Earnings call transcript: BankUnited Q2 2025: Earnings beat expectations

BankUnited Inc. (BKU) reported its financial results for the second quarter of 2025, showcasing a significant earnings beat. The company reported net income of $69 million, or $0.91 per share, surpassing the consensus estimate of $0.79. Currently trading at a P/E ratio of 11.4x, which InvestingPro analysis indicates is low relative to near-term earnings growth, the stock appears fairly valued based on its Fair Value model. This robust performance was accompanied by a positive market reaction, with the stock price rising by 0.87% to close at $38.61, although it saw a slight decline in premarket trading.

Key Takeaways

• BankUnited’s earnings per share of $0.91 exceeded expectations by $0.12.
• The company’s net interest margin expanded by 12 basis points to 2.93%.
• BankUnited authorized a $100 million stock repurchase program.
• The company recorded a 20% year-to-date deposit growth.
• Strategic market expansion into New Jersey and Charlotte was highlighted.

Company Performance

BankUnited demonstrated strong performance in Q2 2025, with notable improvements in key financial metrics compared to both the previous quarter and the same period last year. The company’s focus on strategic market expansion and deposit growth contributed to its robust earnings. BankUnited’s expansion into New Jersey and Charlotte and its focus on profitable growth have positioned it well in a competitive banking sector.

Financial Highlights

• Revenue: Not disclosed in the earnings call.
• Net income: $69 million, or $0.91 per share, compared to consensus of $0.79.
• Return on Assets (ROA): Improved to 78 basis points from 68 basis points last quarter.
• Return on Equity (ROE): Increased to 9.4% from 8.2% last quarter.
• Net interest margin: Expanded by 12 basis points to 2.93%.

Outlook & Guidance

BankUnited anticipates continued margin expansion in the upcoming quarters, with a target of mid-3% net interest margin. The company is also expecting mid-single digit growth in core commercial and industrial (C&I) and commercial real estate (CRE) loans. Continued deposit growth and improvements in fee income are also expected.

Executive Commentary

Rajinder Singh, CEO, stated, "We’re stronger and more profitable," emphasizing the company’s focus on profitable growth. COO Thomas Cornish highlighted the competitive nature of the market, stating, "We’re fighting for every basis point."

Risks and Challenges

• Office loan portfolio challenges: Potential risks in the commercial real estate sector.
• Market saturation: Competition in new markets like New Jersey and Charlotte.
• Economic pressures: Broader macroeconomic conditions could impact growth.

Q&A

During the Q&A session, analysts raised questions about the office loan portfolio challenges and the company’s strategic market expansion approach. The management addressed potential merger and acquisition opportunities and explained their credit migration and reappraisal processes.

Full transcript - BankUnited Inc (BKU) Q2 2025:

Operator/Latonya, Conference Call Moderator: Good day and thank you for standing by. Welcome to the BankUnited Inc. second quarter 2025 earnings conference call. At this time, all participants are in a listen only mode. After the speaker’s presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded, and I would now like to hand the conference over to your speaker today, Jacqueline Bravo, Corporate Secretary. You may begin.

Jacqueline Bravo, Corporate Secretary, BankUnited: Thank you, Latonya. Good morning and thank you everyone for joining us today for BankUnited Inc.’s second quarter 2025 results conference call. On the call this morning are Rajinder Singh, Chairman, President and CEO, Leslie N. Lunak, Chief Financial Officer, and Thomas M. Cornish, Chief Operating Officer. Before we start, I’d like to remind everyone that this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the Company’s current views with respect to, among other things, future events and financial performance. Any forward-looking statements made during this call are based on the historical performance of the Company and its subsidiaries or on the Company’s current plans, estimates, and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the Company that the future plans, estimates, or expectations contemplated by the Company will be achieved.

Such forward-looking statements are subject to various risks, uncertainties, and assumptions, including those relating to the Company’s operations, financial results, financial condition, business prospects, growth strategy, and liquidity, including as impacted by external circumstances outside the Company’s direct control, such as adverse events impacting the financial services industry. The Company does not undertake any obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments, or otherwise. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. These factors should not be construed as exhaustive. Information on these factors can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, and any subsequent quarterly report on Form 10-Q or current report on Form 8-K, which are available at the SEC’s website.

With that, I’d like to turn the call over to Mr. Rajinder Singh.

Rajinder Singh, Chairman, President and CEO, BankUnited: Thank you, Jackie. Good morning, everyone, and welcome. I know it’s a busy earnings day. Thank you for joining us. This is a pretty outstanding quarter for us. Very happy with the results. Net income came in at about $69 million, or $0.91 a share. I think last I checked, consensus was around $0.79, so very happy for a nice beat there. ROA improved to 78 basis points from 68 last quarter and 61 basis points second quarter of last year. ROE improved to 9.4%, so we’re getting closer and closer to the 10% mark. Last quarter was 8.2%, and last year was 8% at this time. The highlight of the quarter obviously has been the deposit. On the deposit front, we had a very impressive deposit growth quarter. NIDDA is up more than $1 billion. Average NIDDA is up $581 million, and total non-broker deposits grew $1.2 billion.

We did all this and achieved declining deposit costs, which I’ll talk about in a second. We guided at the beginning of the year to a double-digit NIDDA growth. So far, we’re already at 20%. Now, I will acknowledge the seasonality in these numbers, but even if you look at our NIDDA growth from last year, this time to now, we’re up 13%, which is sort of a pretty sustainable, very nice growth rate. NIDDA is now 32% of total deposits. That was another milestone that we had been talking about, getting past the 30%. We’re there, we crossed the 30%. We’re at 32%. It’s still not the highest level that we’ve ever been at, which was during its peak back, I think, in 2022, we’d hit 34%. We will set our target now to that high watermark, and we’ll hopefully cross that in the near term, probably next year.

