BKU Q2 Deep Dive: Deposit Growth, Margin Expansion, and CRE Credit Dynamics

Regional banking company BankUnited (NYSE:BKU) reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 9.5% year on year to $273.9 million. Its non-GAAP profit of $0.91 per share was 17.2% above analysts’ consensus estimates.

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StockStory’s Take

BankUnited’s second quarter results slightly surpassed Wall Street’s revenue and profit expectations, driven by growth in non-interest-bearing deposit accounts and disciplined management of funding costs. Management attributed the strong performance to a favorable shift in the deposit mix, with Chairman and CEO Raj Singh noting, “NIDDA is now 32% of total deposits,” reflecting a strategic milestone. The bank also benefited from a notable reduction in deposit costs and a corresponding expansion in net interest margin, offsetting only modest loan growth and continued runoff in the residential portfolio. Credit quality trends were mixed, with improvement in criticized and classified loans but some expected migration of office-related loans into nonperforming status.

Looking ahead, BankUnited’s leadership expects continued margin and earnings improvement, supported by further deposit mix enhancements, pricing discipline on new loans, and selective expansion into growth markets. CFO Leslie Lunak emphasized that management’s outlook assumes “continued mix shift on both sides of the balance sheet and pricing discipline,” while also acknowledging that seasonality may temper some of the deposit growth in coming quarters. The bank’s expansion into new markets such as New Jersey and Charlotte, along with ongoing investments in fee-based businesses, are expected to contribute to long-term growth despite persistent industry uncertainties, particularly in commercial real estate (CRE) and office exposure.

Key Insights from Management’s Remarks

Management attributed the quarter’s outperformance to strong deposit growth, improved funding mix, and disciplined loan selection, while highlighting ongoing credit normalization in the office loan segment.

• Deposit mix improvements: The growth in non-interest-bearing demand deposits (NIDDA) was a key contributor to margin expansion. Management highlighted surpassing the 30% NIDDA milestone, which lowered overall funding costs and aided profitability, stating that “remix is working. Deposit costs are lower.”
• Margin expansion through discipline: Executives emphasized that margin improvement was driven not by interest rate changes, but by proactive management of both loan pricing and deposit costs. The bank selectively exited lower-margin commercial credits and focused on profitable growth rather than volume for its own sake.
• CRE loan growth and risk management: Commercial real estate (CRE) loan balances increased, but management noted that overall CRE exposure remains below peer averages. The bank’s CRE portfolio is concentrated in Florida and the New York tri-state area, with a majority of exposure in suburban and medical office properties. Risk metrics, such as loan-to-value and debt service coverage ratios, were cited as strong.
• Credit normalization in office portfolio: There was a significant migration of office-related loans into nonperforming status, which management viewed as an expected and manageable outcome of ongoing credit normalization. Most nonperforming loans remain well-collateralized, and about 75% are paying as agreed, mitigating potential losses.
• Expansion and leadership transition: The bank expanded into New Jersey and Charlotte by hiring new teams, reflecting a methodical approach to market entry. Additionally, CFO Leslie Lunak announced her planned retirement, with industry veteran Jim Mackey set to succeed her after a transition period, ensuring continuity in financial leadership.

Drivers of Future Performance

BankUnited’s forward outlook is anchored in profitable growth, further deposit mix improvements, and ongoing credit vigilance—balanced by macroeconomic uncertainties and evolving real estate dynamics.

• Sustained focus on margin: Management expects continued net interest margin expansion, driven by a higher proportion of low-cost deposits and disciplined loan pricing. Leadership is targeting a normalized margin in the mid-3% range, emphasizing profitability over loan volume.
• Expansion into growth markets: The recent entry into New Jersey and Charlotte is expected to generate new client relationships and diversify the loan and deposit base. Management aims to leverage demographic and business growth trends in select Eastern U.S. markets while maintaining prudent risk standards.
• Credit risk and CRE evolution: The bank anticipates further normalization in its commercial real estate office portfolio, with nonperforming loans likely to remain elevated as the broader office market adjusts. Management believes that positive trends in capital markets and conservative underwriting will help contain credit costs, but cautions that “the office dynamic is still going to play out over a period of time.”

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) whether BankUnited can sustain double-digit year-over-year growth in core deposits despite seasonal headwinds, (2) evidence that net interest margin expansion continues amid a stable rate environment and competitive lending landscape, and (3) further signs of credit stabilization, especially within the office-related commercial real estate segment. Progress on market expansion initiatives and leadership transition will also serve as important execution checkpoints.

BankUnited currently trades at $39.55, up from $38.77 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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