BankUnited Q2 2025 Earnings Report

BankUnited EPS Results

• Actual EPS: $0.91
• Consensus EPS: $0.79
• Beat/Miss: Beat by +$0.12
• One Year Ago EPS: $0.72

BankUnited Revenue Results

• Actual Revenue: $273.93 million
• Expected Revenue: $267.17 million
• Beat/Miss: Beat by +$6.76 million
• YoY Revenue Growth: N/A

BankUnited Announcement Details

• Quarter: Q2 2025
• Date: 7/23/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, July 23, 2025
• Conference Call Time: 9:00AM ET

BankUnited (NYSE:BKU) operates as the bank holding company for BankUnited, a national banking association that provides a range of banking services in the United States. The company offers deposit products, such as checking, money market deposit, and savings accounts; certificates of deposit; and treasury, commercial payment, and cash management services. Its loans portfolio includes commercial loans, including equipment loans, secured and unsecured lines of credit, formula-based lines of credit, owner-occupied commercial real estate term loans and lines of credit, mortgage warehouse lines, subscription finance facilities, letters of credit, commercial credit cards, small business administration and U.S. department of agriculture product offerings, export-import bank financing products, trade finance, and business acquisition finance credit facilities; commercial real estate loans; residential mortgages; and other consumer loans. The company offers online, mobile, and telephone banking services. It operates through a network of banking centers located in Florida counties and the New York metropolitan area, as well as Dallas, Texas. The company was formerly known as BU Financial Corporation. BankUnited, Inc. was incorporated in 2009 and is headquartered in Miami Lakes, Florida.

BankUnited Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Net income of $68.8 million ($0.91 per share) beat consensus estimates, while ROA climbed to 78 bps and ROE to 9.4%, nearing the 10% target.
• Positive Sentiment: Non-brokered deposits grew 8.4% year-to-date with net DDA up over $1 billion, and deposit costs fell 15 bps to 2.37% on a spot basis.
• Positive Sentiment: The net interest margin widened by 12 bps to 2.93%, helping net interest income rise 5.6% quarter-over-quarter.
• Negative Sentiment: Nonperforming loans increased by $117 million—$86 million of which was office CRE exposure—even as criticized and classified loans fell by $156 million.
• Positive Sentiment: Capital ratios remain strong with a CET1 of 12.2% (11.3% pro forma AOCI), and the board approved a $100 million stock buyback program.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the BankUnited Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

[Operator]

I would now like to hand the conference over to your speaker today, Jackie Bravo, Corporate Secretary. You may begin.

[Jacqueline Bravo, EVP & Corporate Secretary at BankUnited]

Thank you, Latanya. Good morning, and thank you, everyone, for joining us today for BankUnited, Inc. Second Quarter twenty twenty five Results Conference Call. On the call this morning are Raj Singh, Chairman, President and CEO Leslie Lunek, Chief Financial Officer and Tom 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.

[Jacqueline Bravo, EVP & Corporate Secretary at BankUnited]

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 as the future plans, estimates or expectations contemplated by the company will be achieved. Such forward looking statements are subject to various risks and 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 statement, 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.

[Jacqueline Bravo, EVP & Corporate Secretary at BankUnited]

These factors should not be construed as exhaustive. Information on these factors can be found in the company's annual report on Form 10 ks for the year ended 12/31/2024, and any subsequent quarterly report on Form 10 Q or current report on Form eight ks, which are available at the SEC's website. With that, I'd like to turn the call over to Mr. Raj Singh.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

Thank you, Jackie. Good morning, 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.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

Net income came in at about $69,000,000 or $0.91 a share. I think the last I checked consensus was around 79,000,000 So very happy to 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.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

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 a billion dollars. Average NIDDA is up $581,000,000 and total non broker deposits grew 1,200,000,000.0. And 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%.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

So 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. So that was another milestone that we had been talking about, getting past the 30% and 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 the its peak was back, I think in 2022, we'd hit 34%. So we will set our target now to that high watermark and we'll hopefully cross that in the near term, probably next year.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

