BankUnited(BKU)2024-07-18 20:02Financial Data and Key Metrics - EPS for Q2 2024 came in at 0.65 [4] - Net interest margin (NIM) increased by 15 basis points to 2.72% from 2.57% in the previous quarter [37] - Non-interest-bearing demand deposits (NIDDA) grew by 736 million, with non-brokered deposits increasing by 475 million, while commercial real estate (CRE) loans grew by 212 million, and the leasing business continued to run off [6][26] - The CRE portfolio remained stable at 24% of total loans, with a weighted average loan-to-value (LTV) ratio of 56% and a debt service coverage ratio (DSCR) of 1.77 [27] - The office CRE portfolio showed improvement in credit metrics across 9 out of 16 submarkets, with a weighted average LTV of 66% and DSCR of 1.59 [10][11] Market Performance - Florida markets remained strong, with year-over-year rent increases in most major submarkets and declining sublease activity [12] - The New York Tri-State area saw encouraging signs in leasing activity, with 15.5 million square feet leased in the first half of 2024, up 9% year-over-year [46] - The Tampa market showed over 1.4 million square feet of lease space, with only 6% sublease activity [12] Strategy and Industry Competition - The company is focused on transforming its balance sheet, with significant growth in NIDDA and a reduction in wholesale funding by $1.2 billion [5][21] - The company is shifting its portfolio composition towards higher-yielding assets, with a focus on C&I and CRE loans [26][37] - The company is investing in commercial card and capital markets products, which are beginning to show noticeable results [22] - The company is maintaining a conservative approach to CRE exposure, with CRE loans at 24% of total loans and 165% of total risk-based capital [27] Management Commentary on Operating Environment and Future Outlook - Management expressed optimism about the pipeline for new relationships and expects mid-single-digit growth in noninterest expense for the year [16][40] - The company expects the NIM to expand further in the second half of 2024, potentially reaching the high 2% range [48] - Management highlighted the importance of deposit growth, particularly NIDDA, for the company's success [40] - The company is cautious about the impact of seasonality on deposit growth in the second half of the year [23] Other Important Information - The company reduced its wholesale funding to levels last seen in early 2022, despite the current high Fed funds rate [21] - The company added Ernie Diaz, a former TD Bank executive, to its team, bringing new ideas and expertise [41] - The company expects the ACL to gradually build to around 1% of loans by the end of 2024, driven by portfolio composition changes [15] Q&A Summary Question: Deposit Growth and Seasonality - The company expects mid-teens growth in NIDDA, with seasonality likely to dampen growth in the second half of the year [53][137] - The title business, which contributed significantly to deposit growth, is expected to benefit from potential mortgage refinancing booms in the future [134] Question: Loan Yields and Portfolio Composition - New loan yields are around 7.5% to 8%, while residential portfolio yields are in the mid-3% range [59] - The company expects loan yields to increase by 5 to 10 basis points as the portfolio shifts towards higher-yielding C&I and CRE loans [75] Question: Office CRE Portfolio and Reserves - The office CRE portfolio has a reserve of 2.47%, with management confident in the adequacy of reserves despite some asset-specific challenges [100] - Lease abatements and renovation periods are the primary issues affecting the office portfolio, but overall performance remains strong [85] Question: Capital Deployment and Share Buybacks - The company is considering capital deployment options, including potential share buybacks, but will prioritize profitable growth opportunities [117][97] - A discussion on capital deployment is planned for the August Board meeting [117] Question: CMBS Market Exposure - The company has no single asset, single borrower exposure in the CMBS market and sees no risk of impairment in its portfolio [88][102] Question: Expense Guidance - The company maintains its mid-single-digit expense growth guidance for the year, driven by railcar refurbishment costs and other factors [71][103]