BankUnited Earnings Call Signals Confident, Profitable Growth

Bankunited ((BKU)) has held its Q4 earnings call. Read on for the main highlights of the call.

BankUnited Earnings Call Highlights Strong Growth, Disciplined Risk, and Shareholder-Friendly Moves

BankUnited’s latest earnings call struck a decidedly positive tone, with management emphasizing broad-based strength across core lending, deposits, and net interest income, as well as expanding pre-provision, pre-tax earnings. While management acknowledged some blemishes—namely a one-time software write-down, an episodic fraud-related loss, higher charge-offs, spread pressure on new loans, and a greater use of brokered deposits—they framed these as manageable and largely non-recurring. Overall, the call underscored a narrative of steady, disciplined growth with improving profitability and active capital return.

Solid EPS Performance and Adjusted Profitability

BankUnited reported fourth-quarter net income of $69.3 million, or $0.90 per share, with adjusted earnings per share of $0.94 after backing out a one-time software write-down. Management highlighted this as a springboard for double-digit EPS growth expected in 2025, driven by strong expansion in pre-provision, pre-tax net revenue (PPNR) and net interest-driven and deposit-driven (NIDDA) earnings. The bank’s message was that core profitability is on a clear upward trajectory despite temporary items distorting headline results.

PPNR Expansion Underpins Earnings Momentum

Pre-provision, pre-tax net revenue climbed to $115 million in the fourth quarter, up from $109.5 million in the prior quarter and around $104 million a year earlier. Management underscored roughly 14% year-over-year PPNR growth as evidence that the underlying earnings engine is accelerating. This improvement provides a cushion against credit costs and gives BankUnited more flexibility to invest in growth initiatives while still supporting rising returns to shareholders.

NII and NIM Trending Higher

Net interest income increased about 3% sequentially and approximately 7% year over year, with net interest margin (NIM) widening to 3.06% in the fourth quarter, up about 6 basis points from the prior quarter and 22 basis points from a year earlier. Management expects further, albeit modest, NIM improvement toward roughly 3.20% in 2026, assuming rate cuts and a high deposit beta. The improvement in margin, even amid a competitive lending environment and tightening spreads on new originations, signals that BankUnited’s balance sheet positioning and deposit mix shifts are supporting profitability.

Strong Deposit Growth and Rising NIDDA Mix

Non-interest-bearing and interest-bearing demand accounts (NIDDA) showed robust momentum, with spot balances up $485 million in the quarter and $1.5 billion for the year. Average NIDDA grew about $505 million in the quarter and roughly $844 million for the full year, bringing NIDDA to 31% of total deposits, up from 30% previously. Management reiterated a goal of pushing this mix back toward the COVID-era peak of around 34%, which would further improve funding costs and support margins. This progress on core funding was a central positive theme throughout the call.

Core Loan Growth Broad-Based Across Segments

Core loans rose about $769 million in the fourth quarter, driven by commercial real estate (CRE) growth of $276 million, commercial and industrial (C&I) growth of $474 million, and a $19 million increase in mortgage warehouse balances. Management guided to approximately 6% core loan growth for 2026, with total loan growth of 2–3% after factoring in planned runoff in other categories. The expansion in core loans, particularly in C&I, was framed as a sign of healthy client demand and disciplined underwriting rather than opportunistic growth.

Non-Interest Income Growth and Cost Control

Non-interest income delivered solid performance, with management pointing to about 28% full-year growth when excluding leasing income. On the expense side, non-interest expense rose only about 3% for the year, reflecting tight cost discipline even as the bank continued to invest in technology modernization and in hiring revenue-generating staff. This combination of growing fee-based revenue and controlled expenses supports the narrative of operating leverage and strengthens confidence in continued PPNR expansion.

Capital Strength and Shareholder-Friendly Actions

BankUnited’s capital position remains robust, with a common equity Tier 1 (CET1) ratio of 12.3%, or 11.6% including accumulated other comprehensive income (AOCI). Tangible book value per share reached $40.14, roughly 10% higher than a year earlier. Reflecting confidence in the balance sheet and earnings outlook, the board authorized an additional $200 million in share repurchases, bringing total available buyback capacity to about $250 million, and approved a $0.02 increase in the quarterly dividend. Management signaled an intent to gradually bring CET1 toward a “peer-like” mid-11% range, indicating room to return capital without compromising safety.

CRE Portfolio Remains Conservative and Diversified

The commercial real estate portfolio stands at $6.8 billion, or about 28% of total loans, with a weighted average loan-to-value ratio of roughly 55% and a weighted average debt service coverage ratio around 1.82. The book is diversified by property type and geography, with about 48% in Florida and 22% in New York. Importantly, criticized and classified CRE loans declined by $36 million during the quarter, supporting management’s assertion that the portfolio is performing well and is underpinned by conservative structures and risk management.

