Form 10-Q

10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2008

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

Commission File No. 1-13921

BankUnited Financial Corporation

(Exact name of registrant as specified in its charter)

Florida

65-0377773

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

255 Alhambra Circle, Coral Gables, Florida 33134

(Address of principal executive offices) (Zip Code)

(305) 569-2000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the registrant’s common stock at the close of business on, July 31, 2008 was 35,170,593 shares of Class A Common Stock, $0.01 par value, and 485,721 shares of Class B Common Stock, $0.01 par value.

This Form 10-Q contains 72 pages.

The Index to Exhibits appears on page 72.

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 2008

TABLE OF CONTENTS


		Page No.
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Financial Condition as of June 30, 2008, and September 30, 2007	3

	Consolidated Statements of Operations for the Three Months and Nine Months Ended June 30, 2008, and 2007	4

	Consolidated Statements of Stockholders’ Equity for the Nine Months Ended June 30, 2008, and 2007	5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2008, and 2007	6

	Condensed Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57

Item 4.	Controls and Procedures	57

PART II—OTHER INFORMATION

Item 1A.	Risk Factors	58

Item 4.	Submission of Matters to a Vote of Security Holders	69

Item 6.	Exhibits	70

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)


	June 30, 2008			September 30, 2007
	(Dollars in thousands, except per share amounts)
ASSETS
Cash	$	69,155		$	54,502
Federal Home Loan Bank of Atlanta (FHLB) overnight deposits		301,883			456,775
Federal funds sold		86,076			1,658

Cash and cash equivalents		457,114			512,935

Investment securities available for sale, at fair value		112,206			187,375
Mortgage-backed securities available for sale, at fair value (including assets pledged of $149,996 and $231,740 at June 30, 2008 and September 30, 2007, respectively)		661,511			916,223
Mortgage loans held for sale at lower of cost or market		91,166			174,868
Loans held in portfolio		12,073,840			12,384,842
Add: Unearned discounts, premiums and deferred loan costs, net		217,939			235,454
Less: Allowance for loan losses		(309,645	)		(58,623	)

Loans held in portfolio, net		11,982,134			12,561,673

FHLB stock and other earning assets		259,485			305,535
Office properties and equipment, net		61,166			66,749
Real estate owned		117,325			27,732
Accrued interest receivable		73,686			86,182
Deferred tax asset, net of valuation allowance		52,182			—
Mortgage servicing rights		25,956			20,631
Goodwill		28,353			28,353
Bank owned life insurance		125,648			122,100
Prepaid expenses and other assets		71,579			35,915

Total assets	$	14,119,511		$	15,046,271

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Interest bearing deposits	$	7,278,073		$	6,747,888
Non-interest bearing deposits		328,191			342,499

Total deposits		7,606,264			7,090,387

Securities sold under agreements to repurchase		93,961			143,072
Advances from FHLB		5,129,350			6,234,350
Convertible senior notes		120,000			120,000
HiMEDS Units senior notes		184,000			184,000
Junior subordinated debt		12,500			12,500
Trust preferred securities and subordinated debentures		237,261			237,261
Interest payable		35,829			39,480
Advance payments by borrowers for taxes and insurance		73,034			97,452
Accrued expenses and other liabilities		51,673			75,803

Total liabilities		13,543,872			14,234,305

Commitments and Contingencies (See Note (12))
Stockholders’ Equity:
Preferred stock, $0.01 par value		13			11
Authorized shares—10,000,000
Issued shares—1,264,853 and 1,131,153
Outstanding shares—1,238,133 and 1,104,433
Treasury shares—26,720		(528	)		(528	)
Class A Common Stock, $0.01 par value		374			371
Authorized shares—500,000,000
Issued shares—37,331,739 and 37,075,365
Outstanding shares—35,170,593 and 34,907,982
Treasury shares—2,161,146 and 2,167,383		(43,297	)		(43,297	)
Class B Common Stock, $0.01 par value		7			7
Authorized shares—3,000,000
Issued shares—719,947
Outstanding shares—485,721 and 473,747
Treasury shares—234,226 and 246,200		(2,758	)		(2,802	)
Additional paid-in capital		520,634			513,042
Retained earnings		146,233			356,197
Deferred compensation		2,202			2,048
Accumulated other comprehensive loss		(47,241	)		(13,083	)

Total stockholders’ equity		575,639			811,966

Total liabilities and stockholders’ equity	$	14,119,511		$	15,046,271

See accompanying condensed notes to consolidated financial statements

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2008			2007			2008			2007
	(Dollars and shares in thousands, except per share data)
Interest income:
Interest and fees on loans	$	179,377		$	220,886		$	603,288		$	648,941
Interest on mortgage-backed securities		10,210			12,071			33,053			39,178
Interest and dividends on investments and other interest-earning assets		7,972			7,114			22,531			22,822

Total interest income		197,559			240,071			658,872			710,941

Interest expense:
Interest on deposits		68,487			77,405			222,349			219,464
Interest on borrowings		67,250			75,613			219,774			232,423
Preferred dividends of trust preferred securities and subordinated debentures		3,221			5,074			12,226			15,939

Total interest expense		138,958			158,092			454,349			467,826

Net interest income before provision for loan losses		58,601			81,979			204,523			243,115
Provision for loan losses		130,000			4,400			293,000			12,400

Net interest (loss) income after provision for loan losses		(71,399	)		77,579			(88,477	)		230,715

Non-interest (loss) income:
Loan servicing fees		1,379			1,769			4,218			5,498
Amortization of mortgage servicing rights		(1,429	)		(945	)		(4,014	)		(2,614	)
Impairment of mortgage servicing rights		—			—			(3,259	)		(965	)
Loan fees		1,160			1,387			3,593			3,726
Deposit fees		1,839			1,447			5,157			4,431
Other fees		658			759			2,045			2,127
Net gain (loss) on sale of investments and mortgage-backed securities		—			—			341			(524	)
Other-than-temporary impairment on investment securities		(25,140	)		—			(51,667	)		—
Net gain on sale of loans and other assets		1,617			505			5,982			9,575
Income from insurance and investment services		1,829			1,687			5,223			3,959
Loss on swaps		—			—			—			(318	)
Loss on loans held for sale		(1,554	)		—			(3,571	)		—
Other non-interest income		1,401			1,731			6,126			5,186

Total non-interest (loss) income		(18,240	)		8,340			(29,826	)		30,081

Non-interest expense:
Employee compensation and benefits		26,993			26,283			81,411			77,121
Occupancy and equipment		10,352			9,735			31,325			27,842
Telecommunications and data processing		3,247			3,248			10,061			9,011
Advertising and promotion expense		1,475			2,317			4,507			6,335
Professional fees		3,676			1,984			10,056			5,443
Other		10,891			6,929			31,462			21,117

Total non-interest expense		56,634			50,496			168,822			146,869

(Loss) income before income taxes		(146,273	)		35,423			(287,125	)		113,927
(Benefit) provision for income taxes		(28,577	)		12,214			(78,145	)		38,946

Net (loss) income	$	(117,696	)	$	23,209		$	(208,980	)	$	74,981

(Loss) earnings per share:
Basic	$	(3.35	)	$	0.65		$	(5.96	)	$	2.06

Diluted	$	(3.35	)	$	0.62		$	(5.96	)	$	1.97

Weighted average number of common shares outstanding:
Basic		35,153			35,779			35,131			36,141
Diluted		35,153			37,671			35,131			38,137
Dividends declared per share on common stock	$	0.005		$	0.005		$	0.015		$	0.015

See accompanying condensed notes to consolidated financial statements

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)


	For the Nine Months Ended June 30, 2008 and 2007
	Preferred Stock		Common Stock		Paid-in Capital			Retained Earnings			Treasury Stock			Deferred Compensation		Accumulated Other Comprehensive Loss Net of Tax			Total Stockholders’ Equity
	(In thousands)
Balance at September 30, 2007	$	11	$	378	$	513,042		$	356,197		$	(46,627	)	$	2,048	$	(13,083	)	$	811,966
Comprehensive loss:
Net loss for the nine months ended June 30, 2008		—		—		—			(208,980	)		—			—		—			(208,980	)
Other comprehensive loss, net of tax		—		—		—			—			—			—		(34,158	)		(34,158	)

Total comprehensive loss		—		—		—			—			—			—		—			(243,138	)
Payment of dividends		—		—		—			(984	)		—			—		—			(984	)
Transfer to tax benefit for stock-based compensation		—		—		—			—			—			—		—			—
Stock option exercises and restricted stock awards		2		3		7,592			—			44			154		—			7,795
Tax benefit from stock-based compensation		—		—		—			—			—			—		—			—

Balance at June 30, 2008	$	13	$	381	$	520,634		$	146,233		$	(46,583	)	$	2,202	$	(47,241	)	$	575,639

Balance at September 30, 2006	$	10	$	374	$	503,585		$	276,078		$	(8,556	)	$	2,048	$	(20,379	)	$	753,160
Comprehensive income:
Net income for the nine months ended June 30, 2007		—		—		—			74,981			—			—		—			74,981
Other comprehensive income, net of tax		—		—		—			—			—			—		4,146			4,146

Total comprehensive income		—		—		—			—			—			—		—			79,127
Payment of dividends		—		—		—			(945	)		—			—		—			(945	)
Company stock acquired		—		—		—			—			(32,670	)		—		—			(32,670	)
Stock option exercises and restricted stock awards		1		3		8,057			—			—			—		—			8,061
Tax benefit from stock-based compensation		—		—		1,072			—			—			—		—			1,072
Forward purchase contract		—		—		(1,866	)		—			—			—		—			(1,866	)

Balance at June 30, 2007	$	11	$	377	$	510,848		$	350,114		$	(41,226	)	$	2,048	$	(16,233	)	$	805,939

See accompanying condensed notes to consolidated financial statements

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	For the Nine Months Ended June 30,
	2008			2007
	(In thousands)
Cash used in operating activities	$	(647,799	)	$	(224,357	)

Cash flows from investing activities:
Net decrease (increase) in loans held in portfolio		197,877			(858,083	)
Purchase of investment securities available for sale		(27,352	)		(26,184	)
Purchase of FHLB stock and other earning assets		(36,295	)		(124,788	)
Purchase of office properties and equipment		(6,622	)		(23,215	)
Proceeds from repayments of investment securities available for sale		25,056			76,556
Proceeds from repayments of mortgage-backed securities available for sale		191,520			239,129
Proceeds from repayments of FHLB stock and other earning assets		86,007			97,245
Proceeds from sale of investment securities available for sale		57,783			63,914
Proceeds from sale of mortgage-backed securities available for sale		734,488			169,805
Proceeds from sale of real estate owned and other assets		31,785			2,340
Proceeds from sale of office properties and equipment		—			607

Net cash provided by (used in) investing activities		1,254,247			(382,674	)

Cash flows from financing activities:
Net increase in deposits		515,877			888,895
Additions to long-term FHLB advances		1,750,000			3,735,000
Repayments of long-term FHLB advances		(2,545,000	)		(3,015,000	)
Net decrease in short-term FHLB advances		(310,000	)		(159,990	)
Net decrease in other borrowings		(49,111	)		(787,019	)
Net decrease in advances from borrowers for taxes and insurance		(24,418	)		(20,077	)
Net proceeds from issuance of trust preferred securities		—			100,000
Redemption of trust preferred securities		—			(66,262	)
Net proceeds from issuance of HiMEDS Units senior notes		—			178,298
Net proceeds from issuance of stock		426			2,250
Purchase of treasury stock		—			(32,670	)
Tax benefit from stock-based compensation		941			1,072
Dividends paid on stock		(984	)		(945	)

Net cash (used in) provided by financing activities		(662,269	)		823,552

(Decrease) increase in cash and cash equivalents		(55,821	)		216,521
Cash and cash equivalents at beginning of period		512,935			66,655

Cash and cash equivalents at end of period	$	457,114		$	283,176

Supplemental schedule of non-cash investing and financing activities:
Exchange of loans for mortgage-backed securities in loan sales transaction with FNMA and FHLMC	$	726,105		$	155,497
Transfer of loans from portfolio to loans held for sale	$	242		$	130,207
Transfer of loans held for sale to portfolio	$	19,325		$	36,946
Transfers from loans to real estate owned	$	161,368		$	9,840

See accompanying condensed notes to consolidated financial statements

BANKUNITED FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2008

(1) Principles of Consolidation and Basis of Presentation

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

The unaudited consolidated financial statements have been prepared in conformity with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (the “SEC”) and therefore do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. However, all adjustments (consisting of normal recurring accruals), which, in the opinion of management, are necessary for a fair presentation of the financial statements, have been included. Operating results for the three and nine months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending September 30, 2008. These condensed notes should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in BankUnited’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007.

In addition to these policies see the following paragraph for a discussion of loans held in portfolio.

Loans held in portfolio

Loans held in portfolio are loans which management has the intent and ability to hold for the foreseeable future, 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. The length of the foreseeable future is a management judgment which is determined based on the type of loan, asset/liability strategies, business strategies and current economic and market conditions. Management’s view of the foreseeable future may change based on changes in these conditions resulting in a change in management’s intent.

The Company has traditionally been a portfolio lender. Beginning in fiscal 2005, the Company began selling loans on the secondary market to diversify its income. Initially, the loans identified for sale were flagged using a manual process which necessitated tracking each loan specifically. Beginning in October 2006, the Company implemented an automated system which eliminated the need for manual tracking. Triggers for transfer to the held for sale category would include loans for which the company no longer had the intent or ability to hold for the foreseeable future or to maturity. Triggers for transfers to the portfolio, would include those loans that are no longer saleable due to credit, performance, or market conditions.

(2) Impact of Certain Accounting Pronouncements

FIN No. 48

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN No. 48”), an Interpretation of Statement of Financial Accounting Standards No.109 Accounting for Income Taxes, to clarify the requirements of Statement of Financial Accounting Standards (“SFAS”) No.109 relating to the recognition of income tax benefits.

FIN No 48 provides a two-step approach to recognizing and measuring tax benefits taken or expected to be taken in a tax return, when realization of the benefits is uncertain. The first step is to determine whether the benefit is to be recognized; the second step is to determine the amount to be recognized as follows:

•

Income tax benefits should be recognized when, based on the technical merits of a tax position, the entity believes that, assuming a dispute arose with the taxing authority and was taken to a court of last resort, it is more likely than not (i.e., a probability of greater than 50 percent) that the tax position would be sustained as filed; and

•

If a position is determined to be more likely than not of being sustained, the reporting enterprise should recognize the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the taxing authority.

This interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. BankUnited will recognize any future interest and penalties related to underpayments of income taxes or income tax uncertainties in its provision for income taxes, in accordance with paragraphs 15 and 19 of FIN No. 48. BankUnited adopted this statement in the fiscal year that began October 1, 2007 without any material effect.

BankUnited remains subject to examination by federal and state tax jurisdictions for its fiscal years ended September 30, 2006 and 2007.

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 FASB 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 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. 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.

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 SFAS 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 is 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. The adoption of this statement is not expected to have a material effect on the Company’s future reported financial position or results of operation.

SFAS No. 141(R)

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. This statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. SFAS No. 141(R) also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The provisions of SFAS No. 141(R) are effective for financial statements issued for fiscal years beginning after December 15, 2008. BankUnited will adopt this statement, as applicable, in its fiscal year beginning October 1, 2009. The adoption of this statement is not expected to have a material effect on the Company’s future reported financial position or results of operation.

SFAS No. 160

In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements — An Amendment of Accounting Research Bulletin (“ARB”) No. 51. This statement amends ARB No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement also amends certain of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS No. 141(R). In addition, SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its non-controlling interest. The provisions of SFAS No. 160 will be effective for fiscal years beginning after December 15, 2008. Earlier adoption is prohibited. BankUnited will adopt this statement, as applicable, in its fiscal year beginning October 1, 2009. The adoption of this statement is not expected to have a material effect on the Company’s future reported financial position or results of operation.

