Is BankUnited in Worse Shape Than We Are Being Told?

Today, BankUnited released its fourth quarter earnings report and the Fiscal 2007 results. 

“It is clear that this difficult economic climate will continue. There is significant volatility in the markets, the housing sector is still in a downturn, and non-performing assets have not yet leveled off. However, we do have several things in our favor: our capital position is strong..."

“The environment will continue to be challenging. Succeeding in this type of downturn requires focus and experience – two of BankUnited’s management team’s strengths. Looking ahead, we will concentrate on achieving efficiencies in all of our business lines and absorbing the growth of the last two years. In addition, we will focus on managing delinquencies in our mortgage portfolio and implementing expense-control measures. We have built a strong Florida franchise complemented by a national mortgage lending operation, and we will continue to build upon this base.”

-Alfred Camner, BankUnited Chairman and CEO

Fairly optimistic words, coming from a bank who is looking a lot of of potentially negative exposure right now.  If we dig a little deeper into their press release, we find some grim details...

• Option ARMs are 70% of the residential loan portfolio and 60% of total loan portfolio
• $6.5B in Option ARMs had negative amortization of $270M
• Growth in negative amortization is increasing
• Total net charge-offs were up to $5.6M
• Total provision for loan loss increased to $19.1M ($4.6M last quarter)
• REO (Real Estate Owned) rose to $27.7M from $7.4M last quarter
• Allowance for loan loss was up to $58.6M
• Allowance for loan losses as percentage of total loans increased to .46%

When you look at BankUnited's residential loan portfolio, you will see stated income and no doc loans represent 51% of the total portfolio, while there is only 18% that are full doc loans.

Further digging reveals that 64% of their residential loan portfolio is negatively amortizing, and that represents 51% of their total loan portfolio.

So, since most of these negative amortizing loan holders are likely struggling to make payments and property values are dropping dramatically, the potential for losses are likely considerably higher than they reported.

The bottom line is that BankUnited may not be painting a clear picture of the reality of their situation.  They could be in a lot worse shape than we are being led to believe.