiring person or member of a group with respect to a control-share acquisition, (ii) any officer of the issuing public corporation, or (iii) any employee of the issuing public corporation who is also a director of the corporation. The Florida control-share acquisitions statute does not, however, apply to an acquisition of shares of an issuing public corporation if such acquisition has been approved by the Board of Directors prior to the acquisition.

No Appraisal Rights

Under applicable Florida law, our stockholders are not entitled to appraisal rights with respect to this proposed amendment to our Amended Articles of Incorporation to effect the increase in our authorized shares of Class A common stock.

Financial Information

Attached beginning on page F-1 of this proxy statement are copies of the following financial statements and financial information included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2007 and quarterly report on Form 10-Q/A for the quarterly period ended March 31, 2008:

Audited balance sheets as of September 30, 2007 and 2006 and audited statements of operations, stockholders’ equity and cash flows for the three-year period ended September 30, 2007;

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (related to the fiscal years ended September 30, 2007, 2006 and 2005;

Unaudited balance sheet as of March 31, 2008 and unaudited statements of operations, stockholders’ equity and cash flows for the six months ended March 31, 2008 and 2007; and

Management’s Discussion and Analysis of Financial Condition and Results of Operations (related to the three- and six-month periods ended March 31, 2008 and 2007.

The Company’s independent registered certified public accounting firm for the Company’s most recent fiscal year, PricewaterhouseCoopers LLP, will not attend the Special Meeting. Representatives of PricewaterhouseCoopers LLP attended the Company’s Annual Meeting of Stockholders held on February 8, 2008.

Required Vote

Proposal One will be voted on by the holders of the Class A common stock, the Class B common stock and the Series B preferred stock voting together as a single class.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE AMENDMENT TO ARTICLE VI OF THE COMPANY’S AMENDED ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF THE AUTHORIZED SHARES OF CLASS A COMMON STOCK FROM 200,000,000 TO 500,000,000.

 

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SECURITY OWNERSHIP OF

CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of June 9, 2008 (except where a different date is indicated) concerning (1) each of our directors; (2) each of the three most highly compensated executive officers for the year ended September 30, 2007, in addition to our chief executive officer and chief financial officer (the “named executive officers”); (3) all directors and executive officers of us as a group; and (4) each other person known to management to be the beneficial owner, as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended, of more than 5% of the outstanding shares of any class of our voting securities, according to filings by such persons with the SEC or other information provided to us by such persons. The address of each director and named executive officer listed in the table is 255 Alhambra Circle, Coral Gables, Florida 33134.

 

Name and Address

  Amount
and Nature
of Beneficial
Ownership
Of Series B
Preferred
Stock (1)
    Percent of
Series B
Preferred
Stock
Outstanding
    Amount
And Nature
of Beneficial
Ownership
of Class B
Common
Stock (1)
    Percent of
Class B
Common
Stock
Outstanding
    Amount
And Nature
of Beneficial
Ownership
of Class A
Common
Stock (1)
    Percent of
Class A
Common
Stock
Outstanding
 

Directors and Named Executive Officers:

           

Tod Aronovitz

  —       —       —       —       13,537 (2)    *  

Allen M. Bernkrant

  23,560     1.9 %   37,860     5.5 %   142,716 (2)(3)    *  

Lawrence H. Blum

  23,560     1.9 %   65,856     9.6 %   431,056 (2)(3)   1.2 %

Alfred R. Camner

  1,858,219 (4)(5)(6)   95.3 %   3,346,011 (4)(5)(6)   97.6 %   3,561,345 (2)(4)(5)(6)    9.2 %

Lauren R. Camner

  1,244     *     7,102     *     55,590 (2)    *  

Abel L. Iglesias

  —       —       —       —       62,579 (2)    *  

Marc D. Jacobson

  10,000     *     43,977     6.6 %   192,269 (2)(3)    *  

Hardy C. Katz

  —       —       —       —       38,529 (2)(3)   *  

Humberto L. Lopez

  —       —       —       —       227,329 (2)    *  

Neil H. Messinger

  —       —       —       —       70,174 (2)(3)   *  

Ramiro A. Ortiz

  —       —       —       —       340,218 (2)(7)   *  

Albert E. Smith

  —       —       —       —       13,469 (2)    *  

Bradley S. Weiss

  —       —       —       —       6,385     *  

All Current Directors and Executive Officers of the Company and BankUnited, FSB as a group (21 persons)(8)

  1,232,588 (4)(5)(6)   98.3 %   3,500,870 (4)(5)(6)   99.6 %   5,538,224 (2)(3)(4)(5)(6)(7)   13.9 %

Other 5% Owners:

           

American Holdings, Ltd.

P.O. Box 3149

Road Town, Tortola BV1

  —       —       —       —       2,000,000 (9)   5.7 %

Dimensional Fund Advisors LP

1299 Ocean Avenue

Santa Monica, CA 90401

  —       —       —       —       2,282,707 (10)   6.5 %

FMR LLC

82 Devonshire Street

Boston, MA 02109

  —       —       —       —       1,855,487 (11)   5.3 %

Marx Mosses et al

160 Broadway

New York, NY 10038

  —       —       —       —       1,955,000 (12)   5.6 %

Putnam, LLC

One Post Office Square

Boston, MA 02109

  —       —       —       —       2,169,229 (13)   6.2 %

 

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Name and Address

  Amount
and Nature
of Beneficial
Ownership
Of Series B
Preferred
Stock (1)
  Percent of
Series B
Preferred
Stock
Outstanding
  Amount
And Nature
of Beneficial
Ownership
of Class B
Common
Stock (1)
  Percent of
Class B
Common
Stock
Outstanding
  Amount
And Nature
of Beneficial
Ownership
of Class A
Common
Stock (1)
    Percent of
Class A
Common
Stock
Outstanding
 

Robeco Investment Mgmt., Inc.

909 Third Avenue

New York, NY 10022

  —     —     —     —     1,825,432 (14)   5.2 %

Sterling Capital Mgmt., LLC

Two Morrowcroft Centre

4064 Colony Road, Suite 300

Charlotte, NC 28211

  —     —     —     —     3,218,595 (15)   9.2 %

QVT Financial LP

1177 Avenue of the Americas, 9th Floor

New York, NY 10036

  —     —     —     —     3,353,043 (16)   9.5 %

Wentworth, Hauser & Volich, Inc.

353 Sacramento St., Ste. 600

San Francisco, CA 94111

  —     —     —     —     2,460,736 (17)   7.0 %

Westport Asset Mgmt., Inc.

           

Westport Advisers, LLC

235 Riverside Avenue

Westport, CT 06880

  —     —     —     —     4,518,415 (18)   12.7 %

 

 * Less than 1%

 

(1) The nature of the reported beneficial ownership is unshared voting and investment power unless otherwise indicated in the footnotes to this table. Beneficial ownership reported for each class shown includes shares issuable upon conversion of shares of other classes of stock, shares which may be acquired upon the exercise of options exercisable within 60 days, shares that may be issued for restricted stock units and shares owned jointly or indirectly with or through a family member, trust, corporation, partnership or other legal organization. Each share of Series B preferred stock is convertible into 1.4959 shares of Class B common stock, and each share of Class B common stock is convertible into one share of Class A common stock. Beneficial ownership is not indicative of voting power. Each share of Series B preferred stock has two and one-half votes, each share of Class B common stock has one vote and each share of Class A Common stock has one-tenth vote.

 

(2) Includes shares of Class A common stock which may be acquired by the following persons, in the amounts indicated, through the exercise of options exercisable within 60 days: Tod Aronovitz, 5,500; Mr. Bernkrant, 66,950; Mr. Blum, 181,699; Mr. Camner, 209,897; Ms. Lauren Camner, 31,802; Mr. Iglesias, 34,559; Mr. Jacobson, 47,650; Mr. Katz, 27,900; Mr. Lopez, 160,979; Dr. Messinger, 50,400; Mr. Ortiz, 193,528; Dr. Smith, 9,000; and current directors and executive officers as a group, 1,223,163.

 

(3) Includes, for each of the following persons, shares that are jointly or indirectly owned with others in approximately the amounts indicated: Mr. Bernkrant, 33,159; Mr. Blum, 85,301; Mr. Jacobson, 12,582; Mr. Katz, 4,550; and Dr. Messinger, 3,286.

 

(4) Mr. Camner holds options to purchase an additional 416,600 shares of Series B preferred stock (convertible into 623,192 shares of Class B common stock and a like amount of Class A common stock), which options are not exercisable within 60 days.

 

(5) Includes 683,995 shares of Series B preferred stock (convertible into 1,023,188 shares of Class B common stock, that are convertible into the same number of shares of Class A common stock) which may be acquired by Mr. Camner through the exercise of options exercisable within 60 days.

 

(6) Series B preferred stock includes 8,971 shares (convertible into 13,419 shares of Class B common stock that are convertible into the same number of shares of Class A common stock) of which the stockholder has indirect beneficial ownership and 26,720 shares (convertible into 39,970 shares of Class B common stock that are convertible into the same number of shares of Class A common stock) that are held in an irrevocable grantor’s trust established by us of which Mr. Camner is the sole beneficiary. Class B common stock includes 98,114 shares (convertible into 98,114 shares of Class A common stock) of which the stockholder has indirect beneficial ownership and 175,591 shares (convertible into 175,591 shares of Class A common stock) that are held in the irrevocable grantor’s trust referenced above. Class B common stock does not include 30,000 shares subject to options held by Mrs. Earline Ford, which Mr. Camner has a right of first refusal to purchase if Mrs. Earline Ford decides to exercise the options and sell the underlying shares.

 

(7) This amount includes 10,729 shares of Class A common stock that are held in an irrevocable grantor’s trust established by us of which Mr. Ortiz is the sole beneficiary. Also includes 21,681 restricted stock units.

 

(8) As of May 5, 2008, our directors and executive officers held shares representing in the aggregate approximately 51.8% of the votes entitled to be cast on Proposal One.

 

(9) A Schedule 13-G filed on January 15, 2008 reported that American Holdings, Ltd. had sole voting power and sole dispositive power of 2,000,000 shares of our Class A common stock.

 

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(10) A Schedule 13-G/A filed on February 6, 2008 reported that Dimensional Fund Advisors LP, an investment advisor serving as investment manager for several other commingled trusts and separate accounts had sole voting power and sole dispositive power of 2,282,707 shares of our Class A common stock.

 

(11) A Schedule 13-G filed on February 14, 2008 reported that FMR LLC had sole dispositive power of 1,855,487 shares of our Class A common stock.

 

(12) A Schedule 13-D filed on April 18, 2008 reported that Marx Mosses had sole voting power and sole dispositive power of 1,955,000 shares of the Company’s Class A common stock.

 

(13) A Schedule 13-G filed on February 1, 2008 reported that Putnam, LLC investment advisor to the Putnam family of funds had shared voting power of 233,607 shares of our Class A common stock and shared dispositive power of 2,169,299 shares of the Company’s Class A common stock.

 

(14) A Schedule 13-G filed on February 8, 2008 reported that Robeco Investment Mgmt., Inc. had shared voting power and shared dispositive power of 1,825,432 shares of our Class A common stock.

 

(15) A Schedule 13-G filed on January 29, 2008 reported that Sterling Capital Mgmt., LLC had sole voting power and sole dispositive power of 3,218,595 shares of our Class A common stock.

 

(16) A Schedule 13-G/A filed on February 5, 2008 reported that QVT Financial LP, QVT Financial GP LLC, QVT Fund LP and QVT Associates GP LLC had shared voting power and shared dispositive power of 3,353,043 shares of our Class A common stock.

 

(17) A Schedule 13-G filed on February 14, 2008 reported that Wentworth, Hauser & Volich, Inc. had shared voting power and shared dispositive power of 2,460,736 shares of our Class A common stock.

 

(18) A Schedule 13-G/A filed on February 13, 2008 reported that Westport Advisors LLC, a registered investment advisor managing assets for various pension funds, foundations and endowments, beneficially owned 4,518,415 shares of our Class A common stock. Westport Advisors had sole voting and dispositive power of 1,088,700 shares of Class A common stock and shared voting power of 3,322,715 shares of Class A common stock and shared dispositive power of 3,429,715 shares of Class A common stock.

 

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MISCELLANEOUS

Stockholder Proposals

Proposals of stockholders intended to be presented at our next annual stockholders’ meeting must be in writing and should be submitted to our Corporate Secretary at 255 Alhambra Circle, Penthouse, Coral Gables, Florida 33134, no later than August 31, 2008 for inclusion in our 2009 proxy statement relating to such meeting, subject to applicable rules and regulations.

For any proposal that is not intended for inclusion in next year’s proxy statement (as described in the preceding paragraph) but is instead sought to be presented directly at next year’s annual meeting, SEC rules permit the proxy holders to vote proxies in their discretion if we do not receive notice of the proposal prior to the close of business on November 15, 2008. Notices of intention to present proposals at the next annual meeting should be addressed to our Corporate Secretary, 255 Alhambra Circle, Penthouse, Coral Gables, Florida 33134.