SAB No. 109

In November 2007, the SEC issued Staff Accounting Bulletin (“SAB”) No. 109, Written Loan Commitments Recorded at Fair Value through Earnings.

SAB No. 109 expresses the views of the staff regarding written loan commitments that are accounted for at fair value through earnings under generally accepted accounting principles. SAB No. 105, “Application of Accounting Principles to Loan Commitments”, provided the views of the staff regarding derivative loan commitments that are accounted for at fair value through earnings pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SAB No. 105 stated that in measuring the fair value of a derivative loan commitment, the staff believed it would be inappropriate to incorporate the expected net future cash flows related to the associated servicing of the loan. SAB No. 109 supersedes SAB No. 105 and expresses the current view of the staff that, consistent with the guidance in SFAS No. 156, “Accounting for Servicing of Financial Assets,” and SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, the expected net future cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. SAB No. 105 also indicated that the staff believed that internally-developed intangible assets (such as

customer relationship intangible assets) should not be recorded as part of the fair value of a derivative loan commitment. This SAB retains that staff view and broadens its application to all written loan commitments that are accounted for at fair value through earnings.

SAB No. 109 was effective on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. BankUnited adopted this statement, in its fiscal quarter beginning January 1, 2008 with no material effect on the consolidated financial statements.

SFAS No. 161

On March 19, 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an Amendment of FASB Statement 133. SFAS No. 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities; and (c) derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. BankUnited does not expect the adoption of SFAS No. 161 to have a material effect on its consolidated financial statements. BankUnited will adopt this statement, as applicable, in its fiscal quarter beginning January 1, 2009.

SFAS No. 162

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Principles. SFAS No. 162 outlines the order of authority for the sources of accounting principles. SFAS No.162 is effective 60 days following the SEC’s approval of the Public Accounting Company Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not expect SFAS No. 162 to have an impact on its consolidated financial statements and required disclosures.

FSP No. FAS 140-3

In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS No. 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions. The objective of this FSP is to provide implementation guidance on accounting for a transfer of a financial asset and a repurchase financing. This FSP presumes that an initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement (linked transaction) under SFAS No. 140. However, if certain criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under SFAS No. 140. FSP No.140-3 is effective for fiscal years beginning after November 15, 2008. BankUnited will adopt this statement, as applicable, in its fiscal year beginning October 1, 2009. The adoption of this statement is not expected to have a material effect on the Company’s future reported financial position or results of operation.

FSP No. 142-3

In April 2008, the FASB FSP No.142-3, Determination of the Useful Life of Intangible Assets. FSP No.142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142. In developing assumptions about renewal or extension, FSP No.142-3 requires an entity to consider its own historical experience (or, if no experience, market participant assumptions) adjusted for relevant entity-specific factors in paragraph 11 of SFAS No. 142. FSP No. 142-3 expands the disclosure requirements of SFAS No. 142 and is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, with early adoption prohibited. The guidance for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after the effective date. The disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The Company does not expect the adoption of FSP No. 142-3 to have a material impact on its consolidated financial position or results of operations.

FSP No. APB 14-1

On May 9, 2008 the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP No. APB 14-1 requires the issuer to separately account for the liability and equity components of convertible debt instruments in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The guidance will result in companies recognizing higher interest expense in the statement of operations due to amortization of the discount that results from separating the liability and equity components. FSP No. APB 14-1 will be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting FSP No. APB 14-1 on its consolidated financial statements.

FSP No. EITF 03-6-1

In June 2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. This FSP provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. Upon adoption, a company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform with the provision in this FSP. Early application of this FSP is prohibited. The Company is currently evaluating the impact of adopting this FSP may have on earnings per share, but does not expect it will have a material impact.

(3) Change in Fixed Assets Useful Lives

During the third quarter of 2008, the Company completed a historical review of the useful lives of certain information technology hardware assets. The Company determined that the actual service period of certain information technology hardware assets was greater than the useful lives originally estimated. As such, the Company extended the useful lives of these information technology hardware assets from three years to four or five years, based on the asset type. The extension of depreciable lives is treated as a change in accounting estimate and was made on a prospective basis effective June 1, 2008. For the three and nine months ended June 30, 2008, depreciation expense was $103 thousand less than what it would have been had the depreciable lives not been extended. The effect of this change had no material impact on basic and diluted earnings per share for the three and nine months ended June 30, 2008.

(4) 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 June 30, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Preferred stock of U.S. government sponsored entities (1)	$	31,082	$	—	$	(3,173	)	$	27,909
Trust preferred securities of other issuers		10,977		—		(903	)		10,074
Mutual funds and other bonds (2)		79,343		212		(5,332	)		74,223

Total	$	121,402	$	212	$	(9,408	)	$	112,206


	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 (1)		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 notes		1,200		—		—			1,200
Other equity securities		3,462		83		—			3,545

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

(1)	U.S. government sponsored entities (GSEs) 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.

Investment securities at June 30, 2008, by contractual maturity, are shown below.


	Available for Sale
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	4,393	$	4,413
Due after one year through five years		8,981		9,065
Due after five years through ten years		543		549
Due after ten years		44,049		42,608
Equity securities		63,436		55,571

Total	$	121,402	$	112,206

Mortgage-backed Securities Available for Sale

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


	At June 30, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
FNMA mortgage-backed securities	$	129,463	$	204	$	(2,055	)	$	127,612
FHLMC mortgage-backed securities		43,812		528		(25	)		44,315
Collateralized mortgage obligations		3,774		—		(13	)		3,761
Mortgage pass-through certificates (1)		522,447		21		(36,645	)		485,823

Total	$	699,496	$	753	$	(38,738	)	$	661,511


	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

(1)

Included in BankUnited’s portfolio of mortgage-backed securities as of June 30, 2008 and September 30, 2007 were securities with a fair value of $117 million and $179 million and amortized cost of $133 million and $184 million, respectively, which were retained from BankUnited’s mortgage loan securitization in September 2005.

Mortgage-backed securities at June 30, 2008, 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	$	196,641	$	185,963
Due after one year through five years		325,563		307,884
Due after five years through ten years		103,722		98,089
Due after ten years		73,570		69,575

Total	$	699,496	$	661,511

Based on the internal model used by BankUnited, estimated average duration of the mortgage-backed securities portfolio as of June 30, 2008 was 1.6 years. This duration extends to 1.9 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.

As June 30, 2008, of a total portfolio of $662 million of mortgage-backed securities, the Company held $117 million of securities backed by loans originated by BankUnited with negative amortization (“BUMT 2005-1 securities”), and $696 thousand of securities backed by subprime mortgages which were not originated by BankUnited. These securities had gross unrealized losses of $16.2 million as of June 30, 2008. As of June 30, 2008, the total amount outstanding of BUMT 2005-1 securities, including amounts not held by BankUnited was $273 million. Mortgage loans backing these securities as of June 30, 2008 totaled $266 million including negative amortization of $14.9 million

The following tables provide information on unrealized losses for investments and mortgage-backed securities available for sale as of June 30, 2008 and September 30, 2007. The fair values of investments and mortgage-backed securities available for sale with unrealized gains are not included in the tables below.


	As of June 30, 2008
	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	$	6,850	$	(903	)	$	—	$	—		$	6,850	$	(903	)
Debt securities of GSEs (2)		—		—			—		—			—		—
Preferred stock of GSEs (2)		27,909		(3,173	)		—		—			27,909		(3,173	)
Mutual funds and other bonds (3)		53,763		(5,332	)		—		—			53,763		(5,332	)

Total investment securities	$	88,522	$	(9,408	)	$	—	$	—		$	88,522	$	(9,408	)

Mortgage-backed securities:
FNMA mortgage-backed securities	$	55,652	$	(941	)	$	46,901	$	(1,114	)	$	102,553	$	(2,055	)
FHLMC mortgage-backed securities		10,392		(25	)		—		—			10,392		(25	)
Collateralized mortgage obligations		—		—			697		(13	)		697		(13	)
Mortgage pass-through certificates		249,208		(14,822	)		226,216		(21,823	)		475,424		(36,645	)

Total mortgage-backed securities	$	315,252	$	(15,788	)	$	273,814	$	(22,950	)	$	589,066	$	(38,738	)


	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	)
GSEs debt securities (2)		—		—			24,977		(23	)		24,977		(23	)
Preferred stock of GSEs (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	)

(1)	These unrealized losses are not considered to be other-than-temporary based on management’s evaluation.

(2)	GSEs include FNMA and FHLMC.

(3)	Underlying assets of mutual funds consist primarily of mortgage-backed securities.

BankUnited monitors its investment in available for sale securities for other-than-temporary impairment. 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. The Company considers the decline in the value of debt and equity securities classified as available for sale as of June 30, 2008 to be temporary and we have the ability and intent to hold these securities until recovery, which could be maturity. Evaluation of these securities at future dates could result in a determination that impairment as of such future dates, if any, is other than temporarily impaired.

During the three months ended June 30, 2008, BankUnited recorded other-than-temporary impairment charges of $25.1 million, including $800 thousand relating to subordinated debt and $24.3 million relating to certain mortgage backed securities. During the nine months ended June 30, 2008, BankUnited recorded other-than-temporary impairment charges of $51.7 million, including $8.9 million relating to certain preferred stock, $40.5 million relating to certain mortgage-backed securities, $1.3 million relating to certain corporate debt securities and $1.0 million relating to subordinated bank debt and other securities. Each of these securities has had significant unrealized losses for the past 12 months. Evaluation of these securities in the future and other securities which had temporary declines in value as of June 30, 2008, could lead to a determination that additional other-than-temporary impairments have occurred.

The preferred stock, subordinated debt and corporate debt were written down to market value due to uncertainty of the timing and potential for market recovery of the issuers. The preferred stock was issued by GSEs and the subordinated debt was issued by financial institutions. The mortgage backed securities represent several subordinate classes of BankUnited’s 2005 securitization. Based on cash flow projections of the underlying mortgages as of June 30, 2008, and assuming current loss trends continue, BankUnited estimated that loss projections could completely erode the value of certain subordinate classes, and significantly erode the value of several other subordinate classes. As of June 30, 2008, BankUnited continued to hold securities with an aggregate fair value of $117 million and unrealized losses of $16.2 million arising from the 2005 securitization. As of July 31, 2008, the unrealized loss on these securities increased to $28.9 million. Approximately 89% of the increase in the unrealized loss relates to securities which are rated Aaa by Moody’s. BankUnited reviewed the projected losses, cash flows, and coverage levels of these securities. Additionally, the length of time these securities have had unrealized losses was considered. Based on the conclusion that cash flows are adequate to fully amortize these securities and BankUnited’s ability and intent to hold them until recovery, which could be maturity, they were not deemed other than temporarily impaired as of June 30, 2008.

(5) Loans Receivable

Loans receivable consist of the following:


	As of June 30, 2008					As of September 30, 2007
	Amount			Percent of Total		Amount			Percent of Total
	(In thousands)
Real estate loans:
One-to-four family residential:
Residential mortgages	$	9,490,804		79.2	%	$	9,996,086		79.6	%
Specialty consumer mortgages (1)		786,561		6.6			697,726		5.5

Total one-to-four family residential		10,277,365		85.8			10,693,812		85.1
Home equity loans and lines of credit		466,454		3.9			420,386		3.3
Multi-family		132,766		1.1			120,058		1.0
Commercial real estate		559,454		4.7			496,556		4.0
Construction		181,027		1.5			146,557		1.2
Land		239,357		2.0			303,294		2.4

Total real estate loans		11,856,423		99.0			12,180,663		97.0

Other loans:
Commercial		202,359		1.7			187,951		1.5
Consumer		15,058		0.1			16,228		0.1

Total other loans		217,417		1.8			204,179		1.6

Total loans held in portfolio (2)		12,073,840		100.8			12,384,842		98.6
Unearned discounts, premiums and deferred loan costs, net		217,939		1.8			235,454		1.9
Allowance for loan losses		(309,645	)	(2.6	)		(58,623	)	(0.5	)

Total loans held in portfolio, net		11,982,134		100.0	%		12,561,673		100.0	%
Mortgage loans held for sale		91,166					174,868

Total loans, net	$	12,073,300				$	12,736,541

(1)	Specialty consumer mortgages are residential mortgage loans that are originated primarily through customer relationships at our neighborhood branch banking offices, compared to those originated through our wholesale residential mortgage loan production offices.

(2)

As of June 30, 2008, BankUnited had $982.2 million of non-accrual loans and $100 thousand of loans past due more than 90 days and still accruing interest. As of September 30, 2007, BankUnited had $180.8 million of non-accrual loans and $23 thousand of loans past due more than 90 days and still accruing interest.

As of June 30, 2008, approximately $7.3 billion, or 59.9%, of all loans were secured by properties in Florida. Loans secured by real estate in no other state represented more than 7.09% of the Bank’s total loan portfolio. As of September 30, 2007, approximately $7.7 billion, or 61.4%, of all loans were secured by properties in Florida. Loans secured by real estate in no other state represented more than 7.1% of all loans in the Bank’s loan portfolio.

As of June 30, 2008, BankUnited had pledged approximately $9.2 billion of mortgage loans and securities as collateral for advances from the Federal Home Loan Bank of Atlanta, (“FHLB”). As of September 30, 2007, the Bank had pledged approximately $9.1 billion of mortgage loans and securities as collateral for advances from the FHLB.

The following table provides total one-to-four family loans, including loans held for sale, categorized between fixed rate mortgages and adjustable rate mortgages (“ARMs”) as of June 30, 2008 and September 30, 2007:


	As of June 30, 2008				As of September 30, 2007
	Amount		Percent of Total		Amount		Percent of Total
	(Dollars in thousands)
One-to-four family residential loans:
Fixed rate loans	$	1,254,717	12.1	%	$	1,499,757	13.8	%
ARM loans:
Monthly payment option (1)		5,802,385	56.0			6,682,670	61.5
Select-My-Payment (1)		1,263,567	12.2			925,000	8.5
Non option ARM		2,046,826	19.7			1,761,253	16.2

Total ARM loans		9,112,778	87.9			9,368,923	86.2

Total one-to-four family residential loans (2)	$	10,367,495	100.0	%	$	10,868,680	100.0	%

(1)

As of June 30, 2008, payment option loans with a balance of $6.5 billion, representing 91.8% of the payment option portfolio, were negatively amortizing and approximately $376 million, or 5.3%, of the total payment option portfolio results were from negative amortization. As of September 30, 2007, payment option loans with a balance of $6.7 billion, representing 89% of the payment option portfolio, were negatively amortizing and approximately $270 million, or 3.6%, of the total payment option portfolio results were from negative amortization. These loans are subject to interest rate caps.

(2)	Including loans held for sale and excluding deferred costs, unearned discounts, premiums and allowance for loan losses.

Payment option loans represented 58.1% and 60.6% of total loans outstanding (including loans held for sale and excluding deferred costs, unearned discounts, premiums and allowance for loan losses) as of June 30, 2008 and September 30, 2007, respectively. We have ceased offering payment option loans except for programs made available to our wealth management customers and under our Mortgage Assistance Program.

Changes in the allowance for loan losses are as follows:


	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2008			2007			2008			2007
	(Dollars in thousands)
Balance at beginning of period	$	202,315		$	41,827		$	58,623		$	36,378
Provision		130,000			4,400			293,000			12,400
Loans charged-off		(33,447	)		(1,176	)		(60,978	)		(4,101	)
Recoveries (1)		10,777			38			19,000			412

Balance at end of period	$	309,645		$	45,089		$	309,645		$	45,089

(1)	Represents $10.7 million for the three months ended June 30, 2008 and $18.9 million for the nine months ended June 30, 2008 in expected payments from mortgage insurance companies. This is net of a 10% allowance of these payments based on historical recovery rates.