Funding composition and remix are working. Deposit costs are lower. Spot cost of deposits declined by 15 basis points to 2.37% from 90 days ago when it was 2.52%, and a year ago, of course, it was much higher, 72 basis points higher. Wholesale funding was paid down again. $749 million paid down in wholesale. Loan to deposit ratio now stands at 83.6%, down from 85.5% last quarter. All of this improvement in the funding mix and also improvement on the left side of the balance sheet contributed to a very nice expansion of margin. Margin expanded from 2.81% last quarter to 2.93%. So, 12 basis points improvement in margin, and net interest income increased by 5.6% this quarter over quarter. We’re very happy, which is, you know, all of this is driving the bottom line. With respect to loans, commercial loans grew by $68 million.

If you break that up in between C&I and CRE, CRE grew by $267 million and C&I declined by $199 million. Tom will talk more about that. The production has been actually fairly good. The payoffs, unfortunately, have also been fairly good, which is why we had a slight decline. RESI portfolio is running off as predicted, so no surprises there. Let’s get to credit. Total criticized and classified loans declined by $156 million. I think this is one of the largest reductions we’ve seen in quite some time. We’re very happy about that. Not unexpectedly, though, we did see some migration into NPLs. NPLs grew by $117 million. I think a majority of this, I believe $86 million of that $117 million, is office related.

Not all office loans will eventually get upgraded and pay off, although some did pay off and some did get upgraded, but some did move into NPLs as well. There were no surprises here. This was expected. With respect to capital, CET1 now is at 12.2%. On a pro forma basis, including AOCI, it is at 11.3%. DCE to TA ended at 8.1%. Tangible book value per share grew to $38.23. I think that’s a 9% increase over the last 12 months, so we’re happy about that. The board met yesterday to go over the earnings and talk about capital as they always do, and they authorized a $100 million stock repurchase program which will go into effect after earnings. We will be.

Thomas M. Cornish, Chief Operating Officer, BankUnited: You know.

Rajinder Singh, Chairman, President and CEO, BankUnited: You often asked us about buybacks and capital accretion and how we think about this. You know, our priorities haven’t changed. It is still the number one priority is to run a safe and sound bank. Second is to grow our balance sheet in a safe and sound manner. Of course, increase regularly dividends every once a year. If there’s capital left over to actually return it through buybacks. We’re executing on that strategy. The environment today feels very different from 90 days ago when we last spoke to you. If you remember 90 days ago in April, we were just still shell shocked from all the tariff situations that we were dealing with. It feels like a different world today, but I will say that it is a fairly while. There is less uncertainty today, relatively speaking.

I think there is still uncertainty still out there that we have to be careful of and keep that in mind as we run the bank. Our priorities haven’t changed. Manage the bank in a prudent way. Grow responsibly, focus on profitability, manage our credit in our pipelines, and continue to deliver on the recomposition of the balance sheet. If we do that, earnings will take care of themselves and we’ll be a stronger company over time. Lastly, I would say you may have seen this in the news. I think we put this out already. On recent expansion, we have expanded into New Jersey with a team in an office and also very recently into Charlotte where we have a team and we will soon have an office as well.

Let me turn it over to Tom and then Tom will pass it over to Leslie and then I’ll come back for a few remarks and then we’ll.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Open for Q and A. Tom, great.

Thomas M. Cornish, Chief Operating Officer, BankUnited: Thanks, Raj. I’ll cover deposits a little bit first. Raj went into a fair amount of detail on that. Obviously, we’re clearly happy with the deposit numbers for the quarter with over $1 billion in NIDDA growth and $1.2 billion or so in total deposits. As Raj mentioned, there is some seasonality in that business. I would also say as we look forward into the third quarter, deposit pipelines remain very strong and our deposit growth is predominantly driven by new relationships across all business lines. We’re feeling very comfortable and confident that we’ll continue to add new core relationships across all of our businesses for the remainder of the year. Raj also mentioned the core CRE and C&I loan portfolio segments grew by a net $68 million. We had very strong growth in CRE for the quarter at $267 million, just over 4% linked quarter.

As Raj mentioned, C&I production has actually met our plan for the year, but we continue to see some higher level of payoff activity. I would say about half of that is really our own decision as it relates to opting out of credit opportunities where we do not see the kind of margin that will help us achieve our goals, type of spread, and another half is unscheduled payoffs, refinancings, businesses selling and things like that. I would believe that we will see less of that in the remainder of the year and we expect production to continue to be strong throughout the second half of the year. In both the CRE and the C&I area, resi was down $160 million, while franchise, equipment, and Municipal Finance were down a combined $10 million and mortgage warehouse grew by $46 million.

All of this is largely in line with our expectations. For the aggregate, that kind of solves for about a flat loan quarter overall. A little bit more on CRE, our CRE exposure totaled 27% of total loans and 185% of the bank’s total risk-based capital at June 30, 2025. Comparatively, based on March 31, 2025 call report data, the median level of CRE to total loans for banks in the $10 billion to $100 billion range was 35% and the median ratio of CRE to total risk-based capital was 217%. While our CRE portfolio has grown nicely across all asset classes, I think overall we still remain at the lower end of CRE exposure to capital compared to our peer groups. At June 30, the weighted average LTV of the CRE portfolio was 54% and the weighted average debt service coverage ratio was 1.76.

Very strong numbers for the entire portfolio. 51% of the portfolio is in Florida, 24% in the New York Tri-State area. Everybody’s favorite topic, office. Give you a little bit about office. Not too much change really from the last couple of quarters and continue trending downward of exposure gradually. At June 30th, we had a total CRE office portfolio of $1.6 billion. About $300 million of that is in medical office, so about $1.3 billion in traditional office, down $70 million from the quarter end, with 59% in Florida, which is predominantly suburban, and 22% in the New York Tri-State area. I would say that this quarter we’ve seen more return to the capital markets in the office area.