By Order of the Board of Directors,
/s/    ALFRED R. CAMNER

ALFRED R. CAMNER

Chairman of the Board and

Chief Executive Officer

June 17, 2008

 

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BANKUNITED FINANCIAL CORPORATION

Financial Supplement

to Proxy Statement for Special Meeting of June 27, 2008

Table of Contents

 

Audited balance sheets as of September  30, 2007 and 2006 and audited statements of operations, stockholders’ equity and cash flows for the three-year period ended September 30, 2007

  

F-1

Management’s Discussion and Analysis of Financial Condition and Results of Operations related to the fiscal years ended September 30, 2007, 2006 and 2005

  

F-51

Unaudited balance sheet as of March  31, 2008 and unaudited statements of operations, stockholders’ equity and cash flows for the six months ended March 31, 2008 and 2007

  

F-82

Management’s Discussion and Analysis of Financial Condition and Results of Operations related to the three- and six-month periods ended March 31, 2008 and 2007

  

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BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 

     September 30,  
     2007     2006  
     (Dollars in thousands,
except per share amounts)
 
ASSETS     

Cash

   $ 54,502     $ 53,284  

Federal Home Loan Bank overnight deposits

     456,775       12,317  

Federal funds sold

     1,658       1,054  
                

Cash and cash equivalents

     512,935       66,655  
                

Investment securities available for sale, at fair value

     187,375       299,909  

Mortgage-backed securities available for sale, at fair value (including assets pledged of $231,740 and $1,094,525 at September 30, 2007 and 2006, respectively)

     916,223       1,225,944  

Mortgage loans held for sale at lower of cost or market

     174,868       9,542  

Loans held in portfolio

     12,384,842       11,240,483  

Add: Unearned discounts, premiums and deferred loan costs, net

     235,454       196,601  

Less: Allowance for loan losses

     (58,623 )     (36,378 )
                

Loans held in portfolio, net

     12,561,673       11,400,706  
                

FHLB stock and other earning assets

     305,535       255,492  

Office properties and equipment, net

     66,749       48,728  

Real estate owned

     27,732       729  

Accrued interest receivable

     86,182       71,398  

Mortgage servicing rights

     20,631       20,259  

Goodwill

     28,353       28,353  

Bank owned life insurance

     122,100       117,167  

Prepaid expenses and other assets

     35,915       26,017  
                

Total assets

   $ 15,046,271     $ 13,570,899  
                
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Liabilities:

    

Interest bearing deposits

   $ 6,747,888     $ 5,681,868  

Non-interest bearing deposits

     342,499       392,264  
                

Total deposits

     7,090,387       6,074,132  
                

Securities sold under agreements to repurchase

     143,072       1,066,389  

Advances from Federal Home Loan Bank

     6,234,350       5,174,350  

Convertible senior notes

     120,000       120,000  

HiMEDS Units senior notes

     184,000       —    

Junior subordinated debt

     12,500       —    

Trust preferred securities and subordinated debentures

     237,261       195,791  

Interest payable

     39,480       32,006  

Advance payments by borrowers for taxes and insurance

     97,452       92,717  

Accrued expenses and other liabilities

     75,803       62,354  
                

Total liabilities

     14,234,305       12,817,739  
                

Commitments and Contingencies (See notes (7), (9), (10) and (15))

    

Stockholders’ Equity:

    

Preferred stock, $0.01 par value

     11       10  

Authorized shares—10,000,000,

Issued shares—1,131,153 and 984,713

Outstanding shares—1,104,433 and 957,993

Treasury shares—26,720

     (528 )     (528 )

Class A Common Stock, $0.01 par value

     371       366  

Authorized shares—100,000,000 and 60,000,000

Issued shares—37,075,365 and 36,574,523

Outstanding shares—34,907,982 and 36,140,943

Treasury shares—2,167,383 and 433,580

     (43,297 )     (5,226 )

Class B Common Stock, $0.01 par value

     7       8  

Authorized shares—3,000,000

Issued shares—719,947 and 771,262

Outstanding shares—473,747 and 525,062

Treasury shares—246,200

     (2,802 )     (2,802 )

Additional paid-in capital

     513,042       503,585  

Retained earnings

     356,197       276,078  

Deferred compensation

     2,048       2,048  

Accumulated other comprehensive loss

     (13,083 )     (20,379 )
                

Total stockholders’ equity

     811,966       753,160  
                

Total liabilities and stockholders’ equity

   $ 15,046,271     $ 13,570,899  
                

See accompanying notes to consolidated financial statements

 

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BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

     For the Years Ended September 30,  
             2007                     2006                     2005          
     (Dollars and shares in thousands, except earnings
per share)
 

Interest income:

      

Interest and fees on loans

   $ 876,848     $ 623,792     $ 345,005  

Interest on mortgage-backed securities

     50,711       62,377       64,265  

Interest and dividends on investments and other earning assets

     31,411       27,339       21,606  
                        

Total interest income

     958,970       713,508       430,876  
                        

Interest expense:

      

Interest on deposits

     302,335       199,970       98,313  

Interest on borrowings

     312,490       247,396       157,156  

Preferred dividends of trust preferred securities and subordinated debentures

     20,552       15,700       12,942  
                        

Total interest expense

     635,377       463,066       268,411  
                        

Net interest income before provision for loan losses

     323,593       250,442       162,465  

Provision for loan losses

     31,500       10,400       3,800  
                        

Net interest income after provision for loan losses

     292,093       240,042       158,665  
                        

Non-interest income:

      

Loan servicing fees

     6,998       7,139       3,357  

Amortization of mortgage servicing rights

     (3,329 )     (3,594 )     (3,673 )

Impairment of mortgage servicing rights

     (1,293 )     (1,036 )     (130 )

Loan fees

     5,315       3,407       2,506  

Deposit fees

     5,904       5,348       4,422  

Other fees

     2,832       2,868       2,266  

Net (loss) gain on sale of investments and mortgage-backed securities

     (524 )     —         3,742  

Other-than-temporary impairment on investment securities

     (5,844 )     (400 )     —    

Net gain on sale of loans and other assets

     9,752       13,271       2,370  

Income from insurance and investment services

     5,360       3,720       4,284  

Loss on swaps

     (327 )     (1,657 )     —    

Other non-interest income

     7,803       6,628       3,961  
                        

Total non-interest income

     32,647       35,694       23,105  
                        

Non-interest expenses:

      

Employee compensation and benefits

     103,244       76,211       51,817  

Occupancy and equipment

     39,003       29,572       24,379  

Telecommunications and data processing

     12,569       10,192       7,030  

Advertising and promotion expense

     8,389       6,945       5,579  

Professional fees

     7,368       6,506       5,556  

Extinguishment of debt

     —         —         35,814  

Other non-interest expense

     30,486       20,767       13,680  
                        

Total non-interest expenses

     201,059       150,193       143,855  
                        

Income before income taxes

     123,681       125,543       37,915  

Provision for income taxes

     42,302       41,668       10,378  
                        

Net income

   $ 81,379     $ 83,875     $ 27,537  
                        

Earnings Per Share:

      

Basic

   $ 2.25     $ 2.43     $ 0.90  

Diluted

   $ 2.14     $ 2.30     $ 0.85  

Weighted average number of common shares outstanding:

      

Basic

     35,876       34,297       30,090  

Diluted

     37,939       36,544       32,339  

Dividends declared per share on common stock

   $ 0.02     $ 0.02     $ 0.02  

See accompanying notes to consolidated financial statements

 

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BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Years Ended September 30, 2007, 2006 and 2005

 

    Preferred Stock
Outstanding
  Class A
Common Stock
Outstanding
  Class B
Common Stock
Outstanding
    Paid-in
Capital
  Retained
Earnings
    Common
Treasury
Stock
    Preferred
Treasury
Stock
    Deferred
Compensation
  Accumulated
Other
Comprehensive
Income (Loss)
Net of Tax
    Total
Stockholders
Equity
 
    Shares   Amount   Shares     Amount   Shares     Amount                
    (Dollars in thousands)  

Balance at September 30, 2004

  776,685   $ 8   29,522,546     $ 299   536,562     $ 6     $ 336,258   $ 166,713     $ (4,019 )   $ (528 )   $ 1,216   $ (7,296 )   $ 492,657  
                                                                                       

Comprehensive income:

                         

Net income for the year ended September 30, 2005

  —       —     —         —     —         —         —       27,537       —         —         —       —         27,537  

Other comprehensive loss, net of tax

  —       —     —         —     —         —         —       —         —         —         —       (15,603 )     (15,603 )

Total comprehensive income

  —       —     —         —     —         —         —       —         —         —         —       —         11,934  

Payment of stock dividends

  —       —     —         —     —         —         —       (878 )     —         —         —       —         (878 )

Purchase of stock

  —       —     (89,700 )     —     —         —         —       —         (2,215 )     —         —       —         (2,215 )

Shares acquired through deferred compensation arrangements

  —       —     —         —     —         —         —       —         (966 )     —         —       —         (966 )

Deferral of compensation

  —       —     —         —     —         —         —       —         —         —         479     —         479  

Conversion of shares

      145,500       1   (145,500 )     (1 )                 —    

Stock option exercises and restricted stock awards

  85,734     1   190,445       2   40,500       1       6,601     —         —         —         —       —         6,605  
                                                                                       

Balance at September 30, 2005

  862,419     9   29,768,791       302   431,562       6       342,859     193,372       (7,200 )     (528 )     1,695     (22,899 )     507,616  
                                                                                       

Comprehensive income:

                         

Net income for the year ended September 30, 2006

  —       —     —         —     —         —         —       83,875       —         —         —       —         83,875  

Other comprehensive income, net of tax

  —       —     —         —     —         —         —       —         —         —         —       2,520       2,520  

Total comprehensive income

  —       —     —         —     —         —         —       —         —         —         —       —         86,395  

Payment of stock dividends

  —       —     —         —     —         —         —       (1,169 )     —         —         —       —         (1,169 )

Stock offering

  —       —     5,750,000       58   —         —         150,226     —         —         —         —       —         150,284  

Shares acquired through deferred compensation arrangements

  —       —     —         —     —         —         —       —         (828 )     —         —       —         (828 )

Deferral of compensation

  —       —     —         —     —         —         —       —         —         —         353     —         353  

Conversion of shares

      165,000       2   (165,000 )     (2 )     —       —         —         —         —       —         —    

Stock option exercises and restricted stock awards

  95,574     1   457,152       4   258,500       4       10,500     —         —         —         —       —         10,509  
                                                                                       

Balance at September 30, 2006

  957,993     10   36,140,943       366   525,062       8       503,585     276,078       (8,028 )     (528 )     2,048     (20,379 )     753,160  
                                                                                       

 

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BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—(Continued)

For the Years Ended September 30, 2007, 2006 and 2005

 

    Preferred Stock
Outstanding
    Class A
Common Stock
Outstanding
  Class B
Common
Stock Outstanding
    Paid-in
Capital
    Retained
Earnings
    Common
Treasury
Stock
    Preferred
Treasury
Stock
    Deferred
Compensation
  Accumulated
Other
Comprehensive
Income (Loss)
Net of Tax
    Total
Stockholders
Equity
 
    Shares     Amount     Shares     Amount   Shares     Amount                
    (Dollars in thousands)  

Comprehensive income:

                         

Net income for the year ended September 30, 2007

  —         —       —         —     —         —         —         81,379       —         —         —       —         81,379  

Other comprehensive income, net of tax

  —         —       —         —     —         —         —         —         —         —         —       7,296       7,296  

Total comprehensive income

  —         —       —         —     —         —         —         —         —         —         —       —         88,675  

Payment of stock dividends

  —         —       —         —     —         —         —         (1,260 )     —         —         —       —         (1,260 )

Stock offering

  —         —       —         —     —         —         —         —         —         —         —       —         —    

Purchase of Stock

  —         —       (1,733,803 )     —     —         —         —         —         (38,071 )     —         —       —         (38,071 )

Deferral of compensation

  —         —       —         —     —         —         —         —         —         —         —       —         —    

Forward Purchase Contract

  —         —       —         —     —         —         (1,866 )     —         —         —         —       —         (1,866 )

Conversion of shares

  (20,560 )     (1 )   161,070       2   (130,315 )     (1 )     —         —         —         —         —       —         —    

Stock option exercises and restricted stock awards

  167,000       2     339,772       3   79,000       —         11,323       —         —         —         —       —         11,328  
                                                                                             

Balance at September 30, 2007

  1,104433     $ 11     34,907,982     $ 371   473,747     $ 7     $ 513,042     $ 356,197     $ (46,099 )   $ (528 )   $ 2,048   $ (13,083 )   $ 811,966  
                                                                                             

See accompanying notes to consolidated financial statements

 

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BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—(Continued)

For the Years Ended September 30, 2007, 2006 and 2005

The following table presents additional information concerning BankUnited’s other comprehensive income (loss):

 

     For the Years Ended
September 30,
 
     2007     2006     2005  
     (Dollars in thousands)  

Net income

   $ 81,379     $ 83,875     $ 27,537  

Other comprehensive income (loss), net of tax:

      

Unrealized gains (losses) arising during the period, on securities net of tax expense (benefit) of $2,072, $1,515, and $(7,538) for 2007, 2006 and 2005, respectively

     3,848       2,554       (14,000 )

Unrealized (losses) gains on cash flow hedges, net of tax (benefit) expense of $(335), $(132) and $268 for 2007, 2006 and 2005, respectively

     (623 )     (245 )     497  

Less reclassification adjustment for:

      

Realized (losses) gains on securities sold included in net income, net of tax (benefit) expense of $(184), $0 and $1,311 for 2007, 2006 and 2005, respectively

     (340 )     —         2,434  

Other-than-temporary impairment on investment securities included in net income, net of tax benefit of $2,046, $140 and $0 for 2007, 2006 and 2005, respectively

     (3,799 )     (260 )     —    

Realized gains (losses) on cash flow hedges, net of tax expense (benefit) of $37, $26, and $(180) for 2007, 2006, and 2005, respectively

     68       49       (334 )
                        

Total other comprehensive income (loss), net of tax

     7,296       2,520       (15,603 )
                        

Total comprehensive income

   $ 88,675     $ 86,395     $ 11,934  
                        

See accompanying notes to consolidated financial statements.

 

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BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     For the Years Ended September 30,  
     2007     2006     2005  
     (Dollars in thousands)  

Cash flows from operating activities:

      

Net income

   $ 81,379     $ 83,875     $ 27,537  

Adjustments to reconcile net income to net cash used in operating activities:

      

Provision for loan losses

     31,500       10,400       3,800  

Depreciation and amortization

     12,944       9,826       5,959  

Adjustments to the carrying value of real estate owned

     4,456       81       972  

Net increase in negative amortization on option ARM payment loans

     (181,125 )     (77,348 )     (11,735 )

Amortization of fees, discounts and premiums, net

     69,894       74,619       32,260  

Amortization of mortgage servicing rights

     3,329       3,594       3,673  

Amortization of restricted stock and other awards

     7,546       5,522       2,761  

Amortization of issuance cost of long-term debt

     2,335       1,304       1,304  

Revaluation loss from derivatives

     993       1,742       1,309  

Increase in bank owned life insurance cash surrender value

     (4,933 )     (4,785 )     (4,173 )

Net loss (gain) on sale of investments and mortgage-backed securities

     524       —         (3,742 )

Other-than-temporary impairment on investment securities

     5,844       400       —    

Net gain on sale of loans and other assets

     (9,752 )     (13,271 )     (2,370 )

Net loss (gain) on sale of real estate owned

     4       (445 )     (820 )

Impairment of mortgage servicing rights

     1,293       1,036       130  

Loans originated for sale, net of repayments

     (1,268,021 )     (493,845 )     (225,018 )

Proceeds from sale of loans held for sale

     821,047       368,667       68,342  

Increase in accrued interest receivable

     (14,784 )     (29,777 )     (10,179 )

Increase (decrease) in interest payable

     7,474       16,715       1,240  

(Decrease) increase in accrued taxes

     (16,366 )     11,962       252  

Increase in other liabilities

     23,845       10,116       14,845  

(Increase) decrease in prepaid expenses and other assets

     (4,134 )     8,751       (14,034 )

Other, net

     (8,468 )     (3,139 )     (2,324 )
                        

Net cash used in operating activities

     (433,176 )     (14,000 )     (110,011 )
                        

Cash flows from investing activities:

      

Net increase in loans held in portfolio

     (1,110,342 )     (3,398,671 )     (2,830,500 )

Purchase of investment securities available for sale

     (33,985 )     (36,712 )     (86,752 )

Purchase of mortgage-backed securities available for sale

     (5,473 )     —         (860 )

Purchase of FHLB stock and other earning assets

     (181,353 )     (225,364 )     (122,439 )

Purchase of office properties and equipment

     (31,540 )     (17,338 )     (20,976 )

Purchase of bank owned life insurance

     —         —         (20,000 )