Funding composition and remix are working, deposits costs are lower, spot cost of deposits declined by 15 basis points to two thirty seven from ninety days ago when it was two fifty two. And a year ago, of course, it was much higher, 72 basis points higher. So wholesale funding was paid down again, dollars $749,000,000 paid down in wholesale. Loan to deposit ratio now stands at 83.6%, down from 85.5% last quarter. So 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.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

Margin expanded from two eighty one last quarter to two ninety three, so 12 basis points improvement in margin. And net interest income increased by 5.6% this quarter over quarter. So we're very happy, which is, all of this is driving the bottom line. With respect to loans, commercial loans grew by $68,000,000 And if you break that up in between C and I and CRE, CRE grew by $267,000,000 and C and I declined by 199,000,000 Tom will talk more about that. The production has been actually fairly good.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

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 156,000,000. I think this is one of the largest reductions we've seen in quite some time, so we're very happy about that.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

Not unexpectedly though, we did see some migration into NPLs. NPLs grew by 117,000,000. I think a majority of this, I believe 86,000,000 of that 117,000,000 is office related. So 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. And there was no surprises here, this was expected.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

With respect to capital, CET1 now is at 12.2% and on a pro form a basis including AOCI, it is at 11.3%. TCE to TA ended at 8.1%, and again, tangible book value per share grew to $38.23 I think that's a 9% increase over the last twelve 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 $100,000,000 stock buyback program, which will go into effect after earnings. We will be You've often asked us about buybacks and capital accretion and how we think about this.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

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. And then, of course, increase regularly dividends every once a year. And then if there's capital leftover, to actually return it through buybacks.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

So we're executing on that strategy. The environment today feels very different from ninety days ago when we last spoke to you. If you remember ninety days ago in April, we were just still, shell shocked from all the, the tariff situation that we were dealing with. It feels like a different world today. But I will say that it is a fairly, well, there is less uncertainty, today, relatively speaking.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

I think there is still, uncertainty still out there that we have to be careful of and and keep that in mind as we run the bank. So our priorities haven't changed. Manage the bank in a prudent way, grow responsibility, 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, would say, you may have seen this in the news, I think we put this out already on recent expansion.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

We have expanded into New Jersey, with a team and 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 open for Q and A. Tom?

[Thomas Cornish, COO at BankUnited]

Great, thanks Raj. So 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 $1,000,000,000 in net DDA growth and $1,200,000,000 or so in total deposits. As Raj mentioned, there is some seasonality in that business, but 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.

[Thomas Cornish, COO at BankUnited]

So 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 and I loan portfolio segments grew by a net 68,000,000. We had very strong growth in CRE for the quarter at $267,000,000, just over 4% linked quarter. As Raj mentioned, C and 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.

[Thomas Cornish, COO at BankUnited]

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 be continue to be strong throughout the second half of the year in both the CRE and the C and I area. Resi was down $160,000,000 while franchise equipment and municipal finance were down a combined $10,000,000 and mortgage warehouse grew by $46,000,000 all of this largely in line with our expectations. So for the aggregate that kind of solves for about a flat loan quarter overall. A little bit more on CRE.

[Thomas Cornish, COO at BankUnited]

Our CRE exposure totaled 27% of total loans and 185% of the bank's total risk based capital at 06/30/2025. Comparatively based on 03/31/2025 call report data, the median level of CRE to total loans for banks in the $10,000,000,000 to $100,000,000,000 range was 35% and the median ratio of CRE to total risk based capital was two seventeen. So 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, so very strong numbers for the entire portfolio. 51% of the portfolio is in Florida, 24% in the New York Tri State area.

[Thomas Cornish, COO at BankUnited]

So to everybody's favorite topic, free office. Give you a little bit about free office. Not too much change really from the last couple of quarters and continued trending downward of exposure gradually. At June 30, we had a total free office portfolio of $1,600,000,000 about $300,000,000 of that is in medical office, about $1,300,000,000 in traditional office, down $70,000,000 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.