Consistent with federal interagency policy guidance and current Office of Thrift Supervision (“OTS”) regulatory reporting convention, BankUnited’s policy requires that impaired residential mortgage loans that are 180 days or more delinquent and collateral dependent be subject to specific valuation allowances or be charged-off in amounts equal to the shortfall in collateral, measured as the difference between the recorded investment in each impaired loan (i.e., outstanding principal, and any accrued interest, net deferred loan fees or costs, and unamortized premium or discount) and the net realizable value of collateral. The Bank’s estimate of net realizable value of residential mortgage loan collateral is based on an in-house or externally prepared estimate of current fair market valuations, less estimated costs to sell the collateral, together with consideration of any expected loan level mortgage insurance proceeds. As of June 30, 2008, the allowance for loan losses included specific valuation allowances of $68.6 million for $483.6 million in outstanding impaired residential mortgage loans.

The following table sets forth information concerning impaired loans and the amount of allocated allowance:


	As of June 30, 2008				As of September 30, 2007
	Outstanding Principal		Allowance for loan losses		Outstanding Principal		Allowance for loan losses
	(Dollars in thousands)
One-to-four family residential (1)	$	483,650	$	68,607	$	—	$	—
Specialty Consumer Mortgages		2,217		556		923		407
Home equity loans and lines of credit		8,703		8,703		—		—
Commercial real estate (2)		76,851		27,626		—		—
Commercial		252		252		232		232
Consumer—Other		912		912		—		—

Total	$	572,585	$	106,656	$	1,155	$	639

(1)	Includes $13.8 million in restructured residential loans that have an allocated allowance of $2.3 million and are still accruing interest. Also includes $30.3 million in restructured residential loans that are on nonaccrual status as of June 30, 2008.

(2)	Includes restructured commercial real estate loans of $9.8 million with an allocated allowance of $1.8 million.

(6) Earnings Per Share

The following tables reconcile basic and diluted (loss) earnings per share for the three and nine months ended June 30, 2008 and 2007.


	For the Three Months Ended June 30,					For the Nine Months Ended June 30,
	2008			2007		2008			2007
	(Dollars and shares in thousands, except per share data)
Basic (loss) earnings per share:
Numerator:
Net (loss) income	$	(117,696	)	$	23,209	$	(208,980	)	$	74,981
Preferred stock dividends		151			133		451			401

Net (loss)/income available to common stockholders	$	(117,847	)	$	23,076	$	(209,431	)	$	74,580


Denominator:
Weighted average common shares outstanding		35,153			35,779		35,131			36,141

Basic (loss) earnings per share	$	(3.35	)	$	0.65	$	(5.96	)	$	2.06


Diluted (loss) earnings per share:
Numerator:
Net (loss) income available to common stockholders	$	(117,847	)	$	23,076	$	209,431		$	74,580
Plus:
Preferred stock dividends		—			133		—			401

Diluted net (loss) income available to common stockholders	$	(117,847	)	$	23,209	$	209,431		$	74,981


Denominator:
Weighted average common shares outstanding		35,153			35,779		35,131			36,141
Plus:
Stock options and restricted stock		—			938		—			1,038
Preferred stock		—			954		—			958

Diluted weighted average shares outstanding		35,153			37,671		35,131			38,137

Diluted (loss) earnings per share (1)	$	(3.35	)	$	0.62	$	(5.96	)	$	1.97

(1)

For the three months ended June 30, 2008, BankUnited did not consider potential common and preferred stock options of 3.0 million and 1.1 million, respectively, in the computation of diluted loss per share as they would have been antidilutive. In addition, BankUnited did not consider potential common stock of 7.9 million shares from the HiMEDS Units issued on April 25, 2007 and June 4, 2007, as they would have been antidilutive.

For the nine months ended June 30, 2008, BankUnited did not consider potential common and preferred stock options of 2.9 million and 1.1 million, 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 7.9 million shares from the HiMEDS Units issued on April 25, 2007 and June 4, 2007, as they would have been antidilutive.

(7) Regulatory Capital

The Bank’s regulatory capital levels as of June 30, 2008 and September 30, 2007 were as follows:


	As of June 30, 2008			As of September 30, 2007
	(Dollars in thousands)
Tier 1 Leverage Capital
Amount	$	1,079,132		$	1,183,375
Actual Ratio		7.6	%		7.8	%
Well-Capitalized Minimum Ratio (1)		5.0	%		5.0	%
Adequately Capitalized Minimum Ratio (1)		4.0	%		4.0	%

Tier 1 Risk-Based Capital (2)
Amount	$	1,075,138		$	1,173,788
Actual Ratio		12.6	%		14.6	%
Well-Capitalized Minimum Ratio (1)		6.0	%		6.0	%
Adequately Capitalized Minimum Ratio (1)		4.0	%		4.0	%

Total Risk-Based Capital
Amount	$	1,183,043		$	1,232,706
Actual Ratio		13.9	%		15.4	%
Well-Capitalized Minimum Ratio (1)		10.0	%		10.0	%
Adequately Capitalized Minimum Ratio (1)		8.0	%		8.0	%

(1)	Based on OTS 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 leverage (core) capital less the deduction for low level recourse and residual interests to risk weighted assets.

Effective June 30, 2008, for regulatory capital purposes, BankUnited contributed $80 million in additional capital to the Bank.

(8) Comprehensive (Loss) Income

BankUnited’s comprehensive (loss) income includes all items which comprise net (loss) income, plus other comprehensive (loss) income net of tax. For the three and nine months ended June 30, 2008 and 2007, BankUnited’s comprehensive (loss) income was as follows:


	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2008			2007			2008			2007
	(In thousands)
Net (loss) income	$	(117,696	)	$	23,209		$	(208,980	)	$	74,981
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain arising during the period on securities, net of tax (benefit) expense of $(9,035) and $(1,932) for the three months ended June 30, 2008 and 2007, respectively, and $(27,212) and $2,339 for the nine months ended June 30, 2008 and 2007, respectively		(16,780	)		(3,588	)		(50,538	)		4,343
Unrealized (loss) on cash flow hedges, net of tax benefit of $(48) for the three months ended June 30, 2007, and $(61) and $(257) for the nine months ended June 30, 2008 and 2007, respectively		—			(90	)		(114	)		(477	)
Less reclassification adjustment for:
Realized gain (loss) on securities sold included in net income, net of tax expense (benefit) of $(120) and $(183) for the nine months ended June 30, 2008 and 2007, respectively		—			—			222			(340	)
Other-than-temporary impairment on investment securities included in net income, net of tax benefit of $(8,630) for the three months ended June 30, 2008 and $(17,837) for the nine months ended June 30, 2008		(16,027	)		—			(33,126	)		—
Realized (loss) gain on cash flow hedges, net of tax (benefit) expense of $(61) and $5 for the three months ended June 30, 2008 and 2007, respectively, and $(92) and $32 for the nine months ended June 30, 2008 and 2007, respectively		(114	)		10			(172	)		60

Valuation allowance for deferred tax assets		(16,582	)		—			(16,582	)		—

Total other comprehensive (loss) income, net of tax		(17,221	)		(3,668	)		(34,158	)		4,146

Comprehensive (loss) income	$	(134,917	)	$	19,541		$	(243,138	)	$	79,127

(9) 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,” BankUnited recognizes all

derivatives as either assets or liabilities on the consolidated statement of financial 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 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 the three and nine-month periods ended June 30, 2008 and June 30, 2007.

Loans Held For Sale

Loans held for sale are accounted for under the lower of cost or market method. Lower of cost or market adjustments are recorded in earnings under non-interest expense. No lower of cost or market adjustments were recorded in the three and nine months ended June 30, 2008 and June 30, 2007. During the three and nine months ended June 30, 2008, BankUnited transferred $6.4 million and $19.3 million, respectively, of loans from loans held for sale to loans held in portfolio and recorded losses of $1.6 million and $3.6 million, respectively, which is included in other non-interest income. These loans had conditions that adversely impacted their marketability. BankUnited has the intent and ability to hold these loans to maturity.

Interest Rate Swaps and Caps

At June 30, 2008, BankUnited had no interest rate cap or 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 operations during the three and nine months ended June 30, 2008 and 2007:


	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2008			2007			2008			2007
	(In thousands)
Interest Rate Swaps
Net loss recorded in non-interest income related to swaps	$	—		$	—		$	—		$	(318	)
Other Derivatives (1)
Gain (loss) recorded in non-interest expense related to loan commitments		418			(193	)		(479	)		(244	)
(Loss) gain recorded in non-interest expense related to forward sales contracts		(2,001	)		244			(1,091	)		395

Total (loss) gain recorded in earnings due to derivatives	$	(1,583	)	$	51		$	(1,570	)	$	(167	)

Note: As of June 30, 2008 there were no cash flow hedges outstanding.

(1)	BankUnited uses other derivatives to economically hedge interest rate risk, but they do not qualify for hedge accounting treatment.

(10) Stock-Based Compensation and Other Benefit Plans

At June 30, 2008, BankUnited had 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.

Compensation expense arising from share-based payment arrangements was $2.2 million and $1.9 million for the quarters ended June 30, 2008 and June 30, 2007, respectively, and $6.7 million and $5.6 million for the nine months ended June 30, 2008 and June 30, 2007, respectively. Compensation expense for the year to date ended June 30, 2008 includes a modification charge of $116 thousand for a two year extension of options that were scheduled to expire during the current fiscal year.

Options

BankUnited may award both incentive stock options and non-qualified stock options. Options granted under BankUnited’s plans generally 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 three to five years.

BankUnited uses 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 options granted in the nine-month period ended June 30, 2008 are outlined in the table below. There were no options granted in the three months ended June 30, 2008:


		Nine Months Ended June 30, 2008
Expected Volatility		34.0% – 43.0 %
Expected Dividend		0.10% – 4.2 %
Expected Term in Years		2.0 – 5.0
Risk Free Rate		2.13% – 4.68%

Expected volatilities are based on historical volatility trends of BankUnited’s Class A Common Stock and other factors. Expected dividends reflect a range based on actual dividends paid on BankUnited’s Class A Common Stock and Series B Preferred Stock. On August 5, 2008, the Company’s Board of Directors approved the suspension of dividends on the shares of the Company’s Class A Common Stock for the indefinite future and certain holders of Series B Preferred Stock agreed to waive the payment of dividends until December 31, 2008. Expected term represents the periods of time that options 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.

The following table presents the activity of BankUnited’s outstanding stock options, for all classes of common stock for the nine months ended June 30, 2008:


Common Stock Options	Number of Shares		Weighted Average Price per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (1)
	(Dollars and shares in thousands)
Options outstanding, September 30, 2007	2,416		$	19.08
Options granted	784		$	11.75
Options exercised	(59	)	$	7.25
Options forfeited	(100	)	$	22.50
Options expired	(70	)	$	16.27

Options outstanding, June 30, 2008	2,971		$	17.33	5.0	$	—

Exercisable at June 30, 2008	1,666		$	18.10	4.5	$	—
Unvested at June 30, 2008	1,305		$	16.34	5.8	$	—

(1)	As of June 30, 2008, the common stock options have no intrinsic value because the exercise prices of all 3.0 million outstanding common stock options were at a price above the fair market value of the common stock on that date.

The following table presents the activity of BankUnited’s outstanding stock options for Series B Preferred Stock, for the nine months ended June 30, 2008.


Series B Preferred Stock Options	Number of Shares		Weighted Average Price per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (1)
	(Dollars and shares in thousands)
Options outstanding, September 30, 2007	1,039		$	27.26
Granted	67			21.24
Cancelled	(5	)		10.85

Options outstanding, June 30, 2008	1,101		$	26.97	4.3	$	—

Exercisable at June 30, 2008	684		$	25.00	3.4	$	—
Unvested at June 30, 2008	417		$	30.20	5.9	$	—

(1)	As of June 30, 2008, the Series B Preferred Stock options have no intrinsic value because the exercise prices of all 1.1 million outstanding Series B Preferred Stock options were at prices above the estimated fair market value of the Series B Preferred Stock on that date.

The following table presents the values of option grants and exercises for all classes of stock for the nine months ended June 30, 2008. There were no options granted during the third quarter of 2008:


	Three Months Ended June 30, 2008		Nine Months Ended June 30, 2008
	(Dollars in thousands except per share data)
Grant date weighted average fair value per share of options granted during the period	$	—	$	4.00
Total intrinsic value of options exercised	$	—	$	376
Cash received from options exercised	$	—	$	425
Actual tax benefit to be realized from option exercises	$	—	$	115

Restricted Stock

Restricted stock awards granted without performance-based restrictions vest in annual installments over periods ranging from three to nine 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.

In the third fiscal quarter of 2008, the Company awarded restricted shares of Class A Common Stock valued at $69 thousand to vest over three to five years. Fair value for these shares is determined based on the closing price of BankUnited’s shares on the grant date.

The following table presents the activity of BankUnited’s unvested restricted shares of Class A Common Stock and restricted Class A Common Stock units for the nine-month period ended June 30, 2008:


Common Unvested Shares *	Number of Shares (in thousands)		Weighted Average Price per Share (at date of grant)
Outstanding September 30, 2007	579		$	24.58
Granted	253			11.70
Vested	(101	)		25.36
Forfeited	(60	)		22.75

Outstanding June 30, 2008	671		$	19.99

*	Including restricted stock units

As of June 30, 2008, the weighted average life of these awards is 3.6 years.

The following table presents the activity of BankUnited’s unvested restricted shares of Series B Preferred Stock, including both performance and non-performance-based awards, for the nine months ended June 30, 2008:


Series B Preferred Unvested Shares	Number of Shares (in thousands)		Weighted Average Price per Share (at date of grant)
Outstanding at September 30, 2007	396		$	33.58
Granted	134			21.24
Vested	(7	)		38.90

Outstanding at June 30, 2008	523		$	30.34

As of June 30, 2008, the weighted average life of the awards is 6.8 years.

Performance-Based Awards

Under the plans, the Compensation Committee of BankUnited’s Board of Directors has the authority to grant performance awards based on the achievement of pre-set performance goals by a future date. The goals are based on performance criteria specified in the plans.

During the nine-month period ended June 30, 2008, the Compensation Committee voted to award certain executive officers performance-based awards that require the achievement of goals over future periods based on specified objectives. These awards have a performance period of one year.

Performance-based restricted stock awards are eligible to be voted by the executive from the date of the award. Dividends are paid only after achievement of the performance goals to which the award is subject.

The following table presents the activity of BankUnited’s performance-based unvested awards of Class A Common Stock for the nine-month period ended June 30, 2008:


Performance-Based Class A Common Unvested Shares	Number of Shares (in thousands)		Weighted Average Price per Share (at date of grant)
Outstanding at September 30, 2007	51		$	25.40
Granted	35			14.20
Vested	—			—
Cancelled	(3	)		26.82

Outstanding at June 30, 2008	83		$	20.61

As of June 30, 2008, the weighted average life of the awards is 6.4 years.

The following table presents the activity of BankUnited’s performance-based unvested awards of Series B Preferred Stock, for the nine-month period ended June 30, 2008:


Performance-Based Series B Preferred Unvested Shares	Number of Shares (in thousands)		Weighted Average Price per Share (at date of grant)
Outstanding at September 30, 2007	376		$	33.46
Granted	134			21.24
Vested	(5	)		39.00

Outstanding at June 30, 2008	505		$	30.17

As of June 30, 2008, the weighted average life of the awards is 6.9 years.

(11) Income Taxes

SFAS No. 109, Accounting for Income Taxes, requires that when determining the need for a valuation allowance against a deferred tax asset, management must assess both positive and negative evidence with regard to the realizability of the tax losses represented by that asset. To the extent available sources of taxable income are insufficient to absorb tax losses, a valuation allowance is necessary. Sources of taxable income for this analysis include prior years’ tax returns, the expected reversals of taxable temporary differences between book and tax income, prudent and feasible tax-planning strategies, and future taxable income.