Proceeds from repayments of investment securities available for sale

     76,581       25,836       295  

Proceeds from repayments of mortgage-backed securities available for sale

     305,904       399,301       616,142  

Proceeds from repayments of FHLB stock and other earning assets

     131,310       159,915       88,562  

Proceeds from sale of investment securities available for sale

     70,304       —         119,906  

Proceeds from sale of mortgage-backed securities available for sale

     303,113       163,289       482,320  

Proceeds from sale of real estate owned and other assets

     4,170       1,155       5,008  

Proceeds from sale of office properties and equipment

     —         62       —    
                        

Net cash used in investing activities

     (471,311 )     (2,928,527 )     (1,769,294 )
                        

(Continued on next page)

See accompanying notes to consolidated financial statements

 

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BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

 

    For the Years Ended September 30,  
    2007     2006     2005  
    (Dollars in thousands)  

Cash flows from financing activities:

     

Net increase in deposits

    1,016,255       1,340,777       1,205,093  

Additions to long-term Federal Home Loan advances

    5,175,000       3,685,250       1,639,000  

Repayments of long-term Federal Home Loan advances

    (3,670,000 )     (2,406,285 )     (1,419,000 )

Net (decrease) increase in short-term Federal Home Loan advances

    (445,000 )     75,000       486,067  

Net decrease in other borrowings

    (923,317 )     (94,959 )     (20,889 )

Net increase in advances from borrowers for taxes and insurance

    4,735       17,719       15,027  

Proceeds from issuance of trust preferred securities

    110,762       —         30,927  

Purchase of common securities of trust securities

    (3,326 )     —         (927 )

Repayments of trust preferred securities

    (69,356 )     —         —    

Net proceeds from issuance of HiMEDS Units senior notes

    178,298       —         —    

Net proceeds from issuance of junior subordinated debentures

    12,500       —         —    

Net proceeds from issuance of stock

    2,403       154,265       1,565  

Purchase of treasury stock

    (38,071 )     —         (2,215 )

Tax benefit from stock-based compensation

    1,144       533       1,692  

Dividends paid on stock

    (1,260 )     (1,169 )     (878 )
                       

Net cash provided by financing activities

    1,350,767       2,771,131       1,935,462  
                       

Increase (decrease) in cash and cash equivalents

    446,280       (171,396 )     56,157  

Cash and cash equivalents at beginning of period

    66,655       238,051       181,894  
                       

Cash and cash equivalents at end of period

  $ 512,935     $ 66,655     $ 238,051  
                       

Supplemental disclosure of cash flow activity:

     

Interest paid on deposits and borrowings

  $ 627,912     $ 446,351     $ 254,229  

Income taxes paid

  $ 40,800     $ 29,700     $ 10,759  

Supplemental schedule of non-cash investing and financing activities:

     

Securitization of mortgage loans and accrued interest

  $ —       $ —       $ 508,953  

Exchange of loans for mortgage-backed securities in loan sales transaction with FNMA and FHLMC

  $ 286,693     $ 162,295     $ 176,184  

Transfer of loans from portfolio to loans held for sale

  $ 137,427     $ 1,116,192     $ 636,393  

Transfer of loans held for sale to portfolio

  $ 37,787     $ 4,181     $ —    

Transfers from loans to real estate owned

  $ 35,032     $ 1,041     $ 4,064  

Securities sold pending settlement

  $ —       $ —       $ 3,780  

See accompanying notes to consolidated financial statements.

 

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BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(1) Summary of Significant Accounting Policies

The accounting and reporting policies of BankUnited Financial Corporation (“BankUnited”) and subsidiaries conform to accounting principles generally accepted in the United States of America and to general practices within the savings and loan industry. Presented below is a description of BankUnited’s principal accounting policies.

(a) Basis of Presentation and Principles of Consolidation

With the exception of certain trust subsidiaries which do not meet the criteria for consolidation (see FIN No. 46 and FIN No. 46R in (t) Impact of Certain Accounting Pronouncements of this note) the consolidated financial statements include the accounts of BankUnited and its subsidiaries, including BankUnited, FSB (the “Bank”). The Bank provides a full range of banking services to individual and corporate customers through its branch network in Florida. The Bank is subject to the regulations of certain federal agencies and undergoes periodic examinations by the Office of Thrift Supervision. All significant inter-company transactions and balances associated with consolidated subsidiaries have been eliminated.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated statements of financial condition and operations for the period. Actual results could differ significantly from those estimates.

Material estimates included in the consolidated financial statements, that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of mortgage servicing rights. In addition, material estimates of compensation cost in connection with BankUnited’s stock-based compensation plans have been determined based on the fair value at the grant dates for stock option awards consistent with the methodology prescribed by SFAS No. 123R. These estimates may also differ significantly from actual results.

(b) Cash and Cash Equivalents

Cash and cash equivalents include cash, Federal Home Loan Bank overnight deposits, federal funds sold and securities purchased under agreements to resell with original maturities of three months or less. The collateral held by the Bank for securities purchased under agreements to resell consists of the securities underlying those agreements.

The Bank must comply with Federal Reserve Board regulations requiring the maintenance of reserves against its transaction accounts (primarily interest-bearing and non-interest-bearing checking accounts) and non-personal time deposits. As of September 30, 2007, the Bank had exceeded cash reserve requirements that must be maintained at the FHLB for this purpose.

(c) Investment and Mortgage-backed Securities Available for Sale

Investment and mortgage-backed securities available for sale are carried at fair value, inclusive of unrealized gains and losses, and net of discount accretion and premium amortization computed using the level yield method. Net unrealized gains and losses are included in other comprehensive income (loss) net of applicable income taxes. Gains or losses on sales of investment and mortgage-backed securities available for sale are recognized on the specific identification basis.

 

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Management evaluates securities for other than temporary impairment on a quarterly basis. Impairment is evaluated considering numerous factors, and their relative significance varies depending on the situation. Factors considered include the length of time and extent to which the market value has been less than cost; the financial condition and near-term prospects of the issuer of the securities; and the intent and ability of BankUnited to retain the security in order to allow for an anticipated recovery in fair value. If, based upon the analysis, it is determined that the impairment is other-than-temporary, the security is written down to fair value, and a loss is recognized through earnings.

(d) Loans

Loans held in portfolio

Loans held in the portfolio are considered long-term investments and, accordingly, are carried at historical cost. The loan portfolio consists primarily of real estate loans collateralized by first mortgages.

Mortgage loans held for sale

BankUnited originates loans that are held for sale in the secondary market to government-sponsored entities and other investors. Mortgage loans held for sale are either recorded at the lower of cost or market, determined in the aggregate or at fair value when they are designated as the hedged item in a hedging relationship under SFAS No. 133. The fair value of loans held for sale is based on observable market prices.

(e) Allowance for Loan Losses

BankUnited’s allowance for loan losses is established and maintained at a level management deems prudent and adequate to cover probable losses on loans based upon a periodic evaluation of current information of the risks inherent in its loan portfolio. When evaluating loan loss allowances, management reviews performing and non-performing loans separately. There are several elements that management evaluates to estimate the loan loss allowance for BankUnited’s loan portfolio. The elements evaluated, and how they are applied to each portion of the portfolio, are as follows:

 

   

An allowance for loan losses present in the performing portion of the loan portfolio. This allowance is established based on historical loan loss analysis supplemented by peer loss analysis, levels of delinquency, concentrations of credit and other conditions in specific geographical markets.

 

   

An allowance for estimated losses on various pools of non-performing loans is made. This element is evaluated for each of the portfolio components based on the internal loan grading system. Historical loan losses, current trends in delinquencies and charge-offs, peer group analysis, and other relevant factors are considered.

 

   

An allowance for losses based upon specific evaluations of impaired loans in accordance with Statement of Financial Accounting Standard, (“SFAS”) No. 114 is made. These loans are loans, other than consumer and residential loans, for which collection in full according to the contractual terms is doubtful and which are classified as such in the Bank’s internal loan grading system. Impaired loans are evaluated individually based on an examination of the current financial information of the borrower and an estimate of the value of the collateral, if the loan is collateral dependent. If the carrying value of any of these loans is greater than the estimated net realizable value of the property or of the collateral securing these loans, a reserve is established for the difference.

 

   

An unallocated portion represents management’s assessment of conditions that are not directly related to credit risks, inherent in specific loan products (due to the imprecision in credit loss estimation techniques). The conditions evaluated in connection with the unallocated allowance include industry conditions, recent loan portfolio performance, changes in underwriting criteria, and the regulatory and public policy environment.

 

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Loss allowances are established for performing loans and pools of non-performing loans in accordance with SFAS No. 5, “Accounting for Contingencies.” The identification of impaired loans is conducted in conjunction with the review of the adequacy of the allowance for loan losses. Loss allowances are established for specifically identified impaired loans based on the fair value of the underlying collateral in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan.”

Losses are included in the allowance for loan losses through a charge to the provision for loan losses. The allowance for loan losses is adjusted by additions for loan recoveries, with actual losses charged as reductions to the allowance.

(f) Unearned Discounts, Premiums, and Deferred Costs

Loan origination fees and certain direct loan origination costs are included in the carrying value of loans, and amortized over the contractual maturities of the loans as an adjustment to interest income. Prepayments of loans results in acceleration of the amortization of these items. Commitment fees and costs relating to commitments are recognized over the commitment period. If the commitment is subsequently exercised during the commitment period, the remaining unamortized commitment fee at the time of exercise is recognized over the life of the loan as an adjustment of yield.

(g) FHLB Stock and Other Earning Assets

FHLB Stock and other earning assets include FHLB Atlanta stock and an equity investment under the Community Reinvestment Act. The fair value is estimated to be the carrying value, which is par.

(h) Office Properties and Equipment, net

Office properties and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is calculated based on the straight line method using the estimated service lives of the assets for branch office building (30 years), furniture fixtures and equipment (seven to ten years), and computer equipment and software (three to five years), or with leasehold improvements, the expected term of the lease at inception and or the useful life of the improvement, whichever is shorter. Repair and maintenance costs are charged to operations as incurred, and improvements are capitalized.

(i) Real Estate Owned

Property acquired through foreclosure or deed in lieu of foreclosure is carried at estimated fair value less estimated costs to sell the property at the date of foreclosure. Any excess of the loan balance over the fair value less estimated costs to sell the property is charged to the allowance for loan losses at the time of foreclosure. The carrying value is reviewed periodically and, when necessary, any decline in the value of the real estate less estimated cost to sell is charged to operations. Significant property improvements, which enhance the salability of the property, are capitalized to the extent that the carrying values do not exceed their estimated realizable values. Maintenance and carrying costs on the property are charged to operations as incurred. In connection with real estate owned, management obtains independent appraisals for properties.

(j) Accrued Interest Receivable

Recognition of interest on the accrual method is generally discontinued when loans have more than four missed payments in accordance with the OTS guidelines. At the time a loan is placed on non-accrual status, previously accrued and uncollected interest is reversed against interest income in the current period. Loans are returned to accrual status when they become less than 90 days delinquent. Payment option loans allow borrowers to pay a minimum payment that may not cover interest accrued on the loan for the month and this would result in deferred interest being added to the loan balance.

 

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(k) Mortgage Servicing Rights and Transfers

Mortgage Servicing Rights

BankUnited recognizes mortgage servicing rights (“MSR”) as assets when it sells loans and retains the right to service those loans. The value of servicing assets is derived from estimated future revenues from contractually specified servicing fees, late charges, prepayment fees and other ancillary revenues that are expected to be more than adequate compensation to cover the costs associated with performing the service, and is generally expressed as a percent of the unpaid principal balance of the loans being serviced. Estimated future revenues are determined using the estimated future balance of the underlying mortgage loan portfolio, which, absent new purchases, declines over time from prepayments and cash flows. MSR assets are carried at the lower of cost or market and amortized in proportion to and over the period of estimated net servicing income. BankUnited charges impairment as a direct write-down of its MSR assets. BankUnited does not currently utilize a valuation allowance for recognizing impairment of its MSR assets. BankUnited assesses the MSR assets for impairment on a disaggregated basis by strata based on the fair value of those assets.

Servicing fees and the amortization of MSR assets are reported separately from other ancillary fees in BankUnited’s consolidated statements of operations. Impairment charges are also reported separately in BankUnited’s consolidated statements of operations.

Transfers

When BankUnited sells (transfers) mortgage loans for securitization it may acquire beneficial interests in the securities created as well as the rights to service the loans underlying the securities. Gains or losses on these transactions are recognized only for the portion of securities that are not acquired by BankUnited. Expenses related to the transaction are not deferred but are included in the gain or loss calculation. The book values of securities retained by BankUnited are based on their relative fair values at the date of transfer. BankUnited classifies retained securities as available for sale in its consolidated statements of financial condition, which are carried at fair value. BankUnited obtains fair values of its retained securities, at both the date of securitization and at each reporting date, from independent third parties.

BankUnited adopted SFAS No. 156 “Accounting for Servicing of Financial Assets.” which recognizes MSR arising from securitization transactions at fair market value in the fiscal year that began October 1, 2006. See Note 5, Servicing and Transfers of Mortgage Loans, for more information about BankUnited’s Mortgage Servicing Rights assets.

(l) Goodwill

Goodwill represents the excess of purchase price over the fair value of net assets acquired by BankUnited. BankUnited no longer amortizes goodwill; however, its carrying value is tested annually for impairment. BankUnited measures goodwill impairment by comparing the present value of the estimated future cash flows of deposits for each of the acquisitions to book value.

(m) Bank Owned Life Insurance

Bank owned life insurance is carried at an amount that could be realized under the insurance contract as of the date of the consolidated statements of financial condition. The change in contract value is recorded as an adjustment to the premiums paid in determining the expense or income to be recognized under the contract.

(n) Debt Extinguishment

BankUnited records prepayment fees incurred upon the early extinguishment of debt in non-interest expense, and the settlement of swaps related to debt extinguishment in non-interest income.

 

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(o) Income Taxes

BankUnited and its subsidiaries, other than BU REIT, Inc., file a consolidated federal income tax return. Since 2003, BankUnited and its subsidiaries have filed separate tax returns for each state jurisdiction. Deferred income taxes have been provided for elements of income and expense, which are recognized for financial reporting purposes in periods different than those for which such items are recognized for income tax purposes. BankUnited accounts for income taxes utilizing the asset and liability method, which applies the enacted statutory rates in effect at the statement of financial condition date to differences between the book and tax bases of assets and liabilities. The resulting deferred tax liabilities and assets are adjusted to reflect changes in tax laws.

(p) Earnings per Share

Basic earnings per share are computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of BankUnited. Computation of diluted earnings per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings per share.

Securities issued by BankUnited, which could potentially dilute earnings per share in future periods include: stock options, restricted stock, contingently convertible senior notes, HiMEDS equity units and convertible preferred stock. When calculating diluted earnings per share, BankUnited utilizes the Treasury Stock method for options, restricted stock, the contingently convertible senior notes, and the HiMEDS equity units, which results in only an incremental number of shares added to shares outstanding during the period. BankUnited utilizes the if-converted method for convertible preferred stock, which results in 100% of the shares added to shares outstanding during the period.