[Thomas Cornish, COO at BankUnited]

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 $383,000,000 at June 30, down from $414,000,000 at 03/31/2025 and that declined 31,000,000. Some upgrades and downgrades and payoffs in that kind of led to the $72,000,000 change. So I said $337,000,000 or 20% of the total pre portfolio is medical office. The construction portfolio includes an additional 88,000,000 in office related exposure with 84,000,000 of that in New York.

[Thomas Cornish, COO at BankUnited]

The weighted average LTV of the stabilized office portfolio was 63% and the weighted average debt service coverage ratio was 1.52 at June 30, 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. So with that, I'll turn it over to Leslie.

[Leslie Lunak, CFO at BankUnited]

Thanks, Tom. So to reiterate, net income for the quarter was $68,800,000 or $0.91 per share, so a great quarter from an earnings perspective. Net interest income was up $13,000,000 or 6% quarter over quarter, and the NIM increased 12 basis points to two ninety three from two eighty one 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 and continued execution on that remains our priority. A big contributor this quarter was the increase in average NIDDA, which grew by $581,000,000 The total cost of deposits declined by 11 basis points to two forty seven from two fifty eight.

[Leslie Lunak, CFO at BankUnited]

On a trailing twelve month basis, that's down 62 basis points. The cost of interest bearing deposits declined six basis points to three forty eight from three fifty four, and 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 five fifty five for the second quarter from five forty eight 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 and that's just evidence of the fruit of the work we're doing on the balance sheet.

[Leslie Lunak, CFO at BankUnited]

And so 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. And while those decisions have impacted growth, we're seeing the contribution to the margin, which is our priority.

[Leslie Lunak, CFO at BankUnited]

And we also see in that rise the continued composition shift from resi to commercial. The average rate paid on FHLB advances increased this quarter from $3.69 to $3.79 and 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. But again, as I said, that's not really the driver of our prognostications about margin.

[Leslie Lunak, CFO at BankUnited]

Moving to credit and the provision in the reserves, the provision for credit losses this quarter was $15,700,000 The ACL to total loans ratio crept up to 93 basis points. And I refer you to Slide 16 of our investor deck that presents some details about changes in the ACL for the quarter. Couple of things going on, we had an increase in specific reserves related directly to 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.

[Leslie Lunak, CFO at BankUnited]

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 $12,700,000 this quarter. The net charge off rate was 27 basis points for the six months annualized and 23 basis points for the trailing twelve months, both right in line with kind of where we expect those to run. Few further observations on the reserve, the commercial ACL ratio, so C and I, CRE, franchise and equipment finance was 136 at June 30, up slightly from 134 at March 31 and the reserve on CRE office was 192. The reserve is actually a little more than double our historical net charge off rate over the weighted average life of the loan portfolio.

[Leslie Lunak, CFO at BankUnited]

And 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 06/30/2025. As Raj mentioned, NPLs were up $117,000,000 quarter over quarter, $86,000,000 of that increase was in office exposure, and office overall is behaving wholly in line with our expectations, so no big surprises.

[Leslie Lunak, CFO at BankUnited]

Of a $142,000,000 in total CRE nonaccruals, a 124,000,000 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 $5,500,000 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. So 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've told you previously.

[Leslie Lunak, CFO at BankUnited]

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.

[Leslie Lunak, CFO at BankUnited]

So 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 and I and CRE. Kind of given a slow start with respect to C and I growth, we're probably expecting that C and I growth C and 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 and still expecting to end the year at that three percent 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.

[Leslie Lunak, CFO at BankUnited]

I think we may do a little better than that considering where we are now. And, one final point, as announced in our eight 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. So with that, I will turn it over to Raj for closing comments.

[Rajinder Singh, Chairman, President & CEO at 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.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

Totally understandable. We ran a process very methodically over the last several quarters, And we have hired we've hired Jim Mackie, a veteran in in the industry who will be joining us in a couple of weeks, think mid August, right, Leslie? And Leslie will remain CFO through next quarter. On November 1, we will make the official change. Leslie will stay with the company through the end of the year and will retire on January 1.