We saw activity with office exposure that we had go to the CMBS market, and we continue to expect that will happen with some upcoming maturities in the remainder of the year. Criticized and classified CRE office loans totaled $383 million at 6-30, down from $414 million at 3-31-2020, a net decline of $31 million. Some upgrades and downgrades and payoffs in that kind of led to the $72 million change. I said $337 million, or 20% of the total CRE portfolio, is medical office. The construction portfolio includes an additional $88 million in office-related exposure, with $84 million of that in New York. The weighted average LTV of the stabilized office portfolio was 63%, and the weighted average debt service coverage ratio was 1.52x at June 30th. Not too much different from the previous quarter.

Pages 11 through 14 of the Investor Deck provide additional details on the CRE portfolio, including the office segment. With that, I’ll turn it over to Leslie.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Thanks Tom. To reiterate, net income for the quarter was $68.8 million or $0.91 per share. A great quarter from an earnings perspective. Net interest income was up $13 million or 6% quarter over quarter, and the net interest margin increased 12 basis points to 2.93% from 2.81% last quarter. As we’ve been saying all along, margin expansion has been and will continue to ultimately be primarily driven by the change in mix on both sides of the balance sheet. Continued execution on that remains our priority. A big contributor this quarter was the increase in average NIDDA, which grew by $581 million. The total cost of deposits declined by 11 basis points to 2.47% from 2.58%. On a trailing twelve month basis, that’s down 62 basis points. The cost of interest-bearing deposits declined 6 basis points to 3.48% from 3.54%.

On a trailing twelve month basis, that’s down 78 basis points. On a spot basis, the APY of deposits continued to move down and was down 15 basis points, sitting at 2.37% at June 30, down from 2.52% at March 31. The average yield on loans increased to 5.55% for the second quarter from 5.48% last quarter. I think it’s notable that in a largely stable rate environment, we saw the yield on our loan portfolio grow and the cost of our deposits decline. That’s just evidence of the fruit of the work we’re doing on the balance sheet. We’re really happy to see that. The increased yield on loans related to a couple of things. One is pricing discipline, new originations coming on at higher rates or higher spreads than pay downs and exits. As Tom mentioned, we voluntarily exited a number of thinly priced credits.

While those decisions have impacted growth, we’re seeing the contribution to the margin, which is our priority. We also see in that rise the continued composition shift from residential to commercial. The average rate paid on FHLB advances increased this quarter from 3.69% to 3.79%. That was mainly due to the expiration of some cash flow hedges. All of our guidance assumes two Fed rate cuts in 2025 and kind of smooths those over the remainder of the year. As I said, that’s really the driver of our prognostications about margin moving to credit and the provision in the reserve. The provision for credit losses this quarter was $15.7 million. The ACL to total loans ratio crept up to 0.93%. I refer you to Slide 16 of our investor deck that presents some details about changes in the ACL for the quarter. A couple things going on.

We had an increase in specific reserves related directly to the specific some of the NPLs that we added this quarter, and that was partially offset by the positive impact of overall positive risk rating migration. We had some deterioration in the economic forecast going the other way. We had some payoffs and pay downs of some criticized and classified assets, and generally we saw improving quarter over quarter financial metrics for borrowers in the past portfolio, which had a positive impact on the expected loss modeling. Net charge offs totaled $12.7 million this quarter. The net charge off rate was 27 basis points for the six months annualized and 23 basis points for the trailing 12 months, both right in line with kind of where we expect those to run.

A few further observations on the reserve: the commercial ACL ratio, so C&I, CRE, franchise, and equipment finance, was 1.36% at June 30, up slightly from 1.34% at March 31, and the reserve on CRE office was 1.92%. The reserve is actually a little more than double our historical net charge off rate over the weighted average life of the loan portfolio. I would also point out that a significant portion of our NPLs actually carry zero reserves because of the adequacy of collateral. You can see that in our LTVs. Some of those loans have been charged down, partially charged down to take them down to liquidation value, but there are a number of those loans that are more than adequately collateralized, and the majority of our NPLs were also paying as agreed, about 75% of them.

In fact, at June 30, 2025, as Raj mentioned, NPLs were up $117 million quarter over quarter. $86 million of that increase was in office exposure, and office overall is behaving wholly in line with our expectations. No big surprises. Of $142 million in total CRE non-accruals, $124 million is office exposure. Moving to non-interest income and expense, not a whole lot unexpected or unusual or material going on there, but I will say total non-interest income is up $5.5 million. Some of that is sporadic stuff you see with respect to BOLI, but most of that is actually some of our fee businesses gaining traction, whether that’s syndication fees, commercial card revenue, capital markets, derivative income. We’re starting to see all of those businesses gaining some traction and happy to see that. A couple of comments on guidance: overall, our guidance remains consistent with what we told you previously.

We guided to double digit NIDDA growth, we’re already at 20%. Seasonality may bring that down some by the end of the year, but we still expect solid double digit growth year over year. We guided to mid to high single digit non-brokered deposit growth, we’re already there at 8.4%. I expect that guidance to hold. We previously guided for low single digit growth in total loans and mid to high single digit growth in core C&I and CRE, and given a slow start with respect to C&I growth, we’re probably expecting that C&I and CRE growth core to be more mid single digits as opposed to high single digits from the previous guidance. For mid single digit increase in non-interest expense for the full year, still expecting to end the year at that 3% level with respect to margin, and we’re already well on our way there.

We previously guided to mid single digit growth in net interest income. I think we may do a little better than that considering where we are now. One final point, as announced in our 8-K that we filed this morning, we will be redeeming our outstanding senior bond that matures in November. We expect the redemption to happen later in August. With that, I will turn it over to Raj for closing comments.

Rajinder Singh, Chairman, President and CEO, BankUnited: Thank you, Leslie. We just put out another press release this morning. Very important piece of news on CFO succession planning. We have been working on this for some time. We ran a national search. Leslie had come to me a couple of years ago and said there’s a timeline with which she would like to retire. Totally understandable. We ran a process very methodically over the last several quarters and we have hired Jim Mackey, a veteran in the industry who will be joining us in a couple of weeks, I think mid August. Right.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Leslie.