At June 30, 2008, BankUnited had deferred tax assets, before valuation allowance, of $103.3 million. BankUnited’s deferred tax asset resulted from an increase in its allowance for loan losses and the recognition of other-than-temporary impairment on certain securities. BankUnited recorded a valuation allowance of $51.1 million against its deferred tax asset as of June 30, 2008, after considering all available evidence related to the amount of the tax asset that is more likely than not to be realized. The valuation allowance includes $34.5 million recorded in the net loss for the three and nine months ended June 30, 2008, and $16.6 million included in other comprehensive income for the same period. Primarily due to the recording of the valuation allowance, the effective tax rate for the three months ended June 30, 2008 was 20%, compared to 34% for the three months ended June 30, 2007, and 27% and 34% for the nine months ended June 30, 2008 and 2007, respectively.

(12) Commitments and Contingencies

Commercial and standby letters of credit are off-balance sheet instruments that represent conditional commitments issued by BankUnited to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support trade transactions or guarantee arrangements. BankUnited had outstanding commercial and standby letters of credit in the amount of $46.3 million and $47.5 million as of June 30, 2008 and September 30, 2007, respectively. Fees collected on standby letters of credit represent the fair value of those commitments and are deferred and amortized over their term, which is typically one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. BankUnited generally holds collateral supporting those commitments if deemed necessary.

BankUnited and the Bank have employment and change in control agreements with certain members of senior management. The employment agreements, which establish the duties and compensation of the executives, have terms ranging from one year to five years, and include specific provisions for salary, bonus, other benefits and termination payments in certain circumstances. In addition to other provisions, the change in control agreements provide for severance payments in the event of a change in control.

BankUnited and its subsidiaries, from time to time, are involved as plaintiff or defendant in various legal actions arising in the normal course of their businesses. While the ultimate outcome of any such proceedings cannot be predicted with certainty, it is the opinion of management that no proceedings exist, either individually or in the aggregate, which, if determined adversely to BankUnited and its subsidiaries, would have a material effect on BankUnited’s consolidated financial statements.

(13) Subsequent Events

BankUnited has been advised by the OTS of certain concerns that BankUnited has agreed to address. Several of the measures addressing these concerns were already in progress at the time the Company and the Bank entered into agreements with the OTS to address the concerns. At this time, some of the measures have been completed and others are in progress. These measures include efforts to seek to raise at least $400 million of capital and to submit an alternative capital plan to be applicable if the Company is unable to raise the $400 million; termination of the option ARM loan program (other than in the wealth management area and, in certain limited circumstances, for loan modifications); termination of reduced and no documentation loan programs; reduction of the portfolio of negative amortization loans; and enhanced monitoring and internal reporting, as well as reporting to regulators on option ARM loan reduction efforts, preservation and enhancement of capital, mortgage insurance and liquidity strength. The Bank also agreed to enhance its policies and procedures regarding the Bank’s allowance for loan losses, including increasing the allowance to a level which has already been attained. The Bank has also agreed to maintain capital ratios substantially in excess of the minimum required ratios to be deemed well-capitalized upon raising the agreed upon amount of capital. The OTS has advised that the Bank must limit its asset growth and notify it prior to: adding directors or senior executive officers; making certain kinds of severance and other forms of payments; entering into, renewing, extending, or revising any compensatory or benefits arrangements with any director or officer; entering into any third-party contracts out of the normal course of business; and issuing any capital distribution, such as dividends. Based on a recent notification, BankUnited believes that, unless it raises significant capital, the OTS will reclassify the Bank to adequately capitalized primarily due to the deterioration in the Bank’s non-traditional mortgage loan portfolio, the concentration of risk associated with that portfolio, and a resultant need for significant additional capital. The Company has continued its efforts to raise capital. Management believes that the Bank will maintain its well-capitalized status if the Company’s capital raising efforts are successful. There can be no guarantee that any of the measures already taken or in progress will be successful or satisfy the concerns of the OTS, and additional restrictions may be imposed on BankUnited’s activities in the future that could have a material adverse effect on BankUnited’s financial position and operations.

Subsequent to June 30, 2008, the FHLB commenced a review of our borrowing capacity, which is ongoing. The FHLB has advised us that it has changed its position regarding collateral held by affiliates, and that $736 million of pledged collateral from our affiliated REIT may not be fully eligible to support borrowings. Management is assessing alternatives for addressing this issue. Additionally, during the quarter ended June 30, 2008, we instituted the use of brokered deposits. The Bank had $268 million of brokered deposits at June 30, 2008 and $774 million as of August 15, 2008. OTS and FDIC regulations limit the use of brokered deposits in certain situations, including requiring a prior waiver from the FDIC if the Bank were reclassified as adequately capitalized.

We accumulated $863 million of cash and cash equivalents as of August 15, 2008 to meet our funding needs. Depending on our access to various funding sources, including the FHLB, Federal Reserve Discount Window (“Federal Reserve”), brokered and retail deposits, and certain other sources, we may not be able to satisfy our liquidity needs and failure to do so could have a material adverse effect on BankUnited’s financial position and operations. Our borrowing capacity as of August 15, 2008 is approximately $345 million.

Subsequent to June 30, 2008, BankUnited restructured a portion of its FHLB advances. The weighted average maturity of $395 million of advances was extended from less than one month as of June 30, 2008 to approximately 11 months. The weighted average maturity of $750 million of advances was extended from approximately 14 months as of June 30, 2008 to approximately 52 months. After the restructuring, FHLB advance maturities through December 31, 2008 total $275 million and $1.1 billion through June 30, 2009.

In July 2008, BankUnited continued to reduce its wholesale residential mortgage business. As a result, it closed operations centers located in Illinois and Virginia. Also in July 2008, BankUnited closed one retail branch office. The estimated cost of these closures is approximately $1.5 million and will be recorded in the fourth quarter of fiscal year 2008.

The Bank’s non-accrual loans and real estate owned changes during the month of July 2008 were as follows:

•

Non accrual loans increased by $100.6 million from $982.2 million at June 30, 2008 to $1.1 billion at July 31, 2008;

•

Net charge offs for the month of July 2008 were $8.6 million including $4.6 million relating to loans transferred to real estate owned, $1.1 million relating to short sales of collateral by borrowers, $1.4 million relating to commercial loans, and $1.5 million relating to home equity and consumer loans; and

•

Real estate owned increased by $20.6 million from $117.3 million at June 30, 2008 to $137.9 million at July 31, 2008.

On August 5, 2008, the Board of Directors approved the suspension of dividends on the shares of Class A Common Stock for the indefinite future.

On August 5, 2008, certain holders of the Series B Preferred Stock, including BankUnited’s Chairman and CEO, Alfred Camner, members of the Camner family and the members of the Board of Directors who hold Series B Preferred Stock provided a waiver notice to the Company whereby they agreed to waive BankUnited’s obligation to pay the quarterly dividend payable on the Series B Preferred Stock until December 31, 2008.

On August 8, 2008, BankUnited announced the implementation of the Mortgage Assistance Program to eligible customers of option ARM loans to assist these borrowers with refinancing their loans. Customers who qualify for the Mortgage Assistance Program will not be required to pay pre-payment penalties and will have minimal modification fees, as well as access to a variety of loan choices, including traditional mortgage products and government agency loans. The program will also allow customers to refinance with other lenders and still be able to avoid the prepayment penalty.

On August 22, 2008, Fitch Ratings downgraded BankUnited’s long-term and senior debt to BB- from BB and our individual rating from C/D to D. The Bank’s long-term deposits were downgraded to BB from BB+ and its individual debt rating from C/D to D. Also the preferred stock associated with our trust subsidiaries numbered VII, VIII, IX, XI and XII were downgraded from B+ to B-. Additionally, Fitch Ratings placed BankUnited and its subsidiaries on Rating Watch Negative. These lower ratings, and any further ratings downgrades, could make it more difficult for us to access the capital markets going forward, as the cost to borrow or raise capital could become more expensive. Although the cost of our primary funding sources (deposits and FHLB borrowings) is not influenced directly by our credit ratings, no assurance can be given that our credit rating will not have any impact on our access to deposits and FHLB borrowings.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used in this Quarterly Report on Form 10-Q (the “Form 10-Q”), “BankUnited,” the “Company,” “we,” “us” and “our” refers to BankUnited Financial Corporation (“BankUnited”) and its consolidated subsidiaries, including BankUnited, FSB (the “Bank”). All significant intercompany transactions and balances associated with consolidated subsidiaries have been eliminated. The following discussion and analysis and the related financial data present a review of BankUnited’s consolidated operating results for the three month and nine month periods ended June 30, 2008 and 2007 and consolidated financial condition as of June 30, 2008 and as of September 30, 2007. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in BankUnited’s Annual Report on Form 10-K.

This Form 10-Q contains forward-looking statements. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Words and phrases such as: “will likely result,” “expect,” “will continue,” “anticipate,” “estimate,” “project,” “believe,” “intend,” “will,” “should,” “would,” “could,” “may,” “can,” “plan,” “target” and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements may include, but are not limited to, discussions concerning national and regional business and economic conditions, fiscal and monetary policies; natural events such as hurricanes; changes in interest rates; changes in policy or discretionary decisions by the Federal Home Loan Bank of Atlanta (“FHLB”) or the Federal Reserve; a reduced demand for credit; a decrease in deposit flows, loan demand or deposit or other customers; risks associated with residential mortgage lending or a slowdown in the housing market, including, without limitation, continued deterioration in credit quality, reduced real estate values and slower sales, interest rate changes, payment elections by borrowers of option ARM loans and deterioration in the ability of borrowers to repay their loans and other debts; competition from other financial service companies in our markets; potential or actual litigation; potential or actual actions by regulators, including, without limitation, new, changed or increased regulatory restrictions and the ability to comply with such restrictions; changes in regulations, laws, policies or standards, including, among others, changes in accounting standards, guidelines and policies; the outcome of ongoing tax audits; the issuance, redemption or deferral of payments on company debt or equity; the concentration of operations in Florida; reliance on other companies for products and services; the impact of war and the threat and impact of terrorism; volatility in the market price of the company’s common stock; unfavorable conditions in the capital markets; the possible loss of key personnel; the possible inability to successfully implement strategic initiatives, and other economic, competitive, servicing capacity, governmental, regulatory and technological factors affecting the company’s operations, price, products and delivery of services. Neither the success, timing nor terms of the Company’s capital raising efforts are certain. The Company is not able to make any assurances, including but not limited to any assurances that the increased rate of sale of foreclosed homes will continue in future periods, that the percentage of unsold homes in escrow or under negotiation will be representative of the number or percentage of homes sold in future periods, that the quality of our loan portfolio will continue in future periods, that we will have adequate liquidity in future periods, or that we will be considered “well-capitalized” in future periods.

Actual results or performance could differ from those implied or contemplated by forward-looking statements. BankUnited wishes to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, and are not historical facts or guarantees of future performance. Other factors that could cause actual results to differ materially are: (i) other risks and uncertainties described from time to time in BankUnited’s filings with the SEC, (ii) the risk factors or uncertainties set forth in this Form 10-Q, and (iii) other risks and uncertainties that have not been identified at this time. Information in this Form 10-Q is as of the dates, and for the periods, indicated. BankUnited does not undertake, and specifically disclaims any obligation, to publicly update or revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements, whether as the result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in or incorporated by reference into this report might not occur.

Overview

Our results of operations are dependent primarily on net interest income, which is the difference between the interest earned on assets, (primarily our loan and securities portfolios), and our cost of funds, which consists of the interest paid on our deposits and borrowings. Our results of operations are also affected by our provision for loan losses, the performance of our investments, gain or loss on the sale of loans, other non-interest income, non-interest expenses and income taxes.

Our operations, like those of other financial institution holding companies, are affected by our asset and liability management policies, as well as factors beyond our control, such as general economic conditions and the monetary and fiscal policies of the federal government. Lending activities are affected by the demand for mortgage financing and other types of loans, and are thus influenced by interest rates and other factors that are beyond management’s control. Deposit flows and cost of deposits and borrowings are influenced by local competition and by general market rates of interest.

During the quarter ended June 30, 2008, our non-performing loans and real estate owned (“REO”) continued to increase and are expected to increase throughout fiscal 2008. During the three and nine months ended June 30, 2008, we recorded a provision for loan losses of $130 million and $293 million, respectively, reflecting a rising level of non-performing loans, recent experience, and continued difficulty in the housing markets, particularly in regions impacted by housing price decreases. We expect to record additional provisions for loan losses during the remaining quarter of fiscal 2008, to the extent deemed appropriate.

The disruption in the housing market has also impacted our investments and mortgage-backed securities held for sale. Many of our investments are directly or indirectly influenced by the performance of mortgage loans. Similar to the deterioration in loans, assets backed by mortgage loans have exhibited negative performance. As a consequence, certain of our holdings in preferred stock issued by entities active in the mortgage market and debt securities backed by mortgage loans were deemed to be other than temporarily impaired and impairment charges of $25.1 million and $51.7 million were recorded during the three and nine months ended June 30, 2008, respectively. Continued deterioration or adverse performance in the mortgage market may require additional impairment charges in future periods.

The continuing depreciation of housing prices throughout the country, particularly in certain geographic regions, is reflected in the deterioration of our loan portfolio, reduced loan production and the results of operations for the quarter ended June 30, 2008. While we are not, and have not been, a subprime lender, like other lenders throughout the residential mortgage industry, our asset quality has been negatively affected by market conditions. Additionally, significant deterioration of the bond market and secondary market for residential mortgage loans has put pressure on financial institutions to find alternative sources of liquidity. The resultant competition for retail deposits has kept deposit prices from moving down as much as the reduction in federal funds and other market rates. The market dislocations have impacted both sides of our statement of financial condition.

We have taken the following actions to address the challenges presented by the current residential mortgage crisis:

Repositioning the Company

Our management team is implementing a multi-year strategic plan to gradually transition BankUnited to a retail commercial bank with the goal of improving shareholder return.

We have taken the following steps to implement this plan:

•

We are reducing the size of the balance sheet, thereby bolstering capital ratios;

•

We have significantly downsized the wholesale residential business;

•

We continue to strengthen our risk management programs; and

•

We have launched a major expense reduction program.

Strengthening Capital and Shrinking the Balance Sheet

•

Core and risk-based capital ratios were 7.6% and 13.9%, respectively, on June 30, 2008, and believe we are making considerable progress towards raising additional capital.

•

Additional tangible equity support will be provided by the mandatory conversion of our $184 million HiMEDS equity units to common equity in May 2010 at a minimum price of $23.40 per share.

•

During the quarter, we continued to reduce the size of the balance sheet. We expect to further shrink our residential loan balances as a result of the termination of our option ARM loan programs, with minor exceptions for wealth management clients and certain limited loan modifications, termination of our reduced documentation programs, lower production, and origination for sale of loans which conform to agency requirements. At the same time we will continue to consider other asset and liability management strategies that may be appropriate, including the acquisition of other earning assets. This product mix change supports our decision to shrink the balance sheet and is consistent with the OTS directive limiting growth, to relieve pressure on capital and boost capital ratios.

Wholesale Residential Restructuring

•

In July 2008, we continued to reduce our wholesale residential mortgage business. As a result, we closed two additional operation centers that were located in Illinois and Virginia. In total, we have reduced our wholesale residential staff by more than 65% from September 2007 to July 2008.

•

We also have commenced a Mortgage Assistance Program that contains various elements for borrowers who may wish to change from option ARM loans. This program may utilize waived pre-payment fees, minimal modification fees and a choice of agency loans.

•

We have also taken additional steps to significantly alter our residential loan production mix by terminating our option ARM programs (except for wealth management customers and limited loan modifications) and our reduced documentation programs. Saleable residential mortgage loans, mainly conforming agency, which are sold to FNMA, FHLMC, and other conduits represented 91% of production excluding consumer mortgages for the quarter ended June 30, 2008.

•

Going forward, we expect that wholesale lending will remain part of our business although in a smaller capacity. Its size and growth will be determined by, among other things, the profitability models implemented in the second quarter of fiscal 2008 and any applicable regulatory restrictions.