[Jacqueline Bravo, EVP & Corporate Secretary at BankUnited]

Bye bye.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

Bye. No. You you'll be on

[Jacqueline Bravo, EVP & Corporate Secretary at BankUnited]

I'll be on the next call.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

Yeah. You'll be on the next call. And and but Leslie has contributed tremendously to this company. We were a third the size of what it is today or what we are today, and and Leslie's contribution cannot be explained in a in a in a short call. But she's been my partner, and I thank her.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

But like I said, she's not going away anywhere. We'll be seeing you guys on the road over the coming weeks and months. But coming back to the quarter, we're very happy with where things turned out. At a very high level, I look at this and say, okay. So we're stronger and more profitable. Right? Think about 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. And we're delivering all of that while improving our profitability, margin, earnings, ROE, ROE, everything is up. So fairly decent quarter and hopefully in ninety days, we'll come back to you with even better news. But let's open it up for Q and A. Operator?

[Operator]

Certainly. Our first question will be coming from Jared Shaw of Barclays. Your line is open.

[Jacqueline Bravo, EVP & Corporate Secretary at BankUnited]

Good morning, Jared.

[Jared Shaw, Managing Director at Barclays Capital]

Good morning. Good morning, everyone. Congratulations, Leslie, on the planned retirement. So 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?

[Jared Shaw, Managing Director at Barclays Capital]

Maybe just walk us through a little bit of the steps that happen once it moves into non performers and if the loan to value and debt service coverage ratio you referenced if that's updated for valuation in the rate environment?

[Leslie Lunak, CFO at 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 into non accrual. So yes, we do reappraise those properties. And 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.

[Leslie Lunak, CFO at BankUnited]

And our LTVs, even if we don't have a current appraisal, we model an updated valuation based on, you know, granular MSA level market dynamics. So we do our best to update all of those. And we do charge yes when they move to nonaccrual. Typically, we would charge them down to that liquidation value.

[Jared Shaw, Managing Director at Barclays Capital]

So 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? Or maybe I guess it could be both.

[Leslie Lunak, CFO at BankUnited]

Yes. You can see that on the slide on Page 16. I mean, we're not going to talk about that on an individual credit level. But you can see this first thing, increase in specific reserves net of positive risk rating migration. So $33,000,000 was the increase in specific reserves and then about $4,000,000 offset due to net positive risk rating migration.

[Leslie Lunak, CFO at BankUnited]

So that's what's happening there. You can see total net charge offs of 12,700,000.0 and 5,200,000.0 of that was office charge offs, Jared.

[Jared Shaw, Managing Director at Barclays Capital]

Okay. That's great color. Thanks. Maybe shifting to the deposit side and the strength in DDAs, it's great to see that. One, I guess, you have the ECR tied to DDAs?

[Jared Shaw, Managing Director at Barclays Capital]

And then two, 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 Lunak, CFO at BankUnited]

So 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. And 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, that will become a headwind. It was a tailwind this quarter.

[Leslie Lunak, CFO at BankUnited]

My best guess is it will be relatively stable through the third quarter and then decline in the fourth quarter. But it's difficult to predict whether is that going to happen in September or October or November, but that's generally the trend we would expect. And if you look back over the last couple of years, our expectation is it would be roughly the same.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

It really is you know, there are certain things that you really should look at on a twelve month basis given the seasonality. So I I wouldn't, you know, say, oh, look. It's a billion dollar quarter. Great. I look at it, okay, it's double digit growth year over year. That's a better way to look at

[Leslie Lunak, CFO at BankUnited]

And a $1,000,000,000 year over So high point to high point, we still had a $1,000,000,000 of growth.