(q) Stock Options and Restricted Stock

Beginning with the fiscal year ended September 30, 2006, BankUnited adopted SFAS No. 123R, which recognizes share-based compensation for stock options and restricted stock grants. In prior years, BankUnited applied APB No. 25 and recognized compensation expense only on restricted stock.

Stock options are granted to employees and directors at an exercise price generally at or above the fair market value of the underlying stock on the date of the grant. The proceeds from the exercise of options are credited to common stock for the par value of the shares issued. Tax benefits related to share-based compensation are recognized in accordance with SFAS No. 123R.

Restricted stock is issued to employees and directors from time to time. Restricted stock is recorded based on the market price of the stock on the date of issuance. Equity is credited with the par value of the stock and paid in capital is credited with the balance of the market value at the date of issuance. Also at the date of issuance, the value of the stock is recorded in paid-in-capital as contra equity. Non-performance based restricted stock vests ratably over the period assigned by the Compensation Committee and is amortized out of contra equity with a charge to compensation expense and a credit to the contra equity paid-in-capital account.

Performance-based restricted stock is issued and amortized from grant date based on the expected performance and accounted for in accordance with SFAS No. 123R. Compensation from performance-based restricted stock is earned by accomplishing predetermined performance goals during the performance period and the Compensation Committee determines the final amount of the award. Any determined changes in the results are adjusted in the financial statements in the period that the determination is made.

 

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(r) Segment Reporting

Public companies are required to report certain financial information about significant revenue-producing segments of the business for which such information is available and utilized by the chief operating decision maker. Specific information to be reported for individual operating segments includes a measure of profit and loss, certain revenue and expense items, and total assets. As a community-oriented financial institution, substantially all of BankUnited’s operations involve the delivery of loan and deposit products to customers. Management makes operation decisions and assesses performance based on an ongoing review of these banking operations, which constitute BankUnited’s only operating segment.

(s) Derivative Instruments Held for Purposes Other than Trading

BankUnited enters into derivative contracts as a means of reducing its interest rate exposures. No derivatives are held for trading purposes. At inception these contracts, i.e., hedging instruments, are evaluated in order to determine if they qualify for hedge accounting. The hedging instrument must be highly effective in achieving offsetting changes in the hedge instrument and hedged item attributable to the risk being hedged. Any ineffectiveness, which arises during the hedging relationship is recognized in non-interest expense in the period in which it arises. All derivatives are valued at fair value and included in other assets or other liabilities. For fair value hedges, the changes in the fair value of the hedged item and changes in fair value of the derivative were recognized in non-interest income; in April 2006, BankUnited discontinued fair value hedging. For cash flow hedges, the unrealized changes in fair value to the extent effective are recognized in other comprehensive income. The fair value of cash flow hedges related to forecasted transactions is recognized in non-interest expense in the period when the forecasted transaction occurs. Any ineffectiveness related to cash flow-hedges is recorded in interest expense.

Residential mortgage loan commitments related to loans to be sold are required to be accounted for as derivatives at fair value, along with all forward sales contracts for loans to be sold. The commitments and forward sales contracts are recorded as either assets or liabilities in the consolidated statement of financial condition with the changes in fair value recorded in non-interest expense. 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 in other liabilities, no hedging of this type occurred in fiscal year 2007. See Note 10, Accounting for Derivatives and Hedging Activities, for more information about BankUnited’s Derivatives and Hedging Activities.

(t) Impact of Certain Accounting Pronouncements

SFAS No. 123R

In March 2004, the FASB issued a statement to revise Statement of Financial Accounting Standards (“SFAS”) No. 123 and SFAS No. 95, “Share-Based Payment,” that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. The Statement eliminates the ability to account for share-based compensation transactions using APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and requires instead that such transactions be accounted for using a fair-value-based method. The Securities and Exchange Commission required companies to implement SFAS No. 123R by the beginning of the next fiscal year that began on or after June 15, 2005. On October 1, 2005, BankUnited implemented SFAS No. 123R using the modified prospective method of transition. See Note 13, Stock Based Compensation, for more information about BankUnited’s stock-based compensation programs.

FIN No. 46 and FIN No. 46R

In January 2003, FASB issued FASB Interpretation No. 46 (“FIN No. 46”), an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements. FIN No. 46 establishes the criteria used to identify

 

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variable interest entities and to determine whether or not to consolidate a variable interest entity. This interpretation was effective immediately for variable interest entities created after January 31, 2003 and in the first fiscal year or interim period beginning after December 15, 2003, for variable interest entities in which a variable interest was acquired prior to February 1, 2003. Prior to FIN No. 46, BankUnited eliminated the investments in all of its trust subsidiaries and reported trust preferred securities in the liability section of BankUnited’s Consolidated Statement of Financial Condition. On December 24, 2003, the FASB issued a revision to FASB Interpretation 46 (“FIN No. 46R”) to clarify some of the provisions of FIN No. 46. Under the new guidance contained in FIN No. 46R, special effective date provisions apply to enterprises that have fully or partially applied FIN No. 46 prior to issuance of FIN No. 46R. Under the original provisions of FIN No. 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 No. 46. Under the new guidance contained in FIN No. 46R, the effective date was moved up to the first interim period ending after December 15, 2003 for special purpose entities only. BankUnited Capital was the only trust subsidiary consolidated by BankUnited. BankUnited meets the consolidation criteria under FIN No. 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 No. 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 No. 46 and FIN No. 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 No. 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 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 September 30, 2007, BankUnited had investments in the common stock of its Trust Subsidiaries of $7.1 million and Subordinated Debentures sold to its Trust Subsidiaries totaling $237.3 million. The Trust Subsidiaries had liabilities of $230.1 million in the form of Trust Preferred Securities.

FASB Staff Position Nos. FAS 115-1 and FAS 124-1

This FASB Staff Position (FSP) addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of other-than temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary-impairments. This guidance is effective for reporting periods beginning after December 15, 2005 and was effective beginning the quarter ended March 31, 2006. BankUnited performs impairment assessment on a quarterly basis. During the fiscal year ended September 30, 2007, BankUnited recognized a $5.8 million other-than-temporary impairment on four investment securities which it did not anticipate holding until full cost recovery; $1.3 million on a preferred equity security, $3.7 million on two mutual fund investments and a $0.8 million on an investment security.

EITF Issue No. 04-8

The Emerging Issues Task Force (EITF) of the FASB reached a consensus position Issue No. 04-8, “Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect of Diluted Earnings Per Share”, which could have required that the dilutive effect of contingently convertible debt instruments such as BankUnited’s 3.125% Convertible Senior Notes (the “Notes”), be reflected in BankUnited’s calculation of diluted earnings per share for reporting periods ending after December 15, 2004. Previous accounting rules provided for the exclusion of the effect of the contingently convertible instruments until the contingency had been satisfied.

 

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In December 2004, BankUnited entered into a First Supplemental Indenture (the “First Supplemental Indenture”), in respect of its $120 million aggregate principal amount of the Notes. The First Supplemental Indenture amends the indenture governing the Notes dated as of February 27, 2004 (the “Indenture”), between BankUnited and the Trustee.

Under the original terms of the Indenture, the Notes were convertible by holders, under certain circumstances described in the Indenture, into shares of BankUnited’s Class A Common Stock, cash in lieu of shares of Class A Common Stock, or a combination of cash and shares of Class A Common Stock. Under the terms of the First Supplemental Indenture, BankUnited has irrevocably elected and agreed to pay only cash in settlement of the principal amount of the Notes in respect of its conversion obligations. BankUnited has retained the right to elect to settle any and all conversion obligations in excess of the principal amount of the Notes in cash or shares of Class A Common Stock or a combination of cash and shares of Class A Common Stock.

As a result of the amendment effected by the First Supplemental Indenture, the Notes will have no effect on the calculation of BankUnited’s diluted average shares outstanding until the market price for BankUnited’s Class A Common Stock exceeds the conversion price of $38.06 per share.

SFAS No. 154

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” This statement replaces Accounting Principles Board Opinion No. 20 “Accounting Changes”, and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements” and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 shall be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Therefore, BankUnited adopted this statement in the fiscal year that began on October 1, 2006, and will apply it as applicable.

SFAS No. 155

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments.” This statement amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”.

This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.”

SFAS No. 155:

 

   

Permits fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation;

 

   

Clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133;

 

   

Establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation;

 

   

Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives;

 

   

Amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument.

SFAS No. 155 was effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Therefore, BankUnited adopted this statement in the fiscal year that began October 1, 2006, without any material effect.

 

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SFAS No. 156

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets.” This statement amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 provides for alternative accounting treatments of mortgage servicing rights for transactions entered into after the adoption of the pronouncement and shall be effective for an entity’s first fiscal year that begins after September 15, 2006. BankUnited elected to continue using the amortization method as the accounting treatment of mortgage servicing rights for new transactions related to fixed-rate mortgage loans in the fiscal year that began on October 1, 2006.

FIN No. 48

In June 2006, the FASB issued FASB Interpretation No. 48 (“FIN No. 48”), an interpretation of FASB Statement No.109 “Accounting for Income Taxes.”

This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

FIN No 48 shall be effective for fiscal years beginning after December 15, 2006. Therefore, BankUnited will adopt this statement, as applicable, in its fiscal year beginning October 1, 2007.

Management does not expect this interpretation to have a material effect on BankUnited’s financial statements.

SFAS No. 157

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. This Statement defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements.

This Statement shall be effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Therefore, BankUnited will adopt this statement, as applicable, in its fiscal year beginning October 1, 2008.

Management is in process of evaluating the impact of the adoption of this statement on BankUnited’s financial statements.

SAB No. 108

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108, (“SAB No. 108”) “Financial Statements—Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements.”

SAB No. 108 addresses how to quantify the effect of an error on the financial statements concluding that dual balance sheet and income approach be used to compute the impact of the amount of a misstatement. Specifically, the amount should be computed using both the “rollover” (income statement perspective) and “iron curtain” (balance sheet perspective) methods.

 

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SAB No. 108 is effective for fiscal years ending after November 15, 2006. BankUnited adopted this statement in its fiscal year that began on October 1, 2006, and will apply it as applicable.

SFAS No. 159

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115.”

This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.

The fair value option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.

The fair value option:

 

   

May be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method.

 

   

Is irrevocable (unless a new election date occurs).

 

   

Is applied only to entire instruments and not to portions of instruments.

This Statement shall be effective for financial statements issued for fiscal years beginning after November 15, 2007. BankUnited will adopt this Statement, as applicable, in its fiscal year beginning October 1, 2008.

Management is in process of evaluating the impact of the adoption of this statement on BankUnited’s financial statements.

(u) Financial Statement Reclassifications

Certain prior period amounts have been reclassified to conform to the September 30, 2007 consolidated financial statements.

 

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(2) Earnings per Share

Earnings per share is calculated as follows:

 

                 For the Years Ended September 30,            
     2007    2006    2005
     (In thousands, except per
share amounts)

Basic earnings per share:

        

Numerator:

        

Net income

   $ 81,379    $ 83,875    $ 27,537

Preferred stock dividends

     541      473      431
                    

Net income available to common stockholders

   $ 80,837    $ 83,402    $ 27,106
                    

Denominator:

        

Weighted average common shares outstanding

     35,876      34,297      30,090
                    

Basic earnings per share

   $ 2.25    $ 2.43    $ 0.90
                    

Diluted earnings per share:

        

Numerator:

        

Net income available to common stockholders

   $ 80,837    $ 83,402    $ 27,106

Plus:

        

Convertible preferred stock dividends

     541      473      431
                    

Diluted net income available to common stockholders

   $ 81,379    $ 83,875    $ 27,537
                    

Denominator:

        

Weighted average common shares outstanding

     35,876      34,297      30,090

Plus:

        

Stock options and restricted stock

     1,086      1,333      1,427

Convertible preferred stock

     977      914      822
                    

Diluted weighted average shares outstanding

     37,939      36,544      32,339
                    

Diluted earnings per share (1)

   $ 2.14    $ 2.30    $ 0.85
                    

 

(1) During the fiscal year ended September 30, 2007, BankUnited did not consider potential common and preferred stock options of 914,057 and 340,000, respectively, in the computation of diluted earnings per share as they would have been antidilutive. In addition, BankUnited did not consider potential common stock of 119,801 shares from the HiMEDS Units issued on April 25, 2007 and June 4, 2007 as they would have been antidilutive.

During the fiscal year ended September 30, 2006, BankUnited did not consider potential common and preferred stock options of 295,802 and 159,120, respectively, in the computation of diluted earnings per share as they would have been antidilutive.

During the fiscal year ended September 30, 2005, BankUnited did not consider potential common and preferred stock options of 270,826 and 122,169, respectively, in the computation of diluted earnings per share as they would have been antidilutive.

 

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(3) Investments and Mortgage-backed Securities Available for Sale

Investments Securities Available for Sale

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

 

     At September 30, 2007
     Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
    Fair
Value
     (In thousands)

U.S. government sponsored entity debt securities (1)

   $ 25,000    $ —      $ (23 )   $ 24,977

Preferred stock of U.S. government sponsored entities

     39,933      —        (2,772 )     37,161

Trust preferred securities of other issuers

     4,000      —        (311 )     3,689

Mutual funds and other bonds (2)

     117,511      35      (743 )     116,803

Other investment note

     1,200      —        —         1,200

Other equity securities

     3,462      83      —         3,545
                            

Total

   $ 191,106    $ 118    $ (3,849 )   $ 187,375
                            

 

     At September 30, 2006
     Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
    Fair
Value
     (In thousands)

U.S. government sponsored entity debt securities (1)

   $ 70,599    $ —      $ (683 )   $ 69,916

Preferred stock of U.S. government sponsored entities

     95,696      100      (4,541 )     91,255

Trust preferred securities of other issuers

     23,056      361      (67 )     23,350

Mutual funds and other bonds (2)

     116,160      43      (4,159 )     112,044

Other equity securities

     3,097      247      —         3,344
                            

Total

   $ 308,608    $ 751    $ (9,450 )   $ 299,909
                            

Investment securities at September 30, 2007, by contractual maturity, are shown below.

 

     Available for Sale
     Amortized Cost    Fair Value
     (In thousands)

Due in one year or less

   $ 28,287    $ 28,261

Due after one year through five years

     7,874      7,874

Due after five years through ten years

     2,865      2,873

Due after ten years

     38,205      37,193

Equity securities

     113,875      111,174
             

Total

   $ 191,106    $ 187,375
             

 

(1) U.S. Government sponsored entities include the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC).
(2) Underlying assets of mutual funds consist primarily of mortgage-backed securities.