Credit Standards

•

Our underwriting standards for option ARM loans were substantially consistent with the inter-agency lending guidelines even before their issuance in September 2006. We are not a subprime lender, we do not make piggyback loans in which a borrower is made a second mortgage simultaneously with a first mortgage. Unlike some lenders in the industry, we have underwritten to the fully indexed rate and followed strict policies for outside appraisals combined with internal appraisal reviews.

•

Reduced documentation loans that were made prior to the termination of our option ARM and reduced documentation loan programs underwent a reasonableness test on income.

•

At June 30, 2008, except for $134.4 million of loans originated under Community Reinvestment Act Programs and $20.9 million of other loans, loans originated with loan-to-value ratios (“LTVs”) over 80% required the purchase of mortgage insurance.

•

In April 2006, we began to restrict the number of residential loans for luxury high-rise condominiums, including properties located in downtown Miami and certain neighboring areas. Additionally, we have not been involved in any construction lending for high-rise condominiums in downtown Miami or those neighboring areas.

•

We have been addressing the rise in non-performing assets, and have strengthened our risk management and loss mitigation programs accordingly. See Loss Mitigation Strategies. We remain focused on managing exposure to the loans that we deem to be most at risk.

•

BankUnited has ceased originating stated income, reduced documentation or no documentation loans. Additionally, non-owner occupied properties are no longer eligible collateral for new loans.

Expense-Reduction Program

•

The changes we implement as a result of our strategic plan, complemented by the expense reduction programs we have initiated, are expected to have a more tangible effect in future quarters.

•

Downsizing the wholesale residential business is expected to have a positive impact on expenses, excluding one-time charges relating to severance, lease terminations or fixed asset write-offs which may be required.

•

Expenses related to credit collections and other REO have increased and may continue to increase, thus offsetting expense reductions.

It is unlikely that we will receive any material relief from the impact of current market conditions until housing prices have declined to their lowest levels. Unlike other asset types, which reprice very quickly, housing prices adjust very slowly. As a result, we believe the anticipated market correction will be slow. Since we anticipate that the market environment will continue to be

challenging, we intend to continue concentrating during the remainder of fiscal 2008 and beyond on reducing the size of our balance sheet, achieving efficiencies in all of our business lines, taking steps to improve liquidity and executing expense control measures.

The following tables represent a summary of key performance measures for the three and nine months ended June 30, 2008 and 2007:


	For the period ended June 30,						Increase/(Decrease)
	2008			2007			$			%
	(In thousands, except per share amounts)
Key results of operations measures (for the three months)
Net interest income	$	58,601		$	81,979		$	(23,378	)	(28.5	)%
Net interest margin		1.66	%		2.40	%		(0.74	)%	(30.8	)%
Provision for loan losses	$	130,000		$	4,400		$	125,600		2854.6	%
Gain on sale of loans	$	1,617		$	505		$	1,112		220.2	%
Net (loss) income	$	(117,696	)	$	23,209		$	(140,905	)	(607.1	)%
Diluted (loss) earnings per share	$	(3.35	)	$	0.62		$	(3.97	)	(640.3	)%
Key results of operations measures (for the nine months)
Net interest income	$	204,523		$	243,115		$	(38,592	)	(15.9	)%
Net interest margin		1.94	%		2.38	%		(0.44	)%	(18.5	)%
Provision for loan losses	$	293,000		$	12,400		$	280,600		2262.9	%
Gain on sale of loans	$	5,982		$	9,575		$	(3,593	)	(37.5	)%
Net (loss) income	$	(208,980	)	$	74,981		$	(283,961	)	(378.7	)%
Diluted (loss) earnings per share	$	(5.96	)	$	1.97		$	(7.93	)	(402.5	)%
Key financial condition measures (at period end)
Total assets	$	14,119,511		$	14,488,873		$	(369,362	)	(2.5	)%
Total loan portfolio (1)	$	12,291,779		$	12,364,238		$	(72,459	)	(.59	)%
Allowance for loan losses	$	(309,645	)	$	(45,089	)	$	264,556		586.7	%
Total deposits	$	7,606,264		$	6,963,027		$	643,237		9.2	%
Total borrowings	$	5,777,072		$	6,547,259		$	(770,187	)	(11.8	)%
Key asset quality measures (2)
Total non performing loans	$	982,322		$	117,098		$	865,224		738.9	%
Non-performing loans as a percentage of total loans held in portfolio		7.99	%		0.95	%		7.04	%	741.1	%
Total net charge-offs QTD	$	22,670		$	1,138		$	21,532		1892.1	%
Net annualized QTD charge-offs as a % of QTD average loans		0.73	%		0.04	%		0.69	%	1725.0	%
Total net charge-offs YTD	$	41,978		$	3,689		$	38,289		1037.9	%
Net annualized YTD charge-offs as a % of YTD average loans		.45	%		.04	%		.41	%	1025.0	%
Other key performance measures (2)
Total loan originations QTD	$	474,391		$	1,242,795		$	(768,404	)	(61.8	)%
Total residential originations QTD (3)	$	267,525		$	1,011,994		$	(744,469	)	(73.6	)%
Total conforming loan originations QTD	$	243,755		$	121,357		$	122,398		100.9	%
Total loan originations YTD	$	1,918,974		$	3,598,441		$	(1,679,467	)	(46.7	)%
Total residential originations YTD (3)	$	1,257,788		$	3,028,613		$	(1,770,825	)	(58.5	)%
Total conforming loan originations YTD	$	911,167		$	233,381		$	677,786		290.4	%

(1)	Including unearned discounts, premiums and deferred loan costs before allowance.

(2)	QTD defined as quarter-to-date; YTD defined as year-to-date.

(3)

Excluding specialty consumer mortgages originated at the branches of $68.2 million and $40.3 million for the three months ended June 30, 2008 and June 30, 2007, respectively, and $175.9 million and $90.6 million for the nine months ended June 30, 2008 and 2007, respectively. Specialty consumer mortgages are residential mortgage loans that are originated primarily through customer relationships at our neighborhood branch banking offices, compared to those originated through our wholesale residential mortgage loan production offices.

Critical Accounting Estimates

Our financial position and results of operations are impacted by management’s application of accounting policies involving judgments made to arrive at the carrying value of certain assets. In implementing our policies, management must make estimates and assumptions about the effect of matters that are inherently less than certain and that may be affected by factors and future events that are not controlled by the Company. Actual results could differ significantly from these estimates, which could materially affect the reported amounts of our assets, liabilities, income and expenses. Critical accounting estimates made by management include those that relate to the allowance for loan losses, the carrying amount of investments, mortgage-backed securities available for sale, fixed assets and stock based compensation.

During the third fiscal quarter of 2008, the Company completed a historical review of the useful lives of certain information technology hardware assets. The Company determined that the useful lives of certain information technology hardware assets were greater than the useful lives originally estimated. As such, the Company extended the useful lives of certain information technology hardware assets from three years to up to five years. The extension of depreciable lives qualifies as a change in accounting estimate and was made on a prospective basis effective June 1, 2008. For the three and nine months ended June 30, 2008, depreciation expense was $103 thousand less than what it would have been had the depreciable lives not been extended. The effect of this change has no material impact on basic and diluted earnings per share for the three and nine months ended June 30, 2008.

Allowance for loan losses

The allowance for loan losses includes subjective judgments that management must make regarding the loan portfolio, and is established and maintained at levels that management believes are adequate to cover probable losses resulting from the inability of borrowers to make required payments on loans. Estimates for loan losses are made by analyzing historical loan losses, current trends in delinquencies and charge-offs, plans for problem loan administration and resolution, the views of regulators, changes in the size and composition of the loan portfolio, and peer group information. In addition, the economic climate and direction, increases or decreases in overall lending rates, political conditions, legislation directly or indirectly impacting the banking industry, mortgage insurance and economic conditions affecting specific geographical areas in which BankUnited conducts business are all considered. We transfer a portion of our credit risk on residential loans by requiring mortgage insurance on a portion of our loans. Where there is a question as to the impairment of a non-homogenous loan, management obtains valuations of the property or collateral securing the loan, and current financial information of the borrower, including financial statements, when available. Since the calculation of appropriate loan loss allowances relies on management’s estimates and judgments relating to inherently uncertain events, actual results may differ from these estimates. For a more detailed discussion on the allowance for loan losses, see the Asset Quality section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report and, (e) Allowance for Loan Losses in note (1) Summary of Significant Accounting Policies to the Notes to Consolidated Financial Statements on page 85 of BankUnited’s Annual Report on Form 10-K for the year ended September 30, 2007.

Investments and mortgage-backed securities available for sale

Several estimates impact the periodic valuation of investments and mortgage-backed securities, which are carried at fair value. Generally, the Bank uses third party pricing services to assist management in estimating the fair value of its securities. For a limited number of securities for which third party pricing is not available, the Bank uses internal valuation models to calculate fair value. The vast majority of our investments and mortgage-backed securities were purchased prior to 2004, and as such, have relatively short remaining lives. For a more detailed discussion on investment securities and mortgage-backed securities available for sale, see note (4) Investments and Mortgage-Backed Securities Available for Sale to the accompanying Condensed Notes to Consolidated Financial Statements.

Stock-Based Compensation

Several assumptions are made in the determination of stock-based compensation. BankUnited utilizes the Black-Scholes model to calculate stock-based compensation under SFAS No. 123R. Estimates of expected volatility, expected life of options, and applicable risk free interest rate affect the computation of the fair value of options to be expensed. Assumptions are also made as to the expected achievement of performance conditions for performance-based stock grants. Estimates of expected forfeiture rates are made for both options and stock grants. For a more detailed discussion of stock based compensation see notes (1) Summary of Significant Accounting Policies and (10) Stock-Based Compensation and Other Benefit Plans to the accompanying Condensed Notes to Consolidated Financial Statements.

Income Taxes

BankUnited is subject to the income tax laws and regulations of the United States, several states, and other jurisdictions. These tax laws and regulations are complex, vary among the jurisdictions, and are subject to different interpretations by BankUnited or the taxing authorities. In determining the provisions for income taxes and preparing required tax returns, management must exercise judgments and make estimates, which may be significant. Positions taken by management may be challenged by taxing authorities.

Provisions for income taxes are based on amounts reported in the consolidated statements of operations, adjusted to reflect the permanent and temporary differences in the tax and financial accounting for certain assets, liabilities, revenues and expenses. Accrued income taxes payable or receivable represent the amounts due or to be received from the applicable taxing jurisdiction. On a quarterly basis management evaluates its accrued income taxes to assess their adequacy based on its interpretation of the applicable laws and regulations, and the probability of potential outcomes.

Deferred income taxes represents the tax effect of temporary differences. Temporary differences are items which are recorded in the financial statements in a different period than that used for financial reporting and result in deferred tax assets or liabilities. The realization of deferred tax assets may be dependent on future events or circumstances. On a quarterly basis, management evaluates deferred tax assets to determine if the benefits are expected to be realized. This determination is based on facts and circumstances, the expected timing of reversal of temporary differences, tax carryforwards or carrybacks, management’s outlook of the future, and tax planning strategies which may support our deferred tax assets. To the extent a deferred tax asset is not “more likely than not” to be realized, a valuation allowance is established.

Accounting Pronouncements Issued and Not Yet Adopted

For information about accounting pronouncements issued but not yet adopted, see the discussion in Note (2) Impact of Certain Accounting Pronouncements to the accompanying Condensed Notes to Consolidated Financial Statements.

RESULTS OF OPERATIONS

Comparison of Operating Results for the Three Months Ended June 30, 2008 and 2007

General

BankUnited reported a net loss of $117.7 million for the three months ended June 30, 2008, compared to net income of $23.2 million for the quarter ended June 30, 2007. Basic and diluted loss per share was $3.35 for the quarter ended June 30, 2008 as compared to earnings per basic and diluted share of $0.65 and $0.62, respectively, for the same quarter last year.

The following table is a condensed version of BankUnited’s Consolidated Statement of Operations for the periods presented.


	For the three months ended June 30,					Increase (Decrease)
	2008			2007		$			%
	(In thousands, except per share amounts)
Net interest income	$	58,601		$	81,979	$	(23,378	)	(28.5	)%
Provision for loan losses		130,000			4,400		125,600		2,854.5	%
Non-interest income		6,900			8,340		(1,440	)	(17.3	)%
Impairment of securities		(25,140	)		—		(25,140	)	n.a.
Non-interest expense		56,634			50,496		6,138		12.2	%
(Loss) income before taxes		(146,273	)		35,423		(181,696	)	(512.9	)%
(Benefit) provision for income taxes		(28,577	)		12,214		(40,791	)	(3,34.0	)%

Net (loss) income	$	(117,696	)	$	23,209	$	(140,905	)	(607.1	)%

Basic (loss) earnings per share	$	(3.35	)	$	0.65	$	(4.00	)	(615.4	)%

Diluted (loss) earnings per share	$	(3.35	)	$	0.62	$	(3.97	)	(640.3	)%

Net Interest Income

Yields Earned and Rates Paid. The following table sets forth certain information relating to the categories of BankUnited’s interest-earning assets and interest-bearing liabilities for the periods indicated. All yield and rate information is calculated on an annualized basis by dividing the income or expense item for the period by the average balances during the period of the appropriate balance sheet item. Net interest margin is calculated by dividing net interest income by average interest-earning assets. Net interest spread is the difference between the yield earned on average interest-earning assets and the rate paid on average on interest-bearing liabilities. Non-accrual loans are included for the appropriate periods, whereas recognition of interest on such loans is discontinued and any remaining accrued interest receivable is reversed, in conformity with generally accepted accounting principles and Federal regulations. The yields and net interest margins in the following table have been calculated on a pre-tax basis.


	For the Three Months Ended June 30,
	2008							2007
	Average Balance			Interest		Yield/ Rate		Average Balance			Interest		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net(1)(2)	$	12,329,474		$	179,377	5.83	%	$	12,108,310		$	220,886	7.30	%
Mortgage-backed securities		706,917			10,210	5.78	%		1,022,120			12,071	4.72	%
Short-term investments(3)		568,947			2,725	1.93	%		33,954			469	5.53	%
Investment securities and FHLB stock		391,525			5,247	5.38	%		458,809			6,645	5.80	%

Total interest-earning assets		13,996,863			197,559	5.65	%		13,623,193			240,071	7.05	%

Interest-bearing liabilities:
Transaction and money market		888,853			5,842	2.64	%		537,571			4,403	3.29	%
Savings		1,343,834			9,472	2.83	%		1,488,599			17,154	4.62	%
Certificates of deposits		4,956,180			53,173	4.32	%		4,387,516			55,848	5.11	%
Trust preferred securities and subordinated debentures(4)		237,261			3,221	5.43	%		247,202			5,074	8.21	%
Senior notes(5)(6)		316,500			4,495	5.68	%		248,088			3,428	5.53	%
FHLB advances and other borrowings		5,649,493			62,755	4.47	%		5,748,238			72,185	5.04	%

Total interest-bearing liabilities		13,392,121			138,958	4.17	%	$	12,657,214		$	158,092	5.01	%

Excess of interest-earning assets over interest-bearing liabilities	$	604,742						$	965,979

Net interest income				$	58,601						$	81,979

Interest rate spread						1.48	%						2.04	%
Effect of non-interest bearing sources						0.18	%						0.36	%

Net interest margin						1.66	%						2.40	%

Ratio of interest-earning assets to interest-bearing liabilities		104.52	%						107.63	%

Note: The yields and rates along with the corresponding interest rate spread and net interest margin represent the yields earned and rates paid on BankUnited’s interest-earning assets and interest-bearing liabilities, respectively, for the periods presented. Loan yields reflect any acceleration of premium amortization or discount accretion resulting from early repayment of loans during the year.