Rajinder Singh, Chairman, President and CEO, BankUnited: Leslie will remain CFO through next quarter. On November 1st, we will make the official change. Leslie will stay with the company through the end of the year and will retire on January 1st.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Bye. Bye.

Rajinder Singh, Chairman, President and CEO, BankUnited: You’ll be on.

Leslie N. Lunak, Chief Financial Officer, BankUnited: I’ll be on the next call.

Rajinder Singh, Chairman, President and CEO, BankUnited: Yeah, you’ll be on the next call.

Leslie N. Lunak, Chief Financial Officer, BankUnited: And.

Rajinder Singh, Chairman, President and CEO, BankUnited: Leslie has contributed tremendously to this company. We were a third the size of what it is today or what we are today. Leslie’s contribution cannot be explained in a short call. She’s been my partner and I thank her. Like I said, she’s not going away anywhere. We’ll be seeing you guys on the road in the coming weeks and months. Coming back to the quarter, we’re very happy with where things turned out, you know, at a very high level. I look at this and say, okay, we’re stronger and more profitable, right? Think about it, we have more capital, more reserves, lower loan to deposit ratio, which is the definition of stronger in my mind and ready for any kind of mishap in the economy if it were to ever happen. We’re delivering all of that while improving our profitability, margin, earnings, ROA, ROE, everything is up.

Fairly decent quarter and hopefully in 90 days we’ll come back to you with even better news. Let’s open it up for Q&A, operator.

Operator/Latonya, Conference Call Moderator: Certainly. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment. While we compile our Q&A roster, our first question will be coming from Jared David Wesley Shaw of Barclays Bank PLC. Your line is open.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Good morning, Jared.

Thomas M. Cornish, Chief Operating Officer, BankUnited: Good morning.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Good morning, everyone.

Jared, Analyst, Barclays Bank PLC: Congratulations, Leslie, on the planned retirement. Maybe just starting with credit and the office detail, when these loans are moving to non-performer, are you going out and reappraising those at that time and charging down to appraised value? Maybe just walk us through a little bit of the steps that happen once it moves into non-performers. If the loan to value and debt service coverage ratio you reference, if that’s updated for valuation in the rate environment.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Yes, Jared, we do reappraise actually before they move to non-accrual. Typically, when they move to substandard, we would reappraise and then reappraise again if any significant amount of time had elapsed between when they moved to substandard accruing and to non-accrual. Yes, we do reappraise those properties. Yes, all of our debt service coverage ratios and LTVs that we disclose are updated. Our debt service coverage ratios are based on current NOI and our LTVs. Even if we don’t have a current appraisal, we model an updated valuation based on very granular MSA-level market dynamics. We do our best to update all of those, and we do charge, yes, when they move to non-accrual, typically we would charge them down to that liquidation value.

Jared, Analyst, Barclays Bank PLC: When we look at the move this quarter and the provision was, can you give us sort of a breakdown of what was charged off versus what was given a specific provision?

Rajinder Singh, Chairman, President and CEO, BankUnited: Maybe, I guess it could be both.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Yeah, you can see that on the slide on page 16. I mean, obviously we’re not going to talk about that on an individual credit level. You can see this first thing, increase in specific reserves, net of positive risk rating migration. $33 million was the increase in specific reserves and then about $4 million offset due to net positive risk rating migration. That’s what’s happening there. You can see total net charge-offs of $12.7 million and $5.2 million of that was office charge-offs. Jared.

Jared, Analyst, Barclays Bank PLC: Okay, that’s great.

Woody, Analyst, Keefe Bruyette & Woods: Color.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Thanks.

Jared, Analyst, Barclays Bank PLC: Maybe shifting to the deposit side and the strength in DDAs. It’s great to see that one, I guess. Do you have the ECR tied to DDAs? Then you talked about the seasonality and potentially seeing that lower at year end. How should we think about those balances moving over the next two quarters?

Leslie N. Lunak, Chief Financial Officer, BankUnited: With respect to what you’re calling the ECR, and I know we’ve talked about that term in the past, that number will be disclosed in the 10-Q, Jared, like we always do. I don’t expect it to differ materially from last quarter’s number. I don’t have it right in front of me, but it’ll be about the same and it’ll be disclosed in the Q. Seasonality over the next couple of quarters will become a headwind. It was a tailwind this quarter. My best guess is it’ll be relatively stable through the third quarter and then decline in the fourth quarter. It’s difficult to predict whether that is going to happen in September, October, or November, but that’s generally the trend we would expect. If you look back over the last couple of years, our expectation is it would be roughly the same.

Rajinder Singh, Chairman, President and CEO, BankUnited: It really is. There are certain things that you really should look at on a 12-month basis given the seasonality. I wouldn’t say, oh look, it’s a $1 billion quarter. Great. I look at it, okay, it’s double-digit growth year over year. That’s a better way to look at it.

Leslie N. Lunak, Chief Financial Officer, BankUnited: A billion dollars year over year, high point. We still had a billion dollars of growth.

Okay, thanks.

Jared, Analyst, Barclays Bank PLC: If I could just sneak the last one in with the buyback. Good to see that. Is there a CET1 that you’re.

Thomas M. Cornish, Chief Operating Officer, BankUnited: Sort of solving for?

Jared, Analyst, Barclays Bank PLC: How should we think about the pace of buybacks or your appetite for deploying that, given your stock price and capital here?

Rajinder Singh, Chairman, President and CEO, BankUnited: I don’t think we have a target to put out there, but I will say yes, we do feel we have excess right now compared to industry peers and we’re doing $100 million. Typically we’ve gotten authorizations of $150 million. The board felt $100 million was a good place to start, but I’m sure this is not the end as we keep accreting capital and don’t have much use for it. We’ll probably come back and look at it again.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Jared, part of this equation is, as Raj said earlier, it’s our preference to deploy capital into growth. Part of the continual evaluation that we’ll be undergoing is to what extent we believe we’ll be able to do that because that’s always our better option.