 

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Mortgage-backed Securities Available for Sale

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

 

     At September 30, 2007
     Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
    Fair
Value
     (In thousands)

FNMA mortgage-backed securities

   $ 163,656    $ 139    $ (4,049 )   $ 159,746

FHLMC mortgage-backed securities

     50,541      135      (137 )     50,539

Collateralized mortgage obligations

     4,284      —        (18 )     4,266

Mortgage pass-through certificates (1)

     714,190      980      (13,498 )     701,672
                            

Total

   $ 932,671    $ 1,254    $ (17,702 )   $ 916,223
                            
     At September 30, 2006
     Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
    Fair
Value
     (In thousands)

FNMA mortgage-backed securities

   $ 211,207    $ 62    $ (7,612 )   $ 203,657

FHLMC mortgage-backed securities

     63,391      24      (1,668 )     61,747

Collateralized mortgage obligations

     6,860      42      (26 )     6,876

Mortgage pass-through certificates (1)

     967,207      396      (13,939 )     953,664
                            

Total

   $ 1,248,665    $ 524    $ (23,245 )   $ 1,225,944
                            

 

(1) Included in BankUnited’s portfolio of mortgage-backed securities as of September 30, 2007 and 2006, were securities with a fair value of $179 million and $230 million, respectively, retained from BankUnited’s mortgage loan securitization from September 2005.

Mortgage-backed securities at September 30, 2007, by contractual maturity and adjusted for anticipated prepayments, are shown below.

 

     Available for Sale
     Amortized Cost    Fair Value
     (In thousands)

Due in one year or less

   $ 279,663    $ 274,742

Due after one year through five years

     512,558      503,540

Due after five years through ten years

     115,612      113,578

Due after ten years

     24,838      24,363
             

Total

   $ 932,671    $ 916,223
             

Based on the internal model used by BankUnited, estimated average duration of the mortgage-backed securities portfolio as of September 30, 2007 was 1.34 years. This duration extends to 1.72 years in a hypothetical scenario that immediately adds 100 basis points to market interest rates. The model used by BankUnited is based on assumptions that may differ from the eventual outcome.

 

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The following tables provide information on unrealized losses for investments and mortgage-backed securities available for sale as of September 30, 2007 and 2006.

 

     As of September 30, 2007  
     Less than 12 Months     12 Months or Greater     Total  
     Fair
Value
   Unrealized
Losses (1)
    Fair
Value
   Unrealized
Losses (1)
    Fair
Value
   Unrealized
Losses (1)
 
     (In thousands)  

Available for sale securities

               

Investment securities:

               

Trust preferred securities of other issuers

   $ 1,889    $ (111 )   $ 1,800    $ (200 )   $ 3,689    $ (311 )

U.S. government sponsored entity debt securities (2)

     —        —         24,977      (23 )     24,977      (23 )

Preferred stock of U.S. government sponsored entities (2)

     28,451      (2,772 )     —        —         28,451      (2,772 )

Mutual funds and other bonds (3)

     5,718      (18 )     27,638      (725 )     33,356      (743 )
                                             

Total investment securities

   $ 36,058    $ (2,901 )   $ 54,415    $ (948 )   $ 90,473    $ (3,849 )
                                             

Mortgage-backed securities:

               

FNMA mortgage-backed securities

   $ —      $ —       $ 135,629    $ (4,049 )   $ 135,629    $ (4,049 )

FHLMC mortgage-backed securities

     —        —         19,849      (137 )     19,849      (137 )

Collateralized mortgage obligations

     —        —         959      (18 )     959      (18 )

Mortgage pass-through certificates

     115,585      (5,205 )     426,293      (8,293 )     541,878      (13,498 )
                                             

Total mortgage-backed securities

   $ 115,585    $ (5,205 )   $ 582,730    $ (12,497 )   $ 698,315    $ (17,702 )
                                             

 

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     As of September 30, 2006  
     Less than 12 Months     12 Months or Greater     Total  
     Fair
Value
   Unrealized
Losses (1)
    Fair
Value
   Unrealized
Losses (1)
    Fair
Value
   Unrealized
Losses (1)
 
     (In thousands)  

Available for sale securities

               

Investment securities:

               

Trust preferred securities of other issuers

   $ 1,996    $ (5 )   $ 1,938    $ (62 )   $ 3,934    $ (67 )

U.S. government sponsored entity debt securities (2)

     —        —         69,916      (683 )     69,916      (683 )

Preferred stock of U.S. government sponsored entities (2)

     37,156      (2,859 )     24,361      (1,682 )     61,517      (4,541 )

Mutual funds and other bonds (3)

     8,273      (166 )     91,178      (3,993 )     99,451      (4,159  
                                             

Total investment securities

   $ 47,425    $ (3,030 )   $ 187,393    $ (6,420 )   $ 234,818    $ (9,450 )
                                             

Mortgage-backed securities:

               

FNMA mortgage-backed securities

   $ 252    $ (1 )   $ 198,578    $ (7,611 )   $ 198,830    $ (7,612 )

FHLMC mortgage-backed securities

     —        —         59,534      (1,668 )     59,534      (1,668 )

Collateralized mortgage obligations

     —        —         1,355      (26 )     1,355      (26 )

Mortgage pass-through certificates

     20,730      (154 )     862,145      (13,785 )     882,875      (13,939 )
                                             

Total mortgage-backed securities

   $ 20,982    $ (155 )   $ 1,121,612    $ (23,090 )   $ 1,142,594    $ (23,245 )
                                             

 

(1) These unrealized losses are not considered to be other- than- temporary based on management’s evaluation. Impairment is evaluated considering numerous factors, and their relative significance varies depending on the situation. Factors considered include the length of time and extent to which the market value has been less than cost; the financial condition and near-term prospects of the issuer of the securities; and the intent and ability to retain the security in order to allow for an anticipated recovery in fair value. We consider the decline in value of debt or equity securities classified as either available-for-sale to be temporary and we have the ability and intent to hold these securities until recovery.
(2) U.S. Government sponsored entities include FNMA and FHLMC.
(3) Underlying assets of mutual funds consist primarily of mortgage-backed securities.

We have determined that available for sale securities in an unrealized loss position are not other-than-temporary impaired for the following reasons:

 

   

The significant majority of the securities referenced above are graded “Investment-Grade” taking into consideration the latest available credit ratings on individual investment securities by recognized rating companies (i.e. Moody’s, S&P). Throughout the holding period, BankUnited has not experienced any delays/ omissions in interest payments due as well as receipt of principal payments in the case of pass-through securities as it pertains to the inventory referenced above.

 

   

BankUnited continues to utilize the securities referenced above as a tool to generate a stream of cash flow and has the, “ability and intent to hold these investments for a reasonable period of time sufficient for a forecasted recovery of fair value.”

 

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During fiscal year 2007 BankUnited recognized a $5.8 million other-than-temporary impairment on four investment securities which it did not anticipate holding until full cost recovery; $1.3 million on a preferred equity security, $3.7 million on two mutual fund investments, and $0.8 million on an investment security.

Proceeds from sales of investment securities were $70 million, $0 and $120 million for the years ended September 30, 2007, 2006 and 2005, respectively. Realized gains from these sales were $343 thousand, $0, and $4.1 million for the years ended September 30, 2007, 2006 and 2005, respectively. Realized losses from these sales were of $894 thousands, $0 and $0 for the years ended September 30, 2007, 2006 and 2005, respectively.

Proceeds from sales of mortgage-backed securities were $302 million, $163 million, and $482 million for the years ended September 30, 2007, 2006, and 2005, respectively. Realized gains from these sales were $27 thousand $0, and $0 for the years ended September 30, 2007, 2006 and 2005, respectively. Realized losses from these sales were $0, $0, and $0.4 million for the years ended September 30, 2007, 2006, and 2005, respectively.

At September 30, 2007, and 2006 investment and mortgage-backed securities with an aggregate fair value of approximately $232 million, and $1.1 billion, respectively were pledged as collateral for repurchase agreements.

(4) Loans Receivable

Loans receivable consist of the following:

 

     As of September 30,  
     2007     2006  
     Amount     Percent of
Total
    Amount     Percent of
Total
 
     (Dollars in thousands)  

Real estate loans:

        

One-to-four family residential:

        

Residential mortgages

   $ 9,996,086     79.6 %   $ 8,967,323     78.6 %

Specialty consumer mortgages

     697,726     5.5       694,590     6.1  
                            

Total one-to-four family residential

     10,693,812     85.1       9,661,913     84.7  

Home equity loans and lines of credit

     420,386     3.3       355,822     3.1  

Multi-family

     120,058     1.0       85,544     0.8  

Commercial real estate

     496,556     4.0       413,637     3.6  

Construction

     146,557     1.2       174,466     1.5  

Land

     303,294     2.4       337,023     3.0  
                            

Total real estate loans

     12,180,663     97.0       11,028,405     96.7  
                            

Other loans:

        

Commercial

     187,951     1.5       194,269     1.7  

Consumer

     16,228     0.1       17,809     0.2  
                            

Total other loans

     204,179     1.6       212,078     1.9  
                            

Total loans held in portfolio (1)

     12,384,842     98.6       11,240,483     98.6  

Unearned discounts, premiums and deferred loan costs, net

     235,454     1.9       196,601     1.7  

Allowance for loan losses

     (58,623 )   (0.5 )     (36,378 )   (0.3 )
                            

Total loans held in portfolio, net

     12,561,673     100.0 %     11,400,706     100.0 %

Mortgage loans held for sale

     174,868         9,542    
                    

Total loans, net

   $ 12,736,541       $ 11,410,248    
                    

 

(1) As of September 30, 2007, BankUnited had $180.8 million of non-accrual loans and $23 thousand past due more than 90 days and still accruing. As of September 30, 2006, BankUnited had $20.7 million of non-accrual loans and no loans past due more than 90 days and still accruing.

 

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As of September 30, 2007, approximately $7.7 billion, or 61%, of all loans were secured by properties in Florida. No other state represented more than 6.9% of the Bank’s loan portfolio secured by real estate. As of September 30, 2006, approximately $7.6 billion, or 67%, of all loans were secured by properties in Florida. No other state represented more than 5.5% of the Bank’s loan portfolio secured by real estate.

As of September 30, 2007, the Bank had pledged approximately $9.1 billion of mortgage loans as collateral for advances from the FHLB Atlanta. As of September 30, 2006, the Bank had pledged approximately $8.2 billion of mortgage loans as collateral for advances from the FHLB Atlanta.

The following table provides the composition of the Bank’s one-to-four family residential loans as of September 30, 2007 and September 30, 2006, including loans held for sale.

 

     As of September 30, 2007     As of September 30, 2006  
     Amount    Percent
of Total
    Amount    Percent
of Total
 
     (Dollars in thousands)  

One-to-four family residential loans:

          

Fixed rate loans

   $ 1,499,757    13.8 %   $ 1,273,240    13.1 %

Adjustable rate loans (ARM):

          

Monthly payment option

     6,682,670    61.5       6,662,052    68.9  

Select-My-Payment

     925,000    8.5       —      —    

Non option ARM

     1,761,253    16.2       1,736,163    18.0  
                          

Total ARM loans

     9,368,923    86.2       8,398,215    86.9  
                          

Total one-to-four family residential loans, including loans held for sale (1)

   $ 10,868,680    100.0 %   $ 9,671,455    100.0 %
                          

 

(1) Excluding deferred costs, discounts, premiums and allowance for loan losses.

Payment option loans represented 60.6% and 59.2% of total loans outstanding (including loans held for sale and excluding deferred costs, unearned discounts, premiums and allowance for loan losses) as of September 30, 2007 and September 30, 2006, respectively. As of September 30, 2007, payment option loans with a balance of $6.7 billion, representing 89% of the payment option portfolio, had negative amortization of $270 million above their original principal balance. As of September 30, 2006, payment option loans with a balance of $5.0 billion, representing 75% of the payment option portfolio, had $89 million of negative amortization above their original principal balance.

Changes in the allowance for loan losses are as follows:

 

     For the Years Ended September 30,  
     2007     2006     2005  
     (In thousands)  

Balance at beginning of period

   $ 36,378     $ 25,755     $ 24,079  

Provision

     31,500       10,400       3,800  

Loans charged-off

     (11,050 )     (1,273 )     (3,189 )

Recoveries

     1,795       1,496       1,065  
                        

Balance at end of period

   $ 58,623     $ 36,378     $ 25,755  
                        

 

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The following table sets forth information concerning impaired loans with specific reserves:

 

     As of September 30,
     2007    2006
     Outstanding
Principal
   Allowance
for loan
losses
   Outstanding
Principal
   Allowance
for loan
losses
     (In thousands)

Consumer Mortgages

   $ 923    $ 407    $ —      $ —  

Commercial real estate (1)

     —        —        7,000      1,330

Commercial (2)

     232      232      3,998      1,979
                           

Total

   $ 1,155    $ 639    $ 10,998    $ 3,309
                           

 

(1) Impaired commercial real estate loans with specific reserves decreased by $7 million from September 30, 2006 due to a sale transaction of a troubled commercial real estate loan with a balance of $7 million. The loan sold in December 2006 at a loss of $1.3 million provided through a specific reserve as of September 30, 2006.
(2) Impaired commercial loans with specific reserves decreased by $3.8 million from September 30, 2006 due to the settlement of an unsecured commercial loan in the amount of $3 million in exchange for an investment security valued at $1.2 million

(5) Servicing and Transfers of Mortgage Loans

Servicing

As of September 30, 2007 and 2006, BankUnited had MSR assets with a carrying amount of $20.6 million and $20.3 million, respectively.

Management obtains a valuation of its MSR assets each quarter from independent third parties, which is used by management to assess those assets for impairment. For purposes of determining the fair value of BankUnited’s MSR assets, and any resulting impairment, MSR’s have been stratified by risk characteristics, specifically investor type and product. The strata used were:

 

   

Federal National Mortgage Association (FNMA);

 

   

Federal Home Loan Mortgage Corporation (FHLMC);

 

   

Private investors; and

 

   

MTA loan securitization

The following table provides activity related to BankUnited’s MSR assets during fiscal years 2007 and 2006:

 

     For the Years Ended September 30, 2007  
     MSR From
Loan Sales
    MSR
Securitization
    Total MSR  
     (In thousands)  

Beginning Balance October 1, 2006

   $ 15,628     $ 4,631     $ 20,259  

New MSR assets from loans sales

     4,994       —         4,994  

Amortization of MSR assets

     (2,262 )     (1,066 )     (3,329 )

Impairment of MSR assets

     (659 )     (634 )     (1,293 )

Ending Balance September 30, 2007

   $ 17,701     $ 2,931     $ 20,631  

Fair Value at September 30, 2007

   $ 18,100     $ 2,931     $ 21,031  

 

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     For the Years Ended September 30, 2006  
     MSR From
loan sales
    MSR
Securitization
    Total MSR  
     (In thousands)  

Beginning Balance October 1, 2005

   $ 15,203     $ 6,898     $ 22,101  

New MSR assets from loans sales

     2,788       —         2,788  

Amortization of MSR assets

     (2,363 )     (1,231 )     (3,594 )

Impairment of MSR assets

     —         (1,036 )     (1,036 )

Ending Balance September 30, 2006

   $ 15,628     $ 4,631     $ 20,259  

Fair Value at September 30, 2006

   $ 15,701     $ 4,631     $ 20,332  

Transfers

On September 26, 2005, BankUnited sold mortgage loans for securitization to a trust in a sale transaction. This transaction was structured without recourse to BankUnited. While BankUnited does not retain credit risk on the loans it has securitized, it has potential liability, under representations and warranties it made to the trust purchasing the loans. Upon securitization of the mortgage loans, BankUnited acquired subordinated securities, including an interest only strip (collectively retained securities), and recognized the value of the rights to servicing the underlying loans (MSRs). BankUnited recognized a loss of $89 thousand, net of costs associated with the securitization, from the sale of securities that were not retained by BankUnited. BankUnited has classified the retained securities as available for sale.