[Jared Shaw, Managing Director at Barclays Capital]

Okay. Thanks. If I could just sneak a last one in with the buyback, good to see that. Is there a CET1 that you're sort of solving for? 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 & CEO at BankUnited]

I don't think we have a target to put out there, but I will say, yes, we do feel we have excess excess capital right now compared to industry peers. We're doing a 100,000,000 typically, we've gotten authorizations of 150, the board felt a 100 was a good place to start, but I'm sure this is not the end as we keep creating capital, and don't have much use for it, we'll probably come back and look at it again.

[Leslie Lunak, CFO at BankUnited]

And Jared, part of this equation is, as Raj said earlier, it's our preference to deploy capital into growth. So 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. Profitable growth. Profitable growth,

[Jacqueline Bravo, EVP & Corporate Secretary at BankUnited]

yes.

[Thomas Cornish, COO at BankUnited]

Great. Thanks a lot.

[Operator]

And one moment for our next question. Our next question will be coming from Woody Lay of KBW. Your line is open.

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

Hey, good morning, guys.

[Leslie Lunak, CFO at BankUnited]

Hey, Woody.

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

Wanted to follow-up on the deposits. And 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, I know there's a couple of other deposit verticals. And was just wondering sort of what's broken right so far in the first half of the year to sort of see a little bit of outperformance relative to expectations?

[Leslie Lunak, CFO at 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 & CEO at BankUnited]

Yeah. Put a fine point on this one thing caused, you know, first of all, the numbers that we're at when we look at our own internal sort of expectation, we're not that far ahead. We kind of expected this in terms of this, we will do. We knew that we have to hit our targets for the year before June, which we have, and that was the case last year as well, because we will face those tailwinds in the second half of the year. So we're happy.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

We're a little behind on C and 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 Cornish, COO at BankUnited]

And I think the investment in producers has helped us throughout the year. 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.

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

Yeah.

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

Alright, really helpful. And then one follow-up on the office migration. It doesn't sound like this was a surprise on your end but I 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 Lunak, CFO at 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. So while we often have more than adequate collateral to support the debt even at updated valuations, it's really occupancy and, you know, landlords that are struggling to to build buildings, those ones that are migrating to non accrual, it's almost always an occupancy issue.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

Yep. Exactly.

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

Okay. Appreciate that. And then just last for me.

[Leslie Lunak, CFO at BankUnited]

Maybe they lost a tenant and haven't been able to replace the tenant yet. That could be a driver. Yeah, things like that.

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

Got it. And then last for me. You know, you announced a couple of new markets you're expanding corporate offices into. I 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? Just on your thoughts there.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

It's opportunities opportunistic. Other times, it's it's more methodical. So, you know, New Jersey was a little optimistic. I 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.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

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've looked at Charlotte for a number of reasons, not just for business reasons, but also for talent reasons. And 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.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

But 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, and we've looked up and down these in seaboard. And we don't look nationally, we don't go out looking at California and the Pacific Northwest, we just look up and down the Eastern Seaboard, Charlotte, Atlanta, these were markets that were always high on our list. Then it's a matter of waiting for the right team to come around before you can make your move.

[Thomas Cornish, COO at 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. Is it a business friendly market, what's the state like, are they attracting new to market relocations from other parts of the country, what's the business formation rate look like, and then 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, are these the ones we have knowledge of, do we know these industry segments well? Are we comfortable in lending to them? And those are all the lenses we look through when we look at new markets.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

And also what competition is like in those markets. How competitive are those? That's another factor.

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

Alright, very helpful. Thanks for taking my questions and congrats Leslie.

[Leslie Lunak, CFO at BankUnited]

Thank you.

[Operator]

Thank And our next question will be coming from Ben Gerlinger of Citi. Your line is open, Ben.

[Ben Gerlinger, VP - Equity Research at Citigroup]

Hi, good morning. Congrats, Leslie.

[Jacqueline Bravo, EVP & Corporate Secretary at BankUnited]

Good morning, Ben.

[Thomas Cornish, COO at BankUnited]

Good morning.