Rajinder Singh, Chairman, President and CEO, BankUnited: Profitable growth.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Profitable growth, yes.

Great.

Jared, Analyst, Barclays Bank PLC: Thanks a lot.

Operator/Latonya, Conference Call Moderator: One moment for our next question. Our next question will be coming from Wood Neblett Lay of Keefe Bruyette & Woods Inc. Your line is open.

Woody, Analyst, Keefe Bruyette & Woods: Hey, good morning, guys. Hey, Woody, wanted to follow up on the deposits. I mean, I know there’s seasonality in the second quarter, but it feels like the growth is coming a little bit ahead of expectations and was just curious. I know the title drives some of the seasonality in the second quarter, but I know there’s a couple of other deposit verticals and was just wondering sort of what’s broken right so far in.

Leslie N. Lunak, Chief Financial Officer, BankUnited: The first half of the year too.

Woody, Analyst, Keefe Bruyette & Woods: Sort of see a little bit of outperformance relative to expectations.

Leslie N. Lunak, Chief Financial Officer, BankUnited: I think it’s what Tom said earlier. Across our businesses, we are seeing the continued onboarding of new client relationships, and that’s really the driver. I know that sounds pretty basic, but it is.

Rajinder Singh, Chairman, President and CEO, BankUnited: to put a fine point on this, one thing caused.

Leslie N. Lunak, Chief Financial Officer, BankUnited: First of all.

Rajinder Singh, Chairman, President and CEO, BankUnited: Numbers that we’re at, when we look at our own internal sort of expectations, we’re not that far ahead. We kind of expected this. We knew that we have to hit our targets for the year before June, which we have. That was the case last year as well because we will face those tailwinds in the second half of the year. We’re happy. We’re a little behind on C&I, but on CRE growth, DDA growth, total deposit growth, we’re right in line with expectations. There’s no one thing that I could point to. It’s just the seasonality of the business.

Thomas M. Cornish, Chief Operating Officer, BankUnited: I think investment in producers has.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Helped us throughout the year.

Thomas M. Cornish, Chief Operating Officer, BankUnited: Investment in new markets has helped us, but it’s a lot of blocking and tackling every day, and we put a tremendous amount of focus on deposit growth.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Yeah.

Thomas M. Cornish, Chief Operating Officer, BankUnited: All right.

Woody, Analyst, Keefe Bruyette & Woods: Really helpful. One follow up on the office migration. It doesn’t sound like this was a surprise on your end, but was just curious on what the triggering event was for the migration. Is it based on maturity schedules? Just looking for any color there.

Leslie N. Lunak, Chief Financial Officer, BankUnited: I mean really what triggers migration is if, you know, our risk rating system is largely driven by cash flow. We’re cash flow lenders. While we often have more than adequate collateral to support the debt, even at updated valuations, it’s really occupancy. Landlords that are struggling to fill buildings, those ones are migrating to non-accrual. It’s almost always an occupancy issue.

Thomas M. Cornish, Chief Operating Officer, BankUnited: Yep, exactly.

Woody, Analyst, Keefe Bruyette & Woods: Okay, appreciate that. Just last from like maybe.

Leslie N. Lunak, Chief Financial Officer, BankUnited: They lost a tenant and haven’t been able to replace the tenant yet. That could be a driver. Yeah, things like that.

Got it.

Woody, Analyst, Keefe Bruyette & Woods: Last for me, you announced a couple new markets you’re expanding corporate offices into. Was just wondering if you could sort of peel back the curtain and walk us through the process on how you evaluate new markets and what it takes to expand into them. Is it team first and then build around them?

Rajinder Singh, Chairman, President and CEO, BankUnited: Just on your thoughts there, sometimes it’s opportunistic, other times it’s more methodical. New Jersey was a little opportunistic. I don’t think it was very high on our priority list, but we started doing some business, we hired some good people, and suddenly it became a priority. Charlotte, I would say, was also partially opportunistic, but it has been on our radar for quite some time. It’s a very good market. We looked at Charlotte for a number of reasons, not just for business reasons, but also for talent reasons. We’ve been waiting for the right opportunity for about a couple of years in Charlotte, and when the right team came up, we were able to make this happen. We have done a fair amount of work on trying to match markets that are growing, are healthy, and are conducive to the kind of business we do.

Not every market is, but the kind of business we do. We’ve looked up and down the Eastern Seaboard, and we don’t look nationally. We don’t go out looking at California and the Pacific North. We just look up and down the Eastern Seaboard, Charlotte, Atlanta. These were markets that were always high on our list, and then it’s a matter of waiting for the right team to come around before you can make your move.

Thomas M. Cornish, Chief Operating Officer, BankUnited: I would agree, and I would add a little bit to that. We study each market and look pretty heavily at overall growth in the market. You know, is it a business-friendly market? What’s the state like? Are they attracting new to market? You know, relocations from other parts of the country, what’s the business formation rate look like? We try to match it against our own sort of risk appetite from a credit policy perspective and say, you know, when we look at the industries that are growing in these markets or the ones we have knowledge of, do we know these industry segments well? Are we comfortable in lending to them? Those are all the lenses we look through when we look.

Rajinder Singh, Chairman, President and CEO, BankUnited: At new markets and also what competition is like in those markets. Right. How competitive are they? That’s another factor. All right, very helpful.

Woody, Analyst, Keefe Bruyette & Woods: Thanks for taking my questions. Congrats, Leslie.

Operator/Latonya, Conference Call Moderator: Thank you. Our next question will be coming from Benjamin Tyson Gerlinger of Citigroup Inc. Your line is open. Ben.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Hi.

Good morning.

Congrats, Leslie.

Morning, Ben.

We’ve talked through credit a little bit here. I was just kind of curious. When you think about just, it seems like this was well known and I’m just kind of thinking most of credit seems to be improving, but all criticized and classified NPAs have ticked up. Is there an area or time frame where you kind of expect it to roll over? Maybe I’m just reading what you guys said a little bit incorrectly, but it just.