Cautious Rate and Balance Sheet Strategy

Management described the balance sheet as modestly asset-sensitive and fairly hedged, with expectations that an upward-sloping yield curve will be supportive for earnings. Their base case assumes an 80% deposit beta on anticipated Federal Reserve rate cuts, meaning most of the rate reductions will pass through to deposit costs. This conservative stance suggests that BankUnited is prepared for lower rates while still planning for incremental NIM expansion, reflecting careful interest rate risk management.

One-Time Software Write-Down Masks Underlying Strength

The quarter’s reported earnings were affected by a strategic technology change that led to a one-time write-down of previously capitalized software. Management emphasized that this charge was non-recurring and related to repositioning the bank’s tech platform. Excluding this item, adjusted EPS would have been $0.94. The implication is that, beneath the accounting noise, the core franchise is generating improving and sustainable profitability.

Elevated Charge-Offs and Provisioning

Charge-offs for the quarter were just under $25 million, or about 30 basis points on an annualized basis, slightly above the bank’s underwriting target of around 25 basis points. Provision expense totaled $25.6 million, which management characterized as somewhat elevated and impacted by a few episodic items rather than a broad deterioration in credit quality. The message to investors was that credit costs, while higher this quarter, remain within a manageable range and are not indicative of systemic stress.

Fraud-Related Loss Highlights Credit Noise, Not Trend

A notable component of credit costs was a $25 million loan loss event, including a complete $10 million write-off tied to fraud involving a New York contractor borrower. Management stressed that this was an unpredictable, isolated incident and not reflective of a broader pattern. While such events can impact headline numbers, the bank presented it as a one-off that does not alter their view of the portfolio’s overall health.

Residential and Other Loan Runoff Continues

Residential loans declined by $148 million in the quarter, and management expects runoff in residential and other legacy segments to continue. Their 2026 guidance assumes residential balances shrinking by about 8%. This intentional runoff strategy is part of the effort to pivot the balance sheet toward higher-return core commercial lending and more attractive risk-adjusted opportunities.

Spread Compression on New Loans

Management flagged that spreads on new loan production tightened by roughly 15–20 basis points in late third quarter and into the fourth quarter. This spread compression, driven by competitive dynamics in the lending market, has been incorporated into their assumption of only modest margin improvement going forward. While a headwind, it is being offset by deposit mix improvements, overall loan growth, and thoughtful pricing discipline.

Rising Brokered Deposits Worth Watching

Brokered deposits increased to about 16.6% in the fourth quarter. Management explained that they utilized brokered funding when deposit growth overshot expectations, helping to fund strong loan demand. While this adds some funding concentration that investors will monitor, the bank emphasized that core deposit growth and the rising NIDDA mix remain central to their funding strategy over the medium term.

Slightly Lower Pro Forma Capital, Managed Deliberately

On a pro forma basis including AOCI, CET1 stands at 11.6%, modestly below the reported 12.3%. Management is intentionally drawing down excess capital through buybacks, aiming for a mid-11% CET1 target similar to peers. This approach reflects a balancing act: maintaining a solid capital buffer while using surplus capital to enhance shareholder returns through repurchases and dividends.

Forward-Looking Guidance Points to Steady, Profitable Growth

Looking ahead to 2026, BankUnited is guiding to about 6% core loan growth, with total loans up 2–3% after factoring in an estimated 8% decline in residential and other runoff portfolios. NIDDA is expected to grow around 12%, with total deposits excluding brokered funding rising about 6% and the NIDDA share moving from 31% toward 33–34%. Net interest margin is projected to inch up to roughly 3.20%, even as management assumes an 80% deposit beta on two Fed cuts built into their plan. Total revenue is expected to increase around 8%, with fee income slightly lower and expenses kept to mid-single-digit growth. Provision expense is planned to remain roughly flat versus 2025. Capital plans include an additional $200 million in share repurchases, for total capacity of about $250 million, alongside a modest dividend increase, all while targeting a CET1 ratio around the mid-11% range.

In summary, BankUnited’s earnings call painted a picture of a bank leveraging strong core growth, improving margins, and disciplined cost control to deliver rising earnings and meaningful shareholder returns. While investors will keep an eye on credit noise, brokered deposit usage, and competitive loan pricing, management’s guidance and capital actions suggest confidence in the trajectory of the franchise. The overall sentiment was that the positives—particularly in NII, deposits, core loans, PPNR, and capital deployment—decisively outweigh the largely episodic negatives.