[Ben Gerlinger, VP - Equity Research at Citigroup]

Just going to talk to credit a little bit here. Was just kind of curious, when you think about just it seems like this was well known. And I'm just kinda think most of the credit seem to be improving, but all else equal NPAs are ticked up. Is there 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,

[Leslie Lunak, CFO at BankUnited]

I think it's good question, Ben. And 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 gonna get taken out refi it out by somebody who's willing to take them on and pay off or they're gonna improve and turn around or they're gonna go through the workout process. And I think this is just some of them are gonna end up there.

[Leslie Lunak, CFO at BankUnited]

This is just a natural progression. We're seeing most of this activity in the office space and 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. I don't none of these loans came out of nowhere and we said, my gosh, we never would have thought that one would experience any stress.

[Leslie Lunak, CFO at BankUnited]

So 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 Cornish, COO at BankUnited]

Yeah, part of it is also when you look at the office book, you know, we're in largely growing markets. So there is positive absorption in most of the markets that you're in, but 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. So 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 shorten, then 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 Lunak, CFO at BankUnited]

And I think Tom may have mentioned, I don't know if he did or not, but we are seeing some very positive for office properties in the CMBS market. So 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.

[Ben Gerlinger, VP - Equity Research at Citigroup]

Gotcha. That's helpful. And then 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 it. But, Tom, you alluded to not writing some credits because you didn't wanna rent your balance sheet.

[Ben Gerlinger, VP - Equity Research at Citigroup]

It would be negative to the spread. And then, Leslie, I think you said spot rates and deposits were notably lower. So it seems like margin should continue to go higher. So more so philosophical in nature, what do you think the franchise could run with on a kind of a core margin? Not this year or next year, just kind of the franchise value going forward?

[Ben Gerlinger, VP - Equity Research at Citigroup]

What are you guys targeting as like a normalized NIM? Yeah.

[Leslie Lunak, CFO at BankUnited]

I would say mid threes. I think anything much higher than that is probably moving out on the risk spectrum. We're not gonna 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. So I would say mid threes.

[Thomas Cornish, COO at BankUnited]

Yep. Does

[Ben Gerlinger, VP - Equity Research at Citigroup]

mix get through there faster? Or is it kind of mix as a part of that mid threes as well?

[Leslie Lunak, CFO at BankUnited]

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

[Rajinder Singh, Chairman, President & CEO at BankUnited]

I mean, 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, inserted my word profitable in Leslie's answer.

[Leslie Lunak, CFO at BankUnited]

Yeah.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

That's a song we've been singing in the company for quite some time. We're internally by line of business, and holding people, LOB managers responsible for margins, loan margins, and saying these need to move up, even if it's two, three, four basis points, they need to move up and 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.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

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. So 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 of the balance sheet. We haven't done some big restructuring and taken a big loss and then shown higher margin.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

This is all bit by bit by bit, hard work, one loan, one deposit at a time.

[Thomas Cornish, COO at BankUnited]

One basis point at a time. Unfortunately, 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, got to fight for every basis point to get to where we want to get to.

[Ben Gerlinger, VP - Equity Research at Citigroup]

Got you, that's really helpful, thank you.

[Operator]

Thank you. And one moment for our next question. Our next question will be coming from Timur Braziler of Wells Fargo. Your line is open.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Hi. Good morning, and Leslie, congratulations on dependent retirement. Well deserved. 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, Rossi, should we expect to see margin over 3% and Rossi over 10% in 3Q?

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

And then with seasonality, maybe that tapers off a little bit in 4Q. Just talk us through the timing on that.

[Leslie Lunak, CFO at BankUnited]

Timur, as I've said many times, I don't care. I know you do. So I'll try to answer your question. Currently, 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.

[Leslie Lunak, CFO at BankUnited]

But what quarter things happen in is far less important to me than it is to you. But 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 of 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.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Okay. Fair enough. And then not to belabor the point on credit, but I don't think we touched on the increase in C and I NPLs and corresponding increase in that allowance. Can you just maybe talk to what drove that increase?