Considerable judgment is required to determine the fair values of BankUnited’s retained securities. Unlike government securities and other highly liquid investments, the precise market value of retained securities cannot be readily determined because these assets are not actively traded in stand-alone markets. Accordingly, BankUnited utilizes independent third parties specializing in secondary market transactions to provide fair values of its retained securities through the use of discounted cash flow models.

The key assumptions used in these models include prepayment speeds, discount yields, and loss severities. Prepayment speeds range from 20 CPR to 25 CPR and discount yields range from 6% to 18% depending upon where in the capital structure the bonds lie. Default assumptions are not applied to the AAA securities due to their high levels of subordination. However, for the subordinate pieces a cumulative deficit rate (“CDR”) of 2% combined with a loss severity of 30% is applied.

The key economic assumptions used in determining the fair value of retained securities at September 30, 2007 and the resulting fair value of the retained securities from hypothetical adverse changes in those assumptions are as follows:

 

     September 30,
2007
     (In thousands)

Fair value of retained securities

   $ 179,001

Fair value of retained securities from hypothetical adverse changes in prepayment speeds:

  

10%

   $ 178,030

20%

   $ 178,566

Fair value of retained securities from hypothetical adverse changes in discount margin and yields:

  

10%

   $ 176,534

20%

   $ 174,813

Fair value of retained securities from hypothetical adverse changes in pricing curves (spot/forward):

  

10%

   $ 177,398

20%

   $ 177,037

 

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The sensitivities in the table above is hypothetical and should be used with caution. In the above table, the effect of a variation in a particular assumption on the fair value of the retained securities is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another, which might compound or counteract the sensitivities.

At September 30, 2007 and 2006, BankUnited was servicing loans for others of approximately $1.6 billion and $1.6 billion, respectively.

(6) FHLB Stock and Other Earning Assets

FHLB stock and other earning assets is summarized as follows:

 

     As of September 30,
     2007    2006
     (In thousands)

FHLB stock

   $ 305,385    $ 255,342

Other earning assets

     150      150
             

Total

   $ 305,535    $ 255,492
             

(7) Office Properties and Equipment, net

Office properties and equipment, net are summarized as follows:

 

     As of September 30,  
     2007     2006  
     (In thousands)  

Branch buildings

   $ 3,671     $ 1,765  

Leasehold improvements

     46,457       34,125  

Furniture, fixtures and equipment

     29,529       24,040  

Computer equipment and software

     35,135       24,856  
                

Total

     114,792       84,786  

Less: accumulated depreciation

     (48,043 )     (36,058 )
                

Office properties and equipment, net

   $ 66,749     $ 48,728  
                

Depreciation expense was $13.0 million, $9.5 million, and $6.3 million, for the years ended September 30, 2007, 2006 and 2005, respectively. During fiscal 2006 BankUnited took an impairment charge of $725 thousand in relation to damages to two of its branches resulting from hurricane Wilma and a subsequent fire at one of the branches; expected insurance proceeds of $827 thousand were recorded as a receivable in addition to insurance proceeds already collected for property damage. During fiscal 2007, $333 thousand was collected from the insurance carrier and $327 thousand of the outstanding receivable was written off. A receivable of $167 thousand remains outstanding for insurance proceeds expected to be collected in fiscal year 2008.

BankUnited has entered into non-cancelable leases with approximate minimum future rentals as follows:

 

Years Ending September 30,

   Amount
     (In thousands)

2008

   $ 12,485

2009

     11,909

2010

     10,959

2011

     9,674

2012

     8,717

Thereafter through 2018

     16,513
      

Total

   $ 70,257
      

 

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Actual rental payments may include deferred rents but are recognized as rent expense on a straight-line basis. Rent expense for the years ended September 30, 2007, 2006, and 2005 was $16.1 million, $12.8 million, and $11.5 million, respectively.

As a part of the lease of one of the buildings at the Miami Lakes Operations Center, BankUnited was required to restore the interior, which had been extensively modified by the former tenant, to its original condition. It is estimated that the cost of the restoration will be $2.2 million. The former tenant paid BankUnited $714 thousand to defray that cost. The lease for this building expires in December 2013.

(8) Deposits

At September 30, 2007 and 2006, BankUnited had outstanding non-interest bearing deposits of $342 million and $392 million, and interest bearing deposits of $6.7 billion and $5.7 billion, respectively. At September 30, 2007 and 2006, there were overdrafts of approximately $1.5 million and $1.6 million, respectively. Certificate accounts with balances of $100 thousand or more totaled approximately $2.1 billion and $1.8 billion at September 30, 2007 and 2006, respectively.

The following table sets forth maturities of certificates of deposit equal to or greater than $100 thousand as of September 30, 2007.

 

     As of
September 30,
2007 (1)
     (In thousands)

Three months or less

   $ 543,137

Over 3 months through 6

     844,072

Over 6 months through 12

     402,476

Over 12 months through 24

     95,475

Over 24 months through 36

     119,232

Over 36 months through 48

     55,000

Over 48 months through 60

     31,321
      
   $ 2,090,713
      

 

(1) Included in the table above are $293.4 million of certificates of deposit issued to the State of Florida with an average rate of 4.85%. These certificates are collateralized with a letter of credit of $155 million at September 30, 2007, issued by the FHLB Atlanta.

Interest expense on deposits for the years ended September 30, 2007, 2006 and 2005 was as follows:

 

     September 30,
     2007    2006    2005
     (In thousands)

Transaction and money market accounts

   $ 16,866    $ 8,954    $ 5,482

Savings accounts

     66,580      47,838      21,096

Certificates of deposit

     218,889      143,178      71,735
                    
   $ 302,335    $ 199,970    $ 98,313
                    

Early withdrawal penalties on certificates of deposit are recognized as a reduction of interest expense on deposits. For the years ended September 30, 2007, 2006 and 2005, early withdrawal penalties totaled $769 thousand, $682 thousand and $350 thousand, respectively.

 

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(9) Borrowings

Securities Sold under Agreements to Repurchase

Interest expense on securities sold under agreements to repurchase aggregated $19.9 million, $53.9 million and $36.2 million for the years ended September 30, 2007, 2006 and 2005, respectively.

The following sets forth information concerning repurchase agreements for the periods indicated:

 

     As of and for the Years
Ended September 30,
 
     2007     2006  
     (Dollars in thousands)  

Maximum amount of outstanding agreements at any month end during the period

   $ 829,435     $ 1,308,370  

Average amount outstanding during the period

   $ 407,962     $ 1,118,696  

Weighted average interest rate for the period

     5.33 %     4.83 %

The carrying amount of mortgage-backed securities sold under agreements to repurchase amounted to $143 million as of September 30, 2007. The agreements are overnight agreements with an average interest rate of 4.58% at September 30, 2007.

Advances from Federal Home Loan Bank

Advances outstanding as of September 30, 2007 and 2006 from the FHLB Atlanta incur interest and have contractual repayments as follows:

 

     As of September 30,  
                                 2007                                                       2006                       
     Amount    Range of Interest
Rates
     Amount    Range of Interest
Rates
 
     (Dollars in thousands)  

Repayable During Year Ending September 30,

               

2007

           $ 3,605,000    2.34 %   5.63 %

2008

   $ 3,150,000    3.95 %   5.61 %      880,000    2.59 %   5.61 %

2009

     1,470,000    4.55 %   5.36 %      100,000    4.64 %   4.74 %

2010 (1)*, (2)**

     1,165,000    3.62 %   5.00 %      150,000    3.61 %   3.72 %

2011

     60,000    4.97 %   4.97 %      —      —       —    

2012 (3)*

     25,000    4.17 %   4.17 %      —      —       —    

2015 (4)*, (5)*(6)

     364,100    0.00 %   4.79 %      439,100    0.00 %   4.79 %

2016 (6)

     250    0.00 %   0.00 %      250    0.00 %   0.00 %
                       

Total contractual outstanding

   $ 6,234,350         $ 5,174,350     
                       

 

*    (1)     Advances for $100 million are callable by the FHLB in 2008.
**  (2)     Advances for $175 million are callable by FHLB in 2009.
*    (3)     Advances for $25 million are callable by FHLB in 2009.
*    (4)     Advances for $264 million are callable by FHLB in 2008.
*    (5)     Advances for $100 million are callable by FHLB in 2009.
      (6)     Zero per cent rate represent advances related to CRA.
  * Callable on call date and each quarter there after
  ** Callable on call date only

The terms of a security agreement with the FHLB Atlanta include a specific assignment of collateral that requires the maintenance of qualifying first mortgage loans as pledged collateral with unpaid principal amounts at least equal to 100% of the FHLB advances, when discounted at 85% of the unpaid principal balance. The FHLB Atlanta stock, which is recorded at cost of $305 million as of September 30, 2007, is also pledged as collateral for these advances.

 

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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 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.

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.

Under the terms of the First Supplemental Indenture entered into in December 2004, BankUnited has irrevocably elected and agreed to pay only cash in settlement of the principal amount of the Notes in respect of its conversion obligations. BankUnited has retained the right to elect to settle any and all conversion obligations in excess of the principal amount of the Notes in cash or shares of Class A Common Stock or a combination of cash and shares of Class A Common Stock. As a result of the amendment effected by the First Supplemental Indenture, the Notes will have no effect on the calculation of BankUnited’s diluted average shares outstanding until the market price for BankUnited’s Class A Common Stock exceeds the conversion price of $38.06 per share.

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.

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 significant change (e.g., change of controlling interest in BankUnited).

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 September 30, 2007, BankUnited did not have any senior secured indebtedness.

Trust Preferred Securities and Subordinated Debentures

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 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

 

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cumulative cash distributions at the same rate as the Junior Subordinated Debentures held by the Trust Subsidiaries. Considered together, back-up undertakings made by BankUnited with respect to the Trust Preferred Securities constitute a full and unconditional guarantee by BankUnited of the obligations of the Trust Preferred Securities. The carrying amount of trust preferred securities and subordinated debentures in BankUnited’s Consolidated Statement of Financial Condition of $237 million as of September 30, 2007, represents Trust Preferred Securities issued by its non-consolidated Trust Subsidiaries and the Subordinated Debentures issued to its non-consolidated Trust Subsidiaries. In addition BankUnited adjusts the carrying amount of certain Trust Preferred Securities in accordance with the hedge accounting requirements of SFAS No. 133.

The following table provides information for each of BankUnited’s Trust Subsidiaries with outstanding Trust Preferred Securities as of September 30, 2007:

 

     Outstanding as of September 30, 2007            
     Trust
Preferred
Securities
   Common
Securities
   Subordinated
Debentures
   Annual Rate of Preferential
Cash Distribution
     Maturity
Date

BankUnited Statutory
Trust III (6)

   $ 25,000    $ 774    $ 25,774    3-Month Libor+3.40% (2)      9/26/2032

BankUnited Statutory
Trust IV (6)

     20,000      619      20,619    3-Month Libor+3.40% (3)      11/15/2032

BankUnited Statutory
Trust V (6)

     15,000      464      15,464    3-Month Libor+3.25% (4)      12/19/2032

BankUnited Statutory
Trust VI (6)

     17,640      546      18,186    3-Month Libor+3.15% (5)      3/26/2033

BUFC Statutory
Trust VII (1) (6)

     15,000      464      15,464    3-Month Libor+3.25%            4/3/2033

BankUnited Statutory
Trust VIII (6)

     15,000      464      15,464    3-Month Libor+1.86%            11/30/2034

BankUnited Statutory
Trust IX (6)

     15,000      464      15,464    5.835% (7)      11/30/2034

BUFC Statutory
Trust X (6)

     50,000      1,547      51,547    3-Month Libor+1.69%            12/15/2036

BankUnited Statutory
Trust XI (6)

     50,000      1,547      51,547    3-Month Libor+1.69%            3/15/2037

BankUnited Statutory
Trust XII (6)

     7,500      232      7,732    3-Month Libor+1.60%            12/15/2037
                            

Total

   $ 230,140    $ 7,121    $ 237,261        
                            

 

(1) BankUnited uses an interest rate cap contract to hedge interest rate risk on this instrument with a notional amount of $15 million as of September 30, 2007.
(2) Not to exceed 11.90% prior to September 26, 2007.
(3) Not to exceed 11.90% prior to November 15, 2007.
(4) Not to exceed 11.75% prior to December 26, 2007.
(5) Not to exceed 11.75% prior to March 26, 2008.
(6) In accordance with FIN No. 46, BankUnited has not consolidated these Trust Subsidiaries.
(7) Fixed at 5.835% until December 30, 2009 at which time the rate converts to floating at 3-Month Libor + 1.86%.

During the twelve-month period ended September 30, 2007, BankUnited had a net increase of $41 million in trust preferred securities and subordinated debentures from $196 million at September 30, 2006 to $237 million. BankUnited operates wholly-owned 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 carrying amount of trust preferred securities and subordinated debentures in BankUnited’s

 

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Consolidated Statement of Financial Condition was $237 million as of September 30, 2007, and represented trust preferred securities issued by its consolidated trust subsidiary and the subordinated debentures issued by BankUnited to its non-consolidated trust subsidiaries.

The net increase in trust preferred securities and in subordinated debentures reflects primarily four transactions during the twelve-month period ended September 30, 2007:

 

   

The issuance and sale of $50 million in subordinated debentures to wholly-owned trust subsidiary, BankUnited Statutory Trust X in October 2006;

 

   

The issuance and sale of $50 million in subordinated debentures to wholly-owned trust subsidiary, BankUnited Statutory Trust XI in March 2007;

 

   

The redemption in March 2007 of trust preferred securities with a balance of $23 million issued by BankUnited to its consolidated subsidiary BankUnited Capital;

 

   

The redemption in March 2007 of trust preferred securities with a balance of $25 million issued by BankUnited to its non-consolidated subsidiary BankUnited Statutory Trust II;

 

   

The redemption in May 2007 of trust preferred securities with a balance of $20 million issued by BankUnited to its non-consolidated subsidiary BankUnited Statutory Trust I; and

 

   

The issuance and sale of $8 million in subordinated debentures to wholly-owned trust subsidiary, BankUnited Statutory Trust XII in September 2007.

Issuance of HiMEDS equity units

During the third fiscal quarter of 2007, BankUnited raised $184 million through the sale of 3,680,000 6.75% HiMEDS equity units, which require holders to purchase common equity by May 2010 at a price in the range of $23.40 to $32.76.