(1)

Includes average balances of loans held for sale of $130.9 million and $73.9 million including allowance for loan losses for the quarters ended June 30, 2008 and 2007, respectively. Interest income arising from loans held for sale is included in interest on loans and fees in BankUnited’s consolidated statement of operations, as well as BankUnited’s calculations of interest rate spread and net interest margin. Also includes average balances of non-accruing loans of $816.0 million and $99.6 million for the quarters ended June 30, 2008 and 2007, respectively.

(2)	Interest on loans receivable includes $22.3 million and $46.4 million for the three months ended June 30, 2008 and 2007, respectively, arising from negative amortization of payment option loans.

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

(4)	Includes the effect of interest rate caps. See Note (9) Accounting for Derivatives and Hedging Activities to Condensed Notes to Consolidated Financial Statements.

(5)	Includes convertible senior notes. Rates on these instruments differ from contractual terms due to the amortization of deferred cost.

(6)	Includes HIMEDS Units, senior notes and junior subordinated debentures.

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


	For the Three-Month Period Ended June 30, 2008 vs. 2007
	Increase (Decrease) Due to						Total Increase/ (Decrease)
	Changes in Volume			Changes in Rate			Total Increase/ (Decrease)
	(Dollars in thousands)
Interest income attributable to:
Loans receivable, net (1)	$	(6,311	)	$	(35,198	)	$	(41,509	)
Mortgage-backed securities		(3,723	)		1,862			(1,861	)
Short-term investments (2)		7,360			(5,104	)		2,256
Investment securities and FHLB stock		(920	)		(478	)		(1,398	)

Total interest-earning assets		(3,594	)		(38,918	)		(42,512	)

Interest expense attributable to:
Transaction and money market		2,869			(1,430	)		1,439
Savings		(1,664	)		(6,018	)		(7,682	)
Certificates of deposit		7,219			(9,894	)		(2,675	)
Trust preferred securities and subordinated debentures (3)		(204	)		(1,649	)		(1,853	)
Senior notes (4)		945			122			1,067
FHLB advances and other borrowings (3)		(1,237	)		(8,193	)		(9,430	)

Total interest-bearing liabilities		7,928			(27,062	)		(19,134	)

Decrease in net interest income	$	(11,522	)	$	(11,856	)	$	(23,378	)

(1)	Includes interest earned on loans held for sale.

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

(3)	Includes the effect of interest rate caps. See Note (9) Accounting for Derivatives and Hedging Activities to Condensed Notes to Consolidated Financial Statements.

(4)	Includes interest expense on convertible senior notes issued in February and March 2004, and interest expense on senior notes outstanding up until their maturity in February 2034.

Net Interest Income. Net interest income is the most significant component of our revenue. Net interest income is dependent on loan demand and our ability to obtain deposits and borrowings. Movements in interest rates and pricing pressure from competitors can have a significant impact on our balance sheet volume and net interest income. BankUnited manages net interest income through its asset and liability management practices.

Net interest income before provision for loan losses was $58.6 million for the quarter ended June 30, 2008. This represents a decrease of $23.4 million, or 28.5%, from the $82.0 million reported for the same quarter of fiscal 2007. The net interest margin decreased in the quarter ended June 30, 2008 to 1.66% from 2.40% for the same quarter of fiscal year 2007. The overall yield on interest-earning assets decreased by 140 basis points, while the overall rates paid on interest-bearing liabilities decreased by 84

basis points, resulting in a decrease in the interest rate spread of 56 basis points for the quarter ended June 30, 2008 as compared to the same quarter of fiscal year 2007. Interest income on loans includes deferred interest on payment option loans where periodic payments do not cover the amount of interest earned contractually and where the uncollected interest is added to the principal balance of the loans. Deferred interest included in interest income amounted to $22.1 million and $46.0 million for the three months ended June 30, 2008 and 2007, respectively. Deferred interest resulting in negative amortization, where the loan balance exceeds the original loan balance, amounted to $376.3 million at June 30, 2008 compared to $222.1 million at June 30, 2007.

Declining overall market interest rates including the Monthly Treasury Average, or “MTA,” and growth in non-performing loans have significantly reduced net interest income and the net interest margin. The MTA index is the twelve-month moving average of the monthly average yield on U.S. Treasury Securities with a constant maturity of one year. Partially offsetting the decrease in net interest margin is the increase in average earning assets at June 30, 2008 by $373.7 million, or 2.7% compared to the quarter ended June 30, 2007. The increase in average earning assets was centered in higher average loans receivable that represent 88% of earning assets at June 30, 2008 as compared to 89% at June 30, 2007. Based on the previously discussed strategy of reducing significantly our residential mortgage business and the size of our balance sheet and the growth restrictions imposed by the OTS, we expect our average earning assets to decrease in the next 12 months.

The net interest margin declined to 1.66% for the quarter ended June 30, 2008 from 2.40% for the same quarter of fiscal 2007. The change in net interest income, net interest spread and net interest margin was mainly due to the increased cost of interest-bearing liabilities, the decrease in the yield on loans and the effect on rates of the lower MTA and non-performing loans. The yield on loans was also adversely impacted by the level of nonaccrual loans, which averaged $816.0 million for the three months ended June 30, 2008, compared to $99.6 million for the three months ended June 30, 2007. The higher level of non-accrual loans resulted in an adverse impact of approximately 70 basis points on the net interest margin. Interest income reversed due to loans being on nonaccrual status amounted to $12.0 million for the three months ended June 30, 2008, compared to $1.0 million for the three months ended June 30, 2007.

Other factors affecting the yield decrease on assets include prepayment fees that decreased from $5.9 million for the quarter ended June 30, 2007 to $1.6 million for the quarter ended June 30, 2008. Prepayments on residential mortgage loans reduce loan interest income as the net deferred cost amortization is accelerated with the prepayment. For the quarter ended June 30, 2008, the constant prepayment rate (“CPR”) was 10.5% as compared to 16.0% for the quarter ended June 30, 2007. The slower prepayment rate partially offset the decrease in the net interest margin for the year.

Provision for Loan Losses

The provision for loan losses was $130 million for the three months ended June 30, 2008, compared to $4.4 million for the three months ended June 30, 2007 and reflects the amount estimated to be required to record the allowance for loan losses at a level deemed adequate to cover probable losses on loans at June 30, 2008. The provision largely reflected severe deterioration in the residential housing market, particularly in specific markets in California and Florida. Management updates the assumptions used in the model to incorporate multiple and more precise factors regarding consumer behavior, housing price deterioration and increased foreclosures. Total nonperforming assets, including loans held for sale, were $1.1 billion, or 7.79% of total assets at June 30, 2008 compared to $682 million, or 4.75% of total assets at March 31, 2008, $431 million, or 2.99%, at December 31, 2007, $209 million, or 1.39% at September 30, 2007 and $124.5 million, or .86% at June 30, 2007. Payment option loans represented the majority of the increase, amounting to $150 million at September 30, 2007, and $793 million at June 30, 2008. Increases in residential real estate-related nonperforming assets due to the effects of the weakened housing industry, housing price deterioration, and consumer behavior, especially with respect to payment option loans, contributed to the level of provision. See discussion in Overview, Asset Quality and Note (5) Loans Receivable to the Consolidated Financial Statements for information on BankUnited’s allowance for loan losses.

Non-interest Income

The following table provides a comparison for each of the categories of non-interest income for the quarters ended June 30, 2008 and 2007.


	For the Three Months Ended June 30,						Increase/(Decrease)
	2008			2007			$			%
	(Dollars in thousands)
Non-interest income(loss):
Loan servicing fees	$	1,379		$	1,769		$	(390	)	(22.0	)%
Amortization of mortgage servicing rights		(1,429	)		(945	)		(484	)	(51.2	)
Loan fees		1,160			1,387			(227	)	(16.4	)
Deposit fees		1,839			1,447			392		27.1
Other fees		658			759			(101	)	(13.3	)
Other-than-temporary impairment on investment securities (1)		(25,140	)		—			(25,140	)	n.a.
Net gain on sale of loans and other assets		1,617			505			1,112		220.2
Insurance and investment services income		1,829			1,687			142		8.4
Loss on loans held for sale(1)		(1,554	)		—			(1,554	)	n.a.
Other		1,401			1,731			(330	)	(19.1	)

Total non-interest (loss) income	$	(18,240	)	$	8,340		$	(26,580	)	(318.7	)%

(1)	n.a. means not applicable.

During the quarter ended June 30, 2008, BankUnited recorded other-than-temporary impairment charges of $25.1 million, including $800 thousand relating to subordinated bank debt and $24.3 million relating to certain mortgage-backed securities. Each of these securities has had significant unrealized losses for the past 12 months. Future evaluation of these securities and other securities which had temporary declines in value as of June 30, 2008 could lead to a finding of additional other-than-temporary impairments.

The subordinated debt was written down to market value due to uncertainty of the timing and potential for market recovery of the issuers, which are financial institutions. The mortgage-backed securities represent two subordinate classes of BankUnited’s 2005 securitization. Based on cash flow projections of the underlying mortgages as of June 30, 2008, and assuming that current loss trends continue, BankUnited estimated that loss projections could significantly erode the value of these subordinate classes. As of June 30, 2008, BankUnited continued to hold securities with an aggregate fair value of $117 million and unrealized losses of $16.2 million arising from the 2005 securitization. BankUnited reviewed the projected losses, cash flows, and coverage levels of these securities. Additionally, the length of time these securities have had unrealized losses was considered. Based on the conclusion that cash flows are adequate to fully amortize these securities and BankUnited’s ability and intent to hold them until recovery, which could be to maturity, the securities were not deemed other than temporarily impaired as of June 30, 2008.

Net gain on the sale of loans of $1.6 million for the quarter ended June 30, 2008 represented a $1.1 million increase from the gain reported for the quarter ended June 30, 2007 as a result of higher number of loans sold in the secondary markets in an effort to reduce the size of the balance sheet. For the three months ended June 30, 2008, we did not sell any option ARM loans because of reduced demand in the secondary market for these loans beginning in fiscal 2007. However, we continue to originate fixed and adjustable loan products for sale in the secondary market to government sponsored entities and other conduits. During the three months ended June 30, 2008, we sold $330.8 million of conforming agency loans to government sponsored entities compared to $82.6 million for the three months ended June 30, 2007.

Loan servicing fee income, net of amortization and impairment, decreased by $874 thousand for the quarter ended June 30, 2008 from the quarter ended June 30, 2007.

Non-Interest Expense

The following table provides a comparison for each of the categories of non-interest expense for the quarters ended June 30, 2008 and 2007:


	For the Three Months Ended June 30,				Increase/(Decrease)
	2008		2007		$			%
	(Dollars in thousands)
Non-interest expense:
Employee compensation and benefits	$	26,993	$	26,283	$	710		2.7	%
Occupancy and equipment		10,352		9,735		617		6.3
Telecommunications and data processing		3,247		3,248		(1	)	0.0
Real estate owned expenses (1)		3,799		15		3,784		n.a.
Professional fees		3,676		1,984		1,692		85.3
Advertising and promotion expense		1,475		2,317		(842	)	(36.3	)
Other operating expenses		7,092		6,914		178		2.6

Total non-interest expense	$	56,634	$	50,496	$	6,138		12.2	%

(1) n.a. means non applicable

Non-interest expense increased by $6.1 million, or 12.2%, for the third quarter of fiscal 2008 compared to the same quarter in fiscal 2007. Employee compensation and benefits increased slightly due to increased costs associated primarily with loss mitigation and asset conservation staff, partly offset by reductions in other areas, including wholesale lending. The increase in professional fees of $1.7 million, or 85.3%, from the third quarter of fiscal 2007, is primarily the result of higher legal fees associated with foreclosure activities.

Real estate owned (“REO”) expenses include operating costs, write downs to fair value subsequent to repossession and gain or loss on the disposition of real estate acquired through foreclosure. These costs have increased due to the increased volume of foreclosures and are likely to continue to increase throughout fiscal year 2008 and 2009. REO amounted to $117.3 million, $27.7 million, and $7.4 million at June 30, 2008, September 30, 2007 and June 30, 2007, respectively. BankUnited’s special assets default division is responsible for loss mitigation, collections, REO operations and other aspects of residential lending activities. Compensation and other expenses, excluding REO expenses totaled $3.2 million for the three months ended June 30, 2008 compared to $524 thousand for the three months ended June 30, 2007. Expenses associated with the special assets default division are expected to continue to increase in future periods as nonperforming assets increase.

(Benefit) Provision for Income Tax

At June 30, 2008, BankUnited had deferred tax assets, before valuation allowance, of $103.3 million. BankUnited’s deferred tax asset resulted from a significant increase in its allowance for loan losses and the recognition of other-than-temporary impairment on certain securities. BankUnited recorded a valuation allowance of $51.1 million against its deferred tax asset as of June 30, 2008, after considering all available evidence related to the amount of the tax asset that is more likely than not to be realized. The valuation allowance includes $34.5 million recorded in the net loss for the three and nine months ended June 30, 2008, and $16.6 million included in other comprehensive income for the same period. Primarily due to the recording of the valuation allowance, the effective tax rate for the three months ended June 30, 2008 was 20%, compared to 34% for the three months ended June 30, 2007.

For the Nine Months Ended June 30, 2008 Compared to the Same Period in 2007

General

Net loss for the nine months ended June 30, 2008 was $209.0 million compared to net income of $75.0 million for the same period last year. Basic and diluted loss was $5.96 per share, for the nine-month period of 2008, compared to earnings of $2.06 and $1.97 per share, respectively, for the same period last year. Significant contributing factors to the change in operating results include a higher provision for loan losses, lower net interest margin, and higher provisions for other-than-temporary impairment on certain securities.

The following table is a condensed version of BankUnited’s Consolidated Statements of Income for the periods presented.


	For the Nine Months ended June 30,					Increase/(Decrease)
	2008			2007		$			%
	(In thousands, except per share amounts)
Net interest income	$	204,523		$	243,115	$	(38,592	)	(15.9	)%
Provision for loan losses		293,000			12,400		280,600		2,262.9
Non-interest income		21,841			30,081		(8,240	)	(27.4	)
Impairment of securities		(51,667	)		—		(51,667	)	n.a.
Non-interest expense		168,822			146,869		21,953		14.9

Income before taxes		(287,125	)		113,927		(401,052	)	(352.0	)
Income taxes		(78,145	)		38,946		(117,091	)	(300.6	)

Net income	$	(208,980	)	$	74,981	$	(283,961	)	(378.7	)%

Basic (loss) earnings per share	$	(5.96	)	$	2.06	$	(8.02	)	(389.4	)%

Diluted (loss) earnings per share	$	(5.96	)	$	1.97	$	(7.93	)	(402.6	)%

Analysis of Net Interest Income

Yields Earned and Rates Paid

The following table sets forth certain information relating to the categories of BankUnited’s interest-earning assets and interest-bearing liabilities for the periods indicated. All yield and rate information is calculated on an annualized basis by dividing the income or expense item for the period by the average balances during the period for the appropriate balance sheet item. Net interest margin is calculated by dividing net interest income by average interest-earning assets. Net interest spread is the difference between the yield earned on average interest-earning assets and the rate paid on average interest-bearing liabilities. Non-accrual loans are included for the appropriate periods, whereas recognition of interest on such loans is discontinued and any remaining accrued interest receivable is reversed, in conformity with generally accepted accounting principles and Federal regulations. The yields and net interest margins appearing in the following table have been calculated on a pre-tax basis.