[Leslie Lunak, CFO at BankUnited]

A couple of things. A portion of that, I think about $26,000,000 is some indirect office exposure that's embedded in the C and I portfolio. And the majority of the rest of it is one loan. As we've said in the past, C and I credit performance will be lumpy and idiosyncratic and you know, that nothing systemic that we're seeing in the C and I book or no correlation in industries or geographies or anything like that to comment on. So it's it's really just those two things.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

On on the topic of, you know, correlation, you know, we're always looking for that. So the only correlation we know in our portfolio is office.

[Leslie Lunak, CFO at BankUnited]

Yeah.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

Right? That's a systemic thing across the industry. But in our c and I portfolio, yesterday, I actually looked at the top five loans that that are problematic, And each of the five are in five totally different rates.

[Leslie Lunak, CFO at BankUnited]

Yeah. So very idiosyncratic.

[Rajinder Singh, Chairman, President & CEO at 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 we ever see a pattern emerging, we will share that with you.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Got it. And if I can just sneak one in, last one here. It seems like the momentum around M and 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?

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

And then 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 & CEO at BankUnited]

Yeah. I mean, the level of conversation has been consistent since late last year. So there was obviously a little bit of a concern three months ago when the markets dipped as much as they did. But in terms of M and A, I still think there will be a lot of M and A over the course of next twelve, twenty four months. As a buyer, we are probably not very going to be very active because that's sort of our DNA for our company is to try and do things organically.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

We never say no, but it's unlikely. And as to the other side of this, we don't sit here, raise our hands all the time saying, we wanna be part of M and A story, but we have a fiduciary responsibility. If the right deal is on the table, we will talk to anyone.

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

Great. Thank you.

[Operator]

Thank you. Our next question will be coming from David Bishop of Health Group. Your line is open, David.

[David Bishop, Director - Research at Hovde Group]

Yeah. Good morning and congratulations again, Leslie.

[Jacqueline Bravo, EVP & Corporate Secretary at BankUnited]

Thanks. Good morning, Dave.

[David Bishop, Director - Research at Hovde Group]

Hey, Leslie, just in terms of the loan yield here, it sounds like the repricing outlook sounds positive from some of the back book or the fixed rate loans repricing. Just curious maybe what that weighted average yield repricing in the near term looks like and what you're seeing in terms of new origination rates?

[Leslie Lunak, CFO at BankUnited]

You know, I don't have in front of me the weighted average yield on what's repricing, but 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. You know, I would say it comes back more to what we talked about is being more selective about the credits we are originating and choosing to engage in as opposed to rate market dynamics per se. I don't have all of those rates right in front of me.

[Thomas Cornish, COO at BankUnited]

I would broadly tell you on the C and 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 sulfur plus 150. And when we look at new production, it's generally at rates in the sulfur plus 200 to two twenty five type range. So dollar for dollar, we're seeing 75 to 80 basis points of pickup on that swap, sometimes even a little wider.

[David Bishop, Director - Research at Hovde Group]

Got it. And then Tom, in terms of what's left in terms of maybe those C and I credits that are relatively thinly priced, any sense of how much is left from a dollar basis or percentage basis? I don't if you have any optics there from that view.

[Thomas Cornish, COO at 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. So that you don't know. But when we go, 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 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 actually do, somebody gave me I as a call that the baseball bat territory.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

She will be passing on that baseball bat to Jim.

[Leslie Lunak, CFO at BankUnited]

I don't know that I will because my name's engraved on it.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

Think Well, then we'll have to get Jim a new baseball bat.

[David Bishop, Director - Research at Hovde Group]

Got it.

[Thomas Cornish, COO at BankUnited]

Largely, think, for the very back end of that.

[Jacqueline Bravo, EVP & Corporate Secretary at BankUnited]

Yeah.

[David Bishop, Director - Research at Hovde Group]

Got it. And then back to credit quality. Just curious, Leslie. I think I I heard in the preamble that, you know, loss rate overall for the bank. I think it's running, you know, mid twenties or so year to date over the past twelve months or so.