BankUnited has been using and intends to use the net proceeds of the offering for general corporate purposes including buying shares of its Class A Common Stock, expanding operations through new branch offices and operations centers, acquisitions of debt and equity securities, redemption of outstanding debt and investing in loans and mortgage-backed or other securities.

The equity units carry a total distribution rate of 6.75%. Each equity unit has a stated amount of $50 and is initially comprised of (i) a 3-year purchase contract which will obligate the holder to purchase from BankUnited on May 17, 2010, a certain number of shares of Bankunited’s Class A Common Stock, for $50; and (ii) a 1/20 undivided beneficial interest in $1,000 principal amount of BankUnited’s 6.37% Senior Note due May 17, 2012. Holders of the equity units will be entitled to receive quarterly contract adjustment payments at a rate of 0.38% per year of the stated amount of $50 per equity unit. The threshold appreciation price of the equity units is $32.76.

BankUnited has recorded the fair value of the forward purchase contract as a reduction of additional paid-in capital for $1.9 million. The contract adjustment payment obligation has been recorded as a liability for its present value of $1.9 million.

The forward purchase contract is evaluated during each reporting period to ensure that it continues to qualify for equity classification under EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” As of September 30, 2007, the forward purchase contract continued to qualify as equity.

 

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Issuance of Junior Subordinated Debentures

On September 28, 2007, BankUnited issued $12.5 million principal amount of junior subordinated debentures due on December 15, 2017. The debentures bear an annual floating rate equal to 3-month LIBOR plus 3%. Interest will be paid quarterly in arrears on March 15, June 15, September 15 and December 15 of each year (the “Distribution Periods”).

The amount of interest payable for each Distribution Period will be calculated by applying the interest rate to the principal amount outstanding at the commencement of the Distribution Period on the basis of the actual number of days in the Distribution Period concerned divided by 360.

The payment by BankUnited of the principal of, and premium, if any, and interest on all debentures is subordinated and junior in right of payment to the prior payment in full of all senior indebtedness of BankUnited, whether outstanding at the date of the issuance of these debentures or thereafter incurred.

The indebtedness represented by these debentures is unsecured by the assets of BankUnited and its affiliates and the debenture is not eligible as collateral for any loan by BankUnited.

These debentures may be redeemed on or after the interest payment date in December 2012 in accordance with the terms of the indenture.

(10) Accounting for Derivatives 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 include loan commitments, forward sales contracts, and interest rate swaps and caps. In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), BankUnited recognizes all derivatives as either assets or liabilities on the consolidated statement of condition and reports 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.

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 calculated by third parties.

Forward Sales Contracts

BankUnited enters into forward sales contracts in order to economically hedge fair value exposure of loan commitments and fair value exposure of loans held for sale to a change in interest rates. Fair value changes of forward sales contracts, not eligible for hedge accounting under SFAS No. 133, are recorded in earnings under non-interest expense with an offset in other liabilities. Hedge accounting was not applied to these contracts in fiscal years ended September 30, 2007 and September 30, 2006. Loans held for sale do not include any payment option loans.

 

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Loans Held For Sale

Loans held for sale are accounted for under the lower of cost or market method, unless they are effectively hedged under SFAS No. 133. Lower of cost or market adjustments are recorded in earnings under non-interest expense. No adjustments, related to lower of cost or market, were booked in the fiscal years ended September 30, 2007 and September 30, 2006.

Interest Rate Swaps and Caps

At September 30, 2007, BankUnited had outstanding one interest rate cap contract used to reduce the risk of rising interest payments associated with specific variable rate debt instruments. This contract was accounted for as cash flow hedge under SFAS No. 133.

BankUnited applied hedge accounting based on the “short cut” method for interest rate swaps provided for in SFAS No. 133 for the quarter ended December 31, 2005. BankUnited reviewed its application of the short cut method in accounting for interest rate swaps in the subsequent quarter based on guidance issued by the SEC in December 2005, and concluded that three hedge transactions outstanding at December 31, 2005, did not meet the requirements set forth in the guidance and that hedge accounting was precluded for those items in the periods previously applied. BankUnited concluded that the reclassification of these swaps did not materially affect the results of operations for any period presented and recognized a $242 thousand net charge from prior periods for the quarter ended March 31, 2006. For the year ended September 30, 2006, a $2 million loss was recognized on this swap transaction. The “short cut” method has not been used in subsequent periods.

At September 30, 2007, BankUnited had no interest rate swap agreements outstanding.

The following table summarizes certain information with respect to the use of derivatives and their impact on BankUnited’s consolidated statements of income during the years ended September 30, 2007, 2006, and 2005:

 

     For the Years Ended September 30,  
         2007             2006             2005      
     (In thousands)  

Interest Rate Swaps

      

Net loss recorded in non-interest income related to swaps

   $ (327 )   $ (1,657 )   $ (1,369 )

Other Derivatives (1)

      

(Loss) gain recorded in non-interest expense related to loan commitments

     (9 )     146       (183 )

(Loss) gain recorded in non-interest expense related to forward sales contracts

     (657 )     (231 )     238  
                        

Total net loss recorded in earnings due to derivatives

   $ (993 )   $ (1,742 )   $ (1,309 )
                        

 

Note: A charge of $4 thousand related to ineffectiveness related on cash flow hedges was booked during fiscal year 2007. Within the next 12 months, BankUnited estimates that $59 thousand will be reclassified out of other comprehensive income as a credit to earnings for cash flow hedges outstanding as of September 30, 2007.
(1) BankUnited uses other derivatives to economically hedge interest rate risk, but they do not qualify for hedge accounting treatment.

 

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(11) Regulatory Capital

The Bank’s regulatory capital levels as of September 30, 2007, 2006, and 2005 were as follows:

 

     As of September 30,  
     2007      2006      2005  
     (Dollars in thousands)  

Tier 1 Leverage Capital

        

Amount

   $ 1,183,375      $ 990,629      $ 756,810  

Actual Ratio

     7.8 %      7.3 %      7.1 %

Well-Capitalized Minimum Ratio (1)

     5.0 %      5.0 %      5.0 %

Adequately Capitalized Minimum Ratio (1)

     4.0 %      4.0 %      4.0 %

Tier 1 Risk-Based Capital (2)

        

Amount

   $ 1,183,375      $ 990,629      $ 756,810  

Actual Ratio

     14.6 %      13.8 %      14.0 %

Well-Capitalized Minimum Ratio (1)

     6.0 %      6.0 %      6.0 %

Adequately Capitalized Minimum Ratio (1)

     4.0 %      4.0 %      4.0 %

Total Risk-Based Capital

        

Amount

   $ 1,232,706      $ 1,013,770      $ 774,390  

Actual Ratio

     15.4 %      14.3 %      14.5 %

Well-Capitalized Minimum Ratio (1)

     10.0 %      10.0 %      10.0 %

Adequately Capitalized Minimum Ratio (1)

     8.0 %      8.0 %      8.0 %

 

(1) Based on Office of Thrift Supervision regulations adopted to implement the “prompt corrective action” provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991.
(2) Tier 1 risk-based capital ratio is the ratio of core capital to risk weighted assets.

Regulatory capital and net income amounts as of and for the years ended September 30, 2007, 2006 and 2005 did not differ from regulatory capital and net income amounts reported to the OTS.

Payment of dividends by the Bank is limited by federal regulations, which provide for certain levels of permissible dividend payments depending on the Bank’s regulatory capital and other relevant factors. In September 2007, BankUnited contributed $80 million in additional capital to the Bank. In December 2005, June and September of 2006, BankUnited contributed $15 million, $75 million, and $40 million, respectively, in additional capital to the Bank. In March, June and September 2005, BankUnited contributed $42 million, $30 million, and $25 million, respectively, in additional capital to the Bank. The majority of these contributions were funded by proceeds BankUnited received from the issuance of HiMEDS Units senior notes of $184 million in April 2007, net proceeds from the stock offering of $150.9 million in January 2006, and the issuance of $120 million of convertible senior notes in February and March 2004.

(12) Stockholders’ Equity

BankUnited has a capital structure with the following characteristics:

Preferred Stock:

Issued in series with rights and preferences to be designated by the Board of Directors. As of September 30, 2007, and 2006, 10,000,000 shares of Preferred Stock were authorized, 2,000,000 of which were designated to a particular series and 8,000,000 of which were not designated.

Noncumulative Convertible Preferred Stock, Series B (“Series B Preferred”)—

 

   

Dividends—Quarterly noncumulative cash dividends are paid at an annual rate of $0.55 per share;

 

   

Redemption—Not redeemable by BankUnited until October 1, 2007 or later unless approved by the holders of at least 50% of the Series B Preferred shares;

 

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Voting Rights—Two and one half votes per share;

 

   

Preference on Liquidation—Voluntary liquidation at the applicable redemption price per share and involuntary at $7.375 per share; and

 

   

Convertibility: Convertible into 1.4959 shares (adjusted for all stock dividends) of Class B Common Stock for each share of Series B Preferred surrendered for conversion, subject to adjustment on the occurrence of certain events.

Common Stock:

Issued in series with rights and preferences to be designated by the Board of Directors. As of September 30, 2007 and 2006, there were 100,000,000 and 60,000,000 shares of Class A Common Stock, respectively, authorized and 3,000,000 shares of Class B Common Stock were authorized.

Class A Common Stock

 

   

Dividends—As declared by the Board of Directors in the case of a dividend alone or not less than 110% of the amount per share of any dividend declared on the Class B Common Stock; and

 

   

Voting Rights: One tenth of one vote per share.

Class B Common Stock

 

   

Dividends—As declared by the Board of Directors;

 

   

Voting Rights—One vote per share; and

 

   

Convertibility—Each share of Class B Common Stock is convertible into one share of Class A Common Stock.

BankUnited’s Board of Directors declared dividends of $0.005 per share on its Class A Common Stock on November 28, 2006, March 5, 2007, May 31, 2007, and August 29, 2007. BankUnited continues to declare and pay such dividends on a quarterly basis subject to termination at any time at the sole discretion of the Board of Directors.

BankUnited has a stock repurchase program which was initially authorized by its Board of Directors on October 24, 2002. BankUnited has supplemented that authorization, raising the number of shares authorized to be repurchased to 3,000,000, 3,600,000 and 4,400,000 on October 25, 2006, January 23, 2007 and April 16, 2007, respectively. Under the program, BankUnited could purchase up to 4,400,000 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 of Directors determines to be advantageous. This plan does not have an expiration date.

BankUnited purchased 1,738,295 shares of stock in fiscal 2007. This represents a purchase of stock under the authorized purchase program. There were 2,572,005 shares available for purchase under this program as of September 30, 2007. During fiscal 2006 BankUnited did not purchase any shares of stock.

(13) Stock-Based Compensation and Other Benefit Plans

Stock-Based Compensation

At September 30, 2007, BankUnited had certain stock-based compensation plans approved by shareholders and designed to provide incentives to current and prospective officers, directors and employees of BankUnited and its subsidiaries. Under the plans, BankUnited may award stock options, stock appreciation rights, restricted stock, restricted stock units and awards in lieu of obligations, dividend equivalents, other stock-based awards and performance awards in each of its classes of stocks.

 

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The following table summarizes terms of BankUnited’s stock-based incentive compensation plans approved as of September 30, 2007:

 

    Stock Compensation Plans
    Maximum
Term
  Shares
Authorized
   Class of Stock   Vesting
Requirements
  Types of Equity
Compensation

2007 Stock Award and Incentive Plan

  10 Years   5,000,000    Common A & B;
Series B Preferred
  0-10 Years   RS, RSU, ISO, NQ SAR

2002 Stock Award and Incentive Plan

  10 Years   2,774,920    Common A & B;
Series B Preferred
  0-10 Years   RS, RSU, ISO, NQ

1996 Incentive and Stock Award Plan

  10 Years   3,800,000    Common A & B;

Series B Preferred

  0-10 Years   RS, ISO, NQ

1994 Incentive Stock Option Plan

  10 Years   250,000    Common A & B   0-10 Years   ISO, NQ

 

RS—Restricted Stock

RSU—Restricted Stock Unit

ISO—Incentive Stock Option

NQ—Non-qualified Stock Option

SAR—Stock Appreciation Rights

Shares issued in connection with stock-based compensation are registered under the plans. BankUnited’s practice is to issue new shares when restricted awards are granted and options are exercised.

At the 2007 Annual Meeting, BankUnited’s shareholders approved the 2007 Stock and Incentive Award Plan which comprised 5,000,000 shares of stock plus the combined forfeited shares and options from previous plans. The Plan also allows for the shares to be increased by 8% of any issuance or deliverance of Company stock during the term of the Plan not including any issuances under the Plan or Pre-Existing Plans. At September 30, 2007, there were 4.7 million shares of all classes available under the Plan.

The stock-based compensation grants reflect BankUnited’s intent of rewarding the officers, directors and employees for BankUnited’s performance, reinforcing commitment to BankUnited and responding to increased competitive pressures for talented personnel in BankUnited’s market area. Some of the awards granted to BankUnited’s most senior executives are subject to being earned by the achievement of specified performance goals.

BankUnited’s Compensation Committee sets the vesting, expiration, and forfeiture terms for the restricted stock and option awards granted under BankUnited’s Plans at the time of the grant.

Unvested stock based compensation awards are subject to being forfeited upon termination of employment, except that early vesting conditions generally provide that the award will vest fully in the event of death and may fully vest with the approval of the Compensation Committee under other circumstances. Upon termination of employment, option holders have thirty days to exercise vested options, except in the case of death where the option holder’s legal representative has up to one year to exercise the options.

Unvested stock-based compensation may vest before the end of the scheduled vesting term in cases of change in control of BankUnited. Awards granted to certain executive officers will immediately vest if there is a change in control of BankUnited. Such awards will vest and become exercisable for all other employees in the event that any successor company does not assume the obligations or the employee is involuntarily terminated within twenty-four (24) months following the effective date of the change in control.

Effective October 1, 2005, BankUnited adopted SFAS No. 123R “Share Based Payments” using the modified prospective transition method. SFAS No. 123R requires companies to calculate compensation expense arising from stock-based compensation based on the respective fair values of awards at grant date.

 

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BankUnited has elected to adopt the transition method for accounting for the tax effects of share-based payment awards provided in FSP No. 123R-3. This transition method is used in determining the amount of additional paid in capital resulting from tax benefits in years prior to the adoption of SFAS No. 123R that is available to absorb tax deficiencies recognized subsequent to the adoption of SFAS No. 123R.

The following table presents the total stock-based compensation for fiscal 2007:

 

     Twelve Months Ended
September 30, 2007
     (Dollars in thousands)

Total stock-based compensation

   $ 7,628

Total recognized tax benefit related to stock-based compensation

   $ 3,694

As of September 30, 2007, there was $26.6 million of total unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan. BankUnited expects to recognize that cost over a weighted-average period of approximately 4.3 years.