	For the Nine Months Ended June 30,
	2008							2007
	Average Balance			Interest		Yield/ Rate		Average Balance			Interest		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net(1)(2)	$	12,545,195		$	603,288	6.41	%	$	11,918,534		$	648,941	7.26	%
Mortgage-backed securities		802,157			33,053	5.49	%		1,108,380			39,178	4.71	%
Short-term investments(3)		242,229			4,295	2.37	%		35,152			1,396	5.31	%
Investment securities and FHLB stock		428,817			18,236	5.68	%		513,782			21,426	5.57	%

Total interest-earning assets		14,018,398			658,872	6.27	%		13,575,848			710,941	6.99	%

Interest-bearing liabilities:
Transaction and money market		737,095			16,846	3.05	%		492,760			11,715	3.18	%
Savings		1,456,294			41,124	3.77	%		1,414,146			47,867	4.53	%
Certificates of deposits		4,651,191			164,379	4.72	%		4,240,358			159,882	5.04	%
Trust preferred securities and subordinated debentures(4)		237,261			12,226	6.87	%		248,285			15,939	8.56	%
Senior notes(5)(6)		316,500			13,627	5.74	%		162,696			5,561	4.56	%
FHLB advances and other borrowings		5,859,539			206,147	4.70	%		6,053,776			226,862	5.01	%

Total interest-bearing liabilities	$	13,257,880		$	454,349	4.58	%	$	12,612,021		$	467,826	4.96	%

Excess of interest-earning assets over interest-bearing liabilities	$	760,518						$	963,827

Net interest income				$	204,523						$	243,115

Interest rate spread						1.69	%						2.03	%
Effect of non-interest bearing sources						0.25	%						0.35	%

Net interest margin						1.94	%						2.38	%

Ratio of interest-earning assets to interest-bearing liabilities		105.74	%						107.64	%

Note: The yields and rates along with the corresponding interest rate spread and net interest margin represent the yields earned and rates paid on BankUnited’s interest-earning assets and interest-bearing liabilities, respectively, for the periods presented. Loan yields reflect any acceleration of premium, amortization or discount accretion resulting from early repayment of loans during the year.

(1)

Includes average balances of loans held for sale of $155.9 million and $186.2 million including allowance for loan losses for the nine months ended June 30, 2008 and 2007, respectively. Interest income arising from loans held for sale is included in interest on loans and fees in BankUnited’s consolidated statement of operations as well as BankUnited’s calculations of interest rate spread and net interest margin. Also includes average non-accruing loans of $550.3 million and $66.2 million for the nine months ended June 30, 2008 and 2007, respectively.

(2)	Interest on loans receivable includes $106.0 million and $133.3 million for the nine months ended June 30, 2008 and 2007, respectively, arising from negative amortization of payment option loans.

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

(4)	Includes the effect of interest rate caps. See Note (9) Accounting for Derivatives and Hedging Activities to Condensed Notes to Consolidated Financial Statements.

(5)	Includes convertible senior notes. Rates on these instruments differ from contractual terms due to the amortization of deferred cost.

(6)	Includes HIMEDS Units, senior notes and junior subordinated debentures.

Rate/Volume Analysis

The following table presents, for the periods indicated, the changes in interest income and the changes in interest expense attributable to the changes in interest rates and the changes in the volume of interest-earning assets and interest-bearing liabilities. Changes attributable to: (i) changes in volume (change in volume multiplied by prior year rate); (ii) changes in rate (change in rate multiplied by prior year volume); and (iii) changes in rate/volume (change in rate multiplied by change in volume, which were allocated to the changes in rate), were as follows:


	For the Nine Month Period Ended June 30, 2008 vs. 2007
	Increase (Decrease) Due to						Total Increase/ (Decrease)
	Changes in Volume			Changes in Rate			Total Increase/ (Decrease)
	(Dollars in thousands)
Interest income attributable to:
Loans receivable, net (1)	$	12,567		$	(58,220	)	$	(45,653	)
Mortgage-backed securities		(10,824	)		4,699			(6,125	)
Short-term investments (2)		8,231			(5,332	)		2,899
Investment securities and FHLB stock		(3,223	)		33			(3,190	)

Total interest-earning assets		6,751			(58,820	)		(52,069	)

Interest expense attributable to:
Transaction and money market		5,814			(683	)		5,131
Savings		1,428			(8,171	)		(6,743	)
Certificates of deposit		15,505			(11,008	)		4,497
Trust Preferred Securities and subordinated debentures (3)		(708	)		(3,005	)		(3,713	)
Senior notes (4)		5,257			2,809			8,066
FHLB advances and other borrowings (3)		(7,286	)		(13,429	)		(20,715	)

Total interest-bearing liabilities		20,010			(33,487	)		(13,477	)

Decrease in net interest income	$	(13,259	)	$	(25,333	)	$	(38,592	)

(1)	Includes interest earned on loans held for sale.

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

(3)	Includes the effect of interest rate caps. See Note (9) Accounting for Derivatives and Hedging Activities to Condensed Notes to Consolidated Financial Statements.

(4)	Includes interest expense on convertible senior notes issued in February and March 2004, and interest expense on senior notes outstanding up until their maturity in February 2034.

Net Interest Income. Net interest income before provision for loan losses was $204.5 million for the nine months ended June 30, 2008, decreasing by $38.6 million, or 15.9%, from $243.1 million for the same period in 2007. The net interest margin decreased to 1.94% for the period, from 2.38% for the same fiscal period in fiscal 2007. The overall yield on interest-earning assets decreased by 72 basis points, while the overall rates paid on interest-bearing liabilities decreased by 38 basis points, resulting in a decrease in the interest rate spread of 34 basis points for the nine months ended June 30, 2008 compared to the same period in fiscal 2007.

The decrease in net interest income is attributable primarily to the lower yield on interest-earning assets. This decrease was affected further by an increase in average nonaccrual loans of $484.1 million. Average earning assets for the nine-month period increased by $442.6 million, or 3.3%, from the same period of fiscal 2007. Growth was centered in loans, which are the highest-yielding earning assets. Average loans receivable represented 89.5% of earning assets for the nine months ended June 30, 2008 as compared to 87.8% in the same period in fiscal 2007. (Please see “Liquidity and Capital Resource” section for further discussion on liabilities).

Interest income attributable to loans receivable for the nine months ended June 30, 2008 decreased $45.7 million compared to the same period in fiscal 2007. Of the $603.3 million interest income attributable to loans receivable for the nine months ended June 30, 2008, $104.9 million was derived from deferred interest. This compares with $648.9 million in interest income attributable to loans receivable for the nine months ended June 30, 2007, of which $132.8 million was derived from deferred interest.

The net interest margin fell to 1.94% for the nine months ended June 30, 2008 from 2.38% for the same period in fiscal 2007. Declining overall market rates and growth in non-performing loans resulted in a 15.9% decrease in net interest income. The yield on loans receivable declined by 85 basis points, and was the most significant contributing factor to the decline in net interest income. The higher level of non-accrual loans resulted in an adverse impact of approximately 44 basis points on the net interest margin. Interest income reversed due to loans being on non-accrual status totaled $26.8 million and $2.2 million for the nine months ended June 30, 2008 and 2007, respectively. Higher average earning assets in 2008 compared to 2007, and lower utilization of less expensive FHLB advances, partly offset the decline in interest income from loans.

Other factors affecting the yield decline on assets included prepayment fees on loans that decreased to $6.7 million for the nine-month period ended June 30, 2008 from $17.9 million for the nine-month period ended June 30, 2007. Prepayments on residential mortgage loans reduce loan interest income as the net deferred cost amortization is accelerated with the prepayment. For the nine months ended June 30, 2008, the CPR was 10.19% as compared to 15.5% for the nine months ended June 30, 2007.

Provision for Loan Losses

BankUnited records a provision for loan losses as a charge to income in amounts necessary to adjust the allowance for loan losses as determined by management through its review of asset quality. The provision for loan losses was $293

million and $12.4 million for the nine-month periods ended June 30, 2008 and 2007, respectively. Total non-performing loans, including loans held for sale were $982.3 million at June 30, 2008, compared to $180.8 million at September 30, 2007. Payment option non-performing loans increased from $150 million at September 30, 2007 to $793 million at June 30, 2008. Severe deterioration in the residential housing markets over the past four quarters, particularly in Florida and California, have resulted in higher foreclosures and housing price declines. See Asset Quality for information on BankUnited’s allowance for loan losses.

Analysis of Non-Interest Income and Expenses


	For the Nine Months Ended June 30,						Increase/(Decrease)
	2008			2007			$			%
	(Dollars in thousands)
Non-interest income(loss):
Loan servicing fees	$	4,218		$	5,498		$	(1,280	)	(23.3	)%
Amortization of mortgage servicing rights		(4,014	)		(2,614	)		(1,400	)	(53.6	)
Impairment of mortgage servicing rights		(3,259	)		(965	)		(2,294	)	(237.7	)
Loan fees		3,593			3,726			(133	)	(3.6	)
Deposit fees		5,157			4,431			726		16.4
Other fees		2,045			2,127			(82	)	(3.9	)
Net gain (loss) on sale of investments and mortgage-backed securities		341			(524	)		865		(165.1	)
Other-than-temporary impairment on investment securities(1)		(51,667	)		—			(51,677	)	n.a
Net gain on sale of loans and other assets		5,982			9,575			(3,593	)	(37.5	)
Insurance and investment services income		5,223			3,959			1,264		31.9
Losses on swaps(1)		—			(318	)		(318	)	n.a
Losses on loans held for sale(1)		(3,571	)		—			(3,571	)	n.a
Other		6,126			5,186			940		18.1

Total non-interest income (loss)	$	(29,826	)	$	30,081		$	(59,907	)	(199.2	)%

(1)	n.a. means not applicable.

Total non-interest income for the nine-month period ended June 30, 2008, includes other-than-temporary impairment charges of $51.7 million. Excluding other-than-temporary impairment, non-interest income for the nine-months ended June 30, 2008 was $21.8 million and reflects a decrease of $8.2 million or 27.4% from the same period in fiscal 2007.

BankUnited’s portfolio of residential loans serviced for others was $2.1 billion as of June 30, 2008 compared to $1.5 billion as of June 30, 2007. Servicing fee income net of amortization and impairment was a net loss of $3.1 million for the nine-month period ended June 30, 2008, and a net gain of $1.9 million for the nine-month period ended June 30, 2007.

Loan fees, deposit fees and other fees were $10.8 million for the nine-month period ended June 30, 2008, up 5% from $10.3 million for the same period in fiscal 2007.

During the nine months ended June 30, 2008, BankUnited recorded other-than-temporary impairment charges of $51.7 million, including $8.9 million relating to certain preferred stock, $40.5 million relating to certain mortgage-backed securities, $1.3 million relating to certain corporate debt securities and $1.0 million relating to subordinated bank debt and other securities. Each of these securities has had significant unrealized losses for the past 12 months. Evaluation in the future of these securities and other securities which had temporary declines in value as of June 30, 2008 could lead to a determination that additional other-than-temporary impairments could occur.

The preferred stock was written down to its then current market value as of March 31, 2008 due to uncertainty of the timing and potential for market recovery of the issuers, which include two government sponsored entities and two financial institutions. The mortgage-backed securities represent several subordinate classes of BankUnited’s 2005 securitization. Based on cash flow projections of the underlying mortgages as of June 30, 2008, and assuming that current loss trends continue, BankUnited estimated that loss projections could completely erode the value of the two most subordinate classes, and significantly erode the remaining subordinate classes. As of June 30, 2008, BankUnited continued to hold securities with an aggregate fair value of $117 million and unrealized losses of $16.2 million arising from the 2005 securitization. BankUnited reviewed the projected losses, cash flows, and coverage levels of these securities. Additionally, the length of time these securities have had unrealized losses was considered. Based on the conclusion that cash flows are adequate to fully amortize these securities and BankUnited’s ability and intent to hold them until recovery, which could be maturity, they were not deemed other than temporarily impaired as of June 30, 2008.

Net gain on the sale of loans, was $6.0 million for the nine months ended June 30, 2008 compared to $9.6 million for the nine months ended June 30, 2007. BankUnited sold $988.7 million of residential loans during the nine months ended June 30, 2008, compared to $1 billion during the nine months ended June 30, 2007.


	For the Nine Months Ended June 30,				Increase/(Decrease)
	2008		2007		$			%
	(Dollars in thousands)
Non-interest expense:
Employee compensation and benefits	$	81,411	$	77,121	$	4,290		5.6	%
Occupancy and equipment		31,325		27,842		3,483		12.5
Telecommunications and data processing		10,061		9,011		1,050		11.7
Real estate owned expenses		7,234		79		7,155		9,057.0
Advertising and promotion expense		4,507		6,335		(1,828	)	(28.9	)
Professional fees		10,056		5,443		4,613		84.8
Other operating expenses		24,228		21,038		3,190		15.2

Total non-interest expense	$	168,822	$	146,869	$	21,953		14.9	%

Non-interest expense increased by $22.0 million, or 14.9%, for the nine months ended June 30, 2008, compared to the same period in fiscal 2007. This increase reflects the Company’s prior rapid expansion of its branch network and operations support. The branch network grew to 86 branches at June 30, 2008, from 83 branches at June 30, 2007. Also, employee compensation and benefits costs reflect the impact of lower loan originations in fiscal 2008 compared to fiscal 2007. As a result, fewer costs are deferred as a component of loans originated. The increase in professional fees of $4.6 million, or 84.8%, from the nine months ended June 30, 2007, is primarily the result of higher legal fees associated with foreclosure activity.

REO expenses include operating costs, write downs to fair value subsequent to repossession and gain or loss on the disposition of real estate required through foreclosure. These costs increased $7.2 million during the nine months ended June 30, 2008, compared to the same period in 2007, due to the increased volume of foreclosures, which are likely to continue to increase throughout fiscal year 2008 and 2009. REO amounted to $117.3 million, $27.7 million, and $7.4 million at June 30, 2008, September 30, 2007, and June 30, 2007, respectively. Expenses attributable to the activities of the special assets default division, excluding REO expenses, totaled $7.4 million for the nine months ended June 30, 2008 compared to $1.2 million for the nine months ended June 30, 2007. These expenses are expected to increase in the future as nonperforming assets increase.

(Benefit) Provision for Income Tax

The effective tax rate for the nine months ended June 30, 2008 was 27%, compared to 34% for the nine months ended June 30, 2007 primarily due to the recording of a valuation allowance for the deferred tax asset. BankUnited’s deferred tax asset before the valuation allowance amounted to $103.3 million as of June 30, 2008 and resulted from a significant increase in its allowance for loan losses and the recognition of other-than-temporary impairment on certain securities. BankUnited has recorded a valuation allowance of $51.1 million against its deferred tax asset as of June 30, 2008, after considering all available evidence related to the amount of the tax asset that is more likely than not to be realized.

LIQUIDITY

Sources and Uses of Funds

BankUnited’s primary sources of funds during the third quarter of fiscal 2008 included deposits gathered through its retail branch network or wholesale sources, advances from the FHLB, proceeds from the sale of loans or mortgage-backed securities, and scheduled repayments of loans and securities. Our principal uses of funds include the funding of new loans and repayment of borrowings.

During the nine months ended June 30, 2008, net cash provided by BankUnited’s investing activities totaled $1.3 billion, compared to a net use of cash of $383 million for the nine months ended June 30, 2007. In fiscal 2008 compared to fiscal 2007, in reaction to the changes in the residential mortgage environment, mortgage originations decreased and the Company placed greater emphasis on the origination of saleable conforming agency loans instead of originations for its portfolio. Total originations were $1.9 billion for the nine months ended June 30, 2008 compared to $3.6 billion during the comparable period in 2007. Net originations for portfolio provided $198 million for the nine months ended June 30, 2008, compared to a net use for originations of $858 million for the nine months ended June 30, 2007. BankUnited generated proceeds from the sale of mortgage-backed securities of $734 million for the nine months ended June 30, 2008, compared to $170 million for the nine months ended June 30, 2007.

Net cash used in financing activities amounted to $662 million for the nine months ended June 30, 2008, compared to net cash provided from financing activities of $824 million for the nine months ended June 30, 2007. As a result of fewer loan originations, and a growth in deposits, BankUnited had a reduced need for financing during the nine months ended June 30, 2008. For the nine months ended June 30, 2008, net repayments of short- and long-term FHLB advances totaled $1.1 billion, compared to net borrowings of $560 million in 2007.