No, I think it’s a good question, Ben. I think this is the natural progression of these credits that are experiencing some stress. One of two things is going to, well, one of three things is going to happen. They’re going to get taken out and refi’d out by somebody who’s willing to take them on and pay off, or they’re going to improve and turn around, or they’re going to go through the workout process. I think this is just, you know, some of them are going to end up there. This is just a natural progression. We’re seeing most of this activity in the office space. I think surely at some point there will be an inflection, but I still think there’s a little time left before the whole office dynamic broadly finishes playing out. I don’t think that’s going to happen this quarter.

I don’t know if it’s a year, if it’s two years, but I think that dynamic is still going to play out over a period of time. None of these loans came out of nowhere and we said, oh my gosh, we never would have thought that one would experience any stress. I think we have our hands around the portion of the portfolio that could experience some stress and it’s just still going to take a while to play out one way or the other.

Thomas M. Cornish, Chief Operating Officer, BankUnited: Part of it is also, when you look at the office book, we’re in largely growing markets, so there is positive absorption.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Absolutely.

Thomas M. Cornish, Chief Operating Officer, BankUnited: In most of the markets that you’re in.

Rajinder Singh, Chairman, President and CEO, BankUnited: But.

Thomas M. Cornish, Chief Operating Officer, BankUnited: Until you get a very mature back to work environment, you’re still in fairly lengthy abatement periods of time for new tenants coming in. It is a bit of an elevator ride on some of these where you’ve got some going up, some going down. When you start to get more positive absorption to the point where it does get more competitive and abatement periods shortening, the cycle will shorten and you’ll start to see that. Otherwise, you’ve got a variety of ups and downs that you’re balancing.

Leslie N. Lunak, Chief Financial Officer, BankUnited: I think Tom may have mentioned, I don’t know if he did or not, but we are seeing some very positive developments for office properties in the CMBS market. I think that’s an encouraging sign. Not only that some of the loans that we’d like to see go may go there, but just generally it’s an indicator of positive activity in the office market that the CMBS market is picking up.

Gotcha. That’s helpful. I can switch gears a little bit. Next one’s a little more philosophical for, I mean, either you, Leslie, or Tom, whoever wants to answer. Tom, you alluded to not writing some credits because you didn’t want to rent your balance sheet. It would be negative to the spread. Leslie, I think you said spot rates and deposits were notably lower. It seems like margin should continue to go higher. More philosophical nature. What do you think the franchise could run with on a kind of a core margin?

Rajinder Singh, Chairman, President and CEO, BankUnited: Not.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Not this year or next year. Just kind of the franchise value going forward. What are you guys targeting as like a normalized?

Yeah, I would say mid 3s. I think anything much higher than that is probably moving out on the risk spectrum. You know, we’re not going to become a subprime lender or a credit card company and we don’t do deals. We don’t have purchase accounting accretion feeding the margin. I would say mid 3s.

Rajinder Singh, Chairman, President and CEO, BankUnited: Yeah.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Does mix get through there faster, or is it kind of mix is a part of that mid 3s as well?

I think mix is the biggest part of it. It’s not the only part. I think as Tom Cornish said earlier, we’ve strategically exited some thinner margin credits. I think pricing discipline is also an element, both of those things.

Rajinder Singh, Chairman, President and CEO, BankUnited: It’s rare that you see a bank put out numbers where loan yields are going up and deposit rates are going down. We did that this quarter. That’s all pricing discipline. That’s all saying, we will not chase growth unless it is profitable growth. That’s why a couple of minutes ago I inserted my word profitable in Leslie’s answer. That’s a song we’ve been singing in the company for quite some time. We’re internally by line of business tracking and holding people, LOB managers, responsible for margins, loan margins and saying these need to move up. Even if it’s 2, 3, 4 basis points, they need to move up. They are moving up, and that is contributing to the 12 basis points increase in margin at the top of the house. Deposits help, of course, but loans are also helping and that discipline on selection is critical to doing that.

What matters at the end of the day is NII growth. That’s sort of what we solve for, because you get that right, you’ll get your profitability right. Bit by bit, we’re getting there. All this progress we’ve made, as I did, I think a couple of quarters ago, I’d just like to remind everyone, is we have not done anything unnatural as a balance sheet. We haven’t done some big restructuring and taken a big loss and then shown higher margin. This is all bit by bit by bit hard work. One loan, one deposit at a time.

Thomas M. Cornish, Chief Operating Officer, BankUnited: One basis point at a time. Unfortunately, we don’t operate in a vacuum. There is competition, and a lot of these loans that we’re talking about opting out of, people are opting into at much lower margins. As we tell the team, we got to fight for every basis point to get to where we want to get to.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Gotcha, that’s really helpful. Thank you.

Operator/Latonya, Conference Call Moderator: One moment for our next question. Our next question will be coming from Timur Felixovich Braziler of Wells Fargo Securities LLC. Your line is open.

Timur Braziler, Analyst, Wells Fargo Securities: Hi, good morning. Leslie, congratulations on the pending retirement.

Rajinder Singh, Chairman, President and CEO, BankUnited: Well deserved.

Timur Braziler, Analyst, Wells Fargo Securities: Maybe starting on just the improvement in DDA end of period versus average, looks like a nice little tailwind heading into 3Q. The unchanged guidance as it pertains to margin ROTC, should we expect to see margin over 3% and ROTC over 10% in 3Q? With seasonality, maybe that tapers off a little bit in 4Q. Just talk us through the timing on that.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Timur, as I’ve said many times, I don’t care and I know you do, so I’ll try to answer your question. Currently, what we’re looking at is margin expansion both in 3Q and 4Q. That’s what our current forecast has embedded in it and that’s our expectation. What quarter things happen in is far less important to me than it is to you. Currently our expectation would be continued expansion throughout the year and predicated mostly on continued mix shift on both sides of the balance sheet and pricing discipline, rollover, fixed rate loans. All of those things are going to contribute, but that’s currently what we’re forecasting. I’m not going to try to say how much in 3Q versus how much in 4Q, but we are expecting an increasing trend.