[David Bishop, Director - Research at Hovde Group]

Doesn't sound like even with the office inflows, you're expecting too much of a dramatic impact moving forward. Is that correct?

[Leslie Lunak, CFO at BankUnited]

Yes, would agree. I think that's in the range of what we would expect. I mean, 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.

[David Bishop, Director - Research at Hovde Group]

Great. Thank you.

[Operator]

And our next question will be coming from Jon Arfstrom of RBC Capital Markets. Your line is open.

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

Hey, thanks. Good morning.

[Jacqueline Bravo, EVP & Corporate Secretary at BankUnited]

Good morning, Jon.

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

Congrats, Leslie.

[Leslie Lunak, CFO at BankUnited]

Thank you.

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

Yep. Couple of cleanup questions. The other income drivers, talked about BOLI, but you also mentioned a few other businesses. Is this a sustainable level? Or do you think we should pull back a little bit on that line item because of the BOLI?

[Leslie Lunak, CFO at 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. But I think looking out with a trajectory that's more than one quarter, I think we should see that line item gradually grow.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

Yeah. If that doesn't grow, then we're doing something wrong.

[Leslie Lunak, CFO at BankUnited]

Yeah.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

Our expectation is that will grow not just over the year, but over multiple years. There's fair amount of effort and investment going into these businesses that I expect them to grow.

[Leslie Lunak, CFO at BankUnited]

I mean, is it possible that next quarter there will be a pullback because of the BOLI thing? But again, I don't care. But if you look at the trajectory going forward, over the medium to longer term, I think you should see an upward sloping line.

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

Okay. I was gonna try to get you to say I don't care on a different question, but I

[Leslie Lunak, CFO at BankUnited]

got it. So that's good. And you asked me another little quarter question. Okay.

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

Yeah. Yeah. Was the the BOLI material? I know this is ticky tacky, but I was just curious.

[Leslie Lunak, CFO at BankUnited]

I I would not use the word material.

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

Okay. Okay. On the interest bearing deposit pricing, how much more room do you think you have to bring that down?

[Leslie Lunak, CFO at BankUnited]

I mean, 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 five or 10 basis points or that customer down five or 10 basis points and and we'll continue to work around, you know, continue to be focused on it. But there's no big catalyst for wholesale rate decreases unless the Fed moves.

[Thomas Cornish, COO at BankUnited]

I would say every quarter we sit and look at a number of relationships, customer by customer and it's not glamorous and fun conversations, but if you go out and adjust down four or five basis points here, eight basis points there, it adds And

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

then maybe one for Tom or Raj. I understand that the I don't even want to say lower end of the loan growth guidance, but because a lot of things happened earlier in the year. But it seems like based on your answer to Dave Bishop's last question, it feels like the C and I payoffs or voluntary exits are starting to slow down. And 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?

[Thomas Cornish, COO at BankUnited]

And the reason why we have confidence in that is because we're looking at the production numbers. And so 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 and so 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 Lunak, CFO at BankUnited]

Pipelines look very good.

[Thomas Cornish, COO at BankUnited]

Right.

[Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets]

Okay. Very helpful. Thank you.

[Thomas Cornish, COO at BankUnited]

Thanks, John.

[Operator]

And I would now like to turn the conference back to Raj Singh, CEO, for closing remarks.

[Rajinder Singh, Chairman, President & CEO at BankUnited]

Thank you all for joining us. We're, again, very happy about the quarter. But if there are any other questions, you know how to reach us. And if not, we will talk to you again in three months. Thanks. Bye.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Jacqueline Bravo, EVP & Corporate Secretary
• Rajinder Singh, Chairman, President & CEO
• Thomas Cornish, COO
• Leslie Lunak, CFO

Analysts

• Jared Shaw, Managing Director at Barclays Capital
• Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)
• Ben Gerlinger, VP - Equity Research at Citigroup
• Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo
• David Bishop, Director - Research at Hovde Group
• Jon Arfstrom, MD & Associate Director - US Research at RBC Capital Markets