Liquidity and Capital Resources

BankUnited’s objective in managing liquidity is to maintain sufficient sources of available liquid assets to address both short and long-term business funding needs such as loan demand, investment purchases, deposit fluctuations and debt service requirements. In so doing, BankUnited seeks to maintain an overall liquidity position that has an aggregate amount of readily accessible and marketable assets (which includes cash and cash equivalents), cash flow and borrowing capacity to meet normal expected deposit outflow and/or increases in loan demand. Actual levels of cash and cash equivalents may vary, but are managed in conjunction with holdings of other liquid assets, borrowings, and deposit gathering capacity. Long-term liquidity planning considers the anticipated rate of loan prepayments and possible defaults and foreclosure, with the goal of meeting the projected needs of business operations as well as funding needs.

Current market conditions have resulted in increased concerns from investors, customers, regulators and lenders regarding liquidity. As a result of these market conditions, the Bank has agreed with the OTS to, among other things, enhance its monitoring and internal reporting to regulators on liquidity strength. As part of this process, the Bank has specifically increased its holdings of cash and cash equivalents and has initiated steps to diversify its funding sources. We had accumulated $863 million of cash and cash equivalents as of August 15, 2008 to meet our funding needs.

As of June 30, 2008, outside of deposits, our principal funding source was borrowings at the FHLB. As of June 30, 2008, total advances and letters of credit from the FHLB were $5.1 billion and $155 million, respectively. The Bank had pledged $9.2 billion of loans and securities to the FHLB and after adjustments for collateral requirements total borrowing capacity was $6.1 billion. After outstanding advances and letters of credit, the Bank had available borrowing capacity of $775 million at the FHLB at June 30, 2008 compared to $1.1 billion as of March 31, 2008 and $850 million as of September 30, 2007. The decrease in borrowing capacity at June 30, 2008 primarily reflects the impact of an increase in applicable collateral requirements that went into effect during the quarter.

During the quarter, we increased our collateral at the FHLB by $317 million. In July, we initiated $150 million of new FHLB term borrowings. Additionally, the Bank increased its letter of credit with the FHLB to support municipal and state deposits by $190 million. As a result, outstanding borrowings and letters of credit increased to $5.62 billion. We extended the maturities of a portion of our advance portfolio through several transactions in July. The maturity terms of $1.1 billion of advances were extended by an additional one to three years. As a result of the extensions, at August 15, 2008, inclusive of the $275 million of FHLB advances maturing through December 31, 2008, we have $1.1 billion of advances maturing through June 30, 2009.

Subsequent to June 30, 2008, the FHLB commenced a review of our borrowing capacity, which is ongoing. As of August 15, 2008, our stated borrowing capacity at the FHLB was $627.7 million; however, we have been advised that we have access only to $25.6 million of this capacity. The FHLB has further advised us that it has changed its position regarding collateral held by affiliates, and that $736 million of pledged collateral from our affiliated REIT may not be eligible to support borrowings. Management is assessing alternatives for addressing this issue. Given the foregoing, the amount of borrowing available is unclear. We do not anticipate requiring access to the FHLB line during the fourth fiscal quarter of 2008.

During the third fiscal quarter, we began to take steps to diversify our borrowings. Consequently, in April 2008, we began to acquire brokered deposits. As of June 30, 2008, we had $268 million of these deposits and the balance increased to $774 million at August 15, 2008. While brokered deposits provide an alternative funding source, OTS and FDIC regulations limit the use of brokered deposits under certain situations. Based on a recent notification, BankUnited believes that, unless it raises significant capital, the OTS will reclassify the Bank to adequately capitalized primarily due to the deterioration in the Bank’s non-traditional mortgage loan portfolio, the concentration of risk associated with that portfolio, and a resultant need for significant additional capital. Financial institutions that are classified by the regulators as adequately capitalized may only continue to accept, renew or roll over brokered deposits upon the granting of a waiver by the regulators. If the Bank is reclassified as adequately capitalized, we expect to request a waiver from the regulators. There is no guarantee that the Bank would be able to obtain a waiver or that brokers would continue to place deposits with the Bank if the Bank were reclassified as adequately capitalized.

Similarly during the third fiscal quarter, BankUnited also pledged eligible securities to the Federal Reserve representing additional borrowing capacity of $317 million as of June 30, 2008. At August 15, 2008, we had a zero balance on this line. Availability decreased to $269 million due to amortization, prepayments and increased collateral requirements applicable under the Discount Window Secondary Credit Program at August 15, 2008.

As a result of market conditions we began increasing our deposit levels, including brokered deposits, at the beginning of the quarter ended June 30, 2008. Deposits increased from $6.9 billion at March 31, 2008 to $7.6 billion at June 30, 2008 and $7.9 billion at August 15, 2008. Continued market disturbances could create additional concern among depositors, making retail deposits more costly and difficult to maintain. Nevertheless, we anticipate continuing to increase our deposit levels for liquidity purposes.

The Company entered into an agreement with the OTS to seek to raise at least $400 million of capital and to submit an alternative capital plan to be applicable if the Company is unable to raise the $400 million. The Company has already commenced various capital raising activities including the hiring of investment advisors. See the Overview section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Depending on our access to various funding sources, including the FHLB, Federal Reserve, brokered and retail deposits, and certain other sources, we may not be able to satisfy our liquidity needs and failure to do so could have a material adverse effect on BankUnited’s financial position and operations. Our borrowing capacity as of August 15, 2008 approximately $345 million.

In addition to bank liquidity, management also monitors the liquidity at the holding company. Effective June 30, 2008, the holding company contributed $80 million to the Bank leaving the holding company with cash and cash equivalents of approximately $40 million for debt service and operating expenses at August 15, 2008. If the holding company is unable to raise sufficient capital, the holding company would be dependent upon dividends from the Bank to meet its debt obligations. The OTS has restricted the payment of upstream dividends from the Bank without their prior approval, which we cannot predict will be granted at such time. If the holding company is unable to meet its debt service requirements, it may be required to take steps to address that deficiency amending the indenture governing $125 million of junior subordinated debentures and deferring payments of interest on its trust preferred securities.

In addition, there can be no guarantee that any of the measures already taken or in progress to address our liquidity needs and other OTS concerns will be successful or satisfy the concerns of the OTS, and additional restrictions may be imposed on BankUnited’s activities in the future that could have a material adverse effect on BankUnited’s financial position and results of operations.

FINANCIAL CONDITION

Assets

Investments and Mortgage-backed Securities Available for Sale

BankUnited monitors its investment in available for sale securities for other-than-temporary impairment. 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 the value of debt and equity securities classified as available for sale as of June 30, 2008 to be temporary and we have the ability and intent to hold these securities until recovery, which could be maturity. Evaluation of these securities at future dates could result in a determination that impairment as of such future dates, if any, is other than temporarily impaired.

The Company also considers ratings actions taken by any of the major credit ratings agencies in its evaluation for other than temporary impairment. As of June 30, 2008, none of the securities reviewed for other-than-temporary impairment had credit ratings lower than Aa3 by Moody’s, or AA+ by Standard & Poor’s (“S&P”). None of the securities were downgraded during the nine months ended June 30, 2008.

Mortgage-backed pass-through securities as of June 30, 2008 with unrealized losses for more than 12 months are identified in the table below.


Description	Cost Basis		Fair Value		Loss		Loss %		Rating(1)
IMSA 2003-3A		19,433		17,473		1,960	10.1	%	Aaa
WAMU 2004 –AR4 B-1		10,829		8,967		1,862	17.2	%	Aa2
BASBS 03AC3		5,842		5,146		696	11.9	%	Aaa
SASCO 2003-20 3A1		10,838		10,226		612	5.6	%	Aaa
WAMU 03 AR6 5 YRS BALLOON		7,914		7,412		502	6.3	%	Aaa
WAMMS 02-R3 5 YRS BALLOON		2,863		2,702		161	5.6	%	Aaa
SASC 2001-15 A B-1		1,739		1,645		94	5.4	%	AA+
BUMT 2005-1 IIA1		75,156		65,717		9,439	12.6	%	Aaa
BUMT 2005-1 1A3		41,815		36,845		4,970	11.9	%	Aaa
All other issues (2)		71,610		70,083		1,527	2.1	%	(2	)

	$	248,039	$	226,216	$	21,823

(1)	All ratings are by Moody’s, except SASC 2001-15 A B-1, which is by S&P’s.

(2)

Includes 20 individual securities. Eighteen of these securities had ratings of Aaa; one had a rating of Aa3. None of these ratings have been changed since September 30, 2007. Each security included in this group had unrealized losses of less than 5%. The Company considered the length and severity of the unrealized loss of each security, the individual credit ratings and any trends thereof, projected cash flows and the Company’s ability and intent to hold these securities until recovery or maturity and concluded that these unrealized losses were not other than temporary. Also includes one security with no rating. This security had an aggregate fair value and cost of approximately $4 thousand.

Historically, the Company has used third party sources to determine the fair value of its investment securities. Specifically, the Company used valuations provided by a third-party based on a proprietary model developed by the third party to determine the fair value of securities retained from the 2005 securitization. The Company has also developed a proprietary model to perform validations of the assumptions and pricing provided by the third party in order to value the most subordinate bonds of the securitization. The fair values derived from the Company’s proprietary model were found to be consistent with the third party market prices.

During the quarter ended June 30, 2008, BankUnited determined that its investments in certain mortgage-backed securities were other than temporarily impaired and recorded an impairment charge of $25.1 million to recognize the unrealized loss based on fair value as of June 30, 2008. These securities represent two subordinate classes of BankUnited’s 2005 securitization. Based on cash flow projections of the underlying mortgages as of June 30, 2008, and assuming that loss trends as of June 30, 2008 continue, BankUnited estimated that loss projections could significantly erode these subordinate classes. As of June 30, 2008, BankUnited continued to hold securities with an aggregate fair value of $117 million and unrealized losses of $16.2 million of which $1.8 million in unrealized losses were less than 12 months arising from the 2005 securitization. As of July 31, 2008, the unrealized loss on these securities increased to $28.9 million. Approximately 89% of the increase in the unrealized loss relates to securities which are rated Aaa by Moody’s. BankUnited is the servicer of these loans and has considered actual losses, reviewed the projected losses, cash flows, and coverage levels of these securities and the length of time these securities have had unrealized losses in evaluating whether they were other than temporarily impaired. Based on management’s conclusion that cash flows were adequate to fully amortize these securities and that BankUnited had the ability and intent to hold them until maturity, they were not deemed other than temporarily impaired as of June 30, 2008.

At June 30, 2008, BankUnited held preferred equity securities issued by government-sponsored entities with an aggregate fair value of $27.9 million and unrealized losses of $3.2 million. The unrealized losses arose subsequent to March 31, 2008, at which date BankUnited recorded an other-than-temporary impairment charge to reduce these securities to their then market value. Subsequent to June 30, 2008, these securities were placed on credit watch negative by S&P’s, with a rating of AA-. BankUnited will continue to evaluate these securities for other-than-temporary impairment in future periods.

At June 30, 2008 and September 30, 2007, investment and mortgage-backed securities with an aggregate fair value of approximately $150 million, and $232 million, respectively, were pledged as collateral for repurchase agreements.

Loans.

Total loans held in portfolio, net comprise the major earning asset of the Bank and decreased to $12.0 billion at June 30, 2008 from $12.6 billion at September 30, 2007. Loans are centered in first mortgage residential loans, including specialty consumer mortgages, that amounted to $10.3 billion and represented 85.8% of the net loan portfolio at June 30, 2008, a decrease of $416.4 million, or 3.9%, from September 30, 2007.

Commercial real estate loans, including multi-family, construction, and land loans, increased by $46.1 million, or 4.3% during the nine months ended June 30, 2008. Commercial loans increased by $14.4 million, or 7.7%, and home equity loans and lines of credit increased by $46.1 million, or 11.0%, during the third quarter of fiscal 2008. Other consumer loans decreased by $1.2 million, or 7.2%, during the third quarter of fiscal 2008.

BankUnited has terminated its option ARM loan programs, with minor exceptions for wealth management clients and certain limited loan modifications. BankUnited has also terminated its reduced documentation loan programs. Our current originations conform to the guidelines and terms of various FNMA and FHLMC programs to make them eligible for sale to these entities. These sales include both fixed-rate loans and option ARM loans without payment options.

Total originations of residential loans, including our specialty consumer mortgage product, totaled $335.7 million for the third quarter of fiscal 2008, down from $1.1 billion, or 68.1%, from the third quarter of fiscal 2007.

Originations of conforming agency loans totaled $243.8 million for the third quarter of fiscal 2008, up from $121.4 million for the third quarter of fiscal 2007, representing 72.6% and 11.5%, respectively, of all residential loan originations.

Originations of option ARM loans totaled $769 thousand for the third quarter of fiscal 2008, down from $786.8 million for the third quarter of fiscal 2007, representing 0.23% and 74.7%, respectively, of all residential loan originations.

While we have terminated our option ARM loan programs, with minor exceptions for loans to wealth management clients and certain limited loan modifications, and terminated originations of reduced and no documentation loans, our portfolio continues to include such loans originated in prior periods.

Total residential loans

Significant characteristics of our total residential loans at June 30, 2008 included:

•

The average outstanding balance of a one-to-four family residential loan was $293.2 thousand.

•

55% of our one-to-four family residential portfolio was concentrated in loans secured by properties located in the state of Florida.

•

43% of our one-to-four family residential loans was underwritten on borrower stated income and asset verification, 30% was based on reduced documentation and employment verified, 18% was based on full documentation and the remaining 9% was underwritten with no verification of either borrower income or assets. While these loans may represent more risk than full documentation products, we seek to mitigate that risk by requiring higher credit scores, lower loan-to-value ratios (“LTVs”), lower-debt-to-income ratios and additional employment/business information.

•

The weighted-average LTV using current balance of the residential loan portfolio and appraised value at the time of origination was 75.6% after adjusting for mortgage insurance coverage.

•

The average borrower FICO credit score at time of origination was 708.

Residential payment option loans

Significant characteristics of the payment option portfolio as of June 30, 2008 were as follows:

•

Payment option loans represented 58.1% of total loans (including loans held for sale and excluding unearned premiums, discounts and deferred loan costs and allowance for loan losses).

•

$6.5 billion, or 91.8%, of the $7.1 billion in payment option loans had negative amortization of $376 million. This amount represented 5.3% of the total payment option loans outstanding. For the three and nine months ended June 30, 2008, interest income attributable to negative amortization was $22.3 million and $106 million, respectively.

•

The weighted average LTV using current balance of the payment option portfolio and valuation at origination was 77.5% after adjusting for mortgage insurance coverage.

•

The average outstanding balance of a payment option loan in the portfolio was $328.6 thousand.

•

The average borrower FICO credit score at time of origination was 708.

Starting in February 2008, we commenced a program for identifying and reviewing loans expected to reach 115% of their original loan balance within the succeeding two quarters. These loans are evaluated by assessing credit reports to identify increases in late payments and incoming credit applications; reviewing current credit scores versus the score reported at origination; reviewing any change in employment status; and obtaining Automated Valuation Models (AVMs). AVMs are obtained on the collateral and credit scores of the borrowers are evaluated for changes since origination of the loan. This analysis is primarily done to develop loss mitigation strategies.

The contractual terms of our outstanding payment option loans limit the amount that the loan balance may increase to 115% of the original balance. At the earlier of five years or upon reaching the maximum level of negative amortization, the loan is required to be repaid on a fully amortizing basis over the remaining term. At June 30, 2008, 70.5% of our borrowers were electing a minimum payment option that generates negative amortization. As of June 30, 2008, payment option loans that had been reset are set forth below:


Period	115% Cap			Five-Year Limit			Totals
Period	#	$(1)		#	$(1)		#	$(1)
Prior to October 1, 2007	—	$	—	86	$	28,159	86	$	28,159
Quarter ended December 31, 2007	4		1,173	15		3,998	19		5,171
Quarter ended March 31, 2008	47		16,863	17		4,293	64		21,156
Quarter ended June 30, 2008	77		24,907	21		4,997	98