Options

BankUnited may award both incentive stock options and non-qualified stock options. Options granted under BankUnited’s Plans expire six to ten years after the date of grant and are granted at or above the fair market value (closing price) of the stock on the date of grant. An option may vest over a period ranging from immediate to nine years.

BankUnited has used the Black-Scholes model to calculate fair values of options awarded. This model requires assumptions as to expected volatility, dividends, terms, and risk free rates. Assumptions used for the periods covered herein, are outlined in the table below:

 

     Twelve Months Ended
September 30,
     2007    2006

Expected Volatility

   26.0% - 28%    26.0%

Expected Dividend

   0.10% - 1.85%    0.07% - 1.23%

Expected Term in Years

   3.9 - 5.0    3.9 - 5.0

Risk Free Rate

   4.52% - 4.75%    4.37% - 4.93%

Expected volatilities are based on historical volatility trends of BankUnited’s Class A Common Stock and other factors. Expected dividends reflect a range from actual dividends paid on BankUnited’s Class A Common Stock and Series B Preferred Stock. Expected terms represent the period of time that options granted are expected to be outstanding; the range above results from certain categories of recipients exhibiting different exercise behavior. The risk free rate is based on the U.S Treasury yield curve in effect at the time of grant for the appropriate life of each option.

 

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The following table presents the activity of BankUnited’s outstanding stock options, for all classes of Common Stock for the year ended September 30, 2007:

 

     Number of
Shares
    Weighted
Average Price
per Share
   Weighted
Average
Remaining
Contractual
Terms
   Aggregate
Intrinsic Value
     (Dollars and shares in thousands)

Options outstanding, September 30, 2006

   2,305     $ 17.73      

Options granted

   415     $ 22.36      

Options exercised

   (203 )   $ 8.51      

Options forfeited

   (55 )   $ 22.43      

Options expired

   (46 )   $ 23.94      
              

Options outstanding, September 30, 2007

   2,416     $ 19.08    5.6    $ 3,985
              

Exercisable at September 30, 2007

   1,669     $ 17.69    4.9    $ 3,894

Unvested at September 30, 2007

   747     $ 22.20    7.0    $ 91

The following table presents the activity of BankUnited’s outstanding stock options, for Series B Preferred Stock, for the year ended September 30, 2007:

 

Series B Preferred Options

   Number of
Shares
    Weighted
Average Price
per Share
   Weighted
Average
Remaining
Contractual
Terms
   Aggregate
Intrinsic Value
     (Dollars and shares in thousands)

Outstanding September 30, 2006

   941     $ 26.75      

Granted

   160     $ 23.90.      

Exercised

   (62 )   $ 10.85      
              

Outstanding September 30, 2007

   1,039     $ 27.26    4.7    $ 1,241
              

Exercisable at September 30, 2007

   672     $ 25.19    3.8    $ 1,202

Unvested at September 30, 2007

   367     $ 31.06    6.5    $ 39

The following table presents the values of option grants and exercises for the twelve-month periods ended September 30, 2007, 2006 and 2005:

 

     Twelve Months Ended
September 30,
     2007    2006    2005
    

(Dollars in thousands,

except for amount per share)

Grant date weighted average fair value per share of options granted

   $ 6.39    $ 11.33    $ 7.87

Total intrinsic value of options exercised

   $ 4,409    $ 9,659    $ 5,280

Cash received from options exercised

   $ 2,400    $ 3,972    $ 1,565

Actual tax benefit to be realized from option exercises

   $ 1,065    $ 3,100    $ 1,082

The total fair value of options granted above fair value on the grant date during the year ended September 30, 2005 was $2.8 million. There were no options granted during fiscal years 2006 and 2007 at a price above fair value on their grant dates.

 

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Restricted Stock

Restricted awards granted without performance-based restrictions vest in annual installments over periods ranging from immediate to fourteen years commencing on the date of the grant. The vesting schedules are intended to encourage officers, directors and employees to make long-term commitments to BankUnited.

Fair value for non-vested shares is determined based on the closing price of BankUnited’s shares on the grant date.

A summary of the status of BankUnited’s non-vested restricted common shares and restricted common units for fiscal 2007 is presented below:

 

Common Unvested Shares *

   Number of
Shares
(in thousands)
    Weighted
Average
Price per
Share
(at date of grant)

Outstanding September 30, 2006

   477     $ 25.28

Granted

   252     $ 23.77

Vested

   (106 )   $ 23.76

Forfeited

   (44 )   $ 24.10
        

Outstanding September 30, 2007

   579     $ 24.58
        

 

* Including Restricted Stock Units

A summary of the status of BankUnited’s unvested Series B Preferred Stock restricted shares for fiscal 2007 is presented below:

 

Preferred Unvested Shares

   Number
of Shares
(in thousands)
    Weighted
Average
Price per
Share
(at date of grant)

Outstanding at September 30, 2006

   341     $ 31.03

Granted

   105       40.12

Vested

   (50 )     29.91
        

Outstanding at September 30, 2007

   396     $ 33.58
        

The following table presents the values of restricted stock grants and vesting for the twelve-month periods ended September 30, 2007, 2006 and 2005:

 

     Twelve Months Ended
September 30,
     2007    2006    2005

Grant date weighted average fair value per share of restricted stock granted

   $ 28.59    $ 27.62    $ 31.70

Fair value per share of shares vested

   $ 25.73    $ 32.19    $ 30.97

Performance Based Awards

Under the 2007 Plan the Compensation Committee has the authority to grant performance awards requiring the achievement of pre-determined goals by a future date. The goals are business-based goals such as growth in assets, loans and/or deposits; enhancing earnings by achieving certain levels of revenue and/or net income, improving or maintaining quality of assets, and improving net interest margins.

 

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Performance based stock awards are granted by the Compensation Committee and may be earned over periods ranging from one year to three years. If restricted and to the extent that an award is earned, vesting commences the date that the grant is earned and vests, thereafter over a period of five to eight years, contingent on the person receiving the award employed by BankUnited.

The level of achievement of performance based stock awards is estimated and the grant is divided into equal groups that vest in accordance with the directive of the Compensation Committee. Each group is amortized from the date of the grant to the date of vesting.

Performance based restricted stock awards can be voted from the date of the award and are paid dividends only after they have been declared earned by the Compensation Committee.

As of September 30, 2007 BankUnited had the following awards outstanding in both Class A Common Stock and Series B Preferred Stock, which are included in the total unvested share information previously disclosed.

 

Performance Based Unvested Shares Common A

   Number
of Shares
(in thousands)
    Weighted
Average
Price per
Share
(at date of grant)

Outstanding at September 30, 2006

   26     $ 23.65

Granted

   28     $ 26.82

Vested

   (3 )   $ 23.65
        

Outstanding at September 30, 2007

   51     $ 25.40
        

 

Performance Based Unvested Shares Preferred B

   Number
of Shares
(in thousands)
    Weighted
Average
Price per
Share
(at date of grant)

Outstanding at September 30, 2006

   317     $ 30.68

Granted

   105     $ 40.12

Vested

   (46 )   $ 29.45
        

Outstanding at September 30, 2007

   376     $ 33.46
        

The following table presents the values of performance-based awards and vesting for the twelve-month periods ended September 30, 2007, 2006 and 2005:

 

     Twelve Months Ended
September 30,
     2007    2006    2005

Grant date weighted average fair value per share of performance-based stock granted

   $ 37.32    $ 32.56    $ 41.74

Weighted average fair value per share of shares vested

   $ 29.06    $ 39.08    $ 34.21

Acceleration of Vesting

On January 24, 2005, the Compensation Committee of the Board of Directors of BankUnited determined to accelerate the vesting of two stock options which were granted to Alfred Camner, BankUnited’s Chief Executive Officer, and Ramiro Ortiz, BankUnited’s President and Chief Operating Officer, under BankUnited’s 2002 Stock Award and Incentive Plan (the “2002 Plan”) on September 30, 2004. The acceleration of vesting was approved to become effective automatically if, and at such time, that the market price of BankUnited’s Class A Common Stock closed below $29.15 per share. The exercise prices of both options were based on the fair market value of

 

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BankUnited’s Class A Common Stock on the date of grant, which was $29.15. On January 25, 2005, the price of BankUnited’s Class A Common Stock closed at $29.04 per share. The acceleration of the vesting period for the options granted to the CEO and COO met the criteria for variable accounting under FASB Interpretation No. 44, however, because the vesting of these options was accelerated at a time when the exercise price was higher than the market price of the underlying stock, the acceleration did not result in a charge to earnings for compensation expense. As a result of the acceleration, the option granted to the CEO for the purchase of 75,000 shares of BankUnited’s Noncumulative Convertible Preferred Stock, Series B, and the option granted to the President and COO for the purchase of 50,000 shares of BankUnited’s Class A Common Stock, became immediately vested and exercisable on January 25, 2005, instead of vesting in five equal installments commencing on the first anniversary of the date of grant.

BankUnited projects that, if the vesting of these options had not been accelerated, then SFAS No. 123R would have required BankUnited to recognize approximately $1.4 million in compensation expense from these options over their remaining vesting terms, in quarters beginning after September 30, 2005. In exchange for the benefits conferred on the CEO by the accelerated vesting of his option, the Compensation Committee and the CEO agreed that the term of such option shall be shortened from ten years to eight years. The Compensation Committee agreed with the President and COO that the term of his employment agreement, which would otherwise expire on September 30, 2007, shall be extended by one additional year, subject to such other terms and conditions specified therein.

On May 20, 2005, the Compensation Committee determined to accelerate the vesting of two additional stock options, which were also granted to CEO under the 2002 Plan. The acceleration of vesting was approved to become effective immediately. As a result of the acceleration, an option granted to the CEO on April 28, 2004 for the purchase of 10,000 shares of the Company’s Noncumulative Convertible Preferred Stock, Series B (“Series B Preferred Stock”), at an exercise price of $38.97 per share, became immediately vested and exercisable, instead of vesting in eight equal installments commencing on the first anniversary of the date of grant; and an option granted to the CEO on October 26, 2004 for the purchase of 50,000 shares of the Series B Preferred Stock, at an exercise price of $41.74 per share, became immediately vested and exercisable instead of vesting in five equal installments commencing on the first anniversary of the date of grant. Each share of Series B Preferred Stock is convertible into 1.4959 shares of BankUnited’s Class B Common Stock, and each share of the BankUnited’s Class B Common Stock is convertible into one share of the BankUnited ‘s Class A Common Stock.

The acceleration of the vesting period for the options meets the criteria for variable accounting under FASB Interpretation No. 44. However, the exercise prices of both options were based on the fair market value of BankUnited’s Class A Common Stock on the dates of grant, which was $26.05 on April 28, 2004, and $27.90 on October 26, 2004. On May 20, 2005, the Company’s Class A Common Stock closed at $25.07. The fair market value of the Series B Preferred Stock, calculated as the closing price of the Class A Common Stock multiplied by 1.4959, was $37.50. Because the vesting of these options was accelerated at a time when their exercise prices were higher than the market value of the underlying stock, the acceleration did not result in a charge to earnings for compensation expense. The value of these options were reflected in the footnote disclosures to BankUnited’s financial statements for the quarter ending September 30, 2005, as required by SFAS No. 148. BankUnited projects that, if the vesting of these options had not been accelerated, then SFAS No. 123R would have required BankUnited to recognize approximately $690 thousand in compensation expense from these options over their remaining vesting terms, in quarters beginning after September 30, 2005.

The 2002 Plan permits the Compensation Committee to adjust the terms and conditions of awards granted under that plan in response to changes in accounting principles, among other reasons, subject to certain restrictions. The Compensation Committee determined to accelerate the vesting of these options as a result of the issuance by the FASB of SFAS No. 123R, which BankUnited adopted effective October 1, 2005. BankUnited anticipates that, by accelerating the vesting of these options at a time when their exercise price was higher than the market price, BankUnited will not be required to recognize compensation expense on the options. The value of these options is reflected in the pro-forma earnings per share disclosures below, as required by SFAS No. 148.

 

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Pro forma

Had compensation cost for BankUnited’s stock-based compensation plans been determined based on the fair value at the grant dates for stock option awards consistent with the methodology prescribed by SFAS No. 123R, BankUnited’s net income and earnings per share for fiscal 2005, would have been reduced to the pro forma amounts indicated below

 

     2005  
     (Dollars in thousands,
except for amount
per share)
 

Net income, as reported

   $ 27,537  

Add: Total stock-based employee and director compensation expense included in net income, net of related tax effects

     1,794  

Deduct: Total stock-based employee and director compensation expense determined under the fair value based method for all awards, net of related tax effects (1)

     8,312  
        

Pro forma net income

   $ 21,019  
        

Earnings per share:

  

Basic—as reported

   $ 0.90  

Basic—pro forma

   $ 0.68  

Diluted—as reported

   $ 0.85  

Diluted—pro forma

   $ 0.65  

Assumptions for weighted average grant-date fair value of options using the Black—Scholes Merton option pricing model are as follows:

  

Dividend yields

     0.07 %

Expected volatility

     26.8 %

Risk-free interest rates

     3.83 %

Expected life (in years)

     4.6  

 

(1) BankUnited recognizes the tax effect of option exercises in additional paid in capital.

The pro forma results of operations reported above are not likely to be representative of the effects on reported income of future years due to vesting arrangements and additional option grants. The fair value of each option has been estimated on the date of the grant using the Black-Scholes Merton option pricing model.

BankUnited 401(k) Plan

BankUnited sponsors a 401(k) profit sharing plan for its eligible employees. Under the terms of the combined plan eligible employees are permitted to contribute to the plan up to the limits set by law. BankUnited currently makes matching contributions in the form of BankUnited Class A Common stock at a rate of 75% of employee contributions up to a maximum matching contribution of 4.5% of the employees’ salary. Employees are eligible to participate in the plan after one month of service and begin vesting in BankUnited’s contribution after two years of service at the rate of 25% per year up to 100% at five years of service. For fiscal 2007, 2006 and 2005, the Bank made total matching contributions of approximately $2.1 million, $1.5 million, and $1.3 million, respectively.

 

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Table of Contents

(14) Income Taxes

The components of the provision for income taxes for the years ended September 30, 2007, 2006 and 2005 are as follows:

 

                   For the Years Ended September 30,              
     2007    2006    2005
     (In thousands)

Current-federal

   $ 38,512    $ 30,077    $ 1,065

Current-state

     71      87      42

Deferred

     3,719      11,504      9,271
                    

Total

   $ 42,302    $ 41,668    $ 10,378
                    

BankUnited’s effective tax rate differs from the statutory federal income tax rate as follows:

 

     Years Ended September 30,  
     2007     2006     2005  
     Amount     %     Amount     %     Amount     %  
     (Dollars in thousands)  

Tax at federal income tax rate

   $ 43,288     35.0 %   $ 43,940     35.0 %   $ 13,270     35.0 %

Increase (decrease) resulting from:

            

Tax exempt income

     (2,737 )   (2.2 )     (3,061 )   (2.4 )     (2,688 )   (7.1 )

State tax, less effect on federal tax

     30     —         57     —