Okay, fair enough.

Timur Braziler, Analyst, Wells Fargo Securities: Not to belabor the point on credit, but I don’t think we touched on the increase in C&I NPLs and the corresponding increase in that allowance. Can you just maybe talk to what drove that increase?

Leslie N. Lunak, Chief Financial Officer, BankUnited: A couple things. A portion of that, I think about $26 million, is some indirect office exposure that’s embedded in the C&I portfolio. The majority of the rest of it is one loan. As we’ve said in the past, C&I credit performance will be lumpy and idiosyncratic, and nothing systemic that we’re seeing in the C&I book or no correlation in industries or geographies or anything like that to comment on. It’s really just those two things.

Rajinder Singh, Chairman, President and CEO, BankUnited: On the topic of correlation, we’re always looking for that. The only correlation we know in our portfolio is office. That’s a systemic thing across the industry. In our C&I portfolio yesterday, I actually looked at the top five loans that are problematic, and each of the five are in fact totally different story.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Yeah, very interesting for anyone.

Rajinder Singh, Chairman, President and CEO, BankUnited: We’re not seeing anything. We’re not seeing any impact from tariffs or any other changes. It’s just, you know, sometimes things do just go the wrong way, and if you ever see a pattern emerging, we will share that with you.

Timur Braziler, Analyst, Wells Fargo Securities: Got it. If I can just sneak one in, last one here.

Rajinder Singh, Chairman, President and CEO, BankUnited: Just.

Timur Braziler, Analyst, Wells Fargo Securities: It seems like the momentum around M&A, particularly in the Southeast, is accelerating here. Can you just maybe talk to the level of conversations that you’re having? Has that been accelerating? Just maybe talk to what you would need to see in order to potentially consider a combination with a larger institution.

Rajinder Singh, Chairman, President and CEO, BankUnited: Yeah, I mean the level of compensation has been consistent since late last year. There was obviously a little bit of a concern three months ago when the markets dipped as much as they did. In terms of M&A, I still think there will be a lot of M&A over the course of the next 12, 24 months. As a buyer, we are probably not going to be very active because that’s sort of our DNA for our company, to try and do things organically. We never say no, but unlikely. As to the other side of this, we don’t sit here and raise our hands all the time saying we want to be part of an M&A story, but we have a fiduciary responsibility. If the right deal is on the table, we will talk to anyone.

Thomas M. Cornish, Chief Operating Officer, BankUnited: Great, thank you.

Operator/Latonya, Conference Call Moderator: Thank you. Our next question will be coming from David Jason Bishop of Hovde Group LLC. Your line is open. David.

Woody, Analyst, Keefe Bruyette & Woods: Yeah, good morning and congratulations again, Leslie.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Thanks. Morning, Dave.

Rajinder Singh, Chairman, President and CEO, BankUnited: Hey Leslie, just in terms of the.

Woody, Analyst, Keefe Bruyette & Woods: Loan yield here, it sounds like the repricing outlook sounds positive from some of.

Rajinder Singh, Chairman, President and CEO, BankUnited: The back book of the fixed rate loans repricing.

Woody, Analyst, Keefe Bruyette & Woods: Just curious what that weighted average yield repricing in the near term looks like and what you’re seeing in terms of new origination rates.

Leslie N. Lunak, Chief Financial Officer, BankUnited: I don’t have in front of me the weighted average yield on what’s repricing. It is true that what’s rolling off is generally being replaced by something at higher rates because that’s still primarily loans that were put on in a much lower rate environment. I would say it comes back more to what we talked about, being more selective about the credits we are originating and choosing to engage in as opposed to just rate market dynamics per se. I don’t have all of those rates right in front of me.

Thomas M. Cornish, Chief Operating Officer, BankUnited: I would broadly tell you on the C&I book, when we look at things that we’re opting out of from a pricing perspective, it’s usually things that are floating rate deals that are under SOFR + 150. When we look at new production, it’s generally at rates in the SOFR + 200 to 225 type range. Dollar for dollar, we’re seeing 75 to 80 basis points of pickup on that swap, sometimes even a little wider.

Woody, Analyst, Keefe Bruyette & Woods: Got it.

Rajinder Singh, Chairman, President and CEO, BankUnited: Tom, in terms of the.

Woody, Analyst, Keefe Bruyette & Woods: You know, what’s left in terms of maybe those C&I credits that are relatively thinly priced.

Rajinder Singh, Chairman, President and CEO, BankUnited: Any sense how much is left from?

Woody, Analyst, Keefe Bruyette & Woods: A dollar basis or percentage basis?

Leslie N. Lunak, Chief Financial Officer, BankUnited: I don’t know if you have any.

Woody, Analyst, Keefe Bruyette & Woods: Optics there from that view.

Thomas M. Cornish, Chief Operating Officer, BankUnited: Yeah, we’re near the end of that journey now. What you don’t know is what deal was going to be redialed that was at $185 that now somebody thinks should be at $110. You don’t know. I went through this yesterday, actually. When we go line item by line item of all of the deals today that are kind of sub-$200, there’s only a small handful that I would say are like that, sort of below $150, which is kind of where Leslie has a baseball bat in her office. I sit right across.

Leslie N. Lunak, Chief Financial Officer, BankUnited: I actually do. Somebody gave me that as a gift.

Thomas M. Cornish, Chief Operating Officer, BankUnited: The baseball bat territory.

Rajinder Singh, Chairman, President and CEO, BankUnited: She will be passing on that baseball bat to Jim Mackey.

Leslie N. Lunak, Chief Financial Officer, BankUnited: I don’t know that I will because my name’s engraved on it.

Rajinder Singh, Chairman, President and CEO, BankUnited: We’ll have to get Jim a new baseball bat.

Thomas M. Cornish, Chief Operating Officer, BankUnited: The large back end of that.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Yeah, got it.

Rajinder Singh, Chairman, President and CEO, BankUnited: Back to credit quality.

Woody, Analyst, Keefe Bruyette & Woods: Just curious, Leslie.

Rajinder Singh, Chairman, President and CEO, BankUnited: I think I heard the preamble that, you know, loss rate overall for the.

Woody, Analyst, Keefe Bruyette & Woods: BankUnited, I think it’s running mid-20s or so year to date over the past.

Rajinder Singh, Chairman, President and CEO, BankUnited: 12 months or so.

Woody, Analyst, Keefe Bruyette & Woods: It doesn’t sound like even with the office inflows, you’re expecting too much of a dramatic impact moving forward.

Rajinder Singh, Chairman, President and CEO, BankUnited: Is that correct?

Leslie N. Lunak, Chief Financial Officer, BankUnited: Yeah, I would agree. I think that’s in the range of what we would expect. I mean, in a given quarter, you can have higher or lower charge-offs, but on a running basis, I think that’s in the range of what we would expect. Yes.

Great.

Thomas M. Cornish, Chief Operating Officer, BankUnited: Thank you.

Operator/Latonya, Conference Call Moderator: Our next question will be coming from Jon Glenn Arfstrom of RBC Capital Markets. Your line is open.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Thanks.

Rajinder Singh, Chairman, President and CEO, BankUnited: Good morning.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Morning, John.

Jon Arfstrom, Analyst, RBC Capital Markets: Congrats, Leslie.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Thank you.

Jon Arfstrom, Analyst, RBC Capital Markets: Couple of cleanup questions. The other income drivers, you talked about BOLI, but you also mentioned a few other businesses. Is this a sustainable level? Do you think we should pull back a little bit on that line item because of the BOLI?

Leslie N. Lunak, Chief Financial Officer, BankUnited: I think over the long run, this is not a sustainable level. It’s going to get better quarter by quarter. You can have a sporadic thing happen like we did this quarter with the BOLI, and those things are sporadic. I think looking out with a trajectory that’s more than one quarter, we should see that line item gradually grow.

Yeah.

Rajinder Singh, Chairman, President and CEO, BankUnited: If that doesn’t grow, then we’re doing something wrong. Our expectation is that will grow not just over the year, but over multiple years. There is a fair amount of effort and investment going into these businesses, and I expect them to grow.

Leslie N. Lunak, Chief Financial Officer, BankUnited: I mean, is it possible that next quarter there will be a pullback because of the Boli thing? Sure. Again, I don’t care. If you look at the trajectory going forward over the medium to longer term, I think you should see an upward sloping line.

Okay.

Jon Arfstrom, Analyst, RBC Capital Markets: I was going to try to get you to say, I don’t care on a different question. I got it, so that’s good.

Leslie N. Lunak, Chief Financial Officer, BankUnited: You can ask me another little quarter question.

Yeah.

Rajinder Singh, Chairman, President and CEO, BankUnited: Yeah.

Jon Arfstrom, Analyst, RBC Capital Markets: Was the BOLI material? I know this is ticky-tacky, but.

Leslie N. Lunak, Chief Financial Officer, BankUnited: I was just curious.

I would not use the word material.

Okay. Okay.

Jon Arfstrom, Analyst, RBC Capital Markets: On the interest-bearing deposit pricing, how much more room do you think you have to bring that down?

Leslie N. Lunak, Chief Financial Officer, BankUnited: I think it’s, without any Fed rate cut, there’s no big catalyst, but we’ll continue to work around the edges. There’s still opportunities where you can bring this customer down 5 or 10 basis points or that customer down 5 or 10 basis points. We’ll continue to work around. We’ll continue to be focused on it, but there’s no big catalyst for wholesale rate decreases unless the Fed.

I would say every quarter we.

Thomas M. Cornish, Chief Operating Officer, BankUnited: Sit and look at a number of.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Customer by customer relationships, customer by customer.

Thomas M. Cornish, Chief Operating Officer, BankUnited: It’s not glamorous and fun conversations, but, you know, if you go out and adjust down 4 or 5 basis points here, 8 basis points there, it adds up.

Operator/Latonya, Conference Call Moderator: Yep.

Jon Arfstrom, Analyst, RBC Capital Markets: Maybe one for Tom or Raj. I understand the.

Rajinder Singh, Chairman, President and CEO, BankUnited: The.

Jon Arfstrom, Analyst, RBC Capital Markets: You know, I don’t even want to say lower end of the loan growth guidance, because a lot of things happened earlier in the year. It seems like, based on your answer to David Jason Bishop’s last question, it feels like the C&I payoffs or voluntary exits are starting to slow down. Raj, it sounds like you’re saying it’s still a little bit uncertain, but getting better. Are you guys signaling that even though it’s maybe a lower starting point mid year, that growth could accelerate in the second half of the year? Is that the right message?

Leslie N. Lunak, Chief Financial Officer, BankUnited: Yes, yes, yes.

Thomas M. Cornish, Chief Operating Officer, BankUnited: The reason why we have confidence in that is because we’re looking at the production numbers. The production numbers actually looked very good for the first two quarters of the year. We’re expecting it to look very good in the third and fourth quarter. Getting to the tail end of exits that we want to do ourselves, we can balance that and see where we see the growth opportunities.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Our pipelines look very good.

Thomas M. Cornish, Chief Operating Officer, BankUnited: Right. Okay.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Okay.

Thomas M. Cornish, Chief Operating Officer, BankUnited: Very helpful.

Jon Arfstrom, Analyst, RBC Capital Markets: Thank you.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Thanks.

Operator/Latonya, Conference Call Moderator: I would now like to turn the conference back to Rajinder Singh, CEO, for closing remarks.

Rajinder Singh, Chairman, President and CEO, BankUnited: Thank you all for joining us. We’re again very happy about the quarter. If there are any other questions, you know how to reach us. If not, we will talk to you again in three months. Thanks.

Leslie N. Lunak, Chief Financial Officer, BankUnited: Bye.

Operator/Latonya, Conference Call Moderator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.